[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 1998 Edition]
[From the U.S. Government Printing Office]


[[Page i]]

          7



          Agriculture



          PARTS 1950 TO 1999

                         Revised as of January 1, 1998

          CONTAINING
          A CODIFICATION OF DOCUMENTS
          OF GENERAL APPLICABILITY
          AND FUTURE EFFECT
          AS OF JANUARY 1, 1998

          With Ancillaries
          Published by
          the Office of the Federal Register
          National Archives and Records
          Administration
          as a Special Edition of
          the Federal Register



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                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 1998



               For sale by U.S. Government Printing Office
 Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328



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                            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..........................     813
    Alphabetical List of Agencies Appearing in the CFR........     829
    List of CFR Sections Affected.............................     839



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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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                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
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 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

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    To determine whether a Code volume has been amended since its 
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EFFECTIVE AND EXPIRATION DATES

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states a date certain for expiration, an appropriate note will be 
inserted following the text.

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.

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Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
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OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
January 1, 1986, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, or 1973-1985, published in seven separate volumes. For 
the period beginning January 1, 1986, a ``List of CFR Sections 
Affected'' is published at the end of each CFR volume.

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    A subject index to the Code of Federal Regulations is contained in a 
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    An index to the text of ``Title 3--The President'' is carried within 
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    The Federal Register Index is issued monthly in cumulative form. 
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the revision dates of the 50 CFR titles.

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in the Code of Federal Regulations.

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ELECTRONIC SERVICES

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                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

January 1, 1998.



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                               THIS TITLE

    Title 7--Agriculture is composed of fifteen volumes. The parts in 
these volumes are arranged in the following order: parts 1-26, 27-52, 
53-209, 210-299, 300-399, 400-699, 700-899, 900-999, 1000-1199, 1200-
1599, 1600-1899, 1900-1939, 1940-1949, 1950-1999, and part 2000 to end. 
The contents of these volumes represent all current regulations codified 
under this title of the CFR as of January 1, 1998.

    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 1600-1899.

    For this volume, Ruth Reedy Green was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Frances D. McDonald, assisted by Alomha S. Morris.

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[[Page 1]]



                          TITLE 7--AGRICULTURE




                 (This book contains parts 1950 to 1999)

  --------------------------------------------------------------------
                                                                    Part

  SUBTITLE B--Regulations of the Department of Agriculture--(Continued)


Chapter xviii--Rural Housing Service, Rural Business--
  Cooperative Service, Rural Utilities Service, and Farm 
  Service Agency, Department of Agriculture (Continued).....        1950

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  Subtitle B--Regulations of the Department of Agriculture (Continued)

[[Page 5]]



CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS--COOPERATIVE SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT OF AGRICULTURE (CONTINUED)




  --------------------------------------------------------------------

              SUBCHAPTER H--PROGRAM REGULATIONS--CONTINUED
Part                                                                Page
1950            General.....................................           7
1951            Servicing and collections...................          10
1955            Property management.........................         211
1956            Debt settlement.............................         297
1957            Asset sales.................................         323
1962            Personal property...........................         324
1965            Real property...............................         366
1980            General.....................................         475

  Editorial Note: Chapter XVIII--Rural Housing Service, Rural Business-
Cooperative Service, Rural Utilities Service, and Farm Service Agency, 
Department of Agriculture, is continued in the volume containing 7 CFR 
part 2000 to end.

  Editorial Note: Nomenclature changes to chapter XVIII appear at 59 FR 
66443, Dec. 27, 1994, 61 FR 1109, Jan. 16, 1996 and 61 FR 2899, Jan. 30, 
1996.

[[Page 7]]



              SUBCHAPTER H--PROGRAM REGULATIONS--Continued





PART 1950--GENERAL--Table of Contents




                        Subparts A-B--[Reserved]

  Subpart C--Servicing Accounts of Borrowers Entering the Armed Forces

Sec.
1950.101  Purpose.
1950.102  General.
1950.103  Borrower owing FmHA or its successor agency under Public Law 
          103-354 loans which are secured by chattels.
1950.104  Borrower owing FmHA or its successor agency under Public Law 
          103-354 loans which are secured by real estate.
1950.105  Interest rate.



                        Subparts A-B--[Reserved]



  Subpart C--Servicing Accounts of Borrowers Entering the Armed Forces

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1480.



Sec. 1950.101  Purpose.

    Borrowers with accounts serviced by the Farmers Home Administration 
or its successor agency under Public Law 103-354 (FmHA or its successor 
agency under Public Law 103-354) who have entered or who are entering 
military service will require special treatment. This subpart prescribes 
the authorities, policies, and routines for servicing such cases in 
addition to those contained in other FmHA or its successor agency under 
Public Law 103-354 regulations.
[45 FR 43152, June 26, 1980]



Sec. 1950.102  General.

    (a) FmHA or its successor agency under Public Law 103-354 will do 
everything possible to assist borrowers entering the armed forces to 
adjust their affairs in contemplation of military service. It is not the 
policy FmHA or its successor agency under Public Law 103-354 to renew, 
postpone, or modify annual installments due under a promissory note 
because of the borrower's entry into the armed services. However, under 
the Soldiers' and Sailors' Civil Relief Act of 1940, the property of a 
borrower in the armed forces cannot validly be seized or sold by 
foreclosure or otherwise during the borrower's tenure of service, or for 
three months thereafter, except (1) pursuant to an agreement entered 
into by the borrower after having been accepted for service, or (2) by 
order of the Court. Any person causing an invalid sale to be made is 
guilty of a misdemeanor. Regardless of the foregoing, the long-time 
interest of the borrower can best be served by prompt and satisfactory 
arrangements for the use and protection, or disposition, of the security 
property in accordance with the policies expressed herein. Upon request, 
OGC will inform the State Director with respect to relief which may be 
secured by a borrower under the Soldiers' and Sailors' Civil Relief Act 
of 1940.
    (b) In connection with Multiple Housing loans to individuals, 
references to County Supervisor and County Office in this subpart will 
be read as District Director and District Office.
[50 FR 45763, Nov. 1, 1985]



Sec. 1950.103  Borrower owing FmHA or its successor agency under Public Law 103-354 loans which are secured by chattels.

    (a) Policy. (1) Borrowers who owe loans other than Farm Ownership 
(FO), Operating (OL), Soil and Water (SW), Recreation (RL), Emergency 
(EM), Economic Emergency (EE), Economic Opportunity (EO), Special 
Livestock (SL), Softwood Timber (ST) loans, and/or Rural Housing loans 
for farm service buildings (RHF). When information is received that a 
borrower is entering the armed forces, the County Supervisor will be 
responsible for contacting the borrower immediately for the purpose of 
reaching an understanding concerning the actions to take in connection 
with the FmHA or its successor agency under Public Law 103-354 loan 
indebtedness. The borrower will be permitted to retain the chattel 
security if arrangements can be worked out which are satisfactory to the 
borrower and FmHA or its successor agency under Public Law 103-354. 
However, because

[[Page 8]]

of the nature of chattel security, the borrower will be informed of the 
usual depreciation of such property and will be encouraged to sell the 
property and apply the proceeds to the loan(s). In most cases, the 
interests of both the borrower and the Government can best be served by 
arranging for a voluntary sale of the security. A borrower retaining 
security will be expected to make payments on the loan(s) equal to the 
scheduled payments.
    (2) Borrowers who owe FO, SW, RL, OL, EE, EM, SL, EO, and/or RHF 
loans. If the borrower is delinquent in accordance with subpart S of 
part 1951 of this chapter, or otherwise in default, the County 
Supervisor will send exhibit A and the appropriate attachments, as 
outlined in subpart S of part 1951 of this chapter. If the borrower is 
not delinquent, the County Supervisor will explain the options set out 
in paragraph (b) of this section.
    (b) Methods of handling. In carrying out the above policy, the cases 
of borrowers entering the armed forces will be handled in accordance 
with one of the following methods:
    (1) Voluntary sale of security. This will be accomplished in 
accordance with Sec. 1962.41 of subpart A of part 1962 of this chapter. 
Any necessary forms will be signed:
    (i) Before being accepted for service in the armed forces, if the 
sale is to be completed before the borrower is accepted for service, or
    (ii) After being accepted for service, if the sale cannot be 
completed before the borrower is so accepted. For this purpose, an 
individual will be considered as accepted for service after being 
ordered to report for induction, or, if in the enlisted reserve, after 
being ordered to report for service in the armed forces.
    (2) Assumption of indebtedness. This will be accomplished in 
accordance with Sec. 1962.34 of subpart A of part 1962 of this chapter.
    (3) Arrangements with third persons. When the borrower arranges with 
a relative or other reliable person to maintain the security in a 
satisfactory manner and to make scheduled payments, the State Director 
is authorized to approve the arrangement. In such a case, the borrower 
will be required to execute a power of attorney, prepared or approved by 
OGC, authorizing an attorney-in-fact to act for the borrower during the 
latter's absence.
    (4) Possible legal actions. If the borrower fails or refuses to 
cooperate in the servicing of the loan indebtedness secured by chattels 
in accordance with one of the methods set forth in this section, the 
borrower's case folder will be forwarded to the State Director for 
referral to OGC for legal advice as to the steps to be taken in 
protecting the Government's interest.
    (c) Statements of accounts and transfers. Borrowers entering the 
armed forces will be requested to designate mailing addresses for the 
delivery of statements of account. Any changes in these addresses will 
be processed on Form FmHA or its successor agency under Public Law 103-
354 450-10, ``Advice of Borrower's Change of Address or Name,'' with 
appropriate explanations. Under this procedure, a statement of account 
may be mailed to a location other than where the account is maintained 
and serviced. This is a deviation from the established procedure. These 
cases will not be transferred unless the security, when retained by the 
borrower in accordance with paragraph (b)(3) of this section, is moved 
into another County Office territory. Then the transfer will be 
processed through the use of Form FmHA or its successor agency under 
Public Law 103-354 450-5, ``Application to Move Security Property and 
Verification of Address,'' and Form FmHA or its successor agency under 
Public Law 103-354 450-10 with appropriate explanations. In cases when 
assumption agreements have been executed, statements of account will be 
mailed to the assuming borrower. Cases involving assumption agreements 
will be transferred when the assuming borrower moves from one County 
Office territory to another.
[45 FR 43152, June 26, 1980, as amended at 50 FR 45763, Nov. 1, 1985; 52 
FR 26133, July 13, 1987; 55 FR 40646, Oct. 4, 1990]

[[Page 9]]



Sec. 1950.104  Borrower owing FmHA or its successor agency under Public Law 103-354 loans which are secured by real estate.

    County Supervisors, to the greatest extent possible, should keep 
themselves informed of the plans of borrowers with FmHA or its successor 
agency under Public Law 103-354 loans secured by real estate who may 
enter the armed forces. They should encourage any borrower who is 
definitely entering the armed forces to consult with them before the 
borrower's military service begins concerning the most advantageous 
arrangements that can be made regarding the security. County Supervisors 
will assist these borrowers in working out mutually satisfactory 
arrangements. Borrowers who owe FO, SW, RL, OL, EE, EM, SL, EO, ST, and/
or RHF loans and who are delinquent or otherwise in default must be sent 
exhibit A and the appropriate attachments, as outlined in subpart S of 
part 1951 of this chapter. The County Supervisor will follow the 
directions in subpart A of part 1965 of this chapter for liquidating 
real estate security. FO, SW, RL, OL, EE, EM, SL, EO, ST and/or RHF 
borrowers who are not delinquent will have their accounts handled as set 
out in the following paragraphs.
    (a) Power of attorney. Borrowers entering the armed forces who 
retain ownership of the security should be encouraged to execute a power 
of attorney authorizing the person of their choice to take any actions 
necessary to insure proper use and maintenance of the security, payment 
of insurance and taxes, and repayment of the loan. No FmHA or its 
successor agency under Public Law 103-354 employee will act as attorney-
in-fact for a borrower. The State Director will consult with OGC 
concerning any limitations upon the use of a power of attorney under 
local law and the circumstances under which the power of attorney should 
be exercised. In general, either spouse may act as attorney-in-fact for 
the other spouse, but, in a few States, a spouse cannot exercise the 
power of attorney in connection with a sale or encumbrance of the 
homestead. In a majority of States, a power of attorney is revoked by 
the death of a person granting the power, but, in some States, the power 
of attorney executed by a person in the armed services remains valid 
until actual notice is received of the death of the person granting the 
power. A power of attorney should not be used in conveying title to the 
farm except in those States where the power is good until actual notice 
of death. The State Director will request OGC to prepare a satisfactory 
form of power of attorney which may be duplicated in the State Office 
and furnished to County Supervisors with a State supplement concerning 
its use.
    (b) Borrower retains ownership of the security. When a borrower 
retains ownership of the security, FmHA or its successor agency under 
Public Law 103-354 will assist in making arrangements for the use of the 
security which will protect the interests of both the Government and the 
borrower.
    (1) Leasing. It will be more satisfactory if the security is leased 
under a written lease in accordance with equitable leasing policies and 
applicable FmHA or its successor agency under Public Law 103-354 
procedures. The borrower should make arrangements for the rental income 
to be used for regular payments on the loan in order to avoid the 
accumulation of unpaid interest. The borrower also should make 
arrangements for the payment of taxes and insurance and maintenance of 
the security to avoid having these charges paid by the Government and 
then charged to the account. It would be desirable to provide that the 
lease will continue for the duration of the borrower's military service 
unless either party gives written notice of earlier cancellation of the 
lease.
    (2) Operation by family. When a borrower wishes to have the farm 
occupied and operated by family members or relatives without a written 
lease, the County Supervisor should advise the borrower as to whether or 
not the proposed arrangements will be in the best interests of the 
borrower and the Government. When the farm is to be operated by 
relatives, the hazards and disadvantages to the borrower and the 
Government which are inherent in unwritten contracts will be discussed, 
and every effort will be made to induce the

[[Page 10]]

borrower to enter into formal contractual arrangements whenever possible 
to do so.
    (c) Borrower does not retain ownership of the security. The security 
may be transferred to another approved applicant or sold in accordance 
with applicable procedure.
    (d) Borrower abandons the security or fails to make satisfactory 
arrangements. This paragraph does not apply to borrowers with FO, SW, 
RL, OL, EE, EM, SL, EO, ST and/or RHF loans. Those borrowers should be 
sent exhibit A and the appropriate attachments as outlined in subpart S 
of part 1951 of this chapter. When a borrower abandons the security or 
fails to make satisfactory arrangements for maintenance of the security 
and payment of taxes, insurance, and installments on the loan, the 
County Supervisor will send a complete report on the case to the State 
Director. The report will include all the information that can be 
obtained regarding the borrower's plans for the security and any 
evidence to indicate that abandonment has, in fact, taken place. In 
these instances, it must be recognized that the borrower may have 
entered into verbal arrangements for the care of the security without 
properly advising the County Supervisor. Whether such cases may be 
construed to be in violation of the provisions of the mortgage, so as to 
support foreclosure by order of the Court under the provisions of the 
Soldiers' and Sailors' Civil Relief Act of 1940, will need to be 
determined on an individual case basis by the State Director and OGC. 
Clear-cut abandonment cases or instances in which the borrower fails to 
take action to transfer or sell the property, while evidencing no 
interest in it or desire to retain it, will be processed in accordance 
with applicable procedures.
    (e) Statement of account. Borrowers entering the armed forces who 
retain ownership of the security will be requested to designate mailing 
addresses for the delivery of statements of account. Any changes in 
addresses will be processed on Form FmHA or its successor agency under 
Public Law 103-354 450-10 with appropriate explanations.
[45 FR 43152, June 26, 1980, as amended at 50 FR 45764, Nov. 1, 1985; 52 
FR 26134, July 13, 1987; 55 FR 40646, Oct. 4, 1990]



Sec. 1950.105  Interest rate.

    (a) The Soldiers and Sailors Relief Act requires that the effective 
interest rate charged a borrower who enters active military duty after a 
loan is closed will not exceed 6 percent. This applies only to full-time 
active military duty and does not include military reserve status or 
National Guard participation.
    (b) As soon as the County Supervisor verifies that a borrower is on 
active duty, the County Supervisor will send the borrower a letter which 
states that the interest rate on the borrower's FmHA or its successor 
agency under Public Law 103-354 loans will not exceed 6 percent. At the 
same time, the County Supervisor will send the Finance Office a 
memorandum which states that the borrower is on active duty and that 
interest of not more than 6 percent should accrue on the borrower's 
loans, effective as of the date of the memorandum or as of the date of 
the last payment, whichever is later, until further notice. If a 
borrower's interest rate on any loan is less than 6 percent, the loan 
will continue to accrue interest at the lower rate. The assistance under 
this section may not be retroactively applied.
    (c) As soon as the County Supervisor verifies that a borrower is no 
longer on active duty, the County Supervisor will send the Finance 
Office a memorandum advising them to terminate the 6 percent interest 
rate. The rate will revert to the note rate (or the payment assistance 
rate), effective with the next scheduled payment. The 6 percent interest 
rate will not be cancelled retroactively.
    (d) Additional directions for handling Single Family Housing Loans 
are contained in subpart G of part 1951 of this chapter.
[52 FR 26134, July 13, 1987, as amended at 60 FR 55122, Oct. 27, 1995]



PART 1951--SERVICING AND COLLECTIONS--Table of Contents




                  Subpart A--Account Servicing Policies

Sec.
1951.1  Purpose.
1951.2  Policy.
1951.3  Authorities and responsibilities.
1951.4--1951.5  [Reserved]

[[Page 11]]

1951.6  Handling payments.
1951.7  Accounts of borrowers.
1951.8  Types of payments.
1951.9  Distribution of payments when a borrower owes more than one type 
          of FmHA or its successor agency under Public Law 103-354 loan.
1951.10  Application of payments on production type loan accounts.
1951.11  Application of payments on real estate accounts.
1951.12  Changes in the application of loan payments.
1951.13  Overpayments and refunds.
1951.14  Recoverable and nonrecoverable cost charges.
1951.15  Return of paid-in-full or satisfied notes to borrower.
1951.16  Other servicing actions on real estate type loan accounts.
1951.17--1951.24  [Reserved]
1951.25  Review of limited resource FO, OL, and SW loans.
1951.26--1951.49  [Reserved]
1951.50  OMB control number.

                          Exhibits to Subpart A

Exhibit A--Notice to FmHA or its successor agency under Public Law 103-
          354 Borrowers
Exhibit B--Notice of Change in Interest Rate

                         Subpart B--Collections

1951.51  General.
1951.52--1951.53  [Reserved]
1951.54  Authority.
1951.55  Receiving and processing collections.

     Subpart C--Offsets of Federal Payments to USDA Agency Borrowers

1951.101  General.
1951.102  Administrative offset.
1951.103--1951.110  [Reserved]
1951.111  Salary offset.
1951.112--1951.120  [Reserved]
1951.121  Internal Revenue Service (IRS) offset.
1951.122  Finance Office screening.
1951.123  Field office screening.
1951.124  Notice to borrowers.
1951.125  Processing borrowers' requests not to exercise IRS offset.
1951.126  Final referral to IRS.
1951.127  Processing of amounts offset.
1951.128  Receipt of Finance Office/IRS offset reports and listings.
1951.129  Borrowers eligible for offset (prior to 60-day notice).
1951.130  Borrowers sent due process notices for IRS/Credit Bureau 
          referrals.
1951.131  Form FmHA or its successor agency under Public Law 103-354 
          389-833, Borrower Accounts Submitted to IRS for Offset Report, 
          RC 865.
1951.132  Form FmHA or its successor agency under Public Law 103-354 
          389-760, Annual Unprocessable Report IRS Offset, RC 822-C.
1951.133  Form FmHA or its successor agency under Public Law 103-354 
          389-761, Annual No Match Report IRS Offset, RC 822-D.
1951.134  Form FmHA or its successor agency under Public Law 103-354 
          389-764, Weekly Offset Report (Cash Collections) IRS Offset, 
          RC 222-C.
1951.135  Form FmHA or its successor agency under Public Law 103-354 
          389-763, Weekly Claims Report IRS Offset, RC 222-D.
1951.136--1951.149  [Reserved]
1951.150  OMB control number.

                    Subpart D--Final Payment on Loans

1951.151  Purpose.
1951.152  Definition.
1951.153  Chattel security or note-only cases.
1951.154  Satisfaction and release of documents.
1951.155  County and/or District Office actions.
1951.156--1951.200  [Reserved]

Subpart E--Servicing of Community and Direct Business Programs Loans and 
                                 Grants

1951.201  Purposes.
1951.202  Objectives.
1951.203  Definitions.
1951.204  Nondiscrimination.
1951.205  Redelegation of authority.
1951.206  Forms.
1951.207  State supplements.
1951.208--1951.209  [Reserved]
1951.210  Environmental requirements.
1951.211  Refinancing requirements.
1951.212  Unauthorized financial assistance.
1951.213  Debt settlement.
1951.214  Care, management, and disposal of acquired property.
1951.215  Grants.
1951.216  Nonprogram (NP) loans.
1951.217  Public bodies.
1951.218--1951.219  [Reserved]
1951.220  General servicing actions.
1951.221  Collections, payments, and refunds.
1951.222  Subordination of security.
1951.223  Reamortization.
1951.224  Third party agreements.
1951.225  Liquidation of security.
1951.226  Sale or exchange of security property.
1951.227  Protective advances.
1951.228--1951.229  [Reserved]
1951.230  Transfer of security and assumption of loans.

[[Page 12]]

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.
1951.508-1951.509  [Reserved]
1951.510  Payment application.
1951.511  [Reserved]
1951.512  Changes in the application of loan payments.
1951.513  Overpayments and refunds to borrowers.
1951.514  Recoverable and nonrecoverable cost charges.
1951.515  Promissory notes for borrowers who convert to PASS.
1951.516  [Reserved]
1951.517  Conversion from DIAS to PASS.
1951.518  Determining current loan balances for transfer.
1951.519--1951.547  [Reserved]
1951.548  Exception authority.
1951.549  [Reserved]
1951.550  OMB control number.

[[Page 13]]

 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.
1951.902  General.
1951.903  Authorities and responsibilities.
1951.904  Mediation, reviews and appeals.
1951.905  [Reserved]
1951.906  Definitions.
1951.907  Notice of Loan Service Programs.
1951.908  Servicing financially distressed current borrowers.
1951.909  Processing Primary Loan Service Programs Requests.
1951.910  Consideration of borrower's other assets for new applications.
1951.911  Homestead protection.
1951.912  Mediation.
1951.913  Servicing Net Recovery Buyout Recapture Agreements.

[[Page 14]]

1951.914  Servicing of accounts restructured under Primary Loan Service 
          Programs.
1951.915  [Reserved]
1951.916  Exception authority.
1951.917--1951.949  [Reserved]
1951.950  OMB control number.

                          Exhibits to Subpart S

Exhibit A--Notice of the Availability of Loan Servicing and Debt 
          Settlement 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 Adverse Decision for Primary Loan Servicing, 
          Mediation or Meeting of Creditors and Other Options
Exhibit F--Notification of Offer to Restructure Debt
Exhibit G--Deferral, Reamortization, and Reclassification of Distressed 
          Farmer Program (FP) Loans for Softwood Timber Production (ST) 
          Loans
Exhibit H--Conservation Contract Program
Exhibit I--Guidelines for Determining Adjustments for Net Recovery Value 
          of Collateral
Exhibit J--The Debt and Loan Restructuring System (DALR$)
Exhibit J-1--The Debt and Loan Restructuring System (DALR$) (For 
          applications filed for primary loan servicing on or after 
          November 28, 1990)
Exhibit K--Notification of Consideration for Homestead Protection
Exhibit L--Homestead Protection Program Agreement
Exhibit M--Notice of the Availability of Homestead Protection

                  Subpart T--Disaster Set-Aside Program

1951.951  Purpose.
1951.952  General.
1951.953  Notification and request for DSA.
1951.954  Eligibility and loan limitation requirements.
1951.955--1951.956  [Reserved]
1951.957  Eligibility determination and processing.
1951.958  Cancellation and reversal of DSA.
1951.959  Exception authority.
1951.960--1951.999  [Reserved]
1951.1000  OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 31 U.S.C. 3716; and 42 
U.S.C. 1480.

    Editorial Note: Some of the exhibits referenced in this part 1951 
are not published in the Code of Federal Regulations. Exhibits are 
available in any FmHA or its successor agency under Public Law 103-354 
office.



                  Subpart A--Account Servicing Policies

    Source: 50 FR 45764, Nov. 1. 1985, unless otherwise noted.



Sec. 1951.1  Purpose.

    This subpart sets forth the policies and procedures to use in 
servicing Farmer Program loans (FP) which include Softwood Timber (ST), 
Operating Loan (OL), Farm Ownership (FO), Soil and Water (SW), 
Recreation Loan (RL), Emergency Loan (EM), Economic Emergency Loan (EE), 
Special Livestock Loan (SL), Economic Opportunity Loan (EO), and Rural 
Housing Loan for farm service buildings (RHF) accounts. This subpart 
also applies to Rural Rental Housing Loan (RRH), Rural Cooperative 
Housing Loan (RCH), Labor Housing Loan (LH), Rural Housing Site Loan 
(RHS), and Site Option Loan (SO) accounts not covered under the 
Predetermined Amortization Schedule System (PASS). Loans on PASS will be 
administered under subpart K of part 1951 of this chapter. Cases 
involving unauthorized assistance will be serviced under Subparts L and 
N of this part. Cases involving graduation of borrowers to other sources 
of credit will be serviced under Subpart F of this part.
[52 FR 26134, July 13, 1987]



Sec. 1951.2  Policy.

    Borrowers are expected to pay their debts to the Farmers Home 
Administration or its successor agency under Public Law 103-354 (FmHA or 
its successor agency under Public Law 103-354) in accordance with their 
agreements and ability to pay. They will be encouraged to pay ahead of 
schedule, consistent with sound financial management. When borrowers 
have acted in good faith and have exercised due diligence in an effort 
to pay their indebtedness but cannot pay on schedule because of 
circumstances beyond their control, servicing actions will be consistent 
with the best interests of the

[[Page 15]]

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 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

[[Page 16]]

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 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

[[Page 17]]

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 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.

[[Page 18]]

    (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 
regulations. Followup actions of subsequent servicing will be noted on 
appropriate Management System Cards.
    (e) Maintaining records of accounts in County Offices. Records of 
the accounts of FmHA or its successor agency under Public Law 103-354 
borrowers will be maintained in the County Office on Forms FmHA or its 
successor agency under Public Law 103-354 1905-1, FmHA or its successor 
agency under Public Law 103-354 1905-5, FmHA or its successor agency 
under Public Law 103-354 1905-10, ``Management System Card-
Association,'' as provided in FmHA or its successor agency under Public 
Law 103-354 Instruction 1905-A (available in any FmHA or its successor 
agency under Public Law 103-354 office).
    (f) Inquiry for Multiple Family Housing (MFH) loans. Inquiry for all 
RRH, RCH, LH, RHS and SO loans and grants will be made through field 
terminals using procedures in the ``MFH Users Procedures'' manual or by 
contacting the MFH Unit in the Finance Office.
    (g) Inquiry for other than Multiple Family Housing (MFH) loans. 
Inquiry for these loan programs will be made

[[Page 19]]

through field terminals using procedures in the ``Automated Discrepancy 
Processing System (ADPS)'' manuals.
    (h) Loan Summary Statements. Upon request of a borrower, FmHA or its 
successor agency under Public Law 103-354 issues a loan summary 
statement that shows the account activity for each loan made or insured 
under the Consolidated Farm and Rural Development Act. The field office 
will post on the bulletin board a notice informing the borrower of the 
availability of the loan summary statement. See Exhibit A for a sample 
of the required notice.
    (1) The loan summary statement period is from January 1 through 
December 31. The Finance Office forwards a copy of Form FmHA or its 
successor agency under Public Law 103-354 1951-9, ``Annual Statement of 
Loan Account,'' to field offices to be retained in borrower files as a 
permanent record of borrower activity for the year.
    (2) Quarterly Forms FmHA or its successor agency under Public Law 
103-354 1951-9 are retained in the Finance Office on microfiche. These 
quarterly statements reflect cumulative data from the beginning of the 
current year through the end of the most recent quarter. If a borrower 
requests a loan summary statement with data through the most recent 
quarter, county supervisors may request copies of these quarterly or 
annual statements by sending Form FmHA or its successor agency under 
Public Law 103-354 1951-57, ``Request for Loan Summary Statement,'' to 
the Finance Office.
    (3) When a loan summary statement is requested by the borrower, the 
field office will copy the applicable annual or quarterly Forms FmHA or 
its successor agency under Public Law 103-354 1951-9. A copy(ies) of 
Form FmHA or its successor agency under Public Law 103-354 1951-9; a 
copy of Form FmHA or its successor agency under Public Law 103-354 1951-
58, ``Basis for Loan Account Payment Application for Farmer Program 
Loans;'' and a copy of the promissory note showing borrower installments 
will constitute the loan summary statement provided to the borrower.
[50 FR 45764, Nov. 1, 1985, as amended at 52 FR 11457, Apr. 9, 1987; 53 
FR 35716, Sept. 14, 1988; 54 FR 10269, Mar. 13, 1989]



Sec. 1951.8  Types of payments.

    (a) Regular payments. Regular payments are all payments other than 
extra payments and refunds. Usually, regular payments are derived from 
farm income, as defined Sec. 1962.4 of subpart A of part 1962 of this 
chapter. Regular payments also include payments derived from sources 
such as Agricultural Stabilization and Conservation Service payments 
(other than those referred to in paragraph (b) of this section), off-
farm income, inheritances, life insurance, mineral royalties and income 
from mineral leases (see Sec. 1965.17 (c) of subpart A of part 1965 of 
this chapter), including income from leases or bonuses. Regular payments 
in the case of a Section 502 RH loan to an applicant involved in a 
mutual self-help project will include loan funds advanced for the 
payment of any part of the first and second installments. All payments 
to the lock box facility(s) by direct payment borrowers are considered 
regular payments.
    (b) Extra payments. Extra payments are payments derived from:
    (1) Sale of chattels other than chattels which will be sold to 
produce farm income or real estate security, including rental or lease 
of real estate security of a depreciating or depleting nature.
    (2) Refinancing of the real estate debt.
    (3) Cash proceeds of real property insurance as provided in subpart 
A of part 1806 of this chapter (FmHA or its successor agency under 
Public Law 103-354 Instruction 426.1).
    (4) A sale of real estate not mortgaged to the Government, pursuant 
to a condition of loan approval.
    (5) Agricultural Conservation Program payments as provided in 
subpart A of part 1941 of this chapter.
    (6) Transactions of a similar nature which reduce the value of 
security other than chattels which will be sold to produce farm income.
    (c) Refunds. Refunds are payments derived from the return of unused 
loan or grant funds, except that the term ``refunds'' as used in Form 
1940-17, ``Promissory Note,'' will be construed to mean the return of 
funds advanced

[[Page 20]]

for capital goods, when a loan is made for operating purposes.
[50 FR 45764, Nov. 1. 1985, as amended at 51 FR 4137, Feb. 3, 1986; 53 
FR 35717, Sept. 14, 1988; 58 FR 52646, Oct. 12, 1993]



Sec. 1951.9  Distribution of payments when a borrower owes more than one type of FmHA or its successor agency under Public Law 103-354 loan.

    ``Distribution'' means dividing a payment into parts according to 
the rules set out in this section. This section only applies after the 
County Supervisor determines the amount of proceeds that will be 
released for other purposes in accordance with the annual plan (Form 
FmHA or its successor agency under Public Law 103-354 431-2, ``Farm and 
Home Plan'') and Form FmHA or its successor agency under Public Law 103-
354 1962-1, ``Agreement for the Use of Proceeds/Release of Chattel 
Security.''
    (a) Distribution of regular payments. (1) When a borrower owes more 
than one type of FmHA or its successor agency under Public Law 103-354 
loan, regular payments received from each crop year's income will be 
distributed in accordance with the following priorities:
    (i) First, to an amount equal to any advances made by FmHA or its 
successor agency under Public Law 103-354 for the crop year's living and 
operating expenses. If no advances were made, distribute the payment 
according to paragraph (a)(1)(ii) of this section. If the amount of the 
payment was greater than the amount of any advances, the excess should 
be distributed according to paragraph (a)(1)(ii) of this section.
    (ii) Second, to FmHA or its successor agency under Public Law 103-
354 loans in proportion to the approximate amounts due on each for the 
year. In determining the amounts due for the year, deduct an amount 
equal to any advances for the year's living and operating expenses. If 
the amount of the payment exceeds the amount of any advances plus the 
amount due on each loan for the year, the excess should be distributed 
according to paragraph (a)(1)(iii) of this section.
    (iii) Third, to FmHA or its successor agency under Public Law 103-
354 loans in proportion to the delinquencies existing on each. If the 
amount of the payment exceeds the amount of any advances plus the amount 
due on each loan for the year plus any delinquencies, the excess should 
be distributed according to paragraph (a)(1)(iv) of this section.
    (iv) Fourth, as advance payments on FmHA or its successor agency 
under Public Law 103-354 loans. In making such distribution consider the 
principal balance outstanding on each loan, the security position of the 
liens securing each loan, the borrower's request, and related 
circumstances.
    (2) When the County Supervisor determines it is reasonable to expect 
that the income which will be available for payment on FmHA or its 
successor agency under Public Law 103-354 debts will be sufficient to 
pay the installments scheduled for the year under the first and second 
priorities, collections may be distributed so as to avoid unnecessary 
delinquencies, and regular payments derived from rental or lease of real 
estate security after approval of foreclosure or voluntary conveyance 
will be distributed to the real estate lien of the highest priority.
    (3) Payments will be distributed differently than the priorities 
provided in this section if accounts are out of balance or a different 
distribution is needed to protect the government's interest.
    (4) Any income received from the sale of softwood timber on marginal 
land converted to the production of softwood timber must be applied on 
the ST loan(s).
    (b) Distribution of extra payments. Extra payments will be 
distributed first to the FmHA or its successor agency under Public Law 
103-354 loan having highest priority of lien on the security from which 
the payment was derived. When the payment is in excess of the unpaid 
balance of the FmHA or its successor agency under Public Law 103-354 
lien having the highest priority, the balance of such payment will be 
distributed to the FmHA or its successor agency under Public Law 103-354 
loan having the next highest priority.
    (c) Application of payments. After the decision is reached as to the 
amount of each payment that is to be distributed to the different loan 
types, application

[[Page 21]]

of the payment will be governed by Secs. 1951.10 or 1951.11 of this 
subpart as appropriate.
[50 FR 45764, Nov. 1, 1985, as amended at 52 FR 26134, July 13, 1987; 53 
FR 35717, Sept. 14, 1988]



Sec. 1951.10  Application of payments on production type loan accounts.

    Employees receiving payments on OL, EO, SW codes ``24,'' EM for 
subtitle B purposes, EE operating-type, and other production-type loan 
accounts will select, in accordance with the provisions of this section, 
the account(s) to which such payment will be applied. All payments on OL 
and EM loans approved on or before December 31, 1971, will be credited 
first to any administrative costs, then to noncapitalized interest, then 
to the amount of accrued deferred interest, and then to principal. All 
payments on all other loans including OL and EM loans approved after 
December 31, 1971, will be credited first to any administrative costs, 
then to noncapitalized interest, then to the amount of accrued deferred 
interest, then to interest accrued to the date of the payment and then 
to principal, in accordance with the terms of the note. This section 
only applies after the County Supervisor determines the amount of 
proceeds that will be released for other purposes in accordance with the 
annual plan (Form FmHA or its successor agency under Public Law 103-354 
431-2) and Form FmHA or its successor agency under Public Law 103-354 
1962-1.
    (a) Rules for selection of accounts. The following rules will govern 
the selection of accounts and installments to which payments will be 
applied. As used in this section, ``recoverable costs'' are those which 
the loan agreement documents say the borrower is primarily responsible 
for paying and which the government can charge to the borrower's 
account.
    (1) Payments from farm income or from assignments of income will be 
applied first to accounts with small balances, including recoverable 
costs, to remove such accounts from the records. Any balance will be 
applied on debts secured by the lien in the following order:
    (i) To amounts due or falling due on loans made in connection with 
the current year's operations, except:
    (A) When funds loaned for the purchase of capital goods were used to 
meet the current year's operating expenses, payments will be applied 
first to the final unpaid installments to the extent of the loan funds 
so used. These payments will be treated as extra payments.
    (B) When installments on loans previously made fall due before the 
installment on the loan for the current year's operations or when such 
loans are delinquent and it is anticipated that sufficient income will 
be received to meet the installment on the current year's operations 
when due, collections may be applied first to installments on loans made 
in previous years.
    (ii) To accounts having the oldest delinquencies, or if no 
delinquencies, to the oldest unpaid account, except that the amount 
available for payment on OL and EM loan accounts will be prorated 
between the two accounts on the basis of:
    (A) The delinquent amount owed on each, or
    (B) The total amount owed on each if there are no delinquencies.
    (2) Non-farm income and payments derived from the sale of real 
estate security, will be applied to the earliest account secured by the 
earliest lien covering such security. The amount to be applied to 
principal will be applied to the final unpaid installment(s).
    (3) On partial refunds of loan advances, the amount to be applied to 
the principal will be applied to the final unpaid installment on the 
note which evidences such advance; however, a refund of an advance for 
current farm and home expenses repayable within the year may be applied 
to the principal on the first unpaid installment on such note as a 
regular payment.
    (4) Total refunds of loan advances will be applied to the notes 
which evidence such advances.
    (5) In applying payments from sources other than those in paragraphs 
(a)(2), (3), and (4) of this section the borrower has the right to 
select the loan account or accounts on which such payments will be 
applied. In the absence of the borrower's selection,

[[Page 22]]

such payments generally will be applied in the following order:
    (i) To accounts with small balances, including recoverable costs.
    (ii) To accounts with the oldest unsecured note(s).
    (iii) To accounts with the oldest delinquencies.
    (iv) To accounts with the oldest secured note or notes.
    (6) Employees receiving collections are authorized to make 
exceptions to paragraphs (a)(1), (2), and (6) of this section when it is 
necessary to apply a part of a payment to delinquent accounts to prevent 
the Federal Statute of Limitations from being asserted as a defense in 
suits on FmHA or its successor agency under Public Law 103-354 claims.
    (b) Payments in full. Errors of a significant amount in computation 
or collection will be called to the attention of the collection official 
by the Finance Office. The borrower's note will not be returned until 
the balance on the loan account is paid in full. Claims by or on behalf 
of the borrowers that the amounts owed have been computed incorrectly 
will be referred to the Finance Office.
[50 FR 45764, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988; 
54 FR 46844, Nov. 8, 1989; 57 FR 18680, Apr. 30, 1992]



Sec. 1951.11  Application of payments on real estate accounts.

    (a) Regular payments. If a borrower owes more than one type of real 
estate loan, or has received initial and subsequent real estate loans on 
which separate accounts are maintained, payments on such accounts should 
be applied so as to maintain the note accounts approximately in balance 
at the end of the year with respect to installments due on the notes, 
other charges, and delinquencies.
    (b) Refunds and extra payments. (1) Refunds will be applied to the 
note representing the loan from which the advance was made.
    (2) Extra payments will be applied to the note secured by the 
earliest mortgage on the property from which the extra payment was 
obtained.
    (3) Funds remaining from an RH grant or a combination loan and 
grant, after completion of development, will be refunded. If the 
borrower received a combination loan and grant, the remaining funds up 
to the amount of the grant are considered to be grant funds.
    (c) County Office actions. (1) The collecting official will complete 
Form FmHA or its successor agency under Public Law 103-354 451-1, 
``Acknowledgment of Cash Payment,'' in accordance with the FMI when cash 
or money orders are received as a payment.
    (2) The collection official will complete Form FmHA or its successor 
agency under Public Law 103-354 451-2, ``Schedule of Remittances,'' in 
accordance with the FMI.
    (d) Finance Office handling. (1) Regular payment will be handled as 
follows.
    (i) Payments will be applied first to satisfy any administrative 
costs such as a charge for an uncollectible check. (The amounts of any 
such charges are available from any FmHA or its successor agency under 
Public Law 103-354 office.)
    (ii) Amounts paid on direct loan accounts will be credited to the 
borrower's account as of the date of Form FmHA or its successor agency 
under Public Law 103-354 451-2 or for direct payments the date payment 
is received in the Finance Office, and will be applied first to a 
portion of any interest which accrues during the deferral period, second 
to interest accrued to the date received and third to principal, in 
accordance with the terms of the note.
    (iii) Amounts paid on insured loan accounts will be credited to the 
borrower's account as of the date of Form FmHA or its successor agency 
under Public Law 103-354 451-2 or for direct payments the date payment 
is received in the Finance Office, and will be applied in the following 
order:
    (A) Advances from the insurance funds as shown on the latest Form 
FmHA or its successor agency under Public Law 103-354 389-404, 
``Analysis of Accounts Maturing.'' (If the collection is intended for 
final payment of the loan, or to pay the insurance account in connection 
with an assumption agreement, the collection will be applied first to 
the interest accrued on the advance to the date of the payment.)
    (B) Principal advanced from the insurance fund.
    (C) Unamortized costs.

[[Page 23]]

    (D) Amount due for amortized costs for taxes and insurance.
    (E) Unpaid loan insurance charges, including the current year's 
charge, when applicable.
    (F) First to a portion of any interest which accrues during the 
deferral period, second to accrued interest to the date of the payment 
on the note account and then to the principal balance of the note 
account in accordance with the terms of the note.
    (2) Extra payments and refunds will be credited to the borrower's 
note account as of the date of Form FmHA or its successor agency under 
Public Law 103-354 451-2 and will be applied first to a portion of any 
interest which accures during the deferral period, second to interest 
accrued to the date of the receipt and third to principal in accordance 
with the terms of the note. The amount to be applied to principal will 
be applied to the final unpaid installment(s). Extra payments and 
refunds will not affect the schedule status of a borrower except 
indirectly in connection with the amortization of a direct loan.
    (3) The Finance Office will remit final payments promptly to 
lenders. Other collections (regular, extra, and refunds) applied to a 
borrower's insured note will be accumulated until the annual installment 
due date, and will be remitted along with any advances from the 
insurance fund to the lender within 30 days after the installment due 
date. All payments to a lender will be credited first to interest to the 
date of the Treasury check and then to principal. Since the application 
of a payment to a borrower's account with the Government and the 
Government's account with a lender is of a different effective date, the 
balance owed by a borrower to the government and by the Government to a 
lender ordinarily will not be the same.
[50 FR 45764, Nov. 1, 1985, as amended at 54 FR 46845, Nov. 8, 1989]



Sec. 1951.12  Changes in the application of loan payments.

    (a) Authority to change payments. County Supervisors and Assistant 
County Supervisors are hereby authorized to approve requests for changes 
in the application of payments between loan accounts when payments have 
been applied in error and such requests conform to the policies 
expressed in this Subpart. However, no change will be made if the 
payment applied in error resulted in the payment in full of any FmHA or 
its successor agency under Public Law 103-354 loan and the canceled note 
or notes have been returned to the borrower.
    (b) Form FmHA or its successor agency under Public Law 103-354 1951-
7, ``Request for Change in Application.'' Requests for changes in 
application of payments will be made on Form FmHA or its successor 
agency under Public Law 103-354 1951-7. For requests which County 
Supervisors or Assistant County Supervisors are authorized to approve, 
the County Supervisor or Assistant County Supervisor will sign the 
original of Form FmHA or its successor agency under Public Law 103-354 
1951-7 and forward it to the Finance Office. The Finance Office will 
send Form FmHA or its successor agency under Public Law 103-354 451-26 
to the County Office when the change is made on Finance Office records.
    (c) Changes by the Finance Office in application of remittances. (1) 
When reapplication of collection is made by the Finance Office Form FmHA 
or its successor agency under Public Law 103-354 451-8, ``Journal 
Voucher for Loan Account Adjustments,'' will be prepared. Form FmHA or 
its successor agency under Public Law 103-354 451-26 will be forwarded 
to the County Office to show the reapplication.
    (2) When necessary, the Finance Office will correct Form FmHA or its 
successor agency under Public Law 103-354 451-2 as prepared by the 
County Office.
[50 FR 45764, Nov. 1, 1985, as amended at 54 FR 18883, May 3, 1989]



Sec. 1951.13  Overpayments and refunds.

    (a) The Finance Office will mail any overpayment refund check to the 
County Supervisor, who will verify that the refund is due before 
delivering the check.
    (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

[[Page 24]]

due, however, the County Supervisor will forward any request to the 
Finance Office. Finance Office computations will control in determining 
the amount of any refund.
    (c) Underpayments or overpayments of less than $10 will not be 
collected or refunded (except as provided in paragraph (b) of this 
section) since the expense of processing the action would be more than 
the amount involved.



Sec. 1951.14  Recoverable and nonrecoverable cost charges.

    (a) The County Supervisor will:
    (1) Prepare vouchers for recoverable and nonrecoverable cost charges 
according to the applicable instruction for the type of advance being 
made. (``Recoverable costs'' is defined in Sec. 1951.10(a) of this 
subpart).
    (2) If a recoverable cost, show on the voucher the fund code to 
which the advance is to be charged.
    (3) If the cost item relates to security for more than one type of 
account, show the code for the loan secured by the earliest promissory 
note (if lien secures more than one note).
    (b) The Finance Office will forward Form FmHA or its successor 
agency under Public Law 103-354 451-26, to the County Office when the 
recoverable cost charge is processed.



Sec. 1951.15  Return of paid-in-full or satisfied notes to borrower.

    (a) Notes not held in County Office. When the original of the note 
is not held in the County Office the County Supervisor will request the 
Finance Office to acquire and forward the note to the County Office.
    (b) Return of notes after collection. When a note (or loan-type 
account) evidencing an OL, EM, EE, EO, special livestock (SL), SW loan 
coded ``24'', or other production-type loan has been satisfied by 
payment in full, the County Supervisor will examine the borrower's 
records in the County Office and determine that the account has been 
satisfied before delivering the note to the borrower (See Sec. 1962.27 
of subpart A of part 1962 on the satisfaction of chattel security 
instruments). The note(s) will be returned to the borrower immediately 
except that:
    (1) When the final payment is made in a form other than currency and 
coin, Treasury check, cashier's check, certified check, Postal or bank 
money order, bank draft, or a check issued by a responsible lending 
institution or a responsible title insurance or title and trust company, 
the note or notes will not be surrendered until 30 days after the date 
of final payment, and
    (2) When notes are needed in making marginal releases or 
satisfactions or security instruments, the notes will be held until the 
instruments are satisfied.
    (c) Surrender of notes to effect collection. (1) County Supervisors 
are authorized to surrender notes to borrowers when final payment of the 
amount due is made in the form of currency and coin, Treasury check, 
cashier's check, certified check, Postal or bank money order, bank 
draft, or a check issued by a responsible lending institution or a 
responsible title insurance or title trust company.
    (2) The amount due on the note(s) to be surrendered will be 
confirmed with the Finance Office. County Supervisors will request the 
original note(s) from the Finance Office if it is not in the County 
Office.
    (d) Return of notes reduced to judgment. Notes which have been 
reduced to judgment are a part of the court records and ordinarily 
cannot be withdrawn and returned to the borrower even after satisfaction 
of the judgment. Therefore, no effort will be made to obtain and return 
such notes except on the written request of the judgment debtor or 
debtor's attorney. Such requests will be referred to the Office of the 
General Counsel (OGC).
    (e) Debt settlement case. See subparts B or C of part 1956 of this 
chapter for the handling of notes in debt settlement cases.
    (f) Lost notes. (1) All promissory notes dated on or after 11-1-73 
are held in the County Office. A few notes (with the exception of OL 
notes) are still held by investors. If a note dated prior to 11-1-73 
cannot be located in the County Office and it is needed for servicing 
the 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

[[Page 25]]

number of the borrower, date and original amount of the loan, type of 
loan and loan code.
    (2) If a promissory note is lost in the County Office and it is 
needed for servicing a case, the State Director may authorize the County 
Supervisor to execute an appropriate affidavit regarding the lost note. 
The form of such an affidavit will be provided by OGC.
[50 FR 45764, Nov. 1, 1985, as amended at 51 FR 45432, Dec. 18, 1986; 53 
FR 13100, Apr. 21, 1988; 56 FR 10147, Mar. 11, 1991]



Sec. 1951.16  Other servicing actions on real estate type loan accounts.

    (a) Installment on note and other charges--(1) Direct loan accounts. 
For a borrower with a direct loan, the term ``installation on note and 
other charges,'' as used in this Subpart, will be the sum of the 
following:
    (i) Annual installment for the year as provided in the promissory 
note(s).
    (ii) Any recoverable cost charges paid for the borrower during the 
year. (``Recoverable costs'' is defined in Sec. 1951.10(a) of this 
Subpart.)
    (2) Insured loan accounts. ``Loan insurance charge'' means a 
separate insurance charge applying to FO and SW insured loans evidenced 
by promissory note forms bearing a form date before January 8, 1959. For 
all insured loans evidenced by note forms bearing a form date of January 
8, 1959, or later, the insurance charge is called ``annual charge'' and 
is included in the interest position of the annual installment in the 
note. For a borrower with an insured loan, the term ``Installment on 
note and other charge'' means the sum of the following:
    (i) Annual installment for the year as provided in the promissory 
note.
    (ii) Amounts owed the Agricultural Credit Insurance Fund. These 
amounts are covered by the general term ``Insurance Account'' and 
consist of the following:
    (A) Unpaid loan insurance charges from prior years.
    (B) Loan insurance charge for the current year. The loan insurance 
charge is computed on the basis of the amount of the unpaid principal 
obligation as of the installment due date and is due and payable on or 
before the next installment due date.
    (C) Any unpaid balance on advances from the insurance fund, 
including any recoverable cost charges paid for the borrower during the 
year.
    (D) Any accrued interest on advances from the insurance fund.
    (iii) The amounts owned on the insurance account must be paid by 
regular payments each year whether or not the note account is ahead of 
schedule.
    (b) Schedule status. For direct and insured loans, a borrower will 
be on schedule when the sum of regular payments through the last 
preceding due date of the note equals the sum of installments on the 
note and other charges due through the same date. Such a borrower will 
be ahead of schedule or behind schedule when the sum of such regular 
payments is larger or smaller, respectively, than the sum of such 
installments on the note and other charges.
    (c) Real estate payments. A borrower may make regular payments ahead 
of schedule at any time and use them later to forego payments or to 
supplement the amount available during any year for payment on the 
annual installment on the note and other charges. Refunds and extra 
payments will not be used in this way.



Secs. 1951.17--1951.24  [Reserved]



Sec. 1951.25  Review of limited resource FO, OL, and SW loans.

    (a) Frequency of reviews. OL, FO, and SW loans will be reviewed each 
year at the time the analysis is conducted in accordance with subpart B 
of part 1924 of this chapter and any time a servicing action such as 
consolidation, rescheduling, reamortization or deferral is taken. The 
interest rate may not be changed more often than quarterly.
    (b) Method of review. (1) Each loan will be considered on its own 
merit.
    (2) The County Supervisor should consider:
    (i) The borrower's income and repayment record during the preceding 
years;
    (ii) The projections shown on the most recent Farm and Home Plan or 
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

[[Page 26]]

and actual figures; (See subpart B of part 1924 of this chapter)
    (iii) Whether improved production practices have been or need to be 
implemented;
    (iv) The borrower's progress as a farmer; and
    (v) All other factors which the County Supervisor believes should be 
considered.
    (3) The Farm and Home Plan projections for the coming year must show 
that the ``balance available to pay debts'' exceeds the amount needed to 
pay debts by at least 10 percent before an increase in interest rate is 
put into effect. Borrowers that continually purchase unplanned items 
without the County Supervisor's approval will have the interest rate on 
their loans increased to the current rate for that loan type. Borrowers 
that fail to provide the County Supervisor with the information needed 
to conduct the analysis required in subpart B of part 1924 of this 
chapter will have their interest rate on their loan increased to the 
current rate for the OL, FO, or SW loan as applicable. The rate may 
increase in increments of whole numbers to the current regular interest 
rate for borrowers. In the borrower's case file, the County Supervisor 
must document the unplanned purchases and the failure to provide 
information in a timely manner. The County Supervisor must write the 
borrower a letter which sets out the facts documented in the case file 
and advises the borrower that the interest rate will be increased unless 
the unplanned purchases cease or unless the borrower provides 
information in a timely manner. Whenever it appears that the borrower 
has a substantial increase in income and repayment ability or ceases 
farming, either the interest rate may be increased to the current rate 
for FO, OL or SW loans, as applicable, or the borrower will be graduated 
from the program as provided in subpart F of this part.
    (4) The County Office will be responsible for scheduling and 
completing the reviews.
    (5) Borrowers who have received a deferral under Subpart S of this 
part will not have the interest rate increased on their limited resource 
loans during the deferral period.
    (c) Processing. (1) If, after the review, the interest rate is to 
remain the same, no further action needs to be taken.
    (2) When the interest rate is increased to the current rate, the 
loan will be recorded as a regular loan and will no longer be considered 
a limited resource loan. The borrower must be notified in writing at 
least 30 days prior to the date of the change. Exhibit B of this subpart 
may be used as a guide. The effective date of the change in interest 
rate will be the effective date on Exhibit B. The borrower must be 
informed of the following for each loan:
    (i) The authorization for the change,
    (ii) Reason for change (repayment ability, etc.),
    (iii) The effective date and rate of the increase in interest,
    (iv) Amount of the new installments and dates due,
    (v) Right to appeal.
    (3) It is not necessary to obtain a new promissory note for this 
change in interest rate.
[50 FR 45764, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988; 
56 FR 3395, Jan. 30, 1991; 58 FR 15074, Mar. 19, 1993]



Secs. 1951.26--1951.49  [Reserved]



Sec. 1951.50  OMB control number.

    The collection of information requirements in Subpart A of part 1951 
have been approved by the Office of Management and Budget and assigned 
OMB control number 0575-0075.
[52 FR 26137, July 13, 1987]

                          Exhibits to Subpart A

 Exhibit A--Notice to FmHA or its successor agency under Public Law 103-
                              354 Borrowers

    FmHA or its successor agency under Public Law 103-354 borrowers with 
farmer program and community program loan types made under the 
Consolidated Farm and Rural Development Act may request a loan summary 
statement which shows the calendar year account activity for each loan. 
Interested borrowers may request these statements through their local 
FmHA or its successor agency under Public Law 103-354 office.
[54 FR 10270, Mar. 13, 1989]

[[Page 27]]

              Exhibit B--Notice of Change in Interest Rate

                              (insert date)

                    Notice of Change in Interest Rate

 _______________________________________________________________________

    (insert borrower's address)
Re: {time}  {time} 
    Fund code
    {time}  {time} 
    Loan number
    {time}  {time} 
Kind code
    Dear (insert borrower's name and case number): Your promissory note 
dated ______, for the original amount of ______ dollars ($______) 
provides for a change in interest rate for a limited resource loan in 
accordance with the Farmers Home Administration or its successor agency 
under Public Law 103-354 regulations.
    Effective (insert date) the interest rate on this loan will be ____ 
percent (  %) on the unpaid principal balance. Your installment due 
January 1, 19  , will be ______ dollars ($______). This change in 
interest rate is for the reason indicated below.


    {time}  Increase in repayment ability as per Farm and Home Plan 
dated ______.
    {time}  (insert reason if other than above for increase in interest 
rate).

    You may appeal this action by writing to (hearing officer), 
(address), within 30 calendar days of the date of this letter, giving 
the reason why you believe this matter should be decided differently. 
This time may be extended if you cannot notify the hearing officer 
within 30 days for reasons beyond your control.
[56 FR 3396, Jan. 30, 1991]



                         Subpart B--Collections

    Source: 53 FR 26591, July 14, 1988, unless otherwise noted.



Sec. 1951.51  General.

    This subpart prescribes the policies and procedures of the Farmers 
Home Administration or its successor agency under Public Law 103-354 
(FmHA or its successor agency under Public Law 103-354) for collection 
of loan payments and depositing payments through the Concentration 
Banking System (CBS). Under CBA, FmHA or its successor agency under 
Public Law 103-354 field offices select a local financial institution to 
maintain a Treasury Limited Account (TLA) for depositing FmHA or its 
successor agency under Public Law 103-354 loan collections. Deposits to 
these accounts are withdrawn daily by the concentrator bank for transfer 
to the Treasury. Under these procedures, the local FmHA or its successor 
agency under Public Law 103-354 office will deposit the daily office 
collections in a participating local financial institution and report 
the amount deposited to a data service facility that is under contract 
to the concentrator bank. The data service facility will inform the 
concentrator bank of the amount available in each local financial 
institution and the concentrator bank will use this information to 
transfer the funds to the concentrator bank and then to the Treasury.



Secs. 1951.52--1951.53  [Reserved]



Sec. 1951.54  Authority.

    The provisions of this subpart are applicable to FmHA or its 
successor agency under Public Law 103-354 employees who are authorized 
to receive collections. Employees listed in Exhibit B of this subpart 
(available in any FmHA or its successor agency under Public Law 103-354 
office) are hereby authorized to receive, receipt for, exchange for 
money orders or bank drafts, and transmit collections or deposit 
collections in a TLA.



Sec. 1951.55  Receiving and processing collections.

    FmHA or its successor agency under Public Law 103-354 offices 
receive borrower payments either through the mail or in person in the 
form of checks, money orders, and cash. Payments are recorded on the 
appropriate accounting forms which are Form FmHA or its successor agency 
under Public Law 103-354 451-2, Form FmHA or its successor agency under 
Public Law 103-354 1944-9, Form FmHA or its successor agency under 
Public Law 103-354 1951-55, or a payment coupon. Forms FmHA or its 
successor agency under Public Law 103-354 451-2 and FmHA or its 
successor agency under Public Law 103-354 1944-9 are used to transmit 
accounting information to the Finance Office. Form FmHA or its successor 
agency under Public Law 103-354 1951-55 is used to assemble payment 
information which the

[[Page 28]]

District Offices use to transmit MFH account information through field 
office terminals. In addition, the FmHA or its successor agency under 
Public Law 103-354 office records payments on a management system card, 
a servicing card, or a payment tracking form, as appropriate.
[56 FR 28038, June 19, 1991]



     Subpart C--Offsets of Federal Payments to USDA Agency Borrowers



Sec. 1951.101  General.

    The Federal Claims Collection Act of 1966 as amended by the Debt 
Collection Act of 1982, the Deficit Reduction Act of 1984, and the Debt 
Collection Amendments Act of 1996 provides for the use of 
administrative, salary, and Internal Revenue Service (IRS) offsets by 
government agencies, including the Farm Service Agency (FSA), Rural 
Housing Service (RHS), Rural Utility Service (RUS) for its water and 
waste programs, and Rural Business-Cooperative Service (RBS), herein 
referred to collectively as ``USDA Agency,'' to collect delinquent 
debts. Any money that is or may become payable from the United States to 
a individual or entity indebted to a USDA Agency or other individual or 
entity indebted to a USDA Agency may be subject to offset for the 
collection of a debt owed to a USDA Agency. In addition, money may be 
collected from the debtor's retirement payments for delinquent amounts 
owed to the USDA Agency if the debtor is an employee or retiree of a 
Federal agency, the U.S. Postal Service, the Postal Rate Commission, or 
a member of the U.S. Armed Forces or the Reserve. Amounts collected will 
be processed as regular payments and credited to the borrower's account. 
USDA Agencies will process requests by other Federal agencies for offset 
in accordance with Sec. 1951.102 of this subpart. This subpart does not 
apply to direct single family housing loans.
[62 FR 41798, Aug. 1, 1997]



Sec. 1951.102  Administrative offset.

    Action to effect administrative offset to recover delinquent claims 
may be taken in accordance with the procedures in 7 CFR part 3, subpart 
B.
[62 FR 41799, Aug. 1, 1997]



Secs. 1951.103--1951.110  [Reserved]



Sec. 1951.111  Salary offset.

    Salary offset may be used to collect debts arising from delinquent 
USDA Agency loans and other debts which arise through such activities as 
theft, embezzlement, fraud, salary overpayments, under withholding of 
amounts payable for life and health insurance, and any amount owed by 
former employees from loss of federal funds through negligence and other 
matters. Salary offset may also be used by other Federal agencies to 
collect delinquencies or debts owed to them by employees of the USDA 
Agency, excluding County Committee members. Administrative offset, 
rather than salary offset, will be used to collect money from federal 
employee retirement benefits. Salary offset will not be initiated until 
after other servicing options available to the borrower have been 
utilized. In addition, for Farm Loan Programs loans, salary offset will 
not be instituted if the federal salary has been considered on the Farm 
and Home Plan, and it was determined the funds were to be used for 
another purpose other than payment on the USDA Agency loan. When salary 
offset is used, payment for the debt will be deducted from the 
employee's pay and sent directly to the creditor agency. Not more than 
15 percent of the employee's disposable pay can be offset per pay 
period, unless the employee agrees to a larger amount. The debt does not 
have to be reduced to judgment or be undisputed, and the payment does 
not have to be covered by a security instrument. This section describes 
the procedures which must be followed before the USDA Agency can ask a 
Federal agency to offset any amount. Decisions made under this section 
are subject to the appeal procedures of 7 CFR part 11.
    (a) Authorities. The following authorities are granted to USDA 
Agency employees in order that they may initiate and implement salary 
offset:
    (1) Certifying Officials are authorized to certify to the debtor's 
employing

[[Page 29]]

agency that the debt exists, the amount of the delinquency or debt, that 
the procedures in USDA Agency and United States Department of 
Agriculture's (USDA's) regulations regarding salary offsets have been 
followed, that the actions required by the Debt Collection Act have been 
taken; and to request that salary offset be initiated by the debtor's 
employing agency. This authority may not be redelegated.
    (2) Certifying Officials are authorized to advise the Finance Office 
to establish employee defalcation accounts and non-cash credits to 
borrower accounts in cases involving other debts, such as those arising 
from theft, fraud, embezzlement, loss of funds through negligence, and 
similar actions involving USDA Agency employees.
    (3) The Finance Office is authorized to establish defalcation 
accounts and non-cash credits to borrower accounts upon receipt of 
requests from the Certifying Officials.
    (b) Definitions--(1) Certifying Officials. State Directors; State 
Executive Directors; the Assistant Administrator, Finance Office; and 
the Deputy Administrator for Management, National Office.
    (2) Debt or debts. A term that refers to one or both of the 
following:
    (i) Delinquent debts. A past due amount owed to the United States 
from sources which include, but are not limited to, insured or 
guaranteed loans, fees, leases, rents, royalties, services, sales of 
real or personal property, overpayments, penalties, damages, interest, 
fines and forfeitures (except those arising under the Uniform Code of 
Military Justice).
    (ii) Other debts. An amount owed to the United States by an employee 
for pecuniary losses where the employee has been determined to be liable 
due to the employee's negligent, willful, unauthorized or illegal acts, 
including but not limited to:
    (A) Theft, misuse, or loss of Government funds;
    (B) False claims for services and travel;
    (C) Illegal, unauthorized obligations and expenditures of Government 
appropriations;
    (D) Using or authorizing the use of Government owned or leased 
equipment, facilities supplies, and services for other than official or 
approved purposes;
    (E) Lost, stolen, damaged, or destroyed Government property;
    (F) Erroneous entries on accounting record or reports; and,
    (G) Deliberate failure to provide physical security and control 
procedures for accountable officers, if such failure is determined to be 
the proximate cause for a loss of Government funds.
    (3) Defalcation account. An account established in the Finance 
Office for other debts owed the Federal government in the amount missing 
due to the action of an employee or former employee.
    (4) Disposable pay. Pay due an employee that remains after required 
deductions for Federal, State and local income taxes; Social Security 
taxes, including Medicare taxes; Federal retirement programs; premiums 
for life and health insurance benefits, and such other deductions 
required by law to be withheld.
    (5) Hearing Officer. An Administrative Law Judge of the USDA or 
another individual not under the supervision or control of the USDA, 
designated by the Certifying Official to review the determination of the 
alleged debt.
    (6) Non-cash credit. The accounting action taken by the Finance 
Office to credit and make a borrower's account whole for funds paid by 
the borrower but missing due to an employee's or former employee's 
actions.
    (7) Salary Offset. The collection of a debt due to the U.S. by 
deducting a portion of the disposable pay of a Federal employee without 
the employee's consent.
    (c) Feasibility of salary offset. The first step the Certifying 
Official must take to use this offset procedure is to decide, on a case 
by case basis, whether offset is feasible. If an offset is feasible, the 
directions in the following paragraphs of this section will be used to 
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''

[[Page 30]]

file in cases of other debts. Ordinarily, and where possible, debts 
should be collected in one lump-sum; but payments may be made in 
installments. Installment deductions can be made over a period not 
greater than the anticipated period of employment. However, the amount 
deducted for a pay period will not exceed 15 percent of the disposable 
pay from which the deduction is made. If possible, the installment 
payment will be sufficient in size and frequency to liquidate the debt 
in approximately 3 years. Based on the Comptroller General's decisions, 
other debts by employees cannot be forgiven. If the employee retires or 
resigns, or if employment ends before collection of the debt is 
completed, final salary payment, lump-sum leave, etc. may be offset to 
the extent necessary to liquidate the debt. Salary offset is feasible 
if:
    (1) The cost to the Government of collecting salary offset does not 
exceed the amount of the debt. County Committee members are exempt from 
salary offset because the amount collected by salary offset would be so 
small as to be impractical.
    (2) There are not any legal restrictions to the debt, such as the 
debtor being under the jurisdiction of a bankruptcy court, or the 
statute of limitations having expired. The Debt Collection Act of 1982 
permits offset of claims that have not been outstanding for more than 10 
years.
    (d) Notice to debtor. (1) After the Certifying Official determines 
that collection by salary offset is feasible, FmHA or its successor 
agency under Public Law 103-354 Guide Letter 1951-C-4 should be sent 
within 15 calendar days after that determination. This Guide Letter will 
notify the debtor of intended salary offset at least 30 days before the 
salary offset begins. FmHA or its successor agency under Public Law 103-
354 Guide Letter 1951-C-4 will be personally delivered to the debtor or 
sent certified mail, Return Receipt Requested, with a copy sent by 
regular mail on the same day. If the certified mail receipt is returned, 
the date the debtor received the letter will be established and the time 
limits set out in FmHA or its successor agency under Public Law 103-354 
Guide Letter 1951-C-4 will run from that date. If delivery by certified 
mail is not accomplished, FmHA or its successor agency under Public Law 
103-354 will assume that the debtor received the letter by regular mail 
on the day the certified mail was refused or was unable to be delivered.
    (2) The Debt Collection Act of 1982 requires that the hearing 
officer issue a written decision not later than 60 days after the filing 
of the petition requesting the hearing; thus, the evidence upon which 
the decision to notify the debtor is based, to the extent possible, 
should be sufficient for FmHA or its successor agency under Public Law 
103-354 to proceed at a hearing, should the debtor request a hearing 
under paragraph (f) of this section.
    (e) Notice requirement before salary offset. Salary offset will not 
be made unless the employee receives 30 calendar days written notice. 
This Notice of Intent (FmHA or its successor agency under Public Law 
103-354 Guide Letter 1951-C-4) will be addressed to the debtor or the 
debtor's representative. The Notice of Intent must be modified if it is 
addressed to the debtor's representative. In either case, the Notice of 
Intent will state:
    (1) It has been determined that the debt is owed, the amount of the 
debt, and the facts giving rise to the debt;
    (2) The cost to the Government of collecting salary offset does not 
exceed the amount of the debt;
    (3) There are not any legal restrictions that would bar collecting 
the debt;
    (4) The debt will be collected by means of deduction of not more 
than 15 percent from the employee's current disposable pay until the 
debt and all accumulated interest are paid in full;
    (5) The amount, frequency, approximate beginning date, and duration 
of the intended deductions;
    (6) An explanation of the requirements concerning interest, 
penalties and administrative costs, unless such payments are waived;
    (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

[[Page 31]]

FmHA or its successor agency under Public Law 103-354, if the terms of 
the repayment proposed by the employee are agreeable with the agency;
    (9) That the employee has a right to a hearing conducted by an 
Administrative Law Judge of USDA or a hearing official not under the 
supervision or control of the Secretary of Agriculture, concerning the 
agency's determination of the existence or amount of the debt and the 
percentage of disposable pay to be deducted each pay period, if a 
petition for a hearing is filed by the employee as prescribed by FmHA or 
its successor agency under Public Law 103-354;
    (10) The timely filing of a petition for hearing will stay the 
collection proceedings;
    (11) That a final decision will be issued at the earliest practical 
date, but not later than 60 calendar days after the filing of petition 
requesting the hearing;
    (12) That any knowingly false or frivolous statements may subject 
the employee to disciplinary procedures, or penalties, under the 
applicable statutory authority;
    (13) Any other rights and remedies available to the employee under 
statutes or regulations governing the program for which the collection 
is being made;
    (14) That amounts paid on or deducted for the debt which are later 
waived or found not owed to the United States will be promptly refunded 
to the employee unless there are provisions to the contrary;
    (15) The method and time period for requesting a hearing; and
    (16) The name and address of an official of USDA to whom 
communications should be directed.
    (f) Debtor's request for records, offer to repay, request for a 
hearing or request for information concerning debt settlement.
    (1) If a debtor responds to FmHA or its successor agency under 
Public Law 103-354 Guide Letter 1951-C-4 by asking to review and copy 
FmHA or its successor agency under Public Law 103-354's records relating 
to the debt, the Certifying Official will promptly respond by sending a 
letter which tells the debtor the location of the debtor's FmHA or its 
successor agency under Public Law 103-354 files and that the files may 
be reviewed and copied within the next 30 days. Copying costs (see 
subpart F of part 2018 of this Chapter) will be set out in the letter, 
as well as the hours the files will be available each day. If a debtor 
asks to have FmHA or its successor agency under Public Law 103-354 copy 
the records, a copy will be made within 30 days of the request.
    (2) If a debtor responds to FmHA or its successor agency under 
Public Law 103-354 Guide Letter 1951-C-4 by offering to repay the debt, 
the offer may be accepted by the Certifying Official, if it would be in 
the best interest of the government. FmHA or its successor agency under 
Public Law 103-354 Form Letter 1951-8 will be used if a repayment offer 
for an FmHA or its successor agency under Public Law 103-354 loan or 
grant is accepted. Upon receipt of an offer to repay, the Certifying 
Official will delay institution of a hearing until a decision is made on 
the repayment offer. Within 60 days after the initial offer to repay was 
made, the Certifying Official must decide whether to accept or reject 
the offer. This decision will be documented in the running case record 
or the ``For Official Use Only'' file, as appropriate, and the debtor 
will be sent a letter which sets out the decision to accept or reject 
the offer to repay. The decision to accept or reject a repayment offer 
should be based upon a realistic budget or farm and home plan and 
according to the servicing regulations for the type of loan(s) involved.
    (3) If a debtor responds to FmHA or its successor agency under 
Public Law 103-354 Guide Letter 1951-C-4 by asking for a hearing on FmHA 
or its successor agency under Public Law 103-354's determination that a 
debt exists and/or is due, or on the percentage of net pay to be 
deducted each pay period, the Certifying Official will notify the debtor 
in accordance with paragraph (g)(3) of this section and request the 
debtor's case file or the ``For Official Use Only'' file.
    (4) If a debtor is willing to have more than 15 percent of the 
disposable pay sent to FmHA or its successor agency under Public Law 
103-354, a letter prepared and signed by the debtor clearly

[[Page 32]]

stating this must be placed in the debtor's case file or the ``For 
Official Use Only'' file.
    (5) If a debtor who is an FmHA or its successor agency under Public 
Law 103-354 borrower requests debt settlement, the account must be in 
collection-only status or be an inactive account for which there is no 
security. The Certifying Official must inform the borrower of how to 
apply for debt settlement. Any application will be considered 
independently of the salary offset. A salary offset should not be 
delayed because the borrower applied for debt settlement.
    (6) The time limits set in FmHA or its successor agency under Public 
Law 103-354 Guide Letter 1951-C-4 and in paragraphs (f) (1), (2), and 
(3) of this section run concurrently. In other words, if a debtor asks 
to review the FmHA or its successor agency under Public Law 103-354 file 
and offers to repay the debt, the debtor cannot take 30 days to ask to 
review the file and then take another 30 days to offer to repay. The 
request to review the file and the offer to repay must both be made 
within 30 days of the date the debtor receives the notification letter.
    (7) If an employee is included in a bargaining unit which has a 
negotiated grievance procedure that does not specifically exclude salary 
offset proceedings, the employee must grieve the matter in accordance 
with the negotiated procedure. Employees who are not covered by a 
negotiated procedure must utilize the salary offset proceedings as 
outlined in FmHA or its successor agency under Public Law 103-354 Guide 
Letter 1951-C-4. The employee must be informed, in writing, which 
procedure to follow and, as appropriate, reference should be made to the 
appropriate sections of the negotiated agreement.
    (g) Hearings. (1) A hearing officer must be a USDA Administrative 
Law Judge or a person who is not a USDA employee. In order to ensure 
that a hearing officer will be available promptly when needed, 
Certifying Officials need to make appropriate arrangements with 
officials of nearby federal agencies for the use of each other's 
employees as hearing officers.
    (2) Not later than 30 days from the date the debtor receives the 
Notice of Intent (FmHA or its successor agency under Public Law 103-354 
Guide Letter 1951-C-4), the employee must file with the Certifying 
Official issuing the notice, a written petition establishing his/her 
desire for a hearing on the existence and amount of the debt or the 
proposed offset schedule. The employee's petition must fully identify 
and explain all the information and evidence that supports his/her 
position. In addition, the petition must bear the employee's original 
signature and be dated upon receipt by the Certifying Official.
    (3) Certifying Officials are responsible for determining if the 
employee's petition for a hearing has been submitted in a timely 
fashion. Petitions received from employees after the 30-day time 
limitation expires will be accepted only if the employee can show the 
delay was because of circumstances beyond his/her control or because of 
failure to receive notice of the time limitation. Certifying Officials 
are required to provide written notification to the employee of the 
acceptance or non-acceptance of the employee's petition for hearing.
    (4) For those petitions accepted, FmHA or its successor agency under 
Public Law 103-354 will arrange for a hearing officer and notify the 
employee of the time and place of the hearing. The hearing location 
should be convenient to all parties involved. The employee will also be 
notified that the acceptance of the petition for hearing will stay the 
commencement of collection proceedings. Any payments collected in error 
due to untimely or delayed filing beyond the employee's control will be 
refunded unless there are applicable contractual or statutory provisions 
to the contrary.
    (5) The hearing will be based on written submissions and 
documentation provided by the debtor and FmHA or its successor agency 
under Public Law 103-354 unless:
    (i) A statute authorizes or requires consideration of waiving the 
debt, the debtor requests waiver of the debt, and the waiver 
determination turns on an issue of credibility or truth.

[[Page 33]]

    (ii) The debtor requests reconsideration of the debt and the hearing 
officer determines that the question of the indebtedness cannot be 
resolved by a review of the documentary evidence; for example, when the 
validity of the debt turns on an issue of credibility or truth.
    (iii) The hearing officer determines that an oral hearing is 
appropriate.
    (6) Oral hearings may be conducted by conference call at the request 
of the debtor or at the discretion of the hearing officer. The hearing 
officer's determination that the offset hearing is on the written record 
is final and is not subject to review.
    (7) The hearing officer will issue a written decision not later than 
60 days after the filing of the petition requesting the hearing, unless 
the employee requests and the Certifying Official grants a delay in the 
proceedings. The written decision will state the facts supporting the 
nature and origin of the debt, the hearing officer's analysis, findings 
and conclusions as to the amount and validity of the debt, and repayment 
schedule. Both the employee and FmHA or its successor agency under 
Public Law 103-354 will be provided with a copy of the hearing officer's 
written decision on the debt.
    (h) Processing delinquent debts. (1) Form AD-343, ``Payroll Action 
Request,'' and FmHA or its successor agency under Public Law 103-354 
Form Letter 1951-6 will be prepared and submitted by the Certifying 
Official to the National Office, FMAS, for coordination and forwarding 
to the debtor's employing agency if:
    (i) The borrower does not respond to FmHA or its successor agency 
under Public Law 103-354 Guide Letter 1951-C-4 within 30 days.
    (ii) The borrower responds to FmHA or its successor agency under 
Public Law 103-354 Guide Letter 1951-C-4 within 30 days and
    (A) Has had an opportunity to review the file, if requested,
    (B) Has received a hearing, if requested, and
    (C) A decision has been made by the hearing officer to uphold the 
offset.
    (2) A copy of Form AD-343 and the Form letter 1951-6 will be sent to 
the Finance Office, St. Louis, MO 63103, Attn: Account Settlement Unit.
    (3) If the debtor is an FmHA or its successor agency under Public 
Law 103-354 employee, Form AD-343 will be sent to the National Office, 
FMAS, and a copy to the Finance Office, St. Louis, MO, Attn: Account 
Settlement Unit. This form can be signed for the Certifying Official by 
an employment officer, an Administrative Officer, or a personnel 
management specialist, or signed by the Certifying Official.
    (4) If the debtor has agreed to have more or less than 15 percent of 
the disposable pay sent to FmHA or its successor agency under Public Law 
103-354, a copy of the debtor's letter (FmHA or its successor agency 
under Public Law 103-354 Form Letter 1951-8) authorizing this must be 
attached to Form AD-343.
    (5) Field offices will be notified of payments received from salary 
offset by receipt of a transaction record from the Finance Office.
    (i) Deduction percentage. (1) Generally, installment deductions will 
be made over a period not greater than the anticipated period of 
employment. If possible, the installment payment will be sufficient in 
size and frequency to liquidate the debt in approximately 3 years. The 
size and frequency of installment deductions will bear a reasonable 
relation to the size of the debt and the employee's ability to pay. 
Certifying Officials are responsible for determining the size and 
frequency of the deductions. However, the amount deducted for any period 
will not exceed 15 percent of the disposable pay from which the 
deduction is made, unless the employee has agreed in writing to the 
deduction of a greater amount. Installment payments of less than $25 per 
pay period or $50 a month will be accepted only in the most unusual 
circumstances.
    (2) Deductions will be made only from basic pay, incentive pay, 
retainer pay, or, in the case of an employee not entitled to basic pay, 
other authorized pay. If there is more than one salary offset, the 
maximum deduction for all salary offsets against an employee's 
disposable pay is 15 percent unless the employee has agreed in writing 
to a greater amount.

[[Page 34]]

    (j) Agency/NFC responsibility for other debts. (1) FmHA or its 
successor agency under Public Law 103-354 will inform NFC about other 
indebtedness by transmitting to NFC an AD-343. NFC will process the 
documents through the Payroll/Personnel System, calculate the net amount 
of the adjustment and generate a salary offset notice. This notice will 
be sent to the employee's employing office along with a duplicate copy 
for the FmHA or its successor agency under Public Law 103-354's records. 
FmHA or its successor agency under Public Law 103-354 is responsible for 
completing the necessary information and forwarding the employee's 
notice to the employee.
    (2) Other indebtedness falls into two categories:
    (i) An agency-initiated indebtedness (i.e. personal telephone calls, 
property damages, etc.).
    (ii) An NFC-initiated indebtedness (i.e. duplicate salary payments, 
etc.). NFC will send the salary offset notice to the employing office.
    (k) Establishing employees or former employees defalcation accounts 
and non-cash credits to borrower accounts. In cases where a borrower 
made a payment on an FmHA or its successor agency under Public Law 103-
354 account(s) and, due to theft, embezzlement, fraud, negligence, or 
some other action on the part of an FmHA or its successor agency under 
Public Law 103-354 employee or employees, the payment is not transmitted 
to the Finance Office for application to the borrower's account(s), 
certain accounting actions must be taken by the Finance Office to 
establish non-cash credits to the borrower's account and an employee 
defalcation account.
    (1) The Certifying Official will advise the Assistant Administrator, 
Finance Office by memorandum to establish a defalcation account. The 
memorandum must state the following information:
    (i) Employee's name (or former),
    (ii) Social Security Number,
    (iii) Present or last known address,
    (iv) Date of Payment, and
    (v) Amount of the defalcation account.
    (2) If a non-cash credit to a borrower's account(s) is required, the 
letter to the Finance Office will include:
    (i) Borrower's name and case number,
    (ii) Fund Code and Loan Code,
    (iii) Date and amount of missing payment,
    (iv) Copy of receipt issued for the missing payment, and
    (v) Name of employee who last had custody of the missing funds.
    (3) To assist and assure proper accounting for defalcation accounts 
and non-cash credits, the request should be made at the same time. 
Should requests be made separately, be sure to identify appropriately.
    (4) The Certifying Official shall furnish a copy of the memorandum 
and supporting documentation for paragraphs (k) (1) and (2) of this 
section to the Deputy Administrator for Management for distribution to 
the Financial and Management Analysis Staff (FMAS) and Employee 
Relations Branch, Personnel Division.
    (l) Application of payments, refunds and overpayments. (1) If a 
debtor is delinquent or indebted on more than one FmHA or its successor 
agency under Public Law 103-354 loan or debt, amounts collected by 
offset will be applied as specified on Form AD-343, based on the 
advantage to agency or debtor. The check date will be used as the date 
of credit in applying payments to the borrower's accounts.
    (2) If a court or agency orders FmHA or its successor agency under 
Public Law 103-354 to refund the amount obtained by salary offset, a 
refund will be requested promptly by the Certifying Official in 
accordance with the order by sending FmHA or its successor agency under 
Public Law 103-354 Form Letter 1951-5 to the Finance Office. Processing 
FmHA or its successor agency under Public Law 103-354 Form Letter 1951-5 
in the Finance Office will cause a refund to be sent to the debtor 
through the county office or other appropriate FmHA or its successor 
agency under Public Law 103-354 office. The debtor is not entitled to 
any payment of interest, on the refunded amount.
    (3) If a debtor does not request a hearing within the required time 
and it is later determined that the delay was due to circumstances 
beyond the debtor's control, any amount collected before the hearing 
decision is made will be refunded promptly by the Certifying

[[Page 35]]

Official in accordance with paragraphs (l) (1) and (2) of this section.
    (4) If FmHA or its successor agency under Public Law 103-354 
receives money through an offset but the debtor is not delinquent or 
indebted at the time or the amount received is in excess of the 
delinquency or indebtedness, the entire amount or the amount in excess 
of the delinquency or indebtedness will be refunded promptly to the 
debtor by the Certifying Official in accordance with paragraphs (l) (1) 
and (2) of this section.
    (m) Cancellation of offset. If a debtor's name has been submitted to 
another agency for offset and the debtor's account is brought current or 
otherwise satisfied, the Certifying Official will complete Form AD-343 
and send it to the National Office, FMAS. FMAS will notify the paying 
agency with Form AD-343 that the debtor is no longer delinquent or 
indebted and to cancel the offset. A copy of the cancellation document 
will be sent to the debtor and the Finance Office, Attn: Account 
Settlement Unit.
    (n) Intra-departmental transfer. When an FmHA or its successor 
agency under Public Law 103-354 employee who is indebted to one agency 
in USDA transfers to another agency within USDA, a copy of the repayment 
schedule should be forwarded by the agency personnel office to the new 
employing agency. The NFC will continue to make deductions until full 
recovery is effected.
    (o) Liquidation from final checks. Upon the determination that an 
employee owing a debt to FmHA or its successor agency under Public Law 
103-354 is to retire, resign, or employment otherwise ends, the 
Certifying Official should forward a telegram with the appropriate 
employee identification and amount of the debt to the NFC. The telegram 
should request that the debt be collected from final salary/lump sum 
leave or other funds due the employee, and, if necessary, to put a hold 
on the retirement funds. The telegram information should be confirmed by 
completion of Form AD-343. Collection from retirement funds will be in 
accordance with Departmental Administrative Offset procedures (7 CFR 
Part 3, Subpart B, Sec. 3.32).
    (p) Coordination with other agencies. (1) If FmHA or its successor 
agency under Public Law 103-354 is the creditor agency but not the 
paying agency, the Certifying Official will submit Form AD-343 to the 
National Office, FMAS, to begin salary offset against an indebted 
employee. The request will include a certification as to the 
determination of indebtedness, and that FmHA or its successor agency 
under Public Law 103-354 has complied with applicable regulations and 
instruction for submitting the funds to the Finance Office. (See FmHA or 
its successor agency under Public Law 103-354 Form Letter 1951-6).
    (2) When an employee of FmHA or its successor agency under Public 
Law 103-354 owes a debt to another Federal agency, salary offset may be 
used only when the Federal agency certifies that the person owes the 
debt and that the Federal agency has complied with its regulations. The 
request must include the creditor agency's certification as to the 
indebtedness, including the amount, and that the employee has been given 
the due process entitlements guaranteed by the Debt Collection Act of 
1982. When a request for offset is received, FmHA or its successor 
agency under Public Law 103-354 will notify the employee and NFC and 
arrange for offset. (See FmHA or its successor agency under Public Law 
103-354 Form Letter 1951-7).
    (q) Deductions by the National Finance Center (NFC). The NFC will 
automatically deduct the full amount of the delinquency or indebtedness 
if less than 15 percent of disposable pay or 15 percent of disposable 
pay if the delinquency or indebtedness exceeds 15 percent, unless the 
creditor agency advises otherwise. Deductions will begin the second pay 
period after the 30-day notification period has expired unless FmHA or 
its successor agency under Public Law 103-354 issues the notice. If FmHA 
or its successor agency under Public Law 103-354 issues the notice, the 
NFC will begin deductions on the first pay period after receipt of the 
Form AD-343.
    (r) Interest, penalties and administrative costs. Interest and 
administrative

[[Page 36]]

costs will normally be assessed on outstanding claims being collected by 
salary offset. However, penalties should not be charged routinely on 
debts being collected in installments by salary offsets, since it is not 
to be construed as a failure to pay within a given time period. 
Additional interest, penalties, and administrative costs will not be 
assessed on delinquent loans until FmHA or its successor agency under 
Public Law 103-354 publishes regulations permitting such charges.
    (s) Adjustment in rate of repayment. (1) When an employee who is 
indebted receives a reduction in basic pay that would cause the current 
deductions to exceed 15 percent of disposable pay, and the employee has 
not consented in writing to a greater amount, FmHA or its successor 
agency under Public Law 103-354 must take action to reduce the amount of 
the deductions to 15 percent of the new amount of disposable pay. Upon 
an increase in basic pay which results in the current deductions to be 
less than the specified percentage, FmHA or its successor agency under 
Public Law 103-354 may increase the amount of the deductions 
accordingly. In either case, when a change is made the employee will be 
notified in writing.
    (2) When an employee has an existing reduced repayment schedule 
because of financial hardship, the creditor agency may arrange for a new 
repayment schedule.
[52 FR 18544, May 18, 1987, as amended at 53 FR 44178, Nov. 2, 1988; 54 
FR 26945, June 27, 1989; 62 FR 41799, Aug. 1, 1997]



Secs. 1951.112--1951.120  [Reserved]



Sec. 1951.121  Internal Revenue Service (IRS) offset.

    The IRS can reduce a taxpayer's overpayment of tax by the amount of 
any legally enforceable debt owed to a Federal agency. This subpart 
establishes procedures to implement IRS offsets. Borrowers referred to 
IRS for offset will continue to be serviced as required by Sec. 1951.312 
of subpart G of part 1951 of this chapter.
[54 FR 966, Jan. 11, 1989]



Sec. 1951.122  Finance Office screening.

    The FmHA or its successor agency under Public Law 103-354 Finance 
Office will screen the accounts of all borrowers potentially eligible 
for IRS Offset. FmHA or its successor agency under Public Law 103-354 
field offices will further screen these accounts based on the following 
ineligibility criteria. The Finance Office will determine the 
appropriate date for this screening based on IRS deadlines.
    (a) General. All past due single family housing (SFH) and farmer 
program (FP) accounts are eligible for IRS Offset unless they meet one 
or more of the following criteria:
    (1) Account has been referred to OGC for foreclosure and, based on 
the legal opinion required by Sec. 1951.103(c), a collection by offset 
would jeopardize the litigation under State law. Existence of a 
foreclosure action pending flag is not a determining factor.
    (2) Account has been discharged in bankruptcy or is under the 
jurisdiction of a bankruptcy court and the debt has not been reaffirmed. 
Existence of a bankruptcy action pending flag is not a determining 
factor.
    (3) Account has a suspend code.
    (4) Account has been assigned to a collection agency.
    (5) Account is past due by less than $25, or if the borrower has 
multiple loans, the net amount past due is less than $25.
    (6) Borrower is a Federal employee and collection is feasible under 
salary offset.
    (7) Borrower was indebted to FmHA or its successor agency under 
Public Law 103-354 prior to entering full time active duty military 
service and the account is being serviced in accordance with FmHA or its 
successor agency under Public Law 103-354 Instruction 1950-C.
    (8) Account is current under a subject to approved adjustment (SAA).
    (b) Single Family Housing Borrowers. In addition to the criteria set 
forth in Sec. 1951.122(a), the following criteria are for delinquent SFH 
borrowers:
    (1) Borrower has one loan and it is less than 3 monthly payments 
delinquent (or, if annual borrower, the

[[Page 37]]

equivalent of less than 3 monthly payments for annual payments past due) 
or more than 9 years delinquent.
    (2) Borrower has multiple loans, and the net amount past due is less 
than 3 monthly payments on the delinquent loans (or the equivalent of 3 
monthly payments for annual payment borrowers).
    (3) Account is under a moratorium.
    (4) Account has an Additional Payment Agreement (APA) in effect and 
payments under the APA are less than 3 months past due.
    (c) Farmer Program Borrowers. In addition to the criteria set forth 
in Sec. 1951.122(a), the following criteria are for delinquent FP 
borrowers:
    (1) Borrower is a partnership or corporation and/or is identified in 
the accounting system by an employer Identification Number (EIN rather 
than a Social Security Number (SSN).
    (2) Account is less than 90 days past due.
    (d) Servicing Condition Requirements for Farmer Program Borrowers. 
The FP accounts remaining after screening from Sec. 1951.122 (a) and (c) 
are eligible for IRS offset only if either of the following servicing 
conditions takes place, whichever comes first:
    (1) Borrower has received any combination of Attachments 3 through 
10 of Exhibit A of subpart S of this part; and the borrower did not 
request an appeal of the decision; any appeal has been concluded; or
    (2) Borrower's account(s) has been accelerated.
[55 FR 38035, Sept. 17, 1990, as amended at 55 FR 52037, Dec. 19, 1990]



Sec. 1951.123  Field office screening.

    Accounts determined by computer screening in the Finance Office to 
be potentially eligible will be referred to the IRS and to the 
appropriate FmHA or its successor agency under Public Law 103-354 County 
Office for review. If the County Office is aware that any account should 
be removed for any of the reasons set forth in Sec. 1951.122, the County 
Office will remove the account in accordance with the instructions 
accompanying the list, ``Borrowers Eligible for Offset (prior to 60-day 
notice).'' Borrowers who are removed by the County Office will not 
receive an offset letter, and no further action is necessary concerning 
borrowers removed. The Finance Office will remove those accounts 
identified as ineligible by County Offices and provide this information 
to IRS in accordance with IRS deadlines and procedures.
[54 FR 967, Jan. 11, 1989, as amended at 55 FR 38036, Sept. 17, 1990]



Sec. 1951.124  Notice to borrowers.

    The Finance Office will send FmHA or its successor agency under 
Public Law 103-354 Form Letter 1951-6 to each borrower who still appears 
to be eligible for IRS offset after County Office screening and a 
computer screening using the latest account information that is 
available. This letter must be mailed to ensure that borrowers receive 
their letters no later than October 15. Borrowers will have 60 days from 
the date of receipt to provide evidence in writing to the County 
Supervisor that their debt is less than 3 months delinquent or that the 
debt is not legally enforceable. Borrowers who reduce their debt to less 
than 3 months past due during this 60-day period will not be offset.
[54 FR 967, Jan. 11, 1989, as amended at 55 FR 38036, Sept. 17, 1990]



Sec. 1951.125  Processing borrowers' requests not to exercise IRS offset.

    If a borrower responds to FmHA or its successor agency under Public 
Law 103-354 Form Letter 1951-C-6 within 60 days from the date of 
receipt, the County Supervisor will review the borrower's reasons for 
believing that the debt is either less than 3 months delinquent or is 
not legally enforceable. After such determination, the County Supervisor 
will send the borrower FmHA or its successor agency under Public Law 
103-354 Form Letter 1951-C-9 advising the borrower if offset will be 
exercised.
[55 FR 38036, Sept. 17, 1990, as amended at 55 FR 52037, Dec. 19, 1990]



Sec. 1951.126  Final referral to IRS.

    All accounts not eliminated will be sent to IRS for offset and 
Report Code 865, Borrower Accounts Submitted to IRS for Offset Report, 
sent to each appropriate County Office. Each County

[[Page 38]]

Office will review the list on Report Code 865 upon receipt, and each 
week thereafter. This weekly review will continue until September 1 for 
the previous year's submission, or until action has been taken on each 
account (offset or removal). If any of the events listed under 
Sec. 1951.122 of this subpart occurs, immediately submit Form FmHA or 
its successor agency under Public Law 103-354 1951-43, ``Adjustment of 
Accounts Referred for IRS Offset,'' in accordance with the FMI for that 
form. All accounts referred to the IRS for offset will be reported to a 
credit bureau by the Finance Office.
[55 FR 38036, Sept. 17, 1990, as amended at 55 FR 52037, Dec. 19, 1990]



Sec. 1951.127  Processing of amounts offset.

    After IRS effects an offset, IRS will notify the Finance Office. The 
Finance Office may deduct an amount equal to IRS' processing costs from 
the amount offset to reimburse the Agency for the cost of processing the 
offset, will credit the borrower's account for the amount required and 
will notify the appropriate County Office. The County Supervisor will 
review Report Code 222-C, Weekly Offset Report (Cash Collections IRS 
Offset), to ensure that any borrower who would have been eliminated from 
offset due to the provisions of Sec. 1951.122 of this subpart was not 
subjected to an offset. If the offset was not correct, the County 
Supervisor will immediately notify the Finance Office of any such 
offsets using FmHA or its successor agency under Public Law 103-354 Form 
Letter 1951-5. This Form Letter will be processed by the Finance Office 
and a refund, including the processing fee, will be sent to the 
borrower. If the offset is correct, Finance and County Office records 
will be adjusted accordingly.
[54 FR 967, Jan. 11, 1989, as amended at 55 FR 38036, Sept. 17, 1990]



Sec. 1951.128  Receipt of Finance Office/IRS offset reports and listings.

    The Finance Office will provide a copy of the reports or listings in 
Sec. 1951.129 through Sec. 1951.135 of this subpart to each servicing 
county. County Supervisors are responsible for ensuring the field 
offices review each report and respond to the timeframes as indicated.
[55 FR 38036, Sept. 17, 1990]



Sec. 1951.129  Borrowers eligible for offset (prior to 60-day notice).

    This listing includes borrowers eligible for offset after Finance 
Office screening. The field office will screen all borrowers in 
accordance with Sec. 1951.122 of this subpart. Borrowers meeting any of 
the ineligibility criteria must be eliminated by drawing a line through 
the borrower's name. When all borrowers have been reviewed for offset 
eligibility, the original list must be sent to the Chief, Computer 
Resources Branch, mail code FC-353, in the Finance Office. These lists 
must be received no later than 1 month after the date of receipt, since 
the Finance Office will use the information provided to generate letters 
to borrowers informing them of potential IRS offset. No borrowers may be 
added to this list by the field office. A copy of this list should be 
retained by each field office. If a borrower is ineligible for IRS 
offset due to any of the exclusion criteria in Sec. 1951.122 and that 
borrower's account does not reflect that exclusion criteria in the 
accounting system, the field offices must ensure that the account be 
updated immediately.
[55 FR 38036, Sept. 17, 1990]



Sec. 1951.130  Borrowers sent due process notices for IRS/Credit Bureau referrals.

    This listing includes those borrowers remaining eligible for offset 
after field office screening and who were sent notices of the intent to 
offset their tax refund. The notice advises the borrower that they have 
60 days from the date of receipt of the letter in which to provide 
written information to their FmHA or its successor agency under Public 
Law 103-354 County Supervisor to show that offset should not be 
exercised. A borrower who has provided written notification and it has 
been determined the he/she meets the criteria under Sec. 1951.122 of 
this subpart must be eliminated by drawing a line through the borrower's 
name on the listing. When all borrowers have been reviewed for offset 
eligibility, the original must be

[[Page 39]]

sent to the Chief, Computer Resources Branch, mail code FC-353, in the 
Finance Office. These lists must be received no later than 2 months 
after the date of receipt, since the Finance Office will use the 
information provided on these lists to create the IRS annual 
certification tape. No borrowers may be added to this list by the field 
office. A copy of this list should be retained by each field office. If 
a borrower is ineligible for IRS offset due to any of the exclusion 
criteria in Sec. 1951.122 and that borrower's account does not reflect 
that exclusion criteria in the accounting system, the field offices must 
ensure that the account be updated immediately.
[55 FR 38037, Sept. 17, 1990]



Sec. 1951.131  Form FmHA or its successor agency under Public Law 103-354 389-833, Borrower Accounts Submitted to IRS for Offset Report, RC 865.

    This report lists borrowers remaining eligible for offset after the 
60-day notice period and who were referred to IRS for offset. This 
report should be retained by the field office and referred to when 
decreasing an amount referred for offset or deleting a borrower from IRS 
offset using Form FmHA or its successor agency under Public Law 103-354 
1951-43.
[55 FR 38037, Sept. 17, 1990]



Sec. 1951.132  Form FmHA or its successor agency under Public Law 103-354 389-760, Annual Unprocessable Report IRS Offset, RC 822-C.

    This report lists those borrowers who were referred to IRS for 
offset, but were returned by IRS as evidenced by the applicable error 
code. These borrowers will not be offset by IRS. This report should be 
retained by each field office. It is not necessary to complete Form FmHA 
or its successor agency under Public Law 103-354 1951-43 for borrowers 
listed on this report.
[55 FR 38037, Sept. 17, 1990]



Sec. 1951.133  Form FmHA or its successor agency under Public Law 103-354 389-761, Annual No Match Report IRS Offset, RC 822-D.

    This report lists those borrowers who were referred to IRS for 
offset, but were returned by IRS as evidenced by the applicable error 
code. These borrowers will not be offset by IRS. This report should be 
retained by each field office. It is not necessary to complete Form FmHA 
or its successor agency under Public Law 103-354 1951-43 for borrowers 
listed on this report.
[55 FR 38037, Sept. 17, 1990]



Sec. 1951.134  Form FmHA or its successor agency under Public Law 103-354 389-764, Weekly Offset Report (Cash Collections) IRS Offset, RC 222-C.

    This report lists those borrowers whose income tax refund was offset 
by IRS and the amount offset. Except for a minimal processing fee that 
may be deducted, all monies collected from an offset will be applied 
toward the borrower's delinquent loan(s). If an offset does not repay 
all of the delinquent amount, the borrower is subject to additional 
offsets if more than one tax year return is filed.
    This report should be retained by each field office and referred to 
if it has been determined a borrower has been erroneously offset. The 
field office should use the amount offset from this report when 
following the instructions outlined in Sec. 1951.127 for refunding the 
offset to the borrower.
[55 FR 38037, Sept. 17, 1990]



Sec. 1951.135  Form FmHA or its successor agency under Public Law 103-354 389-763, Weekly Claims Report IRS Offset, RC 222-D.

    This report lists those borrowers whose spouses were issued a refund 
by IRS. These borrowers filed a joint tax return and incurred the debt 
separately from their spouses who had no legal responsibility for the 
debt and who had income and withholding and/or estimated tax payments. 
The report shows the actual amount offset for the borrower only. The 
spouses' portion of the income tax refund was not offset. It is not 
necessary to prepare FmHA or its successor agency under Public Law 103-
354 Form Letter 1951-5 for these borrowers since the borrower's spouse 
has already received a refund from IRS. Upon receipt of this report, 
field offices should annotate on RC 222-C (Sec. 1951-134)

[[Page 40]]

the actual amount offset for those borrowers listed in this report. This 
report should be retained by each field office.
[55 FR 38037, Sept. 17, 1990]



Secs. 1951.136--1951.149  [Reserved]



Sec. 1951.150  OMB control number.

    The collection of information requirements in this regulation have 
been approved by the Office of Management and Budget and assigned OMB 
control number 0575-0119.
[51 FR 42821, Nov. 26, 1986]



                    Subpart D--Final Payment on Loans

    Source: 57 FR 774, Jan. 9, 1992, unless otherwise noted.



Sec. 1951.151  Purpose.

    This subpart prescribes authorizations, policies, and procedures of 
the Farm Service Agency (FSA), Rural Housing Service (RHS), Rural 
Utility Service (RUS) for its water and waste programs, and Rural 
Business-Cooperative Service (RBS), herein referred to as ``Agency,'' 
for processing final payment on all loans. This subpart does not apply 
to direct single family housing customers of the RHS.
[61 FR 59778, Nov. 22, 1996]



Sec. 1951.152  Definition.

    As used in this subpart:
    Mortgage. Includes real estate mortgage, deed of trust or any other 
form of security instrument or lien on real property.



Sec. 1951.153  Chattel security or note-only cases.

    (a) If a loan secured by both real estate and chattels is paid in 
full, the chattel security instrument will be satisfied or released in 
accordance with subpart A of part 1962 of this chapter.
    (b) When a loan is evidenced by only a note and the note is paid in 
full, FmHA or its successor agency under Public Law 103-354 will deliver 
the note to the borrower in the manner prescribed in Sec. 1951.155(c) of 
this subpart.



Sec. 1951.154  Satisfaction and release of documents.

    (a) Authorization. FmHA or its successor agency under Public Law 
103-354 is authorized to execute the necessary releases and 
satisfactions and return security instruments and related documents to 
borrowers. Satisfaction and release of security documents takes place:
    (1) Upon receipt of payment in full of all amounts owed to the 
Government including any amounts owed to the loan insurance account, 
subsidy recapture amounts, all loan advances and/or other charges to the 
borrower's account;
    (2) Upon verification that the amount of payment received is 
sufficient to pay the full amount owed by the borrower; or
    (3) When a compromise or adjustment offer has been accepted and 
approved by the appropriate Government official in full settlement of 
the account and all required funds have been paid.
    (b) [Reserved]
    (c) Lost note. If the original note is lost FmHA or its successor 
agency under Public Law 103-354 will give the borrower an affidavit of 
lost note so that the release or satisfaction may be processed.



Sec. 1951.155  County and/or District Office actions.

    (a) Funds remaining in supervised bank accounts. When a borrower is 
ready to pay an insured or direct loan in full, any funds remaining in a 
supervised bank account will be withdrawn and remitted for application 
to the borrower's account. If the entire principal of the loan is 
refunded after the loan is closed, the borrower will be required to pay 
interest from the date of the note to the date of receipt of the refund.
    (b) Determining amount to be collected. FmHA or its successor agency 
under Public Law 103-354 will compute and verify the amount to be 
collected for payment of an account in full. Requests for payoff 
balances on all accounts will be furnished in writing in a format 
specified by FmHA or its successor agency under Public Law 103-354 
(available in any FmHA or its successor agency under Public Law 103-354 
office).

[[Page 41]]

    (c) Delivery of satisfaction, notes, and other documents. When the 
remittance which paid an account in full has been processed by FmHA or 
its successor agency under Public Law 103-354, the paid note and 
satisfied mortgage may be returned to the borrower. If other provisions 
exist, the mortgage will not be satisfied until the total indebtedness 
secured by the mortgage is paid. For instance, in a situation where a 
rural housing loan is paid-in-full and there is a subsidy recapture 
receivable balance that the borrower elects to delay repaying, the 
amount of recapture to be repaid will be determined when the principal 
and interest balance is paid. The mortgage securing the RHS, RBS, RUS, 
and/or FSA or its successor agency under Public Law 103-354 debt will 
not be released of record until the total amount owed the Government is 
repaid. To permit graduation or refinancing by the borrower, the 
mortgage securing the recapture owed may be subordinated.
    (1) If FmHA or its successor agency under Public Law 103-354 
receives final payments in a form other than cash, U.S. Treasury check, 
cashier's check, certified check, money order, bank draft, or check 
issued by an institution determined by FmHA or its successor agency 
under Public Law 103-354 to be financially responsible, the mortgage and 
paid note will not be released until after a 30-day waiting period. If 
other indebtedness to FmHA or its successor agency under Public Law 103-
354 is not secured by the mortgage, FmHA or its successor agency under 
Public Law 103-354 will execute the satisfaction or release. When the 
stamped note is delivered to the borrower, FmHA or its successor agency 
under Public Law 103-354 will also deliver the real estate mortgage and 
related title papers such as title opinions, title insurance binders, 
certificates of title, and abstracts which are the property of the 
borrower. Any water stock certificates or other securities that are the 
property of the borrower will be returned to the borrower. Also, any 
assignments of income will be terminated as provided in the assignment 
forms.
    (2) Delivery of documents at the time of final payment will be made 
when payment is in the form of cash, U.S. Treasury check, cashier's 
check, certified check, money order, bank draft, or check issued by an 
institution determined by FmHA or its successor agency under Public Law 
103-354 to be responsible. FmHA or its successor agency under Public Law 
103-354 will not accept payment in the form of foreign currency, foreign 
checks or sight drafts. FmHA or its successor agency under Public Law 
103-354 will execute the satisfaction or release (unless other 
indebtedness to FmHA or its successor agency under Public Law 103-354 is 
covered by the mortgage) and mark the original note with a paid-in-full 
legend based upon receipt of the full payment balance of the borrower's 
account(s), computed as of the date final payment is received. In 
unusual cases where an insured promissory note is held by a private 
holder, FmHA or its successor agency under Public Law 103-354 can 
release the mortgage and deliver the note when it is received.
    (d)-(e) [Reserved]
    (f) Cost of recording or filing of satisfaction. The satisfaction or 
release will be delivered to the borrower for recording and the 
recording costs will be paid by the borrower, except when State law 
requires the mortgagee to record or file satisfactions or release and 
pay the recording costs.
    (g) Property insurance. When the borrower's loan has been paid-in-
full and the satisfaction or release of the mortgage has been executed, 
FmHA or its successor agency under Public Law 103-354 may release the 
mortgage interest in the insurance policy as provided in subpart A of 
part 1806 of this chapter (FmHA or its successor agency under Public Law 
103-354 Instruction 426.1).
    (h) [Reserved]
    (i) Outstanding Loan Balance(s). FmHA or its successor agency under 
Public Law 103-354 will attempt to collect any account balance(s) that 
may result from an error by FmHA or its successor agency under Public 
Law 103-354 in handling final payments according to paragraph 
1951.155(b) of this section. If collection cannot be made, the debt will 
be settled according to subpart B of part 1956 of this chapter or 
reclassified to collection-only. A deficiency judgment may be considered 
if the balance is a significant amount

[[Page 42]]

($1,000 or more) and the borrower has known assets.

57 FR 774, Jan. 9, 1992, as amended at 60 FR 55145, Oct. 27, 1995]



Secs. 1951.156--1951.200  [Reserved]



Subpart E--Servicing of Community and Direct Business Programs Loans and 
                                 Grants

    Source: 55 FR 4399, Feb. 8, 1990, unless otherwise noted.



Sec. 1951.201  Purposes.

    This subpart prescribes the Rural Development mission area policies, 
authorizations, and procedures for servicing Water and Waste Disposal 
System loans and grants; Community Facility loans and grants; Rural 
Business Enterprise/Television Demonstration grants; loans for Grazing 
and other shift-in-land-use projects; Association Recreation loans; 
Association Irrigation and Drainage loans; Watershed loans and advances; 
Resource Conservation and Development loans; Direct Business loans; 
Economic Opportunity Cooperative loans; loans to Indian Tribes and 
Tribal Corporations; Rural Renewal loans; Energy Impacted Area 
Development Assistance Program grants; National Nonprofit Corporation 
grants; Water and Waste Disposal Technical Assistance and Training 
grants; Emergency Community Water Assistance grants; System for Delivery 
of Certain Rural Development Programs panel grants; section 306C WWD 
loans and grants; and Rural and Cooperative Development Grants in 
subpart F of part 4284 of this title. Rural Development State Offices 
act on behalf of the Rural Utilities Service, the Rural Business-
Cooperative Service, and the Farm Service Agency as to loan and grant 
programs formerly administered by the Farmers Home Administration and 
the Rural Development Administration. Loans sold without insurance to 
the private sector will be serviced in the private sector and will not 
be serviced under this subpart. The provisions of this subpart are not 
applicable to such loans. Future changes to this subpart will not be 
made applicable to such loans.
[62 FR 33510, June 19, 1997, as amended at 62 FR 42387, Aug. 7, 1997]



Sec. 1951.202  Objectives.

    The purpose of loan and grant servicing functions is to assist 
recipients to meet the objectives of loans and grants, repay loans on 
schedule, comply with agreements, and protect FmHA or its successor 
agency under Public Law 103-354's financial interest. Supervision by 
FmHA or its successor agency under Public Law 103-354 includes, but is 
not limited to, review of budgets, management reports, audits and 
financial statements; performing security inspections and providing, 
arranging for, or recommending technical assistance; evaluating 
environmental impacts of proposed actions by the borrower; and 
performing civil rights compliance reviews.



Sec. 1951.203  Definitions.

    (a) Approval official. An official who has been delegated loan and/
or grant approval authorities within applicable programs, subject to the 
dollar limitations of exhibits A, B, and C of subpart A of part 1901 of 
this chapter (available in any FmHA or its successor agency under Public 
Law 103-354 office).
    (b) Assumption of debt. The agreement by one party to legally bind 
itself to pay the debt incurred by another.
    (c) CONACT. The Consolidated Farm and Rural Development Act, as 
amended.
    (d) Eligible applicant. An entity that would be legally qualified 
for financial assistance under the loan or grant program involved in the 
servicing action.
    (e) Ineligible applicant. An entity or individual that would not be 
considered eligible for financial assistance under the loan or grant 
program involved in the servicing action.
    (f) Nonprogram (NP) loan. An NP loan exists when credit is extended 
to an ineligible applicant and/or transferee in connection with loan 
assumptions or sale of inventory property; any recipient in cases of 
unauthorized assistance; or a recipient whose legal organization has 
changed as set forth in Sec. 1951.220(e)

[[Page 43]]

of this subpart resulting in the borrower being ineligible for program 
benefits.
    (g) Servicing office. The State, District, or County Office 
responsible for immediate servicing functions for the borrower or 
grantee.
    (h) Transfer fee. A one-time nonrefundable application fee, charged 
to ineligible applicants for FmHA or its successor agency under Public 
Law 103-354 services rendered in the processing of a transfer and 
assumption.



Sec. 1951.204  Nondiscrimination.

    Each instrument of conveyance required for a transfer, assumption, 
or other servicing action under this subpart will contain the following 
covenant.

    The property described herein was obtained or improved with Federal 
financial assistance and is subject to the nondiscrimination provisions 
of title VI of the Civil Rights Act of 1964, title IX of the Education 
Amendments of 1972, section 504 of the Rehabilitation Act of 1973, and 
other similarly worded Federal statutes, and the regulations issued 
pursuant thereto that prohibit discrimination on the basis of race, 
color, national origin, handicap, religion, age, or sex in programs or 
activities receiving Federal financial assistance. Such provisions apply 
for as long as the property continues to be used for the same or similar 
purposes for which the Federal assistance was extended, for so long as 
the purchaser owns it, whichever is later.



Sec. 1951.205  Redelegation of authority.

    Servicing functions under this subpart which are specifically 
assigned to the State Director may be redelegated in writing to an 
appropriate sufficiently trained designee.



Sec. 1951.206  Forms.

    Forms utilized for actions under this subpart are to be modified 
appropriately where necessary to adapt the forms for use by corporate 
recipients rather than individuals.



Sec. 1951.207  State supplements.

    State supplements developed to carry out the provisions of this 
subpart will be prepared in accordance with subpart B of part 2006 of 
this chapter (available in any FmHA or its successor agency under Public 
Law 103-354 office) and applicable State laws and regulations. State 
supplements are to be used only when required by National Instructions 
or necessary to clarify the impact of State laws or regulations, and not 
to restate the provisions of National Instructions. Advice and guidance 
will be obtained as needed from the Office of the General Counsel (OGC).



Secs. 1951.208--1951.209  [Reserved]



Sec. 1951.210  Environmental requirements.

    Servicing activities such as transfers, assumptions, subordinations, 
sale or exchange of security property, and leasing of security will be 
reviewed for compliance with subpart G of part 1940 of this chapter. The 
appropriate environmental review will be completed prior to approval of 
the servicing action. When National Office approval is required, the 
completed environmental review will be included with other information 
submitted.



Sec. 1951.211  Refinancing requirements.

    In accordance with the CONACT, FmHA or its successor agency under 
Public Law 103-354 requires for most loans covered by this subpart that 
if at any time it shall appear to the Government that the borrower is 
able to refinance the amount of the indebtedness then outstanding, in 
whole or in part, by obtaining a loan for such purposes from responsible 
cooperative or private credit sources, at reasonable rates and terms for 
loans for similar purposes and periods of time, the borrower will, upon 
request of the Government, apply for and accept such loan in sufficient 
amount to repay the Government and will take all such actions as may be 
required in connection with such loan. Applicable requirements are set 
forth in subpart F of part 1951 of this chapter.



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,

[[Page 44]]

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 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

[[Page 45]]

feasible according to the provisions of this subpart. With prior 
National Office approval, the State Director is authorized to vary from 
such provisions if necessary and approved by OGC, provided such 
variation will not violate other regulatory or statutory provisions. To 
request approval, the case file, including copies of applicable 
documents, recommendations, and OGC comments, will be forwarded to the 
Administrator, Attention: (appropriate program division).



Secs. 1951.218--1951.219  [Reserved]



Sec. 1951.220  General servicing actions.

    (a) Payment in full. Payment in full of a loan is handled according 
to subpart D of part 1951 of this chapter. When a loan is paid in full, 
the servicing official will:
    (1) Notify the company providing fidelity bond coverage in writing 
that the government no longer has an interest in the bond if the 
government is named co-obligee on the bond.
    (2) Release FmHA or its successor agency under Public Law 103-354's 
interest in insurance policies according to applicable provisions of 
subpart A of part 1806 (FmHA or its successor agency under Public Law 
103-354 Instruction 426.1).
    (3) Release FmHA or its successor agency under Public Law 103-354's 
interest in any other security as appropriate, consulting with OGC if 
necessary.
    (b) Loan summary statements. Upon request of a borrower, FmHA or its 
successor agency under Public Law 103-354 will issue a loan summary 
statement showing account activity for each loan made or insured under 
the CONACT. Field offices will post a notice on the bulletin board 
informing borrowers of the availability of loan summary statements. See 
exhibit A of subpart A of this part for a sample of the required notice.
    (1) The loan summary statement period is from January 1 through 
December 31. The Finance Office forwards to field offices a copy of Form 
FmHA or its successor agency under Public Law 103-354 1951-9, ``Annual 
Statement of Loan Account,'' to be retained in borrower files as a 
permanent record of account activity for the year.
    (2) Quarterly Forms FmHA or its successor agency under Public Law 
103-354 1951-9 are retained in the Finance Office on microfiche. These 
statements reflect cumulative data from the beginning of the current 
year through the end of the most recent quarter. Servicing offices may 
request copies of these quarterly or annual statements by sending Form 
FmHA or its successor agency under Public Law 103-354 1951-57, ``Request 
for Loan Summary Statement,'' to the Finance Office.
    (3) The servicing office will provide a copy of the applicable loan 
summary statement to the borrower on request. A copy of Form FmHA or its 
successor agency under Public Law 103-354 1951-9 and, for loans with 
unamortized installments, a printout of future installments owed 
obtained using the borrower status screen option in the Automated 
Discrepancy Processing System (ADPS), will constitute the loan summary 
statement to be provided to the borrower.
    (c) Insurance. FmHA or its successor agency under Public Law 103-354 
borrowers shall maintain insurance coverage as follows:
    (1) Community and Insured Business Programs borrowers shall 
continuously maintain adequate insurance coverage as required by the 
loan agreement and Sec. 1942.17(j)(3) of subpart A of part 1942 of this 
chapter. Insurance coverage must be monitored in accordance with the 
above-referenced section to determine that adequate policies and bonds 
are in force.
    (2) For all other types of loans covered by this subpart, property 
insurance will be serviced according to subpart A of part 1806 of this 
chapter (FmHA or its successor agency under Public Law 103-354 
Instruction 426.1) in 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-

[[Page 46]]

354's lien, such taxes are serviced according to Secs. 1925.3 and 1925.4 
of subpart A of part 1925 of this chapter.
    (e) Changes in borrower's legal organization. (1) The State Director 
may approve, with OGC's concurrence, changes in a recipient's legal 
organization, including revisions of articles of incorporation or 
charter and bylaws, when:
    (i) The change does not provide for a sole member type of 
organization;
    (ii) The borrower retains control over its assets and the operation, 
management, and maintenance of the facility, and continues to carry out 
its responsibilities as set forth in Sec. 1942.17(b)(4) of subpart A of 
part 1942 of this chapter; and
    (iii) The borrower retains significant local ties with the rural 
community.
    (2) The State Director may approve, with prior concurrence of the 
Administrator, changes in a recipient's legal organization which result 
in a sole member type of organization, or any other change which results 
in a recipient's loss of control over its assets and/or the operation, 
management and maintenance of the facility, provided all of the 
following have been or will be met:
    (i) The change is in the best interest of the Government;
    (ii) The State Director determines and documents that other 
servicing options under this subpart, such as sale or transfer and 
assumption, have been explored and are not feasible;
    (iii) The loan is classified as a nonprogram loan;
    (iv) The borrower is notified that it is no longer eligible for any 
program benefits, but will remain responsible under the loan agreement; 
and
    (v) Prior concurrence of the Administrator is obtained. Requests 
will be forwarded to the Administrator: Attention (appropriate program 
division), and will include the case file; Exhibit A of this subpart 
(available in any FmHA or its successor agency under Public Law 103-354 
office), appropriately completed; the proposed changes; OGC comments; 
and any other necessary supporting information.
    (f) Membership liability. As a loan approval requirement, some 
borrowers may have special agreements with members of the purchase of 
shares of stock or for payment of a pro rata share of the loan in the 
event of default, or they may have authority in their corporate 
instruments to make special assessments in that event. Such agreements 
may be referred to as individual liability agreements and may be 
assigned to and held by FmHA or its successor agency under Public Law 
103-354 as additional security. In other cases the borrower's note may 
be endorsed by individuals. The liability instruments will be serviced 
in a manner indicated by their contents and the advice of OGC to 
adequately protect FmHA or its successor agency under Public Law 103-
354's interest. Servicing actions necessary due to such provisions will 
be noted on Form FmHA or its successor agency under Public Law 103-354 
1905-10, ``Management System Card--Association.''
    (g) Other security. Other security such as collateral assignments, 
water stock certificates, notices of lienholder interest (Bureau of Land 
Management grazing permits) and waivers of grazing privileges (Forest 
Service grazing permits) will be serviced to protect the interest of 
FmHA or its successor agency under Public Law 103-354, and in compliance 
with any special servicing actions developed by the State Director with 
OGC assistance. Evidence of the security will be filed in the servicing 
office case file. Necessary servicing actions will be noted on Form FmHA 
or its successor agency under Public Law 103-354 1905-10.
    (h) Correcting errors in security instruments. Land, buildings, or 
chattels included in a mortgage through mutual mistake may be released 
from the mortgage by the State Director when substantiated by the 
factual situation. The release is contingent on the State Director 
determining, with OGC advice, that the property was included due to 
mutual error.
    (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

[[Page 47]]

price. A current appraisal report may be required.
    (2) Security representing a relatively large portion of the total 
value of the security property. The approval official will require a 
current appraisal report, and the sale prices of the real estate and 
chattels disposed of will at least equal the present market value as 
determined by this appraisal.
    (3) Appraisal report. If required, a current appraisal report will 
be completed in accordance with Sec. 1942.3 of subpart A of part 1942 of 
this chapter. The appraisal will be completed by a qualified FmHA or its 
successor agency under Public Law 103-354 employee or an independent 
appraiser as determined appropriate by the approval official.
[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 775, Jan. 9, 1992; 57 FR 
21199, May 19, 1992; 57 FR 36591, Aug. 14, 1992]



Sec. 1951.221  Collections, payments and refunds.

    Collections are processed in accordance with subpart B of part 1951 
of this chapter. Payments and refunds are handled in accordance with the 
following:
    (a) Community and Insured Business Programs. (1) Field offices can 
obtain data on principal installments due for Community and Insured 
Business Programs loans with unamortized installments using the borrower 
status screen option in the ADPS.
    (2) Regular payments for Community and Insured Business Programs 
borrowers are all payments other than extra payments and refunds. Such 
payments are usually derived from facility revenues, and do not include 
proceeds from the sale of security. They also include payments derived 
from sources which do not decrease the value of FmHA or its successor 
agency under Public Law 103-354's security.
    (i) Distribution of such payments is made as follows:
    (A) First, to the FmHA or its successor agency under Public Law 103-
354 loan(s) in proportion to the delinquency existing on each. Any 
excess will be distributed in accordance with paragraphs (a)(2)(i) (B) 
and (C) of this section.
    (B) Second, to the FmHA or its successor agency under Public Law 
103-354 loan or loans in proportion to the approximate amounts due on 
each. Any excess will be distributed according to paragraph (a)(2)(i)(C) 
of this section.
    (C) Third, as advance payments on FmHA or its successor agency under 
Public Law 103-354 loans. In making such distributions, consider the 
principal balance outstanding on each loan, the security position of the 
liens securing each loan, the borrower's request, and related 
circumstances.
    (ii) Unless otherwise established by the debt instrument, regular 
payments will be applied as follows:
    (A) For amortized loans, first to interest accrued (as of the date 
of receipt of the payment), and then to principal.
    (B) For principal-plus-interest loans, first to the interest due 
through the date of the next scheduled installment of principal and 
interest and then to principal due, with any balance applied to the next 
scheduled principal installment.
    (3) Extra payments are derived from sale of basic chattel or real 
estate security; refund of unused loan funds; cash proceeds of property 
insurance as provided in Sec. 1806.5(b) of subpart A of part 1806 
(paragraph V B of FmHA or its successor agency under Public Law 103-354 
Instruction 426.1); and similar actions which reduce the value of basic 
security. At the option of the borrower, regular facility revenue may 
also be used as extra payments when regular payments are current. Unless 
otherwise established in the note or bond, extra payments will be 
distributed and applied as follows:
    (i) First to the account secured by the lowest priority of lien on 
the property from which the extra payment was obtained. Any balance will 
be applied to other FmHA or its successor agency under Public Law 103-
354 loans in ascending order of priority.
    (ii) For amortized loans, first to interest accrued to the date 
payment is 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

[[Page 48]]

and Tribal Corporation Loans. (1) Regular payments for such loans are 
defined in Sec. 1951.8(a) of subpart A of part 1951 of this chapter, and 
are distributed according to Sec. 1951.9(a) of that subpart unless 
otherwise established by the note or bond.
    (2) Extra payments are defined in Sec. 1951.8(b) of subpart A of 
part 1951 of this chapter, and are distributed according to 
Sec. 1951.9(b) of that subpart.



Sec. 1951.222  Subordination of security.

    When a borrower requests FmHA or its successor agency under Public 
Law 103-354 to subordinate a security instrument so that another 
creditor or lender can refinance, extend, reamortize, or increase the 
amount of a prior lien; be on parity with; or place a lien ahead of the 
FmHA or its successor agency under Public Law 103-354 lien, it will 
submit a written request to the servicing office as provided below. For 
purposes of this subpart, subordination is defined to include cases 
where a parity security position is being considered.
    (a) General. The following requirements must normally be met:
    (1) The request must be for subordination of a specific amount of 
the FmHA or its successor agency under Public Law 103-354 indebtedness, 
and the amount must be within the approval official's authority as set 
forth in exhibits A, B, and C of subpart A of part 1901 of this chapter 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (2) It must be determined that the borrower cannot refinance its 
FmHA or its successor agency under Public Law 103-354 debt in accordance 
with subpart F of part 1951 of this chapter.
    (3) The transaction will further the purposes for which the FmHA or 
its successor agency under Public Law 103-354 loan was made, not 
adversely affect the borrower's debt-paying ability, and result in the 
FmHA or its successor agency under Public Law 103-354 debt being 
adequately secured.
    (4) The terms and conditions of the prior lien will be such that the 
borrower can reasonably be expected to meet them as well as the 
requirements of all other debts.
    (5) Any proposed development work will be planned and performed 
according to Sec. 1942.18 of subpart A of part 1942 of this chapter or 
in a manner directed by the creditor which reasonably attains the 
objectives of that section.
    (6) All contracts, pay estimates, and change orders will be reviewed 
and concurred in by the State Director.
    (7) In cases involving land purchase, the FmHA or its successor 
agency under Public Law 103-354 will obtain a mortgage on the purchased 
land.
    (8) When the transaction involves more than $10,000 or the approval 
official considers it necessary, a present market value appraisal report 
will be obtained. However, a new report need not be obtained if there is 
an appraisal report not over one year old which permits a proper 
determination of the present market value of the total property after 
the transaction.
    (9) The proposed action must not change the nature of the borrower's 
activities so as to make it ineligible for FmHA or its successor agency 
under Public Law 103-354 loan assistance.
    (10) Necessary consent and subordination of all other outstanding 
security interests must be obtained.
    (11) For Indian Tribes and Tribal Corporations, loan funds will not 
be used for any purpose that will contribute to excessive erosion of 
highly erodible land or to the conversion of wetlands to produce an 
agricultural commodity as further explained in exhibit M of subpart G of 
part 1940 of this chapter. This requirement will be monitored throughout 
the term of the loan.
    (b) Authorities. Proposals not meeting one or more of the above 
requirements will be submitted to the Administrator, Attention 
(appropriate program division) for prior concurrence. All other 
proposals may be approved by the official with loan approval authority 
under subpart A of part 1901 of this chapter.
    (c) Processing. The case file is to include:
    (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

[[Page 49]]

must contain the purpose of the subordination; exact amount of money or 
property involved; description of security property involved; type of 
security instrument; name, address, line of business and other general 
information pertaining to the party in favor of which the request is 
made; and other pertinent information to evaluate the need for the 
request;
    (2) Current balance sheet;
    (3) If development work is involved, an operating budget on Form 
FmHA or its successor agency under Public Law 103-354 442-7, ``Operating 
Budget,'' or similar form which projects income and expenses through the 
first full year of operation following completion of planned 
improvements; or if no development work is involved, an income statement 
and budget on Form FmHA or its successor agency under Public Law 103-354 
442-2, ``Statement of Budget, Income, and Equity,'' schedules 1 and 2, 
or similar form;
    (4) Copy of proposed security instrument;
    (5) Appraisal report, when applicable;
    (6) OGC opinion on the request;
    (7) Exhibit A of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office), appropriately 
completed;
    (8) Appropriate environmental review; and
    (9) Any other necessary supporting information.
    (d) Closing. All requests for subordination will be closed according 
to instructions from OGC except those which affect only chattel liens 
other than pledges of revenue. FmHA or its successor agency under Public 
Law 103-354's consent on Form FmHA or its successor agency under Public 
Law 103-354 465-1 will be signed concurrently with Form FmHA or its 
successor agency under Public Law 103-354 460-2, ``Subordination by the 
Government,'' when applicable.



Sec. 1951.223  Reamortization.

    (a) State Director authorization. The State Director is authorized 
to approve reamortization of loans under the following conditions:
    (1) The account is delinquent and cannot be brought current within 
one year while maintaining a reasonable reserve;
    (2) The borrower has demonstrated for at least one year by actual 
performance or has presented a budget which clearly indicates that it is 
able to meet the proposed payment schedule;
    (3) The amount being reamortized is within the State Director's loan 
approval authorization; and
    (4) There is no extension of the final maturity date.
    (b) Requests requiring National Office approval. Reamortizations not 
meeting the above conditions require prior National Office approval. 
Requests will be forwarded to the National Office with the case file, 
including:
    (1) Current budget and cash flow prepared on Form FmHA or its 
successor agency under Public Law 103-354 442-2, schedules 1 and 2, or 
similar form;
    (2) Current balance sheet and income statement;
    (3) Exhibit A of this subpart, appropriately completed;
    (4) Form FmHA or its successor agency under Public Law 103-354 1951-
33, ``Reamortization Request,'' completed in accordance with 
Sec. 1951.223(c)(3) of this subpart, when applicable; and
    (5) Any other necessary supporting information.
    (c) Processing. When legally permissible and administratively 
acceptable, the total outstanding principal and interest balances will 
be reamortized rather than only the delinquent amount. Accrued interest 
will be at the rate currently reflected in Finance Office records.
    (1) Reamortizations will be perfected in accordance with OGC closing 
instructions.
    (2) When debt instruments are being modified or new debt instruments 
executed, bond counsel or local counsel, as appropriate, must provide an 
opinion indicating any effect on FmHA or its successor agency under 
Public Law 103-354's security position. The FmHA or its successor agency 
under Public Law 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

[[Page 50]]

will be reamortized through a new evidence of debt unless OGC recommends 
that the terms of the existing document be modified. Form FmHA or its 
successor agency under Public Law 103-354 1951-33 may be used to effect 
such modifications, if legally adequate, or other forms may be used if 
acceptable to FmHA or its successor agency under Public Law 103-354. The 
original of a new note or any endorsement required by OGC is to be 
attached to the existing note, filed in the servicing office, and 
retained until the account is paid in full or otherwise satisfied. A 
copy will be forwarded to the Finance Office.
    (4) Bonds and notes with other than real or chattel security pledged 
to FmHA or its successor agency under Public Law 103-354. Loans 
evidenced by bonds, or by notes with other than real or chattel security 
pledged to FmHA or its successor agency under Public Law 103-354, may be 
reamortized using procedures acceptable to the State Director and 
legally permissible under State statutes in the opinion of the 
borrower's counsel and the OGC.
    (i) The procedure may consist of a new debt instrument or agreement 
for the total FmHA or its successor agency under Public Law 103-354 
indebtedness, including the delinquency, or a new instrument or 
agreement whereby the borrower agrees to repay the delinquency plus 
interest. If a new instrument or agreement for only the delinquent 
amount is used, a new loan number will be assigned to the delinquent 
amount, and the borrower will be required to pay the amounts due under 
both the original and the new instruments.
    (ii) When a delinquent or problem loan cannot be reamortized by 
issuing a new debt instrument due to State statutes, or the cost of 
preparation and closing is prohibitive, the rescheduling agreement 
provided as Exhibit H of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office), may be used.
    (iii) Section 1942.19 of subpart A of part 1942 of this chapter 
applies to any new bonds issued unless precluded by State statutes or an 
exception is approved by the National Office.
    (iv) If State statutes do not require the release of existing bonds, 
they will be retained with the new bond instrument or agreement in the 
FmHA or its successor agency under Public Law 103-354 office authorized 
to store such documents. If State statutes require release of existing 
bonds, the exchange will be accomplished by the District Director, and 
the new bond and/or agreement will be retained in the appropriate 
office.
    (5) New debt instruments or agreements. (i) A copy will be sent to 
the Finance Office after execution, except that if serial bonds are 
used, the original bond(s) will be submitted to the Finance Office.
    (ii) Any agreement used will contain:
    (A) The amount delinquent, which must equal the total delinquency on 
the account and net advances (the unpaid principal on any advance and 
the accrued interest on any advance through the date of reamortization, 
less interest payments credited on the advance account);
    (B) The effective date of the reamortization;
    (C) The number of years over which the delinquency will be 
amortized;
    (D) The repayment schedule; and
    (E) The interest rate.
    (iii) A payment will be due on the next scheduled due date. 
Deferment of interest and/or principal payments is not authorized.
    (iv) A separate new instrument will be required for each loan being 
reamortized.
    (v) If amortized payments are not used, the schedule of principal 
installments developed will be such that combined payments of principal 
and interest closely approximate an amortized payment.
[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:

[[Page 51]]

    (i) Leasing is the only feasible way to provide the service and is 
the customary practice as required under Sec. 1942.17(b)(4) of subpart A 
of part 1942 of this chapter;
    (ii) The borrower retains ultimate responsibility for operating, 
maintaining, and managing the facility and for its continued 
availability and use at reasonable rates and terms as required under 
Sec. 1942.17(b)(4) of subpart A of part 1942 of this chapter. The lease 
agreement must clearly reflect sufficient control by the borrower over 
the operation, maintenance, and management of the facility to assure 
that the borrower maintains this responsibility;
    (iii) The lease agreement contains provisions prohibiting any 
amendments to the lease or any subleasing arrangements without prior 
written approval from FmHA or its successor agency under Public Law 103-
354;
    (iv) The lease document contains nondiscrimination requirements as 
set forth in Sec. 1951.204 of this subpart;
    (v) The lease contains a provision which recognizes that FmHA or its 
successor agency under Public Law 103-354 is a lienholder on the subject 
facility and, as such, the lease is subordinate to the rights and claims 
of FmHA or its successor agency under Public Law 103-354 as lienholder; 
and
    (vi) The lease does not constitute a lease/purchase arrangement, 
unless permitted under Sec. 1951.232 of this subpart.
    (2) Lease of all or part of a facility (pending liquidation action). 
The State Director may consent to the leasing of all or a portion of 
security property when:
    (i) The lease will not adversely affect the repayment of the loan or 
the Government's rights under the security or other instruments;
    (ii) The State Director has determined that liquidation will likely 
be necessary and the lease is necessary until liquidation can be 
accomplished;
    (iii) Leasing is not an alternative to, or means of delaying, 
liquidation action;
    (iv) The lease and use of any proceeds from the lease will further 
the objective of the loan;
    (v) Rental income is assigned to FmHA or its successor agency under 
Public Law 103-354 in an amount sufficient to make regular payments on 
the loan and operate and maintain the facility unless such payments are 
otherwise adequately secured;
    (vi) The lease is advantageous to the borrower and is not 
disadvantageous to the Government;
    (vii) If foreclosure action has been approved and the case has been 
submitted to OGC, consent to lease and use of proceeds will be granted 
only with OGC's concurrence; and
    (viii) The lease does not exceed a one-year period. The property may 
not be under lease more than two consecutive years without authorization 
from the National Office. Long-term leases may be approved, with prior 
authorization from the National Office, if necessary to ensure the 
continuation of services for which the loan was made and if other 
servicing options contained in this subpart have been determined 
inappropriate for servicing the loan.
    (b) Mineral leases. Unless liquidation is pending, the State 
Director is authorized to approve mineral leases when:
    (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;

[[Page 52]]

    (5) The lease will not interfere with the purpose for which the loan 
or grant was made; and
    (6) When FmHA or its successor agency under Public Law 103-354 
consent is required, the borrower submits a completed Form FmHA or its 
successor agency under Public Law 103-354 465-1. The form will include 
the terms of the proposed agreement and specify the use of all proceeds, 
including any to be released to the borrower.
    (c) Management agreements. Management agreements should contain the 
minimum suggested contents contained in Guide 24 of part 1942, subpart A 
of this chapter (available in any FmHA or its successor agency under 
Public Law 103-354 office).
    (d) Affiliation agreements. An affiliation agreement between the 
borrower and a third party may be approved by the State Director, with 
OGC concurrence, if it provides for shared services between the parties 
and does not result in changes to the borrower's legal organizational 
structure which would result in its loss of control over its assets and/
or over the operation, management, and maintenance of the facility to 
the extent that it cannot carry out its responsibilities as set forth in 
Sec. 1942.17(b)(4) of subpart A of part 1942 of this chapter. However, 
affiliation agreements which result in a loss of borrower control may be 
approved with prior concurrence of the Administrator if the loan is 
reclassified as a nonprogram loan and the borrower is notified that it 
is no longer eligible for any program benefit. Requests forwarded to the 
Administrator will contain the case file, the proposed affiliation 
agreement, and necessary supporting information.
    (e) Processing. The consent of other lienholders will be obtained 
when required. When National Office approval is required, or if the 
State Director wishes to have a transaction reviewed prior to approval, 
the case file will be forwarded to the National Office and will include:
    (1) A copy of the proposed agreement;
    (2) Exhibit A of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office), appropriately 
completed;
    (3) Any other necessary supporting information.
[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 21199, May 19, 1992]



Sec. 1951.225  Liquidation of security.

    When the District Director believes that continued servicing will 
not accomplish the objectives of the loan, he or she will complete 
Exhibit A of this subpart (available in any FmHA or its successor agency 
under Public Law 103-354 office), and submit it with the District Office 
file to the State Office. If the State Director determines the account 
should be liquidated, he or she will encourage the borrower to dispose 
of the FmHA or its successor agency under Public Law 103-354 security 
voluntarily through a sale or transfer and assumption, and establish a 
specified period, not to exceed 180 days, to accomplish the action. If a 
transfer or voluntary sale is not carried out, the loan will be 
liquidated according to subpart A of part 1955 of this chapter.



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:

[[Page 53]]

    (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;
    (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

[[Page 54]]

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 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

[[Page 55]]

to ineligible applicants if recovery to FmHA or its successor agency 
under Public Law 103-354 is not less than it would be if the transfer 
were to an ineligible applicant.
    (4) If the FmHA or its successor agency under Public Law 103-354 
debt(s) exceed the present market value of the security as determined by 
the State Director, the transferee will assume an amount at least equal 
to the present value.
    (5) If the transfer and assumption is to one or more members of the 
borrower's organization, there must not be a loss to the government.
    (6) FmHA or its successor agency under Public Law 103-354 concurs in 
plans for disposition of funds in the transferor's debt service, 
reserve, operation and maintenance, and any other project account, 
including supervised bank accounts.
    (7) When the property to be transferred is to be used for the same 
or similar purposes for which the loan was made, the transferee will 
execute Form FmHA or its successor agency under Public Law 103-354 400-4 
to continue nondiscrimination covenants and provide to FmHA or its 
successor agency under Public Law 103-354 a written certification 
assuming all terms of the Grant Agreement executed by the transferor. 
All instruments of conveyance will contain the covenant referenced in 
Sec. 1951.204 of this subpart.
    (8) This subpart does not preclude the transferor from receiving 
equity payments when the full account of the FmHA or its successor 
agency under Public Law 103-354 debt is assumed. However, equity 
payments will not be made on more favorable terms than those on which 
the balance of the FmHA or its successor agency under Public Law 103-354 
debt will be paid.
    (9) Transferees must have the ability to pay the FmHA or its 
successor agency under Public Law 103-354 debt as provided in the 
assumption agreement and the legal capacity to enter into the contract. 
The applicant will submit a current balanced sheet using Form FmHA or 
its successor agency under Public Law 103-354 442-3, ``Balance Sheet,'' 
and budget and cash flow information using Form FmHA or its successor 
agency under Public Law 103-354 442-2, or similar forms. For ineligible 
applicants, such information may be supplemented by a credit report from 
an independent source or verified by an independent certified public 
accountant.
    (10) For purposes of this subpart, transfers to eligible applicants 
will include mergers and consolidations. Mergers occur when two or more 
corporations combine in such a manner that only one remains in 
existence. In a consolidation, two or more corporations combine to form 
a new, consolidated corporation, with all of the original corporations 
ceasing to exist. In both mergers and consolidations, the surviving or 
emerging corporation takes the assets and assumes the liabilities of the 
corporation(s) which ceased to exist. Such transactions must be 
distinguished from transfers and assumptions, in which a transferor will 
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;

[[Page 56]]

    (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 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

[[Page 57]]

when they submit an application or proposal.
    (i) The National Office will issue a directive annually advising the 
field of the amount of the fee. Any cost for appraisals performed by 
non-FmHA or its successor agency under Public Law 103-354 personnel will 
be handled in accordance with FmHA or its successor agency under Public 
Law 103-354 Instruction 2024-A (available in any FmHA or its successor 
agency under Public Law 103-354 office), and will be added to the basic 
fee.
    (ii) Transfer fees will be deposited in accordance with current 
instructions governing the handling of collections. The fees will be 
identified as transfer fees on Form FmHA or its successor agency under 
Public Law 103-354 451-2, ``Schedule of Remittances,'' and will be 
included on the Daily Activity Report. The amount will be credited to 
the Rural Development Insurance Fund.
    (iii) If the State Director determines waiver of the transfer fee is 
in the best interest of the government, he or she will request prior 
approval by submitting the transfer case file established in accordance 
with processing requirements set forth below to the National Office, 
Attention (appropriate program division).
    (2) Any funds remaining in a supervised bank account will be 
refunded to FmHA or its successor agency under Public Law 103-354 and 
applied to the debt as a condition of transfer.
    (3) The interest rate will be the greater of the rate specified for 
the note in current Finance Office records or the market rate for 
Community Programs as of the transfer closing date.
    (4) The transferred loan will be identified as an NP loan and 
serviced in accordance with Sec. 1951.216 of this subpart.
    (5) Form FmHA or its successor agency under Public Law 103-354 465-
5, ``Transfer of Real Estate Security,'' will be used, and will be 
modified as appropriate before execution.
    (6) Consideration will be given to obtaining individual liability 
agreements from members of the transferee organization.
    (e) Release from liability. Except when nonprogram loans or Economic 
Opportunity Cooperative loans are involved, transferors may be released 
from liability in accordance with the following:
    (1) If the full amount of the debt is assumed, the State Director 
may approve the release from liability by use of Form FmHA or its 
successor agency under Public Law 103-354 1965-8.
    (2) If less than the full amount of the debt is assumed, any balance 
remaining will be handled in accordance with procedures for debt 
settlement actions set forth in subpart C of part 1956 of this chapter.
    (i) In determining whether a borrower should be released from 
liability, the State Director will consider the borrower's debt-paying 
ability based on its assets and income at the time of the sale.
    (ii) Release from liability will be accomplished by using Form FmHA 
or its successor agency under Public Law 103-354 1965-8 and obtaining 
from the County Committee a memorandum recommending the release which 
contains the statement set forth in Sec. 1951.226(d)(2)(ii) of this 
subpart.
    (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.

[[Page 58]]

    (4) Transfers will be closed in accordance with instructions 
provided by OGC.
    (5) When the transferee is a public body and Form FmHA or its 
successor agency under Public Law 103-354 1951-15 is not suitable, the 
transferee's attorney will prepare the documents necessary to effect the 
transfer and assumption and submit them for approval by FmHA or its 
successor agency under Public Law 103-354 and OGC.
    (6) Accrued interest to be entered in either Table 1 of Form FmHA or 
its successor agency under Public Law 103-354 1951-15 or other 
appropriate assumption agreement is to be obtained using the status 
screen option in ADPS.
    (7) The following forms, if utilized, will be sent immediately to 
the Finance Office:
    (i) Form FmHA or its successor agency under Public Law 103-354 1951-
15 or other appropriate assumption agreement;
    (ii) A conformed copy of Form FmHA or its successor agency under 
Public Law 103-354 1965-8.
    (8) If an FmHA or its successor agency under Public Law 103-354 
grant was made in conjunction with the loan being transferred, the 
transferee must agree in writing to assume all rights and obligations of 
the original grantee. See Sec. 1951.215 for additional guidance on grant 
agreements.
    (9) The transferee will obtain insurance according to requirements 
for the loan(s) being transferred unless the approval official requires 
additional insurance. When the entire FmHA or its successor agency under 
Public Law 103-354 debt is being assumed and an amount has been advanced 
for insurance premiums or any other purposes, the transfer will not be 
completed until the Finance Office has charged the advance to the 
transferor's account.
    (10) Rates and terms. (i) If the transfer will be closed at the same 
rates and terms, the transferee will be informed of the amount needed to 
be on schedule by the next installment due date.
    (ii) If the transfer will be closed at new rates and terms, the 
transferee will be informed of the amount of principal and interest owed 
based on information obtained using the ADPS status screen option.
    (11) The effective date of a transfer is the actual date the 
transfer is closed, which is the same date Form FmHA or its successor 
agency under Public Law 103-354 1951-15 or other appropriate assumption 
agreement is signed.
    (12) Title to all assets will be conveyed from the transferor to the 
transferee unless other arrangements are agreed upon by all parties 
concerned, including FmHA or its successor agency under Public Law 103-
354. All instruments of conveyance will contain the covenant referenced 
in Sec. 1951.204 of this subpart.
    (13) If an insured loan being held by an investor is involved, the 
Finance Office will have to repurchase the note prior to processing the 
assumption agreement.
    (14) When National Office approval is required, the transfer case 
file will be submitted to the Administrator, Attention: (appropriate 
program division), 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

[[Page 59]]

collection of the loan. The servicing office will submit to the State 
Office the borrow case file and the following:
    (i) Form FmHA or its successor agency under Public Law 103-354 1951-
15 executed by the proposed new member;
    (ii) Statement of the current amount of the indebtedness involved;
    (iii) A description and statement of the value of the security 
property;
    (iv) A memorandum to justify the transaction;
    (v) Form FmHA or its successor agency under Public Law 103-354 440-
2, ``County Committee Certification or Recommendation;''
    (vi) Exhibit B of this subpart, ``Agreement for New Member (With or 
Without Withdrawing Member),'' (available in any FmHA or its successor 
agency under Public Law 103-354 office), executed by the remaining 
members of the association, the proposed new member, and the withdrawing 
member; and
    (vii) Form FmHA or its successor agency under Public Law 103-354 
450-12, ``Bill of Sale (Transfer by Withdrawing Member),'' executed by 
the withdrawing member.
    (2) If the State Director determines after review of the above 
information that the proposed new member is eligible and the transfer is 
justified, the State Director may approve the transfer and assumption by 
executing Form FmHA or its successor agency under Public Law 103-354 
1951-15.
    (3) Upon completion of the above actions, the State Director may 
release the outgoing member from personal liability using Form FmHA or 
its successor agency under Public Law 103-354 1965-8.
    (4) If Finance Office records must be changed due to changes in 
borrower name, address and/or case number, necessary documents, 
including Form FmHA or its successor agency under Public Law 103-354 
1951-15 and, if applicable, Form FmHA or its successor agency under 
Public Law 103-354 1965-8, will be forwarded to the Finance Office 
immediately with a memorandum indicating that the purpose of the 
submission is only to establish liability for a new member and release 
an old member from liability.
    (b) Withdrawal of members from Unincorporated Cooperatives when new 
member not available. Withdrawal of a member who no longer utilizes the 
services of an association may be permitted even though a new member is 
not available, provided:
    (1) The State Director determines that the remaining members have 
sufficient need for the property, and that the withdrawal of the member 
will not adversely affect collection of the loan; and
    (2) The remaining members obtain from the outgoing member an 
agreement conveying his or her interest in the cooperative property to 
them. They may also wish to agree to protect the outgoing member against 
liability on the debt owed to FmHA or its successor agency under Public 
Law 103-354 as well as any other debts. Exhibit C of this subpart, 
``Agreement for Withdrawal of Member (Without New Member),'' (available 
in any FmHA or its successor agency under Public Law 103-354 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

[[Page 60]]

be forwarded immediatly to the Finance Office with a memorandum 
indicating that the form is intended only to establish liability for a 
new member.
    (d) Deceased members of Unincorporated Cooperatives. Form FmHA or 
its successor agency under Public Law 103-354 442-24, ``Operating 
Agreement,'' (now obsolete) was executed by recipients of these loans. 
Paragraph 10 of that form provides that in case of the death of any 
member, the heirs or personal representative of the deceased member 
shall take the deceased member's place in the association. This 
provision also covers sale of the decedent's interest in the association 
if the sale is necessary to pay debts of the estate.
    (1) If the heirs or personal representative do not wish to continue 
membership in the association, the remaining members may be permitted to 
continue to operate the property if FmHA or its successor agency under 
Public Law 103-354's financial interest will not be jeopardized. The 
remaining members should obtain from the deceased member's estate an 
agreement conveying the estate's interest in the cooperative property to 
them. The remaining members may wish to agree to protect the estate 
against liability on the debt to FmHA or its successor agency under 
Public Law 103-354 as well as any other debts of the cooperative.
    (2) The requirement of Sec. 1962.46(h) of subpart A of part 1962 
will also be followed.
    (e) Action which affects individual members of Unincorporated EO 
Cooperative security. The borrower will be expected to protect its own 
interest in condemnation, trespass, quiet title, and other cases 
affecting the security. The servicing office will immediately furnish 
the complete facts concerning any action taken against individual 
members of Unincorporated Cooperatives to the State Director together 
with the case file.
    (f) Debt Settlement. Debt settlement actions for Economic 
Opportunity Cooperative loans must be handled under the Federal Claims 
Collection Act; proposals will be submitted to the National Office for 
review and approval.



Sec. 1951.232  Water and waste disposal systems which have become part of an urban area.

    A water and/or waste disposal system serving an area which was 
formerly a rural area as defined in Sec. 1942.17(b)(2)(iii) and (iv) of 
subpart A of part 1942 of this chapter, but which has become in its 
entirety part of an urban area, will be serviced in accordance with this 
section.
    (a) Curtailment or limitation of service. Service may not be 
curtailed or limited by the inclusion of a system within an urban area.
    (b) Sale or transfer and assumption. (1) The urban community or 
another entity may purchase the facility involved and immediately pay 
the FmHA or its successor agency under Public Law 103-354 debt in full; 
or
    (2) The urban community or another entity may accept a transfer of 
the FmHA or its successor agency under Public Law 103-354 debt on an 
ineligible applicant basis.
    (3) When a grant is involved, the entity will agree in writing to 
assume all rights and obligations of the original 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

[[Page 61]]

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:
    (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.

[[Page 62]]



Sec. 1951.241  Special provision for interest rate change.

    (a) General. Effective October 1, 1981, and thereafter, upon request 
of the borrower, the interest rate charged by FmHA or its successor 
agency under Public Law 103-354 to water and waste disposal and 
community facility borrowers shall be the lower of the rates in effect 
at either the time of loan approval or loan closing. Pub. L. 99-88 
provides that any FmHA or its successor agency under Public Law 103-354 
grant funds associated with such loans shall be set in the amount based 
on the interest rate in effect at the time of loan approval. Loans 
closed October 1, 1981, through October 25, 1985, were closed at the 
interest rate in effect at the time of loan approval and that interest 
rate is reflected in the borrower's debt instrument. For community 
facility and water and waste disposal loans closed on or after October 
1, 1981, and for which the interest rate in effect at the time of loan 
closing is lower than the interest rate in effect at the time of loan 
approval, the borrower may request to be charged the lower interest 
rate. The loan closing interest rate will be determined by FmHA or its 
successor agency under Public Law 103-354 based upon requirements in 
effect at the date of loan closing. Exhibit E of this subpart (available 
in any FmHA or its successor agency under Public Law 103-354 office) 
contains a summary of interest rate requirements for specific time 
periods. Exhibit C of Subpart O of this part (available in any FmHA or 
its successor agency under Public Law 103-354 office) will be used to 
determine the interest rate and effective dates by category of poverty, 
intermediate, and market rates. Exhibit F of this subpart (available in 
any FmHA or its successor agency under Public Law 103-354 office) 
contains the instructions on how to process a change of interest rate. 
Loans meeting the criteria of this section that have been paid in full 
are eligible for the borrower to request the lower interest rate. For 
loan(s) that involved multiple advances of FmHA or its successor agency 
under Public Law 103-354 funds using temporary debt instruments, wherein 
the borrower requests the interest rate in effect at loan closing, the 
interest rate charged shall be the rate in effect on the date when the 
first temporary debt instrument was issued.
    (b) Notification to borrower and borrower selection of interest 
rate. (1) FmHA or its successor agency under Public Law 103-354 
servicing officials will notify each borrower meeting the provisions of 
this section of the availability of a choice of interest rate. The 
notification will be made in writing at the earliest possible date, 
utilizing Exhibit G of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office), and sent by certified 
mail, return receipt requested. Borrowers will be advised at the time of 
notification that if a change of interest rate is requested, the change 
will be accomplished administratively by FmHA or its successor agency 
under Public Law 103-354. The effect of the change on the loan account 
will also be fully explained to the borrower.
    (2) Borrowers must notify FmHA or its successor agency under Public 
Law 103-354 within 90 calendar days of the date of FmHA or its successor 
agency under Public Law 103-354 notification 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

[[Page 63]]

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 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

[[Page 64]]

borrower's needs for continued Agency supervision, further credit, and 
graduation. All loan accounts will be reviewed for graduation in 
accordance with this subpart, with the exception of Guaranteed, 
Watershed, Resource Conservation and Development, Rural Development Loan 
Funds, and Rural Rental Housing loans made to build or acquire new units 
pursuant to contracts entered into on or after December 15, 1989, and 
Intermediary Relending Program loans. The term ``Agency'' used in this 
subpart refers to the Farm Service Agency (FSA) including its county and 
state committees and their personnel), Rural Utilities Service (RUS), 
Rural Housing Service (RHS), or Rural Business-Cooperative Service 
(RBS), depending upon the loan program discussed herein. This subpart 
does not apply to RHS direct single family housing (SFH) customers.
[61 FR 35927, July 9, 1996, as amended at 61 FR 59778, Nov. 22, 1996]



Sec. 1951.252  Definitions.

    Commercial classified. The Agency's highest quality Farm Credit 
Programs (FCP) accounts. The financial condition of the borrowers is 
strong enough to enable them to absorb the normal adversities of 
agricultural production and marketing. There is ample security for all 
loans, there is sufficient cash flow to meet the expenses of the 
agricultural enterprise and the financial needs of the family, and to 
service debts. The account is of such quality that commercial lenders 
would likely view the loans as a profitable investment.
    Farm Credit Programs (FCP) loans. FSA Farm Ownership (FO), Operating 
(OL), Soil and Water (SW), Recreation (RL), Emergency (EM), Economic 
Emergency (EE), Economic Opportunity (EO), Special Livestock (SL), 
Softwood Timber (ST) loans, and Rural Housing loans for farm service 
buildings (RHF).
    Graduation, FCP. The payment in full of all FCP loans or all FCP 
loans of one type (i.e., all loans made for chattel purposes or all 
loans made for real estate purposes) by refinancing with other credit 
sources either with or without an Agency loan guarantee. A loan made for 
both chattel and real estate purposes, for example an EM loan, will be 
classified according to how the majority of the loan's funds were 
expended. Borrowers must continue with their farming operations to be 
considered as graduated.
    Graduation, other programs. The payment in full of any direct loan 
for Community and Business Programs, and all direct loans for housing 
programs, before maturity by refinancing with other credit sources. 
Graduated housing borrowers must continue to hold title to the property. 
Graduation, for other than FCP, does not include credit which is 
guaranteed by the United States.
    Prospectus, FCP. Consists of a transmittal letter with a current 
balance sheet and projected year's budget attached. The applicant's or 
borrower's name and address need not be withheld from the lender. The 
prospectus is used to determine lender interest in financing or 
refinancing specific Agency direct loan applicants and borrowers. 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.

[[Page 65]]



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. The borrower's permission is not 
required, however, the borrower must be notified of this action.
    (2) The borrower is responsible for any application fees. The 
borrower has 30 days from the date the borrower is notified of lender 
interest in refinancing to make application, if required by the lender, 
and refinance the FLP loan. For good cause, the borrower may be granted 
a reasonable amount of additional time by the Agency.
[61 FR 35927, July 9, 1996, as amended at 62 FR 10120, Mar. 5, 1997]



Sec. 1951.263  Graduation of non-Farm Credit programs borrowers.

    (a)-(b) [Reserved]
    (c) The thorough review. Borrowers are required to supply such 
financial information as the Agency deems necessary to determine whether 
they are able to graduate to other credit. At a minimum, the financial 
statements requested from the borrower must include a balance sheet and 
a statement of income and expenses. Ordinarily, the financial statements 
will be those normally required at the end of the particular borrower's 
fiscal year. For borrowers who are not requested to furnish audited 
financial statements, the balance sheet and statement of income and 
expenses may be of the borrower's own format if the borrower's financial 
situation is accurately reflected. The borrower has 60 days for group 
type loans and 30 days for individual type loans to supply the financial 
information requested.
    (d) [Reserved]
    (e) Requesting the borrower to graduate. (1) The Agency will send 
written notice to borrowers found able to graduate requesting them to 
graduate. The borrower must seek a loan only in the amount necessary to 
repay the unpaid balance.
    (2) Borrowers must provide evidence of their ability or inability to 
graduate within 30 days for RH borrowers, and 90 days for group type 
borrowers, after the date of the request. The Agency may allow 
additional time for good cause, for example when a borrower expects to 
receive income in the near future for the payment of accounts which 
would substantially reduce the amount

[[Page 66]]

required for refinancing, or when a borrower is a public body and must 
issue bonds to accomplish graduation.
    (3) If a borrower is unable to graduate the full amount of the loan, 
the borrower must furnish evidence to the Agency, showing:
    (i) The names of other lenders contacted;
    (ii) The amount of loan requested by the borrower and the amount, if 
any, offered by the lenders;
    (iii) The rates and terms offered by the lenders or the specific 
reasons why other credit is not available; and
    (iv) The purpose of the loan request.
    (4) The difference in interest rates between the Agency and other 
lenders will not be sufficient reason for failure to graduate if the 
other credit is available at rates and terms which the borrower can 
reasonably be expected to pay. An exception is made where there is an 
interest rate ceiling imposed by Federal law or contained in the note or 
mortgage.
    (5) The Agency will notify the borrower in writing if it determines 
that the borrower can graduate. The borrower must take positive steps to 
graduate within 15 days for individual loans and 60 days for group loans 
from such notice to avoid legal action. The servicing official may grant 
a longer period where warranted.



Sec. 1951.264  Action when borrower fails to cooperate, respond or graduate.

    (a) When borrowers with other than FCP loans fail to:
    (1) Provide information following receipt of both FmHA Guide Letters 
1951-1 and 1951-2 (available in any Agency office), or letters of 
similar format, they are in default of the terms of their security 
instruments. The approval official may, when appropriate, accelerate the 
account based on the borrower's failure to perform as required by this 
subpart and the loan and security instruments.
    (2) Apply for or accept other credit following receipt of both FmHA 
Guide Letters 1951-F-5 and 1951-6 (available in any Agency office), or 
letters of similar format, they are in default under the graduation 
requirement of their security instruments. If the Agency determines the 
borrower is able to graduate, foreclosure action will be initiated in 
accordance with Sec. 1955.15(d)(2)(ii). If the borrower's account is 
accelerated, the borrower may appeal the decision.
    (b) If an FCP borrower fails to cooperate after a lender expresses a 
willingness to consider refinancing the Agency loan, the account will be 
referred for legal action.



Sec. 1951.265  Application for subsequent loan, subordination, or consent to additional indebtedness from a borrower who has been requested to graduate.

    (a) Any borrower who appears to meet the local commercial lending 
standards, taking into consideration the Agency's loan guarantee 
program, will not be considered for a subsequent loan, subordination, or 
consent to additional indebtedness until the borrower's ability or 
inability to graduate has been confirmed. An exception may be made where 
the proposed action is needed to alleviate an emergency situation, such 
as meeting applicable 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.

[[Page 67]]

                          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 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

[[Page 68]]

the best interest of the Government. NP loans include:
    (1) Sale of inventory property on NP terms;
    (2) Assumption of a program loan on NP terms;
    (3) Loans converted to NP status as a result of receipt of 
unauthorized assistance;
    (4) Loans converted to NP status when only a portion of the security 
property is being transferred and the FmHA or its successor agency under 
Public Law 103-354 debt is not paid in full;
    (5) Sale of the real property that was security for an FP loan to 
the previous owner under the Leaseback/Buyback program on NP terms;
    (6) Sale of the real property of an FP borrower under the Homestead 
Protection program; or
    (7) FP accounts rescheduled under an accelerated repayment 
agreement.
    (b) C&BP/NP and MFH/NP transactions involving transfer of the 
security property will be submitted to the National Office for review, 
authorization and processing guidance. The submission must include a 
justification for the proposed action, a servicing and management plan, 
the State Director's recommendations, and the case files. The sale of 
C&BP and MFH inventory property to NP purchasers will be handled in 
accordance with subpart C of part 1955 of this chapter.
    (c) Borrowers who have program and NP loans will have their loan 
accounts serviced and liquidated in accordance with the regulation 
applicable to the particular loan(s). Therefore, NP loans are not 
eligible for any program servicing except those permitted in this 
subpart. However, even though the NP loan will not be eligible for 
program servicing benefits or entitlements, the borrower is not 
precluded from receiving assistance on the program loan (e.g., having an 
NP farm loan should not preclude a borrower from being considered for 
debt restructuring assistance in the form of a deferral, rescheduling, 
consolidation, etc., on a FP program loan). When the decision has been 
made to liquidate the program loan of a borrower who is also indebted 
for an NP loan and the NP security is also additional security for the 
program loan the NP loan will be accelerated at the same time as the 
program loan using the program acceleration notice. Likewise, if an NP 
loan is to be liquidated and the borrower is also indebted for a program 
loan which serves as additional security for the NP loan the program 
loan will be accelerated at the same time as the NP loan using the 
program acceleration notice. Any appeal of an adverse decision involving 
both an NP and program loan would affect only the program loan.
[58 FR 52646, Oct. 12, 1993, as amended at 61 FR 59778, Nov. 22, 1996]



Sec. 1951.452  Policy.

    NP credit is extended for the convenience of the Government in 
servicing an existing loan or to facilitate sale of inventory property. 
Where a borrower has both program and NP loans outstanding, servicing 
will be according to the regulation applicable to the particular 
loan(s). NP borrowers are not eligible for program entitlements or 
servicing actions such as subsidy, moratorium, reamortization, 
rescheduling, consolidation, deferral, limited resource assistance, 
buyout, writedown and conservation easements. Neither are NP borrowers 
subject to occupancy/operation requirements, graduation or other similar 
requirements imposed on program borrowers. NP borrowers are required to 
adequately maintain the security, pay real estate taxes and/or 
assessments when due or make scheduled escrow installments for taxes and 
insurance when required by FmHA or its successor agency under Public Law 
103-354, and keep buildings insured according to the promissory note and 
mortgage or security agreement, but may lease all or a portion of the 
security without FmHA or its successor agency under Public Law 103-354's 
consent, except as provided in Sec. 1951.460 (a) and (b) of this 
subpart.



Sec. 1951.453  [Reserved]



Sec. 1951.454  Review of adverse decisions.

    NP applicants and borrowers are not entitled to appeal rights under 
subpart B of part 1900 of this chapter or parts 11 and 780 of this 
title. However, decisions involving NP applicants, borrowers or

[[Page 69]]

property are reviewable by the next level supervisor.
[58 FR 52646, Oct. 12, 1993, as amended at 62 FR 10120, Mar. 5, 1997]



Sec. 1951.455  NP loan making for Single Family Housing (SFH) and farm property (real and chattel).

    (a) Application for NP credit. Applications for credit on NP terms 
are made at the County Office serving the area where the property is 
located or through an approved packager or real estate broker if so 
instructed by County Office personnel. To apply for NP credit, except 
Homestead Protection program, standard forms used to process program 
applications may be utilized or comparable documentation which contains 
information to establish financial stability, creditworthiness, and 
repayment ability for the requested credit. However, the loan approval 
official will have the discretion to determine what information is 
required to support approval of the loan. For property purchased under 
the Homestead Protection program the information required to support 
approval of the loan will be in accordance with subpart S of part 1951 
of this chapter. The creditworthiness standards in Sec. 1944.9 of 
subpart A of part 1944 of this chapter will be used to evaluate an NP 
applicant's eligibility for assistance to purchase a single family 
residence. The application is not complete until all information 
requested by the Agency is received.
    (b) Fees. In addition, credit reports will be ordered to determine 
the eligibility of NP applicants requesting FLP credit. A nonrefundable 
credit report fee will be charged the applicant. The amounts of these 
fees change periodically; current fees will be quoted by county office 
personnel upon request. A borrower whose loan is reclassified as NP 
because unauthorized assistance was received; or only a portion of the 
security property is being transferred and the FLP debt is not paid in 
full; or FLP accounts rescheduled under an accelerated repayment 
agreement will not be required to submit an application or pay the 
application fee.
    (c) Eligibility restrictions. If farm property is being purchased or 
the debt assumed, and an individual or member, stockholder, partner, or 
joint operator of a proposed entity transferee or purchaser has been 
convicted after December 23, 1985, under Federal or State law of 
planting, cultivating, growing, producing, harvesting, or storing a 
controlled substance (see 21 CFR part 1308, which is exhibit C of 
subpart A of part 1941 of this chapter (available in any agency office), 
for the definition of ``controlled substance'') prior to the approval of 
the credit sale or assumption in any crop year, the individual or entity 
shall be ineligible for FLP credit for the crop year in which the 
individual was convicted four succeeding crop years following the 
conviction. Purchasers will attest on the application form used that as 
individuals or that its members, if an entity, have not been convicted 
of such crime after December 23, 1985.
    (d) [Reserved]
    (e) Downpayment. A downpayment must be collected at closing and 
remitted in accordance with subpart B of this part 1951 (available in 
any agency office). The minimum downpayment will be based on the 
purchase price for a credit sale and the current market value (less any 
prior liens for chattel security) or the debt, whichever is lower, for 
an assumption. Downpayment requirements vary from time to time and vary 
by type of property. Current downpayment requirements will be provided 
by county office personnel upon request.
    (f) Interest rate. The FP/NP interest rate for real property or 
chattel property, as applicable, in effect at the time of loan approval, 
will be charged on NP assumptions and credit sales involving all other 
types of sales, except as otherwise stated. The Homestead Protection 
program interest rate in effect at the time of loan approval will be 
charged on Homestead Protection properties.
    (g) Terms. The purchase price for credit sales or the FLP debt being 
assumed, less the downpayment amount, will be amortized as follows, 
except the term will never be longer than the period for which the 
property will serve as adequate security:
    (1) Farm property (real estate security) and CONACT residential 
property classified as surplus. The note amount will be

[[Page 70]]

amortized over a period not to exceed 15 years. When an NP loan was 
initially scheduled for repayment in 15 years or less together with a 
25-year amortization, the agency may authorize an extension not to 
exceed a total of 25 years from the date the NP assumption or credit 
sale was closed provided it is in the Government's best interest and the 
agency retains the same lien priority.
    (2) Farm property (chattels security). The note amount will be 
amortized over a period not to exceed 5 years.
    (3) Homestead protection. The note amount will be amortized over a 
period not to exceed 35 years.
    (h) Modification of security instruments. Any convenants in the 
promissory note and/or security instruments (mortgage or deed of trust) 
relating to graduation to other credit, inability to secure other 
financing, restrictions on leasing, FLP operation requirements, and 
consent to junior lien encumbrance will be deleted.
    (i) Security. The security requirements for NP loans on farm real 
estate will be in accordance with subpart A of part 1943 of this chapter 
and NP loans on chattel property will be secured in accordance with 
subpart A of part 1962 of this chapter. Except that, an NP loan will be 
secured only by the property purchased.
    (j) Closing. Title clearance, preparation of deeds, loan closing and 
property insurance requirements are the same as for a program loan on 
the same type property, except the purchaser must pay his/her own 
closing costs.
[58 FR 52646, Oct. 12, 1993, as amended at 62 FR 10120, Mar. 5, 1997]



Sec. 1951.456  [Reserved]



Sec. 1951.457  Payments.

    (a) Receiving payments. Borrowers will mail or bring their payments 
to the county office. Borrowers will be responsible for any fees 
associated with converting cash payments to money orders. If the fee is 
not paid, it will be deducted from the payment.
    (b) Payments not received when due. NP borrowers are expected to 
make scheduled payments when due. The Agency personnel are not required 
to provide program supervision, servicing, management or credit 
counseling in accordance the agency servicing instructions if payments 
are not received when due. To ensure consistency, a series of contacts 
will be made when servicing delinquent accounts. All actions taken, 
agreements reached and recommendations made in the servicing of the 
borrower's account are to be documented. When appropriate, the Agency 
may work out a reasonable agreement with an NP borrower to cure a 
delinquency; however, such an agreement will not usually exceed 1 year. 
Failure to make payments as agreed will result in actions determined by 
the agency to best protect the Government's interest. Collection of a 
delinquency from an Internal Revenue Service (IRS) offset will be used 
to the extent permitted by law.
[58 FR 52646, Oct. 12, 1993, as amended at 60 FR 55146, Oct. 27, 1995; 
62 FR 10120, Mar. 5, 1997]



Sec. 1951.458   Servicing real estate taxes.

    Refer to subpart A of part 1925 of this chapter for servicing real 
estate taxes.
[62 FR 10120, Mar. 5, 1997]



Sec. 1951.459  Preservation of security.

    (a) Inspections of NP security property. Inspections will be made on 
NP security as necessary to protect FmHA or its successor agency under 
Public Law 103-354's security interest. In the event of abandonment, 
servicing actions will be taken according to Sec. 1955.55 of subpart B 
of part 1955 of this chapter.
    (b) Subordination. Subordination is not authorized where an NP 
borrower only owes FmHA or its successor agency under Public Law 103-354 
an NP loan(s). Subordination of a mortgage may be permitted to 
refinance, extend, reamortize, increase the amount of an existing prior 
lien, or to permit a prior lien only when the security for the NP loan 
is also security for an FmHA or its successor agency under Public Law 
103-354 program loan, the request for the subordination meets all the 
requirements for the subordination of the FmHA or its successor agency 
under Public Law 103-354 program loan and is in the best interest of the 
Government.
    (c) Bankruptcy. NP loans on single family residences will be 
serviced in

[[Page 71]]

accordance with subpart C of part 1965 of this chapter, farm real estate 
in accordance with subpart A of part 1965 of this chapter, and farm 
chattel in accordance with subpart A of part 1962 of this chapter.



Sec. 1951.460  Release of security property or sale or lease of related property rights.

    (a) Partial release. Release of a portion of the security property 
may be made when the borrower requests it and FmHA or its successor 
agency under Public Law 103-354 determines the release will not 
adversely affect the Government's interest. Release may be approved when 
payment is received by FmHA or its successor agency under Public Law 
103-354 in the amount of the market value, as determined by FmHA or its 
successor agency under Public Law 103-354, of the property to be 
released. Proceeds from such transactions (less related expenses 
authorized by FmHA or its successor agency under Public Law 103-354) 
will be applied to the FmHA or its successor agency under Public Law 
103-354 indebtedness as an extra payment or to prior liens in order of 
lien priority.
    (b) Easements, right-of-ways, and lease of mineral rights or other 
rights. Consent may be given by FmHA or its successor agency under 
Public Law 103-354 for the borrower to grant an easement or lease 
mineral rights when it is determined by FmHA or its successor agency 
under Public Law 103-354 the action will not adversely affect the 
Government's interest. The granting of an easement or right-of-way and 
lease of mineral rights may be approved when payment is received by FmHA 
or its successor agency under Public Law 103-354 in the amount of the 
market value, as determined by FmHA or its successor agency under Public 
Law 103-354, for rights granted or benefits are derived which are equal 
to or greater than the value of the property being disposed of. Proceeds 
from these transactions (less related expenses authorized by FmHA or its 
successor agency under Public Law 103-354) will be applied to the FmHA 
or its successor agency under Public Law 103-354 debt as an extra 
payment or to prior liens in order of lien priority.
    (c)-(d) [Reserved]



Sec. 1951.461  Release of valueless FmHA or its successor agency under Public Law 103-354 lien without monetary consideration.

    Release of an FmHA or its successor agency under Public Law 103-354 
lien without monetary consideration may be granted when it is determined 
by FmHA or its successor agency under Public Law 103-354 to have no 
present or prospective value or when enforcement would be ineffectual or 
uneconomical. Judgment liens or statutory redemption rights may be 
released only with prior consent of OGC.



Sec. 1951.462  Deceased borrower.

    When an NP borrower dies, FmHA or its successor agency under Public 
Law 103-354 will determine whether or not arrangements can be effected 
for continuation of the loan under one of the provisions of this 
section. If not, the loan may be liquidated according to Sec. 1951.468 
of this subpart. The servicing actions and the circumstances under 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

[[Page 72]]

promissory note (or assumption agreement), FmHA or its successor agency 
under Public Law 103-354 may not take action to liquidate the loan as 
long as the property is adequately maintained, real estate taxes and 
assessments are paid when due, and the dwelling is not known to be 
uninsured (if funds for taxes and insurance are being escrowed, the 
escrow is a part of the scheduled payments). The loan may be assumed in 
accordance with Sec. 1951.463(d) of this subpart; however, assumption of 
the indebtedness is not required. Continuation with a joint tenant, 
tenant by the entirety, or other person under the provisions of this 
paragraph applies only to the transfer of title resulting from death of 
the borrower; it does not apply to any subsequent transfer of title by 
the inheritor(s) except by devise, descent, or operation of law upon the 
death of the inheritors or sale of interests among inheritors to 
consolidate title. Any other subsequent transfer of title will be 
treated as a sale and is subject to the requirements of Sec. 1951.463 of 
this subpart.
    (d) Assumption by a person, other than the spouse, who is not liable 
for the FmHA or its successor agency under Public Law 103-354 loan. A 
person other than the deceased borrower's spouse who wishes to assume 
the loan for the benefit of persons who were dependent on the deceased 
borrower at the time of death, without receiving title to the property, 
may do so in accordance with Sec. 1951.463(d)(1) of this subpart 
provided:
    (1) The residence will continue to be occupied by one or more 
persons who were dependent on the borrower at the time of death; and
    (2) There is reasonable prospect for orderly repayment of the loan 
and other obligations of the loan will be met.



Sec. 1951.463  Transfer of security and assumption of indebtedness.

    When a borrower proposes to sell security property, assumption of 
the indebtedness may be approved on program or NP terms, as applicable, 
subject to the provisions of paragraphs (c) and (d) of this section. 
Assumptions under paragraphs (b)(2), (b)(3), (b)(4), (b)(5) and (d) of 
this section only are authorized on existing terms. When security 
property is sold (or title is otherwise conveyed), whether by full 
conveyance or by land contract, contract-for-deed, or other similar 
instrument, and the FmHA or its successor agency under Public Law 103-
354 debt is not assumed by the purchaser (new owner) or paid in full, 
the conveyance will not be approved, except as provided in paragraphs 
(b)(2) and (b)(5) of this section or Sec. 1951.462 of this subpart. If 
the conveyance is not approved the loan must be liquidated unless FmHA 
or its successor agency under Public Law 103-354 determines it is not in 
the Government's best interest. If FmHA or its successor agency under 
Public Law 103-354 decides to continue with the loan, the account will 
be serviced in the borrower's name and the borrower will remain liable 
for the loan under the terms of the security instrument.
    (a) [Reserved]
    (b) General. The following policies apply to all transfers and 
assumptions under this subpart:
    (1) Amount of assumption. Except for transfers covered in paragraphs 
(b)(2), (b)(3), (b)(4), (b)(5) and (d) of this section, the transferee 
will assume the lesser of the indebtedness, or current 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.

[[Page 73]]

    (4) Addition of new transferee(s). When new stockholders/members/
partners/joint operators enter an entity, assumption of the indebtedness 
is required, however, the indebtedness may be assumed on existing terms. 
A downpayment based on the unpaid balance of the loan is required when 
the assumption is closed.
    (5) Conveyance of security property into an inter vivos trust. When 
the borrower conveys security property into an inter vivos trust, 
whereby the borrower does not transfer rights of occupancy in the 
property, FmHA or its successor agency under Public Law 103-354 may not 
take action to liquidate the loan as long as payments are made as 
scheduled and other obligations of the loan are met.
    (c) Program assumption. A NP loan may be assumed by an eligible 
program applicant if the property meets the eligibility requirements for 
a currently authorized program (SFH, Farm Ownership (FO), etc.). In such 
cases, the assumption will be at the interest rate and up to the maximum 
term in effect for the type loan involved at the time the assumption is 
approved. After assumption on program terms, the loan will be 
reclassified as Rural Housing (RH), FO, etc., as applicable.
    (d) NP assumption. The rates and terms for an NP assumption will be 
as provided in Sec. 1951.455 of this subpart. A loan may be assumed on 
existing terms only in the situations outlined in paragraphs (b)(2), 
(b)(3), (b)(4), (b)(5), (d)(1), (d)(2), and (d)(3) of this section. An 
individual not liable for the loan who acquires title to or an interest 
in the security by means of one of the situations mentioned may assume 
the indebtedness on existing terms or current terms if more favorable, 
in which case a downpayment based on the unpaid balance would be 
required. The interest rate, final due date, payment date, and account 
status (current, delinquent, ahead of schedule) will not be changed by 
virtue of an assumption on existing terms, after assumption compliance 
with loan conditions is required. If a same terms assumption is 
consummated and the account is delinquent, it may be reamortized in 
accordance with applicable program regulations. Situations where these 
terms are authorized are:
    (1) An individual who acquires title to or an interest in the 
security property by virtue of death, divorce, or deed from a spouse or 
parent but is not liable for the debt and who wishes to assume the loan 
may do so. Any subsequent transfer of title, except between inheritors 
to consolidate title, will be treated as a sale and is not covered by 
these provisions. Individuals in this category are:
    (i) A deceased borrower's surviving spouse.
    (ii) A divorced borrower's spouse.
    (iii) A joint tenant with right of survivorship or relative of a 
deceased borrower.
    (2) The spouse or child of a living borrower to whom title to the 
security property has been conveyed by spouse or parent.
    (3) A person other than the deceased borrower's spouse who wishes to 
continue with the loan under conditions outlined in Sec. 1951.462 (c) or 
(d) of this subpart may do so.
    (e) 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

[[Page 74]]

listed or offered for sale and it is being actively marketed at a 
reasonable price.
    (b) Foreclosure. If an NP borrower in default (monetary or 
nonmonetary) does not cure the default and is not willing or able to 
voluntarily liquidate, the servicing official will refer the case to the 
next level supervisor with a recommendation for further action. If 
foreclosure is approved, the account will be accelerated. NP borrowers 
do not have appeal rights under subpart B of part 1900 of this chapter; 
however, the NP borrower may request a review of the decision to 
foreclose by the next level supervisor to consider evidence that the 
loan is not in default. If the borrower fails to satisfy the account 
during the period specified in the demand letter, FmHA or its successor 
agency under Public Law 103-354 will proceed with foreclosure without 
further notice or extension of time.
    (c) Conveyance to FmHA or its successor agency under Public Law 103-
354. FmHA or its successor agency under Public Law 103-354 does not 
solicit or encourage conveyance of NP security property to the 
Government and will consider a borrower's offer to convey by deed in 
lieu of foreclosure only after the debt has been accelerated and when it 
is in the Government's best interest. Release of the borrower from 
liability is not authorized. Upon receipt of an offer to convey, FmHA or 
its successor agency under Public Law 103-354 will remind the borrower 
of provisions for voluntary liquidation under paragraph (a) of this 
section. The borrower will also be informed of the consequences of a 
conveyance by deed in lieu of foreclosure as follows:
    (1) All costs related to the conveyance which FmHA or its successor 
agency under Public Law 103-354 pays will be added to the debt;
    (2) A credit equal to the market value of the property, as 
determined by FmHA or its successor agency under Public Law 103-354, 
less prior liens, will be applied to the debt; and
    (3) If the credit does not satisfy the debt, the debtor remains 
liable for the payment of the account balance and the account will be 
debt settled.
    (d) Consent to sale of real estate security when the FmHA or its 
successor agency under Public Law 103-354 debt and authorized selling 
expenses exceed market value. If an NP borrower proposes to sell real 
estate security for an amount which will be insufficient to pay the FmHA 
or its successor agency under Public Law 103-354 debt, prior lien(s) if 
any, and sale expenses authorized by FmHA or its successor agency under 
Public Law 103-354, an appraisal will be completed and FmHA or its 
successor agency under Public Law 103-354 may consent to the sale if the 
proposed sale price is not less than the market value. No commission 
will be allowed or paid under this paragraph when the sale is to the 
broker, broker's salesperson(s), to persons living in his/her or 
salesperson(s) immediate household or to legal entities in which the 
broker or salesperson(s) have an interest if the sale involves FmHA or 
its successor agency under Public Law 103-354 credit. If credit is not 
being extended to the persons mentioned in the preceding sentence (a 
cash sale), a commission will be allowed or paid. In no case will the 
borrower (seller) receive any cash proceeds from the sale. Any real 
estate taxes due from the transferor and other authorized selling 
expenses for which there is insufficient equity proceeds for payment at 
closing will be charged to 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

[[Page 75]]

(such as another dwelling), a judgment for the remaining debt including 
expenses paid by FmHA or its successor agency under Public Law 103-354 
will be sought.
    (c) [Reserved]



Secs. 1951.470-1951.478  [Reserved]



Sec. 1951.479  Pilot projects.

    From time to time FmHA or its successor agency under Public Law 103-
354 conducts pilot projects to test concepts related to the management 
and/or sale of SFH inventory property which may 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 76]]



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.

    Advance regular payment. Regular payments made at election of the 
borrower to pay the account ahead of schedule. These payments may be 
either full or partial payments and will be applied to the amortized 
payment schedule by the Finance Office.
    Amortization schedule. An amortization schedule is the projected 
application of periodic payments to principal and interest at the 
promissory note rate so the debt will be paid in full over the number of 
periods specified in the promissory note, assumption agreement (new 
terms), or reamortization agreement. Computation is based on a 30-day 
month and a 360-day year.
    Amortized recoverable costs. Recoverable cost items may be amortized 
over a period up to 5 years. This function will allow the servicing 
official to voucher recoverable cost items such as taxes.
    (1) Payment of real estate taxes. When a borrower's taxes are paid 
by voucher, the amortization period of the tax advance will be the 
number of months for which the taxes are being vouchered with a maximum 
of 5 years.
    (2) Costs other than real estate taxes. Advances for costs other 
than real estate taxes will be amortized for 12 months unless, based on 
the borrower's repayment ability, a longer period is needed. An 
amortization period of more than 12 months will be used only when the 
cost is of a nonrecurring type. In no case, however, will the repayment 
period exceed 5 years.
    (3) Retroactive amortization of recoverable costs. Recoverable costs 
which have been vouchered since May 1, 1985, may, with National Office 
approval, be retroactively amortized for applicable time periods as 
shown in paragraphs (c)(1) and (c)(2) of this section, if payments made 
since the costs were vouchered are sufficient to bring both the loan and 
cost accounts current. The following information should be forwarded to 
the National Office for approval of the reclassification to amortized 
status, and forwarded to the Finance Office for processing: An audit 
showing all costs vouchered along with payments made since the date of 
the cost item and to be made prior to the reclassification; the 
estimated reapplication of the payments due to reclassification showing 
that the account will be current after the reclassification; and the 
proposed budget and management case files.
    Audit receivables. Loan, grant or subsidy funds which were used by 
the borrower for unauthorized purposes; have been identified by the 
Office of Inspector General (OIG) in an audit; and, which FmHA or its 
successor agency under Public Law 103-354 is requiring the borrower to 
repay.
    Conversion. The act of changing a borrower's account from DIAS to 
PASS.
    Daily Interest Accrual System (DIAS). A system whereby interest is 
charged daily from the date a payment is received in the District Office 
to the next date a payment is received. A daily interest accrual factor 
is computed by multiplying the outstanding principal balance by the 
effective interest rate and dividing by 365 days. Computation is always 
based on a 365 day year. Interest on each payment is charged on the 
actual number of days that a principal balance is outstanding.
    District Director. For the purpose of this subpart the term includes 
the Assistant District Director, and other qualified District staff who 
may be delegated responsibilities according to Sec. 1930.143 of subpart 
C of part 1930 of this chapter, and the provisions of subpart F of part 
2006 of this chapter (available in any FmHA or its successor agency 
under Public Law 103-354 office). In the case of LH loans still being 
serviced in the County Office, this definition also includes qualified 
County Office staff. This definition further includes the Area Loan 
Specialists in Alaska, Island Directors in Hawaii, Directors of Western 
Pacific Territories, and other qualified staff members in

[[Page 77]]

Alaska, Hawaii, and Western Pacific Territories, respectively.
    Extra payment. Extra payments are applied all to principal on the 
end of the loan and are funds derived from:
    (1) Sale of basic chattel or real estate security, including rental 
or lease of real estate security of a depreciating or depleting nature.
    (2) Refinancing of real estate debt.
    (3) Mineral royalties.
    (4) Cash proceeds of real property insurance as provided in subpart 
A of part 1806 of this chapter (FmHA or its successor agency under 
Public Law 103-354 Instruction 426.1).
    (5) Sale of real estate not mortgaged to the Government, pursuant to 
a condition of loan approval.
    (6) Transactions of a similar nature which reduce the value of the 
security for the loan(s).
    Non-recoverable costs. Payments charged to a loan program insurance 
fund by use of a fund code. These costs are only incurred after 
Government acquisition of title to the property, and are therefore 
charged to an inventory account.
    Overage. This term refers to both ``overage'' and ``surcharge'' 
described in exhibit H to subpart C of part 1930 of this chapter.
    Payment effective date. The payment effective date is the day of the 
month on which payments will be effectively applied to the account by 
the Finance Office for the month payment is due regardless of the 
payment reception date. On PASS all payments will be applied as of the 
first day of the month.
    Payment reception date. The day of the month the payment is received 
in the District Office.
    Predetermined Amortization Schedule System (PASS). System whereby 
FmHA or its successor agency under Public Law 103-354 will apply loan 
payments based on an amortization schedule.
    Project late fee. The amount charged a borrower's project account 
for a delinquent payment according to Sec. 1951.510(c)(2) of this 
subpart, or when an uncollectible regular payment has been processed 
according to Sec. 1951.506(c) of this subpart.
    Promissory note installment. The unrounded amortized installment 
shown on the promissory note, conversion agreement, assumption agreement 
or reamortization agreement, whichever is currently in effect.
    Recoverable costs. Additional project costs such as vouchered 
insurance or taxes which FmHA or its successor agency under Public Law 
103-354 requires a borrower to pay.
    Refund payment. Payments from unused loan funds which are applied to 
principal on the end of the loan account.
    Regular payment. All monthly payments scheduled according to PASS. 
Does not include extra payments, advance regular payments, refund 
payments or voluntary additional principal payments.
    Subsidized installment. The promissory note installment reduced by 
the terms of Form FmHA or its successor agency under Public Law 103-354 
1944-7, ``Multiple Family Housing Interest Credit and Rental Assistance 
Agreement.'' The subsidized installment is the unrounded amortized 
installment computed at the subsidized interest rate.
    Subsidy credit. The difference between a borrower's monthly 
promissory note installment and the monthly subsidized installment.
    Voluntary additional principal payment. Payments applied all to 
principal which are made at the election of the borrower in addition to 
regularly scheduled payments and with FmHA or its successor agency under 
Public Law 103-354 approval. Such payments will not affect the schedule 
payment status or change the amount of the regular monthly payments. 
Funds for voluntary additional principal payments are derived from 
sources other than extra payment sources. Payments will be applied to 
current loans only.
[50 FR 8597, Mar. 4, 1985, as amended at 53 FR 2194, Jan. 26, 1988; 53 
FR 16244, May 6, 1988; 55 FR 25078, June 20, 1990; 56 FR 66961, Dec. 27, 
1991; 62 FR 25070, May 7, 1997]



Sec. 1951.505  [Reserved]



Sec. 1951.506  Processing payments.

    (a) Regular payments. Regular payments and advance regular payments 
will be processed as follows:
    (1) All payments will be based on tenants occupying the units as of 
the first day of the month prior to the payment

[[Page 78]]

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 due from the borrower or rental assistance (RA) 
due the borrower.
    (4) Each borrower will submit to the District Office Form FmHA or 
its successor agency under Public Law 103-354 1944-29 with the required 
monthly payment indicated or adjusted as indicated in paragraph (a)(5) 
of this section regardless of whether or not Form FmHA or its successor 
agency under Public Law 103-354 1944-9A is received.
    (5) Form FmHA or its successor agency under Public Law 103-354 1944-
29, prepared by the borrower must reflect the following:
    (i) Only tenants occupying units the first day of the month prior to 
the payment due date.
    (ii) Interest credit and (RA) may be claimed only for tenants with 
current tenant certification as specified in paragraph VII F 2 of 
exhibit B to subpart F of part 1930 of this chapter.
    (iii) Overage up to the market rent must be paid to FmHA or its 
successor

[[Page 79]]

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) The borrower may subtract any RA due the project (supported by 
current tenant certifications) from the payment due and remit a ``net'' 
payment. Calculations supporting the ``net'' payment must be shown on 
Part I of Form FmHA or its successor agency under Public Law 103-354 
1944-29. The Finance Office will net enough RA to bring the account 
status current and pay any unpaid overage, late fees, interest on 
delinquent principal, etc., based on the payment reception date. If the 
account is on or ahead of schedule on the payment reception date, enough 
RA will be netted to pay one full installment and any unpaid coverage, 
interest on delinquent principal, etc.
    (6) The District Director will certify that data on current tenant 
certifications held in the District Office supports claims on Form FmHA 
or its successor agency under Public Law 103-354 1944-29. The District 
Director will transmit payments as directed in exhibit A of this subpart 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (7) Payment input by FmHA or its successor agency under Public Law 
103-354 will be based on correct amounts regardless of the amount 
remitted by the borrower.
    (b) Other payments. Payments made through the District Office will 
be processed according to subpart B of part 1951 of this chapter 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (c) Uncollectible payment. Uncollectible payments will be handled 
under subpart B of this part 1951 of this chapter. The payment effective 
date for the replacement payment will be the date the replacement 
payment is received in the District Office, not the date of the original 
payment.
[50 FR 8597, Mar. 4, 1985, as amended at 51 FR 27671, Aug. 1, 1986; 55 
FR 25078, June 20, 1990; 56 FR 28038, June 19, 1991; 58 FR 40954, July 
30, 1993; 59 FR 54789, Nov. 2, 1994; 62 FR 25065, 25070, May 7, 1997]



Sec. 1951.507  Maintaining borrower accounts.

    (a) Accounts of active borrowers. The foundation for proper and 
timely debt payment is sound budgeting and monthly review of income and 
expenses by the borrower and, as necessary, the District Office staff. 
Account maintenance, therefore, must begin with initial planning and 
must be an integral part of ongoing analysis, planning and follow-up 
management assistance.
    (b) Accounts of collection-only borrowers. Collection only accounts 
will be serviced according to Sec. 1951.7(b) of subpart A of this part.
    (c) Notifying borrowers of late fees and past due payments. The 
Finance Office will automatically notify each borrower of late fees for 
payments which were unpaid on the 10th day of the month. A copy of the 
notice will be mailed to the District Office servicing the account.
    (d) Subsequent servicing. Delinquent accounts will be serviced 
according to the respective program requirements. Accounts will also be 
serviced under subpart B of part 1965 of this chapter.
    (e) District Office monitoring. District Offices should review each 
account at least monthly by accessing the Automated Multi-Housing 
Accounting System (AMAS) through field office terminals. For projects on 
PASS, the Management System card will be flagged with an orange signal 
between Position ``5'' and ``RRH.'' Exhibit A-1 of this subpart 
(available in any FmHA or its successor agency under Public Law 103-354 
office) should be used to track payments.
[50 FR 8597, Mar. 4, 1985, as amended at 58 FR 40955, July 30, 1993]



Sec. Sec. 1951.508-1951.509  [Reserved]



Sec. 1951.510  Payment application.

    (a) Regular payment due date. The regular payment due date is the 
first day

[[Page 80]]

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.
    (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

[[Page 81]]

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 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]

[[Page 82]]



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.
    (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

[[Page 83]]

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 and 
late fees accrued through the last day of the previous month will be 
capitalized.
    (B) Other than the first of the month closing: Accrued interest, 
overage and late fees through the date of closing will be capitalized. 
An interest only installment from the date of closing through the 30th 
day of the month will be collected from the transferee and applied to 
the transferee's account. This interest only installment will be 
calculated on the same interest credit rate in effect for the previous 
borrower.
    (ii) For DIAS to PASS transactions (same terms):
    (A) First of the month closings: Accrued interest, overage and late 
fees through the last day of the previous month will be collected from 
the transferor at closing and credited to the transferor's account.
    (B) Other than the first of the month closings: Accrued interest, 
overage and late fees through the date of closing will be collected from 
the transferor at closing and credited to the transferor's account. The 
date of credit is the day before closing. An interest only installment 
from the date of closing through the 30th day of the month will be 
collected from the transferee and credited to the transferee's account. 
This interest only installment will be calculated on the same interest 
credit rate in effect for the previous borrower.
    (iii) Reamortizations will always be effective the first day of the 
month. Unpaid interest, including any unpaid overage and late fees may 
be capitalized as follows: DIAS to PASS transactions, through the last 
day of the previous month; PASS to PASS transactions, through the 30th 
day of the previous month.
    (iv) Audit receivables may not be transferred or reamortized. They 
will be established as a ``Collection Only'' account for the transferor 
and must be collected or charged off.
    (5) Terms of conversion. All conversion on Form FmHA or its 
successor agency under Public Law 103-354 1951-50 will be at the 
interest rate and within the remaining terms shown on the converting 
promissory note, assumption agreement (new terms) or reamortization 
agreement (new terms).
[50 FR 8597, Mar. 4, 1985, as amended at 53 FR 16245, May 6, 1988; 58 FR 
40955, July 30, 1993; 62 FR 25065, May 7, 1997]



Sec. 1951.518  Determining current loan balances for transfer.

    Same terms transfers, when the transferor has been converted to 
PASS, must take place in a current loan status on the date of the 
transfer. Any delinquent principal and interest must be brought current. 
Overpayments and advance regular payments made on PASS accounts result 
in the creation of a ``future paid'' status account under AMAS. These 
advance payments must be reversed off and applied to the transferor's 
principal balance prior to determining the loan balance to be 
transferred. If the future payments have been made through rental 
assistance, they must be refunded to the transferor and reapplied in the 
form of cash on the loan balance.
[53 FR 16245, May 6, 1988]



Secs. 1951.519--1951.547  [Reserved]



Sec. 1951.548  Exception authority.

    The Administrator of the Farmers Home Administration or its 
successor agency under Public Law 103-354 may, in individual cases, make 
an exception to any requirements of this Subpart not required by the 
authorizing statute if the Administrator finds that application of such 
requirement would adversely affect the interest of the Government. The 
Administrator will exercise the authority only at the request

[[Page 84]]

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]



 Subpart L--Servicing Cases Where Unauthorized Loan or Other Financial 
                Assistence was Received--Farmer Programs

    Source: 50 FR 45777, Nov. 1, 1985, unless otherwised noted.



Sec. 1951.551  Purpose.

    This subpart prescribes the policies and procedures for servicing 
insured Operating (OL), Farm Ownership (FO), Soil and Water (SW), 
Recreation (RL), Emergency (EM), Economic Emergency (EE), Special 
Livestock (SL), Softwood Timber (ST), Economic Opportunity (EO) loans, 
and Rural Housing loans for farm service buildings (RHF) (referred to as 
farmer program (FP) loans), when it is determined that the borrower was 
not eligible for all or part of the financial assistance received in the 
form of a loan or subsidy granted. It does not apply to guaranteed 
loans.
[52 FR 26138, July 13, 1987]



Sec. 1951.552  Definitions.

    As used in this subpart, the following definitions apply:
    (a) Active borrower. A borrower who has an outstanding account in 
the records of the Finance Office, including collection-only or an 
unsatisfied account balance where a voluntary conveyance was accepted 
without borrower being released from liability or where liquidation did 
not satisfy the indebtedness.
    (b) Assistance. Financial assistance in the form of a loan or 
interest subsidy received.
    (c) Debt instrument. Used as a collective term to include promissory 
note or assumption agreement.
    (d) False information. Information, known to be incorrect, provided 
with the intent to obtain benefits which would not have been obtainable 
based on correction information.
    (e) Inaccurate information. Incorrect information provided 
inadvertently without intent to obtain benefits fraudulently.
    (f) Inactive borrower. A former active borrower whose loan(s) 
has(have) been paid in full or assumed by another party(ies), and who 
does not have an outstanding account in the records of the Finance 
Office.
    (g) Unauthorized Assistance. Any loan, primary loan servicing 
action, including Net Recovery Buyout, or interest subsidy received for 
which there was no authorization, for which the borrower was not 
eligible, or which was obligated from the wrong appropriation or fund. 
An unauthorized interest subsidy is a benefit received through a loan 
that was made at a lower interest rate than that to which the borrower 
was entitled, whether the incorrect interest rate was selected 
erroneously by the approval official, or the documents were prepared in 
error.
[50 FR 45777, Nov. 1, 1985, as amended at 56 FR 33862, July 24, 1991]

[[Page 85]]



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:
    (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

[[Page 86]]

given an opportunity to provide information to refute FmHA or its 
successor agency under Public Law 103-354's findings. When requested by 
the borrower, the County Supervisor may grant additional time for the 
borrower to assemble documentation. When an extension is granted, the 
County Supervisor will specify a definite number of days to be allowed 
and establish the follow up necessary to assure that servicing of the 
case continues without undue delay.



Sec. 1951.558  Decision on servicing actions.

    When the County Supervisor is the same official who approved the 
unauthorized assistance, the District Director must review the case 
before further actions are taken by the County Supervisor.
    (a) Payment in full. If the borrower agrees with FmHA or its 
successor agency under Public Law 103-354's determination and agrees to 
repay in a lump sum, the County Supervisor may allow a reasonable period 
of time (not to exceed 90 days) for the borrower to arrange for 
repayment. The amount due will be the amount stated in the letter as 
shown in Exhibit A of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office). The County Supervisor 
will remit collections to the Finance Office according to the Forms 
Manual Insert (FMI) for Form FmHA or its successor agency under Public 
Law 103-354 451-2, ``Schedule of Remittances,'' for application to the 
borrower's account as an extra payment. After a borrower repays an 
unauthorized interest subsidy benefit in a lump sum, the loan will be 
serviced in accordance with Sec. 1951.561(a)(3) of this subpart. In the 
case of unauthorized assistance which was identified in an OIG audit, 
the County Supervisor will report the repayment as outlined in 
Sec. 1951.568(a) of this subpart.
    (b) Continuation with borrower. If the borrower agrees with FmHA or 
its successor agency under Public Law 103-354's determination or is 
willing to repay but cannot repay the unauthorized assistance in a lump 
sum within a reasonable period of time, continuation may be authorized. 
Servicing actions outlined in Sec. 1951.561 of this subpart will be 
taken, provided all of the following conditions are met:
    (1) The borrower did not provide false information as defined in 
Sec. 1951.552(d) of this subpart.
    (2) It would be highly inequitable to require prompt repayment of 
the unauthorized assistance; and
    (3) Failure to collect the unauthorized assistance in full will not 
adversely affect FmHA or its successor agency under Public Law 103-354's 
financial interests.
    (c) Liquidation of loan(s) or legal action to enforce collection. 
When a case cannot be handled according to the provisions of paragraph 
(a) or (b) of this section, or if the borrower refuses to execute 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

[[Page 87]]

    (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:
    (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.

[[Page 88]]

    (i) When a subsidized interest rate was incorrectly charged on the 
entire loan, all payments made will be reversed and reapplied at the 
correct interest rate; and future installments will be scheduled at the 
correct interest rate. After reapplication of payments, the loan will be 
treated as an authorized loan.
    (ii) When a subsidized interest rate was incorrectly charged on only 
a portion of the loan, the Finance Office will be instructed by the 
County Supervisor to separate the loan into two portions, with the 
correct interest rate established for the portion having the incorrect 
subsidized interest rate. All payments made on the loan being adjusted 
will be reversed and reapplied, first to the portion with the corrected 
interest rate. After reapplication of payments at the correct interest 
rate, both portions will be serviced as authorized loans.
    (iii) Incorrect interest rates will be corrected as follows 
referring to Exhibit C of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office) for interest rates in 
effect on specific dates:
    (A) For disaster Emergency (EM) loans, to the rate for EM annual 
production loans.
    (B) For Operating Loans--Limited Resource (OL-LR), to the rate for 
regular Operating Loans (OL).
    (C) For Farm Ownership--Limited Resource (FO-LR), to the rate for 
regular Farm Ownership (FO).
    (D) For all other types of FP loans, to the correct rate for the 
type loan involved which was in effect when the loan was approved.
    (b) Inactive borrower. When the individual or entity does not have 
an outstanding account in the records of the Finance Office, the 
following actions will be taken:
    (1) Have the inactive borrower execute a promissory note in the 
amount of the assistance determined to be unauthorized according to 
Sec. 1951.557 of this subpart. This note will bear interest at the rate 
which was in effect for the type loan associated with the unauthorized 
assistance when it was approved. The term will not exceed 10 years or 
the term of the original loan, whichever is the shorter term.
    (2) Take the best lien obtainable on any collateral having equity 
value to secure the note.
[50 FR 45777, Nov. 1, 1985, as amended at 51 FR 4138, Feb. 3, 1986; 56 
FR 33862, July 24, 1991]



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,

[[Page 89]]

the form(s) will be prepared and distributed according to the FMIs, 
attaching the original form(s) to Form FmHA or its successor agency 
under Public Law 103-354 1951-12.
    (ii) Continuation with loan on existing terms. When it is determined 
that all the conditions outlined in Sec. 1951.558(b) of this subpart are 
met and continuation with the loan on the existing terms is approved, 
the servicing official will submit Form FmHA or its successor agency 
under Public Law 103-354 1951-12 to the Finance Office to reflect this.
    (2) Portion of loan unauthorized. When a loan is to be separated 
into authorized and unauthorized portions, the authorized portion will 
retain the original loan number, and the original principal amount will 
be reduced by the unauthorized amount. A new loan in the unauthorized 
amount will be established as the unauthorized loan with the next 
available number assigned by the Finance Office. Payments made on the 
loan being adjusted will be reversed and reapplied first to the 
unauthorized loan. If the reapplication of payments does not pay the 
unauthorized loan in full, upon receipt of Forms FmHA or its successor 
agency under Public Law 103-354 451-26, ``Transaction Record,'' showing 
the balances of the authorized and unauthorized loans, the servicing 
official will proceed under the provisions of Sec. 1951.561(a)(2) and 
will submit a revised Form FmHA or its successor agency under Public Law 
103-354 1951-12 (along with a copy of the original Form FmHA or its 
successor agency under Public Law 103-354 1951-12).
    (3) Unauthorized subsidy benefits received. (i) Entire loan. When 
the interest rate on an entire loan is changed, Form FmHA or its 
successor agency under Public Law 103-354 1951-12 will be submitted to 
notify the Finance Office of the correct interest rate to be charged 
from the original loan closing date. Payments made will be reversed and 
reapplied at the corrected interest rate, after which the unauthorized 
subsidy benefits will be reported to OIG as resolved. The loan will then 
be treated as an authorized loan.
    (ii) Portion of loan. When the interest rate on only a portion of a 
loan must be changed, the portion which has the incorrect interest rate 
will be established as a new loan at the correct interest rate shown on 
Form FmHA or its successor agency under Public Law 103-354 1951-12. 
Payments made on the loan being adjusted will be reversed and reapplied 
first to the loan with the corrected interest rate. Both loans will then 
be treated as authorized loans.
    (4) Liquidation pending. When liquidation is initiated under the 
provisions of this subpart, Form FmHA or its successor agency under 
Public Law 103-354 1951-12 will be submitted to advise the Finance 
Office to establish the unauthorized assistance account. This account 
will be flagged ``FAP'' (Foreclosure Action Pending) or ``CAP'' (Court 
Action Pending), as applicable.
    (5) Liquidation not initiated. Cases in which liquidation would 
normally be 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

[[Page 90]]

under Public Law 103-354 field office terminal system.
    (7) Payments on authorized and unauthorized loans concurrently. When 
a borrower has both authorized and unauthorized loans outstanding, 
installments may be scheduled to be paid concurrently on all loans. 
Payments may be adjusted by means of rescheduling or reamortizing to 
coincide with the borrower's repayment ability according to servicing 
regulations for the type loan involved. The County Supervisor will 
complete Form FmHA or its successor agency under Public Law 103-354 451-
2 so that payments received will be applied first to the unauthorized 
loan account to maintain it current, with the remainder of the payment 
applied to the other loan(s).
    (8) Reporting. At prescribed intervals, the Finance Office will 
report to the OIG on the status of cases involving unauthorized 
assistance which were identified by OIG in audit reports. For reporting 
purposes, the following applies:
    (i) For an unauthorized loan account established as provided in 
paragraph (a) (1), (2), or (6) of this section, reporting will be as 
follows:
    (A) When unauthorized assistance is paid in full, it will be 
reported on the next scheduled report only, giving the amount collected.
    (B) When unauthorized assistance is to be repaid under an 
accelerated repayment agreement, the unpaid balance will be reported 
initially and the collections and status will be included on each 
scheduled report until the account is paid in full.
    (C) When continuation with the loan on existing terms is approved, 
or after a loan is rescheduled or reamortized, it will be reported as 
resolved on the next scheduled report, and no further reporting is 
required.
    (ii) For unauthorized subsidy cases as provided in paragraph (a)(3) 
of this section, when the unauthorized amount has been repaid, or 
payments have been reversed and reapplied at the correct interest rate, 
the unauthorized subsidy will be reported as resolved on the next 
scheduled report. No further reporting is required.
    (iii) When an account is established with liquidation action pending 
as provided in paragraph (a)(4) of this section, the status will be 
included on each scheduled report until the liquidation is completed or 
the account is otherwise paid in full.
    (iv) When liquidation is not initiated as provided in paragraph 
(a)(5) of this section, it will be reported on the next scheduled report 
(along with collections, if any). No further reporting is required.
    (b) Nonaudit cases. Basically, servicing options which may be used 
are the same for audit and nonaudit cases; however, when receipt of 
unauthorized assistance is identified by a means other than an OIG audit 
report, the Finance Office will be notified only if adjustments to an 
account or reinstatement of an inactive account are necessary. Once 
adjustments are made as provided in this paragraph, the loan(s) 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.

[[Page 91]]

    (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.



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.

[[Page 92]]

    (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
    (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;

[[Page 93]]

    (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 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

[[Page 94]]

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 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

[[Page 95]]

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]



Secs. 1951.659--1951.660  [Reserved]



Sec. 1951.661  Servicing options in lieu of liquidation or legal action to collect.

    When all of the conditions outlined in Sec. 1951.658(b) are met, an 
unauthorized loan or grant will be serviced according to this section 
and Sec. 1951.668, provided the recipient has the legal and financial 
capabilities.
    (a) Active borrower/grantee--(1) Unauthorized loan. (i) Correction 
of problem. If the problem causing the assistance to be unauthorized can 
be corrected, corrective action will be required. For example, where a 
loan was in excess of the authorized amount, the recipient will be 
required to refund the difference; or where the loan included funds for 
purchase of excess land, the recipient will be required to sell the 
excess land and the proceeds will be applied to the account as an extra 
payment; or where a restrictive-use provision was omitted from a loan 
document, the provision will be inserted.
    (ii) Continuation on existing terms. When there is no specific 
problem which can be corrected, continuation on the existing terms is 
authorized.
    (2) Unauthorized subsidy benefits received through use of incorrect 
interest rate. When the recipient was eligible for the loan but should 
properly have been charged a higher interest rate than that shown in the 
debt instrument, resulting in the receipt of unauthorized subsidy 
benefits, the interest rate must be corrected to that which was in 
effect when the loan was approved. All payments made will be reversed 
and reapplied at the correct interest rate and future installments will 
be scheduled at the correct interest rate. A delinquency which is 
created will be serviced according to subpart B of part 1965 of this 
chapter. After reapplication of payments, the loan will be serviced as 
an authorized loan. Change in interest rate will be accomplished 
according to Sec. 1951.668. When the recipient is a public body with 
loans secured by bonds on which interest rate cannot legally be changed 
or payments reversed or reapplied, continuation on existing terms is 
authorized.

[[Page 96]]

    (3) Unauthorized interest credits or rental assistance. In cases 
involving RA and/or IC, the subsidy benefits should be terminated as 
provided in the Interest Credit and Rental Assistance Agreement. 
Unauthorized RA will be serviced as a delinquent account according to 
paragraph X B of exhibit E of subpart C of part 1930 of this chapter.
    (i) Tenant's failure to properly report changes in income or size of 
the household to the borrower. In cases where a tenant has received RA 
and/or IC benefits to which he/she was not entitled because of the 
tenant's failure to properly report income or changes in household size, 
the borrower-landlord will provide the tenant with a notice of intent to 
recoup improperly advanced rental subsidy benefits. Such a notice must 
inform the tenant of the amount improperly advanced and the lump sum or 
monthly amount that will be added to the tenant's rent to recoup the 
improper rental subsidy. The borrower will inform the District Director 
of the unauthorized benefits and of the agreement made by the tenant to 
repay. Money collected will be remitted according to the FMI for Form 
FmHA or its successor agency under Public Law 103-354 1944-9. If the 
borrower has rental assistance, that portion attributable to RA will be 
credited to the borrower's RA account. In the event that the tenant does 
not repay through active collection efforts including legal remedy, the 
borrower will report the facts to the District Director. The District 
Director will report to the State Director who will obtain the advice of 
OGC on further actions.
    (ii) Tenant knowingly misrepresented income or number of occupants 
to the borrower. If it appears the tenant has knowingly misrepresented 
income to the borrower, the District Director will look into the case to 
determine the facts. If the District Director determines that income or 
number of occupants was misrepresented, he/she will direct the borrower-
landlord to demand and to attempt to recoup improperly received rental 
subsidy from the tenant. Money collected will be remitted to the Finance 
Office according to the FMI for Form FmHA or its successor agency under 
Public Law 103-354 1944-9. If the tenant fails to make restitution, the 
District Director will refer the case to the State Director who will 
request the advice of OGC on further actions.
    (iii) Unauthorized RA and/or IC paid due to borrower's error. 
Whether unauthorized RA or IC was received by the borrower due to 
miscalculation or oversight by the borrower or the borrower's management 
agent, the borrower is required to make restitution to FmHA or its 
successor agency under Public Law 103-354. This restitution will not be 
charged to any tenant or to the project as any part of the budget or 
operating expense. The restitution will be handled as a refund according 
to the FMI for Form FmHA or its successor agency under Public Law 103-
354 1944-49. In the case of a nonprofit or public body borrower, when 
funds from nonproject sources are not available, the State Director may 
make an exception and allow project income not required for approved 
operating budget items to cover the cost of restitution.
    (iv) Rental assistance assigned to wrong household. When the tenant 
has correctly reported income and household size, but RA was assigned by 
the borrower to the household in error, the tenant's RA benefit will be 
cancelled and reassigned.
    (A) Notification and cancellation. Before the borrower notifies the 
tenant, the borrower or management agent will review the case with the 
District Director. If the District Director verifies that an error was 
made based on information available at the time the unit was assigned, 
the tenant will be given 30 days written notice by the borrower or 
management agent that the unit was assigned in error and that the RA 
benefit will be cancelled effective on the next monthly rental payment 
due after the end of the 30-day notice period. The written notice will 
provide that:
    (1) The tenant has the right to cancel the lease based on the loss 
of subsidy benefit to the tenant.
    (2) The RA granted in error will not be recaptured.
    (3) The tenant may meet with management to discuss the cancellation 
and the facts on which the decision was

[[Page 97]]

based. The borrower must give the tenant appeal rights under subpart L 
or part 1944 of this chapter.
    (B) Reassignment of RA. Rental assistance will be reassigned in 
accordance with paragraph XII of exhibit E to subpart C of part 1930 of 
this chapter.
    (v) Rental assistance in excess of contract. When rental assistance 
is advanced in excess of the RA contract limit, the District Director 
will send a report of the facts and a recommendation of proposed action 
through the State Director to the Assistant Administrator, Housing. The 
Assistant Administrator will determine the disposition of the case and 
notify the State Director, who will instruct the District Director of 
the required action.
    (4) Unauthorized grant assistance. (i) When the recipient will repay 
unauthorized grant assistance over a period of time, interest will be 
charged at the rate specified in the grant agreement for default from 
the date received until paid. Repayment will be scheduled over a period 
consistent with the recipient's repayment ability but not to exceed 10 
years. The District Director must maintain collection records as the 
Finance Office cannot set upon an account for repayment of a grant. The 
District Director will attempt to collect the monies due, and all 
collections will be remitted with Form FmHA or its successor agency 
under Public Law 103-354 451-2, ``Schedule of Remittances,'' as a 
``Miscellaneous Collection for Application to the General Fund.'' For 
cases identified in OIG audits only, the District Director will report 
quarterly to the State Office according to Sec. 1951.668 (a)(6).
    (ii) If it is determined the recipient cannot repay unauthorized 
grant assistance, the assistance may be left outstanding under the terms 
of the grant agreement. In the case of committed funds not yet 
disbursed, no further disbursements will be made without prior consent 
of the Administrator.
    (5) Cases where recipient has both authorized and unauthorized loans 
outstanding. When a recipient has both authorized and unauthorized loans 
outstanding, installments will be scheduled to be paid concurrently on 
all loans. Each loan will be serviced according to the loan servicing 
regulations in effect for an authorized loan of its type.
    (b) Inactive borrower. When a borrower no longer has an outstanding 
account in the records of the Finance Office, the following actions will 
be taken:
    (1) Have the recipient execute a promissory note in the amount of 
the assistance determined to be unauthorized in the exhibit A (available 
in any FmHA or its successor agency under Public Law 103-354 office) 
letter according to Sec. 1951.657. This note will bear interest at the 
rate which was in effect for the type loan associated with the 
unauthorized assistance when it was approved. The term will not exceed 
10 years.
    (2) Take the best mortgage obtainable to secure the note.
[50 FR 12996, Apr. 2, 1985, as amended at 51 FR 11563, Apr. 4, 1986; 58 
FR 38926, July 21, 1993]



Secs. 1951.662--1951.667  [Reserved]



Sec. 1951.668  Servicing unauthorized assistance accounts.

    When a final determination has been made that unauthorized 
assistance has been granted, the Finance Office will be notifed of 
necessary account adjustments as outlined in this section, depending 
upon whether the case or unauthorized assistance was identified by OIG 
in an audit report or by another means. The Finance Office will service 
the accounts as prescribed in this section.
    (a) Audit cases. Ony the cases of unauthorized assistance identified 
by OIG will be reported to the Finance Office. Form FmHA or its 
successor agency under Public Law 103-354 1951-12 will be completed in 
accordance with the FMI, and the District Director will prepare and 
submit Form FmHA or its successor agency under Public Law 103-354 1951-
52, ``MFH Record Adjustment--Audit Claim,'' according to the FMI to 
advise the Finance Office. The Finance Office will flag the account for 
monitoring and reporting as required. Each payment reversed will be 
reapplied as of the original date of credit. ``Loan'' as used in this 
section refers to an account with an active borrower unless specified as 
``inactive.''

[[Page 98]]

    (1) Unauthorized loan. When the loan is unauthorized because the 
recipient was not eligible or because the loan was approved for 
unauthorized purposes, the Finance Office will be advised as follows:
    (i) Repayment in full. If the recipient has arranged to repay the 
unauthorized loan, the payment will be remitted with Form FmHA or its 
successor agency under Public Law 103-354 1944-9, in accordance with the 
FMI. Forms FmHA or its successor agency under Public Law 103-354 1951-12 
and 1951-52 will reflect the amount and the Schedule Number from Form 
FmHA or its successor agency under Public Law 103-354 1944-9.
    (ii) Continuation with loan on existing terms. When continuation 
with the loan on the existing terms is approved according to 
Sec. 1951.661 (a)(1)(ii), the District Director will submit Form FmHA or 
its successor agency under Public Law 103-354 1951-52 to the Finance 
Office to reflect this.
    (2) Unauthorized subsidy benefits received through use of incorrect 
interest rate. When the interest rate on an entire loan is changed, Form 
FmHA or its successor agency under Public Law 103-354 1951-52 will be 
submitted to notify the Finance Office of the correct interest rate to 
be charged from the loan closing date. Payments made will be reversed 
and reapplied at the corrected interest rate, after which the 
unauthorized subsidy benefits will be reported to OIG as resolved. The 
loan will thereafter be treated as an authorized loan.
    (3) Unauthorized interest credits and/or rental assistance. 
Unauthorized rental assistance and/or interest credits will be recovered 
according to the provisions of Sec. 1951.661. The District Director will 
report to the State Office by the 1st of March, June, September, and 
December of each year, the repayment of unauthorized rental assistance 
and/or interest credits by account name, case number, account code, 
audit report number, finding number, date of claim, amount of claim, 
amount collected during period, and balance owed at end of reporting 
period. The State Office will forward a consolidated report to the 
Finance Office no later than the 15th of March, June, September, and 
December of each year for inclusion in the OIG report.
    (4) Liquidation pending. When liquidation is initiated under the 
provisions of this subpart, Form FmHA or its successor agency under 
Public Law 103-354 1951-52 will be submitted to advise the Finance 
Office of the unauthorized assistance account to be established. This 
account will be flagged ``FAP'' (Foreclosure Action Pending) or ``CAP'' 
(Court Action Pending), as applicable. The account status will also be 
amended in the MFH Information Tracking and Retrieval System (MISTR) 
according to subpart G of part 2033 (available in any FmHA or its 
successor agency under Public Law 103-354 State or District Office).
    (5) Liquidation not initiated. Cases in which Liquidation has not 
been initiated because of the provisions of Sec. 1951.658 (e)(1)(i)(A) 
or (e)(1)(i)(B) will be adjusted according to Sec. 1951.661 and this 
section of this subpart, and the adjustments will be reflected on Form 
FmHA or its successor agency under Public Law 103-354 1951-52. In this 
instance only, account adjustments will be made even though the 
recipient does not sign Form FmHA or its successor agency under Public 
Law 103-354 1951-52 and any related documents.
    (6) Unauthorized grant assistance. When grant funds are to be repaid 
as provided in Sec. 1951.661(a)(4) the District Director will report to 
the State Office by the 1st of March, June, September, and December of 
each year, the amount of collections by account name, case number, fund 
code, audit report number, finding number, date of claim, original 
amount of claim, amount collected during period, and the balance owed at 
end of reporting period on the unauthorized grant assistance. The State 
Office will submit a composite report to the Finance Office by the 15th 
of March, June, September, and December of each year.
    (7) Establishment of account for inactive borrower. When an inactive 
borrower agrees to repay unauthorized assistance and executes documents 
to evidence such an obligation, Forms FmHA or its successor agency under 
Public Law 103-354 1951-12 and 1951-52 will be completed according to 
the FMIs. The Finance Office will establish

[[Page 99]]

the account according to the terms indicated on Form FmHA or its 
successor agency under Public Law 103-354 1951-52.
    (8) Reporting. At prescribed intervals, the Finance Office will 
report to the OIG on the status of cases involving unauthorized 
assistance which were identified by OIG in audit reports. The amounts to 
be reported will be determined by the Finance Office after account 
servicing actions have been completed. For reporting purposes, the 
following applies:
    (i) For an unauthorized loan account as provided in paragraph (a)(1) 
or (a)(4) of this section, reporting will be as follows:
    (A) When unauthorized assistance is paid in full, this will be 
reported on the next scheduled report only.
    (B) When continuation with the loan on existing terms is approved, 
the case will be reported as resolved on the next scheduled report, and 
no further reporting is required.
    (ii) For unauthorized subsidy cases as provided in paragraph (a)(2) 
or (a)(3) of this section, after the unauthorized amount has been repaid 
or payments have been reversed and reapplied at the correct interest 
rate, the unauthorized subsidy will be reported as resolved on the next 
scheduled report. No further reporting is required.
    (iii) When an account is established with liquidation action pending 
as provided in paragraph (a)(4) of this section, the status will be 
included on each scheduled report until the liquidation is completed or 
the account is otherwise paid in full.
    (iv) When liquidation is not initiated as provided in paragraph 
(a)(5) of this section, this will be reported on the next scheduled 
report (along with collections, if any). No further reporting is 
required.
    (v) When unauthorized grant assistance is scheduled to be repaid, 
the collections and status reported by the State Office to the Finance 
Office by memorandum according to paragraph (a)(6) of this section will 
be included in the OIG Report until the account is paid in full.
    (vi) When an inactive borrower has agreed to repay unauthorized 
assistance according to paragraph (a)(7) of this section, the account 
will be reported initially, and collections and status will be included 
in each scheduled report until the account is paid in full.
    (b) Nonaudit cases. Basically, servicing is the same for audit and 
nonaudit case; however, when receipt of unauthorized assistance is 
identified by a means other than an OIG audit report, the Finance Office 
will be notified only if adjustments to an active account or 
reinstatement of an inactive account are necessary, or grant funds are 
repaid. Once adjustments are made as provided in this paragraph, the 
loan(s) will be treated as an authorized loan(s). Any payment reversed 
will be reapplied as of the original date of credit. After payments are 
reversed and reapplied, the District Director will receive Form FmHA or 
its successor agency under Public Law 103-354 451-26, ``Transaction 
Record,'' from the Finance Office reflecting the account status.
    (1) Account adjustments will be handled as follows:
    (i) When a change in interest rate retroactive to the date of loan 
closing is necessary, Form FmHA or its successor agency under Public Law 
103-354 1951-13, ``Change in Interest Rate,'' will be completed 
according to the FMI and executed by the borrower. Form FmHA or its 
successor agency under Public Law 103-354 1951-521 will be submitted to 
the Finance Office. Payments will be reversed and reapplied accordingly.
    (ii) When an inactive borrower agrees to repay unauthorized 
assistance and executes documents to evidence such an obligation, the 
District Director will notify the Finance Office by memorandum, 
attaching a copy of the promissory note. The Finance Office will 
establish or reinstate the account according to the terms of the 
promissory note.
    (iii) If a loan is paid in full, the remittance will be handled in 
the same manner as any other final payment.
    (2) A delinquency created through reversal and reapplication of 
payments to effect corrections outlined in paragraph (b)(1)(i) of this 
section will be serviced according to subpart B of part 1965 of this 
chapter.

[[Page 100]]

    (c) Collection of unauthorized assistance. Collection of 
unauthorized assistance will be made in accordance with the appropriate 
sections of subpart K of part 1951 of this chapter. If full prepayment 
of an MFH loan is required, the prepayment will be accepted in 
accordance with the requirements of subpart E of part 1965 of this 
chapter, and appropriate restrictive-use provisions, if applicable, will 
remain in the deeds of release.
[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]



Sec. 1951.669  Exception authority.

    The Administrator may in individual cases make an exception to any 
requirement or provision of this subpart which is not inconsistent with 
any applicable law or opinion of the Comptroller General, provided the 
Administrator determines that application of the requirement or 
provision would adversely affect the Government's interest. Requests for 
exceptions must be made in writing by the State Director and submitted 
through the Assistant Administrator, Housing. Requests will be supported 
with documentation to explain the adverse effect on the Government's 
interest, proposed alternative courses of action, and show how the 
adverse effect will be eliminated or minimized if the exception is 
granted.



Secs. 1951.670--1951.699  [Reserved]



Sec. 1951.700  OMB control number.

    The collection of information requirements in this regulation have 
been approved by the Office of Management and Budget and assigned OMB 
control number 0575-0104.



Subpart O--Servicing Cases Where Unauthorized Loan(s) or Other Financial 
    Assistance Was Received--Community and Insured Business Programs

    Source: 50 FR 13000, Apr. 2, 1985, unless otherwise noted.



Sec. 1951.701  Purpose.

    This subpart prescribes the policies and procedures for servicing 
Community and Business Program loans and/or grants made by Farmers Home 
Administration or its successor agency under Public Law 103-354 (FmHA or 
its successor agency under Public Law 103-354) when it is determined 
that the borrower or grantee was not eligible for all or part of the 
financial assistance received in the form of a loan, grant, or subsidy 
granted, or any other direct financial assistance. It does not apply to 
guaranteed loans. Loans sold without insurance by the FmHA or its 
successor agency under Public Law 103-354 to the private sector will be 
serviced in the private sector and will not be serviced under this 
subpart. The provisions of this subpart are not applicable to such 
loans. Future changes to this subpart will not be made applicable to 
such loans.
[52 FR 38908, Oct. 20, 1987]



Sec. 1951.702  Definitions.

    As used in this subpart, the following definitions apply:
    (a) Active borrower. A borrower who has an outstanding account in 
the records of the Finance Office, including collection-only or an 
unsatisfied account balance where a voluntary conveyance was accepted 
without release from liability of foreclosure did not satisfy the 
indebtedness.
    (b) Assistance. Finance assistance in the form of a loan, grant, or 
subsidy received.
    (c) Debt instrument. Used as a collective term to include promissory 
note, assumption agreement, grant agreement agreement/resolution, or 
bond.
    (d) False information. Information, known to be incorrect, provided 
with the intent to obtain benefits which would not have been obtainable 
based on correct information.
    (e) Inaccurate information. Incorrect information provided 
inadvertently without intent to obtain benefits fraudulently.
    (f) Inactive borrower. A former borrower whose loan(s) has (have) 
been paid in full or assumed by another party(ies) and who does not have 
an outstanding account in the records of the Finance Office.
    (g) Recipient. ``Recipient'' refers to an individual or entity that 
received a loan, or portion of a loan, an interest

[[Page 101]]

subsidy, a grant, or a portion of a grant which was unauthorized.
    (h) Servicing official. For Community Programs, the servicing 
official is the District Director, an Assistant District Director, or a 
District Loan Specialist so designated. For Business Programs, the 
servicing official is the State Director or Designee.
    (i) Unauthorized assistance. Any loan, interest subsidy, grant, or 
portion thereof received by a recipient for which there was no 
regulatory authorization for which the recipient was not eligible. 
Interest subsidy includes subsidy benefits received because a loan was 
closed at a lower interest rate than that to which the recipient was 
entitled, whether the incorrect interest rate was selected erroneously 
by the approval official or the documents were prepared in error.



Sec. 1951.703  Policy.

    When unauthorized assistance has been received, an effort must be 
made to collect from the recipient the sum which is determined to be 
unauthorized, regardless of amount, unless any applicable Statute of 
Limitation has expired.



Secs. 1951.704--1951.705  [Reserved]



Sec. 1951.706  Initial determination that unauthorized assistance was received.

    Unauthorized assistance may be identified through audits conducted 
by the Office of the Inspector General, USDA, (OIG); through reviews 
made by FmHA or its successor agency under Public Law 103-354 personnel; 
or through other means such as information provided by a private citizen 
which documents that unauthorized assistance has been receive by a 
recipient of FmHA or its successor agency under Public Law 103-354 
assistance. If the servicing official has reason to believe unauthorized 
assistance was received, but is unable to determine whether or not the 
assistance was in fact unauthorized, the case file including the advice 
of the Regional Office of the General Counsel (OGC) will be referred to 
the National Office for review and comment. In every case where it is 
known or believed by FmHA or its successor agency under Public Law 103-
354 that the assistance was based on false information, investigation by 
the OIG will be requested as provided for in FmHA or its successor 
agency under Public Law 103-354 Instruction 2012-B (available in any 
FmHA or its successor agency under Public Law 103-354 office). If OIG 
conducts an investigation, the actions outlined in Sec. 1951.707 will be 
deferred until the OIG investigation is completed and the report is 
received. The reason(s) for the unauthorized assistance being received 
by the recipient will be well documented in the case file, and will 
specifically state whether it was due to:
    (a) Submission of inaccurate information by the recipient;
    (b) Submission of false information by the recipient.
    (c) Submission of inaccurate or false information by another 
authorized party acting on the recipient's behalf including professional 
consultant such as engineers, architects, and attorneys, when the 
recipient did not know the other part had submitted inaccurate or false 
information;
    (d) Error by FmHA or its successor agency under Public Law 103-354 
personnel, either in making computations or failure to follow published 
regulations or other agency issuances; or
    (e) Error in preparation of a debt instrument which caused a loan to 
be closed at an interest rate lower than the correct rate in effect when 
the loan was approved.



Sec. 1951.707  Notification to recipient.

    (a) Collection efforts will be initiated by the servicing official 
by a letter substantially similar to exhibit A of this subpart 
(available in any FmHA or its successor agency under Public Law 103-354 
office), and mailed to the recipient by ``Certified Mail, Return Receipt 
Requested,'' with a copy to the State Director and, for a case identifed 
in an OIG audit report, a copy to the OIG office which conducted the 
audit and the Planning and Analysis Staff of the National Office. This 
letter will be sent to all recipients who received unauthorized 
assistance, regardless of amount. The letter will:

[[Page 102]]

    (1) Specify in detail the reason(s) the assistance was determined to 
be unauthorized;
    (2) State the amount of unauthorized assistance, including any 
accrued interest to be repaid; and
    (3) Establish an appointment for the recipient to discuss with the 
servicing official the basis for FmHA or its successor agency under 
Public Law 103-354's claim; and give the recipient an opportunity to 
provide facts, figures, written records or other information which might 
alter FmHA or its successor agency under Public Law 103-354's 
determination that the assistance received was unauthorized.
    (b) If the recipient meets with the servicing official, the 
servicing official will outline to the recipient why the assistance was 
determined to be unauthorized. The recipient will be given an 
opportunity to provide information to refute FmHA or its successor 
agency under Public Law 103-354's findings. When requested by the 
recipient, the servicing official may grant additional time for the 
recipient to assemble documentation. When an extension is granted, the 
servicing official will specify a definite number of days to be allowed 
and establish the follow up necessary to assure that servicing of the 
case continues without undue delay.



Sec. 1951.708  Decision on servicing actions.

    When the servicing official is the same individual who approved the 
unauthorized assistance, the next-higher supervisory official must 
review the case before further actions are taken by the servicing 
official.
    (a) Payment in full. If the recipient agrees with FmHA or its 
successor agency under Public Law 103-354's determination or will pay 
the amount in question, the servicing official may allow a reasonable 
period of time (usually not to exceed 90 days) for the recipient to 
arrange for repayment. The amount due will be determined according to 
Sec. 1951.711(a). the servicing official will remit collections to the 
Finance Office according to the Forms Manual Insert (FMI) for Form FmHA 
or its successor agency under Public Law 103-354 451-2, ``Schedule of 
Remittances,'' as follows:
    (1) In the case of a loan, for application to the borrower's account 
as an extra payment.
    (2) In the case of a grant, as a ``Miscellaneous Collection for 
Application to the General Fund.''
    (3) In the case of a loan or grant which was identified in an OIG 
audit, the servicing official will report the repayment as outlined in 
Sec. 1951.711(b)(2) or 1951.715 as applicable.
    (b) Continuation with recipient. If the recipient agrees with FmHA 
or its successor agency under Public Law 103-354's determination or is 
willing to pay the amount in question but cannot repay the unauthorized 
assistance within a reasonable period of time, continuation is 
authorized and servicing actions outlined in Sec. 1951.711 will be taken 
provided all of the following conditions are met:
    (1) The recipient did not provide false information as defined in 
Sec. 1951.702(d);
    (2) It would be highly inequitable to require prompt repayment of 
the unauthorized assistance; and
    (3) Failure to collect the unauthorized assistance in full will not 
adversely affect FmHA or its successor agency under Public Law 103-354's 
financial interests.
    (c) Notice of determination when agreement is not reached. If the 
recipient does not agree with FmHA or its successor agency under Public 
Law 103-354's determination, or if the recipient fails to respond to the 
initial letter prescribed in Sec. 1951.707 within 30 days, the servicing 
official will notify the recipient by letter substantially similar to 
exhibit B of this subpart (available in any FmHA or its successor agency 
under Public Law 103-354 office) (sent by Certified Mail, Return Receipt 
Requested), with a copy to the State Director, and for a case identified 
in an OIG audit report, a copy to the OIG office which conducted the 
audit and the Planning and Analysis Staff of the National Office. This 
letter will include:
    (1) The amount of assistance finally determined by FmHA or its 
successor agency under Public Law 103-354 to be unauthorized including 
any accrued interest.

[[Page 103]]

    (2) A statement of further actions to be taken by FmHA or its 
successor agency under Public Law 103-354 as outlined in paragraph 
(e)(1) or (e)(2) of this section; and
    (3) The appeal rights as prescribed in exhibit B of this subpart 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (d) Appeals. Appeals resulting from the letter prescribed in 
paragraph (c) of this section will be handled according to subpart B of 
part 1900 of this chapter. All appeal provisions will be concluded 
before proceeding with further actions. If the recipient does not 
prevail in an appeal, or when an apeal is not made during the time 
allowed, the servicing official will document the facts in the case file 
and submit to State Director, if the servicing official is other than 
State Director, who will proceed with the actions outlined in paragraph 
(e) of this section, as applicable. If during the course of appeal the 
appellant decides to agree with FmHA or its successor agency under 
Public Law 103-354's findings or is willing to repay the unauthorized 
assistance, the servicing official will proceed with the actions 
outlined in paragraph (a), (b), or (e) of this section.
    (e) Liquidation of loan(s) or legal action to enforce collection. 
When a case cannot be handled according to the provisions of paragraph 
(a) or (b) of this section, or if the recipient refuses to execute the 
documents necessary to establish an obligation to repay the unauthorized 
assistance as provided in Sec. 1951.711, one of the following actions 
will be taken:
    (1) Active borrower with a secured loan. (i) The servicing official 
will attempt to have the recipient liquidate voluntarily. If the 
recipient agrees to liquidate voluntarily, this will be documented in 
the case file. Where real property is involved, a letter will be 
prepared by the servicing official and signed by the recipient agreeing 
to voluntary liquidation. A resolution of the governing body may be 
required. If the recipient does not agree to voluntary liquidation, or 
agrees but it cannot be accomplished within a reasonable period of time 
(usually not more than 90 days), forced liquidation action will be 
initiated in accordance with applicable provisions of subpart A of part 
1955 of this chapter unless:
    (A) The amount of unauthorized assistance outstanding, including 
principal, accrued interest, and any recoverable costs charged to the 
account, is less than $1,000; or
    (B) It can be clearly documented that it would not be in the best 
financial interest of the Government to force liquidation. If the 
servicing official wishes to make an exception to forced liquidation 
under paragraph (e)(1)(i)(B) of this section, a request for an exception 
under Sec. 951.716 will be made.
    (ii) When all of the conditions of paragraph (a) or (b) of this 
section are met, but the recipient does not repay or refuses to execute 
documents to effect necessary account adjustments according of the 
provisions of Sec. 1951.711, liquidation action will be initiated as 
provided in paragraph (e)(1)(i) of this section.
    (iii) When forced liquidation would be initiated except that the 
loan is being handled under paragraph (e)(1)(i)(A) or (e)(1)(i)(B) of 
this section, continuation with the loan on existing terms will be 
provided. In these cases, the recipient will be notified by letter of 
the actions taken.
    (2) Grantee, inactive borrower, or active borrower with unsecured 
loan (such as collection-only, or unsatisfied balance after 
liquidation). The servicing official will document the facts in the case 
file and submit it to the State Director, if the servicing official is 
other than the State Director, who will request the advice of the OGC on 
pursuing legal action to effect collection. The case file, 
recommendation of State Director and OGC comments will be forwarded to 
the National Office for review and authorization to implement 
recommended servicing actions. The State Director will tell OGC what 
assets, if any, are available from which to collect.



Secs. 1951.709--1951.710  [Reserved]



Sec. 1951.711  Servicing options in lieu of liquidation or legal action to collect.

    When the conditions outlined in Sec. 1951.708(b) are met, the 
servicing options outlined in this section will be

[[Page 104]]

considered. Accounts will be serviced according to this section and 
Sec. 1951.715.
    (a) Determination of unauthorized loan and/or grant assistance 
amount--(1) Unauthorized loan amount. The principal loan amount that was 
unauthorized will be determined. The unauthorized amount will be the 
unauthorized principal plus any accrued interest on the unauthorized 
principal at the note interest rate until the date paid in accordance 
with Sec. 1951.708(a), or until the date other satisfactory financial 
arrangements are made in accordance with paragraph (b)(1) or (c) of this 
section.
    (2) Unauthorized grant amount. The unauthorized grant actually 
expended will be determined. The unauthorized amount will be the 
unauthorized grant with accrued interest at the interest rate stipulated 
in the respective executed grant agreement for default cases until the 
date paid in accordance with Sec. 1951.708(a), or until the date other 
satisfactory financial arrangements are made in accordance with 
paragraph (b)(2) or (c) of this section.
    (b) Continuation on modified terms. When the recipient has the legal 
and financial capabilities, the case will be serviced according to one 
of the following, as appropriate. In each instance, the servicing 
official will advise the Finance Office by memorandum of the actions 
necessary to effect the account adjustment.
    (1) Unauthorized loan. A loan for the unauthorized amount determined 
according to paragraph (a)(1) of this section will be established at the 
interest rate specified in the outstanding debt instrument or at the 
present market interest rate, whichever is greater, for the respective 
Community and Business program area. The loan will be amortized for a 
period not to exceed fifteen (15) years, the remaining term of the 
original loan, or the remaining useful life of the facility whichever is 
shorter.
    (2) Unauthorized grant. The unauthorized grant amount determined 
according to paragraph (a)(2) of this section will be converted to a 
loan at the market interest rate for the respective Community and 
Business Programs area in effect on the date the financial assistance 
was provided, and will be amortized for a period not to exceed fifteen 
(15) years. The recipient will be required to execute a debt instrument 
to evidence this obligaton, and the best security position practicable 
in a manner which will adequately protect the FmHA or its successor 
agency under Public Law 103-354's interests during the repayment period 
will be taken as security. When the recipient is to repay grant 
assistance, the servicing official must maintain records on the 
``account'' as the Finance Office cannot set up an account for repayment 
of a grant. The servicing official will attempt to collect the monies 
due and all collections will be remitted with Form FmHA or its successor 
agency under Public Law 103-354 451-2 to the Finance Office as 
``Miscellaneous Collections for Application to the General Fund.'' For 
cases identified in OIG audits only, the servicing official will report 
by the 1st of March, June, September, and December of each year the 
following information on cases of this type to the State Director: 
Recipient's name, fund code, audit report number, audit finding number, 
date of claim, amount of claim, amount collected during the reporting 
period, and the balance owed on the unauthorized grant assistance.
    (3) Unauthorized subsidy benefits received. When the recipient was 
eligible for the loan but should have been charged a higher interest 
rate than that in the debt instrument, which resulted in the receipt of 
unauthorized subsidy benefits, the case will be handled as outlined in 
this paragraph. The recipient will be given the option to submit a 
written request that the interest rate be adjusted to the lower of the 
rate for which they were eligible that was in effect at the date of loan 
approval or loan closing. (See exhibit C of this subpart for interest 
rates (available in any FmHA or its successor agency under Public Law 
103-354 office).) FmHA or its successor agency under Public Law 103-354 
servicing officials will make a concerted effort to collect all 
unauthorized subsidy benefits from the recipient and will contact the 
Office of General Counsel in each case for advice in accomplishing 
corrective actions.
    (c) Continuation on existing terms. When the recipient does not have 
the

[[Page 105]]

legal and/or financial capabilities for the options outlined in 
paragraph (b)(1), (b)(2), or (b)(3) of this section, as appropriate, to 
be exercised, the recipient may be allowed to continue to meet the loan/
grant obligations outlined in the existing loan/grant instruments. 
Unless the unauthorized assistance was identified in an OIG audit, no 
Finance Office notification or action is necessary. If identified by 
OIG, the servicing official will advise the Finance Office by memorandum 
of the determination to continue with the recipient on the existing 
terms of the loan/grant.
    (d) Reporting requirements to National Office. An annual report will 
be submitted by the State Office to the Assistant Administrator, 
Community and Business Programs, within 30 days following the end of the 
Government's fiscal year for each case of unauthorized assistance or 
subsidy benefits. The report will include for each case the account 
name, case number, fund code, OIG audit number (if applicable), amount 
collected during period, and the balance owed on the unauthorized 
assistance. Each State Office is responsible for coordinating with the 
servicing official's office so that this information can be accumulated 
and consolidated by the State Office within the allotted time. A 
negative report is required from States which have no unauthorized 
assistance cases.
[50 FR 13000, Apr. 2, 1985, as amended at 51 FR 11563, Apr. 4, 1986; 54 
FR 28020, July 5, 1989]



Secs. 1951.712--1951.714  [Reserved]



Sec. 1951.715  Account adjustments and reporting requirement.

    Cases of unauthorized assistance which require Finance Office 
notification and action, regardless of whether they were identified in 
an OIG audit or by other means, will be submitted to the Finance Office 
by memorandum from the servicing official, as provided in applicable 
paragraphs of Sec. 1951.711 of this subpart. Each memorandum should 
include account (borrower) name, case number, audit report number (if 
applicable), finding number (if applicable), fund code, loan number, and 
an explanation of the actions to be taken. If the unauthorized 
assistance was identified in an OIG audit report, the memorandum should 
be clearly annotated ``Audit Claim for OIG Report'' as a part of the 
subject. The explanation should provide sufficient details to allow the 
Finance Office to properly adjust the account. The State Office will 
forward a consolidated report on unauthorized grant assistance 
identified in an OIG audit to the Finance Office by the 15th of March, 
June, September, and December of each year reflecting the information 
reported by servicing officials in accordance with Sec. 1951.711(b)(2) 
for inclusion in the report to OIG.
    (a) Entire loan unauthorized. When the entire loan is unauthorized 
because the recipient was not eligible or because the loan was approved 
for unauthorized purposes, the servicing official will advise the 
Finance Office, by memorandum, which of the following servicing actions 
will be taken.
    (1) Repayment in full. If the recipient has arranged to repay the 
unauthorized loan in full through refinancing or other available 
resources, the payment will be remitted with Form FmHA or its successor 
agency under Public Law 103-354 451-2 and the schedule number will be 
included in the memorandum.
    (2) Continuation with loan on existing or modified terms. When it is 
determined, according to Sec. 1951.711 (b)(1) or (c), that continuation 
with the loan on the existing or modified terms will be provided, the 
servicing official will advise the Finance Office by memorandum of this 
determination including an explanation of the terms, if modified.
    (b) Portion of loan unauthorized. When only a portion of the loan 
has been determined to be for unauthorized purposes, the servicing 
official will advise the Finance Office, by memorandum, of the servicing 
actions as follows:
    (1) Repayment in full of unauthorized portion. If the recipient has 
arranged to repay the unauthorized portion of the loan through 
refinancing or other available resources, the remittance will be 
submitted with Form FmHA or its successor agency under Public Law 103-
354 451-2, and the schedule number will be included in the memorandum.
    (2) Continuation with unauthorized portion of loan on existing or 
modified

[[Page 106]]

terms. When it is determined, according to Sec. 1951.711 (b)(1) or (c), 
that continuation with the unauthorized portion of the loan on the 
existing or modified terms will be provided, the servicing official will 
advise the Finance Office by memorandum of this determination, including 
an explanation of the terms if modified. The authorized portion will 
retain the original loan number with installments adjusted accordingly. 
Payments previously made will not be reversed and reapplied. The 
amortized unauthorized amount will be assigned the next available loan 
number. Installments for the authorized and unauthorized loans will be 
scheduled and paid concurrently.
    (c) Unauthorized subsidy benefits received. The unauthorized subsidy 
benefits received will be serviced according to Sec. 1951.711 (b)(3) or 
(c).
    (d) Liquidation pending. When liquidation is initiated under the 
provisions of this subpart, the servicing official will advise the 
Finance Office, by memorandum, that an unauthorized assistance account 
is to be established. This account will be flagged ``FAP'' (Foreclosure 
Action Pending) or ``CAP'' (Court Action Pending), as applicable.
    (e) Liquidation not initiated. Cases in which liquidation would 
normally be initiated, but where it is not because of the provisions of 
Sec. 1951.708(e)(1), will be serviced in accordance with 
Sec. 1951.708(e)(1)(iii). If the unauthorized assistance was identified 
through means other than an OIG audit report, the Finance Office will 
not be notified and no action is necessary.
    (f) Unauthorized grant assistance. A grant that is to be repaid will 
be serviced according to Sec. 1951.711(b)(2). If the unauthorized 
assistance was identified through means other than an OIG audit report 
and a determination has been made not to recover, the Finance Office 
will not be notified and no action is necessary.
    (g) Reporting. At prescribed intervals, the Finance Office will 
report to the OIG on the status of cases involving unauthorized 
assistance which were identified by OIG in audit reports. The amounts to 
be reported will be determined by the Finance Office after account 
servicing actions have been completed. For reporting purposes, the 
following applies:
    (1) For an unauthorized loan account established as provided in 
paragraph (a) or (b) of this section, reporting will be as follows:
    (i) When unauthorized assistance is paid in full, this will be 
reported on the next scheduled report only.
    (ii) When continuation with the loan on existing or modified terms 
is approved, this will be reported on the next scheduled report, and no 
further reporting is required.
    (2) For unauthorized subsidy cases as provided in paragraph (c) of 
this section, once the interest rate has been appropriately adjusted, 
the unauthorized subsidy will be reported as resolved on the next 
scheduled report. No further reporting is required.
    (3) When an account is established with liquidation action pending 
as provided in paragraph (d) of this section, the status will be 
included on each scheduled report until the liquidation is completed or 
the account is otherwise paid in full.
    (4) When liquidation is not initiated as provided in paragraph (e) 
of this section, this will be reported on the next scheduled report. No 
further reporting is required.
    (5) When unauthorized grant assistance is scheduled to be repaid as 
provided in paragraph (f) of this section, collections and status will 
be included in the report to OIG until the amount is paid in full.



Sec. 1951.716  Exception authority.

    The Administrator may in individual cases make an exception to any 
requirement or provision of this subpart which is not inconsistent with 
any applicable law or opinion of the Comptroller General, provided the 
Administrator determines that application of the requirement or 
provision would adversely affect the Government's interest. Requests for 
exceptions must be made in writing by the State Director and submitted 
through the Assistant Administrator, Community and Business Programs. 
Requests will be supported with documentation to explain the adverse 
effect on the Government's interest, propose alternative courses of 
action, and show how the adverse effect

[[Page 107]]

will be eliminated or minimized if the exception is granted.



Secs. 1951.717--1951.749  [Reserved]



Sec. 1951.750  OMB control number.

    The collection of information requirements in this regulation have 
been approved by the Office of Management and Budget and assigned OMB 
control number 0575-0103.



                        Subparts P-Q--[Reserved]



               Subpart R--Rural Development Loan Servicing

    Source: 53 FR 30656, Aug. 15, 1988, unless otherwise noted.



Sec. 1951.851  Introduction.

    (a) This subpart contains regulations for servicing or liquidating 
loans made by the Farmers Home Administration or its successor agency 
under Public Law 103-354 (FmHA or its successor agency under Public Law 
103-354) under the Intermediary Relending Program (IRP) to eligible IRP 
intermediaries and applies to ultimate recipients and other involved 
parties. The provisions of this subpart supersede conflicting provisions 
of any other subpart.
    (b) This subpart also contains regulations for servicing the 
existing Rural Development Loan Fund (RDLF) loans previously approved 
and administered by the U.S. Department of Health and Human Services 
(HHS) under 45 CFR part 1076. This action is needed to implement the 
provisions of Section 1323 of the Food Security Act of 1985, Pub. L. 99-
198, which provides for the transfer of the loan servicing authority for 
those loans from the HHS to the U.S. Department of Agriculture (USDA).
    (c) The portion of this regulation pertaining to loanmaking applies 
to RDLF intermediaries cited in Sec. 1951.851(b) which have RDLF funds 
from HHS and have not fully utilized relending of those funds to 
ultimate recipients at the date of these regulations. The loanmaking of 
all other IRP loans serviced by this regulation is in accordance with 
part 1948, subpart C of this chapter.
    (d) These regulations do not negate contractual arrangements that 
were previously made by the HHS, Office of Community Services (OCS), or 
the intermediaries operating relending programs that have already been 
entered into with ultimate recipients under previous regulations.
    (e) The loan program is administered by the FmHA or its successor 
agency under Public Law 103-354 National Office. The Director, Business 
and Industry Division, is the point of contact for servicing activities 
unless otherwise delegated by the Administrator.



Sec. 1951.852  Definitions and abbreviations.

    (a) General definitions. The following definitions are applicable to 
the terms used in this subpart.
    (1) Intermediary (Borrower). The entity receiving FmHA or its 
successor agency under Public Law 103-354 loan funds for relending to 
ultimate recipients. FmHA or its successor agency under Public Law 103-
354 becomes an intermediary in the event it takes over loan servicing 
and/or liquidation.
    (2) Loan Agreement. The signed agreement between FmHA or its 
successor agency under Public Law 103-354 and the intermediary setting 
forth the terms and conditions of the loan.
    (3) Low-income. The level of income of a person or family which is 
at or below the Poverty Guidelines as defined in section 673(2) of the 
Community Services Block Grant Act (42 U.S.C. 9902(2)).
    (4) Market value. The most probable price which property should 
bring, as of a specific date in a competitive and open market, assuming 
the buyer and seller are prudent and knowledgeable, and the price is not 
affected by undue stimulus such as forced sale or loan interest subsidy.
    (5) Principals of intermediary. Includes members, officers, 
directors, and other entities directly involved in the operation and 
management of an intermediary organization.
    (6) Ultimate recipient. The entity receiving financial assistance 
from the intermediary. This may be interchangeable with the term 
``subrecipient'' in some documents previously issued by HHS.
    (7) Rural area. Includes all territory of a State that is not within 
the outer

[[Page 108]]

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 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

[[Page 109]]

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 from other 
sources must be used to make up the difference between the total cost 
and the assistance provided with RDLF funds.
    (10) For any investments in securities or certificates of deposit of 
over 30-day duration without the concurrence of FmHA or its successor 
agency under Public Law 103-354. If the RDLF funds have been unused to 
make loans to ultimate recipients for 6 months or more, those funds will 
be returned to FmHA or its successor agency under Public Law 103-354 
unless FmHA or its successor agency under Public Law 103-354 provides an 
exception to the RDLF intermediary. Any exception would be based on 
evidence satisfactory to FmHA or its successor agency under Public Law 
103-354 that every effort is being made by the intermediary to utilize 
the RDLF funding in conformance with program objectives.
    (b) Ultimate recipients. Ultimate recipients may not use assistance 
received from RDLF intermediaries involving RDLF funds:
    (1) For agricultural production, which means the cultivation, 
production (growing), harvesting, either directly or through integrated 
operations, of agricultural products (crops, animals, birds and marine 
life, either for fiber or food for human consumption, and disposal or 
marketing thereof, the raising, housing, feeding, breeding, hatching, 
control and/or management of farm and domestic animals). Exceptions to 
this definition are:
    (i) Aquaculture as identified under eligible purposes.
    (ii) Commercial nurseries primarily engaged in the production of 
ornamental plants and trees and other nursery products such as bulbs, 
florists' greens, flowers, shrubbery, flower and vegetable seeds, sod, 
the growing of vegetables from seed to the transplant stage.
    (iii) Forestry, which includes establishments primarily engaged in 
the operation of timber tracts, tree farms, forest nurseries, and 
related activities such as reforestation.
    (iv) Financial assistance for livestock and poultry processing as 
identified under eligible purposes.
    (v) The growing of mushrooms or hydroponics.
    (2) For the transfer of ownership unless the loan will keep the 
business from closing, or prevent the loss of employment opportunities 
in the area, or provide expanded job opportunities.
    (3) For community antenna television services or facilities.

[[Page 110]]

    (4) For any legitimate business activity when more than 10 percent 
of the annual gross revenue is derived from legalized gambling activity.
    (5) For any illegal activity.
    (6) For any otherwise eligible project that is in violation of 
either a Federal, State or local environmental protection law or 
regulation or an enforceable land use restriction unless the financial 
assistance required will result in curing or removing the violation.
    (7) For any hotels, motels, tourist homes, or convention centers.
    (8) For any tourist, recreation, or amusement centers.



Secs. 1951.855--1951.858  [Reserved]



Sec. 1951.859  Term of loans.

    (a) No loans shall be extended for a period exceeding 30 years. 
Principal payments on loans will be made at least annually. The initial 
principal payment may be deferred not more than 3 years.
    (b) The terms of loan repayment will be those stipulated in the loan 
agreement and/or promissory note.



Sec. 1951.860  Interest on loans.

    (a) RDLF intermediaries: When the RDLF loan portfolio was 
transferred from HHS to USDA as required under Pub. L. 99-198, section 
1323 of the Food Security Act of 1985, there were provisions that 
affected the interest rates on those loans.
    (1) Those loans made in 1980 and 1981 carried an original note rate 
of 1 percent interest when they were first issued. The legislation 
provides for those loans made in 1980 and 1981 to have a permanent 
interest rate reduction to 1 percent effective December 23, 1985, to 
maturity. However, the interest rates on the loans made in 1983 and 1984 
may remain the same as the original note rate.
    (2) Loans made in 1983 and 1984 do not automatically qualify for a 
lower rate than the level of interest rates when the notes were first 
issued. Section 407 of Pub. L. 99-425 provides for a weighted average 
requirement that would affect those loans made in 1983 and 1984 to 
intermediary borrowers.
    (3) In those cases where loans were made in RDLF intermediaries and 
the weighted average of all loans made by the RDLF intermediary after 
December 31, 1982, does not exceed the sum of 6 percent plus the 
interest rate to the intermediary (7 percent), the interest rate to be 
charged the RDLF intermediary will be the rate charged on such loans 
made in 1980, or 1 percent. Should the weighted average exceed 7 
percent, the note rate will control.
    (i) In order for FmHA or its successor agency under Public Law 103-
354 to determine the weighted average of the loan portfolio, the RDLF 
intermediary will be required to complete a weighted loan average rate 
on its outstanding portfolio. The schedule prepared for FmHA or its 
successor agency under Public Law 103-354's review should include:
    (A) Calculations of the interest amount scheduled to accrue on each 
loan outstanding over a 1-year period based on the current interest rate 
of each ultimate recipient's loan.
    (B) The sum total of interest on each individual loan will be added 
together to determine the total interest amount scheduled to accrue over 
a 1-year period.
    (C) Divide the total of paragraph (a)(2) of this section by the 
total principal outstanding to determine the average interest percent 
yield in the intermediary's loan portfolio.
    (D) The loans to be included in determining the weighted interest 
average will be those made from January 1, 1983, forward.
    (E) FmHA or its successor agency under Public Law 103-354 will use 
the anniversary date of October 1 of each year to request the 
intermediary to complete a weighted interest average to determine the 
interest rate on its RDLF loan for the coming calendar year, January 1 
through December 31. All loans made in 1980 and 1981 have had the 
interest rate permanently reduced by legislation to 1 percent, effective 
December 25, 1985.
    (F) The weighted loan average interest rate on the outstanding loan 
portfolio as referenced in this section will be forwarded to FmHA or its 
successor agency under Public Law 103-354 along with sufficient 
documentation which

[[Page 111]]

should include calculations, list of outstanding loans, current interest 
rate being charged on the loan, etc.
    (b) Interest rates charged by intermediaries to the ultimate 
recipients shall be at rates negotiated by those parties. Intermediaries 
are encouraged to make loans to ultimate recipients at the lowest 
possible rate, taking into account the cost of the loan funds to the 
intermediary and the cost of administering the loan portfolio.



Secs. 1951.861--1951.865  [Reserved]



Sec. 1951.866  Security.

    (a) Loans from RDLF intermediaries to ultimate recipients. Security 
requirements for loans from intermediaries to ultimate recipients will 
be negotiated between the intermediaries and ultimate recipients. FmHA 
or its successor agency under Public Law 103-354 concurrence in the 
intermediary's security proposal is required only when security for the 
loan from the intermediary to the ultimate recipient will also serve as 
security for the FmHA or its successor agency under Public Law 103-354 
loan.
    (b) Additional security. The FmHA or its successor agency under 
Public Law 103-354 may require additional security at any time during 
the term of a loan to an intermediary if, after review and monitoring, 
an assessment indicates the need for such security.
    (c) Appraisals. Real property serving as security for all loans to 
intermediaries and for loans to ultimate recipients serving as security 
for loans to intermediaries will be appraised by a qualified appraiser. 
For all other types of property, a valuation shall be made using any 
recognized, standard technique for the type of property involved 
(including standard reference manuals), and this valuation shall be 
described in the loan file.



Sec. 1951.867  Conflict of interest.

    The intermediary will, for each proposed loan to an ultimate 
recipient, inform FmHA or its successor agency under Public Law 103-354 
in writing and furnish such additional evidence as FmHA or its successor 
agency under Public Law 103-354 requests as to whether and the extent to 
which the intermediary or its principal officers (including immediate 
family) hold any legal or financial interest or influence in the 
ultimate recipient or the ultimate recipient or any of its principal 
officers (including immediate family) holds any legal or financial 
interest or influence in the intermediary. FmHA or its successor agency 
under Public Law 103-354 shall determine whether such ownership, 
influence or financial interest is sufficient to create potential 
conflict of interest. In the event FmHA or its successor agency under 
Public Law 103-354 determines there is a conflict of interest, the 
intermediary's assistance to the ultimate recipient will not be approved 
until such conflict is eliminated.



Sec. 1951.868--1951.870  [Reserved]



Sec. 1951.871  Post award requirements.

    (a) RDLF intermediaries with undisbursed RDLF loan funds shall be 
governed by these regulations, the loan agreement, the approved work 
program, security interests, and other conditions which FmHA or its 
successor agency under Public Law 103-354 may require in awarding a 
loan.
    (b) Unless otherwise specifically agreed to in writing by the FmHA 
or its successor agency under Public Law 103-354, any loan funds held by 
an intermediary and any funds obtained from loaning FmHA or its 
successor agency under Public Law 103-354-derived funds and recollecting 
them that are not immediately needed by the intermediary for an ultimate 
recipient should be deposited in an interest-bearing account in a bank 
or other financial institution which will be covered by a form of 
Federal deposit insurance. Any interest or income earned as a result of 
such deposits shall be used by the intermediary only for purposes 
authorized by FmHA or its successor agency under Public Law 103-354.
    (c) Intermediaries operating relending programs must maintain 
separate ledgers and segregated accounts for RDLF funds at all times.
    (d) Reporting requirements shall be those delineated in the loan 
agreement between the United States and the intermediary and such 
subsequent requirements as FmHA or its successor

[[Page 112]]

agency under Public Law 103-354 deems appropriate. The intermediaries 
must document periodically the extent to which increased employment, 
income and ownership opportunities are provided to rural residents for 
each loan made by such intermediary.
    (e) No intermediary may make a loan to an ultimate recipient who has 
applied for or received a loan from another intermediary unless FmHA or 
its successor agency under Public Law 103-354 provides prior written 
approval for such loan.
    (f) All loan payments that are due on RDLF loans will be made 
payable to the Farmers Home Administration or its successor agency under 
Public Law 103-354, using the number assigned, and mailed directly to: 
Farmers Home Administration or its successor agency under Public Law 
103-354, Finance Office, FC 35, 1520 Market Street, St. Louis, Missouri 
63103.



Sec. 1951.872  Other regulatory requirements.

    (a) Intergovenmental consultation. The RDLF program is subject to 
the provisions of Executive Order 12372 which requires intergovernmental 
consultation with State and local officials. For each ultimate recipient 
to be assisted with a loan under this subpart and for which the State in 
which the ultimate recipient is to be located has elected to review the 
program under their intergovernmental review process, the State Point of 
Contact must be notified. Notification, in the form of a project 
description, can be initiated by the intermediary or the ultimate 
recipient. Any comments from the State must be included with the 
intermediary's request to use the loan funds for the ultimate recipient. 
Prior to FmHA or its successor agency under Public Law 103-354's 
decision on the request, compliance with the requirements of 
intergovernmental consultation must be demonstrated for each ultimate 
recipient. These requirements should be carried out in accordance with 
FmHA or its successor agency under Public Law 103-354 Instruction 1940-
J, ``Intergovernmental Review of Farmers Home Administration or its 
successor agency under Public Law 103-354 Programs and Activities,'' 
available in any FmHA or its successor agency under Public Law 103-354 
office.
    (b) Environmental requirements. (1) Unless specifically modified by 
this section, the requirements of subpart G of part 1940 of this chapter 
apply to this subpart. FmHA or its successor agency under Public Law 
103-354 will give particular emphasis to ensuring compliance with the 
environmental policies contained in Secs. 1940.303 and 1940.304 in 
subpart G of part 1940 of this chapter. Intermediaries and ultimate 
recipients of loans must consider the potential environmental impacts of 
their projects at the earliest planning stages and develop plans to 
minimize the potential to adversely impact the environment.
    (2) As part of the intermediary's request to FmHA or its successor 
agency under Public Law 103-354 for concurrence to make a loan to an 
ultimate recipient, the intermediary will include for the ultimate 
recipient a properly completed Form FmHA or its successor agency under 
Public Law 103-354 1940-20, ``Request for Environmental Information,'' 
if it is classified as a Class I or Class II action. FmHA or its 
successor agency under Public Law 103-354 will complete the 
environmental review required by subpart G of part 1940 of this chapter. 
The results of this review will be used by FmHA or its successor agency 
under Public Law 103-354 in making its decision on the request.
    (c) Equal opportunity and nondiscrimination requirements.
    (1) In accordance with Title V of Pub. L. 93-495, the Equal Credit 
Opportunity Act, neither the intermediary nor FmHA or its successor 
agency under Public Law 103-354 will discriminate against any applicant 
on the basis of race, color, religion, national origin, age, physical or 
mental handicap (provided that the applicant has the capacity to enter 
into a binding contract), sex or marital status with respect to any 
aspect of a credit transaction anytime Federal funds are involved.
    (2) The regulations contained in part 1901, subpart E of this 
chapter apply to loans made under this program.
    (3) The Administrator will assure that equal opportunity and 
nondiscrimination requirements are met in accordance with Title VI of 
the Civil

[[Page 113]]

Rights Act of 1964, ``Nondiscrimination in Federally Assisted 
Programs,'' 42 U.S.C. 2000d-2000d-4. If there is indication of 
noncompliance with these requirements, such facts will be reported in 
writing to the Administrator, ATTN: Equal Opportunity Officer.



Secs. 1951.873--1951.876  [Reserved]



Sec. 1951.877  Loan agreements.

    (a) A loan agreement will have been executed by the RDLF 
intermediary and OCS or HHS for each loan. The loan agreement ordinarily 
would contain the following provisions:
    (1) The amount of the loan.
    (2) The interest rate.
    (3) The term and repayment schedule.
    (4) The provisions for late charges.
    (5) Provisions regarding default.
    (6) Disbursement procedure.
    (7) Insurance requirements.
    (i) Hazard insurance with a standard mortgage clause naming the 
intermediary as beneficiary will be required on every ultimate recipient 
in an amount that is at least the lesser of the depreciated replacement 
value of the property being insured or the amount of the loan. Hazard 
insurance includes fire, windstorm, lightning, hail, business 
interruption, explosion, riot, civil commotion, aircraft, vehicle, 
marine, smoke, builder's risk, public liability, property damage, flood 
or mudslide, or any other hazard insurance that may be required to 
protect the security. The RDLF intermediary's interest in the insurance 
ordinarily will be assigned to the FmHA or its successor agency under 
Public Law 103-354.
    (ii) Ordinarily, life insurance, which may be decreasing term 
insurance, is required for the principals and key employees of the 
ultimate recipient and will be assigned or pledged to the RDLF 
intermediary and subsequently to FmHA or its successor agency under 
Public Law 103-354. A schedule of life insurance available for the 
benefit of the loan will be included as part of the application.
    (iii) Workmen's compensation insurance on ultimate recipients is 
required in accordance with State law.
    (iv) The RDLF intermediary is responsible for determining if an 
ultimate recipient is located in a special flood or mudslide hazard area 
anytime Federal funds are involved. If the ultimate recipient is in a 
flood or mudslide area, then flood or mudslide insurance must be 
provided.
    (b) The RDLF intermediary will agree:
    (1) Not to make any changes in the RDLF intermediary's articles of 
incorporation, charter or bylaws without the concurrence of FmHA or its 
successor agency under Public Law 103-354.
    (2) Not to make a loan commitment to an ultimate recipient without 
first receiving FmHA or its successor agency under Public Law 103-354's 
written concurrence in the proposed use of loan funds.



Secs. 1951.878--1951.880  [Reserved]



Sec. 1951.881  Loan servicing.

    (a) These regulations do not negate contractual arrangements that 
were previously made by the HHS, Office of Community Services (OCS), or 
the intermediaries operating relending programs that have already been 
entered into with ultimate recipients under previous regulations. 
preexisting documents control when in conflict with these regulations. 
The loan is governed by terms of existing legal documents of each 
intermediary. The RDLF/IRP intermediary is responsible for compliance 
with the terms and conditions of the loan agreement.
    (b) Each intermediary will be monitored by FmHA or its successor 
agency under Public Law 103-354 based on progress reports submitted by 
the intermediary, audit findings, disbursement transactions, 
visitations, and other contract with the intermediary as necessary.
    (c) Loan servicing is intended to be preventive rather than a 
curative action. Prompt followup on delinquent accounts and early 
recognition of potential problems and pursuing a solution to them are 
keys to resolving many problem loan cases.
    (d) Written notices on payments coming due will be prepared and sent 
to the intermediary by the FmHA or its successor agency under Public Law 
103-354 Finance Office approximately 15 days

[[Page 114]]

in advance of the due date of the payments. A copy of the notice will be 
sent to the FmHA or its successor agency under Public Law 103-354 
Administrator or designee.
    (e) If the scheduled payment is not made by the intermediary within 
30 days after the due date of the payment, the Finance Office will send 
a past due notice to the intermediary. The notice will show the late 
charge amount, if applicable, and the interest amount past due. The late 
charge amount, if applicable, and the interest past due amount will be 
capitalized as principal due 30 days after the due date of the monthly 
payment unless existing loan documents prior to this regulation state 
otherwise. If the loan documents state when late charge amounts or 
interest accruals are to be capitalized, the loan documents will 
prevail.
    (1) A per diem amount will be shown on the late notice sent to the 
intermediary. The Finance Office will send this notice to the 
Administrator or designee 30 days after the past due notice has been 
sent to the intermediary and the account remains delinquent. Thereafter, 
further notices by FmHA or its successor agency under Public Law 103-354 
designee will be sent to the intermediary on the late payments or any 
further payments until the account is in a current status.
    (2) The Finance Office will notify the Administrator or designee on 
any payments due from the delinquent intermediary. It will be the 
responsibility of the Administrator or designee to follow up on 
delinquent payments to bring the account to a current status.
    (3) A copy of any correspondence or notice generated by the 
Administrator or designee on any delinquent loan will be sent to the 
Finance Office.
    (4) Interest will be computed on a 365-day basis unless legal 
documents state otherwise.
    (f) It is the responsibility of the Finance Office to maintain 
complete accounting records for each intermediary. The Finance Office 
will:
    (1) Coordinate with the Administrator or designee to assure that 
interest and principal payments received are in accordance with the 
promissory notes and its companion documents, and the effective 
amortization schedule. If the payments received appear to be incorrect, 
the Finance Office will advise the Administrator or designee. The 
Administrator or designee will take the necessary action to clear the 
issue and promptly advise the Finance Office of the proper accounting 
procedure.
    (2) Send monthly statements to the National Office reflecting all 
payments received to date on each borrower.
    (3) Send to the Administrator or designee a monthly summary of all 
intermediary loans as follows:
    (i) Number and amount of all loans.
    (ii) Total advanced on all loans.
    (iii) Total interest and principal received on the loans.
    (iv) Total outstanding balance on all loans.
    (4) Prepare reamortization schedules needed as a result of 
restructuring any loans and send to the Administrator or designee.
    (5) Furnish in writing to the Administrator or designee a per diem 
amount on the actual interest amount due when requested by the 
Administrator.
    (g) It is the responsibility of the Administrator or designee to:
    (1) Review and analyze the semiannual report of the intermediaries 
and reconcile same to the annual audits.
    (2) Review the annual audits of intermediaries.
    (3) Review the semiannual reports of the intermediaries and take 
appropriate action when necessary.
    (4) Follow up on delinquent intermediaries to bring the account 
current.
    (5) Notify the Finance Office in writing when a loan is determined 
to be uncollectible in order for the Finance Office to make provisions 
for an appropriate timely entry to the loss account.
    (6) Furnish to the Finance Office the necessary information to 
produce reamortization schedules.
    (7) Provide the Finance Office a copy of any correspondence in 
regard to the restructuring of the loans.
    (8) Review reamortization schedules, the schedule will then be 
forwarded to the intermediary.
    (9) Confirm account balances. Payment history of loans and any other 
related matter will be furnished to the requesting party, (i.e. third 
party auditing firms) if warranted and proper.

[[Page 115]]

If there are discrepancies in any loan balances being confirmed, the 
Finance Office should be consulted before the Administrator or designee 
writes the requested parties.
    (10) Furnish upon request by the Finance Office, the information 
necessary to help reconcile account balances, obtain evidence of 
payments made by the borrower, and any other related data necessary to 
keep the financial records correct and in balance.
    (11) Answer Congressional and other correspondence.
    (12) Review intermediary's plans, cash flow projections, balance 
sheets, and operating statements.



Sec. 1951.882  Field visits.

    (a) During or in preparation for field visits to RDLF/IRP 
intermediaries by FmHA or its successor agency under Public Law 103-354 
personnel, the following loan servicing activities are to be performed:
    (1) Review what is being done to inform eligible applicants of the 
program's existence.
    (2) Obtain current and proper financial information and analyze for 
trends on all RDLF/IRP intermediaries. Also determine if there is a 
sufficient interest rate spread between the interest rate charged the 
intermediary and the interest rate charged the ultimate recipients to 
cover the administrative costs, including bad debts of operating the 
program.
    (3) Include in the writeups of the field visit any issues or 
problems not resolved from the last visitation in the agenda.
    (4) Review credit elsewhere information (has the ultimate recipient 
been refused funds by other sources?) to determine if this information 
is in the files.
    (5) Observe collateral and its condition, maintenance, protection 
and utilization by the intermediary or ultimate recipient.
    (6) Review the process for handling loan proceeds to assure they are 
deposited in an interest-bearing account or time deposit in a bank or 
other financial institution fully protected by Federal or State 
insurance.
    (7) Review materials to determine if the purpose of the program is 
being fulfilled; i.e., loan funds are being used in accordance with FmHA 
or its successor agency under Public Law 103-354 policies, procedures, 
the approved work plan and the Loan Agreement.
    (8) A report of the visit will be made on ``RDLF/IRP Review Summary 
Sheet,'' or otherwise documented and included in the loan file in the 
format of the ``RDLF/IRP Review Summary Sheet.'' The report should 
include an opinion on the financial condition of the intermediary based 
upon the review of the annual audited financial statement, periodic 
financial statements, and observations made during the visit and other 
sources.
    (9) Determine if the ultimate recipients' files are complete, 
organized, and current.
    (10) Any instructions, directions, or corrective action should be 
confirmed by letter to the intermediaries.
    (b) All intermediaries are required to provide an annual audited 
financial statement as well as a summary sheet of their lending program 
on each ultimate recipient receiving Federal funds. The summary sheet of 
their lending program on each ultimate recipient should include but not 
be limited to: the borrower's name and address, type of business, use of 
loan funds, loan amount, date of note, outstanding balance, date of 
final payment, interest rate, amount and type of collateral, insurance 
information, loan status, and the date of FmHA or its successor agency 
under Public Law 103-354 approval, if applicable.
    (c) The intermediary should perform an analysis on its ultimate 
recipients and follow up in writing on any servicing action required. A 
copy of the analysis will be provided to FmHA or its successor agency 
under Public Law 103-354 for those ultimate recipients having Federal 
funds.



Sec. 1951.883  Reporting requirements.

    (a) Intermediaries are to provide FmHA or its successor agency under 
Public Law 103-354 with reports as required in their respective loan 
agreements, applicable statutes and as required by FmHA or its successor 
agency under Public Law 103-354. The report shall include the following:

[[Page 116]]

    (1) An annual audit; dates of audit report period need not 
necessarily coincide with other reports on the RDLF/IRP. Audits shall be 
due 90 days following the audit period. Audits must cover all of the 
intermediary's activities. Audits will be performed by an independent 
certified public accountant or by an independent public accountant 
licensed and certified on or before December 31, 1970, by a regulatory 
authority of a State or other political subdivision of the United 
States. An acceptable audit will be performed in accordance with 
generally accepted auditing standards and include such tests of the 
accounting records as the auditor considers necessary in order to 
express an opinion on the financial condition of the intermediary. FmHA 
or its successor agency under Public Law 103-354 does not require an 
unqualified audit opinion as a result of the audit. Compilations or 
reviews do not satisfy the audit requirement.
    (2) Quarterly reports for periods ending March 31, June 30, 
September 30, and December 31 (due 30 days after the end of the period). 
FmHA or its successor agency under Public Law 103-354 at its option may 
change this requirement to semiannual reports. These reports shall 
contain information only on the RDLF/IRP loan funds, or if other funds 
are included, the RDLF/IRP loan program portion shall be segregated from 
the others; and in the case where the intermediary has more than one 
RDLF/IRP loan, from FmHA or its successor agency under Public Law 103-
354, a separate report shall be made for each of these RDLF/IRP loans. 
The reports will include:
    (i) Form FmHA or its successor agency under Public Law 103-354 1951-
4, ``Report of IRP/RDLF Lending Activity'' (available in the FmHA or its 
successor agency under Public Law 103-354 National Office). This report 
will include information on the intermediary's lending activity, income 
and expenses, and financial condition and a summary of names and 
characteristics of the ultimate recipients the intermediary has 
financed.
    (ii) Project Progress Review Narrative.
    (3) An annual report on the extent to which increased employment 
income and ownership opportunities are provided to low-income persons, 
farm families, and displaced farm families for each loan made by such 
intermediary.
    (4) Proposed budget for the following year.
    (5) Other reports as FmHA or its successor agency under Public Law 
103-354 may require from time to time.
    (b) Intermediaries shall report to FmHA or its successor agency 
under Public Law 103-354 whenever an ultimate recipient is more than 90 
days in arrears in the repayment of principal or interest.



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

[[Page 117]]

FmHA or its successor agency under Public Law 103-354. The loans will be 
classified as follows:
    (a) Seasoned loan classification. To be classified as a seasoned 
loan, a loan must:
    (1) Have a remaining principal loan balance of two-thirds or less of 
the original aggregate of all existing loans made to that intermediary.
    (2) Be in compliance with all loan conditions and FmHA or its 
successor agency under Public Law 103-354 regulations.
    (3) Have been current on the loan(s) payments for 24 consecutive 
months.
    (4) Be secured by collateral which is determined to be adequate to 
ensure there will be no loss on the loan.
    (b) Current non-problem classification. This classification includes 
those loans which have been current for less than 24 consecutive months 
and are in compliance with the loan conditions and FmHA or its successor 
agency under Public Law 103-354 regulations, and are not considered to 
pose a credit risk to FmHA or its successor agency under Public Law 103-
354. These loans would be classified as seasoned but for the ``24 
months'' and ``two-thirds'' requirements for seasoned loans.
    (c) Special mention classification. This classification includes 
loans which do not presently expose FmHA or its successor agency under 
Public Law 103-354 to a sufficient degree of risk to warrant a 
Substandard classification but do possess credit deficiencies deserving 
FmHA or its successor agency under Public Law 103-354's close attention 
because the failure to correct these deficiencies could result in 
greater risk in the future. This classification would include loans that 
may be high quality, but which FmHA or its successor agency under Public 
Law 103-354 is unable to supervise properly because of an inadequate 
loan agreement, the condition or lack of control over the collateral, 
failure to obtain proper documentation or any other deviations from 
prudent lending practices. Adverse trends in the intermediary's 
operation or an imbalanced position in the balance sheet which has not 
reached a point that jeopardizes the repayment of the loan should be 
assigned to this classification. Loans in which actual, not potential, 
weaknesses are evident and significant should be considered for a 
Substandard classification.
    (d) Substandard classification. This classification includes loans 
which are inadequately protected by the current sound worth and paying 
capacity of the obligor or of the collateral pledged, if any. Loans in 
this classification must have a well defined weakness or weaknesses that 
jeopardize the payment in full of the debt. If the deficiencies are not 
corrected, there is a distinct possibility that FmHA or its successor 
agency under Public Law 103-354 will sustain some loss.
    (e) Doubtful classification. This classification includes those 
loans which have all the weaknesses inherent in those classified 
Substandard with the added characteristic that the weaknesses make 
collection or liquidation in full, based on currently known facts, 
conditions and values, highly questionable and improbable.
    (f) Loss classification. This classification includes those loans 
which are considered uncollectible and of such little value that their 
continuance as loans is not warranted. Even though partial recovery may 
be effected in the future, it is not practical or desirable to defer 
writing off these basically worthless loans.



Secs. 1951.886--1951.888  [Reserved]



Sec. 1951.889  Transfer and assumption.

    (a) All transfers and assumptions must be approved in advance in 
writing by FmHA or its successor agency under Public Law 103-354. Such 
transfers and assumptions must be to an eligible intermediary.
    (b) Available transfer and assumption options to eligible 
intermediaries include the following:
    (1) The total indebtedness may be transferred to another eligible 
intermediary on the same terms.
    (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.

[[Page 118]]

    (3) Less than total indebtedness may be transferred to another 
eligible intermediary on the same terms.
    (4) Less than total indebtedness may be transferred to another 
eligible intermediary on different terms.
    (c) The transferor will prepare the transfer document for FmHA or 
its successor agency under Public Law 103-354's review prior to the 
transfer and assumption.
    (d) The transferee will provide FmHA or its successor agency under 
Public Law 103-354 with a copy of its latest financial statement and a 
copy of its annual financial statement for the past 3 years if 
available; its Federal Tax Identification number; organizational 
charter; minutes from the Board of Directors authorizing the 
transaction; certification of good standing from the Secretary of State 
or whatever regulatory agency oversees nonprofit corporations for that 
State or Commonwealth where the entity is headquartered; and any other 
information that FmHA or its successor agency under Public Law 103-354 
deems necessary for its review.
    (e) The assumption agreement will contain the FmHA or its successor 
agency under Public Law 103-354 case nunber of the transferor and 
transferee.
    (f) When the transferee makes a cash downpayment in connection with 
the transfer and assumption, any proceeds received by the transferor 
will be credited on the transferor's loan debt in inverse order of 
maturity.
    (g) The Administrator or designee will approve or decline all 
transfers and assumptions.



Sec. 1951.890  Office of Inspector General and Office of General Counsel referrals.

    When facts or circumstances indicate that criminal violations, civil 
fraud, misrepresentations, or regulatory violations may have been 
committed by an applicant or an intermediary, FmHA or its successor 
agency under Public Law 103-354 will refer the case to the appropriate 
Regional Inspector General for Investigations, OIG, USDA, in accordance 
with FmHA or its successor agency under Public Law 103-354 Instruction 
2012-B (available in any FmHA or its successor agency under Public Law 
103-354 office) for criminal investigation. Any questions as to whether 
a matter should be referred will be resolved through consultation with 
OIG and FmHA or its successor agency under Public Law 103-354 and 
confirmed in writing. In order to assure protection of the financial and 
other interests of the Government, a duplicate of the notification will 
be sent to the OGC. OGC will be consulted on legal questions. After OIG 
has accepted any matter for investigation, FmHA or its successor agency 
under Public Law 103-354 staff must coordinate with OIG in advance 
regarding routine servicing actions on existing loans.



Sec. 1951.891  Liquidation; default.

    (a) In the event that FmHA or its successor agency under Public Law 
103-354 takes over the servicing of the ultimate recipient of an 
intermediary, those loans will be serviced by this regulation and in 
accordance with the contractual arrangement between the intermediary and 
the ultimate recipient. Should the FmHA or its successor agency under 
Public Law 103-354 determine that it is necessary or desirable to take 
action to protect or further the interests of FmHA or its successor 
agency under Public Law 103-354 in connection with any default or breach 
of conditions under any loan made hereunder, the FmHA or its successor 
agency under Public Law 103-354 may:
    (1) Declare that the loan is immediately due and payable.
    (2) Assign or sell at public or private sale, or otherwise dispose 
of for cash or credit at its discretion and upon such terms and 
conditions as FmHA or its successor agency under Public Law 103-354 
shall determine to be reasonable, any evidence of debt, contract, claim, 
personal or real property or security assigned to or held by the FmHA or 
its successor agency under Public Law 103-354 in connection with 
financial assistance extended hereunder.
    (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

[[Page 119]]

necessary or appropriate, consistent with the purpose of the program and 
this subpart. The Administrator will notify the FmHA or its successor 
agency under Public Law 103-354 Finance Office of any change in payment 
terms, such as reamortizations or interest rate adjustments, and 
effective dates of any changes resulting from servicing actions.
    (b) Failure by an ultimate recipient to comply with the provisions 
of these regulations and/or loan agreement shall constitute grounds for 
a declaration of default and the demand for immediate and full repayment 
of its loan.
    (c) Failure by an intermediary to comply with the provisions of 
these regulations or to relend funds in accordance with an approved work 
plan or loan agreement shall constitute grounds for a declaration of 
default and the demand for immediate and full repayment of the loan.
    (d) In the event of default, the intermediary will promptly be 
informed in writing of the consequences of failing to comply with loan 
covenant(s).
    (e) Protective advances to the intermediary will not be made in lieu 
of additional loans, in particular working capital loans. Protective 
advances are advances made by FmHA or its successor agency under Public 
Law 103-354 for the purpose of preserving and protecting the collateral 
where the intermediary has failed to and will not or cannot meet its 
obligations. The Administrator or designee must approve in writing all 
protective advances.
    (f) In the event of bankruptcy by the intermediary and/or ultimate 
recipient, FmHA or its successor agency under Public Law 103-354 is 
responsible for protecting the interests of the Government. All 
bankruptcy cases should be reported immediately to the Regional 
Attorney. The Administrator must approve in advance and in writing the 
estimated liquidation expenses on loans in liquidation backruptcy. These 
expenses must be considered by FmHA or its successor agency under Public 
Law 103-354 to be reasonable and customary.
    (g) Liquidation, management, and disposal of inventory property will 
be handled in accordance with subparts A, B, and C of part 1955 of this 
chapter.



Secs. 1951.892--1951.893  [Reserved]



Sec. 1951.894  Debt settlement.

    Debt settlement of all claims will be handled in accordance with the 
Federal Claims Collection Standards (4 CFR parts 101-105).



Sec. 1951.895  [Reserved]



Sec. 1951.896  Appeals.

    Any appealable adverse decision made by FmHA or its successor agency 
under Public Law 103-354 which affects the borrower may be appealed upon 
written request of the aggrieved party in accordance with subpart B of 
part 1900 of this chapter.



Sec. 1951.897  Exception authority.

    The Administrator may, in individual cases, grant an exception to 
any requirement or provision of this subpart which is not inconsistent 
with an applicable law or opinion of the Comptroller General, provided 
the Administrator determines that application of the requirement or 
provision would adversely affect the Government's interest. The basis 
for this exception will be fully documented. The documentation will: 
demonstrate the adverse impact; identify the particular requirement 
involved; and show how the adverse impact will be eliminated.



Secs. 1951.898--1951.899  [Reserved]



Sec. 1951.900  OMB control number.

    The collection of information requirements in this regulation have 
been approved by the Office of Management and Budget and assigned OMB 
Control Number 0575.0131. In accordance with 5 CFR part 1320, summarized 
below is the annualized public reporting burden for this regulation.

[[Page 120]]



                                                                                                                                                        
                                                                                                                                                        
                                                                                                                      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 121]]



          Subpart S--Farmer Program Account Servicing Policies

    Source: 57 FR 18626, Apr. 30, 1992, unless otherwise noted.



Sec. 1951.901   Purpose.

    This subpart describes the policies and procedures that the agency 
will use in servicing most Farm Loan Program (FLP) loans. The loans 
include Operating Loan (OL), Farm Ownership Loan (FO), Soil and Water 
Loan (SW), Softwood Timber Production Loan (ST), Emergency Loan (EM), 
Economic Emergency Loan (EE), Economic Opportunity Loan (EO), Recreation 
Loan (RL), and Rural Housing Loan for farm service buildings (RHF) 
accounts. Cases involving unauthorized assistance will be serviced as 
described in subpart L of this part. When it has been determined that 
all the conditions outlined in Sec. 1951.558(b) of subpart L of this 
part have been met, the loan will be treated as an authorized loan and 
may be serviced under this subpart. Cases involving graduation of 
borrowers to other sources of credit will be serviced as described in 
subpart F of this part. This subpart does not apply to FLP Non-Program 
(NP) loans. Examples of Primary Loan Servicing actions are: 
consolidation, rescheduling and/or reamortization, deferral of principal 
and interest payments, reclassifying to ST loans, reducing interest rate 
on the loan, writedown of debt and conservation contract, or a 
combination of these actions. Preservation loan servicing is the 
Homestead Protection program. Any processing or servicing activity 
conducted pursuant to this subpart involving authorized assistance to 
agency employees, members of their families, known close relatives, or 
business or close personal associates, is subject to the provisions of 
subpart D of part 1900 of this chapter. Applicants for this assistance 
are required to identify any known relationship or association with an 
agency employee.
[62 FR 10120, Mar. 5, 1997]



Sec. 1951.902   General.

    Supervision and Servicing. It is a primary objective of the Agency 
to provide supervised credit to borrowers in financial, production or 
other difficulty in a manner that will assure the maximum opportunity 
for their recovery and, at the same time, get the best recovery for the 
Government. Supervision and servicing are continuing processes that 
begin the day a farmer comes into the office. Providing supervised 
credit has two objectives:
    (a) To help farmers set goals, work on problem areas and work toward 
graduation to commercial credit;
    (b) To recover the maximum possible amount for the Government.
[62 FR 10120, Mar. 5, 1997]



Sec. 1951.903   Authorities and responsibilities.

    (a) Responsibilities. Servicing officials will make full use of the 
National automated tracked system to track and manage the FLP primary 
and preservation loan servicing and debt settlement programs.
    (b) Authorities. All loan servicing decisions except as set forth in 
this section will be made by the servicing official except the approval 
of writedown and buyout of a borrower's debt. Also, all applications for 
debt settlement of FLP loans must be recommended by the County Committee 
(except where the debt has been discharged through bankruptcy), approved 
by the State Executive Director or the Administrator (depending upon the 
amount of debt to be settled), and processed in accordance with the 
provisions of subpart B of part 1956 of this chapter. Servicing 
officials are authorized to accept a buyout payment when the borrower(s) 
pays the current market value of the security set forth in Sec. 1951.909 
of this Instruction. Only State Executive Directors are authorized to 
approve writedown and buyout in accordance with Sec. 1951.909 of this 
part and release a divorced spouse from liability on the debt in 
accordance with Sec. 1951.909(a) of this part.
[62 FR 10121, Mar. 5, 1997]



Sec. 1951.904  Mediation, reviews and appeals.

    (a) Participant rights. (1) For loan servicing under this subpart, 
mediation or a voluntary meeting of creditors

[[Page 122]]

will be offered if the DALR$ calculations indicate that a feasible plan 
of operation cannot be developed considering all primary loan service 
programs, Softwood Timber, and Conservation Contracts. In states with a 
USDA Certified Mediation Program, mediation will be offered. In all 
other states, a voluntary meeting of creditors will be offered.
    (2) Any negotiation of an Agency appraisal must be completed prior 
to the meeting of creditors or mediation.
    (3) If the borrower does not request mediation or a voluntary 
meeting of creditors as offered in Exhibit E of this subpart within 45 
days, the servicing official will issue the appropriate ``Notice of 
Intent to Accelerate or to Continue Acceleration and Notice of 
Borrowers' Rights.''
    (4) Whenever the servicing official makes a decision that will 
adversely affect a participant, the participant will be informed that 
the decision can be reviewed in accordance with 7 CFR part 780 and 
indicate whether it can be appealed to the USDA National Appeals 
Division (NAD) according to regulations set forth in 7 CFR part 11. 
Nonprogram (NP) participants are not entitled to appeal rights.
    (b) Non-appealable decisions. The following types of decisions are 
not appealable:
    (1) Decisions made by parties outside the agency, even when those 
decisions are used as a basis for the agency's decisions.
    (2) Decisions that do not meet the eligibility requirements of 7 CFR 
part 11.
    (3) Interest rates as set forth in Agency procedures, except appeals 
alleging application of the incorrect interest rate.
    (4) Refusal to request or grant an administrative waiver permitted 
by program regulations.
    (5) Denials of assistance due to lack of funds.
    (6) In cases where the adverse decision is based on both appealable 
and non-appealable actions, the adverse action is not appealable.
    (7) Determinations previously made by the Agency that have been 
appealed, and a NAD decision adverse to the participant has been 
entered; or upon which the time frame for appeal has expired with no 
appeal being requested.
    (c) Next-level review. Any adverse decision, whether appealable or 
non-appealable, may be reviewed in accordance with 7 CFR part 780.
    (d) NAD review. (1) A participant may request that NAD review the 
Agency's determination that the decision may not be appealed.
    (2) A participant may request that NAD review any decision that is 
appealable.
    (3) NAD will review the participant's request in accordance with 7 
CFR part 11.
    (e) Agency actions pending outcome of appeal. Assistance will not be 
discontinued pending the outcome of an appeal of any adverse action. 
Releases for essential family living and farm operating expenses will 
not be terminated until the account has been accelerated.
    (f) Time limits. Time limits for action under this subpart will be 
tolled during the pendency of an appeal, but not during the pendency of 
a request that NAD determine that a matter is or is not appealable.
[62 FR 10121, Mar. 5, 1997]



Sec. 951.905  [Reserved]



Sec. 1951.906  Definitions.

    As used in this subpart, the following definitions apply:
    Borrower. An individual or entity which has outstanding obligations 
to the agency under any Farm Loan Programs (FLP) loan, without regard to 
whether the loan has been accelerated. This does not include any such 
debtor whose total loans and accounts have been foreclosed or 
liquidated, voluntarily or otherwise. Collection-only borrowers are 
considered borrowers. Borrower also includes any other party liable for 
the FLP debt. Nonprogram (NP) borrowers are not considered borrowers for 
the purposes of this subpart.
    CONACT or CONACT property. Property which secured a loan made or 
insured under the Consolidated Farm and Rural Development Act. Within 
this part, it shall also be construed to cover property which secured 
other FLP loans.
    Conservation contract. A contract under which a borrower agrees to 
set

[[Page 123]]

aside land for conservation, recreation or wildlife purposes in exchange 
for cancellation of a portion of an outstanding FLP debt. Relief 
obtained in this manner is not considered debt forgiveness as defined in 
this section.
    Consolidation. The combining and rescheduling of the rates and terms 
of two or more notes of the same type of OL or EO loans, EE operating-
type loans or EM loans. EM actual loss loans will not be consolidated.
    Current market value buyout. Termination of a borrower's loan 
obligations to the agency in exchange for payment of the current 
appraised value of the security property, less any prior liens.
    Debt forgiveness. For the purposes of loan servicing, debt 
forgiveness is defined as a reduction or termination of a direct FLP 
loan in a manner that results in a loss to the Agency. Included, but not 
limited to, are losses from a writedown or writeoff under this subpart, 
subpart J of this part, subpart B of part 1956 of this chapter, after 
discharge under the bankruptcy code, and associated with release of 
liability. Debt cancellation through conservation contracts is not 
considered debt forgiveness under this subpart.
    Debt settlement. The settlement of debts owed the United States for 
FLP loans. The types of debt settlement programs are: compromise, 
adjustment, cancellation and chargeoff.These programs are administered 
in accordance with subpart B of part 1956 of this chapter. Any action 
through debt settlement which results in a loss to the Agency will be 
considered debt forgiveness.
    Deferral. An approved delay in making regularly scheduled payments, 
including softwood timber (ST) loans. Deferral is not considered debt 
forgiveness.
    Delinquent 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.
    Farm Loan Programs (FLP) loans. This refers to Farm Ownership (FO), 
Soil and Water (SW), Recreation (RL), Economic Opportunity (EO), 
Operating (OL), Emergency (EM), Economic Emergency (EE), Softwood Timber 
(ST) loans, and Rural Housing loans for farm service buildings (RHF).
    Farm plan. Form FmHA 431-2, ``Farm and Home Plan,'' or other plans 
or documents acceptable to the agency that will accurately reflect the 
production and financial management of the farming operation for one 
production cycle. The agency will not require the use of consolidated 
financial statements.
    Feasible plan. A feasible plan must be based upon the applicant or 
borrower's actual records that show the farming operation's actual 
income, production and expenses. These records will include income tax 
returns and supporting documents (hereafter called income tax records). 
The records must be for the most recent five-year period or, if the 
borrower has been farming less than five years, for the period which the 
borrower has farmed. For borrowers who have been farming for less than 
five years, other available records will be used in the order listed in 
section Sec. 1924.57(d)(1) of subpart B of part 1924 of this chapter to 
complete a five-year history. Future production yields will be based on 
an average of the most recent past five years' actual production yields. 
Borrowers with yields affected by disasters in at least two of the five 
most recent years may exclude the crop year with the lowest actual 
yield. In addition, in accordance with section Sec. 1924.57(d)(1) of 
subpart B of part 1924 of this chapter, if the applicant's remaining 
disaster years' yields are less than the County average yield, and the 
borrower's yields were affected by the disaster, County average yields 
will be used for those years. If County average yields are not 
available, State average yields will be used. These records will be used 
along with realistic anticipated prices, including any planned FLP loan 
payments, to determine that the income from the farming operation, and 
any reliable off-farm income, will provide the income necessary for an 
applicant or borrower to at least be able to:
    (1) Pay all operating expenses and taxes which are due during the 
projected farm business accounting period.
    (2) Meet scheduled payments on all debts.
    (3) Meet up to 110 percent, but not less than 100 percent, of the 
amount indicated for payment of farm operating

[[Page 124]]

expenses, debt servicing obligations and family living expenses. The 
Agency will assume that a borrower needs this margin to meet all 
obligations and continue farming. However, this will not prohibit a 
borrower from receiving debt restructuring because the farm and home 
plan shows less than such a margin. In no case will a borrower with a 
cash flow of less than 100 percent receive restructuring.
    (d) Provide living expenses for the family members of an individual 
borrower or a wage for the farm operator in the case of a cooperative, 
corporation, partnership, or joint operation borrower, which is in 
accordance with the essential family needs. Family members include the 
individual borrower or farm operator in the case of an entity, and the 
immediate members of the family which reside in the same household.
    Financially distressed. A financially distressed borrower is one who 
will not be able to make payments as planned for the current or next 
business accounting period. Borrowers will also be considered as in 
financial distress if it is determined that they will not be able to 
project a feasible plan of operation for the next business accounting 
period.
    Foreclosed. The completed act of selling security either under the 
``power of sale'' in the security instrument or through court 
proceedings.
    Good faith. An eligibility requirement for Primary Loan Servicing 
and Current Market Value Buyout. Borrowers are considered to have acted 
in ``good faith'' if they have demonstrated ``honesty'' and 
``sincerity'' in complying with the requirements of Form 1962-1, 
``Agreement for the Use of Proceeds/Release of Chattel Security,'' and 
any other written agreements made with the agency, as documented in the 
case file. In addition, the agency must substantiate any allegations of 
fraud, waste, or conversion with a written legal opinion from the Office 
of the General Counsel (OGC) when such allegations are used to deny a 
servicing request. A borrower will not be considered to lack ``good 
faith'' if the sole basis for such a determination was the disposition 
of normal income security (Sec. 1962.4 of subpart A of part 1962 of this 
chapter) prior to October 14, 1988, without the Agency's consent and the 
borrower demonstrates that the proceeds were used to pay essential 
family living and farm operating expenses that could have been approved 
according to Sec. 1962.17 of subpart A of part 1962 of this chapter.
    Homestead Protection. The right of a former owner to apply to lease, 
with an option to purchase the Homestead Protection property, not to 
exceed 10 acres.
    Homestead Protection property. This refers to the principal 
residence which secured a FLP loan.
    Indian Reservation. Indian reservation means all land located within 
the limits of any Indian reservation under the jurisdiction of the 
United States, notwithstanding the issuance of any patent, and including 
rights-of-way running through the reservation; trust or restricted land 
located within the boundaries of a former reservation of a Federally 
recognized Indian tribe in the State of Oklahoma; or all Indian 
allotments the Indian titles to which have not been extinguished if such 
allotments are subject to the jurisdiction of a Federally recognized 
Indian Tribe.
    Limited Resource Program. A reduction of interest rates for 
operating loans (OL), farm ownership loans (FO) and soil and water loans 
(SW).
    Liquidated. The completed act of voluntarily selling security to end 
the obligation for the debt, or involuntarily as the result of a 
completed civil suit against a borrower to recover collateral against 
the debt. The filing of a claim in a bankruptcy action is not a complete 
liquidation of the borrower's accounts. Collection-only accounts are not 
considered liquidated.
    Loan service program. A Primary Loan Servicing program or a 
Preservation Loan Servicing program (Homestead Protection) for FLP loan 
borrowers.
    New application. An application submitted on or after November 28, 
1990, for loan servicing programs. This does not include an application 
reconsidered after an appeal or revision of an application submitted 
before November 28, 1990.
    Nonessential assets. Nonessential assets are those in which the 
borrower has an ownership interest, that:

[[Page 125]]

    (1) Do not contribute a net income to pay essential family living 
expenses or to maintain a sound farming operation (see 1962.17 of 
subpart A of part 1962 of this chapter); and
    (2) Are not exempt from judgment creditors or in a bankruptcy 
action. Each State Executive Director, with the guidance of the Office 
of the General Counsel, will issue a State Supplement to establish 
guidelines on items that are exempt from judgment creditors and are 
exempt under bankruptcy law in accordance with statute.
    Nonprogram (NP) loan. An NP loan results when a loan is made to an 
ineligible applicant or transferee in connection with a loan assumption 
and sale of inventory properties at ineligible terms. Borrowers 
originally determined eligible by the agency and found to be ineligible 
after the loan was made due to an agency error are not considered to 
have nonprogram loans.
    Preservation loan service program. See Homestead Protection.
    Primary loan service program. Primary loan service program means:
    (1) Loan consolidation, rescheduling, or reamortization;
    (2) Interest rate reduction, including use of the limited resource 
program;
    (3) Loan restructuring, including deferral, or writing down of the 
principal or accumulated interest; or
    (4) Any combination of the above.
    Reamortization. Reamortization is rearranging the installment 
payments of a real estate loan, and may include changing the interest 
rate and terms of a loan made for Subtitle A purposes.
    Rescheduling. Rescheduling is rewriting the rates and/or terms of 
OL, SL, EO loans, EE operating-type loans or EM loans made for Subtitle 
B purposes.
    Writedown. For purposes of this subpart, writedown is reducing a 
borrower's debt to an amount that will result in a feasible plan of 
operation.
[62 FR 10121, Mar. 5, 1997]



Sec. 1951.907  Notice of Loan Service Programs.

    In those instances where the applicable notice is sent certified 
mail, and the certified mail is not accepted by the borrower, the County 
Supervisor will immediately send the documents from the certified mail 
package to the borrower's last known address, first class mail. The 
appropriate response time will commence 3 days following the date of 
first class mailing.
    (a) Notification of borrowers who file bankruptcy. The account will 
be serviced in accordance with instructions from the Regional Office of 
the General Counsel (OGC), and in accordance with Sec. 1962.47(a)(3) of 
subpart A of part 1962 of this chapter.
    (b) Notification of borrowers who have been discharged in bankruptcy 
or who have plans confirmed by bankruptcy courts. If the borrower has 
been discharged in bankruptcy or the borrower is operating under a 
confirmed plan, the account will be serviced in accordance with 
instructions from the Regional OGC and in accordance with Sec. 1962.47 
(a) or (c) of subpart A of part 1962 of this chapter.
    (c) Notification of borrowers 90 days past due on payments. FLP 
borrowers who are at least 90 days past due (60 days delinquent) will be 
sent Exhibit A of this subpart with attachments 1 and 2 by certified 
mail, return receipt requested. If the borrower submits an incomplete 
application, see paragraph (e) of this section for procedures on 
requesting additional information. Delinquent borrowers who have also 
violated their loan agreements with the agency will be handled in 
accordance with Sec. 1951.907(e). In addition to the requirements set 
forth above, servicing officials will provide Attachments 1 and 2 of 
Exhibit A of this subpart to these borrowers, as set forth below:
    (1) At the time an application is made for participation in an FLP 
loan service program, unless such application is the result of the 
notice provided to the borrower in accordance with this section,
    (2) On written request of any FLP borrower, whether delinquent or 
not, prior to the sending of a packet under paragraph (c) of this 
section, and
    (3) If a borrower has not previously received exhibit A and 
attachments 1 and 2 of this subpart, such exhibit and attachments will 
be provided before the earliest of:
    (i) Initiating any liquidation action,
    (ii) Accepting a voluntary conveyance of security, or the borrower 
requesting permission to sell security,

[[Page 126]]

    (iii) Accelerating payments on the loan,
    (iv) Repossessing the borrower's property,
    (v) Foreclosing on property, or
    (vi) Taking any other collection action.
    (d) Notification of borrowers in non-monetary default; delinquent 
borrowers also in non monetary default, or when a junior or senior 
lienholder is foreclosing. FLP borrowers who are in non-monetary default 
will be sent attachments 1, 3, and 4 of exhibit A of this subpart by 
certified mail, return receipt requested. If a case is in the hands of 
the Department of Justice or in litigation, no loan servicing action 
will be taken without Department of Justice or OGC concurrence (see 
1962.49 of this chapter). Any servicing request will be processed as 
indicated in Sec. 1951.909. The account will not be liquidated until the 
borrower has the opportunity to appeal any adverse decision. After any 
final appeal decision that does not result in a resolution of the loan 
defaults, the account will be accelerated.
    (e) Request for primary and preservation loan service programs. (1) 
To request consideration for Primary and Preservation Loan Service 
programs, borrowers who are sent exhibit A, with attachments 1 and 2 or 
attachments 1, 3, and 4 must complete and return attachment 2 or 
attachment 4, as appropriate, to the local county office within 60 days 
after receiving those documents, with the forms required by this 
paragraph for a completed application.
    (2) If borrowers are sent attachments 3 and 4 and do not request 
servicing within 60 days, the agency will proceed with liquidation in 
accordance with Sec. 1955.15 of this chapter.
    (3) If borrowers are sent exhibit A and attachments 1 and 2 of this 
subpart and do not submit a completed application within the 60-day time 
period, the servicing official will send attachments 9 and 10, or 9-A 
and 10-A of exhibit A of this subpart, as applicable. These attachments 
will not be sent to borrowers who are being serviced in accordance with 
Sec. 1951.908. For borrowers receiving attachments 9 and 10 or 9-A and 
10-A, the agency will proceed with liquidation in accordance with 
Sec. 1955.15 of this chapter.
    (4) If a borrower has moved and left a forwarding address, the 
certified mail will be forwarded. If no forwarding address is given, the 
mail will be returned to the county office. The servicing official will 
immediately send the documents from the certified mail package to the 
borrower's last known address, first class mail. The borrower's response 
date for a completed application will begin on the date of receipt of 
the certified mail or 3 days following the date of first class mailing, 
whichever is earlier.
    (5) An application for loan service programs must include the 
following forms (available in any agency office), and data, unless the 
information is already in the borrower's case file and still current, as 
determined by the approval official:
    (i) Attachment 2 or 4 of exhibit A to this subpart, response form to 
apply for loan servicing.
    (ii) Form 410-1, ``Application for FmHA Services,'' including a 
current (within 90 days) financial statement of all individuals and 
entities personally liable for the FLP debt.
    (iii) Form 431-2, ``Farm and Home Plan,'' or any other form or 
submission acceptable to the agency that sets forth a plan of operation 
and the necessary information. Commodity prices supplied by the agency 
will be used to complete the forms.
    (iv) Form 440-32, ``Request for Statement of Debts and Collateral.''
    (v) Form RD 1910-5, ``Request for Verification of Employment.''
    (vi) Form AD-1026, ``Highly Erodible Land Conservation (HELC) and 
Wetland Conservation (WC) Certification,'' if the one on file with the 
agency does not reflect all the land owned and leased by the borrower.
    (vii) Form SCS CPA-26, ``Highly Erodible Land and Wetland 
Determination,'' if not previously on file with the agency for the farm 
operation. This form is included as part of the application after being 
completed by NRCS. (This form is available at NRCS local offices.)
    (viii) If the applicant wants to be considered for a conservation 
contract, a map or copy of an aerial photo of the farm, on which the 
applicant must

[[Page 127]]

show that portion of the farm and approximate acres to be considered in 
a request for debt restructuring provided for in the conservation 
contract program.
    (ix) The most recent five years' income tax returns and supporting 
documents, unless the borrower has been farming for less than five 
years. In such case, income tax returns and supporting documents for the 
tax years that the borrower farmed.
    (x) If the borrower is applying for debt settlement, Form RD1956-1, 
``Application for Settlement of Indebtedness.''
    (6) The borrower will be provided with copies of these forms when 
Exhibit A is sent, and may request copies of regulations and the forms 
manual inserts (FMI) in writing within 30 days of receipt of the loan 
servicing notice. If these latter items are not provided within 10 days 
of such a request, the borrower's time for submission of a complete 
application will be increased by the period of delay in excess of 10 
days caused by the Agency.
    (7) Not more than one 60-day period will be provided to a borrower 
to respond to the notice of loan service programs except in accordance 
with Sec. 1951.908. Subsequent notices as provided for in this section 
will not be issued until the first notice is resolved.
[57 FR 18626, Apr. 30, 1992, as amended at 62 FR 10123, Mar. 5, 1997]



Sec. 1951.908  Servicing financially distressed current borrowers.

    A borrower who is financially distressed, but is not yet delinquent 
on FLP payments, may request servicing at any time.
    (a) Notification. If a current plan of operation demonstrates that 
the borrower is or will be financially distressed, as defined in 
Sec. 1951.906, or if the borrower otherwise requests servicing, the 
servicing official will provide attachments 1 and 2 of exhibit A of this 
subpart.
    (b) Eligibility. To be considered for servicing in accordance with 
this section, the borrower must submit to the county office within 60 
days Attachment 2 of exhibit A of this subpart and a complete 
application in accordance with the requirements of Sec. 1951.907(e).
    (1) The eligibility requirements of Sec. 1951.909(c) (1) and (2) 
apply to servicing under this section.
    (2) Eligible financially distressed borrowers who are current on 
their FLP loan payments may be considered for the Primary Loan Service 
programs described in Secs. 1951.909(e) (1), (2) and (3).
    (3) Financially distressed borrowers who are not delinquent are not 
eligible for writedown of debt or buyout as described in 1951.909.
    (c) Processing the application. The servicing official must process 
a completed application and notify the borrower of the decision.
    (1) Current borrowers will be considered only for the Primary Loan 
Servicing programs described in Secs. 1951.909 (e) (1), (2), and (3). 
The servicing official must use the Debt and Loan Restructuring System 
(DALR$) program, in accordance with exhibit J-1 of this subpart, to 
determine if a feasible plan can be developed as defined in 
Sec. 1951.906.
    (2) If a feasible plan can be developed, the borrower will be sent 
exhibit B of this subpart with attachment 1 and the printout of the 
DALR$ calculations as notification of the favorable decision. The 
borrower must accept the offer within 45 days of its receipt by 
returning attachment 1 to exhibit B of this subpart or the offer will 
expire. If the borrower accepts, loan restructuring will be processed in 
accordance with Secs. 1951.909 (e) (1), (2), or (3), as applicable.
    (3) If a feasible plan cannot be developed, the borrower will be 
informed of the reasons for the adverse decision. The DALR$ printout 
will be attached.
    (4) Current borrowers who have received notices under this section 
and who do not apply for primary loan servicing, or who refuse an offer 
to restructure their debt, and later become 90 days past due on the FLP 
loan payment, will be sent notices as described in Sec. 1951.907.
    (5) Borrowers whose accounts are not delinquent may receive 
rescheduling, reamortization, consolidation, or deferral under this 
subpart only after they have paid at least a portion of the interest due 
on their FLP debt. The portion due will be based on the applicant's 
ability to pay, as determined by

[[Page 128]]

thoroughly analyzing the farm operation, including any off-farm income. 
The payment must be made on or before the date that restructuring is 
closed. Borrowers in non-monetary default, but not delinquent on their 
FLP debt, must cure the non-monetary default before they may be 
considered for servicing under this paragraph.
[62 FR 10124, Mar. 5, 1997]



Sec. 1951.909  Processing primary loan service programs requests.

    (a) Servicing official responsibilities. (1) After receipt of 
attachment 2 or 4 and a completed application in accordance with 
Sec. 1951.907(e), the servicing official will consider all primary 
service programs options in this subpart. That official must use the 
Debt and Loan Restructuring System (DALR$) computer program, in 
accordance with exhibit J-1 of this subpart for borrowers who submit a 
new application, to attempt to find the combination of loan service 
programs that will result in a feasible plan. Borrowers who request loan 
servicing and who have disposed of all the FLP loan security, including 
Collection-Only borrowers, will be processed in accordance with part 
1956, subpart B, of this chapter. If the application includes a request 
for the Conservation Contract program, as indicated by the submission of 
the information required in Sec. 1951.907(e)(5)(viii), the servicing 
official will determine whether the borrower is eligible, based on 
criteria as set forth in exhibit H of this subpart. If the borrower is 
eligible, the servicing official will make an estimate of the 
information needed to permit the DALR$ program to make the calculations 
of feasibility of the Conservation Contract. The assumptions used to 
establish the estimates will be based on the servicing official's 
knowledge of the farmland values, the borrower's repayment ability, and 
the proposed contract acreage. When the DALR$ calculations for 
restructuring are completed, the borrower will be notified as set forth 
in paragraph (h) of this section.
    (2) When jointly liable individual borrowers have been divorced and 
one has withdrawn from the operation, the State Executive Director will 
consider, upon the recommendation of the servicing official, the release 
of liability for the individual who has withdrawn if the following 
conditions are met.
    (i) A divorce decree or property settlement document held the 
withdrawing party not responsible for the loan payments;
    (ii) The withdrawing party's interest in the security is conveyed to 
the borrower with whom the loan will be continued;
    (iii) The person withdrawing does not have any repayment ability for 
the loan, and does not own any nonessential assets, as defined in 
Sec. 1951.906;
    (iv) The individual withdrawing has never received debt forgiveness 
on another direct loan; and.
    (v) The withdrawing party provides a copy of the divorce decree and 
property settlement, evidence of conveyance, a current financial 
statement, verification of income and debts, and Form 431-2 or Form RD-
1944-3 as applicable.
    (3) If a completed application includes a request for a waiver from 
the training required by paragraph (c)(5) of this section, the County 
Committee will, prior to any offer of Primary Loan Servicing, evaluate 
the borrower's knowledge and ability in production and financial 
management and determine the need for additional training as set out in 
Sec. 1924.74 of this chapter.
    (b) Adverse determination. (1) If the approval official determines 
that the borrower is not eligible for any of the Primary Loan Service 
programs or restructuring is not feasible because of debt held by other 
lenders, the borrower will be advised of mediation or meeting of 
creditors as provided in paragraph (h)(3) of this section. If mediation 
or the meeting of creditors does not result in a feasible plan, the 
borrower will be sent attachments 5 and 6, or 5-A and 6-A, of exhibit A 
of this subpart, as applicable.
    (2) Borrowers who do not buy out their debt at its current market 
value, or who indicate in writing that they do not wish to buy out, will 
automatically be considered for debt settlement if they submitted an 
``Application For Debt Settlement.'' Any appeal of a primary loan 
servicing denial will be completed before the servicing official begins 
any further processing of a Debt Settlement or Homestead Protection

[[Page 129]]

request. If the adverse decision on restructuring is upheld on appeal, 
the borrower will be considered for these options. The servicing 
official will complete the processing of the borrower's application for 
Debt Settlement in accordance with part 1956 of this chapter. Homestead 
Protection will be processed in accordance with Sec. 1951.911. No 
acceleration or foreclosure will occur until the appeal process has been 
completed for servicing or debt settlement requests timely submitted 
under this subpart.
    (3) Applicants may request a negotiated appraisal in accordance with 
paragraph (i) of this section if they object to the agency's appraisal. 
Negotiation of the appraisal, if requested by the borrower, will take 
place before mediation or a voluntary meeting of creditors.
    (c) Eligibility. Applicants will be eligible for Primary Loan 
Service programs if the servicing official has determined that they meet 
all of the following requirements:
    (1) The delinquency or financial distress does exist and is due to 
circumstances beyond the control of the borrower, due to a reduction in 
income which reduces cash flow to a point where outflows exceed inflows, 
only as follows:
    (i) The reduction in essential income from a non-farm job due to 
unemployment or underemployment of the borrower-operator or spouse is 
caused by circumstances beyond their control;
    (ii) Illness, injury, or death of an individual borrower, 
stockholder, member or partner who operates the farm;
    (iii) Natural disasters, an outbreak of uncontrollable disease, or 
uncontrollable insect damage which caused severe loss of agricultural 
production that reduced repayment ability so that scheduled payments 
cannot be made; or
    (iv) Economic factors that are widespread and not limited to an 
individual case, such as high interest rates or low market prices for 
agricultural commodities as compared to production costs, that reduce 
repayment ability so that the scheduled payments cannot be made.
    (2) The borrower has acted in good faith.
    (3) Borrowers who do not meet the eligibility requirements of this 
section will be notified of the adverse decision by sending attachments 
5 and 6, or 5-A and 6-A, of exhibit A of this subpart, as appropriate.
    (4) Borrowers with sufficient nonessential assets to bring the FLP 
loan account current are not eligible for assistance under this subpart 
and will be processed in accordance with Sec. 1951.910 of this subpart.
    (5) The borrower must agree to meet the training requirements of 
Sec. 1924.74 of this chapter unless a waiver is granted in accordance 
with that section. The training requirement applies to all primary loan 
servicing programs.
    (d) Feasibility determinations. The servicing official must 
determine:
    (1) That the borrower will be able to develop a feasible plan.
    (2) If restructured, the loan will result in a net recovery to the 
Government that will be equal to or greater than the net recovery value 
from involuntary liquidation or foreclosure as calculated in accordance 
with paragraph (f) of this section. A comparison with net recovery to 
the Government, however, will not be made when establishing conservation 
contracts under exhibit H of this subpart.
    (e) Primary loan service programs. Any FLP borrower may request 
Primary Loan Servicing Programs described in this subpart at any time 
prior to becoming 90 days past due. However, borrowers must show that 
they are not able to pay their debt as scheduled before the agency will 
approve Primary Loan Servicing Programs. The agency will consider the 
borrower's other assets in accordance with Sec. 1951.910 of this 
subpart. Rescheduling, reamortization, consolidation, or deferral may be 
utilized for any eligible borrower. Existing deferrals will be cancelled 
at the same time additional primary loan servicing is received. The loan 
will be entered into DALR$ as if the deferral were already cancelled. If 
DALR$ shows that a borrower can develop a feasible plan without a 
writedown at a lower cash flow margin than with a writedown, that 
borrower will be provided the opportunity to choose between 
restructuring with or without a writedown.

[[Page 130]]

    (1) Consolidation and rescheduling of OL and EO loans, EE operating-
type loans and EM loans made for subtitle B purposes including EM loss 
loans. This subsection explains how to consolidate and/or reschedule 
existing loans, providing the borrower agrees to such actions. When the 
servicing official determines that consolidation and/or rescheduling 
will assist in the orderly collection of the loan, the servicing 
official should take such action provided all of the following 
conditions exist:
    (i) The borrower meets the eligibility requirements in paragraph (c) 
of this section;
    (ii) Such action is not taken to circumvent the FLP graduation 
requirements;
    (iii) The borrower's account is not being serviced by the OGC or the 
U.S. Attorney and there are no plans to have the account serviced by 
either of these offices in the near future;
    (iv) Loans may be rescheduled or reamortized, as appropriate, to 
bring the account current or to keep the account from becoming 
delinquent. A sufficient number of notes including all delinquent notes 
will be rescheduled to permit the development of a feasible plan of 
operation;
    (v) The borrower will comply with the highly Erodible Land and 
Wetland Conservation provisions of exhibit M of subpart G of part 1940 
of this chapter, if applicable;
    (vi) Loans secured by real estate will not be consolidated and/or 
rescheduled, until the servicing official reviews the Government's real 
estate lien priority and value of security and decides that such an 
action will be in the best interest of the Government and the borrower. 
If there are any liens which were not in existence at the time the note 
was signed, the servicing official will ask the OGC for an opinion as to 
what lien position the Government will have if a new note is taken 
unless a State supplement authorizing this action has been issued on 
this subject;
    (vii) Only loans of the same type will be consolidated;
    (viii) EM actual loss loans will not be consolidated;
    (ix) Loans serviced under subpart L of this part will not be 
consolidated with another loan;
    (x) Loans that have been deferred under this section will not be 
consolidated and/or rescheduled during the deferral period;
    (xi) Terms of consolidated and/or rescheduled loans are as follows:
    (A) Consolidated and/or rescheduled loans will be repaid according 
to the borrower's repayment ability, but will not exceed 15 years from 
the date of the consolidation and/or rescheduling action, except:
    (B) Repayment of loans solely for recreation and/or nonfarm 
enterprise purposes may not exceed seven years from the date of the 
consolidation and/or rescheduling action (the date the new note is 
signed).
    (C) Repayment of EE loans may not exceed 15 years from the date of 
rescheduling.
    (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 that were not assigned a limited resource rate when the loan was 
received, may be assigned a limited resource rate if:
    (1) The borrower meets the requirements for the limited resource 
interest rate, and
    (2) A feasible plan cannot be developed at regular interest rates 
and maximum terms permitted in this section.
    (xiii) The original (old) note(s) will be marked ``Rescheduled'' and 
stapled to the new rescheduled promissory note and will be filed in the 
operation file. Copy(ies) for the borrower's(s') case file should be 
marked and stapled the same and filed in position 2 of the case file. If 
a transfer is involved, assumption agreement(s) will be marked

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and stapled with the note(s) and copies filed as indicated above. If 
part of a note is written down, the written down note will be marked 
``Rescheduled with Debt Write Down,'' and will be filed in the operation 
file.
    (xiv) For applications received before November 28, 1990, the amount 
of outstanding accrued interest more than 90 days overdue and any 
outstanding protective advances, as defined in Sec. 1965.11(b) of 
subpart A of part 1965 of this chapter, made on the loan will be added 
to the principal at the time of consolidation and/or rescheduling (the 
date the new note is signed by the borrower). Protective advances are 
not authorized for the payment of prior or junior liens except real 
estate tax liens. See section II E of exhibit J of this subpart for an 
explanation of how to schedule payment of interest not more than 90 days 
overdue; and
    (xv) For new applications, the amount of outstanding accrued 
interest and any outstanding protective advances, as defined in 
Sec. 1965.11(b) subpart A of part 1965 of this chapter, made on the loan 
will be added to the principal at the time of consolidation and/or 
rescheduling (the date the new note is signed by the borrower) in 
accordance with the provisions of exhibit J-1 of this subpart. 
Protective advances are not authorized for the payment of prior or 
junior liens except real estate tax liens.
    (2) Reamortization of FO, SW, RL, RHF, EE, or EM loans made for real 
estate purposes. When the servicing official determines that a 
reamortization action will assist in the orderly collection of the loan, 
the servicing official should take such action, provided:
    (i) The borrower meets the eligibility requirements of 1951.909(c) 
of this subpart;
    (ii) Such action is not taken to circumvent the FLP graduation 
requirements;
    (iii) The borrower's account is not being serviced by the OGC or the 
U.S. Attorney, and there are no plans to have the account serviced by 
either of these offices in the foreseeable future;
    (iv) A feasible plan for the borrower cannot be developed with the 
existing repayment schedule. A sufficient number of notes, including all 
delinquent notes, will be reamortized to permit the development of a 
feasible plan of operation;
    (v) The borrower will comply with the Highly Erodible Land and 
Wetland Conservation requirements of exhibit M of subpart G of part 1940 
of this chapter, if applicable;
    (vi) Loans that have been deferred in this supbart will not be 
reamortized during the deferral period unless the deferral is cancelled;
    (vii) Terms of repayment of reamortized loans are as follows:
    (A) Reamortized installments usually will be scheduled for repayment 
within the remaining time period of the note or assumption agreement 
being reamortized. If repayment terms are extended, the new repayment 
period may not exceed 40 years from the date of the original note or 
assumption agreement or the useful life of the security, whichever is 
less. EE loans for real estate purposes, which are secured by chattels 
only, may be reamortized over a period not to exceed 20 years from the 
date of the original note or assumption agreement, or the useful life of 
the security, whichever is less. RHF loans may not exceed 33 years from 
the date of the original note or assumption agreement.
    (B) The Agency's lien priority may be affected if the final due date 
of the original loan is extended. A State supplement will be issued to 
provide instructions on the effect that a change in the final due date 
has on security instruments and the actions necessary to retain the 
Government's lien priority. The State supplement will also include 
instructions for releasing the original security instrument when a new 
one is obtained.
    (viii) Interest:
    (A) The interest rate will be the current interest rate in effect on 
the date of reamortization (the date the new note is signed by the 
borrower), or the interest rate on the 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 that was not 
assigned a limited resource rate when the

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loan was received, may be changed to a limited resource interest rate 
if:
    (1) The borrower meets the requirements for a limited resource 
interest rate,
    (2) A feasible plan cannot be developed at regular interest rates 
and at the maximum terms permitted in this section, and
    (3) For SW loans, the loans funds were used for soil and water 
conservation and protection purposes as set forth in Sec. 1943.66 (a)(1) 
through (a)(5) of subpart B of part 1943 of this chapter.
    (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 on the new principal between the date the Form 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 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 the 
servicing official that they will be able to resume payment on the debt 
by the end of the deferral period, or the new payments, as established 
by using consolidation, rescheduling, or reamortization can be resumed 
at the end of the deferral period; and
    (B) Continuation of loan payments as presently scheduled without 
change, will unduly impair the borrower's standard of living. An unduly 
impaired standard of living is a condition whereby the borrower, due to 
circumstances beyond the borrower's control, is unable to pay essential 
family living expenses (partnerships, joint operators, corporations, and 
cooperatives do not have family living expenses), pay normal farm 
operating expenses, including reasonable and customary hired labor and/
or salary paid to the operator(s) of a partnership, a joint operation, a 
corporation, or a cooperative, maintain essential chattels and real 
estate, and meet the scheduled payments of all debts.
    (iii) Approval offical determinations. The approval official must:
    (A) Determine that the borrower meets the eligibility requirements 
of Sec. 1951.909(c) of this subpart;
    (B) Determine that a deferral of payments is necessary and 
appropriately document the conditions causing the need for deferral;
    (C) If a borrower owns 50 acres or more of marginal land as defined 
in exhibit G of this subpart and a feasible plan cannot be developed 
after consideration of a deferral, the servicing official will inform 
the borrower about the Softwood Timber (ST) loan program

[[Page 133]]

authorized by exhibit G of this subpart by sending Attachment 1 of 
exhibit G of this subpart by certified mail, return receipt requested, 
within 5 days after the adverse deferral determination. If the borrower 
requests the servicing official to determine that an ST loan may allow 
the borrower to continue to farm, within 15 days of the borrower's 
receipt of attachment 1, the servicing official will determine if the 
borrower is eligible, based on criteria as set forth in exhibit G of 
this subpart. If the borrower is eligible the servicing official will 
help the borrower to develop a plan to determine if a feasible operation 
can be developed utilizing this program. The discussion will be 
documented in the borrower's case file.
    (iv) Loan deferral considerations. The servicing official will 
assist the borrower in completing a typical-year plan. If there is no 
typical year, the servicing official will assist the borrower with 
completing a plan of operation for each year of the deferral. The plans 
must be considered in DALR$.
    (A) A sufficient number of loans must be considered for deferral to 
permit the borrower to have a feasible plan.
    (B) A deferral plan may include a reorganization of the farming 
operation, including the use of new enterprises, to overcome existing 
financial, economic or other limitations of the operation. If the 
proposed restructuring requires capital expenditures, a subordination or 
additional loan will be considered. Deferral of additional loan 
installments beyond those needed to allow the borrower to develop a 
feasible plan will not be used to create additional cash reserve for 
capital purchases. Such purchases are not considered operating expenses.
    (C) A typical year during the deferral period is a year which most 
closely represents the borrower's average operation for the entire 
deferral period. There may be no typical year for farming or ranching 
operations undergoing a major reorganization. If there is no typical 
year, then it will be necessary to develop a plan of operation for each 
year of the deferral. The plans must be considered in DALR$ to determine 
if each plan is feasible.
    (D) The deferral of loan installments is not intended to create a 
high net cash reserve where revenue substantially exceeds expenses. If 
the deferral of a complete note would cause a high net cash reserve 
during the entire deferral period, a full deferral should not be 
granted. In such a case, a partial deferral should be considered to 
obtain a feasible plan of operation. The same approach should be used 
for situations in which there is no typical year and debt payments must 
vary throughout the deferral period.
    (E) The borrower must have feasible plans of operation to support 
any deferral request. Plans of operation in conjunction with loan 
deferrals must be realistic and supported by the borrower's actual 
records.
    (v) Additional and subsequent deferrals. If, during the period of 
the initial deferral, the borrower is unable to make the scheduled 
payments, the borrower may again request primary loan service actions. 
When considering primary servicing actions, existing deferred notes must 
be entered into DALR$ as if they had not been deferred. If it is 
necessary to defer additional loans to develop a feasible plan, such 
action will be taken if the deferral will result in a greater net 
recovery to the Government than debt writedown. Borrowers may obtain 
subsequent deferrals after the deferral period provided the conditions 
of this subsection are met.
    (vi) Term and interest rate. A deferral period will not exceed five 
(5) annual installments. Deferral interest rates will be determined as 
specified in paragraphs (e)(1)(xii) and (e)(2)(viii) of this section.
    (A) All loans being deferred will be consolidated, rescheduled or 
reamortized, as applicable. The promissory note rescheduled, reamortized 
or consolidated for the deferral will show ``zero'' as the installments 
due during the period of the deferral if the whole note is deferred and 
will not be changed during the deferral period unless the conditions of 
paragraph (e)(3)(v) of this section are met. The servicing official will 
determine the amount of interest that will accrue during the deferred 
period. This interest will be repaid in equal amortized installments 
during the term of the loan remaining after the deferral period. The 
calculated installments will

[[Page 134]]

be added to the remaining installments for the remaining principal 
balance and inserted on the promissory note as a scheduled installment 
for the remaining period of the loan. The Finance Office will apply the 
payments made on the note in accordance with subpart A of this part. For 
applications received before November 28, 1990, the amount of 
outstanding accrued interest more than 90 days overdue and any 
outstanding protective advances, as described in Sec. 1965.11(b) of 
subpart A of part 1965 of this chapter, made on the loan will be added 
to the principal at the time of the deferral (the date the new note is 
signed by the borrower). Protective advances are not authorized for the 
payment of prior or junior liens except real estate taxes. See section 
II E of exhibit J of this subpart for an explanation of how to schedule 
payment of interest not over 90 days overdue. For new applications, the 
amount of outstanding accrued interest and any outstanding protective 
advances made on the loan will be added to the principal at the time of 
deferral (the date the new note is signed by the borrower).
    (B) The field office will process the deferral via the Automated 
Discrepancy Processing System (ADPS).
    (C) If a deferral is approved, the borrower's name and the date of 
approval will be recorded and maintained in accordance with subpart A of 
part 1905 of this chapter. The Finance Office will provide the county 
office with a quarterly status report for each borrower who has received 
a deferral.
    (D) Six months prior to the end of the deferral period the servicing 
official will notify the borrower in writing of the expiration of the 
deferral and the amount and date of the borrower's first upcoming 
installment of the debt.
    (E) A deferral will be cancelled if the loan is later restructured 
in accordance with this subpart. The cancellation will be processed via 
ADPS.
    (vii) Increase in repayment ability. At the time the servicing 
official makes the analysis required by Sec. 1924.60 of subpart B of 
part 1924 of this chapter, the servicing official will determine whether 
the borrower has had an increase in income and repayment ability. If an 
income increase is substantial enough to enable the borrower to 
graduate, the case will be handled in accordance with subpart F of this 
part. If an increase would enable the borrower to make some payments 
during the deferral period, the servicing official will, in writing, ask 
the borrower to sign a Form 440-9, ``Supplementary Payment Agreement,'' 
within 30 days of the date of the written request. The borrower will be 
provided appeal rights. When doing the analysis to determine whether 
there is a substantial increase in income and repayment ability, the 
servicing official will determine whether this increase exists by 
comparing it to the original plan developed in the deferral application 
and also to plans developed for the current operating year to determine 
that the excess income is not needed for essential living and operating 
expenses or scheduled debt payment. Refusal to sign Form 440-9 will be 
considered a non-monetary default and will be handled as set forth in 
Sec. 1951.907(e) of this subpart. If the borrower signs Form 440-9 and 
later does not honor the terms and conditions of the repayment 
agreement, the borrower's account will be handled as set forth in 
Sec. 1951.907 of this subpart.
    (4) Writedown. The following conditions shall be met in order for a 
borrower to receive writedown of FLP debts:
    (i) No other Primary Loan Service programs, including deferral, nor 
any combination thereof, will produce a feasible plan that will permit 
the borrower to continue the operation. However, if DALR$ shows that a 
borrower can develop a feasible plan without a writedown at a lower cash 
flow margin than with a writedown, then the borrower will be provided 
the opportunity to choose between restructuring with or without a 
writedown;
    (ii) The borrower must never have received debt forgiveness on 
another direct loan at any time;
    (iii) The amount written off may not exceed $300,000.
    (iv) A feasible plan must be developed that will result in a present 
value of loans to be repaid to the Government which is equal to or more 
than a net recovery from an involuntary liquidation or foreclosure;

[[Page 135]]

    (v) The borrower must comply with the Highly Erodible Land and 
Wetland Conservation requirements of exibibit M of subpart G of part 
1940 of this chapter, if applicable;
    (vi) The borrower must agree to a Shared Appreciation Agreement if 
the loan is secured by real estate;
    (vii) Loans written down with the Primary Loan Servicing programs 
will be rescheduled, reamortized, or deferred in accordance with 
paragraph (e) of this section; and
    (viii) Borrower must agree to a lien on certain assets as provided 
in 1951.910 of this subpart, including nonessential assets, where the 
net recovery value of these assets was not paid to the Agency. (The 
Agency's lien will be taken only at the time of closing the restructured 
loans); and
    (ix) Debt reduction received through conservation easements or 
contracts will not be counted toward the limitations in paragraphs 
(e)(4) (ii) and (iii) of this section.
    (f) Determining value of net recovery from involuntary liquidation. 
After receipt of a complete application for Primary and Preservation 
Loan Service programs, the servicing official will make the calculations 
required in this section and notify the borrower of the result. For New 
Applications, nonessential assets will be considered in accordance with 
Sec. 1951.910(a) of this subpart.
    (1) The servicing official will use the computer program, DALR$, to 
determine the net recovery to the Government equivalent to involuntary 
liquidation of the collateral securing the FLP debt in accordance with 
Exhibit J or J-1 of this subpart, ``Debt and Loan Restructuring 
System,'' as applicable, and will follow the guidance provided by State 
supplements and Exhibit I of this subpart, ``Guidelines for Determining 
Adjustments for Net Recovery Value of Collateral.'' The servicing 
official will determine the current market value of the collateral in 
the borrower's possession including tangible property in existence and 
of record in accordance with subpart E of part 1922 of this chapter for 
real estate property, and on Form 440-21, ``Appraisal of Chattel 
Property.'' The servicing official also will determine the current 
market value of any bank accounts, stocks and bonds, certificates of 
deposit and the like pledged to and/or in the possession of the Agency. 
Collateral may include real estate, chattels, tangible property and 
property such as bank accounts, stocks and bonds, certificates of 
deposit, and the like. Chattels include machinery, equipment, livestock, 
growing crops, and crops in storage. Tangible property may include 
accounts receivable (including Government payments), inventories, 
supplies, feed, etc. From the current market value of the collateral in 
the borrower's possession, or pledged to and/or in the possession of the 
Agency (in the case of bank accounts, stock and bonds, certificates of 
deposit, and the like), the following adjustments will be made:
    (i) Subtract the amount which would be required to pay prior liens 
on the collateral;
    (ii) Subtract taxes and assessments, depreciation, management costs, 
and interest cost to the Government based on the 90-day Treasury Bills 
(published in a National Office issuance). Taxes and assessments, 
depreciation, management costs, as well as interest costs will be 
calculated on the current market value of the property for the average 
inventory holding period. The holding period for suitable inventory farm 
property will be established by each State as of July 1 each year using 
Report Code 597. The months that the suitable property is under lease 
will not be included in determining the average holding period for 
purposes of this subpart;
    (iii) Adjust the current market value for estimated increases or 
decreases in value of the property for the holding period specified in 
paragraph (f)(1)(ii) of this section;
    (iv) Subtract resale expenses, such as repairs, commissions, and 
advertising;
    (v) Other administrative and attorney's expenses;
    (vi) Add income which will be received after acquisition; and
    (vii) For a borrower who submits a ``new application'' as defined in 
Sec. 1951.906 of this subpart, add the value of any collateral that is 
not in the borrower's possession and that has not

[[Page 136]]

been approved on the Form 1962-1 or released in writing by the Agency, 
minus the value of any prior lienholder's interest. Collateral not in 
possession of the borrower is defined as any property specified in any 
agency security instruments for such borrower's FLP debt that the 
borrower has disposed of and that the Agency has not approved or 
released in writing. The value of normal income security not in 
possession of the borrower will not be added to the NRV if it could be 
post-approved for release in accordance with Sec. 1962.17 of subpart A 
of part 1962. The value of any collateral that is not in the possession 
of the borrower will be determined by the servicing official based upon 
the best information available about the value of the collateral on or 
about the time of its disposition. In determining the value of such 
property, the Agency will use such sources as the publications Hotline 
(Farm Equipment Guide) and Official Guide (Tractor and Farm Equipment), 
sale prices at local public auctions, public livestock sale barn prices, 
comparable real estate sales, etc. Agency appraisal forms will be used 
to record the value of the missing collateral and the basis for the 
valuation.
    (2) The State Executive Director will determine costs of involuntary 
liquidation of collateral for farm loans by analyzing the costs of 
involuntary liquidation within the geographic areas of their 
jurisdiction. The State Executive Director also will issue a State 
supplement of estimated costs and average holding time to be used as 
guidelines by servicing officials in making calculations of net recovery 
value under this subsection. Such cost analyses will be carried out in 
July of each year. The State Executive Director will consult with State 
Executive Directors of adjoining States, other lenders, real estate 
agents, auctioneers, and others in the community to gather and analyze 
the information specified in this subpart.
    (g) Determining net recovery value resulting from primary servicing. 
The value of the restructured debt will be based on the present value of 
payments the borrower would make to the Agency using any combination of 
primary loan service programs that will provide a feasible plan. Present 
value is a calculation concept which assigns a lower current value to 
dollars received in later years than to dollars received at the present 
time. Servicing officials will use a discount rate based on 90-day 
Treasury Bills as of the date the borrower files the application for 
restructuring. The National Office will publish the 90-day Treasury Bill 
rate in a National Office issuance.
    (h) Notification requirements. In those instances where the 
applicable notice is sent certified mail, and the certified mail is not 
accepted by the borrower, the servicing official will immediately send 
the documents from the certified mail package to the borrower's last 
known address, first class mail. The appropriate response time will 
commence 3 days following the date of mailing.
    (1) Offer. If the calculations show that the value of the 
restructured debt is greater than or equal to the NRV as determined in 
paragraph (f) of this section, the servicing official will forward to 
the State Executive Director the borrower's Farm and Home Plan and the 
original printout of the DALR$ calculations. The servicing official will 
certify that the borrower meets all requirements for debt restructuring 
with the writedown amount specified on the printout. The State Executive 
Director's authorization to the servicing official to proceed with the 
writedown will be evidenced by the State Executive Director's signature 
affixed to the original copy of the DALR$ printout returned to the 
servicing official. Within 60 days after receiving a complete 
application, the servicing official will notify the borrower of the 
results of the calculations by sending Exhibit F of this subpart, 
certified mail, return receipt requested, and offer to restructure the 
debt. A printout of the DALR$ calculations will be attached to Exhibit F 
of this subpart.
    (i) Exhibit F of this subpart will inform the borrower(s) of the 
Agency's offer to restructure the debt, the right to request a copy of 
the agency's appraisal, and other options which may include payment of 
nonessential assets and negotiation of the appraisal. If the borrower 
accepts the offer within 45 days following any appeal, the servicing 
official will restructure the debt

[[Page 137]]

within 45 days after receipt of the written notice of the borrower's 
acceptance.
    (ii) If the borrower does not respond to exhibit F within 45 days, 
or declines the Agency's offer to restructure the debt without 
requesting an appeal or negotiation, the servicing official will send 
attachments 9 and 10, or 9-A and 10-A of exhibit A of this subpart, as 
applicable. If the borrower requests an appeal and the Agency is upheld, 
attachments 9-A and 10-A will not be sent until the borrower is given 
the opportunity to accept the original offer within 45 days following 
the final appeal decision. These borrowers will not have an additional 
opportunity to appeal the offer in attachments 9-A and 10-A. If 
attachment 10 or 10-A is not returned within 30 days of the borrower's 
receipt of the attachments, the account will be accelerated or 
foreclosed in accordance with Sec. 1955.15 of subpart A of part 1955 of 
this chapter.
    (iii) If the borrower submitted a new application and requests a 
negotiated appraisal within 30 days of receiving exhibit F, the 
negotiation of the appraisal will be completed in accordance with 
paragraph (i) of this section.
    (A) After completing a negotiation of the appraisal, if the debt can 
be restructured, the servicing official will send exhibit F to the 
borrower making the new offer in accordance with paragraph (h)(1)(i) of 
this section.
    (B) If the negotiated appraisal changes the DALR$ calculations so 
that the debt cannot be restructured, the borrower will be sent exhibit 
E, ``Notification of Adverse Decision for Primary Loan Servicing, 
Mediation or Meeting of Creditors and Other Options,'' in accordance 
with paragraph (h)(3) of this section. The appraisal cannot be 
negotiated again and is not subject to appeal.
    (2) Conservation contracts. If the borrower returned attachment 2 or 
4 to Exhibit A of this subpart within 60 days, requesting a conservation 
contract by submitting a map or aerial photo showing the portion of the 
farm and approximate acres to be considered in the request, the 
servicing official will proceed with processing the request for debt 
relief as set forth in Exhibit H of this subpart. Borrowers who did not 
previously ask for this option can make a request for the contract at 
this time by submitting a map or copy of an aerial photo indicating that 
portion of the farm and appropriate acres to be considered. Borrowers 
must submit the photo within 30 days of receiving Exhibit E of this 
subpart.
    (3) Mediation/voluntary meeting of creditors. If the DALR$ 
calculations indicate a feasible plan of operation cannot be developed 
considering all Primary Loan Service Programs, Softwood Timber, or 
Conservation Contracts, the servicing official will take the following 
actions within 15 days from the date of the determination that the 
borrower's debt cannot be restructured as requested:
    (i) Exhibit E, ``Notification of Adverse Decision for Primary Loan 
Servicing, Mediation or Meeting of Creditors and Other Options,'' of 
this subpart will be sent to the borrower in all cases by certified 
mail, return receipt requested. A printout of the DALR$ calculations 
will be attached to exhibit E of this subpart.
    (A) When the borrower is in a State with a USDA Certified Mediation 
Program, paragraph I in exhibit E will be used. Paragraph I tells the 
borrower that the Agency is requesting mediation with the borrower's 
creditors in an effort to obtain debt adjustment which would permit the 
development of a feasible plan of operation. If the borrower submitted a 
new application, the borrower must respond to exhibit E of this subpart 
if the borrower wants to negotiate the Agency's appraisal in accordance 
with paragraph (i) of this section. The borrower may request a copy of 
the Agency's appraisal. The Agency must participate in USDA Certified 
Mediation Programs whether or not the borrower responds to exhibit E of 
this subpart. Any negotiation of the appraisal must be completed prior 
to any mediation.
    (B) In States without a certified mediation program, exhibit E of 
this subpart will be sent by certified mail, return receipt requested, 
to inform the borrower about the applicable options which may include a 
request for a copy of the Agency's appraisal, a meeting of creditors, 
payment of nonessential assets, negotiation of the appraisal and a

[[Page 138]]

request for an independent appraisal. Paragraph I of exhibit E of this 
subpart will be deleted. The purpose of the voluntary meeting of 
creditors is to develop a feasible plan. Paragraph II of exhibit E of 
this subpart, therefore, will be used to offer a voluntary meeting of 
creditors when the borrower has undersecured creditors who hold a 
substantial part of the borrower's total debt. A ``substantial part of 
the borrower's total debt'' means that the debt of the undersecured 
creditors is large enough so that if it were written down to zero, a 
feasible plan could be developed considering all primary servicing 
options. The servicing official will document such determination in the 
case file, and the servicing official will not offer to carry out a 
voluntary meeting of creditors when the undersecured debt is not a 
substantial part of the borrower's total debt. Such borrower will be 
informed later of additional rights, including appeal rights, when the 
Agency sends attachments 5 and 6, or attachments 5-A and 6-A, of exhibit 
A of this subpart. Any appeal may challenge the Agency's determination 
not to offer a voluntary meeting of creditors because the undersecured 
debt is not a substantial part of the borrower's total debt.
    (C) Any negotiation of the Agency's appraisal must be completed 
prior to the meeting of creditors or mediation. If the borrower does not 
request any of the options offered in exhibit E of this subpart within 
45 days, the servicing official will send attachments 5 and 6, or 5-A 
and 6-A of exhibit A of this subpart, as applicable, certified mail, 
return receipt requested.
    (ii) If mediation or the voluntary meeting of creditors is held but 
is not successful, the borrower will be sent attachments 5 and 6, or 5-A 
and 6-A, of exhibit A of this subpart, as applicable, certified mail, 
return receipt requested, within 15 days of the unsuccessful mediation 
or meeting. The DALR$ computer printout will be attached to attachment 5 
or 5-A of exhibit A of this subpart.
    (4) Buyout of loans. The following notification and processing 
provisions also apply to buyout as offered in Attachments 5 and 5-A of 
Exhibit A of this subpart. After July 3, 1996, buyout will be at the 
Current Market Value (CMV) of the security.
    (i) Eligible borrowers will have 90 days after the receipt of the 
notification of ineligibility for Primary Loan Service programs to buy 
out their loans at Current Market Value, or the balance of their unpaid 
FLP debt, whichever is lower.
    (ii) The present value of the restructured loan must be less than 
the net recovery value to receive buyout.
    (iii) The Agency will not provide direct or guaranteed credit for a 
buyout.
    (iv) The borrower must never have received debt forgiveness on 
another direct loan. (Applies if any debt will be written off.)
    (v) The amount written off may not exceed $300,000.
    (vi) The borrower must have acted in good faith.
    (vii) Debt reduction received through conservation easements or 
contracts will not be counted toward the limitations in paragraphs 
(h)(4) (iv) and (v) of this section.
    (viii) The mortgage or deed of trust will be released in accordance 
with paragraph (k) of this section.
    (ix) The State Executive Director must approve the buyout prior to 
offering buyout to the borrower if the Agency will be writing off any 
debt.
    (i) Administrative appeals and negotiation of appraisals--(1) 
Appeals. The time limit to pay the current market value of the security, 
as set out in paragraph (h)(4) of this section, will start on the day 
the borrower receives the final appeal or review decision upholding the 
initial decision. The borrower will have conclusively presumed to have 
received that decision within 3 days of mailing.
    (2) Appeal process. (i) If the administrative appeal process results 
in a determination that the borrower is eligible for Primary Loan 
Servicing, the servicing official will process the request pursuant to 
Sec. 1951.909 of this subpart. The information used will be that which 
the appeal officer used in making the decision on the appeal, unless 
stated otherwise in the final appeal decision letter. In cases of debt 
restructure resulting from appeals, the interest rate will be the lesser 
of the current rate or the original note rate on

[[Page 139]]

the date of the closing of the transaction. If implementation of the 
appeal decision would cause writedown or writeoff of more than $300,000 
because of interest accrued after the adverse decision, the servicing 
official will process the action so as to complete the transaction.
    (ii) If the administrative appeal process results in a determination 
that the borrower is ineligible for Primary Loan Servicing, the 
servicing official will send Exhibit K and Attachment 1 of this subpart 
and continue processing any application for debt settlement that may 
have been submitted in accordance with subpart B of part 1956 of this 
chapter. If the borrower does not return Attachment 1 of Exhibit K 
within 15 days of the date that it is sent, the servicing official will 
continue to process the application for Preservation Loan Servicing and 
any debt settlement. The account will not be accelerated or foreclosure 
will not continue until the borrower has the opportunity to appeal any 
denial of the Preservation Loan Servicing and any Debt Settlement 
request. If the borrower returns Attachment 1 of Exhibit K within 15 
days of its mailing, the account will be accelerated.
    (3) Appraisal appeals. (i) Borrowers appealing the current market 
appraisal completed by the Agency may obtain an appraisal by an 
independent appraiser selected from a list of at least three names 
provided by the servicing official. A borrower who submitted a new 
application may appeal the Agency's appraisal, if it has not previously 
been negotiated under paragraph (i)(4) of this section, and the denial 
of other issues of Primary Loan Service programs in which the appraisal, 
as part of the NRV calculation, is relevant. The cost of the independent 
appraisal must be paid by the borrower. The borrower will, upon request, 
have access to the case file and receive a copy of the Agency's 
appraisal. The independent appraiser must be a State certified general 
appraiser.
    (ii) The appraisal report must conform to subpart E of part 1922 of 
this chapter for real estate and Form 440-21 for chattels.
    (iii) If either the servicing official or the borrower discovers any 
mathematical or property description errors in the appraisal prior to or 
at the time of the review and comparison, necessary corrections may be 
made if both parties agree. The party discovering the error must contact 
the other for a meeting to approve the corrections.
    (iv) If the Agency's appraisal and the borrower's independent 
appraisal vary in value by five percent or less, the borrower will 
select the appraisal to be used for servicing under this subpart.
    (4) Negotiation of appraisals. A borrower who submits a new 
application may request to negotiate the appraisal one time only. 
Negotiation of appraisals is offered in Exhibits E and F of this 
subpart, as discussed in paragraph (h) of this section. All appraisals 
used in the negotiations must reflect the value of the property as of 
the same time frame as the Agency's initial appraisal. Errors will be 
handled in accordance with paragraph (i)(3)(iii) of this section.
    (i) The borrower can request the list of independent appraisers from 
the servicing official on Attachment 2 of Exhibits E and F of this 
subpart. The borrower must provide the servicing official with a copy of 
his or her independent appraisal within 30 days of requesting 
negotiation. The borrower must pay for this independent appraisal. The 
borrower's independent appraiser and appraisal report must meet the 
qualifications described in paragraph (i)(3)(ii) of this section, but 
the independent appraiser need not be on the Agency's list of qualified 
appraisers. If the Agency's appraisal and the borrower's independent 
appraisal vary in value by five percent or less, the borrower will 
select the appraisal to be used for servicing under this subpart. No 
further negotiation will occur.
    (ii) If the two appraisals differ by more than five percent, the 
servicing official will give the borrower a list of qualified, 
independent appraisers. The borrower will select one appraiser from the 
Agency's list to conduct a third appraisal. The appraiser cannot have 
conducted either the Agency's or the borrower's independent appraisal, 
and must meet the qualifications set out in paragraph (i)(3) of this 
section. The borrower, the appraiser and the servicing official will 
complete and sign the

[[Page 140]]

Appraisal Agreement (Attachment 3 of Exhibit F of this subpart). The 
appraiser will be sent a copy of the appraisal standards, subpart E of 
part 1922 of this chapter, for real estate and Form 440-21 for chattels. 
The borrower will submit to the servicing official the original or a 
copy of the third appraisal and its attachments and the appraiser's 
bill. The Agency will pay 50 percent of the cost. The borrower is 
responsible for paying the appraiser directly the remaining 50 percent 
of the cost.
    (iii) Following the completion of the third appraisal, the three 
appraisals will be compared by the servicing official, who will average 
the two that are the closest in value. The average of the two closest in 
value will become the final appraised value. Errors will be handled in 
accordance with paragraph (i)(3)(iii) of this section.
    (j) Processing of writedown. 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 servicing official will complete 
exhibit D to this subpart, ``Shared Appreciation Agreement.'' Exhibit D 
provides for recapture as specified in 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 DALR$ computer program will 
be used to determine the notes to be written down.
    (1) A separate Form 1940-17, ``Promissory Note,'' will be used for 
each note or assumption agreement being reamortized.
    (2) A Form 1940-17 will be completed, signed, and distributed as 
provided in the FMI.
    (3) The loan servicing action date of approval is also the date that 
will be inserted on the rescheduled or reamortized Form 1940-17 in 
accordance with the provisions in the ADPS manual when establishing an 
equity record.
    (4) A Form 1940-17 may be processed provided the County Office has 
possession of the original note being reamortized. If the County Office 
does not have possession of the original note, the servicing official 
will ask the Finance Office to return the original note so that it is in 
the County Office before Form 1940-17 is processed.
    (5) The field office will process the reamortization or 
consolidation via the Automated Discrepancy Processing System (ADPS) in 
accordance with Form 1940-17, and complete exhibit D of this subpart.
    (6) The original (old) note(s) will be marked ``Rescheduled or 
Reamortized with Writedown of Debt'' and stapled to the new rescheduled 
or reamortized promissory note(s) and will be filed in the promissory 
note file in the operation file. Copies for the borrower(s) case file 
should be marked and stapled the same and filed in position 2 of the 
case file. If a transfer is involved, assumption agreement(s) will be 
marked and stapled with the note(s) and copies will be filed as 
indicated above.
    (7) A lien will be taken on assets in accordance with Sec. 1951.910 
of this subpart.
    (k) Real estate liens. The Agency's real estate liens will be 
maintained even if the writedown of the borrower's real estate debt 
results in all real estate debts to the Agency being written down. The 
Agency's real estate lien 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 current 
market value in a buyout, the original mortgage or deed of trust will be 
released on real estate for the FLP loans bought out. The notes will be 
marked ``Satisfied at Current Market Value'' and returned to the debtor 
or the debtor's legal representative. Existing 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 FLP 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 current market value in a buyout, the original security 
instruments will be released on chattel security for the

[[Page 141]]

FLP loans bought out. These notes will be marked ``Satisfied at Current 
Market Value'' and returned to the debtor or the debtor's legal 
representative.
    (m) Notes. Notes evidencing real estate debts written down in full 
or written off as a result of Primary Servicing will be returned to the 
debtor 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 market 
value buyout, the original and copies of the notes will be marked 
``Satisfied by Approved Current Market Value Buyout.'' For writedown in 
full, the original and copies of the notes will be marked ``Satisfied by 
Approved Debt Writedown.'' If a note is only partially written-down, it 
will be returned to the debtor when paid in full. The original and 
copies of such notes will be marked ``Satisfied by Approved Partial 
Writedown.'' Original chattel security notes will be marked ``Satisfied 
at Current Market Value'' and released to the debtor upon payment of 
their current market value in a buyout.
[62 FR 10124, Mar. 5, 1997]



Sec. 1951.910  Consideration of borrower's other assets for new applications.

    If a delinquent borrower has other assets that are not serving as 
collateral for the FLP debt, the servicing official will determine 
whether these assets are nonessential, as defined in Sec. 1951.906 of 
this subpart.
    (a) Nonessential assets. The net recovery value (NRV) of 
nonessential assets must be considered when the borrower's application 
is processed for loan servicing in accordance with this subpart. The 
Agency will not write down or write off any debt or portion of a debt 
that could be paid by liquidation of nonessential assets, or by payment 
of the loan value of the assets that could be received from non-Agency 
sources. The loan value of the assets will be considered as the same as 
the NRV of the assets.
    (1) Determining the value of nonessential assets. The NRV of the 
nonessential assets is the market value less any prior liens and any 
selling costs which may include such items as taxes due, commissions and 
advertising costs. The determination of NRV of nonessential assets does 
not include a deduction for carrying the property in inventory. The 
market value of the nonessential assets must be estimated by a current 
appraisal in accordance with subpart E of part 1922 of this chapter for 
real estate property, and on Form 440-21, ``Appraisal of Chattel 
Property,'' for chattels. Borrowers who disagree with the Agency's 
appraisal may request a negotiated appraisal or appeal in accordance 
with Sec. 1951.909(i) of this subpart.
    (2) Eligibility. If the NRV of the nonessential assets is sufficient 
to bring the delinquent FLP account current, the borrower is not 
eligible for primary loan servicing including buyout in accordance with 
this subpart. The borrower, instead, will be sent attachments 5-A and 6-
A of exhibit A of this subpart. The servicing official will indicate the 
values of both the NRV of nonessential assets and the FLP security on 
attachment 5-A. The borrower's nonessential assets and their NRVs also 
will be listed on attachment 5-A. The borrower will have 90 days to 
bring the FLP account current from the date of the receipt of 
attachments 5-A and 6-A. If the borrower does not pay current within 
this time period, the account will be accelerated after all appeal 
rights have been exhausted. If the NRV of the nonessential assets is not 
sufficient to bring the FLP account current, then the nonessential 
assets will be considered as set out in paragraph (a)(3) of this 
section.
    (3) Inclusion in NRV. If the NRV of the nonessential assets is not 
sufficient to bring the FLP account current, then the servicing official 
will add the NRV of these assets to the NRV of the FLP collateral 
according to Sec. 1951.909(f) of this subpart. The servicing official 
will encourage, but not require the borrower to liquidate those 
nonessential assets and apply the proceeds to his/her outstanding debts. 
If the borrower liquidates the nonessential assets, or obtains a loan 
against the equity in such assets, and pays the Agency the NRV of the 
nonessential assets within 45 days of receiving exhibit E or F of this 
subpart, as appropriate, the payment will be subtracted from the FLP 
debt and then the servicing official will

[[Page 142]]

recalculate the debt restructuring without considering the NRV of the 
nonessential assets. If the borrower does not sell these assets, the 
servicing official will include their NRV in calculating the debt 
restructuring and take a lien on the assets at the time of closing the 
restructured loan.
    (b) Lien on certain assets. Delinquent borrowers must pledge certain 
assets, essential and nonessential, unencumbered to the Agency as 
security at the time FLP loans are restructured, as follows:
    (1) The best lien obtainable will be taken on all assets owned by 
the borrower. When the borrower is an entity, the best lien obtainable 
will be taken on all assets owned by the entity, and all assets owned by 
all members of the entity. Different lien positions on real estate are 
considered separate and identifiable collateral.
    (2) Security will include, but is not limited to, the following: 
land, buildings, structures, fixtures, machinery, equipment, livestock, 
livestock products, growing crops, stored crops, inventory, supplies, 
accounts receivable, certain cash or special cash collateral accounts, 
marketable securities, certificates of ownership of precious metals, and 
cash surrender value of life insurance.
    (3) Security will also include assignments of leases or leasehold 
interests having mortgageable value, revenues, royalties from mineral 
rights, patents and copyrights, and pledges of security by third 
parties.
    (4) The exceptions set forth in Sec. 1941.19(c) of subpart A of part 
1941 of this chapter apply.
    (5) These assets will be considered as additional security for the 
loans as well as any shared appreciation agreement. The value of the 
essential assets will not be included in the NRV calculation to 
determine restructuring. The Agency's lien will be taken only at the 
time of closing the restructured FLP loans.
[62 FR 10132, Mar. 5, 1997]



Sec. 1951.911  Homestead protection.

    (a) General. If the Agency has only chattel property as security, 
preservation servicing will not be offered. Borrowers who submitted a 
complete application prior to April 4, 1996 will be considered for 
leaseback/buyback in accordance with the previous CFR volume containing 
revisions as of January 1, 1996 and Agency procedures, (available in any 
county office.) Inventory property which is located within the 
boundaries of an Indian reservation of a Federally recognized Indian 
Tribe and the previous owner is a member of the Indian Tribe that has 
jurisdiction over that reservation should be handled in accordance with 
Sec. 1955.66(d) of subpart A of part 1955 of this chapter.
    (b) Homestead protection. Borrowers and former borrowers who had or 
have an FLP loan secured by the real property containing the dwelling 
owned by them and used as their principal residence may apply for 
homestead protection before or after the Agency acquires the property. 
Real property that is in inventory as of the effective date of the 
statute or is acquired in the future will be considered for homestead 
protection as set forth in this subpart.
    (1) Purpose. The purpose of the Homestead Protection Program is to 
permit borrowers or former borrowers to retain their dwellings through a 
lease or purchase. Such lease or purchase could permit these individuals 
to have a home and providing an opportunity to continue to farm.
    (2) Notification and processing. If a feasible plan for 
restructuring debt cannot be developed using Primary Loan Service 
programs, the borrower will be advised by the use of Exhibit K with 
Attachment 1 of this subpart that the Agency will continue with the 
processing of Preservation Service programs, if applicable. A borrower 
who desires homstead protection must request it in accordance with 
Sec. 1951.907. A borrower who meets the eligibility requirements of 
paragraph (b)(3) of this section will be permitted to retain possession 
of the homestead, in accordance with paragraph (b)(2)(ii) of this 
section, before title is acquired or under a lease with an option to 
purchase after title is acquired.
    (i) Determining homestead protection property. (A) The homestead 
protection property will include the borrower's principal residence and 
not more than 10 acres of adjoining land that is used to maintain the 
borrower's family and

[[Page 143]]

a reasonable number of farm service buildings located on land adjoining 
the residence which are useful to the occupants of the dwelling.
    (B) The servicing official will review the proposed homestead 
protection property. If the servicing official does not agree with the 
proposed shape or size of the property, an alternate configuration will 
be negotiated with the borrower.
    (C) If the borrower and the servicing official cannot agree on the 
proposed shape and size of the property, the servicing official will 
make the determination.
    (D) When the size and shape of the property is agreed upon and the 
borrower has been found eligible, the servicing official will request a 
licensed surveyor to survey the property, have a legal description 
prepared, and mark the property lines with permanent type markers.
    (E) Appraisals will be completed in accordance with paragraphs 
(b)(6) and (b)(7)(ii)(B) of this section.
    (ii) Processing homestead protection before the Agency acquires 
title. (A) A borrower will be considered for homestead protection when 
it is determined that the Primary Loan Service programs cannot resolve 
the delinquency. To process an application, the borrower must indicate 
the buildings and land to be included in the request for homestead 
protection. If determined eligible for homestead protection, the 
borrower and the servicing official will enter into a Homestead 
Protection Program Agreement (Exhibit L of this subpart) to lease the 
property if and when the Agency acquires title. A copy of Form 1955-20, 
``Lease of Real Property,'' will be attached to the agreement as an 
exhibit.
    (B) Concurrently with the execution of the preacquisition Homestead 
Protection Program Agreement, the borrower will deliver a completed Form 
RD 1955-1 to the Agency. The Agreement is subject to the provisions of 
subpart A of part 1955 of this chapter. If the Agency acquires title 
during the processing of a preacquisition Homestead Protection 
Agreement, processing of the agreement will be terminated and the owner 
will be given homestead protection rights pursuant to paragraph 
(b)(2)(iii) of this section.
    (C) The Agency's obligation to lease the dwelling to the borrower 
will be contingent on the Agency's prior compliance with all State and 
local laws, ordinances and regulations governing the subdivision of 
land. If the Agency cannot satisfy the conditions within 2 years from 
the date of the agreement, the agreement (and the Agency's obligation to 
lease with option to purchase) will terminate. If an agreement has been 
entered into, but title to the property has not been conveyed to the 
Agency (or acquisition has been determined not to be in its financial 
interest), the Agency will continue with acceleration and foreclosure of 
the property. It is not the intent of the 2-year term of the agreement 
to limit the Agency's ability to foreclose on the property, provided 
that all the terms have been met except that title has not been 
conveyed.
    (iii) Application for homestead protection when the Agency acquires 
title. When the Agency acquires title to the farm property, the borrower 
will be sent Exhibit M of this subpart, by certified mail, return 
receipt requested, no later than the date of acquisition. The borrower 
must request homestead protection by notifying the servicing official in 
writing not later than 30 days after the date of acquisition and must 
provide the information set forth in Sec. 1951.907(e) of this subpart 
and indicate the buildings and land to be included in the request.
    (iv) Lease with option. A lease with an option to purchase will be 
entered into with an eligible borrower on Form 1955-20 after the Agency 
acquires title to the property. Form 1955-20 will be completed in 
accordance with Sec. 1951.911 (b)(8) of this subpart.
    (3) Eligibility. The servicing official will make the determination 
on eligibility. To qualify for homestead protection, the borrower must 
meet the following requirements:
    (i) An applicant must be an individual who is or was personally 
liable for the Farm Loan Programs (FLP) loan that was secured in part by 
the Homestead Protection property, or, if a non-borrower pledged the 
property to secure the FLP loan, the owner of the

[[Page 144]]

property. In either case, the applicant must be or have been the owner 
of the Homestead Protection property. A member of an entity who is or 
was personally liable for a loan that is or was secured by the Homestead 
protection property is considered an owner for homestead protection 
purposes, so long as either the member of the entity or the entity 
itself held fee title to the property.
    (ii) When more than one member of an entity was personally liable 
for an FLP loan, each such member who possessed and occupied a separate 
dwelling as his or her principal residence, on property that is or was 
security for the loan may apply separately for homestead protection of 
their individual dwellings;
    (iii) The applicant and any spouse must have received, from the 
farming or ranching operations, gross farm income reasonably 
commensurate with the size and location of the farm and reasonably 
commensurate with local agricultural conditions (including natural and 
economic conditions) in at least 2 calendar years during the 6-year 
period preceding the calendar year in which the application is made. 
Farms used for comparison purposes must be of similar size, type of 
operation and locality. For the purposes of Secs. 1951.911(b)(3) (iii) 
and (iv) of this subpart, income from farming or ranching operations 
will include rent paid by a lessee of agricultural land during any 
period in which the borrower, due to circumstances beyond his or her 
control, such as economic, natural disaster or health problems, was 
unable to actively farm that property. The borrower's records will be 
used in determining whether the gross farm income was reasonably 
commensurate with the farm size and location and local agricultural 
conditions. When applying for homestead protection, the borrower will 
give the servicing official at least 2 calendar years of records of 
planned and actual gross farm income for the 6-year period preceding the 
calendar year in which the application is made. If such records do not 
exist, they may be developed by the applicant and servicing official 
from information relating to yields, expenses and prices found in the 
borrower's county office case file, agency records, or other reliable 
sources;
    (iv) The applicant and any spouse must have received, from the 
farming or ranching operations, at least 60 percent of their gross 
annual income in at least 2 of the 6 calendar years preceding the 
calendar year in which the application is made;
    (v) The applicant must have continuously occupied the homestead 
protection property during the 6-year period preceding the calendar year 
in which the application is made, unless it was necessary to leave for a 
period of time not to exceed 12 months during the 6-year period due to 
circumstances beyond the borrower's control, such as illness, 
employment, or conditions that made the dwelling uninhabitable; and
    (vi) The applicant must have sufficient income to make rental 
payments for the term of the lease and the ability to maintain the 
property in good condition, and must agree to all the terms and 
conditions set forth in paragraph (b)(7) of this section and in Form 
1955-20.
    (4) Transfer of homestead protection. An applicant's right to 
request homestead protection and rights under the Agreement or lease 
entered into pursuant to this section are not transferable or assignable 
by the applicant or by operation of law, except that, in the case of 
death or incompetency of the applicant, such rights and agreements shall 
be transferable to the spouse upon agreement to comply with the terms 
and conditions of the lease.
    (5) Property requirements. (i) The proposed homestead protection 
property tract must meet all requirements for the division into a 
separate legal lot as required by State and local laws. All 
environmental considerations required under subpart G of part 1940 of 
this chapter will be complied with.
    (ii) Costs for a survey, legal description or other service needed 
to establish, appraise, define or describe the homestead protection 
property as a separate tract, will be paid for by the Agency. No repairs 
or improvements will be paid for by the Agency except as provided for in 
Sec. 1955.64 (a) of subpart A of part 1955 of this chapter.

[[Page 145]]

    (iii) If necessary, the Agency will grant or retain for the benefit 
of adjoining property reasonable easements for ingress, egress, 
utilities, water rights, etc.
    (6) Appraisal. The current market value of the homestead protection 
property shall be determined by an independent appraisal made within 6 
months from the date of the borrower's application for homestead 
protection. The applicant will select an independent real estate 
appraiser from a list of appraisers approved by the servicing official. 
The cost of such an appraisal will be handled in accordance with 
paragraph (b)(5)(ii) of this section.
    (7) Terms of the lease and exercising the option. (i) All leases 
will have an option to purchase. Any reference to a lease for homestead 
protection purposes will mean a lease with an option to purchase. The 
lease will be offered with an option to purchase on Form 1955-20 and 
will be for a period of not more than 5 years as requested by the 
applicant. A lease of less than 5 years may be extended, but not beyond 
5 years from the date of the beginning of the term of the original 
lease.
    (A) The amount of the rent will be based upon equivalent rents 
charged for similar residential properties in the area in which the 
dwelling is located.
    (B) Lease payments will be retained by the Government.
    (C) Failure to make lease payments as scheduled or to maintain the 
property in good condition shall constitute cause for the termination of 
all rights of the lessee to possession and occupancy of the dwelling and 
property under this section. If a lease default is not cured within 30 
days of notice, the servicing official will notify the lessee in writing 
of the termination of the lease and option.
    (D) Any interference by the lessee with the Government's efforts to 
lease or sell the remainder of farm inventory property shall constitute 
cause for the termination of all rights of the lessee to possession and 
occupancy of the dwelling and property including the right to exercise 
the option to purchase.
    (ii) Exercising the option to purchase.
    (A) The lessee may exercise the option in writing at any time prior 
to the expiration of the lease by delivering to the servicing official a 
signed, written statement notifying the Agency that the lessee is 
exercising the option to purchase the property. Failure to exercise the 
option within the lease period will end the lessee's rights under the 
option to purchase.
    (B) When the lessee exercises the option to purchase the property, 
the purchase price will be the current market value of the property. 
That value will be determined by an appraisal in accordance with 
paragraph (b)(6) of this section providing the appraisal is not more 
than 1 year old. If the appraisal is more than 1 year old, the current 
market value will be determined by a new appraisal requested in 
accordance with paragraph (b)(6) of this section.
    (C) At the time the lessee exercises the option, the lessee must 
notify the servicing official if he or she wants to purchase the 
property for cash or finance it through a credit sale from the Agency.
    (D) If a credit sale is involved, the applicant must furnish the 
servicing official the information required by Sec. 1951.907 (e) to 
assist in determining whether or not the applicant has adequate 
repayment ability.
    (8) Rates and terms for a credit sale. Terms for a credit sale of 
homestead protection property when the lessee is exercising the option 
to purchase will be in accordance with subpart J of this part.
    (9) Closing. A credit sale will be closed in accordance with subpart 
J of this part.
    (10) Conflict with State law. In the event of a conflict between a 
borrower's homestead protection rights and any provisions of the law of 
any State relating to the right of a borrower to designate for separate 
sale or redeem part or all of the property securing a loan foreclosed on 
by a lender, such provision of State law shall prevail. A State 
supplement will be prepared as necessary to supplement paragraph (b) of 
this section.
    (11) Servicing homestead protection loans. Homestead protection 
loans will

[[Page 146]]

be serviced as set forth in subpart J of this part.
[62 FR 10132, Mar. 5, 1997]



Sec. 1951.912  Mediation.

    (a) States with a USDA certified mediation program. The FmHA or its 
successor agency under Public Law 103-354 is required to participate in 
USDA Certified State Mediation Programs. The purpose of mediation is to 
participate with farm borrowers, and their creditors, in an effort to 
resolve issues necessary to overcome the borrower's financial 
difficulties. Any negotiation of an FmHA or its successor agency under 
Public Law 103-354 appraisal pursuant to Sec. 1951.909(i) of this 
subpart will be completed prior to mediation.
    (1) FmHA or its successor agency under Public Law 103-354 shall 
participate in a USDA Certified Mediation Program under the same terms 
and conditions as other creditors. Decisions will not be binding on FmHA 
or its successor agency under Public Law 103-354 unless approved by the 
representative assigned by FmHA or its successor agency under Public Law 
103-354 in accordance with paragraph (a)(4) of this section.
    (2) FmHA or its successor agency under Public Law 103-354 will pay 
the same mediation fees to the USDA Certified State Mediation Board that 
are charged to all creditors that participate in mediation. The 
Contracting Officer (CO) will complete Form AD-838, ``Purchase Order,'' 
to establish a mediation contract and submit Form FmHA or its successor 
agency under Public Law 103-354 838-B, ``Invoice-Receipt 
Certification,'' for payment upon receipt of an invoice from the 
Mediator or the Contracting Officer's Representative (COR) recommending 
payment.
    (3) Failure of creditors and/or borrowers to participate in 
mediation will not preclude FmHA or its successor agency under Public 
Law 103-354 from granting Primary Loan Service Programs to assist 
borrowers.
    (4) The FmHA or its successor agency under Public Law 103-354 State 
Director will designate a representative to represent FmHA or its 
successor agency under Public Law 103-354 in the mediation process. 
Authorities of the representatives can vary from complete authority to 
act for FmHA or its successor agency under Public Law 103-354, to a 
requirement for review and concurrence by the State Director or designee 
prior to approving a mediation agreement. The State Director will set 
forth in writing the specific authority delegated to the designated 
representative.
    (5) The FmHA or its successor agency under Public Law 103-354 State 
Director will arrange for adequate training for representatives 
designated to represent FmHA or its successor agency under Public Law 
103-354 in mediation.
    (6) When mediation is not successful in resolving the borrower's 
financial difficulty, the County Supervisor will send the borrower 
attachments 5 and 6, or 5-A and 6-A, of exhibit A of this subpart, as 
applicable.
    (7) The FmHA or its successor agency under Public Law 103-354 State 
Director will develop a State supplement that describes how FmHA or its 
successor agency under Public Law 103-354 will participate in the State 
Mediation Program. In developing the State supplement the State Director 
should confer with the State Attorney General's Office, farm 
organizations that are interested in the development of the State's 
Certified Agricultural Loan Meditation Program, and Departments of State 
Governments to ensure that all interested parties have input on the 
content of the State supplement. The State Director will consult with 
the Regional OGC as necessary to develop the State supplement. State 
supplements will be submitted to the National Office for post approval 
in accordance with FmHA or its successor agency under Public Law 103-354 
Instruction 2006-B (available in any FmHA or its successor agency under 
Public Law 103-354 office).
    (b) States without a Certified Mediation Program. To service those 
borrowers in States where there is no USDA Certified Mediation Program 
established, the State Director will provide the means of conducting a 
voluntary meeting of creditors, either with a mediator or a designated 
FmHA or its successor agency under Public Law 103-354 representative. 
``Creditors,'' for purposes of this paragraph, means all the borrower's 
undersecured creditors holding

[[Page 147]]

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;
    (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

[[Page 148]]

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 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;

[[Page 149]]

    (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 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) 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

[[Page 150]]

must be made by the borrower within 15 days of the receipt of the 
recapture due letter;
    (iv) Any appeal under this section will be concluded prior to any 
further action by FmHA or its successor agency under Public Law 103-354; 
and
    (v) If the borrower does not appeal within 30 days or does not pay 
the amount, FmHA or its successor agency under Public Law 103-354 will 
proceed as set forth in 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.
    (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.
[57 FR 18626, Apr. 30, 1992, as amended at 62 FR 10134, Mar. 5, 1997]

[[Page 151]]



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, 
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]



Secs. 1951.917--1951.949  [Reserved]



Sec. 1951.950  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget and 
have been assigned OMB control number 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 Servicing and Debt 
            Settlement Programs for Delinquent Farm Borrowers

    Dear (Borrower's Name):
    This notice is to inform you that you are behind with your loan 
payments and to inform you of your options.

[[Page 152]]

                  I. Loan Servicing Programs Available

    Primary loan servicing programs are intended to adjust the debt so 
that you can continue farming and the Agency will receive a better 
recovery on the money it loaned you.
    The Preservation loan servicing program (Homestead Protection) is 
intended to help farmers who may lose their land to the Agency get their 
home back through a lease with an option to buy.

                       II. Application Information

                               Time Limits

    You must notify the county office within 60 days of getting this 
notice if you want to be considered for these programs.

                              How to Apply

    To apply, you must complete and return the required forms enclosed 
with this notice, including your signed Acknowledgment Of Notice Of 
Program Availability within the 60-day time limit. The county office 
will process your completed forms and let you know if you qualify.
    Included With This Notice You Will Find:
    (1) A summary of primary loan servicing programs options;
    (2) A summary of the preservation loan servicing program;
    (3) A summary of debt settlement programs;
    (4) The forms you need to apply for services;
    (5) Information on how to get copies of the Agency's regulations;
    (6) A description of the National Appeals Division appeal process.

                    III. Foreclosure and Liquidation

            What Happens if You Do Not Apply Within 60 Days?

    The Agency will accelerate your loan if you continue to be 
delinquent or in nonmonetary default. Acceleration of your loan is very 
severe. This means the Agency will take legal action to collect all the 
money you owe them.
    After acceleration, the Agency will start foreclosure proceedings. 
They will repossess or take legal action to take any real estate, 
personal property, crops, livestock, equipment, or any other assets in 
which the Agency has a security interest. The Agency will also stop 
allowing you to use your crop, livestock, and milk checks to pay living 
and operating expenses. The Agency will also take by administrative 
offset money which other federal agencies owe you.
        Sincerely,

     Attachment 1--Primary and Preservation Loan Servicing and Debt 
                       Settlement Programs Purpose

                                 Purpose

    These programs are to help you repay the loan and keep your farm 
property and settle your Farm Loan Programs loan debt. This notice tells 
you:

(1) How To get more information
(2) How to apply
(3) Your appeal rights if you apply and are turned down

                       How To Get More Information

    Ask at any county office for copies of the rules describing these 
programs. These rules must be given to you within 10 days of when we 
receive your request.

                             Who Can Apply?

    All ``farm loan programs borrowers'' who have one of the following 
loans:

Operating (OL)
Farm Ownership (FO)
Emergency (EM)
Economic Emergency (EE)
Soil and Water (SW)
Recreation (RL)
Rural Housing Loans made for farm service buildings (RHF)
Economic Opportunity (EO)

    Borrowers that are current on their scheduled payments but are 
financially distressed through no fault of their own may be eligible for 
some assistance to restructure their debt.

                      You May Need Help in Applying

    The legal requirements for these programs are very complicated. You 
may need help to understand them. You may want to ask an attorney to 
help you. If you cannot get an attorney, there are organizations that 
give free or low-cost advice to farmers. Ask your State Department of 
Agriculture or the USDA Extension Service what services are available to 
your state.

    Note: Agency employees cannot recommend a particular attorney or 
organization.

                    I. Primary Loan Service Programs

                         (1) Loan Consolidation

    Two or more of the same type of loans can be combined into one 
larger loan. For example, operating loans can only be joined with 
operating loans.

                          (2) Loan Rescheduling

    The payment schedule can be altered to give you longer to repay 
loans secured by equipment, livestock, or crops. For example, the time 
for repayment of an operating-type loan can be extended up to 15 years 
from the

[[Page 153]]

date the loan is rescheduled. When a loan is rescheduled, the interest 
rate may be reduced.

                         (3) Loan Reamortization

    The payment schedule can be changed to give you longer to repay 
loans secured by real estate. For example, a Farm Ownership loan payback 
period may be extended to 40 years from the date the original loan was 
signed. When a loan is reamortized, the interest rate may be reduced.

                       (4) Interest Rate Reduction

                          Regular Interest Rate

    FSA has specific interest rates for each type of loan. These 
interest rates change quite often. They depend on what it costs the 
Government to borrow money. Each type of loan will have a regular rate.

                     Limited Resource Interest Rate

    If you have an Operating Loan (OL), Soil and Water (SW) loan or a 
Farm Ownership (FO) loan, it may be possible for you to get a ``limited 
resource interest rate.'' The limited resource interest rate can be as 
low as 5 percent. It changes quite often and depends on what it cost the 
Government to borrow money.

                    Interest Rate for Loan Servicing

    When loans are consolidated, rescheduled, or reamortized, the 
interest rate on the new loan will be either the interest rate on the 
original loan or the current regular rate of interest for that type of 
loan, whichever is less. The borrower may be able to get the limited 
resource interest rate on OL, SW, or FO loans.
    For information about current interest rates, contact the FSA county 
office.

                            (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 FSA determines options 
1-4 will not work for you.

                       (6) Softwood Timber Program

    Marginal land including highly erodible land and pasture can be 
planted in softwood timber. If you qualify, a debt of up to $1000 an 
acre can be deferred up to 45 years. Interest will be charged during the 
deferral period. The debt must be paid when the timber is sold.

                    (7) Conservation Contract Program

    You may enter into a contract with the Secretary of Agriculture to 
protect highly erodible land, wetlands, or wildlife habitat located on 
your property that serves as security for your farm loan debt. In 
exchange for the contract, FSA will reduce your FSA debt. The amount of 
land left after the contract must be enough to continue your farming 
operation.

                           (8) Debt Writedown

    This is not available to borrowers who are current in their loan 
payments or to borrowers who have had previous debt forgiveness on 
another direct loan.
    Debt writedown means the FSA debt you owe is reduced. FSA can reduce 
both the principal and interest of your debt. Your debt can be reduced 
to the recovery value.
    Recovery value. The recovery value is the fair market value of the 
collateral pledged as security for FSA loans minus all of the expenses 
such as sale costs, attorneys fees, management costs, taxes and payment 
of prior liens on the collateral that FSA would have to pay if it 
foreclosed on and sold the collateral. The fair market value of any 
collateral that is not in your possession and has not been released for 
sale by FSA in writing will also be used in determining recovery value.
    Also considered, will be the fair market value of any other assets 
that you may own that are not essential for family living or for farm 
operation, and are not exempt from your judgment creditors or in a 
bankruptcy action, minus the value of any creditors' prior security 
interests and your selling costs. The value of the collateral and any 
other assets must be decided by a qualified appraiser.
    In order to get debt writedown, you must show that after the 
writedown, you will have up to 110 percent, but not less than 100 
percent, of income available to pay all of your family living and 
farming operating expenses and scheduled debt payments. This means you 
must have a feasible plan of operation. FSA will not write down more of 
the debt than is necessary for you to show a feasible plan. You have the 
choice to select a smaller cash flow margin without a writedown. If you 
choose to do this, you will avoid taking your one time debt forgiveness 
as explained below.

[[Page 154]]

    The writedown is used only when the loan servicing programs listed 
in 1-7 above alone will not be enough for you to have a feasible plan. 
If you get writedown, some of the principal and interest on your loans 
will be written down in addition to changing the payback period, and 
possibly the interest rate, using 1-7 above.
    You can receive a writedown if you have not previously received any 
form of debt forgiveness from FSA on any other direct farm loan. The 
maximum debt that can be written down on all loans is $300,000.

          II. Who Can Qualify for Primary Loan Service Programs

    To qualify you must prove that:
    (1) You cannot repay your FSA debt due to circumstances beyond your 
control. If you have certain nonessential assets with a value high 
enough to bring your account current, then you are not eligible for 
Primary Loan Service Programs. These assets are only those that are not 
essential for necessary family living or for your farm operation. FSA 
cannot reduce or write off any of your debt that you could pay by 
selling any of these assets or borrowing against your equity in the 
assets.
    You must have had less income than expected due to such things as:

(a) A natural disaster, weather, or insect problems;
(b) Family illness or injury;
(c) Loss or reduction of off-farm income;
(d) Disease in your livestock;
(e) Low commodity prices and high operating expenses in your local area; 
or
(f) Other circumstances beyond your control.

    (2) You have acted in ``good faith'' to keep your agreements with 
FSA in that you have kept all written agreements with FSA including 
those for the use of proceeds and release of property used to secure the 
loan, and your file shows no fraud, waste, or conversion.
    You must agree to give FSA a lien on certain other assets for 
additional security for the FSA debt. If you are offered restructuring 
and accept the offer, you must provide this lien at closing.
    You must agree to meet, at your own cost, FSA's training 
requirements in production and financial management. The cost will be 
included in your farm plan as an operating expense. The training must be 
completed within 2 years from the date of restructuring. This 
requirement may be waived if you are able to demonstrate that you have 
adequate training in this area. To request a waiver of this training 
requirement, complete Form FmHA 1924-27, ``Request for Waiver of 
Borrower Training Requirements,'' and submit with your request for FSA 
servicing. This training requirement is not applicable if you have 
previously received a waiver or you have successfully completed the 
required FSA Borrower Training program.

                     Who Will Decide if You Qualify?

    The FSA servicing official will decide if you qualify. The servicing 
official will decide whether you can pay as much or more on the loan as 
FSA would get if they foreclosed and sold the collateral for the loan 
plus the value of any nonessential assets. To do this, the servicing 
official must decide whether the total payments of principal and 
interest on your adjusted debt will be at least as much as the 
``recovery value'' defined in part I above.

                  Can You Get Your Debts Written Down?

    Only if FSA will get as much or more by writing down part of your 
debt than through foreclosure or sale of the collateral for the loan and 
any nonessential assets. You also must be delinquent on your FSA debt 
payments.

             Conditions of the New Agreement if You Qualify

    You must sign a shared appreciation agreement for 10 years. Under 
the terms of the agreement:
     You must repay a part of the sum written down.
     The amount you must repay depends on how much your real 
estate collateral increases in value.
    During this 10 years, FSA will ask you to repay part of the debt 
written down if you do one of the following:

(1) Sell or convey the real estate
(2) Stop farming
(3) Pay off the entire debt

    If you do not do one of these things during the 10 years, FSA will 
ask you to repay part of the debt written down at the end of the 10 year 
period.
    FSA can only ask you to repay if the value of your real estate 
collateral goes up.
    If either 1, 2, or 3 above occurs in the first four years of the 
agreement, FSA will ask you to pay 75 percent of the increase in value 
of the real estate. In the last 6 years, you will be asked to pay only 
50 percent of the increase in value. FSA will not ask you to pay more 
than the amount of the debt written down.

                  Date To Begin Restructured Agreement

    If you are found eligible, you will be informed of the date for an 
appointment so your debt can be restructured. You must notify FSA that 
you accept its offer to restructure your debt within 45 days of when you 
receive the offer.

[[Page 155]]

                III. Preservation Loan Servicing Program

                                 Purpose

    This program applies when the primary loan service programs cannot 
help you.
    Homestead Protection. (Keeping your farm home.) You may lease your 
farm home, certain outbuildings and up to 10 acres of land. The lease 
time will be for up to 5 years. The lease will include an option for you 
to purchase the property you lease.

              IV. Who Can Qualify for Homestead Protection?

    (1) Your gross annual income from your farm or ranch must have been 
similar to other comparable operations in your area. This must be true 
for at least 2 years of the last 6 years.
    (2) Sixty percent (60%) of your gross annual income in at least 2 of 
the last 6 years must have come from the farming operation.
    (3) You must have lived in your homestead property for 6 years 
immediately before your application. If you had to leave for less than 
12 months during the 6-year period and you had no control over the 
circumstances, you still may qualify.
    (4) You must be the owner or former owner of the property.
    (5) If FSA has already taken your property, you must apply within 30 
days of the date FSA took your property.

                       How To Lease Your Dwelling

    (1) You may lease your home and up to 10 acres if you pay FSA 
reasonable rent. The rent prices FSA charges you will be similar to 
comparable property in your area.
    (2) You must maintain the property in good condition during the term 
of the lease.
    (3) You may lease for up to 5 years.
    (4) You cannot sublease your property.
    (5) If you do not keep up your rental payments to FSA, FSA will 
force you to leave.
    You can buy back your homestead property at current market value at 
any time during the lease. FSA may place an easement on your property to 
protect and restore any wetlands or converted wetlands. Current market 
value will be decided by an independent appraiser. The appraisal will be 
made within 6 months of your application for homestead protection. The 
appraised value of your property will reflect the value of the land 
after any placement of a wetland conservation easement.
    You should be aware that any real property, located in special areas 
or having special characteristics, which comes into FSA's inventory, may 
have restrictions or easements placed on the property which prevent your 
use of all or a portion of the property, should you choose to lease or 
buy your former dwelling. These restrictions and encumbrances will be 
placed in leases and in deeds on properties containing wetlands, 
floodplains, endangered species, wild and scenic rivers, historic and 
cultural properties, coastal barriers, and highly erodible soils.

                      V. Debt Settlement Programs.

                                 Purpose

    These programs apply after it has been determined that primary loan 
service programs cannot help you. You may be eligible for both debt 
settlement and homestead protection. If you do not have FSA collateral 
you will need to apply for debt settlement only. Under these programs, 
the debt you owe FSA may be settled for less than the amount you owe. 
You may apply for debt settlement at any time by submitting an 
application for debt settlement on Form FmHA 1956-1. These programs are 
subject to the discretion of the agency and are not a matter of 
entitlement or right.

                           Programs Available

    (1) Compromise offer: A lump-sum payment of less than the total FSA 
debt owed.
    (2) Adjustment offer: One or more payments of less than the total 
amount owed to FSA. Your payments can be spread out over a maximum of 
five years if FSA decides you will be able to make the payments as they 
become due.
    (3) Cancellation: The final settlement of a debt without any 
payment. FSA must decide there is no FSA security or other asset from 
which FSA can collect. You must be unable to pay any part of the debt 
now or in the future.

                          Approval Requirements

    If you sell your collateral, you must apply the proceeds from the 
sale to your FSA account before you can be considered for debt 
settlement. In the case of compromise and adjustment, however, you may 
keep your collateral if you are unable to pay your total FSA debt and 
pay FSA the present fair market value of your collateral along with any 
additional amount you are able to pay as determined by FSA. You will be 
allowed to retain a reasonable equity in essential nonsecurity property 
to continue your normal operations and meet minimum family living 
expenses. FSA will not finance a compromise or adjustment offer.
    All debt settlements of FLP loans must be recommended by the County 
Committee with a finding that the statements on your application are 
true. The committee must certify that you do not have assets or income 
in addition to what you stated in your application. You must also have 
not previously received any form of debt forgiveness from FSA on any 
other direct farm loan. If you qualify, your application must also be

[[Page 156]]

approved by the FSA State Executive Director or the FSA Administrator 
depending on the amount of the debt to be settled.

 VI. How to Apply for Primary and Preservation Loan Servicing Programs.

                Application Forms and Information Needed

    The forms set out below should be included with this notice. If they 
are not, you can obtain them from the FSA county office or as directed 
below.
    (1) Attachment 2 or 4 of Exhibit A Response form to apply for loan 
services.
    (2) FmHA 410-1 Application for FSA Services (The financial statement 
on this form must include information no more than 90 days old. The 
financial statement must be for all individuals and entities personally 
liable for the FSA debt.
    (3) FmHA 431-2 Farm and Home Plan, or other acceptable plan of 
operation. The commodity prices to use for this plan of operation or 
Farm and Home Plan are included with the form. You may request the 
servicing official to assist you in completing your plans.
    (4) FmHA 440-32 Request for Statement of Debts and Collateral. 
Complete the name and address of the creditor, account number, if 
applicable, and your name. All parties liable to the creditor must sign 
and date the forms. FSA will obtain the creditor information.
    (5) FmHA 1910-5 Request for Verification of Employment. Complete 
employer's name and address, employee's name and address, social 
security number, sign and date. FSA will send the form to your employer 
to obtain the needed information.
    (6) SCS-CPA-026 Highly Erodible Land and Wetland Conservation 
Determination (This form must be obtained from and completed by the 
Natural Resources Conservation Service office, if not already on file 
with FSA.)
    (7) AD-1026 Highly Erodible Land Conservation (HELC) and Wetland 
Conservation (WC) Certification (You will be required to complete this 
form in the FSA office if the one you have on file does not reflect all 
the land you own and lease.)
    (8) FmHA 1960-12 Financial and Production Farm Analysis Summary 
(Complete the backside of the form or other similar type worksheets to 
provide production and expense history for crops, livestock, livestock 
products, etc. for each of the five years immediately preceding the year 
of application or the years you have been farming, whichever is less and 
if not already in the FSA case file. You must be able to support this 
information with farm or income tax records.)
    (9) Copies of income tax records and any supporting documents for 
the last five years immediately preceding the year of application if not 
already on file with the FSA county office. (If you have been farming 
for less than 5 years, submit the tax records for the tax years 
immediately preceding the year of application during which you farmed. 
If copies of tax records are not readily available, you can obtain 
copies from the Internal Revenue Service (IRS).)
    (10) Map or aerial photo of your farm from FSA or Natural Resources 
Conservation Service if you are applying for the conservation contract 
program. (Identify on the map or photo the portion of the land and 
approximate number of acres to be considered in the contract.)
    (11) RD 1956-1 Application for Settlement of Indebtedness (Complete 
this form only if you wish to apply for debt settlement.)

   Time to Apply for Primary and Preservation Loan Servicing Programs

    To apply, you must complete the appropriate forms and return them 
and the required information to the FSA county office within 60 days 
from the date you received this notice.

  VII. What Happens When You Are Not Eligible for Primary Loan Service 
                                Programs?

    If the servicing official decides you are not eligible, you may 
request a meeting with that official so the official can explain the 
decision.
    If you do not agree with the FSA servicing official's decision, you 
can tell the official why. If you can make the necessary realistic 
changes to your Farm and Home Plan to show a feasible plan, you should 
show these changes to the servicing official.

                      Negotiation of the Appraisal

    A negotiation of the appraisal is a process whereby the borrower 
objects to the FSA appraisal, obtains an independent appraisal at the 
borrower's own costs, pays one-half of the cost for a third appraisal, 
and the average of the two appraisals closest in value is taken as the 
final appraised value to be used in considering restructuring. In all 
cases of primary and preservation loan servicing where the borrower 
presents an independent appraisal which is conducted by a qualified 
appraiser and is within 5 percent of the value of the FSA appraisal, the 
borrower must choose one of these two appraisals for the servicing 
official to use to continue processing the request. Negotiation of 
appraisal may affect your right to appeal the appraisal.

                You May Request Mediation of Other Loans

    If you cannot show a feasible farm plan because you owe too much to 
other creditors and suppliers, FSA will help you try to get your other 
creditors to adjust your debts. This will be done by FSA asking for 
mediation if your State has a mediation program approved by the United 
States Department

[[Page 157]]

of Agriculture. If there is no State mediation program, FSA will try to 
set up a meeting with your other creditors and suppliers if it can be 
shown that a reduction in these debts can provide a feasible farm plan.

                      You Have the Right to Appeal

    Appeal. Appeal rights will be provided to you after FSA has made a 
decision on your request for primary loan servicing. If you first 
request a meeting with the servicing official instead of an appeal, the 
time for requesting an appeal will be extended until you are advised of 
the results of your meeting. You will be provided with the address of 
USDA's National Appeals Division. Your request for an appeal must be 
postmarked no later than 30 days from the date you received the agency's 
adverse decision. If you disagree with FSA's determination that any 
determination is not appealable, you may request a determination of 
appealability from the National Appeals Division.

   You May Buyout (Pay Off) Your Loan at the ``Current Market Value''

    (1) Current market Value. If the analysis of your debt shows that 
you cannot ``cash flow'' even if your debt to FSA is reduced to the 
value of the collateral, the servicing official will advise you in 
writing that you can buyout the loan by paying the ``current market 
value'' minus any prior liens. The current market value is determined by 
a current appraisal completed by a qualified appraiser.
    (2) Limits. You may receive a buyout if you have not previously 
received any form of debt forgiveness from FSA on any other direct farm 
loan. The maximum debt that can be written off with buyout is $300,000.
    (3) Eligibility. To qualify you must prove that:
    You cannot repay your FSA delinquent debt and the reason you cannot 
repay was due to circumstances beyond your control,
    You have acted in good faith, and
    The value of your restructured loan is less than the recovery value.
    (4) Time Limit. If you want to buy out your farm loan debt at the 
current market value, you must pay FSA within 90 days of the date you 
receive the offer. If you appeal the servicing official's decision not 
to give you primary loan servicing, this 90 days will not start until 
the administrative appeal process ends.
    (5) Cash. If you pay off the loan at the current market value, you 
must pay in cash. FSA will not make or guarantee a loan for this 
purpose.

           Consideration for Preservation Loan Service Program

                         (Homestead Protection)

    You will be considered for homestead protection if:
    (1) You applied for primary loan servicing as required and did not 
qualify.
    (2) You do not appeal your primary loan servicing denial, or do not 
win your appeal.
    (3) You do not pay off the loan through buyout.
    (4) You agree to give FSA title to your land at the time FSA signs 
the written homestead protection agreement with you. FSA will not accept 
title and will deny your preservation request if it is not in FSA's best 
financial interest to accept title. FSA will compute the costs of taking 
title including the cost of paying other creditors who have outstanding 
liens on the property. FSA will take title only if it can obtain a 
recovery on its cost. Any written agreement for preservation loan 
servicing will include the amount you must pay for rent, the number of 
years you can rent, and an option to purchase the property at the fair 
market value at the time you exercise the option to purchase.
    (5) You must request Homestead Protection within 30 days of FSA 
obtaining title to the property.

               Consideration for Debt Settlement Programs

    If you wish to be considered for debt settlement, you will need to 
request and return a completed Form RD 1956-1. You may request debt 
settlement at any time. Usually, the most appropriate time for making 
this request is when FSA has determined that Primary Loan Servicing 
options will not provide the best net recovery to the Government and you 
are requesting preservation loan servicing. If you no longer have any 
security remaining for the outstanding FSA loans, you may want to 
request debt settlement instead of primary and preservation loan 
servicing.

VIII. What Happens When You Are Turned Down for Homestead Protection or 
                        Debt Settlement Programs?

    If FSA decides that you cannot get homestead protection or debt 
settlement you can ask for
    (1) A meeting with FSA to discuss the decision, or
    (2) Appeal the determination.

                         The Right to a Meeting

    The servicing official will send you a letter telling you why FSA 
decided not to give you homestead protection or debt settlement. That 
letter will give you 15 days to ask for a meeting with FSA.

[[Page 158]]

                         The Right to an Appeal

    Appeal rights will be provided to you after FSA has made a decision 
on your request for homestead protection. If you first request a meeting 
with the servicing official instead of an appeal, the time for 
requesting an appeal will be extended until you are advised of the 
results of your meeting. You will be provided with the address of USDA's 
National Appeals Division. Your request for an appeal must be postmarked 
no later than 30 days from the date you received the final 
determination.
    On appeal, you can contest FSA's rental amount and its decision not 
to give you homestead protection. You can also contest FSA's decision to 
reject your debt settlement application.

                    IX. Acceleration and Foreclosure

    If you do not appeal an adverse determination or if you are denied 
relief on appeal, FSA will accelerate your loan account and make demand 
for payment of the whole debt. FSA will stop allowing you to use any of 
your crop, livestock, and milk checks, on which they have a claim, to 
pay for living and operating expenses. FSA will repossess the collateral 
or start legal foreclosure or liquidation proceedings to take and sell 
the collateral, including your equipment, livestock, crops, and land. 
FSA will also take by administrative offset money which FSA and other 
Federal Government agencies owe you.
    FSA may refrain from taking these actions if you agree to do one, or 
a combination of the following actions, within an agreed upon time, with 
FSA's approval:
    (1) Sell all the collateral for the loan at market value.
    (2) Convey (legally transfer) the collateral to FSA.
    (3) Apply to transfer the collateral to someone else and have that 
person assume all or part of the FSA debt. (This is called transfer and 
assumption.)
    If any of these options result in payment of less than you owe, you 
may apply or reapply for debt settlement. You may apply or reapply for 
homestead protection even if you applied before and were not accepted. 
However, applications for homestead protection or debt settlement filed 
after the 60-day time period provided in this notice will not delay 
acceleration, offset, and foreclosure.

     Attachment 2--Acknowledgment of Notice of Program Availability

    I have been given a notice explaining the primary and preservation 
loan service and debt settlement programs.
    The date on the notice was ________________.
    This notice explained that FSA programs are available to help me 
keep my property or settle my debt with FSA.
    I ask FSA to consider me for all of these programs.
    I understand that I will be notified of my rights to appeal after 
FSA decides on my request.

 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

Dear
    FSA has reviewed your loan account. Our record shows:
[  ] You are now $________ behind on your payments. This is a violation 
of your loan agreement.
[  ] 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.)
[  ] You have stopped farming or ranching. This is a violation of your 
loan agreement.
[  ] A foreclosure action has been filed against you by ____________. 
This is a violation of your loan agreement.

 [  ] You have__________________________________________________________
 _______________________________________________________________________
(Insert reasons for proposed action.)

                     FSA Will Accelerate Your Loans

    FSA will take legal action to collect the money you owe. They will 
foreclose on real estate and repossess equipment and other property used 
to secure your loans. They will also stop the release of money from the 
sale of crops or other property. They will take by administrative offset 
money you are owed by other Federal agencies.

          Steps You Can Take Before FSA 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 FSA's records, as indicated on this Notice, are 
wrong. You can also suggest things you can do to correct these problems, 
so as to avoid acceleration and foreclosure. You can request loan 
servicing, debt settlement and a meeting at the same time. For example, 
if this Notice states that you are delinquent, and also have disposed of 
property without FSA's written consent, you can request servicing to 
deal with the delinquency problem and request a meeting on the question 
of unauthorized disposition of property. Please read the section on debt 
settlement programs for guidance in requesting

[[Page 159]]

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 the preservation loan servicing program;
    (3) A summary of all debt settlement programs;
    (4) Copies of the forms needed to apply; and
    (5) Advice on how to get copies of FSA regulations.

                   Purpose of Primary Service Programs

    These loan service programs are to help you repay the loan and keep 
your farm property.

            Purpose of the Preservation Loan Service Program

    This program is intended to help farmers who may lose their land to 
FSA to get their home back, either by purchase or through a lease with 
an option to purchase.

                   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 no longer have 
FSA collateral you will need to apply for debt settlement only. Under 
these programs, the debt you owe FSA may be settled for less than the 
amount you owe. You may apply for debt settlement at any time by 
requesting and submitting an application for debt settlement on Form RD 
1956-1.

                     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 receiving this notice.

                           Right to a Meeting

    You have the right to meet with your FSA servicing official before 
they decide to accelerate your loan. You must check the box on 
Attachment 4 saying you want a meeting. (Attachment 4 is the ``Response 
to Notice of Intent to Accelerate and Notice of Borrower Rights.'')

                        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.

                           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 or debt settlement.

                        How to Ask for an Appeal

    Your request for appeal must be in writing and sent directly to the 
National Appeals Division, (NAD), NAD Area Director's address>. Your 
letter must describe FSA's decision and why you believe the decision was 
not correct. In order for this decision to be changed, you will have to 
show why the decision should be reversed. Mail a copy of your request to 
the FSA county office. Your request for appeal must be postmarked no 
later than 30 days from the date you receive this notice.


    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 for those programs.


    If you do not ask for a meeting to try and resolve the issues, you 
will not get another chance later.

                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. If you believe that you have 
been discriminated against for any of these reasons, you can write the 
Secretary of Agriculture, Washington, D.C. 20250.
    You cannot be denied a loan because you exercised your rights under 
the Consumer Credit Protection Act. You must have exercised these rights 
in good faith. The Federal Agency responsible for seeing this law is 
obeyed is the Federal Trade Commission, Washington, DC 20580.
        Sincerely,

    Attachment 4--Response to Notice Informing Me of FSA's Intent To 
                           Accelerate My Loan

                           Notice of My Rights

                         TO: Farm Service Agency

 FROM:__________________________________________________________________
        (Please print your name and address.)
    I have read the notice informing me of FSA's intent to accelerate my 
loan which I received with this form.

[[Page 160]]

    I want to: (Check one or more of the following boxes).
    [  ] 1. Request a meeting with the FSA servicing official.
    My phone number is ____________.
    I must return this form in 15 days. I understand I do not lose my 
right to appeal by asking for a meeting.
    [  ] 2. Be considered for all primary and preservation loan service 
and debt settlement programs. I must return this form along with all 
applicable forms in 60 days.
    I understand that if I want to appeal FSA's decision to accelerate 
my loan, I must send a letter requesting an appeal to the National 
Appeals Division. My letter must describe FSA's decision and why I 
believe the decision was not correct. I should also send the FSA county 
office a copy of my appeal request. I understand that I will be 
contacted by the National Appeals Division to set up the appeal hearing 
date and give me more information. My request for an appeal must be 
postmarked no later than 30 days from the date I received this notice.

 Date:__________________________________________________________________

 Signature:_____________________________________________________________
            (Sign here.)

Attachment 5--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. [  ] FSA has reviewed your application for primary loan servicing 
(debt restructuring) and based upon the information available, you are 
not eligible.
    Your Farm and Home Plan does not show you can pay all your family 
living expenses, farm operating expenses, and scheduled debt repayments 
even with FSA help.
    The attached computer printout shows that in order to develop a 
feasible plan and receive primary loan servicing, you would need to 
increase your cash available to pay your debts by $________.
    II. [  ] FSA has reviewed your application and your case file. You 
have broken your agreement with FSA. Your Farm and Home Plans shows you 
can pay all of your family living expenses, farm operating expenses, and 
scheduled debt repayments if FSA uses primary loan servicing, softwood 
timber, and conservation contract programs to restructure your loans.
    You have broken loan agreements with FSA in the following way:
    [  ] You are $________ behind in your scheduled loan payments.
    [  ] You have sold or otherwise disposed of property you used to 
secure the FSA loan without proper approval from FSA. This property is 
______________________________
         (Describe property.)___________________________________________
    [  ] You no longer are farming or ranching.
    [  ] You have
 _______________________________________________________________________
    III. [  ] You have already received your lifetime limit of at least 
one form of debt forgiveness on other direct loans.

                      IV. FSA Intends to Foreclose

    FSA will accelerate your loan because you are not eligible for 
primary loan servicing.
    FSA will take legal action to collect the money you owe.
    FSA may:
    (1) Repossess and sell your equipment, crops, livestock, livestock 
products, and other personal property used to secure your FSA loan;
    (2) Foreclose and sell your real estate mortgaged to FSA;
    (3) Stop any release of money from the sale of crops, livestock, 
livestock products, or other property you need to live and operate your 
farm;
    (4) Take by administrative offset any money you are owed by Federal 
agencies;
    (5) File lawsuits to collect money you owe to FSA.

                 V. What You Can Do to Stop Foreclosure

    Before FSA can take action against you, you can:
    (1) Request a meeting with the FSA servicing official.
    If you disagree with FSA's decision that you broke your loan 
agreement or the decision not to give you debt restructuring, you should 
request a meeting with the FSA servicing official. The servicing 
official can explain the FSA decision. You can also present changes in 
your Farm and Home Plan which may show that you can make the amount of 
payment listed above in Section I.
    To ask for this meeting, check the box #1 on the Response Form: 
(Attachment 6).
    Time limit: You must return the ``Response Form'' to the county FSA 
office within 15 days from the date you get this letter. You should also 
call the county office to set up the meeting.
    (2) Appeal.
    You may appeal FSA's decision. On appeal, you may challenge the ways 
FSA says you broke your loan agreement. You may also challenge FSA's 
decision that you cannot present a feasible Farm and Home Plan for 
primary loan servicing if your notice states FSA believes you cannot 
present a feasible plan.
    You may also ask for an independent appraisal of your property used 
to secure the FSA loan. This independent appraisal may be important if 
you think FSA has put too high or too low a value on your property when 
it considered you for primary loan

[[Page 161]]

servicing. You will have to pay for this appraisal. FSA will give you 
three names of appraisers to choose from. Check box #2 on the ``Response 
Form'' if you want the independent appraisal.
    If you request a meeting with the FSA servicing official, you will 
be given another chance to appeal after that meeting. If you do not want 
to request the meeting but do want to appeal, you must send a letter 
requesting appeal directly to the National Appeals Division, (NAD), NAD 
Area Director's address>. Your letter must describe FSA's decision and 
why you believe the decision was not correct. In order for this decision 
to be changed, you will have to show why the decision should be 
reversed. Mail a copy of your request to the FSA county office. Your 
request for appeal must be postmarked no later than 30 days from the 
date you receive this notice.
    If you want to request a meeting and appeal at the same time, you 
must request the meeting on the ``Response Form'' and appeal in writing 
to NAD.
    (3) Buy Out the Loan at the Current Market Value.
    You have this option if you meet the eligibility requirements and 
the recovery value is greater than the value of the restructured loan. 
The recovery value is $________. The restructured loan value is 
$________.
    You [may] or [may not] buy out your FSA loans at the current market 
value of the property securing the loan, minus prior liens, in the 
amount of $________. (This amount could change if the prior lien 
indebtedness changes before the buyout date.)


    Note: The attached computer printout summarizes FSA's calculations.


    If you are eligible and pay the buyout amount, FSA will write off 
the rest of your debt.
    Time Limit. If you are eligible and want to buy out your FSA debt, 
you must pay FSA the above amount within 45 days from the date you 
received this letter. You must pay FSA in cash, legal money order, or 
certified check.
    If you appeal FSA's adverse decision, the 45-day period to buy out 
will not start until all of the appeals are completed. Check box #3 on 
the ``Response Form'' if you want to buy out.

               (4) Consideration for Homestead Protection

    After all appeals are concluded, and your time to buy out, if 
eligible, has expired, FSA will automatically consider you for Homestead 
protection if your home is mortgaged to FSA. [You applied for this 
program when you applied for primary loan servicing (debt 
restructuring).] FSA will notify you that it will be considering you for 
this program and will request some additional information when the time 
comes to consider you.

       VI. What Happens If You Do Not Cure Your Default or Buyout?

    If you do not cure your default or buyout, FSA will accelerate or 
continue with acceleration of your FSA debts. This is a very severe 
action. FSA will take any of the actions listed above to collect on your 
debt.

                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. If you believe you have been 
discriminated against for any of these reasons, you can write the 
Secretary of Agriculture, Washington, DC 20250.
    You cannot be denied a loan because you exercised your rights under 
the Consumer Credit Protection Act. You must have exercised these rights 
in good faith. The Federal Agency responsible for seeing that this law 
is obeyed is the Federal Trade Commission, Washington, DC 20580.
    Sincerely,

     Attachment 5-A--Notice of Intent To Accelerate or To Continue 
              Acceleration and Notice of Borrowers' Rights

  (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. [  ] FSA has reviewed your application for primary loan servicing 
(debt restructuring) and based upon the information available, you are 
not eligible.
    Your Farm and Home Plan does not show you can pay all your family 
living expenses, farm operating expenses, and scheduled debt repayments 
even with FSA help.
    The attached computer printout shows that in order to develop a 
feasible plan and receive primary loan servicing, you would need to 
increase your cash available to pay your debts by $________.
    II. [  ] FSA has reviewed your application and your case file. Your 
Farm and Home Plans shows you can pay all of your family living 
expenses, farm operating expenses, and scheduled debt repayments if FSA 
uses primary loan servicing, softwood timber, and conservation contract 
programs to restructure your loans.
    But you have not acted in good faith.
    You have broken loan agreements with FSA in the following way:
    [  ] You are $________behind in your scheduled loan payments.

[[Page 162]]

    [  ] You have sold or otherwise disposed of property you used to 
secure the FSA loan without proper approval from FSA.
 This property is_______________________________________________________
 _______________________________________________________________________
,FP        (Describe property.)______________________________
    [  ] You no longer are farming or ranching.
 [  ] You have__________________________________________________________
 _______________________________________________________________________
    III. [  ] FSA has reviewed your application and case file. You have 
sufficient nonessential assets to bring your FSA account current. The 
net recovery value (NRV) of the nonessential assets is $________. 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 FSA account current is $______.
    If you intend to sell the nonessential assets or borrow against 
their value to obtain the money to pay FSA current, you must do so 
immediately so that you can pay FSA current within 90 days from the date 
you receive this letter.
    If you do not pay FSA current within 90 days or appeal this adverse 
decision (see part VI of this notice), FSA will accelerate your account 
(see part V). If you appeal the decision, the 90-day period to pay FSA 
current will not start until all the appeals are completed. You must 
check the appropriate block on the response form and return it to FSA 
within the specified time limit. Since FSA believes you have sufficient 
nonessential assets to bring your FSA account current, you are not now 
eligible for buyout (option 3 on Attachment 6-A). If you disagree, see 
part VI for an explanation of your rights.
    IV. [  ] You have already received your lifetime limit of at least 
one form of debt forgiveness for which you are entitled.
    [  ] Your writedown or writeoff of debt exceeded $300,000.

                       V. FSA Intends to Foreclose

    FSA will accelerate your loan because you are not eligible for 
primary loan servicing.
    FSA will take legal action to collect the money you owe.
    FSA may:
    (1) Repossess and sell your equipment, crops, livestock, livestock 
products, and other personal property used to secure your FSA loan;
    (2) Foreclose and sell your real estate mortgaged to FSA. This could 
include your dwelling, if it was used to secure your farm loan;
    (3) Stop any release of money from the sale of crops, livestock, 
livestock products, or other property you need to live and operate your 
farm;
    (4) Take by administrative offset any money you are owed by Federal 
agencies;
    (5) File lawsuits to collect money you owe to FSA.

                 VI. What You Can Do To Stop Foreclosure

    Before FSA can take action against you, you can:
    (1) Pay your FSA account current.
    (2) Request a meeting with the FSA servicing official.
    If you disagree with FSA's decision that you broke your loan 
agreement or the decision not to give you debt restructuring, you should 
request a meeting with the FSA servicing official. The servicing 
official can explain the FSA decision. You can also present changes in 
your Farm and Home Plan which may show that you can make the amount of 
payment listed above in section I.
    To ask for this meeting, check the box #1 on the Response Form: 
(Attachment 6-A).
    Time limit: You must return the ``Response Form'' to the county FSA 
office within 15 days from the date you get this letter. You should also 
call the county office to set up the meeting.
    (3) Appeal.
    You may appeal FSA's decision. On appeal, you may challenge the ways 
FSA says you broke your loan agreement. You may challenge FSA's decision 
that you cannot present a feasible Farm and Home Plan for primary loan 
servicing if your notice states FSA believes you cannot present a 
feasible plan. You may challenge FSA's decision that you are ineligible 
for debt restructuring because you have already received a writedown, 
buyout, or other form of debt forgiveness from FSA on another direct 
farm loan.
    If you did not previously negotiate your appraisal, you may ask for 
an independent appraisal of your property including any nonessential 
assets that FSA says you own. This independent appraisal may be 
important if you think FSA has put too high or too low a value on your 
property. You will have to pay for this appraisal. The FSA servicing 
official will give you a list of three appraisers to choose from. Check 
box #2 on the ``Response Form'' if you want the independent appraisal. 
If the FSA appraisal contains mathematical or property description 
errors, you and the servicing official 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 FSA appraisal, you must select which of the two 
appraisals you want FSA to use for your

[[Page 163]]

request. This will be the final appraisal. It cannot be appealed.
    If you request a meeting with the FSA servicing official, you will 
be given a chance to appeal after that meeting. If you do not want to 
request the meeting but do want to appeal, you must send a letter 
requesting appeal directly to the National Appeals Division, NAD Area 
Director's address>. Your letter must describe FSA's decision and why 
you believe the decision was not correct. In order for this decision to 
be changed, you will have to show why the decision should be reversed. A 
copy of your request should be sent to the FSA county office. Your 
request for an appeal must be postmarked no later than 30 days from the 
date you received this notice.
    If you want to request a meeting and appeal at the same time, you 
must request the meeting on the ``Response Form'' and appeal in writing 
to NAD.

            (4) Buy Out the Loan at the Current Market Value.

    You have this option if the recovery value is greater than the value 
of the restructured loan, you cannot repay your FSA debt due to 
circumstances beyond your control, and you have acted in good faith and 
tried to keep your loan agreements with FSA. The recovery value in this 
case is $________. The restructured loan value is $________.
    In addition, buyout is subject to certain lifetime limitations 
regarding the maximum amount and number of benefits that can be 
received. A further explanation of these limits can be found in the 
Primary and Preservation Loan Service and Debt Settlement Programs 
Purpose notice which was sent to you earlier.
    You [may] or [may not] buy out your FSA debt at the current market 
value of the property securing the loan and any nonessential assets, 
minus prior liens, in the amount of $______. (This amount could change 
if the prior lien indebtedness changes before the buyout date.)

    Note: The attached computer printout summarizes FSA's calculations.

    If you are eligible and pay the buyout amount, FSA will write off 
the rest of your debt up to $300,000.
    Time Limit. If you are eligible and want to buy out your FSA debt, 
you must pay FSA the above amount within 90 days from the date you 
received this letter. You must pay FSA in cash, legal money order, or 
certified check.
    If you appeal FSA's adverse decision, the 90-day period to buy out 
will not start until all of the appeals are completed. Check box 3 on 
the ``Response Form'' if you want to buy out.

     (5) Consideration for Homestead Protection and Debt Settlement.

    After all appeals are concluded and your time to buyout, if 
eligible, has expired, FSA will automatically consider you for Homestead 
protection if your home is mortgaged to FSA. [You applied for this 
program when you applied for primary loan servicing (debt 
restructuring).] FSA will notify you that it will be considering you for 
this program and will request some additional information when the time 
comes to consider you. If you applied for Debt Settlement by returning 
Form FmHA 1956-1, will also consider you for this option at this time. 
If you did not apply for Debt Settlement before, you can apply now. 
Copies of Form FmHA 1956-1 are available at your FSA County Office.

       VII. What Happens if You do Not Cure the Default or Buyout?

    If you do not cure the default or buyout, or if you do not respond 
to this letter by completing and returning the enclosed Attachment 6-A, 
FSA will accelerate or continue with acceleration of your FSA debts. 
This is a very severe action. FSA will take any of the actions listed in 
section V above to collect on your debt.

                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. If you believe you have been 
discriminated against for any of these reasons, you can write to the 
Secretary of Agriculture, Washington, D.C. 20250.
    You cannot be denied a loan because you exercised your rights under 
the Consumer Credit Protection Act. You must have exercised these rights 
in good faith. The Federal Agency responsible for seeing this law is 
obeyed is the Federal Trade Commission, Washington, DC 20580.
    Sincerely,

    Attachment 6--Response to Notice Informing Me of FSA'S Intent To 
    Accelerate or Continue With Acceleration and Notice of My Rights

                         TO: Farm Service Agency

 FROM:__________________________________________________________________
        (Please print your name and address.)
    I have read the notice informing me of FSA's intent to accelerate or 
continue with acceleration of my loan which I received with this 
response form.
    I want to:

[[Page 164]]

                    [Check appropriate box or boxes.]

    [  ] (1) Request a meeting with an FSA servicing official.
    My current telephone number is ____________.
    I understand that I do not lose my appeal rights by asking for this 
meeting.
    [  ] (2) Request an independent appraisal of my property that 
secures the FSA loans.
    I understand that I must pay for this appraisal. I understand that 
the FSA servicing official will give me the names of three appraisers, 
from which I must choose one.
    [  ] (3) Buy out my loan at the current market value.
    I understand that I must pay FSA ________ in cash, certified check, 
or legal money order. I understand I should contact the servicing 
official when I am ready to pay this amount as it may be different if my 
prior lien indebtedness changes before the buyout date. I understand 
that I must pay FSA within 45 days of the date I received this letter, 
or if I appeal, I must pay within 45 days from the adverse decision on 
appeal. I understand that if I pay this amount FSA will write off the 
rest of my debt.
    I understand that if I want to appeal FSA's decision to accelerate 
my loan, I must send a letter requesting an appeal to the National 
Appeals Division. My letter must describe FSA's decision and why I 
believe the decision was not correct. I should also send the FSA county 
office a copy of my appeal request. I understand that I will be 
contacted by the National Appeals Division to set up the appeal hearing 
date and give me more information. My request for an appeal must be 
postmarked no later than 30 days from the date I received this notice.
 Borrower's signature___________________________________________________

 Date___________________________________________________________________

   Attachment 6-A--Response to Notice Informing Me of FSA'S Intent To 
    Accelerate or Continue With Acceleration and Notice of My Rights

                         TO: Farm Service Agency

 FROM:__________________________________________________________________
        (Please print your name and address.)
    I have read the notice informing me of FSA's intent to accelerate or 
continue with acceleration of my loan which I received with this 
response form.
    I want to:

                    [Check appropriate box or boxes.]

    [  ] (1) Request a meeting with an FSA servicing official.
    I must return this ``Response Form'' within 15 days to request a 
meeting.
    My current telephone number is ____________.
    I understand that I do not lose my appeal rights by asking for this 
meeting.
    [  ] (2) Request an independent appraisal of my property including 
any nonessential assets.
    I must return this ``Response Form'' within 30 days to request an 
independent appraisal.
    I understand that I must pay for this appraisal. I understand that 
the FSA servicing official will give me names of three appraisers, from 
which I must choose one if I am also requesting an appeal.
    [  ] (3) Buy out my loans at the current market value.
    I understand that I must pay FSA $____________ in cash, certified 
check, or legal money order. I understand I should contact the servicing 
official when I am ready to pay this amount as it may be different if my 
prior lien indebtedness changes before the buyout date. I understand 
that I must pay FSA within 90 days of the date I received this letter, 
or if I appeal the FSA decision, I must pay within 90 days from the end 
of the appeal of the FSA decision.
    [  ] (4) Pay my FSA account current.
    I understand that I must pay FSA $____________ to pay my account 
current. I will pay this amount to FSA within 90 days of the date I 
received this letter, or if I appeal the FSA decision, I will pay within 
90 days from the end of the appeal process on the FSA decision. I 
understand that when I pay this amount FSA will continue with my 
account.
    I understand that if I want to appeal FSA's decision to accelerate 
my loan, I must send a letter requesting an appeal to the National 
Appeals Division. My letter must describe FSA's decision and why I 
believe the decision was not correct. I should also send the FSA county 
office a copy of my appeal request. I understand that I will be 
contacted by the National Appeals Division to set up the appeal hearing 
date and give me more information. My request for an appeal must be 
postmarked no later than 30 days from the date I received this notice.
 Borrower's signature___________________________________________________
 Date___________________________________________________________________

                      Attachment 7 and 8--Obsolete

     Attachment 9--Notification of Intent To Accelerate or Continue 
             Acceleration of Loans and Notice of Your Rights

                            Name and Address

                                  Date

    Dear (Borrower's Name):
    FSA will accelerate your loan because you have not asked or have not 
accepted the offer for primary loan service programs.
    You can:
    (1) Ask for meeting with your FSA servicing official.
    (2) Appeal FSA's decision.

[[Page 165]]

    (3) Ask to voluntarily convey to FSA the property used to secure 
your loan and ask to be released from your debt.
    (4) Ask to keep your home if the FSA acquires ownership of it.
    You are behind with your payments to FSA, and a review of your 
account shows:
    [  ] You are ____________ behind in your FSA loan payments.
    This is a violation of your loan agreement.
    [  ] You have sold or otherwise disposed of property used to secure 
your FSA loan. You did not get written approval for this.
 The property is________________________________________________________
 _______________________________________________________________________
        (Describe property.)
      [  ] You are no longer farming or ranching.
    This is a violation of your loan agreement.
 [  ] You have__________________________________________________________
 _______________________________________________________________________
        (Insert reason for proposed action.)

                     FSA Will Accelerate Your Loans

    FSA will take legal action to collect the money you owe. They will 
foreclose on real estate and other property used to secure your loans. 
They may also stop the release of money from the sale of crops or other 
property. They will take by administrative offset any money you are owed 
by other Federal agencies.

 Steps You Can Take Before FSA Accelerates or Continues Acceleration of 
                               Your Loans

    (1) Ask for a meeting. You can ask to meet with your FSA servicing 
official before they decide to accelerate or continue acceleration of 
your loan. You must check the box on Attachment 10 saying you want a 
meeting. [Attachment 10 is the ``Response to Notice of Intent to 
Accelerate or Continue Acceleration of My Loan.'']
    How Soon Must I Ask for a Meeting? You must ask for a meeting within 
15 days from the date of this notice. Check the box on Attachment 10. 
Return it to your county office. Do this as soon as possible.
    (2) Appeal. You can ask for an administrative appeal. On appeal, you 
can contest FSA's decision to accelerate or continue acceleration of 
your loan. You can ask for an independent appraisal of your land. You 
will have to pay for this appraisal. FSA will give you three names of 
approved appraisers to choose from. Check box 3 if you want an 
independent appraisal.
    You can ask for an administrative appeal, even if you have asked for 
a meeting and your problems were not resolved at that meeting. However, 
you only have the opportunity to appeal an issue once. For example, if 
you previously appealed or had the opportunity to appeal a favorable 
debt restructuring offer and were not successful on appeal, or did not 
appeal within the time alloted, you cannot appeal this offer again. You 
can ask for an appeal even if you do not have a meeting.
    How to Ask for an Appeal. Your request for appeal must be in writing 
and sent directly to the National Appeals Division, (NAD), NAD Area 
Director's address>. Your letter must describe FSA's decision and why 
you believe the decision was not correct. In order for this decision to 
be changed, you will have to show why the decision should be reversed. 
Mail a copy of your request to the FSA county office. Your request for 
appeal must be postmarked no later than 30 days from the date you 
receive this notice.
    What Happens if You Do Not Respond? If you do not respond to this 
notice by filling out Attachment 10, or requesting an appeal, FSA will 
accelerate or continue acceleration of any loans. This means they will 
take legal action to collect the unpaid loan, including foreclosure as 
described above.


    Note: Foreclosure means you lose the title to your land. But you can 
still apply for homestead protection to keep possession of your house. 
[See Exhibit A, Attachment 1 sent to you on ________. 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 all or a part of your 
income is from a public assistance program. If you believe you have been 
discriminated against for any of these reasons, you can write to the 
Secretary of Agriculture, Washington, D.C. 20250.
    You cannot be denied a loan because you exercised your rights under 
the Consumer Credit Protection Act. You must have exercised these rights 
in good faith. The Federal Agency responsible for seeing this law is 
obeyed is the Federal Trade Commission, Washington, DC 20580.
    Sincerely,

    Attachment 9-A--Notification of Intent To Accelerate or Continue 
             Acceleration of Loans and Notice of your Rights

    (To Be Used for Borrowers Receiving Notices on or After November 
                                28,1990)

                            Name and Address

    Date
    Dear (Borrower's Name):
    FSA will accelerate your loan because you have not asked or have not 
accepted the offer for primary loan service programs.
    You can:

[[Page 166]]

    (1) Ask for meeting with your FSA servicing official.
    (2) Appeal FSA's decision.
    (3) Ask to voluntarily sign over to FSA the property used to secure 
your loan and ask to be released from your debt.
    (4) Ask to keep your home if the FSA acquires ownership of it.
    You are behind with your payments to FSA, and a review of your 
account shows:
    [  ] You are $____________ behind in your FSA loan payments.
    This is a violation of your loan agreement.
    [  ] You have sold or otherwise disposed of property used to secure 
your FSA loan. You did not get written approval for this.
 The property is________________________________________________________
 _______________________________________________________________________
(Describe property.)
    [  ] You are no longer farming or ranching.
    This is a violation of your loan agreement.
 [  ] You have__________________________________________________________
 _______________________________________________________________________
    (Insert reason for proposed action.)

                     FSA Will Accelerate Your Loans

    FSA will take legal action to collect the money you owe. They will 
foreclose on real estate and other property used to secure your loans. 
They may also stop the release of money from the sale of crops or other 
property. They will take by administrative offset any money you are owed 
by other Federal agencies.

 Steps You Can Take Before FSA Accelerates or Continues Acceleration of 
                               Your Loans

    (1) Ask for a meeting. You can ask to meet with your FSA servicing 
official before they decide to accelerate or continue acceleration of 
your loan. You must check the box on Attachment 10-A saying you want a 
meeting. [Attachment 10-A is the ``Response to Notice of Intent to 
Accelerate or Continue Acceleration of My Loan.'']
    How Soon Must I Ask for a Meeting? You must ask for a meeting within 
15 days from the date of this notice. Check the box on Attachment 10-A. 
Return it to your county office. Do this as soon as possible.
    (2) Appeal. You can ask for an administrative appeal. On appeal, you 
can contest FSA's decision to accelerate or continue acceleration of 
your loan. You can ask for an administrative appeal, even if you have 
asked for a meeting and your problems were not resolved at that meeting. 
However, you only have the opportunity to appeal an issue once. For 
example, if you previously appealed or had the opportunity to appeal a 
favorable debt restructuring offer and were not successful on appeal, or 
did not appeal within the time alloted, you cannot appeal this offer 
again. You can ask for an appeal even if you do not have a meeting.
    How to Ask for an Appeal. Your request for appeal must be in writing 
and sent directly to the National Appeals Division, (NAD), NAD Area 
Director's address>. Your letter must describe FSA's decision and why 
you believe the decision was not correct. In order for this decision to 
be changed, you will have to show why the decision should be reversed. 
Mail a copy of your request to the FSA county office. Your request for 
appeal must be postmarked no later than 30 days from the date you 
receive this notice.
    What Happens if You Do Not Respond? If you do not respond to this 
notice by filling out Attachment 10-A, or request an appeal, FSA will 
accelerate or continue acceleration of any loans. This means they will 
take legal action to collect the unpaid loan, including foreclosure as 
described above.


    Note: Foreclosure means you lose the title to your land. But you can 
still apply for homestead protection to keep possession of your house. 
[See Exhibit A, Attachment 1 sent to you on ________. 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 all or a part of your 
income is from a public assistance program. If you believe you have been 
discriminated against for any of these reasons, you should write to the 
Secretary of Agriculture, Washington, DC 20250.
    You cannot be denied a loan because you exercised your rights under 
the Consumer Credit Protection Act. You must have exercised these rights 
in good faith. The Federal Agency responsible for seeing this law is 
obeyed is the Federal Trade Commission, Washington, DC 20580.
    Sincerely,

   Attachment 10--Response to Notice Informing Me of FSA'S Intent To 
              Accelerate or Continue To Accelerate My Loan

                           Notice of My Rights

                         TO: Farm Service Agency

 FROM:__________________________________________________________________
          (Please print your name and address.)
    I want to: (Check one or more of the following boxes)
    [  ] (1) Request a meeting with the FSA servicing official.
    My telephone number is ____________.
    I understand I do not lose my right to appeal if I ask for a 
meeting.

[[Page 167]]

    [  ] (2) Voluntarily sign over to FSA all the property used to 
secure my loan and settle my debt.
    [  ] (3) Request an independent appraisal of property securing my 
loans. I understand I must pay for this appraisal. I understand FSA will 
give me names of three qualified appraisers.
    [  ] (4) Homestead Protection.
    I understand that if I want to appeal FSA's decision to accelerate 
my loan, I must send a letter requesting an appeal to the National 
Appeals Division. My letter must describe FSA's decision and why I 
believe the decision was not correct. I should also send the FSA county 
office a copy of my appeal request. I understand that I will be 
contacted by the National Appeals Division to set up the appeal hearing 
date and give me more information. My request for an appeal must be 
postmarked no later than 30 days from the date I received this notice.
 Signed_________________________________________________________________
 _______________________________________________________________________
Date____________________________________________________________________

  Attachment 10-A--Response to Notice Informing Me of FSA'S Intent To 
              Accelerate or Continue To Accelerate My Loan

  (To Be Used for Borrowers Receiving Notices on or After November 28, 
                                  1990)

                           Notice of My Rights

                         TO: Farm Service Agency

 FROM:__________________________________________________________________
          (Please print your name and address.)
    I want to: (Check one or more of the following boxes)
    [  ] (1) Request a meeting with the FSA servicing official.
    My telephone number is ____________.
    I must return this form within 15 days.
    I understand I do not lose my right to appeal if I ask for a 
meeting.
    [  ] (2) Voluntarily sign over to FSA all the property used to 
secure my loan and settle my debt.
    [  ] (3) Homestead Protection.
    I understand that if I want to appeal FSA's decision to accelerate 
my loan, I must send a letter requesting an appeal to the National 
Appeals Division. My letter must describe FSA's decision and why I 
believe the decision was not correct. I should also send the FSA county 
office a copy of my appeal request. I understand that I will be 
contacted by the National Appeals Division to set up the appeal hearing 
date and give me more information. My request for an appeal must be 
postmarked no later than 30 days from the date I received this notice.
 Signed_________________________________________________________________
 Date___________________________________________________________________
[62 FR 10134, Mar. 5, 1997]

  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 Farm Service Agency (FSA) can approve 
your request for primary loan servicing programs.
    Our calculations indicate that you will be able to make the 
necessary annual payment on your FSA loan if your loan is restructured 
through the use of primary loan servicing programs. The attached 
computer printout indicates the primary loan servicing program that will 
help you overcome your financial difficulty and provide the greatest net 
recovery to the Government. Therefore, We are offering to restructure 
your FSA debt in the following fashion:
 _______________________________________________________________________
________________________________________________________________________
    * As a condition of this restructuring, you must agree to meet, at 
your own cost, FSA's training requirements which provide instruction in 
production and financial management within 2 years of the date your 
loans are restructured. The cost will be included in your farm plan as 
an operating expense. Upon completion of the training, the instructor 
will assign a score according to the following criteria:

                                  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 or did 
not attempt to complete assignments. In general, the borrower did not 
make a good faith effort to complete the training.
    Attached is a list of courses you will be required to complete to 
fulfill the training requirement. A list of approved vendors in your 
area for these courses is also attached. Any denial of a request for a 
waiver of the training requirement is not appealable. If you fail to 
complete the training as agreed, you will be ineligible for future FSA 
benefits including future direct and guaranteed loans, Primary Loan 
Servicing, Interest Assistance renewals, and restructuring of guaranteed 
loans.
    * The County Committee has waived the training requirement for the 
restructuring offered in this notice.

[[Page 168]]

    If you want FSA to use the primary servicing program identified on 
the computer printout, you must accept this offer in writing. Your 
acceptance must be received by FSA not later than 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, FSA will renotify you of all servicing options 
available at that time.
Sincerely,
    * Indicates optional paragraphs to fit the individual circumstances.

        Attachment 1--Acceptance of Offer to Restructure My Debt

                                 (Date)

                         TO: Farm Service Agency

               FROM: (Please print your name and address)

    I have received your offer to restructure my FSA debt. I would like 
to accept that offer.
    Sincerely,

                         (Borrower's signature)

 _______________________________________________________________________
(Date)
[62 FR 10143, Mar. 5, 1997]

           Exhibit C--Net Recovery Buyout Recapture Agreement

    In consideration of the Farm Service Agency (FSA) allowing me to 
purchase the real estate property securing my FSA Farm Loan Programs 
loan obligations at the net recovery value of $ ______ in accordance 
with 7 CFR part 1951, subpart S, I 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 I 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 FSA 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 FSA at the net recovery value. This mortgage 
or deed of trust will be released 2 years from the date of this 
agreement if I do not sell or convey the property during the two year 
period.
    I understand that the difference between the net recovery value of 
the real estate securing the FSA loan obligations and the fair market 
value of the real estate security specified above will all be due and 
payable on the day of sale or conveyance if I sell or otherwise convey 
the real estate property within two (2) years from the date of this 
agreement, if I realize a gain in this transaction.
    Loan Balance $ ________.
    Amount of Buyout $ ________.
 _______________________________________________________________________
Date of Agreement

 _______________________________________________________________________
Borrower
[62 FR 10144, Mar. 5, 1997]

          Exhibit C-1--Net Recovery Buyout Recapture Agreement

                                 Purpose

    This agreement with FSA will allow you to buy out your loan at the 
net recovery value.
    1. I ________________ understand and agree to the following 
conditions.
    2. I will give FSA a lien (mortgage or deed of trust) on the FSA 
real estate security property I own to secure this agreement.
    The lien is to secure the maximum recapture amount listed in item 
6.c. of this agreement. This lien is secondary to the following liens, 
including any lien used to obtain the net recovery buyout amount up to 
the net recovery value.
 _______________________________________________________________________
(name, address, and unpaid balance of liens)
    3. I agree that if I do not sell or convey any portion of the real 
estate used as security for 10 years, the agreement and any liability 
you have under it will be satisfied at the end of 10 years, and then FSA 
will release its lien.


    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 or Purchase Agreement, foreclosure, and below-fair-market 
sale, but does not include a mortgage or deed of trust. Transfer of 
title to property to a spouse or child who is actively engaged in 
farming the property upon the death or retirement of a borrower will not 
be treated as a conveyance. In such a transaction, FSA will not release 
its lien, and the transferee will assume liability under the agreement.


    4. I agree that as of the date of this agreement, the net recovery 
value of the real estate is $ ________.
    5. I agree that as of the date of this agreement, the total amount 
of the FSA debt secured by real estate including principal and interest 
before buyout is $ ____________.
    6. If I do sell or convey any part or all of this real estate within 
10 years of this agreement, I must pay FSA the recapture amount for that 
part sold or conveyed which is the smaller of a., b., or c.
    a. The Fair Market Value of the real estate parcel at the time of 
the sale or conveyance, as determined by an FSA appraisal, minus

[[Page 169]]

that portion of the recovery value of the real estate represented in 
item 4,
    b. The Fair Market Value of the real estate parcel at the time of 
the sale or conveyance, as determined by an FSA appraisal, minus the 
unpaid balance of prior liens at the time of the sale or conveyance, 
minus the net recovery value of the real estate in item 4 if this amount 
has not been accounted for as a prior lien, or
    c. The total amount of the FSA debt written off for loans secured by 
real estate.
    I agree that the amount in Item 5 is the outstanding balance of 
principal and interest owed on the FSA Farm Loan Programs loans as of 
the date of this agreement, minus the net recovery value of the real 
estate in item 4. This amount is $ ____________ and is the maximum 
amount that can be recaptured.
    7. When I pay the recapture amount due, FSA will release its lien on 
the property sold or conveyed. The agreement and any liability I have 
under it will be satisfied at the end of 10 years if I have made all the 
required payments under the recapture agreement. The agreement and any 
liability I have under it will be satisfied before this time only if I 
sell or convey all of the real estate securing this agreement and make 
all the required payments under the agreement.
    8. This agreement is subject to FSA regulations in 7 CFR part 1951, 
subpart S, and any future regulations which are consistent with this 
agreement.
    9. The date of this agreement is the latest date of the dates below.
 igned__________________________________________________________________
(borrower or obligor)
 Date___________________________________________________________________
 Signed_________________________________________________________________
(borrower or obligor)
 Date___________________________________________________________________
 _______________________________________________________________________
(FSA)
 Date___________________________________________________________________
[62 FR 10144, Mar. 5, 1997]

                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)
 _______________________________________________________________________

[[Page 170]]

    (Farmers Home Administration or its successor agency under Public 
Law 103-354)
[53 FR 35718, Sept. 14, 1988]

Exhibit E--Notification of Adverse Decision for Primary Loan Servicing, 
           Mediation or Meeting of Creditors and Other Options

    (Borrower's Name and Address)
    Dear (Borrower's Name):
    The Farm Service Agency (FSA) has carefully considered your request 
for primary loan servicing programs. Due to your debt with lenders other 
than FSA, you are unable to develop a feasible plan. Your Farm and Home 
Plan must show that you have enough income after payment of your 
essential living and operating expenses and other non-FSA debts to make 
an annual payment to FSA of at least $ ____________. The attached 
computer printout shows that in order to develop a feasible plan and 
receive primary loan servicing, you would need to increase your cash 
available to pay FSA and your other debts by $ ____________.
    If you did not previously request a Conservation Contract, you may 
request this servicing action by submitting a map or FSA aerial photo 
indicating that portion of the farm and the appropriate acres to be 
considered. You must submit this information to FSA within 30 days of 
receiving this notice.
    (To be used when Certified State Mediation is available)

                        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 FSA of at least $______, FSA will 
reconsider your application for primary loan servicing.
    (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

    If you request, we will schedule a meeting with you and your other 
creditors in an effort to reach agreements with them to adjust your 
debts sufficiently to permit you to develop a feasible plan of 
operation. The FSA State Executive Director will contract for a mediator 
or appoint an FSA representative not previously involved in servicing of 
your account upon your written request to participate in the meeting 
with creditors. Sign the attached acknowledgement within 30 days of the 
date of this letter. The acknowledgment will be your written request and 
consent to FSA releasing information concerning your account to other 
creditors who participate in the meeting.
    (To be used when Certified State Mediation is not available and 
undersecured creditors do not hold a substantial part of the total 
borrower's debt.)
    We will not be scheduling a meeting with you and your other 
creditors in an effort to reach agreements with them to adjust your 
debts. We have determined that your other creditors do not hold a 
sufficient amount of your total debt to permit you to develop a feasible 
plan of operation even if their debts are entirely written off. You may 
object to our determination not to give you a voluntary meeting of 
creditors in any appeal you may have. You will be notified of your 
appeal rights in a later notice.
    (The following paragraphs will be removed if the application was 
submitted before November 28, 1990, or the borrower does not have any 
nonessential assets.)

                           Nonessential Assets

    FSA has determined that you have nonessential assets that do not 
contribute income to pay essential family living and farm operating 
expenses. The net recovery value (NRV) of the nonessential assets has 
been added to the NRV of the FSA collateral for the calculation on the 
attached printout. The NRV of the nonessential assets is $________. Your 
nonessential assets and their NRVs are as follows:

                           Nonessential Assets

 _______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

                                  NRVs

 _______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
    FSA encourages you to sell the nonessential assets or borrow against 
their value. If you pay the NRV of the nonessential assets on your FSA 
debt, that amount will be subtracted from your debt and FSA will 
reevaluate your servicing request. If you are going to pay FSA the NRV 
of your nonessential assets, you must do so within 45 days of the date 
of receiving this letter. You must check the appropriate block on the 
response form and return it to FSA within 45 days with $________ for 
payment of the NRV of the nonessential assets. If you want to reduce the 
NRV, you must pay FSA before any mediation or meeting of creditors.
    If you wish to dispute FSA's decision that you own nonessential 
assets, you will be

[[Page 171]]

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 FSA appraisal of your property, you may ask the 
FSA by returning the ``Response Form'' to negotiate the appraisal with 
you. You must ask to negotiate the FSA appraisal within 30 days from the 
date you receive this notice. To do this you must provide FSA with a 
copy of your current independent appraisal or you must now obtain, at 
your cost, an independent appraisal of your property. The appraisal and 
the appraiser must meet certain standards published in FSA regulations.
    If you do not have a current independent appraisal and wish FSA to 
assist you, check option 2 of the ``Response Form'' and FSA will provide 
you with a list of such appraisers.
    You must provide FSA a copy of your independent appraisal within 30 
days of requesting negotiation.
    If your current independent appraisal is within five percent of the 
FSA appraisal, you must select which appraisal of the two you want FSA 
to use in processing your request. The appraisal you select will be the 
final appraisal. It cannot be further negotiated or appealed. If the 
difference is more than five percent and you have requested a negotiated 
appraisal, you and FSA will choose an independent appraiser to complete 
a third appraisal. You must pay one-half of the cost of the third 
appraisal. FSA will pay for the other half of the third appraisal. You, 
the appraiser and the servicing official must complete and sign an 
appraisal agreement. Following the completion of the third appraisal, 
the average of the two appraisals that are closest in value, as 
determined by FSA, shall establish the appraised value to be used. This 
final negotiated appraisal is not appealable. Do not select this option 
of the ``Response Form'' if you and FSA have already negotiated your 
appraisal.
    If you choose not to negotiate and wish to dispute FSA's appraisal, 
you will be given the opportunity to appeal in a later notice. If you 
believe there are mathematical or property description errors in the 
appraisals, you should immediately contact the servicing official. If 
you and the servicing official agree, the corrections will be made and 
initialed by both you and the servicing official.
    If you want information on the requirements of an FSA appraisal, you 
may request a copy of the FSA appraisal regulations from the servicing 
official.
    Sincerely,

                               Attachment

     Attachment 1--Borrower's Request for Meeting of Creditors and 
                             Acknowledgment

    I have been given a notice explaining that I am not eligible for 
primary loan service programs. FSA has told me that due to my debt with 
other lenders it does not believe I can develop a feasible plan. I 
request that you schedule a meeting with my undersecured creditors to 
assist me in developing a feasible plan of operation. I consent to FSA 
releasing information concerning my FSA account to these creditors to 
assist me in developing a feasible plan.

 (Date)_________________________________________________________________

 (Borrower's signature)_________________________________________________

Attachment 2--Borrower's Request for Meeting of Creditors or Request to 
             Negotiate the FSA Appraisal and Acknowledgment

    I have been given a notice explaining that I am not eligible for 
primary loan service programs.
    I want to:
    [Check the appropriate box or boxes.]
    [  ] (1) Request an independent appraisal of my property including 
any nonessential assets.
    I must return this ``Response Form'' within 30 days to request an 
independent appraisal.
    I understand that I must pay for this appraisal. I understand that 
the FSA servicing official will give me a list of appraisers.
    If the independent appraisal is within five percent of the FSA 
appraisal, I must select which of the two appraisals I want to be used 
for processing my request.
    [  ] (2) Request Negotiation of the Appraisal.
    I must return this ``Response Form'' within 30 days to request a 
negotiation of my appraisal.
    I understand that I must provide FSA with a copy of my independent 
appraisal within 30 days of requesting negotiation. I understand that I 
must pay for this appraisal and one-half of a third appraisal, if 
necessary. I understand that FSA will not negotiate the appraisal more 
than once.
    [  ] (3) I request a copy of the recent FSA appraisal of my 
property.
    [  ] (4) I am paying FSA the net recovery value of any nonessential 
assets that FSA has said I own. I will pay this amount within 45 days.
    Please recalculate the restructuring of the FSA debt.
    * [  ] (5) Request that you schedule a meeting with my undersecured 
creditors to assist me in trying to develop a feasible plan of 
operation. I consent to FSA releasing information concerning my FSA 
account to these

[[Page 172]]

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)_________________________________________________
    * Optional paragraph depending on the circumstances.
[62 FR 10144, Mar. 5, 1997]

          Exhibit F--Notification of Offer to Restructure Debt

                      (Borrower's Name and Address)

                                  Date

    Dear (Borrower's Name):
    We have determined that the Farm Service Agency (FSA) can approve 
your request for primary loan servicing programs.

                                  Offer

    Our calculations indicate that you will be able to develop a 
feasible plan and make the necessary annual payment on your FSA loan if 
your loan is restructured in the following fashion:
 _______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
    The attached computer printout indicates the primary loan servicing 
program that will keep you on the farm and provide the greatest net 
recovery to the Government.
    * Our calculations indicate that a feasible plan can be found with 
or without a writedown, as described below. However, with a writedown, 
your cash flow margin would be ______ percent, whereas without a 
writedown, your cash flow margin would only be ______ percent. You can 
choose to accept the restructuring offer with or without a writedown on 
the attached response form. If you choose a writedown, you will not be 
able to receive future loans through FSA, except for annual operating 
loans.
    * As a condition of this restructuring, you must agree to meet, at 
your own cost, FSA's training requirements which provide instruction in 
production and financial management within 2 years of the date your 
loans are restructured. The cost will be included in your farm plan as 
an operating expense. Upon completion of the training, the instructor 
will assign a score according to the following criteria:

                                  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 or did 
not attempt to complete assignments. In general, the borrower did not 
make a good faith effort to complete the training.
    Attached is a list of courses you will be required to complete to 
fulfill the training requirement. A list of approved vendors in your 
area for these courses is also attached. Any denial of a request for a 
waiver of the training requirement is not appealable. If you fail to 
complete the training as agreed, you will be ineligible for future FSA 
benefits including future direct and guaranteed loans, Primary Loan 
Servicing, Interest Assistance renewals, and restructuring of guaranteed 
loans.
    * The County Committee has waived the training requirement for the 
restructuring offered in this notice.
    If you want FSA to use the primary servicing program identified on 
the computer printout to restructure your debt, you must accept this 
offer in writing. Your acceptance must be received by FSA no later than 
45 days from your receipt of this letter. You may accept this offer in 
writing by signing and returning the attached form titled ``Acceptance 
of Offer to Restructure my Debt.''

                          * Nonessential Assets

    FSA has determined that you have nonessential assets that do not 
contribute a net income to pay essential family living expenses or 
maintain a sound farming operation. The net recovery value (NRV) of the 
nonessential assets has been added to the NRV of the FSA collateral for 
the calculation on the attached printout. The NRV of the nonessential 
assets is $ ______. Your nonessential assets and their NRVs are as 
follows:

                           Nonessential Assets

 _______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
NRVs____________________________________________________________________
 _______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
    FSA encourages you to sell the nonessential assets or borrow against 
their value. If you pay the NRV of the nonessential assets, the amount 
will be subtracted from your debt and FSA will recalculate the value of 
your FSA debt. If you are going to pay FSA the NRV of your nonessential 
assets, you must do so within 45 days of the date of receiving this 
letter. You must check the appropriate block on the response form and 
return it to FSA within 45 days with your payment for the NRV of the 
nonessential assets of $____________.

[[Page 173]]

    If you wish to dispute FSA's decision that you own nonessential 
assets or disagree with the offer presented, you may request a meeting 
and/or an appeal.

                      Negotiation of the Appraisal

    If you object to the FSA appraisal of your property, you may ask the 
FSA to negotiate the appraisal with you by returning the ``Response 
Form.'' You must ask to negotiate the FSA appraisal within 30 days from 
the date you receive this notice. To do this, you must provide FSA with 
a copy of your current independent appraisal or you must now obtain, at 
your cost, an independent appraisal of your property. The appraisal and 
the appraiser must meet certain standards published in FSA regulations.
    If you do not have a current appraisal and wish FSA to assist you, 
check option 2 of the ``Response Form'' and FSA will provide you with a 
list of such appraisers.
    You must provide FSA a copy of your independent appraisal within 30 
days of requesting negotiation.
    If your current independent appraisal is within five percent of the 
FSA appraisal, you must select which appraisal of the two you want FSA 
to use in processing your request. The appraisal you select will be the 
final appraisal. It cannot be further negotiated or appealed. If the 
difference is more than five percent and you have requested a negotiated 
appraisal, you and FSA will choose an independent appraiser to complete 
a third appraisal. You must pay one-half of the cost of the third 
appraisal. You, the appraiser and the servicing official must complete 
and sign an appraisal agreement for this appraisal. FSA will pay for the 
other half of the third appraisal. Following the completion of the third 
appraisal, the average of the two appraisals that are closest in value, 
as determined by FSA, shall establish the appraised value to be used. 
This final negotiated appraisal is not appealable. Do not select this 
option on the ``Response Form'' if you and FSA have already negotiated 
your appraisal.
    If you wish to dispute FSA's appraisal, but do want to reach 
agreement with FSA by negotiating the appraisal, you may also request a 
meeting or appeal of other items of the decision that you do not agree 
with by checking the appropriate box on the attached response form. If 
you believe there are mathematical or property description errors in the 
appraisals, you should immediately contact the servicing official. If 
you and the servicing official agree, the corrections will be made and 
initialed by both you and the servicing official.
    If you want information on the requirements of an FSA appraisal, you 
may request a copy of the FSA appraisal regulations from the servicing 
official.

               What Happens If You Do Not Accept the Offer

    If you do not accept the restructuring offer on page 1, FSA will 
deny your request for primary loan servicing and send you an additional 
notice stating that FSA intends to liquidate your account. You can 
appeal FSA's offer by sending a letter requesting appeal directly to the 
National Appeals Division, (NAD), NAD Area Director's address>. Your 
letter must describe FSA's decision and why you believe the decision was 
not correct. In order for this decision to be changed, you will have to 
show why the decision should be reversed. A copy of your request should 
be sent to the FSA county office. Your request must be postmarked no 
later than 30 days from the date you received this notice.
    YOU MAY HAVE A FEDERAL INCOME TAX LIABILITY IF FSA RESTRUCTURES YOUR 
FSA INDEBTEDNESS WITH A WRITEDOWN. YOU SHOULD CONTACT THE INTERNAL 
REVENUE SERVICE (IRS) FOR INFORMATION.
    Sincerely,
    * Optional paragraphs depending on circumstance.

        Attachment 1--Acceptance of Offer To Restructure My Debt

                         TO: Farm Service Agency

               FROM: (Please print your name and address)

    I have received your offer to restructure my FSA 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 FSA 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: Farm Service Agency

               FROM: (Please print your name and address)

    I have received your offer to restructure my FSA debt.
    (Check the appropriate blocks.)
    * [  ](1) I accept FSA's offer to restructure my debt. I understand 
that I must accept FSA's offer within 45 days of receiving Exhibit F.
    * [  ](1) I accept FSA's offer to restructure my debt as follows: 
(Put an ``X'' in Block (a) or (b).) I undestand I must accept FSA's 
offer within 45 days of receiving Exhibit F.

[[Page 174]]

    (a) [  ] With a writedown giving me a higher cash flow margin than 
without a writedown.
    (b) [  ] Without a writedown giving me a lower cash flow margin than 
if I would take the writedown.
    [  ](2) I request an independent appraisal of my property including 
any nonessential assets. If the difference between my independent 
appraisal and the FSA appraisal is not more than five percent, I 
understand that I must select which of the two appraisals I want to be 
used for reconsidering my request. In such a case, there will not be an 
appeal of the appraisal or any further negotiation of the appraisal.
    I must return this ``Response Form'' within 30 days to request an 
independent appraisal.
    I understand that I must pay for this appraisal. I understand that 
the FSA servicing official will give me a list of appraisers.
    [  ](3) I request a copy of the FSA recent appraisal of my property.
    [  ](4) Request Negotiation of the Appraisal.
    I must return this ``Response Form'' within 30 days to request a 
negotiation of my appraisal.
    I understand that I must provide FSA with a copy of my independent 
appraisal within 30 days of requesting negotiation. I understand that I 
must pay for this appraisal plus one-half of a third appraisal, if 
necessary. I understand that FSA will not negotiate the appraisal more 
than once.
    [  ](5) I intend to pay FSA the net recovery value of any 
nonessential assets that FSA has said I own.
    I understand that I must pay the net recovery value of the 
nonessential assets within 45 days of receiving Exhibit F.
    I understand that if I want to appeal FSA's offer to restructure, I 
must send a letter requesting an appeal to the National Appeals 
Division. My letter must describe FSA's decision and why I believe the 
decision was not correct. I should also send the FSA county office a 
copy of my appeal request. I understand that I will be contacted by the 
National Appeals Division to set up the appeal hearing date and give me 
more information. My request for an appeal must be postmarked no later 
than 30 days from the date I received this notice. If possible, I should 
submit a copy of my independent appraisal to the FSA servicing official 
and the hearing officer prior to the appeal hearing if I am appealing 
the appraisal.

          Sincerely,

(Borrower's signature)
 _______________________________________________________________________
(Date)

    * Optional paragraphs depending on the circumstance.
[62 FR 10146, Mar. 5, 1997]

 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

[[Page 175]]

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 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.''

[[Page 176]]

    (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.

                        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

[[Page 177]]

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 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

[[Page 178]]

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.



    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--Conservation Contract Program

                               I. General

    A Conservation Contract (CC) may be exchanged, when requested by a 
borrower (current or delinquent), for a cancellation of a portion of the 
borrower's FSA indebtedness. The CC may be considered alone, or with 
other Primary Loan Servicing Programs as set forth in 7 CFR 1951.909. 
These contracts can be established for conservation, recreational, and 
wildlife purposes on farm property that is wetland, wildlife habitat, 
upland or highly erodible land. Such land

[[Page 179]]

must be suitable for the purposes involved. All Farm Loan Programs loans 
which are secured by real estate may be considered for a CC. Non-program 
loan debtors are not eligible to receive any benefits under this 
section.

                               Definitions

    (1) Conservation purposes. These include protecting or conserving 
any of the following environmental resources or land uses:
    (a) Wetland, except when such term is part of the term Converted 
wetland, is land that the Natural Resources Conservation Service (NRCS) 
has determined has a predominance of hydric soils and that is inundated 
or saturated by surface or ground water at a frequency and duration 
sufficient to support, and that under normal circumstances does support, 
a prevalence of hydrophytic vegetation typically adapted for life in 
saturated soil conditions, except that this term does not include lands 
in Alaska identified as having a high potential for agricultural 
development and a predominance of permafrost soils.
    (i) Hydric soils means soils that, in an undrained condition, are 
saturated, flooded, or ponded long enough during a growing season to 
develop an anaerobic condition that supports the growth and regeneration 
of hydrophytic vegetation;
    (ii) Hydrophytic vegetation means a plant growing in--
    (A) Water; or
    (B) A substrate that is at least periodically deficient in oxygen 
during a growing season as a result of excessive water content;
    (b) Highly erodible land is land that NRCS has determined has an 
erodibility index of 8 or more.
    (c) Upland is a term used in the law to refer to land other than 
highly erodible land and wetland. Although upland in its normal use 
implies many types of land, it has been more narrowly defined for this 
purpose to include land or water areas that meet any one of the 
following criteria:
    (i) One-hundred year floodplain,
    (ii) Aquatic life, or wildlife habitat or endangered plant habitat 
of local, regional, State or Federal importance,
    (iii) Aquifer recharge area of local, regional or State importance, 
including lands in the wellhead protection program for public water 
supplies authorized by the Safe Drinking Water Act Amendments of 1986,
    (iv) Area of high water quality or scenic value,
    (v) Area containing historic or cultural property, which is listed 
in or eligible for the National Register of Historic Places, as provided 
by the National Historic Preservation Act (NHPA),
    (vi) Area that provides a buffer zone necessary for the adequate 
protection of proposed conservation contract areas,
    (vii) Area within or adjacent to a National Park, U.S. Fish and 
Wildlife Service administered area, State Fish and Wildlife agency 
administered area, a National Forest, a Bureau of Land Management 
administered area, a Wilderness Area, a National Trail, a unit of the 
Coastal Barrier Resource System, abandoned railroad corridors contained 
in local, State or Federal open space, recreation or trail plans, 
Federal or State Wild or Scenic River, U.S. Army Corps of Engineers land 
designated for flood control or recreation purposes, State and local 
recreation, natural or wildlife areas or State Conservation Agency 
administered areas.
    (viii) Area that NRCS determines contains soils that are generally 
not suited for cultivation such as soils in land capability classes IV, 
V, VI, VII or VIII in the NRCS's Land Capability Classification System.
    (d) Wildlife habitat is a term used to include the area that 
provides direct support for given wildlife species, species life stages, 
populations, or communities determined appropriate by the Conservation 
Agency within the State as being of State, regional or local importance 
or as determined by the Fish and Wildlife Service to be of national 
importance. This wildlife habitat area includes all acceptable 
environmental features such as air quality, water quality, vegetation, 
and soil characteristics.
    (2) Management authority. Any agency of the United States, a State, 
or a unit of local Government of a State, a person, or an individual 
that is designated in writing by FSA to carry out all or a portion of 
the activities necessary to manage and implement the terms and 
conditions of a contract or its management plan. The borrower whose land 
is subject to the contract may be eligible to be designated as a 
management authority.
    (3) Person. Any agency of the United States, a State, a unit of 
local Government within a State, or a private or public nonprofit 
organization.
    (4) Recreational purposes. These activities include providing public 
use for both consumption (e.g. hunting, fishing) and nonconsumption 
(e.g. camping, hiking) recreational activities, in a manner that 
conserves wildlife and their habitats, ensures public safety, complies 
with applicable laws, regulations, and ordinances and permits the 
operation of the remaining farm enterprise.
    (5) Wildlife. Means any wild animal, whether alive or dead, 
including any wild mammal, bird, reptile, amphibian, fish, mollusk, 
crustacean, arthropod, coelenterate, or other invertebrate, whether or 
not bred, hatched, or born in captivity, and includes any part, product, 
egg, or offspring.
    (6) Wildlife purposes. These program objectives include establishing 
and managing areas that contain fish and wildlife habitats of local, 
regional, State or Federal importance.

[[Page 180]]

                             II. Eligibility

    The following steps must be taken to determine if the borrower is 
eligible for a conservation contract. If the borrower is found to be 
ineligible, the FSA servicing official will notify the borrower of the 
opportunity to appeal the adverse decision on the eligibility for the 
contract after a final decision is made on whether the borrower 
qualifies for any other servicing options. The servicing official must 
find that:
    (1) All Farm Loan Programs loans which are secured by real estate 
may be considered for a CC. A real estate mortgage or deed of trust 
taken on a borrower's real estate as additional security for a Farm Loan 
Programs loan qualifies as real estate security.
    (2) The proposed contract helps a qualified borrower to repay the 
loan in a timely manner.
    (3) If the land being proposed for the contract is within the FSA 
Conservation Reserve Program, both the requirements of that program and 
this section can be met.

               III. Establishing the Contract Review Team

    The servicing official will establish a contract review team by 
notifying the appropriate field offices of the Natural Resources 
Conservation Service (NRCS), U.S. Fish and Wildlife Service (FWS), State 
Fish and Wildlife Agencies, Conservation Districts, National Park 
Service, Forest Service (FS), State Historic Preservation Officer, State 
Conservation Agencies, State Environmental Protection Agency, State 
Natural Resource Agencies, adjacent public landowner, and any other 
entity that may have an interest and qualifies to be a management 
authority for a contract. The notified parties may in turn notify other 
eligible entities. NRCS, for example, may want to notify the appropriate 
Conservation District. As part of the notification, the servicing 
official will provide an approximate location and a general description 
of the potentially affected land. All notified parties will be invited 
to serve on the contract review team.

            IV. Responsibilities of the Contract Review Team

    NRCS will lead the contract review team which in every case will be 
composed of an NRCS, FSA and FWS representative, plus all other parties 
that accepted the invitation to participate. To the extent practicable, 
a site visit will be conducted within fifteen days from the date the 
review team members are invited to participate. Any lien holder and the 
borrower will be informed of the site visit time and invited to attend. 
Within thirty days after the site visit, a report will be developed by 
the review team and provided to the servicing official. The report will 
cover the items listed in paragraphs (A) through (F) of this paragraph 
and will be prepared by the review team. The items to be addressed in 
the review team report are:
    (A) The amount of land, if any, which is wetland, wildlife habitat, 
upland or highly erodible land and the approximate boundaries of each 
type of land. If applicable, contract boundaries may be recommended 
which go beyond the wetland, upland, or highly erodible land but are 
necessary for either the establishment of identifiable contract 
boundaries or are required for the efficient management of the 
contract's terms and conditions.
    (B) A finding of whether the land is suitable for conservation, 
recreation or wildlife habitat purposes and a priority ranking of 
purposes included, if the land can be so classified and ranked.
    First, priority will be given to land contract opportunities to 
benefit wildlife species of Federal Trust responsibility (e.g., 
migratory birds and endangered species) and their habitats (e.g., 
wetlands). Special consideration will be given to opportunities to 
benefit a combination of conservation, recreation and wildlife habitat 
purposes. When there are other land contracts already established or 
under review within the local area and the intent of these contracts has 
been established, the review team will consider these actions as purpose 
rankings are developed.
    (C) If appropriate, any special terms or conditions that would need 
to be placed on the contract plus unique or important features of the 
property which would not be adequately addressed by the standard 
contract terms and conditions.
    (D) A proposed management plan consistent with the purpose or 
purposes for which the contract would be established. The management 
plan will outline the various management alternatives for the proposed 
contract. The selection of the alternatives to be followed will be based 
upon future needs, fund availability, and identification within the 
management plan. The management plan will provide guidance as to the 
conservation practices to be followed and the costs which may occur in 
the establishment and maintenance of the contract. This management plan 
will specifically recommend whether or not public recreational use and 
public hunting should be allowed on the contract and provide supporting 
reasons for the recommendation made. Whenever changes are required in 
the management plan, FSA, may update the management plan to reflect the 
changes.

                V. FSA's Review of Contract Team's Report

    Upon receipt, the Servicing Official will review the contract team's 
report. If the report indicates that a contract is not feasible given 
the nature of the land, or other factors, the servicing official will 
inform the borrower of the reasons that the contract has been denied and 
that the borrower may

[[Page 181]]

appeal the denial of the contract or meet with the servicing official.

                         VI. Terms of Contracts

    Borrowers participating in the debt cancellation conservation 
contract program will be given the option of selecting a 50, 30 or 10 
year contract term. The amount of debt to be canceled will be directly 
proportional to the length of the contract. The area placed under the 
conservation contract cannot be used for the production of agricultural 
commodities during the term of the contract.

VII. Determining the Amount of Farm Loan Programs (FLP) Debt That Can Be 
                                Canceled

    (A) Calculate the amount of debt to be canceled for a delinquent 
borrower as follows:
    (1) Step 1. Determine what percent the number of contract acres is 
of the total acres of land that secures the borrower's FLP loans by 
dividing the contract acres that secure the borrower's FLP loans by the 
total acres that secure the borrower's FLP loans.
    Contract acres divided by Total Farm and Ranch Acres = Percent of 
Contract Acres to Total Acres.
    (2) Step 2. Determine the amount of FLP debt that is secured by the 
contract acreage by multiplying the borrower's total unpaid FLP loan 
balance (principal, interest and recoverable costs already paid by FSA) 
by the percentage calculated in step 1. Total FLP Debt  x  Percent 
Calculated in step 1 = ________
    (3) Step 3. Determine the current value of the land in the contract 
by multiplying the present market value of the farm that secures the 
borrower's FLP loans by the percent calculated in step 1. PMV of Total 
Farm  x  Percent Calculated in step 1 = ________
    (4) Step 4. Subtract the current value of the contract acres in step 
3 from the FLP debt that is secured by the contract acres in step 2. 
Result from step 2-Result from step 3 = ________
    (5) Step 5. Select the greater of the amounts calculated in step 3 
and step 4.
    (6) Step 6. Select the lessor of the amounts calculated in steps 2 
and 5. This will be the maximum amount of debt that can be canceled for 
a 50-year contract term.
    (7) Step 7. For a 30-year contract term, the borrower will receive 
60 percent of the amount calculated in step 6. Result from Step 6  x  
60% = ________
    (8) Step 8. For a 10-year contract term, the borrower will receive 
20 percent of the amount calculated in step 6. Result from Step 6  x  
20% = ________
    (B) Calculate the amount of debt to be canceled for a current 
borrower as follows:
    (1) Step 1. Determine what percent the number of contract acres is 
of the total acres of land that secures the borrower's FLP loans by 
dividing the contract acres that secure the borrower's FLP loans by the 
total acres that secure the borrower's FLP loans. Contract Acres divided 
by Total Farm and Ranch Acres = ________%
    (2) Step 2. Determine the amount of FLP debt that is secured by the 
contract acreage by multiplying the borrower's total unpaid FLP loan 
balance (principal, interest and recoverable costs already paid by FSA) 
by the percentage calculated in step 1. Total FLP Debt  x  Percent 
Calculated in step 1 = ________
    (3) Step 3. Multiply the borrower's total unpaid FLP loan balance 
(principal, interest and recoverable costs already paid by thirty-three 
(33) percent. Total FLP Debt  x  33% = ________
    (4) Step 4. Select the lessor of the amounts calculated in steps 2 
and 3. This is the maximum amount of debt that can be canceled for a 
current borrower receiving a 50-year contract.
    (5) Step 5. For a 30-year contact term, the borrower will receive 60 
percent of the amount calculated in step 4. Amount calculated in step 4 
x  60% = ________
    (6) Step 6. For a 10-year contract term, the borrower will receive 
20 percent of the amount calculated in step 4. Amount calculated in Step 
4 X 20% = ________
    (C) Feasibility of debt cancellation. The servicing official will 
determine whether or not the borrower, if provided the amount of debt 
cancellation allowed by paragraph (VII) coupled with other servicing 
options will be able to develop a feasible plan for farm operations for 
the current and coming year. In no instance will the total debt 
cancellation exceed the maximum amount calculated in paragraphs (A) or 
(B) above. If the borrower would not be able to develop a feasible plan, 
the servicing official will notify the borrower of the reason that the 
contract has been denied and that the borrower may appeal this adverse 
decision after the servicing official has decided whether the borrower 
qualifies for the additional servicing programs in this subpart.
    (D) The boundaries of the contract area will be determined by the 
most appropriate method including rectangular surveys, and aerial 
photographs. A professional survey of the contract area will not be 
required but can be used where needed.
    (E) Reaching an agreement with the borrower. The borrower will be 
informed of the contract's value, the impact on the remaining financial 
obligation, and the terms and conditions of the contract. The borrower 
also will be provided a copy of the contract review team's report. If 
the borrower decides to enter into the contract, approval will be made 
by the servicing official, and the borrower by signing Form FSA 1951-39.
    (F) Recording of noncash credit. The total credit to the borrower's 
account will not exceed the greater of the value of the land on

[[Page 182]]

which the contract is acquired; or the difference between the amount of 
the outstanding indebtedness secured by the real estate, and the value 
of the real estate taking into consideration the term of the contract. 
In the case of a non-delinquent borrower, the amount to be credited will 
not exceed 33 percent of the amount of the loan secured by the real 
estate on which the contract is obtained taking into consideration the 
term of the contract. In all cases, the amount credited will be applied 
on the FSA loan as an extra payment in order of lien priority on the 
security. The loan may be reamortized if needed for both current and 
delinquent borrowers.
    (G) [Reserved]
    (H) Contract Records. If State law allows, the CC will be recorded 
in the real estate records.

                 VIII. Violation of Terms and Conditions

    If the borrower violates any of the terms or conditions of the 
contract, the violations will be handled in accordance with the 
provisions outlined in the contract.

                       IX. Authorization Requests

    When under the circumstances stated in the contract's terms and 
conditions (Form FSA 1951-39), the grantor needs the Government's 
written authorization to proceed with an action, a written request for 
such authorization must be provided by the grantor to the servicing 
official. In order to provide the requested written authorization, the 
servicing official must determine that the request does not violate the 
contract's terms and conditions and must receive the written concurrence 
of the enforcement authority.
[62 FR 10147, Mar. 5, 1997]

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 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

[[Page 183]]

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 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

[[Page 184]]

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 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.

[[Page 185]]

    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 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

[[Page 186]]

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''.
    (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,

[[Page 187]]

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.

    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.

[[Page 188]]

    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.
    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

[[Page 189]]

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 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

[[Page 190]]

    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 
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.

[[Page 191]]

    b. If the borrower plans to make payments prior to the servicing 
actions, these payments have been applied to loans to reduce 
indebtedness.
    c. All existing FmHA or its successor agency under Public Law 103-
354 loans have been considered for rescheduling/reamortization.
    d. Deferrals have been computed for borrowers when the cash flow 
margin in the year after the deferral period was higher than the cash 
flow margin in the first year.
    e. Loans have been converted to Softwood Timber loans (when 
requested by the Borrower) to the maximum extent permitted by program 
regulations.
    2. FmHA or its successor agency under Public Law 103-354 loans for 
annual operating expenses and all proposed new loans have been computed 
at limited resource rates (when applicable).
    3. All loans are at the lowest interest rate and maximum term 
permitted by program regulations.
    B. Method 1.
    Provide Conservation Easement write down on eligible loans, when 
requested by the borrower, to the maximum limits permitted by program 
regulations. Conservation Easements will be the first write down 
considered in this method. If a feasible plan is not obtained using 
conservation easements then the remaining loans will be written down 
using debt write-down authority.
    1. Criteria.
    a. Only loans secured by real estate are eligible for conservation 
easement write-down.
    b. Interest rates, loan terms, loans selected for deferral (if 
applicable) do not change from the status described in Section VI A of 
this exhibit. That is, debt repayment is at the absolute minimum.
    c. Loans converted to Softwood Timber loans will not be written 
down.
    2. Loan Selection.
    Loans will be selected in the following order for full or partial 
write-down as necessary:
    a. Place all loans eligible for conservation easements in a single 
group. Of these loans order them for selection as follows:
    (1) Least collateralized loans first.
    (2) For loans with equivalent collateralization, loans with the 
largest ``Amortization Factor'' first. (See Amortization Factors in 
Attachment 1 to this exhibit.)
    b. If a feasible plan is not obtained using conservation easements 
or conservation easement write-down had not been requested order the 
remaining loans as follows:
    (1) Unsecured and/or least collateralized loans first.
    (2) For loans with equivalent security, loans with the largest 
``Amortization Factor'' first. (See Amortization Factors in attachment 
to this exhibit.)
    3. The Process.
    Each time a new loan is selected for write-down, deferrals (if 
applicable) must be recalculated as described in Section IV of this 
exhibit.
    a. Conservation Easement write-down.
    (1) Starting with the first loan selected for conservation easement 
write-down, determine whether a full write-down will permit a feasible 
plan in the applicable year. The applicable year is the first planning 
year if deferrals have not been considered. If deferrals have been 
considered it is the year after the end of the deferral period.
    (2) If a full conservation easement write-down will achieve positive 
cash flow compute the amount of conservation easement write-down so that 
the balance available equals debt repayment. Reschedule/reamortize the 
loan for the new principal amount. No further servicing actions are 
required.
    (3) If a full conservation easement write-down does not achieve a 
positive cash flow margin in the applicable year, recompute the debt 
repayment in the first planning year and the debt repayment in the year 
after the end of the deferral period (if applicable). Deferrals will 
have to be recalculated using the methods described in Section IV of 
this part.
    (4) Continue selecting loans for conservation easement write-down 
and repeat this process until an acceptable cash flow margin is obtained 
in the applicable year or the maximum conservation easement write-down 
permitted by program regulation is obtained.
    b. Debt Write-Down.
    (1) Conservation easement write-down (if applicable) did not attain 
a positive cash flow margin in the applicable planning year. With the 
remaining loans, reprioritize their selection without regard to 
eligibility for conservation easements using the criteria described in 
section VI B 3 of this exhibit.
    (2) Using debt write-down authority write down each of these loans 
until a positive cash flow margin is obtained in the applicable year. 
Compute the amount of write-down for that loan so that the balance 
available is equal to the debt repayment.
    (3) If the present value of the future payment stream on remaining 
debt equals or exceeds the net recovery value of the collateral for FmHA 
or its successor agency under Public Law 103-354 loans then no further 
servicing actions are required.
    C. Method 2.
    Use this method only if Method 1 does not find a debt restructuring 
plan which will allow FmHA or its successor agency under Public Law 103-
354 to continue with the borrower.
    1. Criteria.
    a. Loan terms are the maximum permitted by program regulation.
    b. All other loans (except Softwood Timber loans), including the 
loan selected for write down will be at the minimum of the original

[[Page 192]]

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.
    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.

[[Page 193]]

    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.

                              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.

[[Page 194]]

    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


[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=PT JAF
Annual installment=$606 (always round to next dollar)

                      IV. Average Month Outstanding

    (FmHA or its successor agency under Public Law 103-354 Annual 
Operating Expense Loan):
    This is the average number of months an FmHA or its successor agency 
under Public Law 103-354 loan of annual operating expenses will be 
outstanding. It may be estimated or calculated from the projected 
advance and payment schedule for the loan.
    For example, loan(s) for annual operating expenses are estimated to 
be $15,000 and the projected advance and repayment schedule is planned 
as follows:

                                                                        
------------------------------------------------------------------------
                                                              Number of 
               Principal balance outstanding                    months  
------------------------------------------------------------------------
15,000.....................................................            3
8,000......................................................            2
6,000......................................................            4
------------------------------------------------------------------------

Average Months=(3 x 15,000)+(2 x 8,000)+(4 x 6,000)

    15,000 (total loans for annual oper. exp.)
Average Months=(45,000+16,00+24,000)/15,000
Average Months Outstanding=85,000/15,000
Average Months Outstanding=5.7 months
    (Round to nearest tenth of month)

                           V. Partial Deferral

    Whenever deferral of a loan results in an excess cash flow margin in 
the first year, a partial deferral of that loan will result in a higher 
present value and will also decrease future payment on that loan. 
Calculation of the partial deferral proceeds as follows:

                               Input Data

P: Loan Principal plus capitalizable accrued interest without write 
          down.
N: Non-capitalizable interest without write down.
i: Interest Rate (decimal, annual basis)
t: Loan Term (Years)
n: Deferral period
r: Excess cash flow margin created in the first year with a full 
          deferral of a loan.

                      Calculated/Formula Variables

R: Full payment on loan without deferral or write down

    R=[(p x [AF](i,t)) + (N/t)]

[[Page 195]]

R: Full payment on loan with deferral but no write down.
d: fraction of loan deferred, d=1-(r/R).

                           Output Information

Non-deferred Portion of Loan
P1: Loan Principal plus capitalizable interest on nondeferred 
          portion of loan.
N1: Non-capitalizable interest on non-deferred portion of 
          loan.
Deferred Portion of Loan
P2: Loan Principal plus capitalizable interest on deferred 
          portion of loan.
N2: Non-capitalizable interest on deferred portion of loan.

                               The Process

    1. Determine the order in which loans will be deferred based upon 
the JAF (section III of this attachment.
    2. Determine amount of deferral necessary to achieve a feasible plan 
in the first year (compute variable d).
    3. Calculate Portion of debt to be deferred and portion of non-
deferred debt to meet cash flow margin criteria in the first year.


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
[53 FR 35718, Sept. 14, 1988]

    EXHIBIT J-1--The Debt and Loan Restructuring System (DALR$) (For 
 applications filed for primary loan servicing on or after November 28, 
                                  1990)

                        I. Introduction to DALR$.

    Farm Service Agency (FSA) primary loan service programs provide a 
large number of alternatives for restructuring an agency loan. 
Additionally, borrowers may request consideration for the Softwood 
Timber (ST) and Conservation Contract (CC) Programs. The number of loans 
a borrower has increases the number of combinations of possible 
servicing alternatives. It is difficult and virtually impossible to 
manually calculate all the potential combinations of servicing actions. 
To assure that all the various possible combinations of programs are 
considered, FSA has developed the Debt and Loan Restructuring System 
(DALR$) for operation on the county office computer system.
    DALR$ is a menu driven computerized support tool that assists FSA 
field offices in determining and evaluating the effects of primary loan 
servicing in accordance with 7 CFR part 1951, subpart S. DALR$ will 
complete a series of mathematical calculations based on information 
regarding the borrower's cash flow and loan status obtained from the 
borrower's case file. This information is used in attempting to 
restructure the borrower's debt and maximize their repayment ability, 
while avoiding or minimizing loss to the Government. DALR$ will provide 
a printed summary of the computations and outcome of the calculations.
    FSA personnel will not manually perform the calculations in this 
exhibit. This exhibit is provided as a benefit to those who may want to 
perform manual calculations, or understand the procedures DALR$ utilizes 
during the execution of the program.

                         II. Advantages of DALR$

    The DALR$ system provides the following benefits to FSA borrowers:
    A. Speed of Calculation--Calculations which would take hours or days 
are reduced to minutes. This not only speeds the processing of servicing 
requests, but provides the flexibility to consider several alternative 
plans of operation within the same time constraints.
    B. Consistency--The use of DALR$ assures that the feasibility of all 
requests for primary loan servicing will be evaluated on using the same 
calculation methods.
    C. Full Consideration--DALR$ considers primary loan service programs 
and combinations of those programs for every borrower entered into the 
system. Thus, borrowers can be assured that they will be considered for 
as many of these actions as necessary to develop a feasible plan, if a 
feasible plan is possible.
    D. Reduction of Errors--Use of DALR$ greatly reduces the potential 
for errors and inadvertent denial of assistance due to those errors. 
DALR$ eliminates errors in the calculations. The only potential errors 
related to the calculations are input errors, which are much easier to 
detect and correct than calculation errors. However, DALR$ results are 
only as reliable as the input data.

                              IV. Overview

    When computing debt restructuring, DALR$ will consider all primary 
loan service programs, if necessary in attempting to develop a feasible 
plan. A combination of loan service programs may be necessary. DALR$ 
will consider each combination until a feasible plan is developed, or it 
is determined that a feasible plan is not possible with full utilization 
of primary loan servicing, ST and CC.
    DALR$ will attempt to provide the maximum margin available up to ten 
percent above the total amount needed for payment of farm operating, 
family living expenses and debt repayment after restructuring. If a 
feasible plan cannot be developed, DALR$ will determine if the writeoff 
with market value

[[Page 196]]

buyout (less prior liens) is less than or equal to the statutory ceiling 
for writedown and writeoff. A DALR$ report can be printed which will 
detail the offer to restructure the borrower's FSA debt, offer to buyout 
the FSA Farm Loan Programs (FLP) loans at the market value, less prior 
liens, or inform the borrower that the borrower is not eligible for 
primary loan servicing or debt forgiveness.
    The DALR$ calculations proceed in the following general order:
    A. DALR$ calculates the net recovery value (NRV) for FSA security 
and nonessential assets.
    B. DALR$ computes new loan and annual operating expense payments at 
regular interest rates.
    C. DALR$ applies loan payments that will pay loans in full on the 
proposed restructure date.
    D. DALR$ considers conservation contract, if requested, to the 
maximum extent permitted under the regulations. Conservation contract 
(CC) will not be provided unless a feasible plan is developed after 
considering CC and other loan servicing options.
    E. DALR$ reschedules or reamortizes all delinquent loans at the 
maximum term with an interest rate at the lower of the original note 
rate or current loan program rate. Limited resource rate loans will be 
rescheduled or reamortized at the lower of the original note rate or the 
current limited resource loan rate. After rescheduling or reamortizing 
all delinquent loans, DALR$ will determine if a feasible plan has been 
developed with the appropriate debt service margin.
    F. DALR$ reschedules or reamortizes non-delinquent loans at the 
maximum term and with an interest rate at the lower of the original note 
rate or the current loan program rate. Limited resource rate loans will 
be rescheduled or reamortized at the lower of the original note rate or 
the current limited resource rate. Non-delinquent loans are rescheduled 
or reamortized one loan at a time until a feasible plan is developed 
with the appropriate debt service margin, or until all non-delinquent 
loans have been processed.
    G. DALR$ reschedules or reamortizes limited resource eligible loans 
at the maximum term and with an interest rate at the lower of the 
original note rate or the current limited resource program interest 
rate. Limited resource eligible loans are rescheduled or reamortized one 
at a time until a feasible plan has been developed with the appropriate 
debt service margin, or all limited resource eligible loans have been 
processed.
    H. DALR$ reschedules or reamortizes unequal payment loans at the 
maximum term and with an interest rate at the lower of the original note 
rate or the current loan program rate (limited resource, if applicable). 
Unequal payment loans are rescheduled or reamortized one at a time until 
a feasible plan has been developed with the appropriate debt service 
margin, or all unequal payment loans have been processed.
    I. DALR$ determines the cash available to repay the FSA debt for the 
first year and the year after the deferral period by subtracting non-FSA 
payments, farm operating expenses, excluding interest, and family living 
expenses from the adjusted balance available. If the first year cash 
available is negative, DALR$ will proceed with paragraph M of this 
section. If the first year cash available is positive and less than the 
cash available for the year after the deferral period, DALR$ will 
consider loan deferral. Loans will be selected for deferral so as to 
minimize the debt repayment in the year after the deferral period. If 
the full deferral of a loan will result in a cash flow for the first 
year that exceeds the appropriate debt service margin, a partial 
deferral of the loan is used to eliminate the excess cash flow margin. A 
partial deferral has the added benefit of reducing the payment amount in 
the years after the deferral period.
    J. DALR$ considers ST loan deferral, when requested by the borrower, 
to the maximum limits permitted. Previously calculated regular deferrals 
will be cancelled prior to DALR$ considering ST loan deferral. If the 
cash available after the deferral period is greater than the first year 
cash available, and ST loan deferral fails to produce a feasible plan at 
the applicable debt service margin, non-ST deferred loans will be 
reconsidered. Regular loan deferrals are recalculated after selecting 
loans for ST to:
    1. Minimize any decrease in present value caused by the conversion 
to ST, and
    2. Minimize the increase in payments in the year after the deferral 
period.
    A ST loan deferral has the same effect on the debt repayment ability 
as a writedown of the same amount. However, a ST loan deferral will 
always have a greater present value. Therefore, after a loan is selected 
for ST loan deferral, it will not be considered for writedown since this 
will always decrease the present value of restructured loans.
    K. DALR$ considers writedown of FSA debt for those borrowers who 
have not received their lifetime limit for writedown and writeoff (with 
market value buyout).
    1. If the cash available for the first year is greater than the cash 
available for the year after the deferral period, DALR$ considers 
writedown, in combination with other primary loan service programs 
(except ST deferrals as noted in paragraph K of this section). When 
considering a borrower for writedown, DALR$ will attempt to maximize the 
borrower's repayment ability and minimize losses to the Government.
    The amount of writedown cannot exceed the $300,000 limitation. In 
addition, the present value of the restructured loan plus the amount of 
the CC cannot be less than the

[[Page 197]]

total NRV of the FSA security and non-essential assets.
    2. If the cash available after the deferral period is greater than 
the cash available in the first year, DALR$ will consider a combination 
of deferral and writedown.
    Loans are selected for deferral to achieve a cash flow in the first 
year. If deferral of loans will result in a cash flow in the first year 
that exceeds the applicable debt service margin, DALR$ partially defers 
the loan to reduce the excess cash flow. If there is a negative cash 
flow after the expiration of the deferral period, DALR$ provides 
writedown of one loan to attempt to develop a feasible plan in the year 
after the deferral period. This process is repeated until a feasible 
plan is developed for both the first year and the year after the 
deferral period, or until all loans have been processed. The amount of 
the writedown cannot exceed the $300,000 limitation and the present 
value of the restructured loans plus the value of the CC cannot be less 
than the total NRV of the FmHA security and non-essential assets.
    L. DALR$ considers market value buyout when a feasible plan cannot 
be developed after considering the borrower for all combinations of the 
above servicing options and the borrower has not received the lifetime 
limitation for writedown and writeoff. The amount of FSA debt to be 
written off must be less than or equal to the $300,000 limitation, 
otherwise the borrower is not eligible for primary loan servicing or 
market value buyout.
    M. DALR$ determines the amount of cash improvement needed in the 
first year Balance Available to cash flow with a zero percent debt 
service margin when a feasible plan cannot be developed.
    N. DALR$ offers to print a servicing report which provides a summary 
of the computations and the outcome of the calculations.

                     V. Information Entered in DALR$

    The following information will be entered in DALR$ prior to 
beginning the calculations.
    A. Borrower Case Number and Name--The borrower's case number is a 
concatenation of the State Code, County Code, and Borrower ID (usually 
the borrower's social security number or tax identification number). 
Borrowers are entered as either an individual or entity.
    B. Date Servicing Actions Requested--This is the date that the 
borrower submitted a complete application for primary loan servicing. 
The discount rate used in the calculations of the present value of 
restructured loans and the NRV will be the rate in effect on this date.
    C. Proposed Restructure Date--This is the projected effective date 
of the restructuring. The interest rate used for restructuring loans and 
the net recovery constants used in the calculation of the NRV will be 
those in effect on this date as of the date DALR$ was prepared.
    D. Eligibility for Writedown or Writeoff--This field determines if 
writedown or writeoff (with buyout) should be considered when attempting 
to restructure the borrower's debt. Borrowers that are not delinquent, 
or that have met the lifetime limitation regarding writedown and 
writeoff are not eligible for writedown or writeoff. If the borrower is 
not eligible, DALR$ will consider the borrower for all primary loan 
servicing except writedown and market value buyout.
    E. Period of Deferral--DALR$ will default to the maximum deferral 
period of 5 years. The field can be cleared and a lessor period entered 
if applicable.
    F. Adjusted Balance Available--The adjusted balance available for 
the first year is obtained from Form FmHA 431-2, ``Farm and Home Plan'' 
developed for the current production cycle or the typical plan, if 
applicable. Adjusted balance available is the sum of total planned 
family living expenses from Table F, total planned cash farm operating 
expenses, less interest from Table G, and line 16, ``Balance 
Available,'' from Table J of the Farm and Home Plan. If loan deferral or 
debt writedown is anticipated or needed, the balance available for the 
year after the deferral period must also be calculated and entered.
    G. Non-Agency Debts, Family Living Expenses and Adjusted Operating 
Expenses--This is the sum of total planned family living expenses from 
Table F, total planned cash farm operating expenses, less interest, from 
table G, and total non-Agency debt repayment (principal and interest) 
from Table K of Form FmHA 431-2, ``Farm and Home Plan''. If future non-
agency loans are planned that will affect the first year or the year 
after the deferral, the annual debt repayment for these loans should be 
included. Debt repayment on FSA nonprogram loans should be included when 
determining this amount. FSA nonprogram debts must be entered here to 
assure that these loans are not included in the present value 
calculations or when determining if the $300,000 writedown or writeoff 
limitation was exceeded.
    H. FSA Loan for Annual Operating Expense--The amount of FSA loan for 
annual operating expenses is the amount of annual operating expense loan 
principal which is due in the applicable planning year. The estimated 
average number of months the annual operating loan will be outstanding 
is also entered.
    If some of the principal will be carried over to future years, then 
that amount is either:
    1. Included in the new loan payments computed using the amortization 
factor over the applicable loan term at the regular loan program 
interest rate, or
    2. If the amount to be carried over was entered as an existing loan, 
it is rescheduled

[[Page 198]]

with the applicable term and interest rate permitted by the program 
regulation.
    I. New FSA Loans and Scheduled Advances--The amount of the loan, 
loan type, regular program interest rate, and year that the cash flow 
will be affected will be entered. DALR$ will consider a reduction from 
the regular program interest rate to the limited resource interest rate 
(if applicable) during the rescheduling or reamortizing process if 
necessary to develop a feasible plan.
    J. NRV Data--Information pertaining to FSA security and nonessential 
assets owned by the borrower will be entered in accordance with Exhibit 
I of part 1951, subpart S. Prior liens will include other creditors 
debts that hold a prior lien to FSA on the security property. Prior 
liens may also include FSA nonprogram loans if the same security is 
cross-collateralized with the program loans and they hold a prior lien 
to the program loans.
    K. Existing Loan Data--Loan information will be obtained from the 
borrower's case file and Finance Office status inquiry screens. The date 
of status screens must be after the date of the last payment or other 
transaction on the loan. The loan information includes the consideration 
for servicing actions, unpaid principal and interest, amount of next 
payment, maximum term, original and existing interest rate, security 
priority, information regarding any portion of the loan not to be 
rescheduled, and proposed payment in full on the restructure date.
    1. If the interest accrual date of the status screen precedes the 
proposed restructure date, DALR$ will calculate the additional interest 
accrual. Interest accrual is calculated in accordance with section I of 
attachment 1 to this exhibit.
    2. Loan selection for many of the calculation processes is based 
partly on the security priority identified for each loan. There are 
three priorities:
    a. Low--These loans are unsecured. If FSA loan security was 
liquidated, the proceeds would not be sufficient to result in a payment 
on this loan.
    b. Medium--These loans are undersecured. If FSA security was 
liquidated, the proceeds would be sufficient to result in a partial 
payment on this loan.
    c. High--These loans are fully secured. If FSA security was 
liquidated, the proceeds would be sufficient to pay this loan in full.
    L. Conservation Contract Data--If the borrower requested a 
conservation contract, the total acreage of the farm, acres to be 
included in the conservation contract, unpaid debt secured by the farm, 
and the current market value of the farm must be entered.
    M. Softwood Timber (ST) Loan Data--If ST deferral was requested by 
the borrower, the acreage eligible for ST must be entered.
    N. Interest Rate Tables--Interest rates and the effective date 
provided in Exhibit B of FmHA Instruction 440.1 will be entered.
    O. Discount Rate Tables--The discount rate and the effective date 
provided in Exhibit B of FmHA Instruction 440.1 will be entered.
    P. Net Recovery Constants Tables--Net Recovery Constants and the 
effective date determined in accordance with exhibit I of part 1951, 
subpart S will be entered.

                         VI. Calculation Process

    As described in section IV of this exhibit, the DALR$ calculations 
are a repetitive process. During the first phase of the calculations, 
DALR$ will attempt to restructure the borrower's debt utilizing all 
necessary combinations of loan servicing and provide a ten percent debt 
service margin. Debt service margin is calculated in accordance with 
section II of attachment A of this exhibit. If a feasible plan cannot be 
developed after considering all combinations of loan servicing, the debt 
service margin will be reduced to nine percent and all combinations of 
servicing will again be considered. DALR$ will continue to reduce the 
debt service margin by one percent until a feasible plan is developed or 
the debt service margin falls below zero and a feasible plan is not 
possible with any combination of servicing options.
    The calculation process proceeds as follows:

                          A. Calculation of NRV

    As required by Secs. 1951.909 and 1951.910 of title 7, DALR$ 
computes total NRV of agency loan security and non-essential assets. 
Exhibit I of part 1951, subpart S, ``Guidelines for Determining 
Adjustments for Net Recovery Value'', provides guidance in determining 
the value of specific items utilized in the net recovery calculations 
outlined below.
    NRV is computed for all Farm Loan Programs loan security, other non-
essential assets owned by the borrower, and assets not in the borrower's 
possession. If the agency's lien position, or the amount of prior liens 
vary from item to item, separate NRV will be computed for each item 
which has a different lien structure.

    Example: FSA has a first lien on a borrower's equipment, except for 
two tractors. One tractor was financed by non-agency credit, and FSA has 
a junior lien subject to the purchase money financing. In the case of 
the second tractor, FSA subordinated its lien to another lender to 
finance repairs, thus, FSA has a junior lien to the amount subordinated. 
In this example, there would be three net recovery calculations. One for 
each tractor, and one for the remaining equipment.

[[Page 199]]

The same logic applies to real estate security. The total of all net 
recovery calculations will be the total NRV.
    The general formula for calculating NRV is as follows:
    * Current market value of the security
    * Minus prior liens
    * Minus property taxes while in inventory
    * Minus depreciation on buildings and improvements
    * Minus management charges
    * Minus repairs necessary for resale
    * Minus legal and administrative costs
    * Minus sales cost
    * Minus advertising cost
    * Minus miscellaneous expenses
    * Minus interest cost while in inventory
    * Plus or minus the increase or decrease, as applicable, in value 
while in inventory
    * Plus anticipated income while in inventory
    * Equals NRV of the individual property items
    The sum of the NRV of individual property items minus:
    * Real estate property management costs
    * Real estate or real estate and chattel costs, and
    * Chattel only costs as applicable, equals the total NRV of FSA 
security, non-essential assets, and assets not in possession.
    The factors listed above do not apply to the calculation of NRV for 
non-essential assets and assets not in possession.

              B. Calculation of Payments for New FSA Loans

    DALR$ calculates debt repayment for new FSA term loans and FSA loans 
for annual operating expenses as follows:
    1. Repayment for new term loans will be calculated based on the 
regular loan program interest rate and the term of the loan. The payment 
will be calculated in accordance with section III A of attachment 1 to 
this exhibit.
    2. Repayment of loans for annual operating expenses will be 
calculated based on the regular interest rate and the projected number 
of months the loan will be outstanding determined in accordance with 
section III B of attachment 1 to this Exhibit. DALR$ will calculate 
interest accrual for the annual operating loan by multiplying the amount 
of principal to be repaid during the period of the plan by the monthly 
decimal equivalent for the regular program interest rate. This amount is 
then multiplied by the average number of months that the loan will be 
outstanding. The amount of debt repayment due on annual operating 
expense will be the total of interest accrual plus the principal amount 
of the loan.
    DALR$ will initially calculate payments for new FSA loans and FSA 
loans for annual operating expenses at the regular program interest 
rate. If a feasible plan cannot be developed, DALR$ will reduce the 
interest rate to limited resource rates (if applicable) during the 
calculations completed in paragraph F of this section.

      C. Application of Payment on the Effective Date of Servicing.

    DALR$ will apply loan payments to be made on the effective date of 
loan servicing. DALR$ can only consider a full payoff of a loan. If a 
payment for less than the full amount of the loan is expected or 
received, the payment must be applied to the loan prior to completing 
the DALR$ calculations.
    If after the application of payments to pay loans in full, there is 
a debt repayment margin of ten percent or more and none of the borrowers 
remaining loans are delinquent, no further servicing action in DALR$ is 
required.

                        D. Conservation Contract.

    DALR$ will consider Conservation Contract (CC), if requested by the 
borrower, prior any other loan servicing option. CC can be requested by 
both current and delinquent borrowers. Only FLP loans secured by real 
estate are eligible. A borrower will not be offered CC unless, the CC or 
CC in combination with other loan servicing options results in a 
feasible plan. Debt cancellation as a result of CC will be applied 
against the borrowers loans as a noncash credit and will not affect the 
borrowers debt repayment unless the loan is fully written down.
    CC eligible loans will be selected in the order of lowest security 
priority first. For loans with equal security priority, the secondary 
selection will be the loan with the largest amortization factor 
determined in accordance with section IV of attachment 1 to this 
Exhibit.
    The calculations completed during this process are as follows:
    1. Determine the maximum amount of CC in accordance with attachment 
1 of exhibit H of part 1951, subpart S.
    2. Deduct the lessor of the unpaid loan balance or the maximum CC 
from the first loan selected. Repeat this step until the maximum CC debt 
cancellation has been deducted, or all CC eligible loans have been 
written down in full.
    3. If a feasible plan was developed with a debt service margin 
greater than or equal to ten percent, and the borrower does not have any 
remaining delinquent loans, no further servicing is required. DALR$ will 
offer the user the opportunity to print the servicing report.
    4. If the borrower has delinquent loans, or the debt service margin 
is less than five percent after consideration of CC, DALR$ will proceed 
with paragraph E of this section.

[[Page 200]]

          E. Rescheduling or Reamortization of Delinquent Loans

    DALR$ will reschedule or reamortize existing loans to eliminate any 
delinquency. All delinquent loans will be restructured. Loans with 
regular interest rates will be restructured at the lower of the original 
note rate or the current program rate. Loans that currently have a 
limited resource rate will be restructured at the lower of the original 
note rate or the current limited resource rate.
    Only loans that are delinquent will be restructured during this 
process. Loans will be selected in the order of lowest security priority 
first. For loans with equal security priorities, the secondary selection 
will be based on the loan with the lowest amortization factor. For loans 
with an equal amortization factor, the final selection will be based on 
the loan with the lowest present value calculated in accordance with 
section V of attachment 1 of this Exhibit.
    The calculations completed during this process are as follows:
    1. Combine recoverable cost items with parent loans.
    2. Reschedule or reamortize the delinquent loan over the maximum 
term entered for the loan.
    3. Calculate debt repayment for the first year for the rescheduled 
or reamortized loan based on the new interest rate and term.
    4. Repeat steps 2 and 3 until all delinquent loans have been 
processed.
    5. Determine if a feasible plan was developed with the appropriate 
debt service margin by rescheduling or reamortizing all delinquent 
loans.
    6. If a feasible plan was developed, no further servicing is 
required. The combination of a recoverable cost item with the parent 
loan will be reversed if the combined loans did not require servicing. 
DALR$ will provide the user with the opportunity to print the servicing 
report.
    7. If a feasible plan was not found, DALR$ will reschedule or 
reamortize non-delinquent loans in accordance with paragraph F of this 
section.

            F. Reschedule or Reamortize Non-Delinquent Loans

    DALR$ will reschedule or reamortize non-delinquent loans one at a 
time to attempt to develop a feasible plan. Loans with regular interest 
rates will be restructured at the lower of the original note rate, or 
the current program rate. Loans that currently have a limited resource 
rate will be restructured at the lower of the original note rate or 
current limited resource rate.
    Loans will be selected in the order of lowest security priority 
first. For loans with equal security priorities, the secondary selection 
will be based on the loan with the lowest amortization factor. For loans 
with equal amortization factors, the final selection will be based on 
the loan with the lowest present value.
    After each non-delinquent loan has been rescheduled or reamortized, 
DALR$ will determine if a feasible plan was developed with the 
appropriate debt service margin prior to proceeding to the next loan.
    The calculations completed during this process are as follows:
    1. Reschedule or reamortize the non-delinquent loan over the maximum 
term entered for the loan.
    2. Calculate debt repayment for the first year for the restructured 
loan based on the new interest rate and term.
    3. Determine if a feasible plan was developed with the appropriate 
debt repayment margin.
    4. If a feasible plan was developed, no further servicing is 
required. The combination of a recoverable cost item with the parent 
loan will be reversed if the combined loans did not require servicing. 
DALR$ will provide the user with the opportunity to print the servicing 
report.
    5. If a feasible plan is not found, repeat steps 1 through 3 until a 
feasible plan is found with the appropriate debt service margin, or all 
non-delinquent loans have been rescheduled.
    6. If a feasible plan was not found, DALR$ will reschedule or 
reamortize delinquent and non-delinquent loans at limited resource rates 
(if applicable), in accordance with paragraph G of this section.

G. Rescheduling or Reamortization of Limited Resource Eligible Loans at 
                         Limited Resource Rates

    DALR$ will attempt to reschedule or reamortize limited resource 
eligible loans at the limited resource rate to develop a feasible plan. 
Debt repayment for new FSA term loans and for annual operating expenses 
will be recalculated at limited resource rates (if applicable). The 
interest rate for existing loans will be the lessor of the original note 
rate or the current limited resource rate.
    Loans will be selected in the order of lowest security priority 
first. For loans with equal security priorities, the secondary selection 
will be based on the loan with the lowest amortization factor. For loans 
with equal amortization factors, the final selection will be based on 
the loan with the lowest present value.
    After each limited resource eligible loan has been rescheduled or 
reamortized at the limited resource rate, DALR$ will determine if a 
feasible plan was developed with the appropriate debt service margin 
prior to proceeding to the next loan.
    The calculations completed during this process are as follows:

[[Page 201]]

    1. Recalculate repayment for new FSA term loans and annual operating 
loans at the limited resource rate.
    2. Determine if a feasible plan was found with the appropriate debt 
service margin after reducing the interest rate on new loans.
    3. If a feasible plan was developed, no further servicing is 
required. Proceed to step 7.
    4. Reschedule or reamortize an existing limited resource eligible 
loan at the limited resource interest rate.
    5. Calculate debt repayment for the first year for the rescheduled 
or reamortized loan at the maximum term entered for the loan with 
limited resource rates.
    6. Determine if a feasible plan was found with the appropriate debt 
service margin.
    7. If a feasible plan was developed, no further servicing is 
required. The combination of a recoverable cost item with the parent 
loan will be reversed if the combined loans did not require servicing. 
DALR$ will provide the user with the opportunity to print the servicing 
report.
    8. If a feasible plan was not found, repeat steps 4 through 6 until 
a feasible plan is found with the appropriate debt service margin, or 
until all limited resource eligible loans have been processed.
    9. If a feasible plan was not found, DALR$ will reschedule or 
reamortize loans with unequal payment schedules in accordance with 
paragraph H of this section.

  H. Rescheduling or Reamortizing Loans with Unequal Payment Schedules

    DALR$ will reschedule or reamortize loans with unequal payment 
schedules. These loans were not previously restructured in sections F or 
G as rescheduling or reamortization would have resulted in an increase 
in debt repayment in the first year. However, if the loan was 
delinquent, the loan would have been rescheduled or reamortized under 
section E regardless of the impact on the first year debt repayment. 
Loans will be restructured at the lower of the original note rate or the 
current loan program rate (limited resource if applicable).
    Loans selected for rescheduling or reamortization in this process 
will not have been restructured during any of the earlier calculations 
and cannot be a ST loan.
    Loans will be selected in the order of lowest security priority 
first. For loans with equal security priorities, the secondary selection 
will be based on the loan with the lowest amortization factor. For loans 
with equal amortization factors, the final selection will be based on 
the loan with the lowest present value.
    After each loan with an unequal payment schedule has been 
rescheduled or reamortized, DALR$ will determine if a feasible plan was 
developed with the appropriate debt service margin prior to proceeding 
to the next loan.
    The calculations completed during this process are as follows:
    1. Reschedule or reamortize an unequal payment loan over the maximum 
term.
    2. Calculate the debt repayment for the first year for the 
restructured loan based on the new term and interest rate.
    3. Determine if a feasible plan was developed with the appropriate 
debt service margin.
    4. If a feasible plan was developed, no further servicing is 
required. The combination of a recoverable cost item with the parent 
loan will be reversed if the combined loans did not require servicing. 
DALR$ will offer the user the opportunity to print the servicing report.
    5. If a feasible plan is not developed, repeat steps 1 through 3 
until a feasible plan is developed with the appropriate debt service 
margin, or until all unequal payment schedule loans have been processed.
    6. If a feasible plan is not developed, calculate the necessary cash 
improvement required to cash flow in the first year using the 
rescheduling or reamortization process. Retain this amount for later use 
in the cash improvement process.
    7. If a feasible plan was not developed, DALR$ will consider 
deferrals in accordance with paragraph I of this section.

              Rescheduling or Reamortization with Deferral

    If a feasible plan cannot be developed by utilization of 
rescheduling or reamortizing delinquent and non-delinquent loans with 
the maximum terms and lowest interest rates available under the 
regulations with a ten percent margin, deferral data must be entered in 
DALR$. DALR$ will not consider the borrower for writedown (discussed in 
paragraph J of this section) unless deferral data has been entered.
    DALR$ will attempt to develop a feasible plan for the first year by 
deferring payments on FSA loans until the end of the deferral period (1-
5 years). A deferral will decrease the payment during the period of the 
deferral, and increase the payment for the remaining term after the 
deferral period. Deferrals will only be beneficial if the debt repayment 
margin increases in the year after the deferral period. This improvement 
must be no later than six years after the current planning year, since 
the maximum deferral period is five years.
    To determine the appropriate deferral period, the servicing official 
and borrower will review the farm operation over the next five years. 
Loans should be deferred to the year when the improvement from the first 
planning year is the greatest and the improvement in the following years 
are at least as good.

[[Page 202]]

    Loans will be deferred at the lower of the original note rate, or 
current program interest rate (limited resource, if applicable). ST will 
not be considered for regular deferral.
    To select loans for deferral, DALR$ will calculate the payment after 
the deferral period for each loan as if the loan had been fully 
deferred. (This is only a side calculation to determine the best order 
of selection.) The ratio of the difference between the post deferral 
year payment and first year payment will be calculated as follows:

               (Post Deferral Payment--First Year Payment)

                           First Year Payment

    The loan with the smallest ratio will be deferred first and so 
forth.
    The calculations completed during this process are as follows:
    1. Defer the selected loan and calculate debt repayment in the first 
year and the year after the deferral period.
    2. Determine if a feasible plan was developed for the first year 
with the appropriate debt service margin. If a feasible plan was 
developed proceed with step three, otherwise, repeat step one until a 
feasible plan for the first year is developed or all loans have been 
deferred.
    3. If the applicable debt service margin for the first year was 
exceeded (this indicates that the last loan deferred did not require a 
full deferral), the following will occur:
    a. DALR$ will determine the amount of the partial deferral needed on 
the last loan selected to maintain the feasible plan developed for the 
first year. See section VI of attachment 1 of this Exhibit for formulas 
used in calculating partial deferral.
    b. DALR$ will calculate the debt repayment for this loan for the 
first year and the year after the deferral period.
    4. Calculate total debt repayment for the year after the deferral 
period.
    5. If a feasible plan exists for the year after the deferral period, 
then no further servicing actions are required. DALR$ will offer the 
user the opportunity to print the servicing report.
    6. If the deferral of loans will not permit the borrower to cash 
flow in the first year, DALR$ will calculate the cash improvement 
required to cash flow in the first year using deferral. This amount will 
be retained for later use in the cash improvement process.
    7. If a feasible plan does not exist for the year after the deferral 
period, DALR$ will consider the borrower for ST, if requested in 
accordance with paragraph J of this section. Otherwise, DALR$ will 
consider the borrower for debt writedown in accordance with paragraph K 
of this section.

                         J. Softwood Timber (ST)

    DALR$ will consider ST, if requested by the borrower, to the maximum 
limit permitted under the regulations. Deferral of payment on ST until 
the end of the ST deferral period must improve the borrowers debt 
repayment ability during the first year and the year after the deferral 
period. All previously calculated regular deferrals will be cancelled. 
Only loans eligible for ST will be considered. If the entire unpaid 
balance of a loan is not converted to a ST loan, the loan will be split 
into two loans. The interest rate for the ST portion will be the lessor 
of the original note rate or the current ST loan program interest rate. 
The non ST portion of the loan will retain the interest rate and term 
determined prior to ST consideration.
    Loans will be selected to maximize the present value of the loan 
after ST deferral. This will minimize or eliminate loss to the 
Government. DALR$ will calculate the present value for each eligible 
loan before and after ST and compute the decrease in present value using 
the following formula:

   (Present Value w/ Full ST Deferral--Present Value if not Deferred)

                     Nondeferred First Year Payment

    Note: For loans in which the present value increases, this will be a 
negative number.
    The ratio of the decrease in present value to the first year payment 
will be calculated. The loan with the smallest (or most negative) ratio 
will be selected first. For loans with equal ratios, the secondary 
selection will be based on the loan with the lowest security priority.
    The calculations completed during this process are as follows:
    1. Starting with the first loan selected for ST, defer the loan. The 
amount of ST deferral cannot exceed the maximum limit permitted under 
the regulations.
    2. Determine if a feasible plan was developed for the first year 
with the appropriate debt service margin. If a feasible plan was found, 
proceed with step three, otherwise, repeat step one until a feasible 
plan is found or the maximum for ST deferral has been reached.
    3. If the full deferral of a loan results in the applicable debt 
service margin being exceeded, DALR$ will determine the amount of 
partial deferral required for a feasible plan. If a loan is only 
partially deferred, DALR$ will create a new loan identity for the 
partially deferred portion of the loan. The portion not deferred will 
maintain the interest rate and term prior to the deferral.
    4. If full utilization of the ST program does not result in a 
positive cash flow in the first year, repeat the regular deferral 
process (see paragraph J of this section. Loans selected

[[Page 203]]

for ST will not be deferred when repeating the regular deferral 
calculations.
    5. If the deferral of loans under the ST program results in a 
positive cash flow with the applicable debt service margin for the first 
year, no further servicing is required. DALR$ will provide the user with 
the opportunity to print the servicing report.
    6. If the deferral of loans under the ST program will not permit the 
borrower to cash flow in the first year, DALR$ will calculate the cash 
improvement required to cash flow in the first year using the ST 
program. This amount will be retained for later use in the cash 
improvement process.
    7. If a feasible plan is not found, DALR$ will consider the borrower 
for writedown in accordance with paragraph K of this section.

                              K. Writedown

    If a feasible plan could not be developed utilizing CC, rescheduling 
or reamortization, limited resource rates, regular deferral and ST 
deferral, and the borrower is eligible for writedown or writeoff, DALR$ 
will attempt to develop a feasible plan by writing down the borrower's 
FSA debt. Borrowers who have met the lifetime limitation for writedown 
or writeoff will not be considered for writedown. The amount of the 
writedown necessary to develop a feasible plan must be less than or 
equal to $300,000 in accordance with section 1951.909 of part 1951, 
subpart S.
    DALR$ will prioritize the loans for writedown and attempt to develop 
a feasible plan (pass one). If a feasible plan is not found, DALR$ will 
re-order the loans based on different criteria and again attempt to 
develop a feasible plan with writedown (pass two). Loans deferred under 
the ST program will not be considered for writedown.
    For the first attempt to writedown (pass one), loan selection will 
be based on an attempt to maximize the amount of writedown. The loan 
with the lowest security priority will be selected first. For loans with 
an equal security priority, the secondary selection will be based on the 
loan with the largest amortization factor.
    If a feasible plan was not developed, DALR$ will re-order the loans 
based on new criteria, and will again attempt writedown (pass two). Loan 
selection will be based on lowest security priority. For loans with 
equal security priority, the secondary selection will be based on the 
loan with the smallest present value factor. For loans with an equal 
present value factor, the final selection will be based on the loan with 
the highest amortization factor.
    The calculations completed during this process are as follows:
    1. From the list of loans for the first method of loan 
prioritization (pass one), select the first from the list ordered and 
apply writedown. This step will be repeated until the borrower cash 
flows in the first year, or until all selected loans have been written 
down. The writedown amount for each loan will be retained and added to 
the total writedown amount.
    2. If a cash flow for the first year was achieved and the full 
writedown of the last loan selected results in the applicable debt 
service margin being exceeded, this implies that a full writedown was 
not required. DALR$ will compute the amount of partial writedown on the 
last loan selected necessary to achieve a cash flow in the first year at 
the appropriate debt service margin and reschedule or reamortize the 
remaining unpaid balance.
    3. If the present value of all FSA remaining debt plus the total CC 
equals or exceeds the NRV, and the total writedown amount is less than 
or equal to $300,000, no further serving is required. DALR$ will offer 
the user the opportunity to print the servicing report.
    If this step fails, the process will be repeated from step one using 
the second method for ordering loans for writedown.
    4. If step three fails after repeating the writedown calculations 
based on the second method of prioritizing loans for writedown, DALR$ 
will consider the borrower for a combination of deferral and writedown 
in accordance with paragraph L of this section.

                       L. Writedown with Deferral

    This process will defer payment on FSA loans in combination with 
debt writedown in an effort to develop a feasible plan for the first 
year and the year after the deferral period. Regular and ST deferrals 
did not result in a feasible plan for the first year and the year after 
the deferral period.
    The deferral period will be 1-5 years as entered by the user.
    To select loans for deferral, DALR$ will calculate the payment for 
each loan as if it had been fully deferred. (This is a side calculation 
used only to prioritize the loans.) The ratio between the post deferral 
year payment and the first year payment will be calculated as follows:

               (Post Deferral Payment--First Year Payment)

                           First Year Payment

    The loan with the smallest ratio is deferred first and so on until 
the borrower cash flows in the first year with the appropriate debt 
service margin or all loans have been deferred.
    Loans will be selected for writedown based on the selection criteria 
established in paragraph J of this section. The deferred portion of the 
loan is considered a separate loan in this process and must be 
prioritized for selection with the remaining loans.
    The calculations completed during this process are as follows:

[[Page 204]]

    1. Loans are deferred to obtain a positive cash flow in the first 
year as described in paragraph J of this section.
    2. DALR$ will create a new loan identity for the partially deferred 
portion of any loan.
    3. If the borrower cash flows with the appropriate debt service 
margin in both the first year and the year after the deferral period, no 
further servicing is required. DALR$ will offer the user the opportunity 
to print the servicing report.
    Otherwise, using the first method of loan selection (pass one) 
described in paragraph L of this section, DALR$ will select one loan at 
a time and attempt to develop a feasible plan by utilization of full or 
partial writedown.
    4. If the borrower does not cash flow in the year after the deferral 
period, or the cash flow in the first year exceeds the appropriate debt 
service margin, DALR$ retains the writedown amount, all loans not 
completely written down are converted to non-deferred status, and the 
process will begin again at step one.
    5. If the present value of all FSA remaining debt plus the total CC 
equals or exceeds the NRV, and if the writedown amount is less than or 
equal to $300,000, a feasible plan has been found and no further 
servicing is required. Otherwise, repeat this process beginning from 
step one using the second method of prioritizing loans for writedown 
described in paragraph L of this section.
    6. If step three fails after repeating the writedown calculations 
based on the second method of prioritizing loans for writedown, DALR$ 
will determine if the borrower will be offered buyout at the current 
market value. If the writeoff amount (total principal and interest minus 
the total market value) is less than or equal to $300,000, DALR$ will 
compute an offer to the borrower for buyout at the current maket value. 
Otherwise, the borrower is not eligible for debt forgiveness. DALR$ will 
offer the user the opportunity to print the servicing report.

                           M. Cash Improvement

    If a feasible plan could not be developed after considering all 
available primary loan servicing, DALR$ will provide the user with the 
opportunity to determine the amount of cash improvement in the first 
year balance available to produce a feasible plan.
    The calculations completed during this process are as follows:
    1. Collect cash improvement solutions from the reschedule or 
reamortize debt process, the regular deferral process, and the softwood 
timber deferral process.
    2. Determine the cash improvement required in the first year to cash 
flow using conservation contract, if applicable.
    3. Determine the cash improvement required in the first year to cash 
flow using writedown, if applicable.
    4. Determine the cash improvement required in the first year to cash 
flow using writedown with deferrals, if applicable.
    5. Select the lowest of all the cash improvements and display it to 
the screen. DALR$ will offer the user the opportunity to print the 
servicing report.

                               O. Summary

    At this point, DALR$ has finished its calculations. A feasible plan 
has been developed, or all possible combinations of servicing actions 
has been considered. DALR$ will provide a report of the results of the 
calculations performed.
    If DALR$ does not find a solution that will provide a feasible plan, 
FSA will proceed with the other actions authorized in this subpart, 
including mediation, offer the opportunity to purchase collateral for 
market value, and consideration for Homestead Protection.

            Attachment 1--Formulas Used in DALR$ Calculations

                  I. Interest Accrual on Existing Loans

    If the interest accrual date for an existing loan precedes the 
proposed restructure date, DALR$ will determine the amount of additional 
interest which will accrue between these dates. This amount will be 
added to the unpaid interest that was outstanding as of the accrual 
date. The calculations used are as follows:

          A. Interest Accrual After the Loan Status Date Equals

  [(Principal  x  Interest Rate)/365]  x  (Effective Date-Accrual Date)

                    B. Total Accrued Interest Equals

Interest Accrual After the Loan Status Date + Accrued Interest as of the 
                            Loan Status Date

                         II. Debt Service Margin

    DALR$ will attempt to develop a feasible plan that provides the 
borrower with a ten percent margin above the amount needed for family 
living expenses, farm operating expenses and debt service obligations. 
If a feasible plan cannot be found with a ten percent debt service 
margin, DALR$ will reduce the margin in increments of one percent until 
a feasible plan is found, or the debt service margin falls below zero. 
DALR$ will consider all loan servicing options prior to reducing the 
debt service margin.
    The debt service margin is applicable in both the first year and the 
post deferral year calculations if deferral is being considered. The 
debt service margin is used to calculate the cash available restructure 
FSA debt and is calculated as follows:

[[Page 205]]

    Cash Available = ((balance available + family living expenses + farm 
operating expenses-interest expense) / applicable debt service 
margin)---family living expenses-farm operating expenses (excluding 
interest)-non-agency debt repayment
    The debt service margin used in the above calculations is set 
initially at 1.10. If a feasible plan is not found after consideration 
of all loan servicing options, the margin is reduced incrementally by 
.01. After the reduction is completed, DALR$ will reconsider the 
borrower for all loan servicing requested. DALR$ will continue to reduce 
the debt service margin until a feasible plan is developed, or until it 
has been determined that a feasible plan is not possible with a debt 
service margin of 1.00.

                     III. Loan Payment Calculations

    Loan payments are calculated using amortization factors rounded to 
the nearest five places. All payments are rounded up to the next dollar. 
The equations used to calculate loan payments are as follows:

                      A. Payments on New FSA Loans

Payment = Principal Amount  x  Amortization Factor

         B. Payments on FSA Loans for Annual Operating Expenses

    1. Determine the average number of months that the loan for annual 
operating expenses will be outstanding. It may be estimated or 
calculated from the projected advance and payment schedule for the loan.
    For example, the loan for annual operating expenses is estimated to 
be $15,000 and the projected advance and repayment schedule is planned 
as follows:

                                                                        
------------------------------------------------------------------------
                                                              Number of 
               Principal balance outstanding                    months  
                                                             outstanding
------------------------------------------------------------------------
$15,000....................................................           3 
$8,000.....................................................           2 
$6,000.....................................................           4 
------------------------------------------------------------------------

Average Months = (3  x  15,000) + (2  x  8,000) + (4  x  6000) 15,000
Average Months = 45,000 + 16,000 + 24,000 15,000
Average Months = 85,000 15,000
Average Months = 5.7

    2. Determine interest accrual on annual operating expense loan.

Interest Accrual = [(Principal Amount  x  Interest Rate)/12]  x  Number 
          of Months Outstanding

    3. Determine total payment.

Total Payment = Principal Amount + Interest Accrual

            C. Payments for Rescheduled or Reamortized Loans

    1. Determine interest accrual if loan status date precedes the 
proposed restructure date in accordance with section I of this 
attachment.
    2. Determine unpaid loan balance.

Unpaid Loan Balance = Principal Amount + Unpaid Interest (as of the loan 
          status date) + Interest Accrual

    3. Determine payment amount.
Payment = Unpaid Balance  x  Amortization Factor

                     D. Payments for Deferred Loans

    1. Determine term of loan entered in DALR$.
    2. Determine remaining term after deferral period.
    Remaining Term = Term--Deferral Period

 _______________________________________________________________________
Remaining Term = Term-Deferral Period

3. Determine payment during deferral period.

Payment = Nondeferred Principal x Amortization Factor


    Note: Amortization factor is based on the full term of the loan.


    4. Determine payment after deferral.
    a. Determine interest accrual on deferred principal.

Interest Accrual = Deferred Principal x Interest Rate x Deferral Period

    b. Determine payment on interest accrual.

Payment = Interest Accrual / Remaining Term

    c. Determine payment on deferred principal.

Payment = Deferred Principal x Amortization Factor


    Note: Amortization factor is based on the remaining term after the 
expiration of the deferral period.


    d. Determine total payment after deferral.

Payment = Payment of Nondeferred Principal + Payment on Interest Accrual 
          + Payment on Deferred Principal

                      IV. Loan Amortization Factors

    Loan amortization factors are calculated using the following 
equations:
A. Non-deferred loan
    A = [(i(l + i)n)/((l + i)n-l)]
    A--amortization factor
    i--interest rate
    n--term
B. Deferred loan
    A = [((i(l + i)n-t)/((l + i)n-t-l)) + ((i x t)/(n-t))]
    A--amortization factor
    i--interest rate
    n--term

[[Page 206]]

    t--deferral period
C. Deferred interest
    A = l/(n-t)
    A--amortization factor
    n--term
    t--deferral period

                      V. Present value calculations

    A. The net present value factors for each loan are calculated using 
the following equations:
1. Non-deferred loan
    P = [((l+ i)n-l/(i(l+ i)n)]
    P--net present value factor
    i--discount rate
    n--term
2. Deferred loan
    P = [[((l+ i)n-t-l/(i(l+ i)n-t)]/(l+ i)t]
    P--net present value factor
    i--discount rate
    n--term
    t--deferral period
B. The loan net present is calculated using the following equation:
    NPV = (P)(p)
    NPV--loan net present value
    P--loan net present value factor
    p--loan payment

                    VI. Partial deferral calculations

    Whenever full deferral of a loan results in excess cash flow (above 
the applicable debt service margin) in the first year, a partial 
deferral of that loan will decrease future payments on that loan and 
eliminate the excess cash flow in the first year. A partial loan is 
created by apportioning the loan balance into two distinct parts 
(nondeferred and deferred).
    Partial deferrals are calculated as follows:

A. Determine the amount of deferral necessary to achieve cash flow in 
          the first year.
    d = l-(r/R)
    d = The fraction of the loan which must be deferred.
    r = The amount of excess cash flow in the first year with full 
deferral.
    R = The debt repayment on the loan in the first year with out 
deferral.
B. Determine the deferred and nondeferred portion of the loan.
    1. P1 = (1-d) x P
    P1 = (r/R) x P
    P1--Nondeferred Portion
    d--Fraction of the Loan which must be deferred
    P--Principal Balance
2. P2 = P--P1
    P2--Deferred Portion
    P--Principal Balance
    P1--Nondeferred Portion

           VII. $300,000 Debt writedown and buyout limitation

    DALR$ will attempt to develop a feasible plan with a ten percent 
margin. All loan servicing, including writedown will be considered prior 
to reducing the debt service margin. However, DALR$ will only consider 
writedown for those borrowers that have not received the lifetime 
limitations for writedown or writeoff (with buyout). If a feasible plan 
is found with writedown, DALR$ will:

                              A. Writedown

    1. Determine the amount of writedown that was necessary for the 
borrower to have a positive cash flow.
    2. If the amount of the writedown is less than or equal to $300,000, 
a feasible plan has been found.
    3. If the amount of the writedown is greater than $300,000, and the 
debt service margin exceeds 1.00, reduce the debt service margin by .01 
and repeat from step 1.
    4. If the amount of writedown is greater than $300,000, and the debt 
service margin equals 1.00, or a feasible plan cannot be developed, 
determine the amount of writeoff (with buyout at the current market 
value).
    5. If the amount of writeoff (with buyout at the current market 
value) is less than or equal to $300,000, the borrower will be offered 
buyout.
    6. If the amount of writeoff (with buyout at the current market 
value) is greater than $300,000, the borrower is not eligible for loan 
servicing or buyout.
[62 FR 10149, Mar. 5, 1997]

    Exhibit K--Notification of Consideration for Homestead Protection

    Purpose: To notify borrowers of preacquisition homestead protection 
consideration when there is a dwelling on the security property and a 
complete application was submitted for primary and preservation loan 
servicing or requested from the notice of intent to accelerate notice.
 _______________________________________________________________________
    Dear (Borrower's Name)
    This notice is to inform you that, per your request, you are being 
considered for Homestead Protection.
    We will need the following additional information to complete our 
processing of your request:
    1.
    2.
    3.
    Please provide the above information within 30 days from the date of 
this letter. If we do not receive the above requested information within 
30 days, we will deny your request for Homestead Protection.

[[Page 207]]

    If you wish to withdraw your request for Homestead Protection, 
please complete and return the enclosed Attachment 1, ``Response to 
Notification of Consideration for Homestead Protection,'' within 15 days 
of the date of this letter.

    [FOR INDIVIDUAL BORROWERS ONLY--INSERT EQUAL CREDIT OPPORTUNITY 
                               PARAGRAPH]

          Sincerely,

 Attachment 1--Response to Notification of Consideration for Homestead 
                               Protection

TO: Farm Service Agency
FROM: (Please Print your Name and Address)

    I have read the Notification of Consideration for Homestead 
Protection which I received with this response form.
    I want to withdraw my request for Homestead Protection.

 _______________________________________________________________________
________________________________________________________________________
Borrower's Signature

 _______________________________________________________________________
(Date)
[62 FR 10156, Mar. 5, 1997]

            Exhibit L--Homestead Protection Program Agreement

    This agreement is entered into this ________ day of ________, 19 
____, by and between the Farm Service Agency (FSA) of the United States 
Department of Agriculture and ________________ (''Borrower'').
    Concurrently, with the execution of the pre-acquisition Homestead 
Protection Program Agreement, the borrower will deliver a completed Form 
FmHA 1955-1 to FSA. The Homestead Protection Program Agreement is 
subject to the provisions of 7 CFR part 1955, subpart A.
    A. Borrower has received a loan or loans from FSA secured by real 
property which includes the Borrower's dwelling, and adjoining land that 
is used to maintain the Borrower and the Borrower's family (the 
Homestead Protection property). In some cases the FSA loans may also 
have been included one or more outbuildings that are useful to the 
Borrower and the Borrower's family and in such cases these outbuildings 
are included in the definition of Homestead Protection property.
    B. Borrower's FSA loan is in default which could result in the loss 
of the borrower's Homestead Protection property.
    C. Borrower wants to continue to occupy the Homestead Protection 
property after FSA acquires title to it.
    D. FSA has already determined that Borrower has satisfied the 
requirements for its Homestead Protection Program.
    E. FSA agrees to permit Borrower to retain occupancy of the 
Homestead Protection property on the following terms and conditions:
    1. Subject to the terms and conditions set forth below FSA agrees to 
lease the Homestead Protection property, as more particularly described 
in attachment 1 hereto, to Borrower on the terms and conditions set 
forth in the lease as attachment 2 (the ``lease''). Borrower agrees to 
enter into the lease of the Homestead Protection property.
    2. FSA's obligation to enter into the lease of the Homestead 
Protection property is subject to the occurrence of the following 
conditions:
    a. FSA acquires fee title to the Homestead Protection property in 
connection with the liquidation of the farm property of which the 
Homestead Protection property is a portion.
    b. All State and local governmental laws, ordinances and regulations 
concerning the creation of the Homestead Protection property as a 
separate legal parcel which can be leased and sold have been satisfied.
    3. The term of the lease will begin on the date the later of the 
conditions set forth in paragraph 2 is satisfied and such date will be 
inserted into the lease.
    4. The term of the lease will be ____ years. This term will be 
inserted in the lease.
    5. The rent to be charged during the term of the lease will be 
determined by FSA as of the commencement date of the lease and will be 
in an amount substantially equivalent to rents charged for similar 
residential properties in the area. The borrower will be notified by 
letter of the amount of the rent and the amount of the rent will be 
inserted in the lease form, Form FmHA 1955-20.
    6. Borrower agrees to cooperate with FSA in applying for and 
securing whatever local governmental approvals are necessary in order 
for the Homestead Protection property to be a separate legal parcel. FSA 
will bear the cost and expense of obtaining such approvals.
    7. If the term of the lease has not begun on or before 2 years from 
the date of this agreement, the agreement shall end and be of no further 
force or effect.

Farm Service Agency
 _______________________________________________________________________

Borrower:

 _______________________________________________________________________

________________________________________________________________________

________________________________________________________________________

    Attachment 1, Legal Description of the Property.
    Attachment 2, Lease Form, Form FmHA 1955-20.
[62 FR 10156, Mar. 5, 1997]

[[Page 208]]

      Exhibit M--Notice of the Availability of Homestead Protection

(Insert Borrower's Name and Address)

(Date)

    On [acquisition date], FSA acquired the property which was security 
for your FSA loan. FSA has a program called the Homestead Protection 
Program under which you may be allowed to lease (with an option to 
purchase) the house which you owned and used as your principal 
residence, a reasonable number of farm buildings located near the house 
that are useful to the occupants of the house, and not more than 10 
acres of land adjoining the house. If you would like to be considered 
for the Homestead Protection Program, you must notify this office, in 
writing, by [date 30 days from acquisition date] of the buildings and 
land you wish to retain.
    If you would like more information about the Homestead Protection 
Program, you should contact the FSA servicing official at [insert county 
office telephone number].
    Failure to respond by the above date will terminate any rights that 
you have to lease and purchase the property under the Homestead 
Protection Program.

    Sincerely,
[62 FR 10156, Mar. 5, 1997]



                  Subpart T--Disaster Set-Aside Program

    Source: 60 FR 46756, Sept. 8, 1995, unless otherwise noted.



Sec. 1951.951  Purpose.

    This subpart sets forth the policies and procedures for the Disaster 
Set-Aside (DSA) Program. The DSA program is available to Farm Credit 
(FC) Programs borrowers, as defined in subpart S of this part, who 
suffered losses as a result of a natural disaster. FC loans that may be 
serviced under this subpart include Farm Ownership (FO), Operating (OL), 
Soil and Water (SW), Emergency (EM), Economic Emergency (EE), Special 
Livestock (SL), Economic Opportunity (EO), Softwood Timber (ST), 
Recreation (RL), and Rural Housing loans for farm service buildings 
(RHF). Nonprogram (NP) farm type loans may be serviced under this 
subpart for borrowers who also have FC loans.



Sec. 1951.952  General.

    DSA is a program whereby borrowers who are current or not more than 
one installment behind on any and all FC loans may be permitted to move 
one scheduled annual installment for each eligible FC loan to the end of 
the loan term. The intent of this program is to relieve some of the 
borrower's immediate financial stress caused by the disaster and avoid 
foreclosure by the Government. DSA is not intended to circumvent the 
servicing available under subpart S of this part.



Sec. 1951.953  Notification and request for DSA.

    (a) [Reserved]
    (b) Deadline to apply. All FLP borrowers liable for the debt must 
request DSA within 8 months from the date the disaster was designated, 
except borrowers applying for a second installment set-aside for 
disasters declared by the President between January 1, 1997 and August 
1, 1997, have 6 months from the date of the notification letter to 
apply. Borrowers may only be considered for DSA one time for each 
disaster.
    (c) Information needed to apply. (1) A written request for DSA 
signed by all parties liable for the debt; and
    (2) Actual production, income, and expense records for the 
production and marketing period in which the disaster occurred. Other 
information may be requested by the servicing official when needed to 
make an eligibility determination.
[60 FR 46756, Sept. 8, 1995, as amended at 62 FR 41252, Aug. 1, 1997]



Sec. 1951.954  Eligibility and loan limitation requirements.

    (a) Eligibility requirements. The following requirements must be met 
to be eligible for DSA:
    (1) The borrower must have operated a farm or ranch in a county 
designated a disaster area or a county contiguous to such an area. The 
borrower must have been a borrower and operated the farm or ranch at the 
time of the disaster. If the borrower is applying for a second 
installment to be set-aside, the disaster area operated must have been 
in a county declared a major disaster

[[Page 209]]

or emergency by the President between January 1, 1997 and August 1. 
1997.
    (2) The borrower must have acted in good faith as defined in 
Sec. 1951.906 of subpart S of this part.
    (3) All nonmonetary defaults must have been resolved. This means 
that even though the borrower has acted in good faith, the borrower may 
still be in default for reasons, such as, but not limited to: no longer 
farming, prior lienholder foreclosure, bankruptcy or under court 
jurisdiction, not properly maintaining chattel and real estate security, 
not properly accounting for the sale of security, or not carrying out 
any other agreement made with the Agency.
    (4) The borrower must be current or not more than one installment 
behind on any and all FC loans at the time the scheduled installment 
will be set-aside. Borrowers paying under a debt settlement adjustment 
agreement in accordance with subpart B of part 1956 are not eligible.
    (5) As a direct result of the disaster, sufficient income was not 
available to pay all family living and operating expenses, debts to 
other creditors, and FSA. This determination will be based on the 
borrower's actual production and income and expense records for the 
disaster year and any other records required by the servicing official. 
Compensation received for losses shall be considered as well as 
increased expenses incurred because of the disaster. Consideration will 
also be given to insufficient income for the next production and 
marketing period following the disaster if the borrower establishes that 
production will be reduced or expenses increased as a result of the 
disaster.
    (6) After the scheduled installments are set-aside, all FC and NP 
farm type loans must be current.
    (7) The borrower's FC loan has not been accelerated nor has the 
borrower's debt been restructured under subpart S of this part since the 
disaster occurred.
    (b) Loan limitation requirements. (1) The loan must have been 
outstanding at the time of the disaster.
    (2) Only one unpaid installment for each farm loan may be set-aside. 
Except for Presidential disaster declarations between January 1, 1997 
and August 1, 1997, if there is an installment still set-aside from a 
previous disaster, the loan is not eligible for DSA. For Presidential 
declarations between January 1, 1997 and August 1, 1997, borrowers who 
already have one installment set-aside from a previous disaster may set-
aside a second installment. If the set-aside is later paid in full, or 
cancelled through restructuring under subpart S of this part, the set-
aside will no longer exist and, therefore, the loan may be considered 
for Disaster Set-Aside (DSA) in the future.
    (3) The term remaining on the loan receiving DSA equals or exceeds 2 
years from the due date of the installment being set-aside.
    (4) The amount set-aside shall be limited to the amount the borrower 
is unable to pay Farm Service Agency (FSA) from the production and 
marketing period in which the disaster occurred. However, if the 
installment due immediately after the disaster was paid, but other 
creditors and expenses were not, the amount set-aside will be the lesser 
of the amount the borrower is unable to pay other creditors and 
expenses, rounded up to the nearest whole installment, or the next 
installment due. Expenses which the borrower is unable to pay may 
include the following year's operating and family living expenses if the 
income or commodities lost from the disaster year would have been used 
for these purposes, or if normal income security from the disaster year 
is approved for release under subpart A of 7 CFR part 1962 or otherwise 
authorized under subpart B of 7 CFR part 1924 for these purposes. Under 
no circumstances will a portion of the installment be set-aside leaving 
a balance still due. The portion not set-aside must be paid by the 
borrower on or before the date Exhibit A of FmHA Instruction 1951-T 
(available in any FSA office) is signed.
    (5) The installment that may be set-aside is limited to the first 
scheduled annual installment due immediately after the disaster 
occurred, unless that installment is paid, then the next scheduled 
annual installment after that may be set-aside. For borrowers affected 
by a 1994 disaster who already paid both of these installments, the

[[Page 210]]

third scheduled installment to come due after the disaster may be set-
aside.
    (6) The amount set-aside will be the unpaid balance remaining on the 
installment at the time the borrower signs exhibit A of FmHA Instruction 
1951-T (available in any FSA office.) This amount will include the 
unpaid interest and any principal that would be credited to the account 
as if the installment were paid on the due date taking into 
consideration any payments applied to principal and interest since the 
due date. Recoverable cost items charged to FO, SW, and RHF loans may be 
set-aside with the annual installment. Cost items identified with a loan 
number different from the parent loan cannot be set-aside.
[60 FR 46756, Sept. 8, 1995, as amended at 62 FR 41252, Aug. 1, 1997]



Secs. 1951.955--1951.956  [Reserved]



Sec. 1951.957  Eligibility determination and processing.

    (a) Eligibility determination. Upon receipt of a DSA request, the 
County Supervisor will determine whether the borrower meets the 
requirements set forth in 1951.954. Approval shall be contingent upon 
the borrower's continuing eligibility through the signing of Exhibit A.
    (1) The borrower has up to 30 days to sign exhibit A of FmHA 
Instruction 1951-T (available in any FSA office), for each loan 
installment set-aside. The County Supervisor may provide for a longer 
period of time not to exceed 90 days under extenuating circumstances, 
including but not limited to situations where the Agency's approval is 
contingent upon the borrower doing something to be eligible, such as 
paying a portion of the FC payments from proceeds that may not be 
available until after the 30 day period.
    (2) Pending requests for primary loan servicing will continue to be 
considered in accordance with subpart S of this part. However, borrowers 
are not eligible for servicing under both programs. The application for 
the program not received will automatically be withdrawn at the time the 
installment is set-aside or the loan restructured, whichever is 
applicable. The automatic withdrawal is not appealable because the 
borrower is no longer delinquent. If the borrower again becomes 
delinquent or in financial distress, or requests primary loan servicing, 
the borrower will be notified or the request processed in accordance 
with subpart S of this part.
    (b) Processing.
    (1) [Reserved]
    (2) Interest will accrue on any principal amount set-aside at the 
same rate charged the non-set-aside portion. Interest will not accrue on 
the interest portion set-aside. Limited resource interest rate changes 
will affect the principal set-aside.
    (3) The amount set-aside, including interest accrual on any 
principal set-aside, will be due on or before the final due date of the 
loan.
    (4) There are no additional security requirements attached to the 
DSA program. All existing security instruments will remain in effect.
    (5)-(6) [Reserved]
    (7) Payments applied to the amount set-aside will be applied first 
to interest and then to principal. If more than one installment is set-
aside on the loan, payments will be applied to the oldest installment 
set-aside until paid in full, before applying payments to the second 
installment set-aside.
    (c) Adverse determination. If the borrower becomes more than one 
installment behind on any FC loan while processing the DSA request, or 
while an appeal is being considered, and the second installment cannot 
be paid current prior to exhibit A of FmHA Instruction 1951-T (available 
in any FSA office) being signed, the DSA request will be denied.
[60 FR 46756, Sept.8, 1995, as amended at 62 FR 41253, Aug. 1, 1997]



Sec. 1951.958  Cancellation and reversal of DSA.

    (a) Reasons for cancellation. The set-aside may be reversed and 
exhibit A of FmHA Instruction 1951-T cancelled under the following 
described situations:
    (1) The loan is later restructured with primary loan servicing, (the 
total unpaid balance must be restructured);
    (2) If prior to the first scheduled installment due date after set-
aside, the servicing official determines that the current borrower, if 
delinquent, would

[[Page 211]]

qualify for a writedown or buyout in accordance with subpart S of this 
part; or
    (3) When it has been determined that the borrower was provided 
unauthorized DSA assistance. (The set-aside will be cancelled after all 
appeal rights are exhausted. The set-aside will be removed from the 
account and the payment terms of the original promissory note will be 
retained as if DSA was never granted. Borrowers financially distressed 
or delinquent after reversal of the set-aside will be serviced in 
accordance with subpart S of this part).
    (b) [Reserved]
[60 FR 46756, Sept. 8, 1995, as amended at 62 FR 10157, Mar. 5, 1997]



Sec. 1951.959  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this subpart which is not inconsistent with 
the authorizing statute or other applicable law if it is determined that 
application of the requirement or provision would adversely affect the 
Government's interest. The Administrator will exercise this authority 
upon the request of the State Director with the recommendation of the 
Deputy Administrator for Farm Credit Programs, or upon request initiated 
by the Deputy Administrator for Farm Credit Programs.



Secs. 1951.960--1951.999  [Reserved]



Sec. 1951.1000  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 0575-0163. Public reporting burden for this collection of 
information is estimated to be 15 minutes per response, including time 
for reviewing instructions, searching existing data sources, gathering 
and maintaining the data needed, and completing and reviewing the 
collection of information. Send comments regarding this burden estimate 
or any other aspect of this collection of information, including 
suggestions for reducing this burden, to Department of Agriculture, 
Clearance Office OIRM, Room 404-W, Washington DC 20250; and to the 
Office of Management and Budget, Paperwork Reduction Project (OMB# 0575-
0163), Washington, DC 20503.



PART 1955--PROPERTY MANAGEMENT--Table of Contents




 Subpart A--Liquidation of Loans Secured by Real Estate and Acquisition 
                      of Real and Chattel Property

Sec.
1955.1  Purpose.
1955.2  Policy.
1955.3  Definitions.
1955.4  Redelegation of authority.
1955.5  General actions.
1955.6--1955.8  [Reserved]
1955.9  Requirements for voluntary conveyance of real property located 
          within a federally recognized Indian reservation owned by a 
          Native American borrower-owner.
1955.10  Voluntary conveyance of real property by the borrower to the 
          Government.
1955.11  Conveyance of property to FmHA or its successor agency under 
          Public Law 103-354 by trustee in bankruptcy.
1955.12  Acquisition of property which served as security for a loan 
          guaranteed by FmHA or its successor agency under Public Law 
          103-354 or at sale by another lienholder, bankruptcy trustee, 
          or taxing authority.
1955.13  Acquisition of property by exercise of Government redemption 
          rights.
1955.14  [Reserved]
1955.15  Foreclosure by the Government of loans secured by real estate.
1955.16--1955.17  [Reserved]
1955.18  Actions required after acquisition of property.
1955.19  [Reserved]
1955.20  Acquisition of chattel property.
1955.21  Exception authority.
1955.22  State Supplements.
1955.23--1955.49  [Reserved]
1955.50  OMB control number.

                          Exhibits to Subpart A

Exhibits A--F [Reserved]
Exhibit G--Worksheet for Accepting a Voluntary Conveyance of Farm Credit 
          Program Security Property Into Inventory
Exhibit G-1--Worksheet for Determining Farm Credit Programs, Maximum Bid 
          on Real Estate Property

                    Subpart B--Management of Property

1955.51  Purpose.
1955.52  Policy.
1955.53  Definitions.
1955.54  Redelegation of authority.

[[Page 212]]

1955.55  Taking abandoned real or chattel property into custody and 
          related actions.
1955.56  Real property located in Coastal Barrier Resources System 
          (CBRS).
1955.57  Real property containing underground storage tanks.
1955.58--1955.59  [Reserved]
1955.60  Inventory property subject to redemption by the borrower.
1955.61  Eviction of persons occupying inventory real property or 
          dispossession of persons in possession of chattel property.
1955.62  Removal and disposition of nonsecurity personal property from 
          inventory real property.
1955.63  Suitability determination.
1955.64  [Reserved]
1955.65  Management of inventory and/or custodial real property.
1955.66  Lease of real property.
1955.67  Payment of liens.
1955.68  Payment of taxes.
1955.69  Insurance.
1955.70  Inspection of property.
1955.71  Vandalism or theft.
1955.72  Utilization of inventory housing by Federal Emergency 
          Management Agency (FEMA) or under a Memorandum of 
          Understanding between the Agency and the Department of Health 
          and Human Services (HHS) for transitional housing for the 
          homeless.
1955.73--1955.80  [Reserved]
1955.81  Exception authority.
1955.82  State supplements.
1955.83--1955.99  [Reserved]
1955.100  OMB control number.

                          Exhibits to Subpart B

Exhibit A--Memorandum of Understanding Between the Federal Emergency 
          Management Agency and the Farmers Home Administration or its 
          successor agency under Public Law 103-354
Exhibit B--Notification of Tribe of Availablity of Farm Property for 
          Purchase
Exhibit C--Cooperative Agreement (Example)
Exhibit D--Fact Sheet--The Federal Interagency Task Force on Food and 
          Shelter for the Homeless

                Subpart C--Disposal of Inventory Property

                              Introduction

1955.101  Purpose.
1955.102  Policy.
1955.103  Definitions.
1955.104  Authorities and responsibilities.

   Consolidated Farm and Rural Development Act (CONACT) Real Property

1955.105  Real property affected (CONACT).
1955.106  Disposition of farm property.
1955.107  Sale of FSA property (CONACT).
1955.108  Sale of (CONACT) property other than FSA property.
1955.109  Processing and closing (CONACT).

                    Rural Housing (RH) Real Property

1955.110  [Reserved]
1955.111  Sale of real estate for RH purposes (housing).
1955.112  Method of sale (housing).
1955.113  Price (housing).
1955.114  Sales steps for program property (housing).
1955.115  Sales steps for nonprogram (NP) property (housing).
1955.116  Requirements for sale of property not meeting decent, safe and 
          sanitary (DSS) standards (housing).
1955.117  Processing credit sales on program terms (housing).
1955.118  Processing cash sales or MFH credit sales on NP terms.
1955.119  Sale of SFH inventory property to a public body or nonprofit 
          organization.
1955.120  Payment of points (housing).

                            Chattel Property

1955.121  Sale of acquired chattels (chattel).
1955.122  Method of sale (chattel).
1955.123  Sale procedures (chattel).
1955.124  Sale with inventory real estate (chattel).
1955.125--1955.126  [Reserved]

           Use of Contractors To Dispose of Inventory Property

1955.127  Selection and use of contractors to dispose of inventory 
          property.
1955.128  Appraisers.
1955.129  Business brokers.
1955.130  Real estate brokers.
1955.131  Auctioneers.

                                 General

1955.132  Pilot projects.
1955.133  Nondiscrimination.
1955.134  Loss, damage, or existing defects in inventory real property.
1955.135  Taxes on inventory real property.
1955.136  Environmental Assessment (EA) and Environmental Impact 
          Statement (EIS).
1955.137  Real property located in special areas or having special 
          characteristics.
1955.138  Property subject to redemption rights.
1955.139  Disposition of real property rights and title to real 
          property.
1955.140  Sale in parcels.
1955.141  Transferring title.
1955.142-1955.143  [Reserved]
1955.144  Disposal of NP or surplus property to, through, or acquisition 
          from other agencies.
1955.145  Land acquisition to effect sale.
1955.146  Advertising.
1955.147  Sealed bid sales.

[[Page 213]]

1955.148  Auction sales.
1955.149  Exception authority.
1955.150  State supplements.

  Exhibit A to Subpart C--Notice of Flood, Mudslide Hazard, or Wetland 
                                  Area



    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

    Source: 50 FR 23904, June 7, 1985, unless otherwise noted.

    Editorial Note: Exhibits A, C, D, and E referenced in this part are 
not published in the Code of Federal Regulations.



 Subpart A--Liquidation of Loans Secured by Real Estate and Acquisition 
                      of Real and Chattel Property



Sec. 1955.1  Purpose.

    This subpart delegates authority and prescribes procedures for the 
liquidation of loans to individuals and to organizations as identified 
in Sec. 1955.3. It pertains to the Farm Credit programs of the Farm 
Service Agency (FSA), Water and Waste programs of the Rural Utilities 
Service (RUS), Multi-Family Housing (MFH) and Community Facility (CF) 
programs of the Rural Housing Service (RHS), and direct programs of the 
Rural Business-Cooperative Service (RBS). Guaranteed RBS loans are 
liquidated upon direction from the Deputy Administrator, Business 
Program, RBS. This subpart does not apply to RHS single family housing 
loans, or to CF loans sold without insurance in the private sector. 
These CF loans will be serviced in the private sector and future 
revisions to this subpart no longer apply to such loans.
[61 FR 59778, Nov. 22, 1996]



Sec. 1955.2  Policy.

    When it has been determined in accordance with applicable loan 
servicing regulations that further servicing will not achieve loan 
objectives and that voluntary sale of the property by the borrower 
(except for Multiple Family Housing (MFH) loans subject to prepayment 
restrictions) cannot be accomplished, the loan(s) will be liquidated 
through voluntary conveyance of the property to FmHA or its successor 
agency under Public Law 103-354 or by foreclosure as outlined in this 
subpart. For MFH loans subject to the prepayment restrictions, voluntary 
liquidation may be accomplished only through voluntary conveyance to 
FmHA or its successor agency under Public Law 103-354 in accordance with 
applicable portions of Sec. 1955.10 of this subpart. Nonprogram (NP) 
loans, except for Community and Business Programs, will be liquidated as 
provided in subpart J of part 1951 of this chapter, unless specifically 
referenced in this subpart.
[51 FR 4138, Feb. 3, 1986, as amended at 53 FR 27826, July 25, 1988; 58 
FR 52652, Oct. 12, 1993]



Sec. 1955.3  Definitions.

    As used in this subpart, the following definitions apply:
    Closing agent. An attorney or title insurance company which is 
approved as a loan closing agent in accordance with subpart B of part 
1927 of this chapter.
    CONACT or CONACT property. Property acquired or sold pursuant to the 
Consolidated Farm and Rural Development Act. Within this subpart, it 
shall also be construed to cover property which secured loans made 
pursuant to the Agriculture Credit Act of 1978; the Emergency 
Agricultural Credit Adjustment Act of 1978; the Emergency Agricultural 
Credit Act of 1984; the Food Security Act of 1985; and other statutes 
giving agricultural lending authority to FmHA or its successor agency 
under Public Law 103-354.
    Farmer Programs loans. The term ``Farmer Program loans'' (FP) refers 
to the following types of loans: Farm Ownership (FO), Soil and Water 
(SW), Recreation (RL), Economic Opportunity (EO), Operating (OL), 
Emergency (EM), Economic Emergency (EE), Softwood Timber (ST), and Rural 
Housing Loans for farm service buildings (RHF).
    Government. The United States of America acting through the Farmers 
Home Administration or its successor agency under Public Law 103-354 
(FmHA or its successor agency under Public Law 103-354), U.S. Department 
of Agriculture; used interchangeably herein with ``FmHA or its successor 
agency under Public Law 103-354.''
    Homestead protection. The Farmer Programs borrower-owner's right to

[[Page 214]]

lease with an option to purchase the principal residence located on or 
off the farm and up to 10 acres of adjoining land possessed and occupied 
by the borrower-owner, including a reasonable number of farm 
outbuildings located on the adjoining land that are useful to the 
occupants of the homestead.
    Interest credit. The terms ``interest credit'' and ``interest credit 
assistance,'' as they relate to Single Family Housing (SFH) loans, are 
interchangeable with the term ``payment assistance.'' Payment assistance 
is the generic term for the subsidy provided to eligible SFH borrowers 
to reduce mortgage payments.
    Loans to individuals. Farm Ownership (FO), Soil and Water (SW), 
Recreation (RL), Special Livestock (SL), Economic Opportunity (EO), 
Operating (OL), Emergency (EM), Economic Emergency (EE), Softwood Timber 
(ST), and Rural Housing loans for farm service buildings (RHF), whether 
to individuals or entities, referred to in this subpart as Farmer 
Programs (FP) loans; and Land Conservation and Development (LCD); and 
Single-Family Housing (SFH), including both Section 502 and 504 loans.
    Loans to Native Americans. Farmer Program loans secured by real 
estate located within the boundaries of a federally recognized Indian 
reservation. The Native American borrower-owner is defined as the party 
who pledged real estate as collateral for an FP loan and is the tribe or 
a member of the tribe with control over the reservation.
    Loans to organizations. Community Facility (CF); Water and Waste 
Disposal (WWD); Association Recreation; Watershed (WS); Resource 
Conservation and Development (RC&D); insured Business and Industrial 
(B&I) both to individuals and groups; Rural Development Loan Fund 
(RDLF); Intermediary Relending Program (IRP); Nonprofit National 
Corporations (NNC); loans to associations for Irrigation and Drainage 
(I&D) and other Soil and Water conservation measures; loans to Indian 
Tribes and Tribal Corporations; Shift-In-Land Use (Grazing Association); 
Economic Opportunity Cooperative (EOC); Rural Housing Site (RHS); Rural 
Cooperative Housing (RCH); Rural Rental Housing (RRH) and Labor Housing 
(LH) to both individuals and groups. The housing-type organization loans 
identified here are referred to in this subpart collectively as 
Multiple-family Housing (MFH) loans.
    Market value. The most probable price which property should bring, 
as of a specific date, in a competitive and open market, assuming the 
buyer and seller are prudent and knowledgeable, and the price is not 
affected by undue stimulus such as forced sale or loan interest subsidy.
    Nonrecoverable costs. Costs incurred after Government acquisition of 
title to the property and charged to an inventory account.
    OGC. The Office of the General Counsel, U.S. Department of 
Agriculture; refers to the Regional Attorney or Attorney-in-Charge in an 
OGC field office unless otherwise indicated.
    Prior lien. A security instrument (such as a mortgage or deed of 
trust) or a judgment which was of public record before the FmHA or its 
successor agency under Public Law 103-354 security instrument(s) as well 
as real estate taxes or assessments which are or will become a lien 
against the property which is superior to FmHA or its successor agency 
under Public Law 103-354's security instrument(s).
    Recoverable costs. Costs charged to a borrower's account paid or 
incurred prior to Government acquisition of title to the property.
    Servicing official. For loans to individuals as defined in paragraph 
(d) of this section, the servicing official is the County Supervisor. 
For insured B&I loans, the servicing official is the State Director. For 
RDLF and IRP, the servicing official is the Director, Business and 
Industry Division. For NNC, the servicing official is the Director, 
Community Facility Division. For all other types of loans, the servicing 
official is the District Director.
[50 FR 23904, June 7, 1985, as amended at 50 FR 45782, Nov. 1, 1985; 52 
FR 26138, July 13, 1987; 53 FR 27826, July 25, 1988; 53 FR 30664, Aug. 
15, 1988; 53 FR 35762, Sept. 14, 1988; 56 FR 15821, Apr. 18, 1991; 56 FR 
29402, June 27, 1991; 56 FR 67484, Dec. 31, 1991; 58 FR 68723, Dec. 29, 
1993; 60 FR 55147, Oct. 27, 1995; 62 FR 44395, Aug. 21, 1997]

[[Page 215]]



Sec. 1955.4  Redelegation of authority.

    Authorities will be redelegated to the extent possible, consistent 
with program requirements and available resources.
    (a) Except as provided in Sec. 1900.6(c) of this chapter, any 
authority in this subpart which is specifically delegated to the 
Administrator or to an Deputy Administrator may only be delegated to a 
State Director. The State Director cannot redelegate such authority.
    (b) Except as provided in paragraph (a) of this section, the State 
Director is authorized to redelegate, in writing, any authority 
delegated to the State Director in this subpart to a Program Chief, 
Program Specialist or Property Management Specialist on the State Office 
staff; except the authority to approve or disapprove foreclosure as 
outlined in Sec. 1955.115(a)(2) of this subpart may not be redelegated. 
However, a duly-designated Acting State Director may approve or 
disapprove foreclosure.
    (c) The District Director is authorized to redelegate, in writing, 
any authority delegated to the District Director in this subpart to an 
Assistant District Director or District Loan Specialist determined by 
the District Director to be qualified; except the authority to approve 
or disapprove foreclosure as outlined in Sec. 1955.15(a)(1) of this 
subpart may not be redelegated. However, a duly designated Acting 
District Director may approve or disapprove foreclosure. Authority of 
District Directors in this subpart applies to Area Loan Specialists in 
Alaska and the Director for the Western Pacific Territories.
    (d) The County Supervisor is authorized to redelegate, in writing, 
any authority delegated to the County Supervisor in this subpart to an 
Assistant County Supervisor, GS-7, or above, determined by the County 
Supervisor to be qualified. Authority of County Supervisors in this 
subpart applies to Area Loan Specialists in Alaska and Area Supervisors 
in the Western Pacific Territories and American Samoa.
    (e) The monetary limitations on acceptance of voluntary conveyance 
as provided in Sec. 1955.10(a) of this subpart may not be redelegated 
from a higher-level official to a lower level official.
[53 FR 27826, July 25, 1988, as amended at 54 FR 6875, Feb. 15, 1989; 59 
FR 43441, Aug. 24, 1994; 62 FR 44395, Aug. 21, 1997]



Sec. 1955.5  General actions.

    (a) Assignment of notes to FmHA or its successor agency under Public 
Law 103-354. When liquidation action is approved and the insured note is 
not held in the County or District Office, the approval official will 
request the Finance Office to purchase the note and forward it to the 
appropriate office. Voluntary conveyance may be closed pending receipt 
of the note(s), and foreclosure may also be processed pending receipt of 
the note(s), unless the original note is required in connection with the 
foreclosure action.
    (b) Execution of documents. (1) After liquidation of loans to 
individuals has been approved by the appropriate official, the County 
Supervisor is authorized to execute all necessary forms and documents 
except notices of acceleration required to complete transactions covered 
by this subpart.
    (2) After liquidation of loans to organizations has been approved by 
the appropriate official, the District Director is authorized to execute 
all forms and documents for completion of the liquidation except:
    (i) Notice of acceleration; or
    (ii) Other form or document which specifically required State or 
National Office approval because of monetary limits or policy statement 
established elsewhere in this subpart.
    (c) Unused loan funds. (1) Funds remaining in a supervised bank 
account will be handed in accordance with Sec. 1902.15 of subpart A of 
part 1902 of this chapter before a voluntary conveyance or foreclosure 
is processed.
    (2) Funds remaining in a construction or other account will be 
applied to the borrower's FmHA or its successor agency under Public Law 
103-354 accounts.
    (d) Payment of costs. Costs related to liquidation of a loan or 
acquisition of property will be paid according to FmHA or its successor 
agency under Public Law 103-354 Instruction 2024-A

[[Page 216]]

(available in any FmHA or its successor agency under Public Law 103-354 
office) as either a recoverable or nonrecoverable cost as defined in 
Sec. 1955.3 of this subpart.
    (e) Escrow funds. Any funds remaining in the borrower's escrow 
account at the time of liquidation by voluntary conveyance or 
foreclosure are nonrefundable and will be credited to the borrower's 
loan account.
[50 FR 23904, June 7, 1985, as amended at 56 FR 6953, Feb. 21, 1991, 57 
FR 36590, Aug. 14, 1992]



Secs. 1955.6--1955.8  [Reserved]



Sec. 1955.9  Requirements for voluntary conveyance of real property located within a federally recognized Indian reservation owned by a Native American 
          borrower-owner.

    (a) The borrower-owner is a member of the tribe that has 
jurisdiction over the reservation in which the real property is located. 
An Indian tribe may also meet the borrower-owner criterion if it is 
indebted for Farm Credit Programs loans.
    (b) A voluntary conveyance will be accepted only after all 
preacquisition primary and preservation servicing actions have been 
considered in accordance with subpart S of part 1951 of this chapter.
    (c) When all servicing actions have been considered under subpart S 
of part 1951 of this chapter and a positive outcome cannot be achieved, 
the following additional actions are to be taken:
    (1) The county official will notify the Native American borrower-
owner and the tribe by certified mail, return receipt requested, and by 
regular mail if the certified mail is not received, that:
    (i) The borrower-owner may convey the real estate security to FSA 
and FSA will consider acceptance of the property into inventory in 
accordance with paragraph (d) of this section.
    (ii) The borrower-owner must inform FSA within 60 days from receipt 
of this notice of the borrower and owner's decision to deed the property 
to FSA;
    (iii) The borrower-owner has the opportunity to consult with the 
Indian tribe that has jurisdiction over the reservation in which the 
real property is located, or counsel, to determine if State or tribal 
law provides rights and protections that are more beneficial than those 
provided the borrower-owner under Agency regulations;
    (2) If the borrower-owner does not voluntarily deed the property to 
FSA, not later than 30 days before the foreclosure sale, FSA will 
provide the Native American borrower-owner with the following options:
    (i) The Native American borrower-owner may require FSA to assign the 
loan and security instruments to the Secretary of the Interior. If the 
Secretary of the Interior agrees to such an assignment, FSA will be 
released from all further responsibility for collection of any amounts 
with regard to the loans secured by the real property.
    (ii) The Native American borrower-owner may require FSA to complete 
a transfer and assumption of the loan to the tribe having jurisdiction 
over the reservation in which the real property is located if the tribe 
agrees to the assumption. If the tribe assumes the loans, the following 
actions shall occur:
    (A) FSA shall not foreclose the loan because of any default that 
occurred before the date of the assumption.
    (B) The assumed loan shall be for the lesser of the outstanding 
principal and interest of the loan or the fair market value of the 
property as determined by an appraisal.
    (C) The assumed loan shall be treated as though it is a regular 
Indian Land Acquisition Loan made in accordance with subpart N of part 
1823 of this chapter.
    (3) If a Native American borrower-owner does not voluntarily convey 
the real property to FSA, not less than 30 days before a foreclosure 
sale of the property, FSA will provide written notice to the Indian 
tribe that has jurisdiction over the reservation in which the real 
property is located of the following:
    (i) The sale;
    (ii) The fair market value of the property; and
    (iii) The ability of the Native American borrower-owner to require 
the assignment of the loan and security instruments either to the 
Secretary of the Interior or the tribe (and the consequences of either 
action) as provided in Sec. 1955.9(c)(2).

[[Page 217]]

    (4) FSA will accept the offer of voluntary conveyance of the 
property unless a hazardous substance, as defined in the Comprehensive 
Environmental Response, Compensation, and Liability Act of 1980, is 
located on the property which will require FSA to take remedial action 
to protect human health or the environment if the property is taken into 
inventory. In this case, a voluntary conveyance will be accepted only if 
FSA determines that it is in the best interests of the Government to 
acquire title to the property.
    (d) When determining whether to accept a voluntary conveyance of a 
Native American borrower-owner's real property, the county official must 
consider:
    (1) The cost of cleaning or mitigating the effects if a hazardous 
substance is found on the property. A deduction equal to the amount of 
the cost of a hazardous waste clean-up will be made to the fair market 
value of the property to determine if it is in the best interest of the 
Government to accept title to the property. FSA will accept the property 
if clear title can be obtained and if the value of the property after 
removal of hazardous substances exceeds the cost of hazardous waste 
clean-up.
    (2) If the property is located within the boundaries of a federally 
recognized Indian reservation, and is owned by a member of the tribe 
with jurisdiction over the reservation, FSA will credit the Native 
American borrower-owner's account based on the fair market value of the 
property or the FSA debt against the property, whichever is greater.
[62 FR 44395, Aug. 21, 1997]



Sec. 1955.10  Voluntary conveyance of real property by the borrower to the Government.

    Voluntary conveyance is a method of liquidation by which title to 
security is transferred to the Government. FmHA or its successor agency 
under Public Law 103-354 will not make a demand on a borrower to 
voluntarily convey. If there is equity in the property. FmHA or its 
successor agency under Public Law 103-354 should advise the borrower, in 
writing, that there is equity in the property before accepting an offer 
to voluntarily convey. If FmHA or its successor agency under Public Law 
103-354 receives an offer of voluntary conveyance, acceptance should 
only be considered when the Government will likely receive a recovery on 
its investment. In cases where there are outstanding liens, a full 
assessment should be made of the debts against the property compared to 
the current market value. FmHA or its successor agency under Public Law 
103-354 should refuse the voluntary conveyance, if the FmHA or its 
successor agency under Public Law 103-354 lien has neither present nor 
prospective value or recovery of the value would be unlikely or 
uneconomical. Instead, for loans to individuals, FmHA or its successor 
agency under Public Law 103-354 should release its lien as valueless in 
accordance with Sec. 1965.25(d) of subpart A of part 1965 of this 
chapter or Sec. 1965.118(c) of subpart C of this chapter, as 
appropriate. For non-FP borrowers, a voluntary conveyance should only be 
considered after all available servicing actions outlined in the 
respective servicing regulations have been used or considered and it is 
determined that the borrower will not be successful. For FP borrowers, 
if the borrower has not received exhibit A with attachments 1 and 2 of 
subpart S of part 1951 of this chapter, a voluntary conveyance should be 
accepted only after the borrower has been sent exhibit A with 
attachments 1 and 2 of subpart S of 1951 of this chapter; all available 
servicing actions outlined in the respective program servicing 
regulations have been used or considered; and it will be in the 
Government's best financial interest to accept the FP voluntary 
conveyance. Exhibit G of this subpart will be used to determine whether 
or not to accept an FP voluntary conveyance. In determining if the 
acceptance of the FP voluntary conveyance is in the best financial 
interest of the Government, the County Supervisor will determine if the 
borrower has exhausted all possibilities of restructuring the loan to 
where a feasible plan of operation may be developed, the borrower has 
acted in good faith in trying to service the debt and FmHA or its 
successor agency under Public Law 103-354 may recover its investment in 
return for the acceptance

[[Page 218]]

of the voluntary conveyance. In addition, prior to acceptance of a 
voluntary conveyance of farm real property that collateralizes an FP 
loan, the County Supervisor will remind the borrower-owner of possible 
deed restrictions and easement that may be placed on the property in the 
event the property contains wetlands, floodplains, historical sites and/
or other federally protected environmental resources as set forth in 
exhibit M of subpart G of part 1940 of this chapter and Sec. 1955.137 of 
subpart C of part 1955 of this chapter. When it is determined that all 
conditions of Sec. 1951.558(b) of subpart L of part 1951 of this chapter 
have been met, loans for unauthorized assistance will be treated as 
authorized loans and exhibit A with attachments 1 and 2 of subpart S of 
part 1951 of this chapter will be sent prior to accepting a voluntary 
conveyance. Those borrowers who are indebted for nonprogram (NP) loans 
who wish to voluntarily convey property will not be sent exhibit A with 
attachments 1 and 2 of subpart S of part 1951 of this chapter. For 
Farmer Program borrowers who have received exhibit A with attachments 1 
and 2 of subpart S of part 1951 of this chapter, a voluntary conveyance 
should only be accepted when it is determined to be in the Government's 
best financial interest. Rejection of an offer of voluntary conveyance 
made before or after acceleration from an FP borrower is appealable. For 
borrowers having both FP and non-FP loans secured by a farm tract, a 
voluntary conveyance should be handled as outlined above for non-FP 
loans secured by farm tracts, except that the applicable servicing 
option for the FP and non-FP loans should be considered separately. This 
separation of servicing options may permit a borrower to retain the 
nonfarm tract. For newly constructed SFH properties with major 
construction defects, see subpart F of part 1924 of this chapter.
    (a) Authority--(1) Loans to individuals. (i) SFH loans. The County 
Supervisor is authorized to accept voluntary conveyances regardless of 
amount of indebtedness.
    (ii) FP loans. The County Supervisor is authorized to accept 
voluntary conveyance of property secured by Farmer Program loans if the 
total indebtedness against the property including prior and junior 
liens, does not exceed his/her approval authority for the type of loan 
(or combination of types) involved. Loan approval authorities are 
outlined in exhibits A through E of FmHA or its successor agency under 
Public Law 103-354 Instruction 1901-A (available in any FmHA or its 
successor agency under Public Law 103-354 office). The State Director is 
authorized to approve voluntary conveyances regardless of amount of 
indebtedness.
    (2) Loans to organizations. (i) The State Director is authorized to 
approve voluntary conveyance of property securing Farmer Programs and 
EOC loans regardless of amount of indebtedness.
    (ii) The State Director is authorized to approve voluntary 
conveyance of property securing MFH loans if the total indebtedness 
against the property, including prior and junior liens, does not exceed 
his/her approval authority for the type loan involved. Loan approval 
authorities are outlined in exhibits A through E of FmHA or its 
successor agency under Public Law 103-354 Instruction 1901-A (available 
in any FmHA or its successor agency under Public Law 103-354 office).
    (iii) Offers to convey property securing loans other than those 
outlined in paragraphs (a)(2)(i) and (ii) of this section will be 
submitted to the Administrator for approval prior to acceptance of the 
conveyance offer. Submissions will include the case file; OGC's opinion 
on settling any other liens involved; a statement of essential facts; 
and recommendations of the State Director and Program Chief. Submissions 
are to be addressed to the Administrator, ATTN: (appropriate program 
division.)
    (b) Forms and documents. All forms and documents in connection with 
voluntary conveyance will be prepared and distributed in accordance with 
the respective FMI or applicable OGC instructions. For loans to 
individuals when the County Supervisor has approval authority, the facts 
will be documented in the running record of the borrower's case file. 
For all other loans, the servicing official will submit the voluntary 
conveyance offer, the

[[Page 219]]

case file and a narrative report to the appropriate approval official.
    (c) Liens against the property other than FmHA or its successor 
agency under Public Law 103-354 liens--(1) Prior liens. (i) The approval 
official will determine whether or not prior liens will be paid. 
Normally, the Government will pay prior liens in full prior to 
acquisition if:
    (A) A substantial recovery on the Government's investment plus the 
amount of the prior lien(s) can be obtained; and
    (B) The holder of the prior lien(s) objects to the Government 
accepting voluntary conveyance subject to the prior lien(s), if consent 
of the prior lienholder(s) is required.
    (ii) If property is acquired subject to prior lien(s), payment of 
installments on the lien(s) may be made while title to the property is 
held by the Government in accordance with Sec. 1955.67 of subpart B of 
part 1955 of this chapter.
    (2) Junior liens. The borrower must satisfy junior liens on the 
property (except FmHA or its successor agency under Public Law 103-354 
liens) and pay real estate taxes or assessments which are or will become 
a lien on the property. However, if the borrower is unable or unwilling 
to do so, settlement of the liens may be made by FmHA or its successor 
agency under Public Law 103-354 if settlement would be in the best 
interest of the Government, considering all factors such as length of 
time required to foreclose, vandalism or other deterioration of the 
property which might occur, and effect on management of a MFH project 
and its tenants. An FmHA or its successor agency under Public Law 103-
354 official will contact junior lienholders, negotiate the most 
favorable settlement possible, and determine whether it is in the 
Government's best interest to settle the junior liens and accept the 
voluntary coveyance.
    (i) For loans to individuals, the approval official is authorized to 
settle junior liens in the smallest amount possible, but not to exceed 
an aggregate amount of $1,000 in each SFH case or $5,000 for other type 
loans. For junior liens in greater amounts when the approval official is 
the County Supervisor or District Director, prior authorization must be 
obtained from the State Director.
    (ii) For loans to organizations, the State Director will determine 
whether or not junior liens will be settled and voluntary conveyance 
accepted.
    (3) Payment of liens. A lien to be settled in accordance with 
paragraph (c)(1)(i) or (c)(2) of this section will be paid as outlined 
in Sec. 1955.5(d) of this subpart and charged to the borrower's account 
as a recoverable cost.
    (d) Offer of voluntary conveyance. An offer of voluntary conveyance 
will consist of the following:
    (1) Form FmHA or its successor agency under Public Law 103-354 1955-
1, ``Offer to Convey Security.''
    (2) Warranty deed, or other deed approved by OGC to comply with 
State Laws. The deed will not be recorded until it is determined the 
voluntary conveyance will be accepted. At the time of the offer, the 
borrowers will be informed that the conveyance will not be accepted 
until the property has been appraised and a lien search has been 
obtained. If the voluntary conveyance is not accepted, the deed and Form 
FmHA or its successor agency under Public Law 103-354 1955-1, properly 
executed, will be returned to the borrower along with a memorandum 
stating the reason(s) for nonacceptance.
    (3) A current financial statement containing information similar to 
that required to complete Forms FmHA or its successor agency under 
Public Law 103-354 410-1, ``Application for FmHA or its successor agency 
under Public Law 103-354 Services'' or FmHA or its successor agency 
under Public Law 103-354 442-3, ``Balance Sheet,'' and information on 
present income and potential earning ability. Exception for SFH loans: 
FmHA or its successor agency under Public Law 103-354 requires a budget 
and/or financial statement and, if necessary to discover suspected 
undisclosed assets, a search of public records, only when the value of 
the security property may be less than the debt.
    (4) For organization borrowers, a duly-adopted Resolution by the 
governing body authorizing the conveyance and certified by the attesting 
official with the corporate seal affixed. The Resolution will indicate 
which officials

[[Page 220]]

are authorized to execute the offer to convey and the deed on behalf of 
the borrower. If shareholder approval is necessary, the Resolution will 
specifically recite that shareholder approval has been obtained.
    (5) If water rights, mineral rights, development rights, or other 
use rights are not fully covered in the deed, the advice of OGC will be 
obtained and appropriate documents to transfer rights to the Government 
will be obtained before the voluntary conveyance is accepted. The 
documents will be recorded, if necessary, in connection with closing the 
conveyance.
    (6) If property is under lease, an assignment of the lease to the 
Government will be obtained with the effective date being the date the 
voluntary conveyance is closed. If an oral lease is in force, it will be 
reduced to writing and assigned to the Government.
    (7) The borrower may be required to provide a title insurance policy 
or a final title opinion from a designated attorney when the State 
Director determines it is necessary to protect the Government's 
interest. Such title insurance policy or final title opinion will show 
title vested to the Government subject only to exceptions and liens 
approved by the County Supervisor.
    (8) Farmer program loan borrowers who voluntarily convey after 
receiving the appropriate loan servicing notice(s) contained in the 
attachments of exhibit A of subpart S of part 1951 of this chapter, must 
properly complete and return the acknowledgement form sent with the 
notice.
    (9) For MFH loans, assignment of Housing Assistance Payment (HAP) 
Contracts will be obtained. Rental Assistance will be retained until the 
State Director is advised by OGC that FmHA or its successor agency under 
Public Law 103-354 has title to the property, but may be suspended while 
the conveyance is pending according to exhibit E of subpart C of part 
1930 of this chapter.
    (e) Appraisal of property. After an offer of voluntary conveyance, 
but before acceptance by FmHA or its successor agency under Public Law 
103-354, an appraisal of the property will be made to establish the 
current market value of the property. If a qualified FmHA or its 
successor agency under Public Law 103-354 appraiser is not available to 
appraise property securing a loan other than MFH, the State Director may 
obtain an appraisal from a qualified appraiser outside FmHA or its 
successor agency under Public Law 103-354 in accordance with FmHA or its 
successor agency under Public Law 103-354 Instruction 2024-A (available 
in any FmHA or its successor agency under Public Law 103-354 office). 
For property securing MFH, prior authorization must be obtained by the 
Assistant Administrator, Housing, to secure an appraisal from a source 
outside FmHA or its successor agency under Public Law 103-354. For 
property securing FP loan(s), the contract appraiser must complete the 
appraisal in accordance with subpart E of part 1922 of this chapter for 
FP property, or subpart C of part 1922 for Single Family Housing 
property. Also, the appraiser must meet at least one of the following 
qualifications:
    (1) Certification by a National or State Appraisal Society.
    (2) If a certified appraiser is not available, the appraiser may be 
one who meets the criteria for certification in a National or State 
Appraisal Society.
    (3) The appraiser has recent, relevant documented appraisal 
experience or training, or other factors clearly establishing the 
appraiser's qualifications.
    (f) Processing offer to convey security and acceptance by FmHA or 
its successor agency under Public Law 103-354. If a borrower has both 
SFH and other type loans, the portion of this paragraph dealing with the 
loan(s) other than SFH will be followed.
    (1) SFH loans. FmHA or its successor agency under Public Law 103-354 
does not solicit or encourage conveyance of SFH security property to the 
Government and will consider a borrower's offer to convey by deed in 
lieu of foreclosure only after the debt is accelerated and when it is in 
the Government's interest. Upon receipt of an offer to convey, the 
servicing official will remind the borrower of provisions for voluntary 
liquidation under Sec. 1965.125(a) of subpart C of part 1965 of this 
chapter, and the consequences of a

[[Page 221]]

conveyance by deed in lieu of foreclosure as follows: All costs related 
to the conveyance which FmHA or its successor agency under Public Law 
103-354 pays will be added to the debt; a credit equal to the market 
value of the property, as determined by FmHA or its successor agency 
under Public Law 103-354, less prior liens, will be applied to the debt; 
and if the credit does not satisfy the debt, the borrower will not 
automatically be released of liability. The unsatisfied debt, after 
acceleration under Sec. 1955.10(h)(5) of this subpart, may be settled 
according to subpart B of part 1956 of this chapter; however, a 
deficiency judgment will not be pursued when the borrower was granted a 
moratorium if the borrower faithfully tried to meet loan obligations. 
The conveyance is processed as follows:
    (i) Before accepting the offer, the County Supervisor will transmit 
the deed to a closing agent requesting a title search covering the 
period of time since the latest title opinion in the case file. The same 
agent who closed the loan should be used, if possible; otherwise one 
will be selected from the approved list of closing agents, taking care 
that cases are distributed fairly among approved agents. The closing 
agent may be instructed that the County Supervisor considers the 
voluntary conveyance offer conditionally approved, and the closing agent 
may record the deed after the title search if there are no liens against 
the property other than:
    (A) The FmHA or its successor agency under Public Law 103-354 
lien(s);
    (B) Prior liens when FmHA or its successor agency under Public Law 
103-354 has advised the closing agent that title will be taken subject 
to the prior lien(s) or has told the closing agent that the prior 
lien(s) will be handled in accordance with Sec. 1955.10(c)(1) of this 
subpart; and/or
    (C) Real estate taxes and/or assessments which must be paid when 
title to the property is transferred.
    (ii) If junior liens are discovered, the closing agent will be 
requested to provide FmHA or its successor agency under Public Law 103-
354 with the lienholder's name, amount of lien, date recorded, and the 
recording information (recording office, book and page), return the 
unrecorded deed to FmHA or its successor agency under Public Law 103-
354, and await further instructions from FmHA or its successor agency 
under Public Law 103-354. In such cases, the County Supervisor will 
proceed in accordance with Sec. 1955.10(c)(2) of this subpart. If 
agreement has been reached with the lienholder(s) for settling the 
junior lien(s) in order to accept the conveyance, the deed will be 
returned to the closing agent for a title update and recording.
    (iii) The closing agent will be requested to provide a certification 
of title to FmHA or its successor agency under Public Law 103-354 after 
recordation of the deed. A certification of title in a statement that 
fee title is vested in the Government subject only to the FmHA or its 
successor agency under Public Law 103-354 lien(s) and prior liens 
previously approved by FmHA or its successor agency under Public Law 
103-354. After receipt of the certification of title, the County 
Supervisor will notify the borrower that the conveyance has been 
accepted in accordance with Sec. 1955.10(g) of this subpart.
    (2) Consolidated Farm and Rural Development Act (CONACT) loans to 
individuals. For CONACT loans to individuals, as defined in Sec. 1955.3 
of this subpart, where the FmHA or its successor agency under Public Law 
103-354 indebtedness plus any prior liens exceeds the market value of 
the property, the County Committee must take certain action if it is to 
recommend that the borrower and any cosigner be released from liability.
    (i) Release from liability. The County Committee must determine that 
the borrower(s) and any cosigner do not have reasonable ability to pay 
all or a substantial part of the balance of the debt owed after the 
voluntary conveyance, taking into consideration their assets and income 
at the time of the conveyance; and that the borrower and any cosigner 
have cooperated in good faith, used due diligence to maintain the 
security against loss, and have otherwise fulfilled the covenants 
incident to the loan to the best of their ability; and they must 
recommend that the borrower and any cosigner be released from personal 
liability for any balance due on the secured indebtedness upon

[[Page 222]]

conveyance of the property to the Government. This action will be 
documented by checking the appropriate block on Form FmHA or its 
successor agency under Public Law 103-354 440-2, ``County Committee 
Certification or Recommendation,'' as specified in the Forms Manual 
Insert (FMI).
    (ii) Unsatisfied indebtedness. If the County Committee does not 
recommend release from liability, the borrower must be informed that the 
indebtedness cannot be satisfied but a credit can be given equal to the 
market value less prior lien(s) (if any) and the borrower will determine 
if the borrower wishes to make a new offer on that basis. If a new offer 
is made and accepted, the account will be handled as an unsatisfied 
account as outlined in Sec. 1955.18(f) of this subpart. When the Agency 
debt less the market value and prior liens is $1 million or more 
(including principal, interest and other charges), release of liability 
must be approved by the Administrator or designee; otherwise, the State 
Director must approve the release of liability. All cases requiring a 
release of liability will be submitted for review in accordance with 
exhibit A of subpart B of part 1956 of this chapter (available in any 
FSA office).
    (iii) Crediting accounts. FmHA or its successor agency under Public 
Law 103-354 will credit the account of a Native American borrower-owner 
whose real property secured an FP loan with the fair market value or the 
FmHA or its successor agency under Public Law 103-354 debt against the 
property, whichever is greater. To receive such credit, the real 
property must be located within the boundaries of a federally recognized 
Indian reservation and the County Committee must certify that:
    (A) The borrower-owner is a member of a tribe or the tribe.
    (B) The property is located within the confines of a federally 
recognized Indian reservation.
    (iv) Loans which are within the County Supervisor's approval 
authority. The same procedure outlined in paragraph (f)(1)(i) through 
(f)(1)(iii) of this section will be followed. The conveyance will be 
accepted in full satisfaction of the indebtedness unless:
    (A) The market value of the property to be conveyed is less than the 
total of FmHA or its successor agency under Public Law 103-354 
indebtedness and prior lien(s), if any, and the County Committee has not 
recommended the borrower be released from liability; or
    (B) The borrower has made a new offer agreeing to accept a credit in 
the amount of the market value of the security property less prior 
lien(s), if any, in which case the conveyance will be accepted for the 
market value of the property conveyed to FmHA or its successor agency 
under Public Law 103-354 less prior lien(s), if any.
    (v) Loans which are NOT within the County Supervisor's approval 
authority
    (A) When an offer to convey is received from the borrower, the 
County Supervisor will request a closing agent, selected in accordance 
with paragraph (f)(l)(i) of this section, to make a title search 
covering the period of time since the latest title opinion in the case 
file. The case file containing the following will be forwarded to the 
appropriate approval official:
    (1) Form FmHA or its successor agency under Public Law 103-354 1955-
2, ``Report on Real Estate Problem Case;''
    (2) Report of title search;
    (3) Borrower's offer of voluntary conveyance (consisting of 
applicable items outlined in paragraphs (d)(1) through (d))(8) of this 
section);
    (4) Current appraisal of property;
    (5) Unpaid balance on FmHA or its successor agency under Public Law 
103-354 indebtedness and other liens, both prior and junior, if any:
    (6) Form FmHA or its successor agency under Public Law 103-354 440-2 
executed in accordance with the FMI concerning release from liability if 
property value is less than the debt plus prior liens, if any;
    (B) If the approval official determines the conveyance should be 
accepted, the file will be returned to the County Supervisor with a 
memorandum of conditional approval. The same conditions for release of 
liability apply an in paragraph (f)(2)(i) of this section. If the 
approval official does not concur in acceptance of the conveyance, the 
file will be returned with a memorandum stating the reasons for 
rejecting the offer and giving instructions to the

[[Page 223]]

County Supervisor for further servicing of the account.
    (C) After the approval official has conditionally approved the 
conveyance, the County Supervisor will forward the deed to a closing 
agent with instructions to record it provided no liens have been 
recorded since the recent title search. The closing agent will be 
requested to provide a certification of title to FmHA or its successor 
agency under Public Law 103-354 after recordation of the deed. After 
receipt of the certification of title, the County Supervisor will notify 
the borrower that the conveyance has been accepted in accordance with 
paragraph (h) of this section.
    (3) Loans to organizations. When an offer of voluntary conveyance is 
received from an organization borrower, the servicing official will 
submit the offer and the case file containing the items outlined in 
paragraph (f)(3)(ii) or (f)(3)(iii) of this section, as applicable, to 
the State Director. The State Director will obtain the advice of OGC on 
all offers of voluntary conveyance from organization borrowers. OGC will 
be requested to issue instructions for processing and closing the 
conveyance. When the market value of the property being conveyed (less 
prior liens, if any) is less than the FmHA or its successor agency under 
Public Law 103-354 debt, full consideration must be given to the 
borrower's present situation and future prospects for paying all or a 
part of the FmHA or its successor agency under Public Law 103-354 debt. 
In such a case, the County Committee must make a favorable 
recommendation if the borrower is to be released from liability; and if 
the FmHA or its successor agency under Public Law 103-354 debt less the 
market value and prior liens exceeds $25,000, release of liability must 
be approved by the Administrator.
    (i) Items to be included in the borrower's case file for MFH loans:
    (A) Report on Multiple-Family Housing Problem Case, (exhibit A to 
this subpart available in any FmHA or its successor agency under Public 
Law 103-354 office);
    (B) Liquidation and management plan with specific recommendations of 
the District Director;
    (C) Form FmHA or its successor agency under Public Law 103-354 1955-
1;
    (D) Resolution authorizing the conveyance, if applicable;
    (E) Report of title search from an approved closing agent covering 
the period of time since the latest title opinion is the case file;
    (F) Form FmHA or its successor agency under Public Law 103-354 1930-
7, ``Statement of Budget and Cash Flow,'' (operating budget for first 
year and typical year);
    (G) Form FmHA or its successor agency under Public Law 103-354 1930-
8, ``Year End Report and Analysis for Fiscal Year Ending ______,'' 
(Balance Sheet Portion);
    (H) Current appraisal prepared by a MFH designated appraiser;
    (I) Balance on FmHA or its successor agency under Public Law 103-354 
account(s) and other liens, if any;
    (J) Assignment of Housing Assistance Payment (HAP) contracts, if 
applicable, along with evidence of contract with HUD;
    (K) Current statement of account from the Finance Office;
    (L) Development plan with breakdown of costs, if applicable; and
    (M) Form FmHA or its successor agency under Public Law 103-354 440-
2, executed in accordance with the FMI, when applicable.
    (ii) Items to be included in the borrower's case file for loans 
other than MFH:
    (A) Report on Servicing Action (exhibit A to subpart E of part 1951 
of this Chapter, available in any FmHA or its successor agency under 
Public Law 103-354 office);
    (B) Liquidation and management plan;
    (C) Form FmHA or its successor agency under Public Law 103-354 1955-
1;
    (D) Organization's Resolution authorizing the conveyance;
    (E) Report of title search from an approved closing agent covering 
the period of time since the latest title opinion in the case file;
    (F) Form FmHA or its successor agency under Public Law 103-354 442-
3;
    (G) Current appraisal;
    (H) Statement showing income and expenses due but unpaid;

[[Page 224]]

    (I) Balance on FmHA or its successor agency under Public Law 103-354 
account(s) and other liens, if any; and
    (J) Form FmHA or its successor agency under Public Law 103-354 440-
2, executed in accordance with the FMI concerning release from liability 
if property value is less than the FmHA or its successor agency under 
Public Law 103-354 indebtedness plus prior liens, if any.
    (g) Closing of conveyance. (1) The conveyance to the Government will 
be considered closed when the recorded deed has been returned to FmHA or 
its successor agency under Public Law 103-354, a certification of title 
is received from the closing agent that title is vested in the 
Government with no outstanding encumbrances other than the FmHA or its 
successor agency under Public Law 103-354 lien(s) or previously approved 
prior liens, and the borrower is notified of the acceptance of the 
conveyance. For loans to organizations, OGC will be requested to review 
the case to verify that it was closed properly. The property will be 
assigned an ID number and entered into the Acquired Property Tracking 
System through the Automated Discrepancy Processing System (ADPS) 
terminal in the County Office.
    (2) When costs incident to the completion of the transaction are to 
be paid by the Government, the servicing official will prepare and 
process the necessary documents as outlined in Sec. 1955.5(d) of this 
subpart and the costs will be charged to the borrower's account as 
recoverable costs. This includes taxes and assessments, water charges 
which protect the right to receive water, other liens, closing agent's 
fee, and any other costs related to the conveyance.
    (h) Actions to be taken after closing conveyance. (1) When the FmHA 
or its successor agency under Public Law 103-354 account is satisfied, 
the note(s) will be stamped ``Satisfied by Surrender of Security and 
Borrower Released from Liability,'' and the statement must be signed by 
the servicing official.
    (2) When the FmHA or its successor agency under Public Law 103-354 
account is not satisfied and the borrower is not released from 
liability, the note(s) will be retained by FmHA or its successor agency 
under Public Law 103-354.
    (3) The servicing official will release the lien(s) of record, 
indicating that the debt was satisfied by surrender of security or that 
the lien is released but the debt not satisfied, whichever is 
applicable. If the lien is to be released but the debt not satisfied, 
OGC will provide the type of instrument required to comply with 
applicable State laws.
    (4) After release of the lien(s), the servicing official will return 
the following to the borrower:
    (i) If borrower is released from liability, the satisfied note(s) 
and a copy of Form FmHA or its successor agency under Public Law 103-354 
1955-1 showing acceptance by the Government; or
    (ii) If borrower is not released from liability, a copy of Form FmHA 
or its successor agency under Public Law 103-354 1955-1 showing 
acceptance by the Government.
    (5) When the FmHA or its successor agency under Public Law 103-354 
account is not satisfied and the borrower not released from liability, 
the account balance, after deducting the ``as is'' market value and 
prior liens, if any, will be accelerated utilizing exhibit F of this 
subpart (available in any FmHA or its successor agency under Public Law 
103-354 office).
    (6) For MFH loans, the State Director will cancel any interest 
credit and suspend any rental assistance. These actions will be 
accomplished by notifying the Finance Office unit which handles MFH 
accounts. In the interm the tenants will continue rental payments in 
accordance with their lease. Tenants will be informed of the pending 
liquidation action and the possible consequences of the action. FmHA or 
its successor agency under Public Law 103-354 Guide Letters 1965-E-2, 
1965-E-3, and 1965-E-5 (available in any FmHA or its successor agency 
under Public Law 103-354 office) may be used to inform tenants, but 
should be modified to reflect the specific action and circumstances. If 
the project is to be removed from the FmHA or its successor agency under 
Public Law 103-354 program, a minimum of 180 days' notice to

[[Page 225]]

the tenants is required. Letters of Priority Entitlement must be made 
available to any tenants that will be displaced as required by 
Sec. 1965.215(e)(4) of subpart E of part 1965 of this chapter.
    (7) Actions outlined in Sec. 1955.18 of this subpart will be taken, 
as applicable.
[50 FR 23904, June 7, 1985, as amended at 50 FR 45782, Nov. 1, 1985; 51 
FR 45433, Dec. 18, 1986; 52 FR 48519, Dec. 23, 1987; 53 FR 27826, July 
25, 1988; 53 FR 35762, Sept. 14, 1988; 56 FR 12645, Mar. 27, 1991; 56 FR 
15821, Apr. 18, 1991; 56 FR 40245, Aug. 14, 1991; 57 FR 1372, Jan. 14, 
1992; 58 FR 38926, July 21, 1993; 58 FR 44752, Aug. 25, 1993; 58 FR 
68725, Dec. 29, 1993; 60 FR 28320, May 31, 1995]



Sec. 1955.11  Conveyance of property to FmHA or its successor agency under Public Law 103-354 by trustee in bankruptcy.

    (a) Authority. With the advice of OGC (and prior approval of the 
National Office for MFH, Community Programs, and insured B&I loans), the 
State Director within his/her authority is authorized to accept a 
conveyance of property to the Government by the Trustee in Bankruptcy, 
provided:
    (1) The Bankruptcy Court has approved the conveyance;
    (2) The conveyance will permit a substantial recovery on the FmHA or 
its successor agency under Public Law 103-354 debt; and
    (3) FmHA or its successor agency under Public Law 103-354 will 
acquire title free of all liens and encumbrances except FmHA or its 
successor agency under Public Law 103-354iens.
    (b) Fees and deed. (1) FmHA or its successor agency under Public Law 
103-354 may pay any necessary and proper fees approved by the bankruptcy 
court in connection with the conveyance. Before paying a fee to a 
trustee for a Trustee's Deed in excess of $300 for any loan type(s) 
other than Farmer Programs or $1,000 for Farmer Program loans, prior 
approval of the Administrator must be obtained. The State Director will 
process the necessary documents as outlined in Sec. 1955.5(d) of this 
subpart for payment of fees as recoverable costs.
    (2) Conveyance may be by Trustee's Deed instead of a warranty deed. 
If upon advice of OGC it is determined a deed from any other person or 
entity (including the borrower) is necessary to obtain clear title, a 
deed from such person or entity will be obtained.
    (c) Acceptance. The conveyance will be accepted for an amount of 
credit to the borrower's FmHA or its successor agency under Public Law 
103-354 account(s) as set forth in Sec. 1955.18(e)(4) of this subpart.
    (d) Reporting. Acquisition of property under this section will be 
reported in accordance with Sec. 1955.18(a) of this subpart.
[50 FR 23904, June 7, 1985, as amended at 53 FR 27827, July 25, 1988]



Sec. 1955.12  Acquisition of property which served as security for a loan guarantee by FmHA or its successor agency under Public Law 103-354 or at sale by 
          another lienholder, bankruptcy trustee, or taxing authority.

    When the servicing regulations for the type of loan(s) involved 
permit FmHA or its successor agency under Public Law 103-354 to acquire 
property by one of these methods, the acquisition will be reported in 
accordance with Sec. 1955.18(a) of this subpart.



Sec. 1955.13  Acquisition of property by exercise of Government redemption rights.

    When the Government did not protect its interest in security 
property in a foreclosure by another lienholder, and if the Government 
has redemption rights, the State Director will determine whether to 
redeem the property. This determination will be based on all pertinent 
factors including the value of the property after the sale, and costs 
which may be incurred in acquiring and reselling the property. For 
Farmer Program loans, the County Supervisor will document the 
determination on exhibit G of this subpart. The decision must be made 
far enough in advance of expiration of the redemption period to permit 
exercise of the Government's rights. If the property is to be redeemed, 
complete information documenting the basis for not acquiring the 
property at the sale and factors which justify redemption of the 
property will be included in the case file. The assistance of OGC will 
be obtained in effecting the redemption. If the State Director decides 
not to redeem the property, the Government's right of redemption

[[Page 226]]

under Federal law (28 U.S.C. 2410) may be waived without consideration. 
If a State law right of redemption exists and may be sold, it will not 
be disposed of for less than its value.
[53 FR 35762, Sept. 14, 1988]



Sec. 1955.14  [Reserved]



Sec. 1955.15  Foreclosure by the Government of loans secured by real estate.

    Foreclosure will be initiated when all reasonable efforts have 
failed to have the borrower voluntarily liquidate the loan through sale 
of the property, voluntary conveyance, or by entering into an 
accelerated repayment agreement when applicable servicing regulations 
permit; when either a net recovery can be made or when failure to 
foreclose would adversely affect FmHA or its successor agency under 
Public Law 103-354 programs in the area. Also, in Farmer Program cases 
(except graduation cases under subpart F of part 1951 of this chapter), 
the borrower must have received exhibit A with attachments 1 and 2 of 
subpart S of part 1951 of this chapter, and any appeal must have been 
concluded. For real property located within the confines of a federally 
recognized Indian reservation and owned by a Native American borrower, 
proper notice of voluntary conveyance must be given as outlined in 
Sec. 1955.9 (c)(1) of this subpart.
    (a) Authority--(1) Loans to individuals. The District Director is 
authorized to approve or disapprove foreclosure and accelerate the 
account.
    (2) Loans to organizations. (i) The State Director or District 
Director is authorized to approve or disapprove foreclosure of MFH loans 
when the amount of the FmHA or its successor agency under Public Law 
103-354 secured debt does not exceed their respective loan approval 
authority. The State Director is authorized to approve or disapprove 
foreclosure of I&D, Shift-In-Land-Use (Grazing Association), loans to 
Indian Tribes and Tribal Corporations, and EOC loans, regardless of the 
amount of debt.
    (ii) For all other organization loans, foreclosure will not be 
initiated without prior approval of the Administrator. The State 
Director will obtain OGC's opinion on the steps necessary to foreclose 
the loan, and forward the appropriate problem case report, a statement 
of essential facts, his/her recommendation, a copy of the OGC opinion, 
and the borrower's case file to the Administrator, Attn: Assistant 
Administrator (appropriate loan division) with a request for 
authorization to initiate foreclosure.
    (b) Problem case report. When foreclosure is recommended, the 
servicing official will prepare Form FmHA or its successor agency under 
Public Law 103-354 1955-2 for Farmer Program or SFH loans, exhibit A to 
this subpart for MFH loans, or exhibit A of FmHA or its successor agency 
under Public Law 103-354 Instruction 1951-E (available in any FmHA or 
its successor agency under Public Law 103-354 office) for other 
organization loans. If chattel security is also involved, Forms FmHA or 
its successor agency under Public Law 103-354 455-1, ``Request for Legal 
Action''; 455-2, ``Evidence of Conversion''; and 455-22, ``Information 
for Litigation''; as applicable to the case, will be prepared in 
accordance with the respective FMIs and made a part of the problem case 
submission. A statement must be included by the servicing official in 
the narrative that all servicing actions required by FmHA or its 
successor agency under Public Law 103-354 loan servicing regulations 
have been taken and all required notices given to the borrower.
    (1) Appraisal. The market value of the property may be estimated in 
completing the problem case report unless there are one or more prior 
liens other than current-year real estate taxes. Where such prior liens 
are involved, an appraisal report reflecting market value in existing 
condition will be included in the case file as a basis for determining 
the Government's prospects for financial recovery through foreclosure.
    (2) Recommendation for deficiency judgment. If the debt will not be 
satisfied by the foreclosure, the borrower's financial situation will be 
assessed to determine if there is a possibility of further recovery on 
the account through a deficiency judgment. A summary of these

[[Page 227]]

determinations will be fully documented and appropriate recommendations 
made concerning deficiency judgment in the applicable problem case 
report. For SFH loans subject to recapture of subsidy, the debt includes 
total interest credit granted and principal reduction attributed to 
subsidy in addition to unpaid principal and interest. However, a 
deficiency judgment will not be recommended in a SFH case to recapture 
subsidy or where the borrower was granted a moratorium provided the 
borrower faithfully tried to meet loan obligations. In crediting 
security value against indebtedness, credit will be given first to 
interest, principal and recoverable costs and then to recapture of 
subsidy.
    (3) Historic preservation. If it is likely that FmHA or its 
successor agency under Public Law 103-354 will acquire title to the 
property as a result of the foreclosure, and the structure(s) on the 
property will be in excess of 50 years old at the time of acquisition or 
meet any of the other criteria contained in Sec. 1955.137(c) of subpart 
C of part 1955 of this chapter, steps should be initiated to meet the 
requirements of the National Historic Preservation Act as outlined in 
Sec. 1955.137(c). Formal steps should not be initiated until the 
conclusion of all appeals. However, any such documentation required may 
be completed when the problem case report is prepared. This action 
should eliminate delays in selling the property after acquisition.
    (c) Submission of problem case. The servicing official will submit 
the completed problem case docket to the official authorized to approve 
the foreclosure (approval official). Before approval of foreclosure and 
acceleration of the account, the approval official is responsible for 
review of the problem case report to see that all items are complete and 
that all required servicing actions have been taken and all required 
notices given the borrower. The narrative portion of the report should 
provide complete information on the borrower's financial condition, 
deficiency judgment in case the debt is not satisfied by the 
foreclosure, and other pertinent background items. The approval official 
will approve or disapprove the foreclosure, or make a recommendation and 
refer the case to the National Office, if not within his/her approval 
authority. If foreclosure is not approved, the case will be returned to 
the originating office with instructions for further servicing. Problem 
case submission is as follows:
    (1) For loans to individuals. The County Supervisors will submit the 
case to the District Director.
    (2) For loans to organizations. The District Director will submit 
the case to the State Director along with a proposed liquidation and 
management plan covering the time the foreclosure is in process. The 
State Director will obtain the advice of OGC if required in connection 
with the type of loan being liquidated.
    (d) Approval of foreclosure. When foreclosure is approved, it will 
be handled as follows:
    (1) Prior lien(s). If there is a prior lien, all foreclosure 
alternatives should be explored including whether FmHA or its successor 
agency under Public Law 103-354 will give the prior lienholder the 
opportunity to foreclose; join in the action if the prior lienholder 
wishes to foreclose; or foreclose the FmHA or its successor agency under 
Public Law 103-354 loan(s), either settling the prior lien or 
foreclosing subject to it. The provisions of Sec. 1965.11(c) of subpart 
A of part 1965 of this chapter must be followed for loans serviced under 
subpart A of part 1965. The assistance of OGC should be obtained in 
weighing the alternatives, with the objective being to pursue the course 
which will result in the greatest net recovery by the Government. After 
it is decided which option will be most advantageous to the Government, 
the approval official, either directly or through a designee, will 
contact the prior lienholder to outline FmHA or its successor agency 
under Public Law 103-354's position. If State laws affect this action, a 
State Supplement will be issued with the advice of OGC to establish the 
procedure to be followed. For real property located within the confines 
of a federally recognized Indian reservation owned by a Native American 
borrower-owner, an analysis of whether FmHA or its successor agency 
under Public Law 103-354 should acquire title must include facts which

[[Page 228]]

demonstrate the fair market value after considering the cost of clean-up 
of hazardous substances on the property.
    (2) Acceleration of account. Subject to paragraphs (d)(2)(i), 
(d)(2)(ii), and (d)(2)(iii) of this section, the account will be 
accelerated using a notice substantially similar to exhibits B, C, D, or 
E of this subpart, or for multi-family housing, FmHA or its successor 
agency under Public Law 103-354 Guide Letters 1955-A-1 or 1955-A-2 
(available in any FmHA or its successor agency under Public Law 103-354 
Office), as appropriate, to be signed by the official who approved the 
foreclosure. The accounts of borrowers with pending Chapter 12 and 13 
cases which have not been discharged will be accelerated in accordance 
with instructions from OGC. Upon OGC approval, accounts of these 
borrowers may be accelerated using a notice substantially similar to 
exhibit D of this subpart. Loans secured by chattels must be accelerated 
at the same time as loans secured by real estate in accordance with 
Sec. 1965.26 (c) of subpart A of part 1965 of this chapter. The notice 
will be sent by certified mail, return receipt requested, to each 
obligor individually, addressed to the last known address. If different 
from the property address and/or the address the Finance Office uses, a 
copy of the notice will also be mailed to the property address and the 
address currently used by the Finance Office. (In chattel liquidation 
cases which have been referred for civil action under subpart A of part 
1962 of this chapter, the Finance Office will be sent a copy of exhibits 
D, E, or E-1 (available in any FmHA or its successor agency under Public 
Law 103-354 office) as applicable. County Office and Finance Office loan 
records will be adjusted to mature the entire debt in such cases). If a 
signed receipt for at least one of these acceleration notices sent by 
certified mail is received, no further notice is required. If no receipt 
is received, a copy of the acceleration notice will be sent by regular 
mail to each address to which the certified notices were sent. This type 
mailing will be documented in the file. A State Supplement may be issued 
if OGC advises different or additional language or format is required to 
comply with State laws or if notice and mailing instructions are 
different from that outlined in this paragraph. A conformed copy of the 
acceleration notice will be forwarded to the servicing official. Farmer 
Program appeals will be concluded before acceleration. For MFH loans, a 
copy of the acceleration letter will also be forwarded to the National 
Office, ATTN: MFH Servicing and Property Management Division, for 
monitoring purposes. Accounts may be accelerated as follows:
    (i) Where monetary default is involved, the account may be 
accelerated immediately after approval of foreclosure.
    (ii) Where monetary default is not involved, the account will not be 
accelerated until the concurrence of OGC is obtained.
    (iii) If borrower obtained the loan while a civilian, entered 
military service after the loan was closed, the FmHA or its successor 
agency under Public Law 103-354 has not obtained a waiver of rights 
under the Soldiers and Sailors Relief Act, the account will not be 
accelerated until OGC has reviewed the case and given instructions.
    (iv) If the decision is made to liquidate the farm loan(s) of a 
borrower who also has a SFH loan(s), and the dwelling was used as 
security for the farm loan(s) it will not be necessary to meet the 
requirements of subpart G of part 1951 of this chapter prior to 
accelerating the account. Except that, if the borrower is in default on 
his/her farm loan(s), the SFH account must have been considered for 
interest credit and/or moratorium at the time servicing options are 
being considered for the FP loan(s) prior to acceleration. If it is 
later determined the FP loan(s) are to receive additional servicing in 
lieu of liquidation, the RH loan will be reinstated simultaneously with 
the FP servicing actions and may be reamortized in accordance with 
Sec. 1951.315 of subpart G of part 1951 of this chapter. Accounts of a 
borrower who has both Farmer Program and SFH loan(s) may be accelerated 
as follows:
    (A) When the borrower's dwelling is financed with an SFH loan(s) is 
secured by and located on the same farm real estate as the Farmer 
Program loan(s) (dwelling located on the farm), the

[[Page 229]]

SFH loan(s) will be serviced in accordance with Sec. 1965.26(c)(1) of 
subpart A of part 1965 of this chapter.
    (B) When the borrower's dwelling is financed with an SFH loan(s) and 
is located on a nonfarm tract which also serves as additional security 
for the Farmer Program loan(s), the loans(s) will be serviced in 
accordance with Sec. 1965.26 (c)(2) of subpart A of part 1965 of this 
chapter.
    (C) When the borrower's dwelling is financed with an SFH loan(s) and 
is on a non-farm tract which does not serve as additional security for 
the Farmer Program loan(s), it will NOT be accelerated simultaneously 
with sending out attachments 5 and 6, or 5-A and 6-A, or attachment 9 
and 10, or 9-A and 10-A, of exhibit A of subpart S of part 1951 of this 
chapter, as applicable, unless it is subject to liquidation based on 
provisions of Sec. 1965.125 of subpart C of part 1965 of this chapter, 
taking into consideration the prospects for success that may evolve when 
the borrower's livelihood is from a source other than the farming 
operation. If the SFH loan is in default and subject to liquidation 
based on provisions of Sec. 1965.125 of subpart C of part 1965 of this 
chapter, the SFH loan(s) must be accelerated at the same time the 
borrower is sent attachment 5 and 6, or 5-A and 6-A, or attachments 9 
and 10, or 9-A and 10-A, to exhibit A of subpart S of part 1951 of this 
chapter, as applicable. For those borrowers who are in non-monetary 
default on their Farmer Programs loans and fail to return attachment 4 
of exhibit A of subpart S of part 1951 of this chapter, the Farmer 
Programs loans and SFH loans will be accelerated at the same time. If 
the borrower appeals, one appeal hearing and one review will be held for 
both adverse actions.
    (D) If a borrower's FP loan(s) were accelerated prior to May 7, 
1987, and the SFH loan(s) is not accelerated, the SFH loan will be 
accelerated at the same time the borrower is sent attachments 5 and 6, 
or 5-A and 6-A, or attachments 7 and 8 to exhibit A of subpart S of 1951 
of this chapter, as applicable, unless the requirements of Sec. 1965.26 
of subpart A of part 1965 of this chapter are met or the liquidation of 
the SFH loan is based on provisions of Sec. 1965.125 of subpart C of 
part 1965 of this chapter. If the borrower is sent attachments 5 and 6, 
or 5-A and 6-A to exhibit A of subpart S of 1951 of this chapter, as 
applicable, and requests an appeal, one hearing and one review will be 
held for both the adverse action on the FP loan restructuring request 
and SFH acceleration notices. If the borrower is sent attachments 7 and 
8 to exhibit A of subpart S of 1951 of this chapter, there are no 
further appeals on the FP loans; but, the borrower is entitled to a 
hearing and a review on the SFH acceleration notice.
    (v) For MFH loans, the acceleration notice will advise the borrower 
of all applicable prepayment requirements, in accordance with subpart E 
of part 1965 of this chapter. The requirements include the application 
of restrictive-use provisions to loans made on or after December 21, 
1979, prepaid in response to acceleration notices and all tenant and 
agency notifications. The acceleration notice will also remind borrowers 
that rent levels cannot be raised during the acceleration without FmHA 
or its successor agency under Public Law 103-354 approval, even after 
subsidies are canceled or suspended. Tenants are to be notified of the 
status of the project and of possible consequences of these actions. 
FmHA or its successor agency under Public Law 103-354 Form Letters 1965-
E-2, 1965-E-3 and 1965-E-5 may be used as guides, but modified 
appropriately. If the borrower wishes to prepay the project in response 
to the acceleration and FmHA or its successor agency under Public Law 
103-354 makes a determination that the housing is no longer needed, a 
minimum of 180 days' notice to tenants is required before the project 
can be removed from the FmHA or its successor agency under Public Law 
103-354 program. Letters of Priority Entitlement must be made available 
in accordance with Sec. 1965.215(e)(4) or subpart E of part 1965 of this 
chapter.
    (3) Offers by borrowers after acceleration of account--(i) Farmers 
Programs (FP) accelerations. This category also includes non-FP loans to 
the same borrower which have been accelerated as part of the same 
action. After the account is accelerated, the borrower will have 30 days 
from the date of the acceleration notice to make payment in full

[[Page 230]]

to stop the acceleration, unless State or tribal law requires that the 
foreclosure be withdrawn if the account is brought current and a State 
supplement is issued to specify the requirement.
    (A) Payment in full [see exhibit D of this subpart (available in any 
FmHA or its successor agency under Public Law 103-354 office)] may 
consist of the following means of fully satisfying the debt.
    (1) Cash.
    (2) Transfer and assumption.
    (3) Sale of property.
    (4) Voluntary conveyance.
    (B) Payments which do not pay the account in full can be accepted 
subject to the following requirements:
    (1) Payments will be accepted if there is no remaining security for 
the debt (real estate and chattel).
    (2) If the borrower is in the process of selling security or 
nonsecurity, payments may be accepted unless State law would require the 
acceleration to be reversed. In States where payments cannot be accepted 
unless the acceleration is reversed, the payments will not be accepted. 
A State supplement will be issued to address State law on accepting 
payments after acceleration.
    (3) If payments are mistakenly credited to the borrower's account, 
no waiver or prejudice to any rights which the United States may have 
for breach of any promissory note or convenant in the real estate 
instruments will result. Disposition of such payments will be made after 
consulting OGC.
    (4) The servicing official will notify the approval official of any 
other offer. This includes a request by the borrower for an extension of 
time to accomplish voluntary liquidation or a proposal to cure the 
default(s). In all other cases, the approval official will decide 
whether an offer from a borrower will be accepted and servicing of the 
loan reinstated or whether foreclosure will be delayed to give the 
borrower additional time to voluntarily liquidate as authorized in 
servicing regulations for the type loan(s) involved. If an offer is 
received after the case has been referred to OGC, the approval official 
will consult OGC before accepting or rejecting the offer. The denial of 
an offer to stop foreclosure is not appealable. In all cases, the 
approval official will notify the servicing official of the decision 
made.
    (ii) All other accelerations. After the account is accelerated, loan 
servicing ceases. For example, for SFH loans, the renewal or granting of 
interest credit or a moratorium is not authorized. The servicing 
official will accept no payment for less than the unpaid loan balance, 
unless State law requires that foreclosure be withdrawn if the account 
is brought current and a State supplement is issued to specify this 
requirement. If payments are mistakenly accepted and credited to the 
borrower's account, no waiver or prejudice to any rights which the 
United States may have for breach of any promissory note or covenants in 
the real estate instruments will result. Disposition of such payments 
will be made after consultation with OGC. The servicing official will 
notify the approval official of any offer received from the borrower. 
This includes a request by the borrower for an extension of time to 
accomplish voluntary liquidation or a written proposal to cure the 
default(s). The receipt of a payment with no proposal to cure the 
defaults is not considered a viable offer, and such payments will be 
returned to the borrower. The approval official will decide whether an 
offer from a borrower will be accepted and servicing of the loan 
reinstated or whether foreclosure will be delayed to give the borrower 
additional time to voluntarily liquidate as authorized in servicing 
regulations for the type loan involved. If an offer is received after 
the case has been referred to OGC, the approval official will consult 
OGC before accepting or rejecting the offer. The denial of an offer to 
stop foreclosure is not appealable. In all cases, the approval official 
will notify the servicing official of the decision made. For MFH loans, 
the National Office will be notified when foreclosure is withdrawn. When 
an account is reinstated under this section, the servicing official will 
grant or reinstate assistance for which the borrower qualifies, such as 
interest credit on an SFH loan. When granting interest credit in such a 
case:

[[Page 231]]

    (A) If an interest credit agreement expired after the account was 
accelerated, the effective date will be the date the previous agreement 
expired.
    (B) If an interest credit agreement was not in effect when the 
account was accelerated, the effective date will be the date foreclosure 
action was withdrawn.
    (C) For MFH loans with rental assistance, after acceleration and 
after any appeal or review has been concluded, rental assistance will be 
suspended if foreclosure is to continue. If the account is reinstated, 
the rental assistance will be reinstated retroactively to the date of 
suspension. In the interim, the tenants will continue rental payments in 
accordance with their leases, and all rental rates and lease renewals 
and provisions will be continued as if acceleration had not taken place.
    (4) Statement of account. If a statement of account is required for 
foreclosure proceedings, Form FmHA or its successor agency under Public 
Law 103-354 451-10, ``Request for Statement of Account,'' will be 
processed in accordance with the FMI. When an official statement of 
account is not required, account balances and recapture information may 
be obtained from the field office terminal.
    (5) Appeals. All appeals will be handled pursuant to subpart B of 
part 1900 of this chapter. Foreclosure actions will be held in abeyance 
while an appeal is pending. No case will be referred to OGC for 
processing of foreclosure until a borrower's appeal and appeal review 
have been concluded, or until the time has elapsed during which an 
appeal or a request for review may be made. In Farmer Programs cases, 
(except graduation cases under subpart F of part 1951 of this chapter), 
the borrower must have received the appropriate notices and 
consideration for primary loan servicing per subpart S of part 1951 of 
this chapter. Any Farmer Programs cases may be accelerated after all 
primary loan servicing options have been considered and all related 
appeals concluded, but will not be submitted to OGC for foreclosure 
action until all appeals related to any preservation rights have been 
concluded.
    (6) Petition in bankruptcy filed by borrower after acceleration of 
account.
    (i) When bankruptcy is filed after an account has been accelerated, 
any foreclosure action initiated by FmHA or its successor agency under 
Public Law 103-354 must be suspended until:
    (A) The bankruptcy case is dismissed or closed (a discharge of 
debtor does not close the case);
    (B) An Order lifting the automatic stay is obtained from the 
Bankruptcy Court; or
    (C) The property is no longer property of the bankruptcy estate and 
the borrower has received a discharge.
    (ii) The State Director will request the assistance of OGC in 
obtaining the Order(s) described in paragraph (c)(6)(i)(B) of this 
section.
    (e) Referral of case. If the borrower fails to satisfy the account 
during the period of time specified in the acceleration notice, and no 
appeal is pending, the foreclosure process will continue:
    (1) If the District Director is the approval official, he/she will 
forward the case file with all pertinent documents and information 
concerning the foreclosure action and appeal, if any, to the State 
Director for completion of the foreclosure.
    (2) If the State Director is the approval official, or in cases 
referred by the District Director under paragraph (e)(1) of this 
section, the State Director will forward to OGC the case file and all 
documents needed by OGC to process the foreclosure. A State Supplement 
will be issued, with the advice and assistanced of OGC, to reflect the 
make-up of the foreclosure docket. Since foreclosure processing varies 
widely from State to State, each State Supplement will be explicit in 
outlining step-by-step procedures. At the time indicated by OGC in the 
foreclosure instructions, Form FmHA or its successor agency under Public 
Law 103-354 1951-6, ``Borrower Account Description Flag,'' will be 
processed in accordance with the FMI. After referral to OGC, further 
actions will be in accordance with OGC's instructions for completion of 
the foreclosure. If prior approval of the Administrator is obtained, 
nonjudicial foreclosure for monetary default may be handled as outlined 
in a State Supplement approved by OGC without referral to OGC before 
foreclosure.

[[Page 232]]

    (f) Completion of foreclosure--(1) Foreclosure advertisement for 
organization loans subject to title VI of the Civil Rights Act of 1964--
(i) The advertisement for foreclosure sale of property subject to title 
VI of the Civil Rights Act of 1964 will contain a statement 
substantially similar to the following: ``The property described herein 
was purchased or improved with Federal financial assistance and is 
subject to the nondiscrimination provisions of title VI of the Civil 
Rights Act of 1964, section 504 of the Rehabilitation Act of 1973 and 
other similarly worded Federal statutes and regulations issued pursuant 
thereto that prohibit discrimination on the basis of race, color, 
national origin, handicap, religion, age or sex in programs or 
activities receiving Federal financial assistance, for as long as the 
property continues to be used for the same or similar purposes for which 
the Federal assistance was extended or for so long as the purchaser owns 
it, whichever is later.'' At least 30 days before the foreclosure sale, 
the County Supervisor will notify, in writing, the Indian tribe which 
has jurisdiction over the reservation, and in which the real property is 
owned by a Native American member of said tribe that a foreclosure sale 
will be conducted to resolve this account, and will provide:
    (A) Projected sale date and location;
    (B) Fair market value of property;
    (C) Amount FmHA or its successor agency under Public Law 103-354 
will bid on the property; and
    (D) Amount of FmHA or its successor agency under Public Law 103-354 
debt against the property.
    (ii) The purchaser will be required to sign Form FmHA or its 
successor agency under Public Law 103-354 400-4, ``Assurance 
Agreement,'' if the property will be used for its original or similar 
purposes.
    (2) Restrictive-use provisions for MFH loans. For MFH loans, the 
advertisement will state the restrictive-use provisions which will be 
included in any deed used to transfer title.
    (3) Expenses. Expenses which are incurred in connection with 
foreclosure, including legal fees, will be paid at the time recommended 
by OGC by processing the necessary documents as outlined in Sec. 1955.5 
(d) of this subpart. Costs will be charged as outlined in FmHA or its 
successor agency under Public Law 103-354 Instruction 2024-A (available 
in any FmHA or its successor agency under Public Law 103-354 office).
    (4) Notice of judgment. In states with judicial foreclosure, as soon 
as the foreclosure judgment is obtained, Form FmHA or its successor 
agency under Public Law 103-354 1962-20, ``Notice of Judgment,'' will be 
processed in accordance with the FMI. This will establish a judgment 
account to accrue interest at the rate stated in the judgment order so 
that an accurate account balance can be obtained for calculating the 
Government's foreclosure bid.
    (5) Gross investment. The gross investment is the sum of the 
following:
    (i) The unpaid balance of one of the following, as applicable:
    (A) In States with nonjudicial foreclosure, the borrower's FmHA or 
its successor agency under Public Law 103-354 account balance reflecting 
secured loan(s) and advances; and where State law permits, unsecured 
debts; or
    (B) In States with judicial foreclosure, the judgment account 
established as a result of the foreclosure judgment in favor of FmHA or 
its successor agency under Public Law 103-354.
    (ii) All recoverable costs charged (or to be charged) to the 
borrower's account in connection with the foreclosure action and other 
costs which OGC advises must be paid from proceeds of the sale before 
paying the FmHA or its successor agency under Public Law 103-354 secured 
debt, including but not limited to payment of real estate taxes and 
assessments, prior liens, legal fees including U.S. Attorney's and U.S. 
Marshal's, and management fees; and
    (iii) If a SFH loan subject to recapture of interest credit is 
involved, the total amount of subsidy granted and principal reduction 
attributed to subsidy.
    (6) Amount of Government's bid. Except for FP loans and as modified 
by paragraph (f)(7)(ii) of this section, the Government's bid will be 
the amount of FmHA or its successor agency under Public Law 103-354's 
gross investment or the market value of the security,

[[Page 233]]

whichever is less. For real property located within the confines of a 
federally recognized Indian reservation and which is owned by an FmHA or 
its successor agency under Public Law 103-354 borrower who is a member 
of the tribe with jurisdiction over the reservation, the Government's 
bid will be the greater of the fair market value or the FmHA or its 
successor agency under Public Law 103-354 debt against the property, 
unless FmHA or its successor agency under Public Law 103-354 determines 
that, because of the presence of hazardous substances on the property, 
it is not in the best interest of the Government to bid such amount, in 
which case there may be a deduction from the bid for the costs for 
hazardous material assessment and/or mitigation. For FP loans, except as 
modified by paragraph (f)(7)(ii) of this section, the Government's bid 
will be the amount of FmHA or its successor agency under Public Law 103-
354's gross investment or the amount determined by use of exhibit G-1 of 
this subpart, whichever is less. When the foreclosure sale is imminent, 
the State Director must request the servicing official to submit a 
current appraisal (in existing condition) as a basis for determining the 
Government's bid. Except for MFH properties, if an FmHA or its successor 
agency under Public Law 103-354 appraiser is not available, the State 
Director may authorize an appraisal to be obtained by contract from a 
source outside FmHA or its successor agency under Public Law 103-354 in 
accordance with FmHA or its successor agency under Public Law 103-354 
Instruction 2024-A (available in any FmHA or its successor agency under 
Public Law 103-354 office). For MFH properties, prior approval of the 
Assistant Administrator, Housing, is necessary to procure an outside 
appraisal.
    (7) Bidding. The State Director will designate an individual to bid 
on behalf of the Government unless judicial proceedings or State 
nonjudicial foreclosure law provides for someone other than an FmHA or 
its successor agency under Public Law 103-354 employee to enter the 
Government's bid. When the State Director determines attendance of an 
FmHA or its successor agency under Public Law 103-354 employee at the 
sale might pose physical danger, a written bid may be submitted to the 
Marshal, Sheriff, or other party in charge of holding the sale. The 
Government's bid will be entered when no other party makes a bid or when 
the last bid will result in the property being sold for less than the 
bid authorized in paragraph (f)(6) of this section.
    (i) When FmHA or its successor agency under Public Law 103-354 is 
the senior lienholder, only one bid will be entered, and that will be 
for the amount authorized by the State Director.
    (ii) When FmHA or its successor agency under Public Law 103-354 is 
not the senior lienholder and OGC advises that the borrower has no 
redemption rights or if a deficiency judgment will be obtained, the 
State Director may authorize the person who will bid for the Government 
to make incremental bids in competition with other bidders. If 
incremental bidding is desired, the State Director's instructions to the 
bidder will state the initial bid, bidding increments, and the maximum 
bid.
    (g) Reports on sale and finalizing foreclosure. Immediately after a 
foreclosure sale at which the State Director has designated a person to 
bid on behalf of the Government, the servicing official will furnish the 
State Director a report on the sale. The State Director will forward a 
copy of this report to OGC and, for MFH loans, to the National Office. 
Based on OGC's instructions, a State supplement will provide a detailed 
outline of actions necessary to complete the foreclosure.
[50 FR 23904, June 7, 1985, as amended at 50 FR 45782, Nov. 1, 1985; 51 
FR 4138, Feb. 3, 1986; 51 FR 45433, Dec. 18, 1986; 53 FR 27827, July 25, 
1988; 53 FR 35763, Sept. 14, 1988; 56 FR 6953, Feb. 21, 1991; 56 FR 
15822, Apr. 18, 1991; 57 FR 18671, Apr. 30, 1992; 57 FR 31642, July 17, 
1992; 57 FR 60085, Dec. 18, 1992; 58 FR 38927, July 21, 1993; 58 FR 
58648, Nov. 3, 1993; 58 FR 68725, Dec. 29, 1993; 60 FR 55147, Oct. 27, 
1995; 62 FR 44396, Aug. 21, 1997]



Secs. 1955.16--1955.17  [Reserved]



Sec. 1955.18  Actions required after acquisition of property.

    The approval official may employ the services of local designated 
attorneys, of a case by case basis, to process all legal procedures 
necessary to clear the

[[Page 234]]

title of foreclosure properties. Such attorneys shall be compensated at 
not more than their usual and customary charges for such work. 
Contracting for such attorneys shall be accomplished pursuant to the 
Federal acquisition regulations and related procurement regulations and 
guidance.
    (a)-(d) [Reserved]
    (e) Credit to the borrower's account or foreclosure judgment 
account.
    (1) For SFH accounts. When FmHA or its successor agency under Public 
Law 103-354 acquired the property, the account will be satisfied unless:
    (i) In a voluntary conveyance case where the debt exceeds the market 
value of the property and the borrower is not released from liability, 
in which case the account credit will be the market value (less 
outstanding liens if any); or
    (ii) In a foreclosure where the bid is less than the account balance 
and a deficiency judgment will be sought for the difference, in which 
case the account credit will be the amount of FmHA or its successor 
agency under Public Law 103-354's bid.
    (2) For all types of accounts other than SFH. When FmHA or its 
successor agency under Public Law 103-354 acquired the property, the 
account credit will be as follows:
    (i) In a voluntary conveyance case:
    (A) Where the market value of the property equals or exceeds the 
debt or where the borrower is released from liability for any 
difference, the account will be satisfied.
    (B) Where the debt exceeds the market value of the property and the 
borrower is not released from liability, the account credit will be the 
market value (less outstanding liens, if any).
    (ii) In a foreclosure, the account credit will be the amount of FmHA 
or its successor agency under Public Law 103-354's bid except when 
incremental bidding as provided for in Sec. 1955.15(f)(7)(ii) of this 
subpart was used, in which case the account credit will be the maximum 
bid that was authorized by the State Director.
    (3) For all types of accounts when FmHA or its successor agency 
under Public Law 103-354 did not acquire the property. The sale proceeds 
will be handled in accordance with applicable State laws with the advice 
and assistance of OGC, including remittance of funds, application of the 
borrower's account credit, and disbursement of any funds in excess of 
the amount due FmHA or its successor agency under Public Law 103-354.
    (4) In cases where FmHA or its successor agency under Public Law 
103-354 acquired security property by means other than voluntary 
conveyance or foreclosure. In these cases, such as conveyance by a 
bankruptcy trustee or by Court Order, the account credit will be as 
follows:
    (i) If the market value of the acquired property equals or exceeds 
the debt, the account will be satisfied.
    (ii) If the debt exceeds the market value of the acquired property, 
the account credit will be the market value.
    (f)-(l)
[50 FR 23904, June 7, 1985, as amended at 52 FR 41957, Nov. 2, 1987; 53 
FR 27827, July 25, 1988; 53 FR 35764 Sept. 14, 1988; 55 FR 35295, Aug. 
29, 1990; 56 FR 10147, Mar. 11, 1991; 56 FR 29402, June 27, 1991; 58 FR 
38927, July 21, 1993; 58 FR 68725, Dec. 29, 1993; 60 FR 34455, July 3, 
1995]



Sec. 1955.19  [Reserved]



Sec. 1955.20  Acquisition of chattel property.

    Every effort will be made to avoid acquiring chattel property by 
having the borrower or FmHA or its successor agency under Public Law 
103-354 liquidate the property according to Subpart A of Part 1962 of 
this chapter and apply the proceeds to the borrower's account(s). 
Methods of acquisition authorized are:
    (a) Purchase at the following types of sale: (1) Execution sale 
conducted by the U.S. Marshal, sheriff or other party acting under Court 
order to satisfy judgment liens.
    (2) FmHA or its successor agency under Public Law 103-354 
foreclosure sale conducted by the U.S. Marshal or sheriff in States 
where a State Supplement provides for sales to be conducted by them.
    (3) Sale by trustee in bankruptcy.
    (4) Public sale by prior lienholder.
    (5) Public sale conducted under the terms of Form FmHA or its 
successor agency under Public Law 103-354 455-4, ``Agreement for 
Voluntary Liquidation of Chattel Security,'' the power of sale

[[Page 235]]

in security agreements or crop and chattel mortgage, or similar 
instrument, if authorized by State Supplement.
    (b) Voluntary conveyance. Voluntary conveyance of chattels will be 
accepted only when the borrower can convey ownership free of other liens 
and the borrower can be released from liability under the conditions set 
forth in Sec. 1955.10(f)(2) of this subpart. Payment of other 
lienholders' debts by FmHA or its successor agency under Public Law 103-
354 in order to accept voluntary conveyance of chattels is not 
authorized. Before a voluntary conveyance from a Farmer Program loan 
borrower can be accepted, the borrower must be sent Exhibit A with 
Attachments 1 and 2 of Subpart S of Part 1951 of this chapter.
    (1) Offer. The borrower's offer of voluntary conveyance will be made 
on Form FmHA or its successor agency under Public Law 103-354 1955-1. If 
it is determined the conveyance offer can be accepted, the borrower will 
execute a bill of sale itemizing each item of chattel property being 
conveyed and will provide titles to vehicles or other equipment, where 
applicable.
    (2) Acceptance of offer release from liability. Before accepting an 
offer to convey chattels to FmHA or its successor agency under Public 
Law 103-354, the concurrence of the State Director must be obtained. 
When chattel security is voluntarily conveyed to the Government and the 
borrower and cosigner(s), if any, are to be released from liability, the 
servicing official will stamp the note(s) ``Satisfied by Surrender of 
Security and Borrower Released from Liability.'' When the Agency debt 
less the market value and prior liens is $1 million or more (including 
principal, interest and other charges), release of liability must be 
approved by the Administrator or designee; otherwise, the State Director 
must approve the release of liability. All cases requiring a release of 
liability will be submitted in accordance with Exhibit A of Subpart B of 
Part 1956 of this chapter (available in any FmHA or its successor agency 
under Public Law 103-354 office). Form FmHA or its successor agency 
under Public Law 103-354 1955-1 will be executed by the servicing 
official showing acceptance by the Government, and the satisfied note(s) 
and a copy of Form FmHA or its successor agency under Public Law 103-354 
1955-1 will be furnished to the borrower.
    (3) Release of lien(s). When an offer has been accepted as outlined 
in paragraph (b)(2) of this section, the servicing official will release 
any liens of record which secured the satisfied indebtedness.
    (4) Rejection of offer. If it is determined an offer of voluntary 
conveyance will not be accepted, the servicing official will indicate on 
Form FmHA or its successor agency under Public Law 103-354 1955-1 that 
the offer is rejected, execute the form, and furnish a copy to the 
borrower.
    (c) Attending sales. The servicing official will:
    (1) Attend all sales described in paragraph (a)(5) of this section 
unless an exception is authorized by the State Director because of 
physical danger to the FmHA or its successor agency under Public Law 
103-354 employee or adverse publicity would be likely.
    (2) Attend public sales by prior lienholders when the market value 
of the chattel property is significantly more than the amount of the 
prior lien(s).
    (3) Obtain the advice of the State Director on attending sales 
described in paragraphs (a) (1), (2), and (3) of this section.
    (d) Appraising chattel property. Prior to the sale, the servicing 
official will appraise chattel property using Form FmHA or its successor 
agency under Public Law 103-354 440-21, ``Appraisal of Chattel 
Property.'' If a qualified appraiser is not available to appraise 
chattel property, the State Director may obtain an appraisal from a 
qualified source outside FmHA or its successor agency under Public Law 
103-354 by contract in accordance with FmHA or its successor agency 
under Public Law 103-354 Instruction 2024-A (available in any FmHA or 
its successor agency under Public Law 103-354 office).
    (e) Abandonment of security interest. The State Director may 
authorize abandonment of the Government's security interest when chattel 
property,

[[Page 236]]

considering costs of moving or rehabilitation, has no market value and 
obtaining title would not be in the best interest of the Government.
    (f) Bidding at sale. (1) The servicing official is authorized to bid 
at sales described in paragraph (a) of this section. Ordinarily, only 
one bid will be made on items of chattel security unless the State 
Director authorizes incremental bidding. Bids will be made only when no 
other party bids or when it appears bidding will stop and the property 
will be sold for less than the amount of the Government's authorized 
bid. When the State Director determines attendance of an FmHA or its 
successor agency under Public Law 103-354 employee might pose physical 
danger, a written bid may be submitted to the party holding the sale. 
The bid(s) will be the lesser of:
    (i) The market value of the item(s) less the estimated costs 
involved in the acquisition, care, and sale of the item(s) of security; 
or
    (ii) The unpaid balance of the borrower's secured FmHA or its 
successor agency under Public Law 103-354 debt plus prior liens, if any.
    (2) Bids will not be made in the following situations unless 
authorized by the State Director:
    (i) When chattel property under prior lien has a market value which 
is not significantly more than the amount owed the prior lienholder. If 
FmHA or its successor agency under Public Law 103-354 holds a junior 
lien on several items of chattel property, advice should be obtained 
from the State Director on bidding.
    (ii) After sufficient chattel property has been bid in by FmHA or 
its successor agency under Public Law 103-354 to satisfy the FmHA or its 
successor agency under Public Law 103-354 debt; prior liens, and cost of 
the sale.
    (iii) When the sale is being conducted by a lienholder junior to 
FmHA or its successor agency under Public Law 103-354.
    (iv) At a private sale.
    (v) When the sale is being conducted under the terms of Form FmHA or 
its successor agency under Public Law 103-354 455-3, ``Agreement for 
Sale by Borrower (Chattels and/or Real Estate)''.
    (g) Payment of costs. Costs to be paid by FmHA or its successor 
agency under Public Law 103-354 in connection with acquisition of 
chattel property will be paid as outlined in Sec. 1955.5(d) of this 
subpart as recoverable costs.

    Note: Payment of other lienholders' debts in connection with 
voluntary conveyance of chattels is not authorized.

    (h) Reporting acquisition of chattel property. Acquisition of 
chattel property will be reported by use of Form FmHA or its successor 
agency under Public Law 103-354 1955-3 prepared and distributed in 
accordance with the FMI.
[50 FR 23904, June 7, 1985, as amended at 50 FR 45783, Nov. 1, 1985; 51 
FR 45433, Dec. 18, 1986; 53 FR 27828 July 25, 1988; 53 FR 35764, Sept. 
14, 1988; 60 FR 28320, May 31, 1995]



Sec. 1955.21  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this subpart or address any omission of this 
subpart which is not inconsistent with the authorizing statute or other 
applicable law if the Administrator determines that the Government's 
interest would be adversely affected or the immediate health and/or 
safety of tenants or the community are endangered if there is no adverse 
effect on the Government's interest. The Administrator will exercise 
this authority upon the request of the State Director with 
recommendation of the appropriate program Assistant Administrator; or 
upon request initiated by the appropriate program Assistant 
Administrator. Requests for exceptions must be made in writing and 
supported with documentation to explain the adverse effect, propose 
alternative courses of action, and show how the adverse effect will be 
eliminated or minimized if the exception is granted.



Sec. 1955.22  State supplements.

    State Supplements will be prepared with the assistance of OGC as 
necessary to comply with State laws or only as specifically authorized 
in this regulation to provide guidance to FmHA or its successor agency 
under

[[Page 237]]

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).



Secs. 1955.23--1955.49  [Reserved]



Sec. 1955.50  OMB control number.

    The collection of information requirements contained in this 
regulation have been approved by the Office of Management and Budget 
(OMB) and have been assigned OMB control number 0575-0109. Public 
reporting burden for this collection of information is estimated to vary 
from 5 minutes to 5 hours per response, with an average of .56 hours per 
response including time for reviewing instructions, searching existing 
data sources, gathering and maintaining the data needed, and completing 
and reviewing the collection of information. Send comments regarding 
this burden estimate or any other aspect of this collection of 
information, including suggestions for reducing this burden, to 
Department of Agriculture, Clearance Officer, OIRM, room 404-W, 
Washington, DC 20250; and to the Office of Management and Budget, 
Paperwork Reduction Project (OMB 0575-0109), Washington, DC 20503.
[57 FR 1372, Jan. 14, 1992]

                          Exhibits to Subpart A



Exhibits A--F [Reserved]




 Exhibit G of Subpart A--Worksheet for Accepting a Voluntary Conveyance 
         of Farm Credit Program Security Property Into Inventory

 _______________________________________________________________________
(present owner/borrower)
    Refer to Exhibit I in FmHA Instruction 1951-S for guidance in 
estimating the incomes and expenses to be used in this exhibit. The 
holding period to be used is 105 days (3.5 months).

1. Market Value of Property (Part 7, Form FmHA or its successor agency 
          under Public Law 103-354 1922-1) $__________
    Estimated Holding Period in Years __________
2. Income
    a. Annual Rent ______  x  Holding Period ______ = ______
    b. Annual Royalties ______  x  Holding Period ______ = ______
    c. Other Annual Income ______  x  Holding Period ______ = ______
    d. Annual Land Appreciation ______  x  Holding Period ______ = 
______
    e. Value gained due to restrictions that are placed on the farm such 
as Conservation Easements, Conservation Reserve Program (CRP), etc. = 
______
    f. Other (describe) ______  x  Holding Period ______ = ______
    Total Additions = $__________
3. Expenses
    a. Total Prior Lienholder Indebtedness (P and I) = ______
    b. Other Acquisitions Costs (taxes presently owed, closing costs, 
survey costs, administrative costs, junior liens, etc.) List:
    __________    __________
    __________    __________ = __________
    c. Annual Taxes & Assessment ______  x  Holding Period ______ = 
______
    d. Annual Building Depreciation ______  x  Holding Period ______ = 
______
    e. Annual Management Costs ______  x  Holding Period ______ = ______
    f. Total Essential Repairs to Secure & Resell = ______
    g. Annual Decrease In Land Value (if applicable) ______  x  Holding 
Period ______ = ______
    h. Total Anticipated Resale Expenses (Commissions, Advertising, 
etc.) = __________
    i. Total Interest Cost
    MKT Value $______  x  Regular \1\ OL Rate ______  x  Holding Period 
______ = ______
    j. Value loss due to restrictions that are placed on the farm such 
as Conservation Easements, and Conservation Reserve Program (CRP), etc. 
= $__________
    k. Hazardous Waste Clean-up Costs = __________
    Total Deductions (Items a through k) = __________
4. Recovery Value End of Holding Period


                                                                                                                
                                                                                                                
                                                                                                                
   1.________________      +     2. ________________     -    3. ________________     =      ________________   
      Market Value                 Total Additions              Total Deductions              Recovery Value    
                                                                                                                
                                                                                                                

 _______________________________________________________________________
County Official
 _______________________________________________________________________
Date

[[Page 238]]

Concurrence by:
 _______________________________________________________________________
State Executive Director
 _______________________________________________________________________
Date
[56 FR 15823, Apr. 18, 1991, as amended at 58 FR 44752, Aug. 25, 1993; 
62 FR 44396, Aug. 21, 1997]

    Exhibit G-1 of Subpart A--Worksheet for Determining Farm Credit 
              Programs, Maximum Bid on Real Estate Property

 _______________________________________________________________________
(present owner/borrower)

    Refer to Exhibit I in FmHA Instruction 1951-S for guidance in 
estimating the incomes and expenses to be used in this exhibit. The 
holding period to be used is 105 days (3.5 months).
---------------------------------------------------------------------------


    \1\ The regular operating loan rate more nearly reflects the 
Government's cost of money.
---------------------------------------------------------------------------

1. Market Value of Property (Part 7, Form FmHA or its successor agency 
          under Public Law 103-354 1922-1) $__________
    Estimated Holding Period in Years __________
2. Income
    a. Annual Rent ______  x  Holding Period ______ = ______
    ______ ______ = ______
    b. Annual Royalties ______  x  Holding Period ______ = ______
    c. Other Annual Income ______  x  Holding Period ______ = ______
    d. Annual Land Appreciation ______  x  Holding Period ______ = 
______
    e. Value gained due to restrictions that are placed on the farm such 
as Conservation Easements, Conservation Reserve Program (CRP), etc. = 
$______
    f. Other (describe) ______  x  Holding Period ______ = ______
    Total Additions = $______
3. Expenses
    a. Total Prior Lienholder Indebtedness (P and I) = ______
    b. Other Acquisitions Costs (taxes presently owed, closing costs, 
survey costs, administrative costs, etc.) List:
    __________ __________
    ______ ______ = ______
    c. Annual Taxes & Assessment ______  x  Holding Period ______ = 
______
    d. Annual Building Depreciation ______  x  Holding Period ______ = 
______
    e. Annual Management Costs ______  x  Holding Period ______ = ______
    f. Total Essential Repairs to Secure & Resell = ______
    g. Annual % Decrease In Land Value (if applicable) ______  x  
Holding Period ______ = ______
    h. Total Anticipated Resale Expenses (Commissions, Advertising, 
etc.) = ______
    i. Total Interest Cost
    MKT Value $______  x  Regular \2\ OL Rate ______  x  Holding Period 
______ = ______
---------------------------------------------------------------------------


    \2\ The regular operating loan rate more nearly reflects the 
Government's cost of money.
---------------------------------------------------------------------------

    j. Value loss due to restrictions that are placed on the farm such 
as Conservation Easements, and Conservation Reserve Program (CRP), etc. 
= $______
    k. Hazardous Waste Clean-up Costs = ______
    Total Deductions (Items a through k) = ______
4. Bid will be the lesser of:

                                                                        
                                                                        
                                                                        
     a. 1.       +  2.____________   -        3.        =  _____________
  ____________            ___            ____________            ___    
                                              ___                       
 Market Value            Total              Total              Total    
                       Additions          Deductions                    
                                                                        

    or,

                                                                                                                
                                                                                                                
                                                                                                                
   b. ________________     +      ________________       =      ________________                                
   Unpaid FmHA or its                Prior Liens                     Total                                      
  successor agency under                                                                                        
    Public Law 103-354                                                                                          
 Balance on Secured Debt                                                                                        
                                                                                                                

 _______________________________________________________________________
County Official
 _______________________________________________________________________
Date
Concurrence by:
 _______________________________________________________________________
State Executive Director
 _______________________________________________________________________

[[Page 239]]

Date
[56 FR 15823, Apr. 18, 1991, as amended at 58 FR 44752, Aug. 25, 1993; 
62 FR 44396, Aug. 21, 1997]



                    Subpart B--Management of Property

    Source: 53 FR 35765, Sept. 14, 1988, unless otherwise noted.



Sec. 1955.51  Purpose.

    This subpart delegates authority and prescribes policies and 
procedures for the Rural Housing Service (RHS), Rural Business-
Cooperative Service (RBS), the Water and Waste programs of the Rural 
Utilities Service (RUS), and Farm Service Agency (FSA), herein referred 
to as ``Agency,'' and references contained in this subpart to the 
Farmers Home Administration (FmHA) are synonymous with ``Agency.'' This 
subpart does not apply to RHS single family housing loans or community 
program loans sold without insurance to the private sector. These 
community program loans will be serviced by the private sector and 
future revisions to this subpart no longer apply to such loans. This 
subpart covers:
    (a) Management of real property which has been taken into custody by 
the respective Agency after abandonment by the borrower;
    (b) Management of real and chattel property which is in Agency 
inventory; and
    (c) Management of real and chattel property which is security for a 
guaranteed loan liquidated by an Agency (or which the Agency is in the 
process of liquidating).
[61 FR 59778, Nov. 22, 1996]



Sec. 1955.52  Policy.

    Inventory and custodial real property will be effectively managed to 
preserve its value and protect the Government's financial interests. 
Properties owned or controlled by FmHA or its successor agency under 
Public Law 103-354 will be maintained so that they are not a detriment 
to the surrounding area and they comply with State and local codes. 
Generally, FmHA or its successor agency under Public Law 103-354 will 
continue operation of Multiple Family Housing (MFH) projects which are 
acquired or taken into custody. Servicing of repossessed or abandoned 
chattel property is covered in subpart A of part 1962 of this chapter, 
and management of inventory chattel property is covered in Sec. 1955.80 
of this subpart.



Sec. 1955.53  Definitions.

    As used in this subpart, the following definitions apply:
    CONACT or CONACT property. Property acquired or sold pursuant to the 
Consolidated Farm and Rural Development Act (CONACT). Within this 
subpart, it shall also be construed to cover property which secured 
loans made pursuant to the Agriculture Credit Act of 1978; the Emergency 
Agricultural Credit Adjustment Act of 1978; the Emergency Agricultural 
Credit Act of 1984; the Food Security Act of 1985; and other statutes 
giving agricultural lending authority to FmHA or its successor agency 
under Public Law 103-354.
    Contracting Officer (CO). CO means a person with the authority to 
enter into, administer, and/or terminate contracts and make related 
determinations and findings. The term includes authorized 
representatives of the CO acting within the limits of their authority as 
delegated by the CO.
    Custodial property. Borrower-owned real property and improvements 
which serve as security for an FmHA or its successor agency under Public 
Law 103-354 loan, have been abandoned by the borrower, and of which FmHA 
or its successor agency under Public Law 103-354 has taken possession.
    Farmer program loans. This includes Farm Ownership (FO), Soil and 
Water (SW), Recreation (RL), Economic Opportunity (EO), Operating (OL), 
Emergency (EM), Economic Emergency (EE), Special Livestock (SL), 
Softwood Timber (ST) loans, and Rural Housing loans for farm service 
buildings (RHF).
    Government. The United States of America, acting through the FmHA or 
its successor agency under Public Law 103-354, U.S. Department of 
Agriculture.
    Indian reservation. All land located within the limits of any Indian 
reservation under the jurisdiction of the United States notwithstanding 
the issuance of any patent, and including

[[Page 240]]

rights-of-way running through the reservation; trust or restricted land 
located within the boundaries of a former reservation of a federally 
recognized Indian tribe in the State of Oklahoma; or all Indian 
allotments the Indian titles to which have not been extinguished if such 
allotments are subject to the jurisdiction of a federally recognized 
Indian tribe.
    Inventory property. Real and chattel property and related rights to 
which the Government has acquired title.
    Loans to individuals. Farmer Program loans, as defined above, 
whether to individuals or entities; Land Conservation and Development 
(LCD); and Single-Family Housing (SFH), including both Sections 502 and 
504 loans.
    Loans to organizations. Community Facility (CF), Water and Waste 
Disposal (WWD), Association Recreation, Watershed (WS), Resource 
Conservation and Development (RC&D), loans to associations for 
Irrigation and Drainage and other Soil and Water Conservation measures, 
loans to Indian Tribes and Tribal Corporations, Shift-in-Land-Use 
(Grazing Associations) Business and Industrial (B&I) to both individuals 
and groups, Rural Development Loan Fund (RDLF), Intermediary Relending 
Program (IRP), Nonprofit National Corporation (NNC), Economic 
Opportunity Cooperative (EOC), Rural Housing Site (RHS), Rural 
Cooperative Housing (RCH), and Rural Rental Housing (RRH) and Labor 
Housing (LH) to both individuals and groups. The housing-type loans 
identified here are referred to in this subpart collectively as MFH 
loans.
    Nonprogram (NP) property. SFH and MFH property acquired pursuant to 
the Housing Act of 1949, as amended, that cannot be used by a borrower 
to effectively carry out the objectives of the respective loan program; 
for example, a dwelling that cannot be feasibly repaired to meet the 
FmHA or its successor agency under Public Law 103-354 requirements for 
existing housing as described in subpart A of part 1944 of this chapter. 
It may contain a structure which would meet program standards; however, 
is so remotely located it would not serve as an adequate residential 
unit or an older house which is excessively expensive to heat and/or 
maintain for a very-low or low-income homeowner.
    Nonrecoverable costs. Costs incurred after Government acquisition of 
title to the property and charged to an inventory account.
    Office of the General Counsel (OGC). The OGC, U.S. Department of 
Agriculture, refers to the Regional Attorney or Attorney-in-Charge in an 
OGC field office unless otherwise indicated.
    Program property. SFH and MFH inventory property that can be used to 
effectively carry out the objectives of their respective loan programs 
with financing through that program. Inventory property located in an 
area where the designation has been changed from rural to nonrural will 
be considered as if it were still in a rural area.
    Recoverable costs. Costs charged to a borrower's account, paid or 
incurred prior to Government acquisition of the property.
    Servicing official. For loans to individuals as defined in this 
section, the servicing official is the County Supervisor. For insured 
B&I loans, the servicing official is the State Director. For Rural 
Development Loan Fund and Intermediary Relending Program loans, the 
servicing official is the Director, Business and Industry Division. For 
Nonprofit National Corporations loans, the servicing official is 
Director, Community Facility Division. For all other types of loans, the 
servicing official is the District Director.
    Suitable property. For FSA inventory property, real property that 
can be used for agricultural purposes, including those farm properties 
that may be used as a start up or add-on parcel of farmland. It also 
includes a residence or other off-farm site that could be used as a 
basis for a farming operation. For agencies other than FSA, real 
property that could be used to carry out the objectives of the Agency's 
loan program with financing provided through that program.
    Surplus property. For FSA inventory property, real property that 
cannot be used for agricultural purposes including nonfarm properties. 
For other agencies, property that cannot be used to carry out the 
objectives of financing

[[Page 241]]

available through the applicable loan program.
[53 FR 35765, Sept. 14, 1988, as amended at 56 FR 29402, June 27, 1991; 
57 FR 19525, 19528, May 7, 1992; 58 FR 58648, Nov. 3, 1993; 62 FR 44396, 
Aug. 21, 1997]



Sec. 1955.54  Redelegation of authority.

    Authorities will be redelegated to the extent possible, consistent 
with program objectives and available resources.
    (a) Any authority in this subpart which is specifically provided to 
the Administrator or to an Assistant Administrator may only be delegated 
to a State Director. The State Director cannot redelegate such 
authority.
    (b) Except as provided in paragraph (a) of this section, the State 
Director may redelegate, in writing, any authority delegated to the 
State Director in this subpart, unless specifically excluded, to a 
Program Chief, Program Specialist, or Property Management Specialist on 
the State Office staff.
    (c) The District Director may redelegate, in writing, any authority 
delegated to the District Director in this subpart to an Assistant 
District Director or District Loan Specialist. Authority of District 
Directors in this subpart applies to Area Loan Specialists in Alaska and 
the Director for the Western Pacific Territories.
    (d) The County Supervisor may redelegate, in writing, any authority 
delegated to the County Supervisor in this subpart to an Assistant 
County Supervisor, GS-7 or above, who is determined by the County 
Supervisor to be qualified. Authority of County Supervisors in this 
subpart applies to Area Loan Specialists in Alaska, Island Directors in 
Hawaii, the Director for the Western Pacific Territories, and Area 
Supervisors in the Western Pacific Territories and American Samoa.



Sec. 1955.55  Taking abandoned real or chattel property into custody and related actions.

    (a) Determination of abandonment. (Multiple housing type loans will 
be handled in accordance with Sec. 1965.75 of Subpart B of Part 1965 of 
this chapter.) When it appears a borrower has abandoned security 
property, the servicing official shall make a diligent attempt to locate 
the borrower to determine what the borrower's intentions are concerning 
the property. This includes making inquiries of neighbors, checking with 
the Postal Service, utility companies, employer(s), if known, and 
schools, if the borrower has children, to see if the borrower's 
whereabouts can be determined and an address obtained. A State 
supplement may be issued if necessary to further define ``abandonment'' 
based on State law. If the borrower is not occupying or is not in 
possession of the property but has it listed for sale with a real estate 
broker or has made other arrangements for its care or sale, it will not 
be considered abandoned so long as it is adequately secured and 
maintained. Except for borrowers with Farmers Program loans, if the 
borrower has made no effort to sell the property and can be located, an 
opportunity to voluntarily convey the property to the Government will be 
offered the borrower in accordance with Sec. 1955.10 of Subpart A of 
this part. In farmer program cases, borrowers must receive Attachments 1 
and 2 of Exhibit A of Subpart S of Part 1951 of this chapter and any 
appeal must be concluded before any adverse action can be taken. The 
County Supervisor will send these forms to the borrower's last known 
address as soon as it is determined that the borrower has abandoned 
security property.
    (b) Taking security property into FmHA or its successor agency under 
Public Law 103-354 custody. When security property is determined to be 
abandoned, the running record in the borrower's file will be fully 
documented with the facts substantiating the determination of 
abandonment, and the servicing official shall proceed as follows without 
delay:
    (1) For loans to individuals (except those with Farmer Program 
loans), if there are no prior liens, or if a prior lienholder will not 
take the measures necessary to protect the property, the County 
Supervisor shall take custody of the property, and a problem case report 
will be prepared recommending foreclosure in accordance with 
Sec. 1955.15 of Subpart A of this part, unless the borrower can be 
located and voluntary liquidation accomplished. Farmer Program loan 
borrowers will be sent the

[[Page 242]]

forms listed in paragraph (a) of this section and the provisions of 
Sec. 1965.26 of Subpart A of Part 1965 of this chapter will be followed.
    (2) For MFH loans, if there are no prior liens, the District 
Director will immediately notify the State Director, who will request 
guidance from OGC and may also request advice from the National Office. 
The State Director, with the advice of OGC, will advise the borrower by 
writing a letter, certified mail, return receipt requested, at the 
address currently used by Finance Office, outlining proposed actions by 
FmHA or its successor agency under Public Law 103-354 to secure, 
maintain, and operate the project.
    (i) If the unpaid loan balance plus recoverable costs do not exceed 
the State Director's loan approval authority, the State Director will 
authorize the District Director to take custody of the property, make 
emergency repairs if necessary to protect the Government's interest, and 
will advise how the property is to be managed in accordance with Subpart 
C of Part 1930 of this chapter.
    (ii) If the unpaid loan balance plus recoverable costs exceeds the 
State Director's loan approval authority, the State Director will refer 
the case to the National Office for advice on emergency actions to be 
taken. The docket will be forwarded to the National Office with detailed 
recommendations for immediate review and authorization for further 
action, if requested by the MFH staff.
    (iii) Costs incurred in connection with procurement of such things 
as management services will be handled in accordance with FmHA or its 
successor agency under Public Law 103-354 Instruction 2024-A (available 
in any FmHA or its successor agency under Public Law 103-354 office).
    (iv) The District Director will prepare a problem case report to 
initiate foreclosure in accordance with Sec. 1955.15 of Subpart A of 
this part and submit the report to the State Director along with a 
proposed plan for managing the project while liquidation is pending.
    (3) For organization loans other than MFH, if there are no prior 
liens, the District Director will immediately notify the State Director 
that the property has been abandoned and recommend action which should 
be taken to protect the Government's interest. After obtaining the 
advice of OGC and the appropriate staff in the National Office, the 
State Director may authorize the District Director to take custody of 
the property and give instructions for immediate actions to be taken as 
necessary. The District Director will prepare a Report on Servicing 
Action (Exhibit A of Subpart E of Part 1951 of this chapter) 
recommending that foreclosure be initiated in accordance with 
Sec. 1955.15 of Subpart A of this part and submit the report to the 
State Director, along with a proposed plan for management and/or 
operation of the project while liquidation is pending.
    (c) Protecting custodial property. The FmHA or its successor agency 
under Public Law 103-354 official who takes custody of abandoned 
property shall take the actions necessary to secure, maintain, preserve, 
lease, manage, or operate the property.
    (1) Nonsecurity personal property on premises. If a property has 
been abandoned by a borrower who left nonsecurity personal property on 
the premises, the personal property will not be removed and disposed of 
before the real property is acquired by the Government. If the premises 
are in a condition which presents a fire, health or safety hazard, but 
also contains items of value, only the trash and debris presenting the 
hazard will be removed. The servicing official may request advice from 
the State Director as necessary. The servicing official shall check for 
liens on nonsecurity personal property left on abandoned premises. If 
there is a known lienholder(s), the lienholder(s) will be notified by 
certified mail, return receipt requested, that the borrower has 
abandoned the property and that FmHA or its successor agency under 
Public Law 103-354 has taken the real property into custody.
    Actions by FmHA or its successor agency under Public Law 103-354 
must not damage or jeopardize livestock, growing crops, stored 
agricultural

[[Page 243]]

products, or any other personal property which is not FmHA or its 
successor agency under Public Law 103-354 security.
    (2) Repairs to custodial property. Repairs to custodial property 
will be limited to those which are essential to prevent further 
deterioration of the property. Expenditures in excess of an aggregate of 
$1,000 per property must have prior approval of the state Director.
    (d) Emergency advances where liquidation is pending. Although 
security property may not be defined as abandoned in accordance with 
paragraph (a) of this section, if the borrower is not occupying the 
property and refuses or is unable to protect the security property, the 
servicing official is authorized to make expenditures necessary to 
protect the Government's interest. This would include, but is not 
limited to, securing or winterizing the property or making emergency 
repairs to prevent deterioration. Expenditures will be handled in 
accordance with paragraph (e) of this section. Situations where this 
authority may be used include, but are not limited to, where a borrower 
has a sale pending or when a voluntary conveyance is in process.
    (e) Income and costs. Income received from the property will be 
handled 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) and applied to the borrower's 
account as an extra payment. Expenditures will be charged to the 
borrower's account as a recoverable cost. Costs will be paid 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).
    (f) Off-site procurements. Circumstances may require off-site 
procurement action(s) to be taken by FmHA or its successor agency under 
Public Law 103-354 to protect custodial, security or inventory property 
from damage or destruction and/or protect the Government's investment in 
the property. Such procurements may include, but are not limited to 
construction or reconstruction of roads, sewers, drainage work or 
utility lines. This type work may be accomplished either through FmHA or 
its successor agency under Public Law 103-354 procurement or cooperative 
agreement. However, if FmHA or its successor agency under Public Law 
103-354 is obtaining a service or product for itself only, it must be a 
procurement and any such actions will be in accordance with FmHA or its 
successor agency under Public Law 103-354 Instruction 2024-A (available 
in any FmHA or its successor agency under Public Law 103-354 office). 
Funding will come from the appropriate insurance fund.
    (1) Conditions for procurement. Such expenditures may be made only 
when all of the following conditions are met:
    (i) A determination is made that failure to procure work would 
likely result in a property loss greater than the expenditure;
    (ii) There are no other feasible means (including cooperative 
agreements) to accomplish the same result;
    (iii) The recovery of such advance(s) is not authorized by security 
instruments in the case of security or custodial property (no such 
limitation exists for inventory property);
    (iv) Written documentation supporting subparagraphs (i), (ii) and 
(iii) has been obtained from the authorized program official;
    (v) Approval has been obtained from the appropriate Assistant 
Administrator.
    (2) Direct procurement action. Where direct procurement action is 
contemplated, an opinion must be obtained from the Regional Attorney 
that:
    (i) FmHA or its successor agency under Public Law 103-354 has the 
authority to enter the off-site property to accomplish the contemplated 
work, or
    (ii) A specific legal entity has authority to grant an easement 
(right-of-way) to FmHA or its successor agency under Public Law 103-354 
for the contemplated work and such an easement, in a form approved by 
the Regional Attorney, has been obtained.
    (3) Cooperative agreements. Cooperative agreements between FmHA or 
its successor agency under Public Law 103-354 and other entities may be 
made to accomplish the requirement where the

[[Page 244]]

principal purpose is to provide money, property, services or items of 
value to state or local governments or other recipients to accomplish a 
public purpose. Exhibit C of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office) is an example of a 
typical cooperative agreement. A USDA handbook providing detailed 
guidance for all parties is available from the USDA--Office of 
Operations and Finance. Although cooperative agreements are not a 
contracting action, the authority, responsibility and administration of 
these agreements will be handled consistent with contracting actions.
    (4) Consideration of maintenance agreements. Maintenance 
requirements must be considered in evaluating the economic benefits of 
off-site procurements. Where feasible, arrangements or agreements should 
be made with state, local governments or other entities to ensure 
continued maintenance by dedication or acceptance, letter agreements, or 
other applicable statutes.
[53 FR 35765, Sept. 14, 1988, as amended at 54 FR 20521, May 12, 1989; 
57 FR 36591, Aug. 14, 1992]



Sec. 1955.56  Real property located in Coastal Barrier Resources System (CBRS).

    (a) Approval official's scope of authority. Any action that is not 
in conflict with the limitations in paragraphs (a)(1), (a)(2) or (a)(3) 
of this section shall not be undertaken until the approval official has 
consulted with the appropriate Regional Director of the U.S. Fish and 
Wildlife Service. The Regional Director may or may not concur that the 
proposed action does or does not violate the provisions of the Coastal 
Barrier Resources Act (CBRA). Pursuant to the requirements of the CBRA, 
and except as specified in paragraphs (b) and (c) of this section, no 
maintenance or repair action may be taken for property located within a 
CBRS where:
    (1) The action goes beyond maintenance, replacement-in-kind, 
reconstruction, or repair and would result in the expansion of any 
roads, structures or facilities. Water and waste disposal facilities as 
well as community facilities may be improved to the extent required to 
meet health and safety requirements but may not be improved or expanded 
to serve additional users, patients, or residents;
    (2) The action is inconsistent with the purposes of the CBRA; or
    (3) The property to be repaired or maintained was initially the 
subject of a financial transaction that violated the CBRA.
    (b) Administrator's review. Any proposed maintenance or repair 
action that does not conform to the requirements of paragraph (a) of 
this section must be forwarded to the Administrator for review and 
approval. Approval will not be granted unless the Administrator 
determines, through consultation with the Department of the Interior, 
that the proposed action does not violate the provisions of the CBRA.
    (c) Emergency provisions. In emergency situations to prevent 
imminent loss of life, imminent substantial damage to the inventory 
property or the disruption of utility service, the approval official may 
take whatever minimum steps are necessary to prevent such loss or damage 
without first consulting with the appropriate Regional Director of the 
U.S. Fish and Wildlife Service. However, the Regional Director must be 
immediately notified of any such emergency action.



Sec. 1955.57  Real property containing underground storage tanks.

    Within 30 days of acquisition of real property into inventory, FmHA 
or its successor agency under Public Law 103-354 must report certain 
underground storage tanks to the State agency identified by the 
Environmental Protection Agency (EPA) to receive such reports. 
Notification will be accomplished by completing an appropriate EPA or 
alternate State form, if approved by EPA. A State supplement will be 
issued providing the appropriate forms required by EPA and instructions 
on processing same.
    (a) Underground storage tanks which meet the following criteria must 
be reported:
    (1) It is a tank, or combination of tanks (including pipes which are 
connected thereto) the volume of which is

[[Page 245]]

ten percent or more beneath the surface of the ground, including the 
volume of the underground pipes; and
    (2) It is not exempt from the reporting requirements as outlined in 
paragraph (b) of this section; and
    (3) The tank contains petroleum or substances defined as hazardous 
under section 101(14) of the Comprehensive Environmental Response 
Compensation and Liability Act, 42 U.S.C. 9601. The State Environmental 
Coordinator should be consulted whenever there is a question regarding 
the presence of a regulated substance; or
    (4) The tank contained a regulated substance, was taken out of 
operation by FmHA or its successor agency under Public Law 103-354 since 
January 1, 1974, and remains in the ground. Extensive research of 
records of inventory property sold before the effective date of this 
section is not required.
    (b) The following underground storage tanks are exempt from the EPA 
reporting requirements:
    (1) Farm or residential tanks of 1,100 gallons or less capacity used 
for storing motor fuel for noncommercial purposes;
    (2) Tanks used for storing heating oil for consumptive use on the 
premises where stored;
    (3) Septic tanks;
    (4) Pipeline facilities (including gathering lines) regulated under; 
(i) The Natural Gas Pipeline Safety Act of 1968; (ii) the Hazardous 
Liquid Pipeline Safety Act of 1979; or (iii) for an intrastate pipeline 
facility, regulated under State laws comparable to the provisions of law 
referred to in (b)(4) (i) or (ii) of this section;
    (5) Surface impoundments, pits, ponds, or lagoons;
    (6) Storm water or wastewater collection systems;
    (7) Flow-through process tanks;
    (8) Liquid traps or associated gathering lines directly related to 
oil or gas production and gathering operations; or
    (9) Storage tanks situated in an underground area (such as a 
basement, cellar, mineworking, drift, shaft, or tunnel) if the tank is 
situated upon or above the surface of the floor.
    (c) A copy of each report filed with the designated State agency 
will be forwarded to and maintained in the State Office by program area.
    (d) Prospective purchasers of FmHA or its successor agency under 
Public Law 103-354 inventory property with a reportable underground 
storage tank will be informed of the reporting requirement, and provided 
a copy of the form filed by FmHA or its successor agency under Public 
Law 103-354.
    (e) In a State which has promulgated additional underground storage 
tank reporting requirements, FmHA or its successor agency under Public 
Law 103-354 will comply with such requirements and a State supplement 
will be issued to provide necessary guidance.
    (f) Regardless of whether an underground storage tank must be 
reported under the requirements of this section, if FmHA or its 
successor agency under Public Law 103-354 personnel detect or believe 
there has been a release of petroleum or other regulated substance from 
an underground storage tank on an inventory property, the incident will 
be reported to the appropriate State Agency, the State Environmental 
Coordinator and appropriate program chief. These parties will 
collectively inform the servicing official of the appropriate response 
action.



Secs. 1955.58--1955.59  [Reserved]



Sec. 1955.60  Inventory property subject to redemption by the borrower.

    If inventory property is subject to redemption rights, the State 
Director, with prior approval of OGC, will issue a State Supplement 
giving guidance concerning the former borrower's rights, whether or not 
the property may be leased or sold by the Government, payment of taxes, 
maintenance, and any other items OGC deems necessary to comply with 
State laws. Routine care and maintenance will be provided according to 
Sec. 1955.64 of this subpart to preserve and protect the property. 
Repairs are limited to those essential to prevent further deterioration 
of the property or to remove a health or safety hazard to the community 
in accordance with Sec. 1955.64(a) of this subpart unless State law 
permits full recovery of cost of repairs in which case usual policy on 
repairs is applicable. If the former borrower with redemption

[[Page 246]]

rights has possession of the property or has a right to lease proceeds, 
FmHA or its successor agency under Public Law 103-354 will not rent the 
property until the redemption period has expired unless the State 
Director obtains prior authorization from OGC. Further guidance on sale 
subject to redemption rights is set forth in Sec. 1955.138 of Subpart C 
of this part.
[54 FR 20522, May 12, 1989]



Sec. 1955.61  Eviction of persons occupying inventory real property or dispossession of persons in possession of chattel property.

    Advice and assistance will be obtained from OGC where eviction from 
realty or dispossession of chattel property is necessary. Where OGC has 
given written authorization, eviction may be effected through State 
courts rather than Federal courts when the former borrower is involved, 
or through local courts instead of Federal/State courts when the party 
occupying/possessing the FmHA or its successor agency under Public Law 
103-354 property is not the former borrower. In those cases, a State 
Supplement will be issued to provide explicit instructions. For MFH, 
eviction of tenants will be handled in accordance with Subpart L of Part 
1944 of this chapter and with the terms of the tenant's lease. If no 
written lease exists, the State Director will obtain advice from OGC.
[54 FR 20522, May 12, 1989]



Sec. 1955.62  Removal and disposition of nonsecurity personal property from inventory real property.

    If the former borrower has vacated the inventory property but left 
items of value which do not customarily pass with title to the real 
estate, such as furniture, personal effects, and chattels not covered by 
an FmHA or its successor agency under Public Law 103-354 lien, the 
personal property will be handled as outlined below unless otherwise 
directed by a State supplement approved by OGC which is necessary to 
comply with State law. For MFH, the removal and disposition of 
nonsecurity personal property will be handled in accordance with the 
tenant's lease or advice from OGC. When property is deemed to have no 
value, it is recommended that it be photographed for documentation 
before it is disposed of. The FmHA or its successor agency under Public 
Law 103-354 official having custody of the property may request advice 
from the State Office staff as necessary. Actions to effect removal of 
items of value from inventory property shall be as follows:
    (a) Notification to owner or lienholder. The servicing official will 
check the public records to see if there is a lien on any of the 
personal property.
    (1) If there is a lien(s) of record, the servicing official will 
notify the lienholder(s) by certified mail, return receipt requested, 
that the personal property will be disposed of by FmHA or its successor 
agency under Public Law 103-354 unless it is removed from the premises 
within 7 days from the date of the letter.
    (2) If there are no liens of record, or if a lienholder notified in 
accordance with paragraph (a)(1) of this section fails to remove the 
property within the time specified, the servicing official will notify 
the former borrower at the last known address by certified mail, return 
receipt requested, that the personal property remaining on the premises 
will be disposed of by FmHA or its successor agency under Public Law 
103-354 unless it is removed within 7 days from the date of the letter. 
If no address can be determined, a copy of the letter should be posted 
on the front door of the property and documentation entered in the 
running record of the FmHA or its successor agency under Public Law 103-
354 file.
    (b) Disposal of unclaimed personal property. If the property is not 
removed by the former borrower or a lienholder after notification as 
outlined in paragraphs (a)(1) and (a)(2) of this section, the servicing 
official shall list the items with clear description, estimated value, 
and indication of which are covered by a lien, if any, and submit the 
list to the State Director with a request for authorization to have the 
items removed and disposed of. Based on advice from OGC, the State 
Director will give authorization and provide instructions for removal 
and disposal of the personal property. If approved by OGC, the property 
may be disposed of as follows:

[[Page 247]]

    (1) If a reasonable amount can likely be realized by FmHA or its 
successor agency under Public Law 103-354 from sale of the personal 
property, it may be sold at public sale. Items under lien will be sold 
first and the proceeds up to the amount of the lien paid to the 
lienholder(s) less a pro rata share of the sale expenses. Proceeds from 
sale of items not under lien and proceeds in excess of the amount due a 
lienholder will be remitted according to FmHA or its successor agency 
under Public Law 103-354 Instruction 1951-B (available in any FmHA or 
its successor agency under Public Law 103-354 office) and applied in the 
following order:
    (i) To the inventory account up to the amount of expenses incurred 
by the Government in connection with sale of the personal property (such 
as advertising and auctioneer, if used).
    (ii) To an unsatisfied balance on the FmHA or its successor agency 
under Public Law 103-354 loan account, if any.
    (iii) To the borrower, if whereabouts are known.
    (2) If personal property is not sold, a mover or hauler may be 
authorized to take the items for moving costs. Refer to FmHA or its 
successor agency under Public Law 103-354 Instruction 2024-A (available 
in any FmHA or its successor agency under Public Law 103-354 office) for 
guidance.
    (c) Payment of costs. Upon payment of all expenses incurred by the 
Government in connection with the personal property, FmHA or its 
successor agency under Public Law 103-354 will allow the former borrower 
or a lienholder access to the property to reclaim the personal property 
at any time prior to its disposal.
    (d) Removal of abandoned motor vehicles from inventory property. 
Since State laws vary concerning disposal of abandoned motor vehicles, 
the State Director shall, with the advice of OGC, issue a State 
supplement outlining the method to be followed which will comply with 
applicable State laws.



Sec. 1955.63  Suitability determination.

    As soon as real property is acquired, a determination must be made 
as to whether or not the property can be used for program purposes. The 
suitability determination will be recorded in the running record of the 
case file.
    (a) Determination. Property which secured loans or was acquired 
under the CONACT will be classified as suitable or surplus in accordance 
with the definitions for``suitable'' and ``surplus'' found in 
Sec. 1955.53 of this subpart. For FSA property, the county committee 
will make this determination. For other agencies, this determination 
will be made by the State Director, or designee.
    (b) Grouping and subdividing farm properties larger than family-
size. The county official will subdivide farm properties larger than 
family-size whenever possible into parcels for the purpose of creating 
one or more suitable farm properties. Properties may also be subdivided 
to facilitate the granting or selling of a conservation easement or the 
fee title transfer of portions of a property for conservation purposes. 
Such land shall be subdivided into parcels of land the shape and size of 
which are suitable for farming, the value of which shall not exceed the 
direct farm ownership loan limit of $200,000 or the guaranteed farm 
ownership loan limit of $300,000. The county official may also group two 
or more individual properties into one or more suitable farm properties. 
The environmental effects will also be considered pursuant to subpart G 
of part 1940 of this chapter. Also refer to Sec. 1955.140 of subpart C 
of this part.
    (c) Housing property. Property which secured housing loans will be 
classified as ``program'' or ``nonprogram (NP).'' After a determination 
of whether the property is suited for retention in the respective 
program, the repair policy outlined in Sec. 1955.64(a) of this subpart 
will be followed. In determining whether a property is suited for 
retention in the program, items such as size, design, possible health 
and/or safety hazards and obsolescence due to functional, economic, or 
locational conditions must carefully be considered. Generally, program 
property will meet, or can be realistically repaired to meet, the 
standards for existing housing outlined in Subpart A of Part 1944 of 
this chapter provided the property is typical of modest homes in the 
area. The cost of repairs will generally not be

[[Page 248]]

considered in determining suitability. Since houses, sites and locations 
vary widely throughout the country, discretion and sound judgment must 
be used in determining suitability. The majority of houses RHS acquires 
will be suited for retention and classified as program property. In some 
instances, property will not be suited for retention in the program and 
will be classified as ``nonprogram (NP)'' property. Situations of this 
type include, but are not limited to:
    (1) A dwelling which has been enlarged or improved to the point 
where it is clearly above modest.
    (2) When a determination is made that the property should not have 
been financed originally.
    (3) A dwelling brought into the program as an existing dwelling 
which met program standards at the time it was originally financed by 
the Agency but which does not conform to current policies. This includes 
older and/or larger houses of a type which have proven to create 
excessive energy and/or maintenance costs to very-low and low-income 
borrowers.
    (4) A dwelling which is obsolete due to location, design, 
construction or age.
    (5) A dwelling which requires major redesign/renovation to be 
brought to program standards.
    (d) [Reserved]
[53 FR 35765, Sept. 14, 1988, as amended at 54 FR 20522, May 12, 1989; 
58 FR 58648, Nov. 3, 1993; 60 FR 34455, July 3, 1995; 60 FR 55147, Oct. 
27, 1995; 62 FR 44396, Aug. 21, 1997]



Sec. 1955.64  [Reserved]



Sec. 1955.65  Management of inventory and/or custodial real property.

    (a) Authority--(1) County Supervisor. The County Supervisor, with 
the assistance of the District Director and State Office program staff 
as necessary, will select the management method(s) used for property 
which secures (or secured) loans to individuals as defined in this 
subpart.
    (2) State Director. The State Director will select the management 
method to be used for property which secures (or secured) loans to 
organizations as defined in this subpart. The State Director shall also 
provide guidance and assistance to County Supervisors and District 
Directors as necessary to insure that property under their jurisdiction 
is effectively managed.
    (b) Management methods. Management methods and requirements will 
vary depending on such things as the number of properties involved, 
their density of location, and market conditions. Management tools which 
may be used effectively range from contracts to secure individual 
property, have the grass cut, or winterize a dwelling; a simple 
management contract to provide maintenance and other services on a group 
of properties (including but not limited to specification writing, 
inspection of repairs, and yard and directional signs and their 
installation), or manage an MFH project; blanket-purchase arrangement 
contracts to obtain services for more than one property; to a broad-
scope management contract with a real estate broker or management agent 
which may include inspection and specification-writing services, making 
simple repairs, obtaining lessees, collecting rents, coordination with 
listing brokers in marketing the properties and effecting eviction of 
tenants when necessary. A contractor may handle evictions only where 
State laws permit the contractor to do so in his/her own name; a 
contractor may not pursue eviction in the name of the Government (FmHA 
or its successor agency under Public Law 103-354). Custodial property 
may be managed in the same manner as inventory property except that it 
may be leased only if it is habitable without repairs in excess of those 
authorized in Sec. 1955.55(c) of this subpart. Farm or organization 
property, such as rental housing and community facilities, may be 
operated under a management contract if the State Director has 
determined it is approporiate to have the property in operation. In any 
case, the primary consideration in selecting the method of management to 
be used is to protect the Government's interest. If property to be 
operated or leased under a management contract is located in an area 
identified by the Federal Insurance Administration as a special flood or 
mudslide hazard area, lessees or tenants must be notified to that effect 
in

[[Page 249]]

accordance with Sec. 1955.66(e) of this subpart. A management contract 
which covers property in such a hazard area may provide for the 
contractor to issue the required notices.
    (c) Obtaining services for management and/or operation of 
properties. Services for management, repair, and/or operation of 
properties will be obtained by contract in accordance with FmHA or its 
successor agency under Public Law 103-354 Instruction 2024-A (available 
in any FmHA or its successor agency under Public Law 103-354 office).
    (1) Management contracts. Management contracts are flexible 
instruments which may be tailored to meet the specific needs of almost 
any situation involving custodial or inventory property. This type of 
contract may be used to manage and maintain SFH properties, farms, and 
any other type of facility for which FmHA or its successor agency under 
Public Law 103-354 is responsible. Organization-type properties will be 
secured, maintained, repaired, and operated if authorized, in accordance 
with a management plan prepared by the District Director and approved by 
the State Director if the amount of total debt does not exceed the State 
Director's loan approval authority, or by the Administrator. For MFH, 
this plan should follow the guidance provided by Subpart C of Part 1930 
of this chapter. An audit of the borrower's records may be required if 
recent financial information is not available. For MFH projects, tenant 
occupancy and selection will be in accordance with the occupancy 
standards set forth in Subpart C of Part 1930 of this chapter. Tenants 
will be required to sign a written lease if one does not exist when the 
property is acquired or taken into custody. If a contract involves 
management of an MFH project with 5 or more units, or 5 or more single-
family dwellings located in the same subdivision, the contractor must 
furnish Form HUD 935.2, ``Affirmative Fair Housing Marketing Plan,'' 
subject to FmHA or its successor agency under Public Law 103-354's 
approval. Contracts for management of farm inventory property will be 
offered on a competitive bid basis, giving preference to persons who 
live in, and own and operate qualified small businesses in the area 
where the property is located in accordance with the provisions in FmHA 
or its successor agency under Public Law 103-354 Instruction 2024-Q 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (2) Authority to enter into management contracts. (i) The County 
Supervisor may enter into a management contract for basic services 
involving farms or not more than 25 single-family dwellings; however, 
the aggregate amount paid under a contract may not exceed the 
contracting authority limitation for County Supervisors outlined in FmHA 
or its successor agency under Public Law 103-354 Instruction 2024-A 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (ii) A District Director may enter into a management contract for 
basic maintenance and management services for an MFH project within the 
contracting authority outlined in FmHA or its successor agency under 
Public Law 103-354 Instruction 2024-A (available in any FmHA or its 
successor agency under Public Law 103-354 office). The aggregate amount 
of any contract may not exceed that contracting authority.
    (iii) A CO in the State Office may enter into a management contract 
for basic services involving more than 25 single-family dwellings, a 
more complex management contract for SFH property, or an appropriate 
contract for management or operation of farm or organization-type 
property. The aggregate amount paid under a contract may not exceed the 
contracting authority limitation for State Office staff outlined in FmHA 
or its successor agency under Public Law 103-354 Instruction 2024-A 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (iv) If a proposed management contract will exceed the contracting 
authority for State Office staff within a short time, a request for 
contract action will be forwarded to the Administrator, to the attention 
of the appropriate program division.
    (3) Specification of services. All management contracts will provide 
for termination by either the contractor or the Government upon 30 days 
written

[[Page 250]]

notice. Contracts providing for management of multiple properties will 
also provide for properties to be added or removed from the contractor's 
assignment whenever necessary, such as when a property is acquired or 
taken into custody during the period of a contract or when a property is 
sold from inventory. If a contractor prepares repair specifications, 
that contractor will be excluded from the solicitation for making the 
repairs to avoid a conflict of interest. If a management contract calls 
for specification writing services, a clause must be inserted in the 
contract prohibiting the preparer of his/her associates from doing the 
repair work. Examples of both basic and more complex management 
contracts are included in Exhibit A to FmHA or its successor agency 
under Public Law 103-354 Instruction 2024-A (available in any FmHA or 
its successor agency under Public Law 103-354 office).
    (4) Costs. Costs incurred with the management of property will be 
paid according to FmHA or its successor agency under Public Law 103-354 
Instruction 2024-A (available in any FmHA or its successor agency under 
Public Law 103-354 office). For management of custodial property, costs 
will be charged to the borrower's account as recoverable; and for 
management of inventory property as nonrecoverable. Except for 
management fees, costs of managing MFH inventory property when tenants 
are still in residence will be paid to the extent possible with rental 
income. Management fees will be paid to the manager in accordance with 
FmHA or its successor agency under Public Law 103-354 Instruction 2024-A 
(available in any FmHA or its successor agency under Public Law 103-354 
Office).
    (d) Additional management services. Additional types of management 
services and supplies for which the State Director may authorize 
acquisition include: Appraisal services (except for MFH), security 
services, newspaper copy preparation services, market data and 
comparable list acquisition, and tax data acquisition. If the State 
Director believes there is a need to acquire other services not listed 
in this paragraph or authorized elsewhere in this subpart, the State 
Director should make a written request to the Assistant Administrator 
(appropriate program) for consideration and/or authorization.
[53 FR 35765, Sept. 14, 1988, as amended at 57 FR 36591, Aug. 14, 1992]



Sec. 1955.66  Lease of real property.

    When inventory real property, except for FSA and MFH properties, 
cannot be sold promptly, or when custodial property is subject to 
lengthy liquidation proceedings, leasing may be used as a management 
tool when it is clearly in the best interest of the Government. Leasing 
will not be used as a means of deferring other actions which should be 
taken, such as liquidation of loans in abandonment cases or repair and 
sale of inventory property. Leases will provide for cancellation by the 
lessee or the Agency on 30-day written notice unless Special 
Stipulations in an individual lease for good reason provide otherwise. 
If extensive repairs are needed to render a custodial property suitable 
for occupancy, this will preclude its being leased since repairs must be 
limited to those essential to prevent further deterioration of the 
security in accordance with Sec. 1955.55(c) of this subpart. The 
requirements of subpart G of part 1940 of this chapter will be met for 
all leases.
    (a) Authority to approve lease of property. (1) Custodial property. 
Custodial property may be leased pending foreclosure with the servicing 
official approving the lease on behalf of the Agency.
    (2) Inventory property. Inventory property may be leased under the 
following conditions. Except for farm property proposed for a lease 
under the Homestead Protection Program, any property that is listed or 
eligible for listing on the National Register of Historic Places may be 
leased only after the servicing official and the State Historic 
Preservation Officer determine that the lease will adequately ensure the 
property's condition and historic character.
    (i) SFH. SFH inventory will generally not be leased; however, if 
unusual circumstances indicate leasing may be prudent, the county 
official is authorized to approve the lease.

[[Page 251]]

    (ii) MFH. MFH projects will generally not be leased, although 
individual living units may be leased under a management agreement. 
After the property is placed under a management contract, the contractor 
will be responsible for leasing the individual units in accordance with 
subpart C of part 1930 of this chapter. In cases where an acceptable 
management contract cannot be obtained, the District Director may 
execute individual leases.
    (iii) Farm property. (A) Any property which secures an insured loan 
made under the CONACT and which contains a dwelling (whether located on 
or off the farm) that is possessed and occupied as a principal residence 
by a prior owner who was personally liable for a Farm Credit Programs 
loan must first be considered for Homestead Protection in accordance 
with subpart S of part 1951 of this chapter.
    (B) Other than for Homestead Protection and except as provided in 
paragraph (c), the county official may only approve the lease of farm 
property to a beginning farmer or rancher who was selected through the 
random selection process to purchase the property but is not able to 
complete the purchase due to the lack of Agency funding.
    (C) When the servicing official determines it is impossible to sell 
farm property after advertising the property for sale and negotiating 
with interested parties in accordance with Sec. 1955.107 of subpart C of 
this part, farm property may be leased, upon the approval of the 
Administrator, on a case-by-case basis. This authority cannot be 
delegated. Any lease under this paragraph shall be for 1 year only, and 
not subject to renewal or extension. If the servicing official 
determines that the prospective lessee may be interested in purchasing 
the property, the lease may contain an option to purchase.
    (D) When a lease with an option to purchase is signed, the lessee 
should be advised that FSA cannot make a commitment to finance the 
purchase of the property.
    (E) Chattel property will not normally be leased unless it is 
attached to the real estate as a fixture or would normally pass with the 
land.
    (F) The property may not be used for any purpose that will 
contribute to excessive erosion of highly erodible land or to conversion 
of wetlands to produce an agricultural commodity. See Exhibit M of 
subpart G of part 1940 of this chapter. All prospective lessees of 
inventory property will be notified in writing of the presence of highly 
erodible land, converted wetlands and wetland and other important 
resources such as threatened or endangered species. This notification 
will include a copy of the completed and signed Form SCS-CPA-26, 
``Highly Erodible Land and Wetland Conservation Determination,'' which 
identifies whether the property contains wetland or converted wetlands 
or highly erodible land. The notification will also state that the lease 
will contain a restriction on the use of such property and that the 
Agency's compliance requirements for wetlands, converted wetlands, and 
highly erodible lands are contained in Exhibit M of subpart G of part 
1940 of this chapter. Additionally, a copy of the completed and signed 
Form SCS-CPA-26 will be attached to the lease and the lease will contain 
a special stipulation as provided on the FMI to Form RD 1955-20, ``Lease 
of Real Property,'' prohibiting the use of the property as specified 
above.
    (iv) Organization property other than MFH. Only the State Director, 
with the advice of appropriate National Office staff, may approve the 
lease of organization property other than MFH, such as community 
facilities, recreation projects, and businesses. A lease of utilities 
may require approval by State regulatory agencies.
    (b) Selection of lessees for other than farm property. When the 
property to be leased is residential, a special effort will be made to 
reach prospective lessees who might not otherwise apply because of 
existing community patterns. A lessee will be selected considering the 
potential as a program applicant for purchase of the property (if 
property is suited for program purposes) and ability to preserve the 
property. The leasing official may require verification of income or a 
credit report (to be paid for by the prospective lessee) as he or she 
deems necessary to assure payment ability and creditworthiness of the 
prospective lessee.

[[Page 252]]

    (c) Selection of lessees for FSA property. FSA inventory property 
may only be leased to an eligible beginning farmer or rancher who was 
selected to purchase the property through the random selection process 
in accordance with Sec. 1955.107(a)(2)(ii) of subpart C of this part. 
The applicant must have been able to demonstrate a feasible farm plan 
and Agency funds must have been unavailable at the time of the sale. Any 
applicant determined not to be a beginning farmer or rancher may request 
that the State Executive Director conduct an expedited review in 
accordance with Sec. 1955.107(a)(2)(ii) of subpart C of this part.
    (d) Property securing Farm Credit Programs loans located within an 
Indian Reservation. (1) State Executive Directors will contact the 
Bureau of Indian Affairs Agency supervisor to determine the boundaries 
of Indian Reservations and Indian allotments.
    (2) Not later than 90 days after acquiring a property, FSA will 
afford the Indian tribe having jurisdiction over the Indian reservation 
within which the inventory property is located an opportunity to 
purchase the property. The purchase shall be in accordance with the 
priority rights as follows:
    (i) To a member of the Indian tribe that has jurisdiction over the 
reservation within which the real property is located;
    (ii) To an Indian corporate entity;
    (iii) To the Indian tribe.
    (3) The Indian tribe having jurisdiction over the Indian reservation 
may revise the order of priority and may restrict the eligibility for 
purchase to:
    (i) Persons who are members of such Indian tribe;
    (ii) Indian corporate entities that are authorized by such Indian 
tribe to purchase lands within the boundaries of the reservation; or
    (iii) The Indian tribe itself.
    (4) If any individual, Indian corporate entity, or Indian tribe 
covered in paragraphs (d)(1) and (d)(2) of this section wishes to 
purchase the property, the county official must determine the 
prospective purchaser has the financial resources and management skills 
and experience that is sufficient to assure a reasonable prospect that 
the terms of the purchase agreement can be fulfilled.
    (5) If the real property is not purchased by any individual, Indian 
corporate entity or Indian tribe pursuant to paragraphs (d)(1) and 
(d)(2) of this section and all appeals have concluded, the State 
Executive Director shall transfer the property to the Secretary of the 
Interior if they are agreeable. If present on the property being 
transferred, important resources will be protected as outlined in 
Secs. 1955.137 and 1955.139 of subpart C of this part.
    (6) Properties within a reservation formerly owned by entities and 
non-tribal members will be treated as regular inventory that is not 
located on an Indian Reservation and disposed of pursuant to this part.
    (e) Lease amount. Inventory property will be leased for an amount 
equal to that for which similar properties in the area are being leased 
or rented (market rent). Inventory property will not be leased for a 
token amount.
    (1) Farm property. To arrive at a market rent amount, the county 
official will make a survey of lease amounts of farms in the immediate 
area with similar soils, capabilities, and income potential. The income-
producing capability of the property during the term of the lease must 
also be considered. This rental data will be maintained in an 
operational file as well as in the running records of case files for 
leased inventory properties. While cash rent is preferred, the lease of 
a farm on a crop-share basis may be approved if this is the customary 
method in the area. The lessee will market the crops, provide FSA with 
documented evidence of crop income, and pay the pro rata share of the 
income to FSA.
    (2) SFH property. The lease amount will be the market rent unless 
the lessee is a potential program applicant, in which case the lease 
amount may be set at an amount approximating the monthly payment if a 
loan were made (reflecting payment assistance, if any) calculated on the 
basis of the price of the house and income of the lessee, plus \1/12\ of 
the estimated real estate taxes, property insurance, and maintenance 
which would be payable by a homeowner.

[[Page 253]]

    (3) Property other than farm or SFH. Any inventory property other 
than a farm or single-family dwelling will generally be leased for 
market rent for that type property in the area. However, such property 
may be leased for less than market rent with prior approval of the 
Administrator.
    (f) Property containing wetlands or located in a floodplain or 
mudslide hazard area. Inventory property located in areas identified by 
the Federal Insurance Administration as special flood or mudslide hazard 
areas will not be leased or operated under a management contract without 
prior written notice of the hazard to the prospective lessee or tenant. 
If property is leased by FSA, the servicing official will provide the 
notice, and if property is leased under a management contract, the 
contractor must provide the notice in compliance with a provision to 
that effect included in the contract. The notice must be in writing, 
signed by the servicing official or the contractor, and delivered to the 
prospective lessee or tenant at least one day before the lease is 
signed. A copy of the notice will be attached to the original and each 
copy of the lease. Property containing floodplains and wetlands will be 
leased subject to the same use restrictions as contained in 
Sec. 1955.137(a)(1) of subpart C of this part.
    (g) Highly erodible land. If farm inventory property contains 
``highly erodible land,'' as determined by the NRCS, the lease must 
include conservation practices specified by the NRCS and approved by FSA 
as a condition for leasing.
    (h) Lease of FSA property with option to purchase. A beginning 
farmer or rancher lessee will be given an option to purchase farm 
property. Terms of the option will be set forth as part of the lease as 
a special stipulation.
    (1) The lease payments will not be applied toward the purchase 
price.
    (2) The purchase price (option price) will be the advertised sales 
price as determined by an appraisal prepared in accordance with subpart 
E of part 1922 of this chapter.
    (3) For inventory properties leased to a beginning farmer or rancher 
applicant, the term of the lease shall be the earlier of:
    (i) A period not to exceed 18 months from the date that the 
applicant was selected to purchase the inventory farm, or
    (ii) The date that direct, guaranteed, credit sale or other Agency 
funds become available for the beginning farmer or rancher to close the 
sale.
    (4) Indian tribes or tribal corporations which utilize the Indian 
Land Acquisition program will be allowed to purchase the property for 
its market value less the contributory value of the buildings, in 
accordance with subpart N of part 1823 of this chapter.
    (i) Costs. The costs of repairs to leased property will be paid by 
the Government. However, the Government will not pay costs of utilities 
or any other costs of operation of the property by the lessee. Repairs 
will be obtained pursuant to subpart B of part 1924 of this chapter. 
Expenditures on custodial property as limited in Sec. 1955.55 (c) (2) of 
this subpart will be charged to the borrower's account as recoverable 
costs.
    (j) Security deposit. A security deposit in at least the amount of 
one month's rent will be required from all lessees of SFH properties. 
The security deposit for farm property should be determined by 
considering only the improvements or facilities which might be subject 
to misuse or abuse during the term of the lease. For all other types of 
property, the leasing official may determine whether or not a security 
deposit will be required and the amount of the deposit.
    (k) Lease form. Form RD 1955-20 approved by OGC will be used by the 
agency to lease property.
    (l) Lease income. Lease proceeds will be remitted according to 
subpart B of part 1951 of this chapter.
    (1) Custodial property. The proceeds from a lease of custodial 
property will be applied to the borrower's account as an extra payment 
unless foreclosure proceedings require that such payments be held in 
suspense.
    (2) Inventory property. The proceeds from a lease of inventory 
property will be applied to the lease account.
[62 FR 44397, Aug. 21, 1997]

[[Page 254]]



Sec. 1955.67  Payment of liens.

    (a) If real estate was acquired subject to a lien, the servicing 
official may authorize payment of installments that may include escrow 
payments to the prior lienholder for taxes, if the property is taxable. 
Payment will be made according to FmHA or its successor agency under 
Public Law 103-354 Instruction 2024-A (available in any FmHA or its 
successor agency under Public Law 103-354 office). The payment will be 
charged to the inventory account as a nonrecoverable cost. If it is 
later determined that continuing to make payments on prior liens is no 
longer in the best interest of the Government for reasons such as, but 
not limited to, declining property values or uninsured property losses, 
the State Director may:
    (1) Convey the property to the prior lienholder if the lienholder 
will agree to accept the conveyance in full satisfaction of the prior 
lien; or
    (2) Discontinue payments to the lienholder, and allow the lien to be 
foreclosed.
    (b) If the State Director determines that paying a lien in full 
would be in the best interest of the Government, he/she will obtain the 
advice of OGC with respect to the procedures for paying the lien in full 
and having the mortgage released or assigned to the Government. The 
County Supervisor or District Director will obtain from the lienholder a 
statement of the amount owed and request payment to the lienholder in 
accordance with FmHA or its successor agency under Public Law 103-354 
Instruction 2024-A, (available in any FmHA or its successor agency under 
Public Law 103-354 Office) which will be charged to the inventory 
account as a nonrecoverable cost.
[53 FR 35765, Sept. 14, 1988, as amended at 57 FR 36592, Aug. 14, 1992]



Sec. 1955.68  Payment of taxes.

    Property acquired by FmHA or its successor agency under Public Law 
103-354 is subject to taxation by State and local political 
jurisdictions in the same manner and to the same extent as other 
property of the same kind, unless State law specifically exempts 
property owned by the Government from taxation. Where jurisdictions 
change their law or codes to begin taxing Government-owned property, 
only taxes accruing after the effective date of the change may be paid. 
A state supplement may be issued with the advice of OGC to cover 
individual State laws. The servicing official shall notify the 
appropriate taxing authority(ies) in writing when title to real estate 
is acquired by the Government and shall advise that claims for taxes, if 
applicable, during the Government's ownership should be billed to FmHA 
or its successor agency under Public Law 103-354 at the County Office or 
District Office address. When inventory property is taxable, payment 
will be as follows:
    (a) Suitable or program property. When property is suited for 
program purposes, the payment of taxes will be paid 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) charging them as nonrecoverable costs to the inventory 
account. If property was acquired subject to a prior lien, the prior 
lienholder will be contacted before submitting a voucher to see if that 
lienholder will pay the taxes.
    (b) Surplus property. When inventory property acquired under 
provisions of the CONACT is classified as surplus, taxes will be paid as 
outlined in paragraph (a) of this section.
    (c) Nonprogram (NP) housing property. When property is classified as 
NP and the value is limited to the extent that taxes which accrue before 
disposal may exceed the value of the property, payment of taxes will be 
deferred until the property is sold. If the taxing authority schedules a 
tax sale before FmHA or its successor agency under Public Law 103-354 
can sell the property, the value will be weighed against the taxes and 
the decision made whether to pay the taxes and continue sales efforts or 
to let the property go for the delinquent taxes. The decision made 
should be that which is in the Government's best financial interest.
[53 FR 35765, Sept. 14, 1988, as amended at 57 FR 36592, Aug. 14, 1992]

[[Page 255]]



Sec. 1955.69  Insurance.

    Insurance in force at the time property is acquired will not be 
cancelled; however, no additonal premiums will be paid, except as 
follows:
    (a) If organization-type property is operated by the Government 
after acquisition, workman's compensation coverage will be obtained. If 
the property is located in a flood-hazard area and operation of the 
property continues, flood insurance will be continued in force. Premiums 
will be paid 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 charged to the 
inventory account as a nonrecoverable cost.
    (b) If there is an outstanding claim at the time of acquisition, it 
will be handled in accordance with Subpart A or B of Part 1806 of this 
chapter (FmHA or its successor agency under Public Law 103-354 
Instruction 426.1 or 426.2). If property was acquired subject to a prior 
lien, the servicing official shall advise the prior lienholder that the 
Government does not intend to carry insurance, except as provided in 
paragraph (a) of this section. If, however, the prior lienholders 
mortgage requires the borrower to carry insurance, FmHA or its successor 
agency under Public Law 103-354 may provide the required insurance, if 
necessary, to prevent foreclosure by the prior lienholder.
[53 FR 35765, Sept. 14, 1988, as amended at 57 FR 36592, Aug. 14, 1992]



Sec. 1955.70  Inspection of property.

    The servicing official shall inspect property as necessary to 
protect the Government's interest. Farm property will be inspected at 
least annually to determine if adequate measures are in effect to 
conserve the soil, maintain its fertility, and control erosion. 
Inspection will be made in connection with travel for other purposes, 
wherever possible, and documented in the inventory file.



Sec. 1955.71  Vandalism or theft.

    (a) Reporting. Willful damage to or theft of inventory or custodial 
property will be reported to local law enforcement officials by the 
servicing official. A written report will be sent to the State Director 
with a copy of the Regional Office of the USDA Office of Inspector 
General (OIG).
    (b) Other actions. The servicing official will cooperate with local 
law enforcement officials to attempt to resolve the incident. This 
includes signing complaints and testifying at hearings or trials under 
the jurisdiction of the local law enforcement system. Civil actions and 
prosecution under Federal criminal statutes will be processed through 
OGC in coordination with OIG. The State Director, after consulting OGC 
as necessary, will provide advice and assistance to the servicing 
official.
    (c) Repair of damage due to vandalism or theft. Repairs necessary 
because of vandalism or theft will be accomplished on inventory property 
in accordance with Sec. 1955.64 of this subpart. Repairs of damage to 
custodial property will be limited as outlined in Sec. 1955.55(c) of 
this subpart and obtained as outlined in Sec. 1955.55(d) of this 
subpart.



Sec. 1955.72  Utilization of inventory housing by Federal Emergency Management Agency (FEMA) or under a Memorandum of Understanding between the Agency and the 

          Department of Health and Human Services (HHS) for transitional 
          housing for the homeless.

    (a) FEMA. By a Memorandum of Understanding between the Agency and 
FEMA, inventory housing property not under lease or sales agreement may 
be made available to shelter victims in an area designated as a major 
disaster area by the President. See Exhibit A of this subpart (available 
in any FmHA or its successor agency under Public Law 103-354 office). 
Authority is hereby delegated to the State Director to implement this 
Memorandum of Understanding; and the State Director may redelegate this 
authority to County Supervisors or District Directors.
    (b) HHS. By a Memorandum of Understanding between the Agency and 
HHS, inventory housing property not under lease or sales agreement may 
be made available by lease to public bodies and nonprofit organizations 
to provide

[[Page 256]]

transitional housing for the homeless. See Exhibit D of this subpart 
(available in any FmHA or its successor agency under Public Law 103-354 
office). Authority is hereby delegated to the State Director to 
implement this Memorandum of Understanding; and the State Director may 
redelegate this authority to County Supervisors or District Directors. 
Copies of all executed leases and/or questions regarding this program 
should be referred by State Offices to the Single Family Housing 
Servicing and Property Management (SFH/SPM) Division in the National 
Office.
[54 FR 20523, May 12, 1989, as amended at 60 FR 34455, July 3, 1995]



Secs. 1955.73--1955.80  [Reserved]



Sec. 1955.81  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this subpart, or address any omission of 
this subpart which is not inconsistent with the authorizing statute or 
other applicable law, if the Administrator determines that the 
Government's interest would be adversely affected or the immediate 
health and/or safety of tenants or the community are endangered if there 
is no adverse effect on the Government's interest. The Administrator 
will exercise this authority upon request of the State Director with the 
recommendation of the appropriate program Assistant Administrator or 
upon a request initiated by the appropriate program Assistant 
Administrator. Requests for exceptions must be made in writing and 
supported with documentation to explain the adverse effect, propose 
alternative courses of action, and show how the adverse effect will be 
eliminated or minimized if the exception is granted.
[53 FR 35765, Sept. 14, 1988, as amended at 58 FR 58649, Nov. 3, 1993]



Sec. 1955.82  State supplements.

    State supplements will be prepared with the assistance of OGC as 
necessary to comply with State laws or only as specifically authorized 
in this regulation to provide guidance to FmHA or its successor agency 
under Public Law 103-354 officials. State supplements applicable to MFH 
must have prior approval of the National Office; others may receive post 
approval. Requests for approval for those affecting MFH must include 
complete justification, citations of State law, and an opinion from OGC.



Secs. 1955.83--1955.99  [Reserved]



Sec. 1955.100  OMB control number.

    The collection of information requirements in this regulation have 
been approved by the Office of Management and Budget and assigned OMB 
control number 0575-0110.

                          Exhibits to Subpart B

    All exhibits are available in any FmHA or its successor agency under 
Public Law 103-354 County Office. Exhibit B is also published in the 
Code of Federal Regulations.

  Exhibit A--Memorandum of Understanding Between the Federal Emergency 
 Management Agency and the Farmers Home Administration or its successor 
                     agency under Public Law 103-354

 Exhibit B--Notification of Tribe of Availability of Farm Property for 
                                Purchase

           (To Be Used By Farm Service Agency to Notify Tribe)

From: County official
To: (Name of Tribe and address)
Subject: Availability of Farm Property for Purchase
    [To be Used within 90 days of acquisition]
    Recently the Farm Service Agency (FSA) acquired title to ________ 
acres of farm real property located within the boundaries of your 
Reservation. The previous owner of this property was ________. The 
property is available for purchase by persons who are members of your 
tribe, an Indian Corporate entity, or the tribe itself. Our regulations 
provide for those three distinct priority categories which may be 
eligible; however, you may revise the order of the priority categories 
and may restrict the eligibility to one or any combination of 
categories. Following is a more detailed description of these 
categories:
    1. Persons who are members of your Tribe. Individuals so selected 
must be able to meet the eligibility criteria for the purchase of 
Government inventory property and be able to carry on a family farming 
operation. Those persons not eligible for FSA's regular

[[Page 257]]

programs may also purchase this property as a Non-Program loan on 
ineligible rates and terms.
    2. Indian corporate entities. You may restrict eligible Indian 
corporate entities to those authorized by your Tribe to purchase lands 
within the boundaries of your Reservation. These entities also must meet 
the basic eligibility criteria established for the type of assistance 
granted.
    3. The Tribe itself is also considered eligible to exercise their 
right to purchase the property. If available, Indian Land Acquisition 
funds may be used or the property financed as a Non-Program loan on 
ineligible rates and terms.
    We are requesting that you notify the local FSA county office of 
your selection or intentions within 45 days of receipt of this letter, 
regarding the purchase of this real estate. If you have questions 
regarding eligibility for any of the groups mentioned above, please 
contact our office. If the Tribe wishes to purchase the property, but is 
unable to do so at this time, contact with the FSA county office should 
be made.

                               Sincerely,

                             County official

[62 FR 44399, Aug. 21, 1997]

               Exhibit C--Cooperative Agreement (Example)

 Exhibit D--Fact Sheet--The Federal Interagency Task Force on Food and 
                        Shelter for the Homeless



                Subpart C--Disposal of Inventory Property

                              Introduction



Sec. 1955.101  Purpose.

    This subpart delegates program authority and prescribes policies and 
procedures for the sale of inventory property including real estate, 
related real estate rights and chattels. It also covers the granting of 
easements and rights-of-way on inventory property. Credit sales of 
inventory property to ineligible (nonprogram (NP)) purchasers will be 
handled in accordance with subpart J of part 1951 of this chapter, 
except Community and Business Programs (C&BP) and Multi-Family Housing 
(MFH) which will be handled in accordance with this subpart. In 
addition, credit sales of Single Family Housing (SFH) properties 
converted to MFH will be handled in accordance with this subpart. This 
subpart does not apply to Single Family Housing (SFH) inventory 
property.
[50 FR 23904, June 7, 1985, as amended at 58 FR 52652, Oct. 12, 1993; 61 
FR 59778, Nov. 22, 1996]



Sec. 1955.102  Policy.

    The terms ``nonprogram (NP)'' and ``ineligible'' may be used 
interchangeably throughout this subpart, but are identical in their 
meaning. Sales efforts will be initiated as soon as property is acquired 
in order to effect sale at the earliest practicable time. When a 
property is of a nature that will enable a qualified applicant for one 
of Farmers Home Administration or its successor agency under Public Law 
103-354s (FmHA or its successor agency under Public Law 103-354's) loan 
programs to meet the objectives of that loan program, preference will be 
given to the program applicants. Sales are authorized for program 
purposes which differ from the purposes of the loan the property 
formerly secured, and property which secured more than one type loan may 
be sold under the program most appropriate for the specific property and 
community needs as long as the price is not diminished. Examples are: 
(RH) property; detached Labor Housing or Rural Rental Housing units may 
be sold as SFH units; or SFH units may be sold as a Rural Rental Housing 
project. All such properties and applicants must meet the requirements 
for the loan program under which the sale is proposed.
[53 FR 35776, Sept. 14, 1988, as amended at 58 FR 52652, Oct. 12, 1993; 
62 FR 44399, Aug. 21, 1997]



Sec. 1955.103  Definitions.

    As used in this subpart, the following apply:
    Approval official. The FmHA or its successor agency under Public Law 
103-354 official having loan and grant approval authority auhorized 
under Subpart A of Part 1901 of this chapter.
    Auction sale. A public sale in which property is sold to the highest 
bidder in open verbal competition.
    Beginning farmer or rancher. A beginning farmer or rancher is an 
individual or entity who:

[[Page 258]]

    (1) Is an eligible applicant for FO loan assistance in accordance 
with Sec. 1943.12 of subpart A of part 1943 of this chapter or 
Sec. 1980.180 of subpart B of part 1980 of this chapter.
    (2) Has not operated a farm or ranch, or who has operated a farm or 
ranch for not more than 10 years. This requirement applies to all 
members of an entity.
    (3) Will materially and substantially participate in the operation 
of the farm or ranch.
    (i) In the case of a loan made to an individual, individually or 
with the immediate family, material and substantial participation 
requires that the individual provide substantial day-to-day labor and 
management of the farm or ranch, consistent with the practices in the 
county or State where the farm is located.
    (ii) In the case of a loan made to an entity, all members must 
materially and substantially participate in the operation of the farm or 
ranch. Material and substantial participation requires that the 
individual provides some amount of the management, or labor and 
management necessary for day-to-day activities, such that if the 
individual did not provide these inputs, operation of the farm or ranch 
would be seriously impaired.
    (4) Agrees to participate in any loan assessment, borrower training, 
and financial management programs required by FmHA or its successor 
agency under Public Law 103-354 regulations.
    (5) Does not own real farm or ranch property or who, directly or 
through interests in family farm entities, owns real farm or ranch 
property, the aggregate acreage of which does not exceed 25 percent of 
the average farm or ranch acreage of the farms or ranches in the county 
where the property is located. If the farm is located in more than one 
county, the average farm acreage of the county where the applicant's 
residence is located will be used in the calculation. If the applicant's 
residence is not located on the farm or if the applicant is an entity, 
the average farm acreage of the county where the major portion of the 
farm is located will be used. The average county farm or ranch acreage 
will be determined from the most recent Census of Agriculture developed 
by the U.S. Department of Commerce, Bureau of the Census. State 
Directors will publish State supplements containing the average farm or 
ranch acreage by county.
    (6) Demonstrates that the available resources of the applicant and 
spouse (if any) are not sufficient to enable the applicant to enter or 
continue farming or ranching on a viable scale.
    (7) In the case of an entity:
    (i) All the members are related by blood or marriage.
    (ii) All the stockholders in a corporation are qualified beginning 
farmers or ranchers.
    Borrower. An individual or entity which has outstanding obligations 
to the FmHA or its successor agency under Public Law 103-354 under any 
Farmer Programs loan(s), without regard to whether the loan has been 
accelerated. A borrower includes all parties liable for the FmHA or its 
successor agency under Public Law 103-354 debt, including collection-
only borrowers, except for debtors whose total loans and accounts have 
been voluntarily or involuntarily foreclosed or liquidated, or who have 
been discharged of all FmHA or its successor agency under Public Law 
103-354 debt.
    Capitalization value. The value determined in accordance with 
subpart E of part 1922 of this chapter.
    Closing agent. An attorney or title insurance company which is 
approved as a loan closing agent in accordance with subpart B of part 
1927 of this chapter.
    CONACT or CONACT property, Property acquired or sold pursuant to the 
Consolidated Farm and Rural Development Act (CONACT). Within this 
subpart, it shall also be construed to cover property which secured 
loans made pursuant to the Emergency Agricultural Credit Act of 1984; 
the Food Security Act of 1985; and other statutes giving agricultural 
lending authority to FmHA or its successor agency under Public Law 103-
354.
    Credit sale. A sale in which financing is provided to an applicant 
for the purchase of inventory property.
    Decent, safe and sanitary (DSS) housing. Standards required for the 
sale of Government acquired SFH, MFH and LH structures acquired pursuant 
to the

[[Page 259]]

Housing Act of 1949, as amended. ``DSS'' housing unit(s) are structures 
which meet the requirements of FmHA or its successor agency under Public 
Law 103-354 as described in Subpart A of Part 1924 of this chapter for 
existing construction or if not meeting the requirements:
    (1) Are structurally sound and habitable,
    (2) Have a potable water supply,
    (3) Have functionally adequate, safe and operable heating, plumbing, 
electrical and sewage disposal systems,
    (4) Meet the Thermal Performance Standards as outlined in exhibit D 
of subpart A of part 1924 of this chapter, and
    (5) Are safe; that is, a hazard does not exist that would endanger 
the safety of dwelling occupants.
    Eligible terms. Credit terms, for other than SFH or MFH property 
sales, prescribed in FmHA or its successor agency under Public Law 103-
354 program regulations for its various loan programs; available only to 
persons/entities meeting eligibility requirements set forth for the 
respective loan program. For SFH and MFH properties, see the definition 
of ``Program terms.''
    Farmer program loans. This includes Farm Ownership (FO), Soil and 
Water (SW), Recreation (RL), Economic Opportunity (EO), Operating (OL), 
Emergency (EM), Economic Emergency (EE), Special Livestock (SL), 
Softwood Timber (ST) and Rural Housing loans for farm service buildings 
(RHF).
    Homestead protection (FP only). The program which permits former 
Farmer Program borrowers to lease their former principal residence with 
an option to buy. See subpart S of part 1951 of this chapter.
    Indian Reservation. All land located within the limits of any Indian 
reservation under the jurisdiction of the United States notwithstanding 
the issuance of any patent and including rights-of-way running through 
the reservation; trust or restricted land located within the boundaries 
of a former reservation of a federally recognized Indian Tribe in the 
State of Oklahoma; or all Indian allotments the Indian titles to which 
have not been extinguished if such allotments are subject to the 
jurisdiction of a federally recognized Indian Tribe.
    Ineligible terms. Credit terms, for other than SFH or MFH property 
sales, offered for the convenience of the Government to facilitate 
sales; more stringent than terms offered under FmHA or its successor 
agency under Public Law 103-354's loan programs. Applicable when the 
purchaser does not meet program eligibility requirements or when the 
property is classified as surplus. Loans made on ineligible terms are 
classified as Nonprogram (NP) loans and are serviced accordingly. For 
SFH and MFH properties, see the definition of ``Nonprogram (NP) terms.''
    Inventory property. Property for which title is vested in the 
Government and which secured an FmHA or its successor agency under 
Public Law 103-354 loan or which was acquired from another Agency for 
program purposes.
    Market value. The most probable price which property should bring, 
as of a specific date, in a competitive and open market, assuming the 
buyer and seller are prudent and knowledgeable, and the price is not 
affected by undue stimulus such as forced sale or loan interest subsidy.
    Negotiated sale. A sale in which there is a bargaining of price and/
or terms.
    Nonprogram (NP) property. SFH and MFH property acquired pursuant to 
the Housing Act of 1949, as amended, that cannot be used by a borrower 
to effectively carry out the objectives of the respective loan program; 
for example, a dwelling that cannot be feasibly repaired to meet the 
FmHA or its successor agency under Public Law 103-354 requirements for 
existing housing as described in subpart A of part 1944 of this chapter. 
It may contain a structure which would meet program standards, however 
is so remotely located it would not serve as an adequate residential 
unit or be an older house which is excessively expensive to heat and/or 
maintain for a very-low or low-income homeowner.
    Nonprogram (NP) terms. Credit terms for SFH or MFH property sales, 
offered for the convenience of the Government to facilitate sales; more 
stringent than terms offered under FmHA or its successor agency under 
Public Law 103-

[[Page 260]]

354's loan programs. Applicable when the purchaser does not meet program 
eligibility requirements or when the property is classified as 
nonprogram (NP). Loans made on NP terms are classified as NP loans and 
are serviced accordingly. For property other than SFH and MFH, see the 
definition of ``Ineligible terms.''
    Organization property. Property for which the following loans were 
made is considered organization property. Community Facility (CF); Water 
and Waste Disposal (WWD); Association Recreation; Watershed (WS); 
Resource Conservation and Development (RC&D); loans to associations for 
Shift-In-Land Use (Grazing Association); loans to associations for 
Irrigation and Drainage and other soil and water conservation measures; 
loans to Indian Tribes and Tribal corporations; Rural Rental Housing 
(RRH) to both groups and individuals; Rural Cooperative Housing (RCH); 
Rural Housing Site (RHS); Labor Housing (LH) to both groups and 
individuals; Business and Industry (B&I) to both individuals and groups 
or corporations; Rural Development Loan Fund (RDLF); Intermediary 
Relending Program (IRP); Nonprofit National Corporations (NNC); and 
Economic Opportunity Cooperative (EOC). Housing-type (RHS, RCH, RRH and 
LH) organization property is referred to collectively in this subpart as 
Multiple Family Housing (MFH) property.
    Owner. An individual or an entity which owned the farm but who may 
or may not have been operating the farm at the time the farm was taken 
into inventory.
    Participating broker. A duly licensed real estate broker who has 
executed a listing agreement with FmHA or its successor agency under 
Public Law 103-354.
    Program property. SFH and MFH inventory property that can be used to 
effectively carry out the objectives of their respective loan programs 
with financing through that program. Inventory property located in an 
area where the designation has been changed from rural to nonrural will 
be considered as if it were still in a rural area.
    Program terms. Credit terms for SFH or MFH property sales, 
prescribed in FmHA or its successor agency under Public Law 103-354 
program regulations for its various loan programs; available only to 
persons/entities meeting eligibility requirements set forth for the 
respective loan program. For property sales other than SFH and MFH, see 
the definition of ``Eligible terms.''
    Regular FmHA or its successor agency under Public Law 103-354 sale. 
Sale made by other than sealed bid, auction, or negotiation by FmHA or 
its successor agency under Public Law 103-354 employees or real estate 
brokers.
    Regular sale. Sale by FmHA or its successor agency under Public Law 
103-354 employees or real estate brokers other than by sealed bid, 
auction or negotiation.
    Safe. No hazard exists on property which would likely endanger the 
health or safety of occupants or users.
    Sealed bid sale. A public sale in which property is offered to the 
highest bidder by prior written bid submitted in a sealed envelope.
    Servicing official. For loans to individuals, as defined in 
Sec. 1955.53 of subpart B of part 1955 of this chapter, the servicing 
official is the County Supervisor. For all other loans, excluding 
insured B&I, the servicing official is the District Director. For 
insured B&I loans, the servicing official is the State Director.
    Socially disadvantaged applicant. An applicant/borrower who has been 
subjected to racial, ethnic, or gender prejudice because of his/her 
identity as a member of a group, without regard to his/her individual 
qualities. For entity applicants, the majority interest has to be held 
by socially disadvantaged individuals. FmHA or its successor agency 
under Public Law 103-354 has identified socially disadvantaged groups to 
consist only of Women, Blacks, American Indians, Alaskan Natives, 
Hispanic, Asians, and Pacific Islanders.
    Suitable property. For FSA inventory property, real property that 
can be used for agricultural purposes, including those farm properties 
that may be used as a start-up or add-on parcel of farmland. It would 
also include a residence or other off-farm site that could be used as a 
basis for a farming operation. For Agencies other than FSA, real 
property that could be used to

[[Page 261]]

carry out the objectives of the Agency's loan programs with financing 
provided through that program.
    Surplus property. For FSA inventory property, real property that 
cannot be used for agricultural purposes including nonfarm properties. 
For other agencies, property that cannot be used to carry out the 
objectives of financing available through the applicable loan program.
[50 FR 23904, June 7, 1985, as amended at 50 FR 45783, Nov. 1, 1985; 51 
FR 18436, May 20, 1986; 53 FR 27830, July 25, 1988; 53 FR 30664, Aug. 
15, 1988; 53 FR 35776, Sept. 14, 1988; 56 FR 29403, June 27, 1991; 56 FR 
67484, Dec. 31, 1991; 57 FR 19525, 19528, May 7, 1992; 57 FR 31642, July 
17, 1992; 58 FR 44752, Aug. 25, 1993; 58 FR 48290, Sept. 15, 1993; 58 FR 
58649, Nov. 3, 1993; 62 FR 44399, Aug. 21, 1997]



Sec. 1955.104  Authorities and responsibilities.

    (a) Redelegation of authority. FmHA or its successor agency under 
Public Law 103-354 officials will redelegate authorities to the maximum 
extent possible, consistent with program objectives and available 
resources.
    (1) Any authority in this subpart which is specifically provided to 
the Administrator or to an Assistant Administrator may only be delegated 
to a State Director. The State Director cannot redelegate such 
authority.
    (2) Except as provided in paragraph (a)(1) of this section, the 
State Director may redelegate, in writing, any authority delegated to 
the State Director in this subpart, unless specifically excluded, to a 
Program Chief, Program Specialist, or Property Management Specialist on 
the State Office staff.
    (3) The District Director may redelegate, in writing, any authority 
delegated to the District Director in this subpart to an Assistant 
District Director or District Loan Specialist. Authority of District 
Directors in this subpart applies to Area Loan Specialists in Alaska and 
the Director for the Western Pacific Territories.
    (4) The County Supervisor may redelegate, in writing, any authority 
delegated to the County Supervisor in this subpart to an Assistant 
County Supervisor, GS-7 or above, who is determined by the County 
Supervisor to be qualified. Authority of County Supervisors in this 
subpart applies to Area Loan Specialists in Alaska, Island Directors in 
Hawaii, the Director for the Western Pacific Territories, and Area 
Supervisors in the Western Pacific Territories and American Samoa.
    (b) Responsibility. (1) National Office program directors are 
responsible for reviewing and providing guidance to State, District and 
County Offices in disposing of inventory property.
    (2) The State Director is responsible for establishing an effective 
program and insuring compliance with FmHA or its successor agency under 
Public Law 103-354 regulations.
    (3) District Directors are responsible for disposal actions for 
programs under their supervision and for monitoring County Office 
compliance with FmHA or its successor agency under Public Law 103-354 
regulations and State Supplements.
    (4) County Supervisors are responsible for timely disposal of 
inventory property for programs under their supervision.
    (c) Bid or offer acceptance. The servicing official has the 
authority to offer for sale, accept and/or reject bids or offers for 
inventory property regardless of amount. Any credit request, however, 
must be approved by an approval official within his/her respective loan 
approval authority as outlined in the applicable Exhibits of FmHA or its 
successor agency under Public Law 103-354 Instruction 1901-A (available 
in any FmHA or its successor agency under Public Law 103-354 office).
[53 FR 27830, July 25, 1988]

   Consolidated Farm and Rural Development Act (CONACT) Real Property



Sec. 1955.105  Real property affected (CONACT).

    (a) Loan types. Sections 1955.106-1955.109 of this subpart prescribe 
procedures for the sale of inventory real property which secured any of 
the following type of loans (referred to as CONACT property in this 
subpart): Farm Ownership (FO); Recreation (RL); Soil and Water (SW); 
Operating (OL); Emergency (EM); Economic Opportunity (EO); Economic 
Emergency (EE); Softwood Timber (ST); Community Facility (CF); Water and 
Waste

[[Page 262]]

Disposal (WWD); Reserve Conservation and Development (RC&D); Watershed 
(WS); Association Recreation; EOC: Rural Renewal; Water Facility; 
Business and Industry (B&I); Rural Development Loan Fund (RDLF); 
Intermediary Relending Program (IRP); Nonprofit National Corporation 
(NNC); Irrigation and Drainage; Shift-in-Land Use (Grazing Association); 
and loans to Indian Tribes and Tribal Corporations. Homestead 
Protection, as set forth in Subpart S of Part 1951 of this chapter, is 
only applicable to Farmer Program loans as defined in Sec. 1955.103 of 
this subpart.
    (b) Controlled substance conviction. In accordance with the Food 
Security Act of 1985 (Pub. L. 99-198), after December 23, 1985, if an 
individual or any member, stockholder, partner, or joint operator of an 
entity is convicted under Federal or State law of planting, cultivating, 
growing, producing, harvesting, or storing a controlled substance (see 
21 CFR Part 1308, which is Exhibit C to Subpart A of Part 1941 of this 
chapter and is available in any FmHA or its successor agency under 
Public Law 103-354 office, for the definition of ``controlled 
substance'') prior to a credit sale approval in any crop year, the 
individual or entity shall be ineligible for a credit sale for the crop 
year in which the individual or member, stockholder, partner, or joint 
operator of the entity was convicted and the four succeeding crop years. 
Applicants will attest on Form FmHA or its successor agency under Public 
Law 103-354 410-1, ``Application for FmHA or its successor agency under 
Public Law 103-354 Services,'' that as individuals or that its members, 
if an entity, have not been convicted of such crime after December 23, 
1985.
    (c) Effects of farm property sales on farm values. State Directors 
will analyze farm real estate market conditions within the geographic 
areas of their jurisdiction and determine whether or not the sale of the 
FmHA or its successor agency under Public Law 103-354 farm inventory 
properties will have a detrimental effect on the value of farms within 
these areas. Such analysis will be carried out in January of each year 
and as often throughout the year as necessary to reflect changing farm 
real estate conditions. If the analyses of farm real estate conditions 
indicate that such sales would put downward pressure on farm real estate 
values in any area, all farm properties within the area affected will be 
withheld from the market and managed in accordance with the provisions 
of Subpart B of this Part until such time that a subsequent analysis 
indicates otherwise. The State Director will notify, in writing, the 
County Supervisor(s) servicing those areas that are restricted from 
selling farm inventory property. State Directors in consultation with 
other lenders, real estate agents, auctioneers, and others in the 
community will analyze all available information such as:
    (1) The number of farms and acres that FmHA or its successor agency 
under Public Law 103-354 expects to acquire in inventory.
    (2) The number of farms and acres other lenders expect to acquire in 
inventory.
    (3) The number of farms and acres that FmHA or its successor agency 
under Public Law 103-354 currently has in inventory.
    (4) The number of farms and acres other lenders currently have in 
inventory.
    (5) The number of farms not included in paragraphs (c)(3) and (c)(4) 
of this section which are currently listed for sale.
    (6) Published real estate values and trend reports such as those 
available from the Economic Research Service or professional appraisal 
organizations.
    (d) Highly erodible land. If farm inventory property contains 
``highly erodible land,'' as determined by the SCS, the lease must 
include conservation practices specified by the SCS and approved by FmHA 
or its successor agency under Public Law 103-354 as a condition for 
leasing. Refer to Sec. 1955.137(d) of this subpart for implementation 
requirements.
[53 FR 35777, Sept. 14, 1988, as amended at 57 FR 19528, May 7, 1992; 58 
FR 58649, Nov. 3, 1993; 62 FR 44399, Aug. 21, 1997]



Sec. 1955.106  Disposition of farm property.

    (a) Rights of previous owner and notification. Before property which 
secured a

[[Page 263]]

Farm Credit Programs loan is taken into inventory, the FSA county 
official will advise the borrower-owner of Homestead Protection rights 
(see subpart S of part 1951 of this chapter.)
    (b) Racial, ethnic, and gender consideration. The County Supervisor 
will make a special effort to insure that prospective purchasers, who 
traditionally would not be expected to apply for farm ownership loan 
assistance because of existing racial, ethnic, or gender prejudice, are 
informed of the availability of the Socially Disadvantaged Program. 
Emphasis will be placed on providing assistance to such socially 
disadvantaged applicants in accordance with the applicable sections of 
subpart A of part 1943 of this chapter.
    (c) Nonprogram (NP) borrowers. Nonprogram (NP) borrowers are not 
eligible for Homestead Protection provisions as set forth in subpart S 
of part 1951 of this chapter. When it is determined that all conditions 
of Sec. 1951.558(b) of subpart L of part 1951 of this chapter have been 
met, loans for unauthorized assistance will be treated as authorized 
loans and will be eligible for homestead protection.
[53 FR 35777, Sept. 14, 1988, as amended at 58 FR 58649, Nov. 3, 1993; 
62 FR 44399, Aug. 21, 1997]



Sec. 1955.107  Sale of FSA property (CONACT).

    FSA inventory property will be advertised for sale in accordance 
with the provisions of this subpart. If a request is received from a 
Federal or State agency for transfer of a property for conservation 
purposes, the advertisement should be conditional on that possibility. 
Real property will be managed in accordance with the provisions of 
subpart B of this part until sold.
    (a) Suitable Property. Not later than 15 days from the date of 
acquisition, the Agency will advertise suitable property for sale. For 
properties currently under a lease, except leases to beginning farmers 
and ranchers under Sec. 1955.66(a)(2)(iii) of subpart B of this part, 
the property will be advertised for sale not later than 60 days after 
the lease expires or is terminated. There will be a preference for 
beginning farmers or ranchers. The advertisement will contain a 
provision to lease the property to a beginning farmer or rancher for up 
to 18 months should FSA credit assistance not be available at the time 
of sale. The first advertisement will not be required to contain the 
sales price but it should inform potential beginning farmer or rancher 
applicants that applications will be accepted pending completion of the 
advertisement process. When possible, the sale of suitable FSA property 
should be handled by county officials. Farm property will be advertised 
for sale by publishing, as a minimum, two weekly advertisements in at 
least two newspapers that are widely circulated in the area in which the 
farm is located. Consideration will be given to advertising inventory 
properties in major farm publications. Either Form RD 1955-40 or Form RD 
1955-41, ``Notice of Sale,'' will be posted in a prominent place in the 
county. Maximum publicity should be given to the sale under guidance 
provided by Sec. 1955.146 of this subpart and care should be taken to 
spell out eligibility criteria. Tribal Councils or other recognized 
Indian governing bodies having jurisdiction over Indian reservations 
(see Sec. 1955.103 of this subpart) shall be responsible for notifying 
those parties in Sec. 1955.66(d)(2) of subpart B of this part.
    (1) Price. Property will be advertised for sale for its appraised 
market value based on the condition of the property at the time it is 
made available for sale. The market value will be determined by an 
appraisal made in accordance with subpart E of part 1922 of this 
chapter. Property contaminated with hazardous waste will be appraised 
``as improved'' which will be used as the sale price for advertisement 
to beginning farmers or ranchers.
    (2) Selection of purchaser. After homestead protection rights have 
expired, suitable farmland must be sold in the priority outlined in this 
paragraph. When farm inventory property is larger than family size, the 
property will be subdivided into suitable family size farms pursuant to 
Sec. 1955.140 of this subpart.
    (i) Sale to Beginning Farmers/Ranchers. Not later than 75 days from 
the date of acquisition, FSA will sell suitable farm property, with a 
priority given to applicants who are classified as beginning

[[Page 264]]

farmers or ranchers, as defined in Sec. 1955.103 of this subpart, as of 
the time of sale.
    (ii) Random selection. The county official will first determine 
whether applicants meet the eligibility requirements of a beginning 
farmer or rancher. For applicants who are not determined to be beginning 
farmers or ranchers, they may request that the State Executive Director 
provide an expedited review and determination of whether the applicant 
is a beginning farmer or rancher for the purpose of acquiring inventory 
property. This review shall take place not later than 30 days after 
denial of the application. The State Executive Director's review 
decision shall be final and is not administratively appealable. When 
there is more than one beginning farmer or rancher applicant, the Agency 
will select by lot by placing the names in a receptacle and drawing 
names sequentially. Drawn offers will be numbered and those drawn after 
the first drawn name will be held in suspense pending sale to the 
successful applicant. The random selection drawing will be open to the 
public, and applicants will be advised of the time and place.
    (iii) Notification of applicants not selected to purchase suitable 
farmland. When the Agency selects an applicant to purchase suitable 
farmland, in accordance with this paragraph, all applicants not selected 
will be notified in writing that they were not selected. The outcome of 
the random selection by lot is not appealable if such selection is 
conducted in accordance with this subpart.
    (3) Credit sale procedure. Subject to the availability of funds, 
credit sale to program applicants will be processed as follows:
    (i) The interest rate charged by the Agency will be the lower of the 
interest rates in effect at the time of loan approval or closing.
    (ii) The loan limits for the requested type of assistance are 
applicable to a credit sale to an eligible applicant.
    (iii) Title clearance and loan closing for a credit sale and any 
subsequent loan to be closed simultaneously must be the same as for an 
initial loan except that:
    (A) Form RD 1955-49, ``Quitclaim Deed,'' or other form of 
nonwarranty deed approved by the Office of the General Counsel (OGC) 
will be used.
    (B) The buyer will pay attorney's fees and title insurance costs, 
recording fees, and other customary fees unless they are included in a 
subsequent loan. A subsequent loan may not be made for the primary 
purpose of paying closing costs and fees.
    (iv) Property sold on credit sale may not be used for any purpose 
that will contribute to excessive erosion of highly erodible land or to 
the conversion of wetlands to produce an agricultural commodity, see 
Exhibit M of subpart G of part 1940 of this chapter. All prospective 
buyers will be notified in writing as a part of the property 
advertisement of the presence of highly erodible land and wetlands on 
inventory property.
    (b) Surplus Property and Suitable Property not sold to a Beginning 
Farmer or Rancher. Except where a lessee is exercising the option to 
purchase under the Homestead Protection provision of subpart S of part 
1951 of this chapter, surplus property will be offered for public sale 
by sealed bid or auction within 15 days from the date of acquisition in 
accordance with Sec. 1955.147 or Sec. 1955.148 of this subpart. Suitable 
farm property which has been advertised for sale to a beginning farmer 
or rancher in accordance with Sec. 1955.107 (a) of this subpart but has 
not sold within 75 days from the date of acquisition will be offered for 
public sale by sealed bid or auction to the highest bidder as provided 
in paragraph (b)(1) of this section. All prospective buyers will be 
notified in writing as a part of the property advertisement of the 
presence of highly erodible land, converted wetlands, floodplains, 
wetlands, or other special characteristics of the property that may 
limit its use or cause an easement to be placed on the property.
    (1) Advertising surplus property. FSA will advertise surplus 
property for sale by sealed bid or auction within 15 days from the date 
of acquisition or, for those suitable properties not sold to beginning 
farmers or ranchers in accordance with the provisions or paragraph (a) 
of this section, within 75 days of the date of acquisition.

[[Page 265]]

    (2) Sale by sealed bid or auction. Surplus real estate must be 
offered for public sale by sealed bid or auction and must be sold no 
later than 105 days from the date of acquisition to the highest bidder. 
Preference will be given to a cash offer which is at least *percent of 
the highest offer requiring credit. (*Refer to Exhibit B of RD 
Instruction 440.1 (available in any Agency office) for the current 
percentage.) Equally acceptable sealed bid offers will be decided by 
lot.
    (3) Negotiated sale. If no acceptable bid is received through the 
sealed bid or auction process, the State Executive Director will sell 
surplus property at the maximum price obtainable without further public 
notice by negotiation with interested parties, including all previous 
bidders. The rates and terms offered for a credit sale through 
negotiation will be within the limitations established in paragraph (b) 
(4) of this section. A sale made through negotiation will require a bid 
deposit of not less than 10 percent of the negotiated price in the form 
of a cashier's check, certified check, postal or bank money order, or 
bank draft payable to FSA. Preference will be given to a cash offer 
which is at least * percent of the highest offer requiring credit. 
[*Refer to Exhibit B of RD Instruction 440.1 (available in any Agency 
office) for the current percentage.] Equally acceptable offers will be 
decided by lot.
    (4) Rates and terms. Subject to the availability of funds, rates and 
terms for Homestead Protection will be in accordance with subpart S of 
part 1951 of this chapter. Sales of suitable property offered to program 
eligible applicants will be on rates and terms provided in subpart A of 
part 1943 of this chapter. Surplus property and suitable property which 
has not been sold to program eligible applicants will be offered for 
cash or on ineligible terms in accordance with subpart J of part 1951 of 
this chapter. The State Executive Director will determine the loan terms 
for surplus property within these limitations. A credit sale made on 
ineligible terms will be closed at the interest rate in effect at the 
time the credit sale was approved. After extensive sales efforts where 
no acceptable offer has been received, the State Executive Director may 
request the Administrator to permit offering surplus property for sale 
on more favorable rates and terms; however, the terms may not be more 
favorable than those legally permissible for eligible borrowers. Surplus 
property will be offered for sale for cash or terms that will provide 
the best net return for the Government. The term of financing extended 
may not be longer than the period for which the property will serve as 
adequate security. All credit sales on ineligible terms will be 
identified as NP loans.
[62 FR 44399, Aug. 21, 1997]



Sec. 1955.108  Sale of (CONACT) property other than FSA property.

    Program officials will immediately contact the National Office 
whenever they acquire real property to obtain further instructions on 
the time frames and procedures for advertising and disposing of such 
property.
[62 FR 44401, Aug. 21, 1997]



Sec. 1955.109  Processing and closing (CONACT).

    (a) Determining repayment ability and creditworthiness. If a credit 
sale is involved, the applicant must furnish necessary financial 
information to assist in determining repayment ability and 
creditworthiness. Form FmHA or its successor agency under Public Law 
103-354 431-2, ``Farm and Home Plan,'' should be used for all eligible 
FSA applicants unless the applicant has furnished all required 
information in another acceptable format. Information regarding 
eligibility, planned development and total operations will be provided 
the same as for the respective type of FSA loan. Purchasers requesting 
credit on ineligible terms, except for C&BP, will be handled in 
accordance with subpart J of part 1951 of this chapter. For C&BP, 
information will be provided which is similar to an application 
including financial information required for the respective loan program 
to establish financial stability, creditworthiness and repayment 
ability.
    (b) [Reserved]
    (c) Form of payment. Payments at closing will be in the form of 
cash, cashier's check, certified check, postal

[[Page 266]]

or bank money order, or bank draft made payable to the Agency and 
handled in accordance with subpart B of part 1951 of this chapter.
    (d)-(e) [Reserved]
    (f) Earnest money. Earnest money, if any, will be used to pay 
purchaser's closing costs with any balance of the costs being paid by 
the purchaser. Any excess earnest money will be credited to the purchase 
price or recognized as a part of the purchaser's downpayment.
    (g) Closing and reporting sales. Title clearance, loan closing and 
property insurance requirements for a credit sale will be the same as 
for a program loan, except the property will be conveyed by Form FmHA or 
its successor agency under Public Law 103-354 1955-49, in accordance 
with Sec. 1955.141(a) of this subpart.
    (h) Classification. Credit sales on ineligible terms for C&BP will 
be classified as NP loans and serviced accordingly.
    (i) [Reserved]
    (j) Form FmHA or its successor agency under Public Law 103-354 1910-
11, ``Applicant Certification, Federal Collection Policies for Consumer 
or Commercial Debts.'' The County Supervisor or District Director must 
review Form FmHA or its successor agency under Public Law 103-354 1910-
11 ``Applicant Certification, Federal Collection Policies for Consumer 
or Commercial Debts,'' with the applicant, and the form must be signed 
by the applicant.
[53 FR 35780, Sept. 14, 1988, as amended at 54 FR 29333, July 12, 1989; 
58 FR 52652, Oct. 12, 1993; 60 FR 34455, July 3, 1995; 62 FR 44401, Aug. 
21, 1997]

                    Rural Housing (RH) Real Property



Sec. 1955.110  [Reserved]



Sec. 1955.111  Sale of real estate for RH purposes (housing).

    Sections 1955.112 through 1955.120 of this subpart pertain to the 
sale of acquired property pursuant to the Housing Act of 1949, as 
amended, (RH property). Single family units (generally which secured 
loans made under section 502 or 504 of the Housing Act of 1949, as 
amended) are referred to as SFH property. All other property is referred 
to as MFH property. Notwithstanding the provisions of Secs. 1955.112 
through 1955.118 of this subpart, Sec. 1955.119 is the governing section 
for the sale of SFH inventory property to a public body or nonprofit 
organization to use for transitional housing for the homeless.
[55 FR 3942, Feb. 6, 1990]



Sec. 1955.112  Method of sale (housing).

    (a) Sales by FmHA or its successor agency under Public Law 103-354. 
Sales customarily will be made by FmHA or its successor agency under 
Public Law 103-354 personnel in accordance with Secs. 1955.114 and 
1955.115 of this subpart (as appropriate) when staffing and workload 
permit and inventory levels do not exceed those outlined in paragraph 
(b) of this section. Adequate and timely advertising in accordance with 
Sec. 1955.146 of this subpart is of utmost importance when this method 
is used. No earnest money will be collected in connection with sales by 
FmHA or its successor agency under Public Law 103-354. For MFH, this 
method will always be used unless another method is authorized by the 
Assistant Administrator, Housing.
    (b) Real estate brokers. The County Office will utilize the services 
of real estate brokers for regular sales when there are five or more 
properties in inventory at any one time during the calendar year. When 
real estate brokers are used, first consideration will be given to 
utilizing such services under an exclusive broker contract as provided 
for in Sec. 1955.130 of this subpart. Only when it is determined that an 
exclusive broker contract is not practicable, will the services of real 
estate brokers under an open listing agreement be utilized. The use of 
real estatebrokers in offices having less than five properties in 
inventory at any one time during the calendar year is optional provided 
staffing and workload permit diligent and timely sales by FmHA or its 
successor agency under Public Law 103-354. When broker services for SFH 
are utilized, the FmHA or its successor agency under Public Law 103-354 
office will not conduct direct sales, but will refer inquiries to the 
broker or list of participating brokers. However, if FmHA or its 
successor agency under Public Law 103-354 has been approached by a 
potential buyer

[[Page 267]]

desiring to purchase a specific property and a sales contract has been 
accepted, the property will not be listed for sale with real estate 
brokers. Earnest money held by real estate brokers will be used to pay 
the purchaser's closing costs with any balance of the costs to be paid 
by the purchaser. Any required earnest money deposit is exclusive of any 
required credit report fee. Brokers may only be used for MFH with 
authorization of the Assistant Administrator, Housing.
    (c) Sealed bid or auction. The use of sealed bids or auctions is an 
effective method by which to sell inventory property. If the State 
Director determines that NP SFH property has been given adequate market 
exposure and that diligent sales efforts have not produced buyers, or 
under unusual circumstances as outlined in Sec. 1955.115(a)(1) of this 
subpart, he/she will authorize sale by sealed bid or auction unless 
additional sales methods appear more prudent. Program SFH property will 
be sold by regular sale only, unless the Assistant Administrator, 
Housing, authorizes sale by sealed bid or auction. The State Director 
will request such authorization when all reasonable marketing efforts 
fail to produce buyers and the conditions of Sec. 1955.114(a)(6) of this 
subpart have been met. The case file, including documentation of all 
marketing efforts, will be forwarded to the Assistant Administrator, 
Housing, ATTN: Single Family Housing Servicing and Property Management 
(SFH/SPM) Division, to request authority to sell program property by 
sealed bid or auction. The decision to utilize a sealed bid or auction 
must be carefully weighed when the property is located in a subdivision, 
since the resultant sale may have an adverse effect on surrounding 
property values. Detailed guidance for conducting sealed bid sales is 
provided in Sec. 1955.147 of this subpart and for conducting auction 
sales in Secs. 1955.131 and 1955.148 of this subpart.
[53 FR 27831, July 25, 1988]



Sec. 1955.113  Price (housing).

    Real property will be offered or listed for its present market 
value, as adjusted by any administrative price reductions provided for 
in this section. Market value will be based upon the condition of the 
property at the time it is made available for sale. However, when a 
section 515 RRH credit sale is being made to a nonprofit organization or 
public body to utilize former single family dwellings as a rental or 
cooperative project for very-low-income residents, the price will be the 
lesser of the Government's investment or market value, less 
administrative price reductions, if any. Market value for multi-family 
housing projects will be determined through an appraisal conducted in 
accordance with subpart B to part 1922 of this chapter. Multi-family 
housing appraisals conducted shall reflect the impact of any 
restrictive-use provisions attached to the project as part of the credit 
sale.
    (a) SFH price reduction. SFH property will be appraised at any time 
additional market data indicates this action is warranted. If SFH 
inventory has not sold after being actively marketed, the price will be 
administratively reduced. An administrative price reduction will be made 
without changing the SFH appraisal. For ease in computing dates for 
administrative price reductions, each month is assumed to have thirty 
days. The following schedule of administrative price reductions will be 
followed:
    (1) Program property. If program property has not sold after being 
actively marketed at the current appraised value for 45 days during 
which time program applicants have exclusive rights to purchase the 
property, plus an additional 30 days to any offeror, the price will be 
administratively reduced by 10 percent of the appraised value. During 
the first 45 days after the price reduction, the property will be 
actively marketed with program applicants having exclusive rights to 
purchase the property, and at the expiration of this 45-day period, the 
property may be sold to any offeror. If at the end of this 75-day period 
the property remains unsold, a second price reduction of 10 percent of 
the appraised value will be made. During the first 45 days after the 
second price reduction, the property will be actively marketed with 
program applicants having exclusive rights to purchase the property,

[[Page 268]]

and at the expiration of this 45-day period, the property may be sold to 
any offeror. If the property does not sell within 75 days of the second 
price reduction, further guidance is provided in Sec. 1955.114(a)(6) and 
Exhibit D (available in any FmHA or its successor agency under Public 
Law 103-354 office) of this subpart.
    (2) Nonprogram (NP) property. If NP property has not been sold after 
being actively marketed for 45 days, the price will be administratively 
reduced by 10 percent of the appraised value. If the property remains 
unsold after an additional 45-day period of active marketing, one 
further price reduction of 10 percent of the appraised value will be 
made. If the property does not sell within 45 days of the second price 
reduction, further guidance is provided in Sec. 1955.115(a)(1) and 
Exhibit D (available in any FmHA or its successor agency under Public 
Law 103-354 office) of this subpart.
    (b) MFH price reduction. For multiple-family property, the sale 
price will only be reduced to the extent that the market value has 
decreased as shown in a current market appraisal. The District Director 
will not reduce the price without the prior written approval of the 
State Director. The State Director must request National Office 
authorization on reductions in price for multiple-family property if the 
inventory value at the time of acquisition exceeded the State Director's 
loan approval authority.
[53 FR 27831, July 25, 1988; 54 FR 6875, Feb. 15, 1989, as amended at 58 
FR 38927, July 21, 1993]



Sec. 1955.114  Sales steps for program property (housing).

    Program property will be sold by regular sale unless the Assistant 
Administrator, Housing, authorizes another method. If the State Director 
determines that program property has been given adequate market exposure 
and that diligent sales efforts including the use of real estate brokers 
has not produced purchasers, the State Director may request the 
Assistant Administrator, Housing, to authorize sale by sealed bid or 
public auction as specified in Sec. 1955.112(c) of this subpart.
    (a) Single family housing (SFH). Sale prices will be established in 
accordance with Sec. 1955.113 of this subpart. The County Supervisor 
will either offer the property or list it with real estate brokers for 
regular sale under the provisions of Sec. 1955.112 of this subpart. See 
Exhibit D of this subpart (available in any FmHA or its successor agency 
under Public Law 103-354 office) which outlines chronologically the 
sales steps for program property.
    (1) The following provisions apply to all offers to purchase SFH 
inventory property:
    (i) Program property will be available for purchase only by program 
applicants for the first 45 days from the date of the initial offering 
or listing, and for the first 45 days following the date of any 
reduction in price. During these 45-day period(s), offers from others 
may be received and held until the first business day following the 45-
day period (the 46th day) when any such offer(s) will be considered as 
received on the 46th day along with offers received on that same (46th) 
day. After the expiration of each 45-day exclusive period for program 
applicants, program property may be purchased by offerors requesting 
credit on program terms, nonprogram (NP) terms or for cash in the order 
of priority set forth in paragraph (a)(3) of this section.
    (ii) In regular sales, an acceptable offer must be for at least the 
sale price. No offer for less than the sale price will be considered, 
accepted or held. Offers will be considered as acceptable or 
unacceptable independent of any accompanying credit request (on program 
or NP terms).
    (iii) All offers will be date-stamped when received. Selection of 
equally acceptable offers, considering offers in the category order 
outlined in paragraph (a)(3) of this section, received on the same 
business day will be made by lot by placing the names in a receptacle 
and drawing names sequentially. Drawn offers will be numbered and those 
drawn after the first drawn offer will be held as back-up offers pending 
sale to the successful offeror, unless the offeror has specifically 
noted on the offer that it may not be held as a back-up offer.
    (iv) An offer may be submitted any time after the effective date the 
property is available for sale or any price

[[Page 269]]

reduction; however, it is not considered until five business days after 
the effective date. An offer received during the five business day 
period is considered on the 6th day, at the same time as any offer 
received on the 6th day.
    (v) If an offer subject to FmHA or its successor agency under Public 
Law 103-354 financing is accepted, and the offeror's credit request is 
later denied, the next offer (if any) will be accepted regardless of 
whether the rejected applicant appeals the adverse decision (NP 
applicants do not receive appeal rights). In cases involving program 
property, if no back-up offers are on hand, the property will be 
reoffered/relisted for sale utilizing the balance of any outstanding 
retention period. Property will not be held off the market pending the 
outcome of an appeal.
    (2) Effective date and method of offering. When ready for sale, each 
property will be offered for sale by use of Form FmHA or its successor 
agency under Public Law 103-354 1955-43 unless FmHA or its successor 
agency under Public Law 103-354 has on hand a signed offer from a 
program applicant to purchase a specific program property or an offer 
from any offeror to purchase a specific NP property. The date the form 
is posted or mailed to real estate brokers is the effective date the 
offer for sale has begun.
    Listings will provide for sales on program and NP terms, as 
appropriate.
    (3) Priority of offers. For program properties, acceptable offers 
received after the 45-day retention period specified in paragraph 
(a)(1)(i) of this section have priority in the order given in paragraphs 
(a)(3) (i), (ii), (iii) and (iv) of this section. For NP properties, 
acceptable offers have priority in the order given in paragraphs (a)(3) 
(ii), (iii) and (iv) of this section. Program applicants may purchase NP 
property, however, credit may only be extended on NP terms.
    (i) Offers with requests for credit on program terms. An offer from 
an applicant requesting credit on program terms in excess of the sale 
price will be considered as equally acceptable with other acceptable 
offers from program applicants and will be sold for the sale price.
    (ii) Cash offers, in descending order from highest to lowest, 
provided the cash offer is higher than any other offer which falls into 
the parameters of paragraph (a)(3)(iii) of this section multiplied by 
the current cash preference percentage listed in exhibit B of FmHA or 
its successor agency under Public Law 103-354 Instruction 440.1 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (iii) Offers with requests for credit on NP terms in descending 
order from highest to lowest, for more than the sale price. An offer 
with a request for credit in excess of the market value of the property 
will not be accepted. If an offer of this type is received, the offeror 
will be given the opportunity to reduce the credit request to the market 
value (or lower) with no change to be made in the offered price.
    (iv) Offers with requests for credit on NP terms for the sale price.
    (4) Back-up offers and notification to offerors. Back-up offers will 
be taken in accordance with paragraph (a)(1)(iii) of this section. 
County offices utilizing the services of real estate brokers will advise 
the brokers of changes in the status of the property. County offices not 
utilizing real estate brokers will advise offerors of changes in the 
status of the property utilizing exhibit E of this subpart (available in 
any FmHA or its successor agency under Public Law 103-354 office) or 
similar format. Use of exhibit E is optional in offices utilizing real 
estate brokers.
    (5) Finalizing sales. Credit sales on program terms will be made in 
accordance with Sec. 1955.117 of this subpart and subpart A of part 1944 
of this chapter. Cash sales will be handled in accordance with 
Sec. 1955.118 of this subpart and credit sales on NP terms will be made 
in accordance with subpart J of part 1951 of this chapter.
    (6) Unsold property. If program property remains unsold after eight 
months of active marketing, the case file, with documentation of all 
marketing efforts, will be forwarded to the State Office for review with 
a recommendation of future sales efforts. The State Director will 
determine whether a request

[[Page 270]]

should be made to the Assistant Administrator, Housing, to sell the 
property by sealed bid or auction, or whether additional guidance such 
as, but not limited to advertising, reappraisal, offering a special 
effort sales bonus, or 20-year amortization factor (with balloon after 
10 years) on NP financing may facilitate a sale.
    (b) Multiple family housing. The sale price will be established in 
accordance with Sec. 1955.113 of this subpart. Notification of known 
interested prospective offerors and advertising should be handled as set 
forth in Sec. 1955.146 of this subpart. The sale information will 
include a sale price, any restrictive-use provisions the project will be 
subject to and made part of the title, a date/time/location when offers 
will be drawn, and require all offerors to submit an application package 
comparable to that required by the respective loan program, which will 
be reviewed by the State Director or designee. The sale/time/location 
will be established by the District Director and will allow adequate 
time for advertising and review of applications to determine eligibility 
in accordance with MFH program requirements. Offerors whose applications 
are rejected by FmHA or its successor agency under Public Law 103-354 
will be notified in writing by the approval official, and for program 
applicants, given appeal rights in accordance with subpart B of part 
1900 of this chapter. If an application is rejected, the sale will 
continue regardless of whether the rejected applicant appeals the 
adverse decision. Property will not be held pending the outcome of an 
appeal. An offeror may withdraw an offer prior to the sale date, but not 
on the sale date. All offers from applicants determined eligible for the 
type loan being offered will be considered. The District Director, or 
delegate, and one other FmHA or its successor agency under Public Law 
103-354 employee will conduct the drawing at which time the public may 
be present. Offers will be placed in a receptacle and drawn 
sequentially. Drawn offers will be numbered and those drawn after the 
first drawn will be held as back-up offers, unless the offeror has 
indicated that the offer may not be held as back-up. Award will be made 
to the first offer drawn provided the offer is acceptable as to the 
terms and conditions set forth in the sale notice. The successful 
offeror will be notified immediately in writing by theapproval official, 
return receipt requested, that the successful offeror's offer has been 
accepted even if the successful offeror was present at the sale. The 
remaining offerors will each be notified by letter, return receipt 
requested, that their offer was not successful, but will be held as a 
back-up offer. The selection of the offeror was by lot and is therefore 
not appealable. If an unsuccessful offeror was not present at the sale 
and requests the name of the successful offeror, the name may be 
released. If the MFH property has been listed with real estate brokers 
after receiving authorization from the Assistant Administrator, Housing, 
Form FmHA or its successor agency under Public Law 103-354 1955-40, or 
another appropriate form designated for MFH property, will be used and 
the property sold to the first eligible program applicant. Any other 
method of sale must receive prior written authorization from the 
Assistant Administrator, Housing. Cash sales of program property will 
remain subject to restrictive-use provisions determined needed and 
included in the advertisement. The deed will contain the applicable 
restrictive-use provisions. Tenants and prospective tenants will receive 
the applicable protections for the specific restrictive-use provision 
contained in subpart E of part 1965 of this chapter.
    (c) Single family inventory converted to MFH. Written offers by 
nonprofit organizations, public bodies or for-profit entities, which 
have good records of providing low income housing under section 515, 
will be considered by FmHA or its successor agency under Public Law 103-
354 for the purchase of multiple SFH units for conversion to MFH. 
Section 514 credit sale mortgages may contain repayment terms up to 33 
years and section 515 credit sale mortgage terms may be up to 50 years.
    (1) The price provisions of Sec. 1955.113 and the processing 
provisions for MFH in Sec. 1955.117 of this subpart apply to such a 
conversion.

[[Page 271]]

    (2) The provisions of Sec. 1955.130 of this subpart pertaining to 
real estate brokers apply, as applicable, and a commission will be due 
in the normal manner on units which were listed with the broker(s).
    (3) Prior approval of the National Office is required before 
issuance of Form AD-622, ``Notice of Preapplication Review Action.'' A 
preapplication with the information outlined in Exhibit A-7 of subpart E 
of part 1944 of this chapter, along with the State Director's 
recommendation, will be forwarded to the National Office, Attention: 
Assistant Administrator, Housing, for a determination and further 
guidance.
    (4) A credit sale for this purpose will be made according to the 
provisions of subpart E of part 1944 of this chapter, as modified by 
Sec. 1955.117 of this subpart, except the units need not be contiguous, 
but they must be located in close enough proximity so that management 
costs are not increased nor management capabilities diminished because 
of distance.
    (5) An additional loan may be made simultaneously with the credit 
sale, or later, only when the property involved meets the definition of 
``project'' set forth in subpart E of part 1944 of this chapter.
    (d) CONACT residential property suitable for the SFH program. When a 
single family house acquired under the CONACT is determined to be suited 
for the SFH program, it may be offered for sale as a SHF unit as though 
it had been acquired under the SFH program. It may, however, be sold in 
this manner to a program RH applicant on program terms only--not for 
cash or on NP terms. When a house is offered for sale under this 
paragraph, the listing notices and any advertising (whether being sold 
by FmHA or its successor agency under Public Law 103-354 or through real 
estate brokers) must state this restriction.
[53 FR 27832, July 25, 1988, as amended at 55 FR 3942, Feb. 6, 1990; 56 
FR 2257, Jan. 22, 1991; 58 FR 38927, July 21, 1993; 58 FR 38949, July 
21, 1993; 58 FR 52652, Oct. 12, 1993]



Sec. 1955.115  Sales steps for nonprogram (NP) property (housing).

    The appropriate FmHA or its successor agency under Public Law 103-
354 office will take the following steps after repairs, if economically 
feasible, are completed. The appraisal will be updated to reflect 
changes in market conditions, repairs and improvements, if any. Form 
FmHA or its successor agency under Public Law 103-354 1955-43 for SFH 
and 1955-40 for MFH will be completed to offer the property for sale. 
The advertising requirements and deed restrictions in Sec. 1955.116 of 
this subpart apply if the property does not meet FmHA or its successor 
agency under Public Law 103-354 DSS standards.
    (a) Single Family Housing. Sales steps will be the same as for 
program properties as provided in Sec. 1955.114(a) of this subpart, 
except that sales must be for cash in accordance with Sec. 1955.118 or 
credit on NP terms as provided in subpart J of part 1951 of this 
chapter. See exhibit D of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office) which outlines 
chronologically the sales steps for NP properties.
    (1) Sale by sealed bid or auction. If a NP property has not sold 
within 150 days after being offered for sale, the inventory case file 
with documentation of marketing efforts will be submitted to the State 
Director. The State Director will authorize sale by sealed bid or 
auction in accordance with Sec. 1955.112(c) of this subpart unless 
additional sales methods appear more prudent. Use of the sealed bid or 
auction method may be considered as an initial sales effort under 
special or unusual circumstances such as, but not limited to, structures 
which have been substantially destroyed by fire or other causes.
    (2) Sale as chattel. If efforts to sell NP property by sealed bid or 
auction prove unsuccessful, the structure(s) may be sold as chattel (for 
chattel or salvage value, as appropriate) when authorized by the State 
Director. When the structure is to be sold as chattel (exclusive of 
land) further guidance is provided in Secs. 1955.121, 1955.122 and 
1955.141(b) of this subpart. If no offer is received, the structure(s) 
may be demolished and removed from the site and then the site offered 
for sale. If this method is utilized, FmHA or its successor agency under 
Public Law 103-354 will attempt to have the structure removed in 
exchange for the salvageable materials

[[Page 272]]

by contract, otherwise, will solicit for contracts to have the structure 
removed in accordance with FmHA or its successor agency under Public Law 
103-354 Instruction 2024-A (available in any FmHA or its successor 
agency under Public Law 103-354 office).
    (3) Sale of vacant land. When FmHA or its successor agency under 
Public Law 103-354 has vacant land in inventory which was security for 
an SFH loan, the land will be sold in accordance with this subparagraph. 
When the lot meets the requirements of Subpart A of Part 1944 of this 
chapter, and a program applicant desires to purchase the lot and 
construct a dwelling, a credit sale will not be made. Instead, one 
section 502 loan will be made which will include funds for the purchase 
of the lot and construction of a dwelling. Otherwise, the lot will be 
sold for cash or on NP terms with a loan not to exceed ten years in term 
and amortization.
    (b) Multiple family housing. Sales steps will be the same as for 
program MFH property as provided in Sec. 1955.114(b) of this subpart 
except that sales must be for cash or on NP terms as set forth in 
Sec. 1955.118 of this subpart. Additionally, if cash offers are 
received, they will be given first preference by drawing from the cash 
offers only. If the State Director determines an auction sale should be 
used to sell NP MFH property, authority to use that method of sale must 
be requested from the Assistant Administrator, Housing. Inventory files, 
including information on the acquisition, marketing efforts made, 
management of the property, other pertinent information, a memorandum 
covering the facts of the case, and recommendations of the State 
Director must be submitted for review. If the housing is sold out of the 
FmHA or its successor agency under Public Law 103-354 program as NP 
property, the closing of the sale may not take place until tenants have 
received all notifications and benefits afforded to tenants in prepaying 
projects in accordance with subpart E of part 1965 of this chapter.
[53 FR 27833, July 25, 1988, as amended at 58 FR 38928, July 21, 1993; 
58 FR 52652, Oct. 12, 1993]



Sec. 1955.116  Requirements for sale of property not meeting decent, safe and sanitary (DSS) standards (housing).

    For real property (exclusive of improvements) which is unsafe, refer 
to Sec. 1955.137(e) of this subpart for further guidance. For all other 
housing inventory property which does not meet decent, safe and sanitary 
(DSS) standards, the provisions of this section apply.
    (a) Notices and advertising. If the inventory property has a single 
family dwelling or MFH unit thereon which does not meet DSS standards as 
defined in Sec. 1955.103 of this subpart, but which could meet such 
standards through the repair or renovation activities of the future 
owner, any ``Notice of Real Property For Sale,'' ``Notice of Sale,'' or 
other advertisement used in conjunction with advertising the property 
for sale must include the following language which is contained in Form 
FmHA or its successor agency under Public Law 103-354 1955-44, ``Notice 
of Residential Occupancy Restriction'':

    This property contains a dwelling unit or units which FmHA or its 
successor agency under Public Law 103-354 has deemed to be inadequate 
for residential occupancy. The Quitclaim Deed by which this property 
will be conveyed will contain a covenant restricting the residential 
unit(s) on the property from being used for residential occupancy until 
the dwelling unit(s) is repaired, renovated or razed. This restriction 
is imposed pursuant to section 510(e) of the Housing Act of 1949, as 
amended, 42 U.S.C. 1480. The property must be repaired and/or renovated 
as follows:*.
    * For advertisements, the sentence preceding the asterisk may be 
deleted and replaced with the following, or similar sentence: ``Contact 
FmHA or its successor agency under Public Law 103-354 (or any real 
estate broker/name of exclusive broker) for a list of items which must 
be repaired/renovated.'' For notices other than advertising, insert 
those items which are necessary to make the dwelling unit(s) meet DSS 
standards. Examples are:
    --Replace flooring and floor joists in kitchen and bathroom.
    --Drill new well to provide for an adequate and potable water 
supply.
    --Hook-up to community water and sewage system now being installed.

[[Page 273]]

    --Provide a functionally adequate, safe and operable * system. * 
Insert heating, plumbing, electrical and/or sewage disposal, etc., as 
appropriate.
    --Install *. * Insert new roof, foundation, sump pump, bathroom 
fixtures, etc., as appropriate.
    --Install R-* insulation in basement walls or ceiling, R-* 
insulation in attic, and storm windows/doors throughout. * Insert 
appropriate R-Values to meet Thermal Performance Standards.

    (b) Sale agreements. If a housing structure in inventory does not 
meet DSS standards, Form FmHA or its successor agency under Public Law 
103-354 1955-44 must be attached to Forms FmHA or its successor agency 
under Public Law 103-354 1955-45 or FmHA or its successor agency under 
Public Law 103-354 1955-46, as appropriate, to provide notification of 
the deed restriction and required repairs/renovations before the 
dwelling can be used for residential purposes.
    (c) Quitclaim Deed. The following, the original of Form FmHA or its 
successor agency under Public Law 103-354 1955-44, or similar 
restrictive clause adapted for use in an individual State pursuant to a 
State Supplement approved by OGC must be added to the Quitclaim Deed for 
properties which do not meet DSS standards at the time of sale but which 
could through the repair/renovation activities of the future owner:

    Pursuant to section 510(e) of the Housing Act of 1949, as amended, 
42 U.S.C. 1480(e), the purchaser (``Grantee'' herein) of the above-
described real property (the ``subject property'' herein) covenants and 
agrees with the United States acting by and through Farmers Home 
Administration or its successor agency under Public Law 103-354 (the 
``Grantor'' herein) that the dwelling unit(s) located on the subject 
property as of the date of this Quitclaim Deed will not be occupied or 
used for residential purposes until the item(s) listed at the end of 
this paragraph have been accomplished. This covenant shall be binding on 
Grantee and Grantee's heirs, assigns and successors and will be 
construed as both a covenant running with the subject property and as 
equitable servitude. This covenant will be enforceable by the United 
States in any court of competent jurisdiction. When the existing 
dwelling unit(s) on the subject property complies with the 
aforementioned standards of the Farmers Home Administration or its 
successor agency under Public Law 103-354 or the unit(s) has been 
completely razed, upon application to the Farmers Home Administration or 
its successor agency under Public Law 103-354 in accordance with its 
regulations, the subject property may be released from the effect of 
this covenant and the covenant will thereafter be of no further force or 
effect. The property must be repaired and/or renovated as follows: *.'' 
* Insert the same items referenced in the listing notice(s) and sale 
agreement which are necessary to make the dwelling unit(s) meet DSS 
standards.

    (d) Release of restrictive covenant. Upon request of the property 
owner for a release of the restrictive covenant, FmHA or its successor 
agency under Public Law 103-354 will inspect the property to ensure that 
the repairs/renovations outlined in the restrictive covenant have been 
properly completed or the structure(s) razed. A State Supplement 
outlining the procedure for releasing the restrictive covenant will be 
issued with the advice of OGC.
[53 FR 27834, July 25, 1988]



Sec. 1955.117  Processing credit sales on program terms (housing).

    The following provisions apply to all credit sales on program terms:
    (a) Offers. Form FmHA or its successor agency under Public Law 103-
354 1955-45 will be used to document the offer and acceptance for 
regular FmHA or its successor agency under Public Law 103-354 sales. The 
contract is accepted prior to processing Form FmHA or its successor 
agency under Public Law 103-354 410-4, ``Application for Rural Housing 
Assistance (Non-Farm Tract),'' for SFH property with the provision that 
acceptance is subject to program approval. MFH property sales require an 
application package comparable to that submitted for the respective loan 
program application.
    (b) Processing. The FmHA or its successor agency under Public Law 
103-354 regulations pertaining to the type of credit being extended will 
be followed in making credit sales on program terms except as modified 
by the provisions of this section. All MFH credit sales may be made for 
up to 100 percent of the current market value of the security, less any 
prior lien. However, if a profit or limited profit applicant desires to 
earn a return, the applicant will be required to contribute at least 3 
percent of the purchase price as a cash

[[Page 274]]

downpayment. All credit sales of RRH, RCH, and LH properties will be 
subject to prepayment and restrictive-use provisions specified by the 
respective program requirements.
    (c) Approval. Forms FmHA or its successor agency under Public Law 
103-354 1940-1 or FmHA or its successor agency under Public Law 103-354 
1944-51, as appropriate, will be used to approve a credit sale even 
though no obligation of funds is required.
    (d) Downpayment. When a downpayment is made, it will be collected at 
closing, identified by property identification number, purchaser's name 
and case number (and project number for MFH sales) 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).
    (e) Interest rate. Upon request of the applicant, the interest rate 
charged by FmHA or its successor agency under Public Law 103-354 will be 
the lower of the interest rate in effect at the time of loan approval or 
closing. If the applicant does not indicate a choice, the loan will be 
closed at the rate in effect at the time of loan approval.
    (f) Closing costs. MFH purchasers will pay closing costs from their 
own funds. Where necessary, SFH purchasers who qualify may be made a 
subsequent loan to pay closing costs in an amount not to exceed 1 
percent of the sale price of the dwelling. Any closing costs which are 
legally or customarily paid by the seller will be paid by FmHA or its 
successor agency under Public Law 103-354 and charged to the inventory 
account as a nonrecoverable cost items.
    (g) Closing sale. Title clearance, loan closing and property 
insurance requirements for a credit sale, and any loan closed 
simultaneously with the credit sale, are the same as for a program loan 
of the same type except:
    (1) The property will be conveyed in accordance with 
Sec. 1955.141(a) of this subpart.
    (2) Earnest money, if any, will be used to pay purchaser's closing 
costs with any balance of closing costs being paid from the purchaser's 
personal funds except as provided in paragraph (f) of this section. For 
SFH credit sales and MFH credit sales to nonprofit organizations or 
public bodies, any excess deposit will be refunded to the purchaser. For 
MFH credit sales to profit or limited profit buyers, any excess earnest 
money deposit will be credited to the purchase price and recognized as a 
part of the purchaser's initial investment.
    (3) The County Supervisor or District Director will provide the 
closing agent with the necessary information for closing the sale. The 
assistance of OGC will be requested to provide closing instructions in 
exceptional or complex cases and for all MFH sales.
    (h) Reporting. After the sale is closed, it will be reported 
according to Sec. 1955.142 of this subpart.
[53 FR 27834, July 25, 1988; 54 FR 6875, Feb. 15, 1989, as amended at 58 
FR 38928, July 21, 1993]



Sec. 1955.118  Processing cash sales or MFH credit sales on NP terms.

    (a) Cash sales. Cash sales will be closed by the servicing official 
collecting the purchase price (less any earnest money deposit or bid 
deposit) and delivering the deed to the purchaser Proceeds will be 
remitted in accordance with subparts B and K of part 1951 of this 
chapter.
    (b) Credit sales. The following provisions apply to MFH credit sales 
on NP terms:
    (1) Offers. Form FmHA or its successor agency under Public Law 103-
354 1955-45 or FmHA or its successor agency under Public Law 103-354 
1955-46, as appropriate, will be used to document the offer and 
acceptance. Contract acceptance is made prior to processing a request 
for credit on NP terms.
    (2) Processing. Purchasers requesting credit on NP terms will be 
required to submit documentation to establish financial stability, 
repayment ability, and creditworthiness. Standard forms used to process 
program applications may be utilized or comparable documentation may be 
accepted from the purchaser with the servicing official having the 
discretion to determine what information is required to support loan 
approval for the type property involved. Individual credit reports will 
be ordered for each individual applicant and each principal within an 
applicant entity in accordance with

[[Page 275]]

subpart B of part 1910 of this chapter. Commercial credit reports will 
be ordered for profit corporations and partnerships, and organizations 
with a substantial interest in the applicant entity in accordance with 
subpart C of part 1910 of this chapter.
    (3) Approval. Form FmHA or its successor agency under Public Law 
103-354 1944-51 will be used to approve a credit sale even though no 
obligation of funds is involved. Special instructions on the FMI 
pertaining to NP credit sales will be followed.
    (4) Downpayment. A downpayment of not less than 10 percent of the 
purchase price is required at closing and will be remitted by the 
servicing official according to subpart B and K of part 1951 of this 
chapter.
    (5) Interest rate. The Section 515 RRH interest rate plus \1/2\ 
percent will be charged on all types of housing credit sales, except 
SFH. Refer to exhibit B of FmHA or its successor agency under Public Law 
103-354 Instruction 440.1 (available in any FmHA or its successor agency 
under Public Law 103-354 office) for interest rates. Loans made on NP 
terms will be closed at the interest rate which was in effect at the 
time the loan was approved.
    (6) Term of note. The note amount will be amortized over a period 
not to exceed 10 years. If the State Director determines more favorable 
terms are necessary to facilitate the sale, the note amount may be 
amortized using a 30-year factor with payment in full (balloon payment) 
due not later than 10 years from the date of closing. In no case will 
the term be longer than the period for which the property will serve as 
adequate security.
    (7) Modification of security instruments. If applicable to the type 
property being sold, modification of security instruments may be made. 
On the promissory note and/or security instrument (mortgage or deed of 
trust) any covenants relating to graduation to other credit, 
restrictive-use provisions on MFH projects, personal occupancy, 
inability to secure other financing, and restrictions on leasing may be 
deleted. Deletions are made by lining through only the specific 
inapplicable language with both the NP borrower and FmHA or its 
successor agency under Public Law 103-354 initialing the changes.
    (8) Closing sale. Title clearance, loan closing and property 
insurance requirements for a credit sale are the same as for a program 
loan except:
    (i) The property will be conveyed in accordance with 
Sec. 1955.141(a) of this subpart.
    (ii) The purchaser will pay his/her own closing costs. Earnest 
money, if any, will be used to pay purchaser's closing costs with any 
balance of closing costs being paid by the purchaser. Any closing costs 
which are legally or customarily paid by the seller will be paid by FmHA 
or its successor agency under Public Law 103-354 from the downpayment.
    (iii) The County Supervisor or District Director will provide the 
closing agent with the necessary information for closing the sale. The 
assistance of OGC will be requested to provide closing instructions for 
all MFH sales.
    (iv) When more than one property is bought by the same buyer and the 
transactions are closed at the same time, a separate promissory note 
will be prepared for each property, but one mortgage will cover all the 
properties.
    (9) Reporting. After the sale is closed, it will be reported 
according to Sec. 1955.142 of this subpart.
    (10) Classification. MFH credit sales on NP terms will be classified 
as NP loans and serviced accordingly.
    (11) Form FmHA or its successor agency under Public Law 103-354 
1910-11, ``Applicant Certification, Federal Collection Policies for 
Consumer or Commercial Debts.'' The County Supervisor or District 
Director must review Form FmHA or its successor agency under Public Law 
103-354 1910-11, ``Applicant Certification, Federal Collection Policies 
for Consumer or Commercial Debts,'' with the applicant, and the form 
must be signed by the applicant.
[53 FR 27835, July 25, 1988, as amended at 54 FR 29333, July 12, 1989; 
55 FR 3942, Feb. 6, 1990; 58 FR 38928, July 21, 1993; 58 FR 52653, Oct. 
12, 1993]

[[Page 276]]



Sec. 1955.119  Sale of SFH inventory property to a public body or nonprofit organization.

    Notwithstanding the provisions of Sec. 1955.111 through 
Sec. 1955.118 of this subpart, this section contains provisions for the 
sale of SFH inventory property to a public body or nonprofit 
organization to use for transitional housing for the homeless. A public 
body or nonprofit organization is a nonprogram applicant. All other SFH 
credit sales on nonprogram terms will be handled in accordance with 
subpart J of part 1951 of this chapter.
    (a) Method of sale. The method of sale is according to Sec. 1955.112 
of this subpart. Upon request from a public body or nonprofit 
organization, FmHA or its successor agency under Public Law 103-354 will 
provide a list of all SFH inventory property, regardless of whether it 
is listed for sale with real estate brokers. The list will indicate 
whether the property is program or nonprogram. Upon written notice of 
the organization's intent to buy a specific property, if it is not under 
a sale contract, FmHA or its successor agency under Public Law 103-354 
will withdraw the property from the market for a period not to exceed 30 
days to provide the organization sufficient time to execute Form FmHA or 
its successor agency under Public Law 103-354 1955-45.
    (b) Price. The price of the property will be established according 
to Sec. 1955.113 of this subpart; however, a 10 percent discount of the 
listed price is authorized on nonprogram property. No discount is 
authorized on program property.
    (c) Decent, safe and sanitary (DSS) standards. If an organization 
wants to buy a property which does not meet DSS standards, FmHA or its 
successor agency under Public Law 103-354 will repair it to meet those 
standards, including thermal performance standards, unless FmHA or its 
successor agency under Public Law 103-354 determines it is not feasible 
to do so according to Sec. 1955.64(a)(1)(ii) of subpart B of part 1955 
of this chapter. The price will be adjusted to reflect any resulting 
change in value. Cosmetic repairs, if needed, such as painting, floor 
covering, landscaping, etc., are the responsibility of the organization. 
Form FmHA or its successor agency under Public Law 103-354 1955-44, 
itemizing the required repairs and FmHA or its successor agency under 
Public Law 103-354's agreement to complete them before closing will be 
made a part of Form FmHA or its successor agency under Public Law 103-
354 1955-45, the sales contract, before it is signed. Required repairs 
must be completed before closing so DSS restrictions will not be 
required in the deed.
    (d) Approval and closing. Processing cash sales or MFH credit sales 
on nonprogram terms is according to Sec. 1955.118 of this subpart, 
except as follows:
    (1) Earnest money deposit. No earnest money deposit is required.
    (2) Downpayment. No downpayment is required.
    (3) Term of note. The term of the note may not exceed 30 years.
[55 FR 3942, Feb. 6, 1990, as amended at 58 FR 52653, Oct. 12, 1993]



Sec. 1955.120  Payment of points (housing).

    To effect regular sale of inventory SFH property to a purchaser who 
is financing the purchase of the property with a non-FmHA or its 
successor agency under Public Law 103-354 loan, the County Supervisor 
may authorize the payment by FmHA or its successor agency under Public 
Law 103-354 of not more than three points. The payment must be a 
customary requirement of the lender for the seller within the community 
where the property is located. Terms of payment will be incorporated in 
Form FmHA or its successor agency under Public Law 103-354 1955-45 and 
will be fixed as of the date the form is signed by the appropriate FmHA 
or its successor agency under Public Law 103-354 official. Points will 
not be paid to reduce the purchaser's interest rate. The payment will be 
deducted from the funds to be received by FmHA or its successor agency 
under Public Law 103-354 at closing. These payments will be handled in 
accordance with subpart B of part 1951 of this chapter.
[53 FR 27836, July 25, 1988. Redesignated at 55 FR 3942, Feb. 6, 1990, 
as amended at 58 FR 52653, Oct. 12, 1993]

[[Page 277]]

                            Chattel Property



Sec. 1955.121  Sale of acquired chattels (chattel).

    Sections 1955.122 through 1955.124 of this subpart prescribe 
procedures for the sale of all acquired chattel property except real 
property rights. The State Director is authorized to sell acquired 
chattels by auction, sealed bid, regular sale or, for perishable items 
and crops, by negotiated sale. The State Director may redelegate 
authority to any qualified FmHA or its successor agency under Public Law 
103-354 employee.



Sec. 1955.122  Method of sale (chattel).

    Acquired chattels will be sold as expeditiously as possible using 
the method(s) considered most appropriate. If the chattel is not sold 
within 180 days after acquisition, assistance will be requested as 
outlined in Sec. 1955.143 of this subpart.
    (a) Sale to beginning farmers or ranchers. Beginning farmers or 
ranchers obtaining special OL loan assistance under Sec. 1941.15 of 
subpart A of part 1941 of this chapter will receive priority in the 
purchase of farm equipment held in government inventory during the 
commitment period. The County Supervisor will notify such applicants/
borrowers of any farm equipment held in government inventory within the 
service area of the FmHA or its successor agency under Public Law 103-
354 County Office. These applicants/borrowers will be given 10 working 
days to respond that they are interested in purchasing any or all items 
of equipment at the appraised fair market value established by FmHA or 
its successor agency under Public Law 103-354. FmHA or its successor 
agency under Public Law 103-354 Form Letter 1955-C-1 will be used to 
notify applicants/borrowers of the availability of farm equipment in 
FmHA or its successor agency under Public Law 103-354 inventory. The 
equipment must be essential to the success of the operation described in 
the loan application in order for the applicant to have an opportunity 
to purchase such equipment. The County Supervisor will determine what 
equipment is essential.
    (b) Regular sale. Chattels will be sold by FmHA or its successor 
agency under Public Law 103-354 employees at market value to program 
applicants. Form FmHA or its successor agency under Public Law 103-354 
440-21, ``Appraisal of Chattel Property,'' will be used when appraising 
chattels for regular sale.
    (c) Auctions. Section 1955.148 of this subpart provides detailed 
guidance on auctions applicable to the sale of chattels, as supplemented 
by this section.
    (1) Established public auction. An established public auction is an 
auction that is widely advertised and held on a regularly scheduled 
basis at the same facility. This method of sale is particularly suited 
for the sale of commodities, farm machinery and livestock. No additional 
public notice of sale is required other than that commonly used by the 
facility. This is the preferred method of disposal.
    (2) Other auctions. Other auctions, whether conducted by FmHA or its 
successor agency under Public Law 103-354 employees or fee auctioneers, 
are suitable for on-premises sales, for sale of dissimilar chattels, and 
for the sale of chattels in conjunction with the auction of real 
property. A minimum of 5 days public notice will be given prior to the 
date of auction.
    (d) Sealed bid sales. Section 1955.147 of this subpart provides 
detailed guidance on sealed bid sales applicable to the sale of 
chattels. When it is believed that financing will have to be provided 
through a credit sale, this method has advantages over auction sales. It 
requires, however, additional steps in the event any established minimum 
price is not obtained. Preference will be given to a cash offer which is 
at least ____* percent of the highest offer requiring credit.

    [* Refer to exhibit B of FmHA or its successor agency under Public 
Law 103-354 Instruction 440.1 (available in any FmHA or its successor 
agency under Public Law 103-354 office) for the current percentage.]

    (e) Negotiated sale. Perishable acquired items and crops (except 
timber) and chattels for which no acceptable bid was received from 
auction or sealed bid methods may be sold by direct negotiation for the 
best price obtainable. Preference will be given to a cash offer which is 
at least ______*______ percent

[[Page 278]]

of the highest offer requiring credit. [*Refer to exhibit B of FmHA or 
its successor agency under Public Law 103-354 Instruction 440.1 
(available in any FmHA or its successor agency under Public Law 103-354 
office) for the current percentage.] No public notice is required to 
negotiate with interested parties including priorbidders. Justification 
for the use of this method of sale will be documented. A copy of the 
sale instrument (Form FmHA or its successor agency under Public Law 103-
354 1955-47, ``Bill of Sale ``A''--Sale of Government Property'') will 
be kept in the County or District Office inventory file. Sale proceeds 
will be remitted according to FmHA or its successor agency under Public 
Law 103-354 Instruction 1951-B (available in any FmHA or its successor 
agency under Public Law 103-354 office). A State supplement, when 
needed, will be prepared with the assistance of OGC to provide 
additional guidance on negotiated sales and to insure compliance with 
State laws.
    (f) Notification. In many States the original owner of the chattel 
property must personally be notified of the sale date and method of sale 
within a certain time prior to the sale. The State Director then will 
issue a State supplement clearly stating what notices are to be sent, if 
any. County Supervisor will review State supplements to determine what 
notices must be sent to the previous owner of the chattel property prior 
to FmHA or its successor agency under Public Law 103-354 taking action 
to sell the property.

No public notice is required to negotiate with interested parties 
including prior bidders. Justification for the use of this method of 
sale will be documented. A copy of the sale instrument (Form FmHA or its 
successor agency under Public Law 103-354 1955-47, ``Bill of Sale `A'--
Sale of Government Property'') will be kept in the County or District 
Office inventory file. Sale proceeds will be remitted according to FmHA 
or its successor agency under Public Law 103-354 Instruction 1951-B 
(available in any FmHA or its successor agency under Public Law 103-354 
office). A State Supplement, when needed, will be prepared with the 
assistance of OGC to provide additional guidance on negotiated sales and 
to insure compliance with State laws.
[50 FR 23904, June 7, 1985, as amended at 53 FR 35780, Sept. 14, 1988; 
58 FR 48290, Sept. 15, 1993; 58 FR 58650, Nov. 3, 1993; 62 FR 44401, 
Aug. 21, 1997]



Sec. 1955.123  Sale procedures (chattel).

    (a) Sales. Although cash sales are preferred in the sale of 
chattels, credit sales may be used advantageously in the sale of 
chattels to eligible purchasers and to facilitate sales of high-priced 
chattels. Chattel sales will be made to eligible purchasers in 
accordance with the provisions of this chapter. Preference will be given 
to a cash offer which is at least * percent of the highest offer 
requiring credit. (*Refer to exhibit B of FmHA or its successor agency 
under Public Law 103-354 Instruction 440.1 (available in any FmHA or its 
successor agency under Public Law 103-354 office) for the current 
percentage.) Credit sales made to ineligible purchasers will require not 
less than a 10 percent downpayment with the remaining balance amortized 
over a period not to exceed 5 years. The interest rate for ineligible 
purchasers will be the current ineligible interest rate for Farmer 
Programs property set forth in exhibit B of FmHA or its successor agency 
under Public Law 103-354 Instruction 440.1 (available in any FmHA or its 
successor agency under Public Law 103-354 office). Form FmHA or its 
successor agency under Public Law 103-354 431-2, in conjunction with 
Form FmHA or its successor agency under Public Law 103-354 440-32, 
``Request for Statement of Debts and Collateral,'' may be used to show 
financial capability. For Farmer Programs, County Supervisors, District 
Directors, and State Directors are authorized to approve or disapprove 
chattel sales on eligible terms in accordance with the respective loan 
approval authorities in exhibit C of FmHA or its successor agency under 
Public Law 103-354 Instruction 1901-A (available in any FmHA or its 
successor agency under Public Law 103-354 office). Applicants who have 
been determined ineligible, and eligible applicants who have their 
application disapproved, will be notified of the opportunity to appeal 
in accordance with subpart B of part 1900 of

[[Page 279]]

this chapter. County Supervisors, District Directors, and State 
Directors are authorized to approve or disapprove chattel sales on 
ineligible terms in accordance with the respective type of program 
approval authorities in exhibit E of FmHA or its successor agency under 
Public Law 103-354 Instruction 1901-A (available in any FmHA or its 
successor agency under Public Law 103-354 office.)
    (b) Receipt of payment. Payment will be by cashier's check, 
certified check, postal or bank money order, or personal check (not in 
excess of $500) made payable to FmHA or its successor agency under 
Public Law 103-354. Cash may be accepted if it is not possible for one 
of these forms of payment to be used. Third party checks are not 
acceptable. Payments will be handled in accordance with subpart B of 
part 1951 of this chapter. If full payment is not received at the time 
of sale, the offer will be documented by Form FmHA or its successor 
agency under Public Law 103-354 1955-45 or FmHA or its successor agency 
under Public Law 103-354 1955-46 where the chattel is sold jointly with 
real estate by regular sale.
    (c) Transfer of title. Title will be transferred to a purchaser in 
accordance with Sec. 1955.141(b) of this subpart.
    (d) Reporting sale. Sales will be reported in accordance with 
Sec. 1955.142 of this subpart.
    (e) Reporting and disposal of inventory property not sold. Refer to 
Secs. 1955.143 and 1955.144 of this subpart for additional guidance in 
disposing of problem property.
[50 FR 23904, June 7, 1985, as amended at 58 FR 52653, Oct. 12, 1993; 58 
FR 58650, Nov. 3, 1993



Sec. 1955.124  Sale with inventory real estate (chattel).

    Inventory chattel property may be sold with inventory real estate if 
a higher aggregate price can be obtained. Proceeds from a joint sale 
will be applied to the respective inventory accounts based on the value 
of the property sold. Form FmHA or its successor agency under Public Law 
103-354 440-21 will be used to determine the value of the chattel 
property. The offer for the sale of the chattels will be documented by 
incorporating the terms and conditions of the sale of Form FmHA or its 
successor agency under Public Law 103-354 1955-45 or Form FmHA or its 
successor agency under Public Law 103-354 1955-46, and may be accepted 
by the appropriate approval official based upon the combined final sale 
price.



Secs. 1955.125--1955.126  [Reserved]

           Use of Contractors To Dispose of Inventory Property



Sec. 1955.127  Selection and use of contractors to dispose of inventory property.

    Sections 1955.128 through 1955.131 prescribe procedures for 
contracting for services to facilitate disposal of inventory property. 
FmHA or its successor agency under Public Law 103-354 Instruction 2024-A 
(available in any FmHA or its successor agency under Public Law 103-354 
office) is applicable for procurement of nonpersonal services.
[53 FR 27836, July 25, 1988]



Sec. 1955.128  Appraisers.

    (a) Real property. The State Director may authorize the County 
Supervisor or District Director to procure fee appraisals of inventory 
property, except MFH properties, to expedite the sale of inventory real 
or chattel property. (Fee appraisals of MFH properties will only be 
authorized by the Assistant Administrator, Housing, when unusual 
circumstances preclude the use of a qualified FmHA or its successor 
agency under Public Law 103-354 MFH appraiser.) The decision will be 
based on the availability of comparables, the capability and 
availability of personnel, and the number and type of properties (such 
as large farms and business property) requiring valuation. For Farmer 
Programs real estate properties, all contract (fee) appraisers should 
include the sales comparison, income (when applicable), and the cost 
approach to value. All FmHA or its successor agency under Public Law 
103-354 real estate contract appraisers must be certified as State-
Certified General Appraisers.
    (b) Chattel property. For Farmer Programs chattel appraisals, the 
contractor/appraiser completing the report

[[Page 280]]

must meet at least one of the following qualifications:
    (1) Certification by a National or State appraisal society.
    (2) If the contractor is not a certified appraiser and a certified 
appraiser is not available, the contractor may qualify or may use other 
qualified appraisers, if the contractor can establish that he/she or 
that the appraiser meets the criteria for a certification in a National 
or State appraisal society.
    (3) The appraiser has recent, relevant, documented appraisal 
experience or training, or other factors clearly establish the 
appraiser's qualifications.
[58 FR 58650, Nov. 3, 1993]



Sec. 1955.129  Business brokers.

    The services of business brokers or business opportunity brokers may 
be authorized by the appropriate Assistant Administrator in lieu of or 
in addition to real estate brokers for the sale of businesses as a 
whole, including goodwill and chattel, when:
    (a) The primary use of the structure included in the sale is other 
than residential;
    (b) The business broker is duly licensed by the respective state; 
and
    (c) The primary function of the business is other than farming or 
ranching.



Sec. 1955.130  Real estate brokers.

    Contracting authority for the use of real estate brokers is 
prescribed in Exhibit D of FmHA or its successor agency under Public Law 
103-354 Instruction 2024-A (available in any FmHA or its successor 
agency under Public Law 103-354 office). Brokers who are managing 
custodial or inventory property may also participate in sales activities 
under the same conditions offered other brokers. Brokers must be 
properly licensed in the State in which they do business.
    (a) Type of listings. The State Director may authorize use of 
exclusive listings during any calendar year. Since the Agency receives 
many more marketing services for its commission dollar and saves time 
listing the property with only one broker, it is strongly recommended 
that all County Offices be authorized the use of exclusive brokers.
    (1) Exclusive broker contract. An exclusive broker contract provides 
for the selection of one broker by competitive negotiation who will be 
the only authorized broker for the FmHA or its successor agency under 
Public Law 103-354 office awarding the contract within a defined area 
and for specific property or type of property. Criteria will be 
specified in the solicitation together with a numerical weighting system 
to be used (usually 1--100). Responses will be calculated on the basis 
of the criteria such as personal qualifications, membership in Multiple 
Listing Service (MLS), previous experience with FmHA or its successor 
agency under Public Law 103-354 sales, advertising plans, proposed 
innovative promotion methods, and financial capability. The 
responsibilities of the broker under an exclusive broker contract exceed 
those of the open listing agreement and therefore, an exclusive broker 
contract is the preferred method of listing properties.
    (2) Open listing. Open listing agreements provide for any licensed 
real estate broker to provide sales services for any property listed 
under the terms and conditions of Form FmHA or its successor agency 
under Public Law 103-354 1955-42, ``Open Real Property Master Listing 
Agreement.'' If this method is used, a newspaper advertisement will be 
published at least once yearly, or a notice sent to all real estate 
brokers in the counties served by the FmHA or its successor agency under 
Public Law 103-354 office, informing brokers that sales services are 
being requested. The advertising will be substantially similar to the 
example given in Exhibit B of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office). An open listing 
agreement may be executed at any time during the year, but must be 
effective prior to the broker showing the property. When this method is 
used, the FmHA or its successor agency under Public Law 103-354 office 
is responsible for ensuring that adequate advertising is performed to 
effectively market the property.
    (b) Listing notices. Forms FmHA or its successor agency under Public 
Law 103-354 1955-40 or FmHA or its successor agency under Public Law 
103-354 1955-

[[Page 281]]

43, as appropriate, will be used to provide brokers with notice of 
initial listing, withdrawal, price change, terms change, relisting, sale 
cancellation, restrictions on sale, etc.
    (c) Priority of offers. All offers received during the same business 
day will be considered as having been received at the same time. The 
successful offer from among equally acceptable offers within each 
category will be determined by lot by FmHA or its successor agency under 
Public Law 103-354. Priority rules for specific categories of property 
are:
    (1) Program SFH. See Sec. 1955.114(a) of this subpart.
    (2) Program MFH. Offers will be considered from program applicants 
only.
    (3) NP SFH. See Sec. 1955.115(a) of this subpart.
    (4) NP MFH. See Sec. 1955.115(b) of this subpart.
    (5) Suitable and surplus FSA CONACT. See Sec. 1955.107 of this 
subpart.
    (6) Suitable and Surplus Non-FSA CONACT. See Sec. 1955.108 of this 
subpart.
    (d) Price. No offer for less than the listed price will be accepted 
during the period of regular sale.
    (e) Earnest money. The broker will collect earnest money in the 
amount specified in paragraph (e)(1) of this section when a sale 
contract is executed. The earnest money will be retained by the broker 
until contract closing, withdrawal, cancellation, or rejection by FmHA 
or its successor agency under Public Law 103-354. When a contract is 
cancelled because FmHA or its successor agency under Public Law 103-354 
rejects the offeror's application for credit, the earnest money will be 
returned to the offeror. When a contract closes, the broker will make 
the earnest money available to be used toward closing costs, or in the 
case of a cash sale it may be returned to the purchaser. For MFH sales 
to profit or limited profit buyers, any excess earnest money deposit 
will be credited to the purchaser's initial investment.
    (1) Amount. The amount of earnest money collected will be:
    (i) For single family properties or MFH projects of 2 to 5 units, 
$50.
    (ii) For all property other than that covered in paragraph (e)(1)(i) 
of this section, the greater of the estimated closing costs shown on the 
notice of listing (Form FmHA or its successor agency under Public Law 
103-354 1955-40) or \1/2\ of 1 percent of the purchase price.
    (2) Offeror default. When a contract is cancelled due to offeror 
default, the earnest money will be delivered to and retained by FmHA or 
its successor agency under Public Law 103-354 as full liquidated damages 
and will be remitted by the servicing official according to FmHA or its 
successor agency under Public Law 103-354 Instruction 1951-B (available 
in any FmHA or its successor agency under Public Law 103-354 office) for 
application to the General Fund.
    (f) Commission--(1) Amount--(i) Exclusive broker contract. FmHA or 
its successor agency under Public Law 103-354 may not set the commission 
rate in an exclusive broker solicitation/contract. The rate of 
commission will be one of the evaluation criteria in the solicitation. 
However, any broker who submits an offer with a commission rate lower 
than the typical rate for such services in the area must provide 
documentation that they have successfully sold properties at the lower 
rate with no compromise in services. The solicitation/contract will 
explicitly detail this policy.
    (ii) Open listing agreement. A uniform fee or commission schedule, 
by property type, will be established by the servicing official within a 
given sales area. The commission rate to be paid will be the typical 
rate for such services in the sales area and will not exceed or be lower 
than commissions paid for similar types of services provided by the 
broker to other sellers of similar property.
    (2) Special effort sales bonuses. The servicing official may request 
authorization from the State Director to pay fixed amount bonuses for 
special effort property, such as a property with a value so low that the 
commission alone does not warrant broker interest or property that has 
been held in inventory for an extended period of time where it is 
believed that an added bonus will create additional efforts by the 
broker to sell the property. The State Director may authorize use of 
short-term (not to exceed three

[[Page 282]]

months) special effort sales bonuses on a group, county, district or 
state-wide basis, if it appears necessary to facilitate the sale of 
nonprogram property.
    (3) Payment of commission. Payment of a broker's commission is 
contingent on the closing of the sale and will not be paid until the 
sale has closed and title has passed to the purchaser. No commission 
will be paid where the sale is to the broker, broker's salesperson(s), 
to persons living in his/her or salesperson(s) immediate household or to 
legal entities in which the broker or salesperson(s) have an interest if 
the sale is contingent upon receiving FmHA or its successor agency under 
Public Law 103-354 credit. If credit is not being extended in these 
instances (a cash sale), a commission will be paid. Under an exclusive 
broker contract, if a cooperating broker purchases the property and is 
receiving FmHA or its successor agency under Public Law 103-354 credit, 
one-half the respective commission will be paid to the exclusive broker. 
Commissions will be paid at closing if sufficient cash to cover the 
commission is paid by the purchaser. Otherwise, the commission will be 
paid by the appropriate FmHA or its successor agency under Public Law 
103-354 official by completing Form AD-838 and processing Form FmHA or 
its successor agency under Public Law 103-354 838-B for payment in 
accordance with the respective FMI's, and charged to the inventory 
account as a nonrecoverable cost.
    (g) Nondiscrimination. Brokers who execute listing agreements with 
FmHA or its successor agency under Public Law 103-354 shall certify to 
nondiscrimination practices as provided in Form FmHA or its successor 
agency under Public Law 103-354 1955-42. In addition, all brokers 
participating in the sale of property shall sign the nondiscrimination 
certification on Form FmHA or its successor agency under Public Law 103-
354 1955-45.
[53 FR 27836, July 25, 1988, as amended at 55 FR 3943, Feb. 6, 1990; 62 
FR 44401, Aug. 21, 1997]



Sec. 1955.131  Auctioneers.

    The services of licensed auctioneers, if required, may be used to 
conduct auction sales as described in Sec. 1955.148 of this subpart and 
procured by competitive negotiation under the contracting authority of 
Exhibit C to FmHA or its successor agency under Public Law 103-354 
Instruction 2024-A (available in any FmHA or its successor agency under 
Public Law 103-354 office).
    (a) Selection criteria. The auctioneer should be selected by 
evaluating criteria such as proposed sales dates, location, advertising, 
broker cooperation, innovations, mechanics of sale, sample advertising, 
personal qualifications, financial capability, private sector financing 
and license/bonding.
    (b) Commission. FmHA or its successor agency under Public Law 103-
354 may not set the commission rate in an auctioneer solicitation/
contract. The rate of commission will be one of the evaluation criteria 
in the solicitation. However, any offeror that submits an offer with a 
commission rate lower than the typical rate for such services in the 
area must include documentation that they have successfully sold 
properties at the lower rate with no compromise in services. The 
solicitation/contract will explicitly detail this policy. Commissions 
will be paid at closing if sufficient cash to cover the commission is 
paid by the purchaser. Otherwise, the commission will be paid by the 
appropriate FmHA or its successor agency under Public Law 103-354 
official completing Form AD-838 and processing Form FmHA or its 
successor agency under Public Law 103-354 838-B for payment in 
accordance with the respective FMI's, and charged to the inventory 
account as a nonrecoverable cost.
    (c) Auctioneer restriction. The auctioneer, his/her sales agents, 
cooperating brokers or persons living in his, her or their immediate 
household are restricted from bidding or from subsequent purchase of any 
property sold or offered at the auctioneer's sale for a period of one 
year from the auction date.
[50 FR 23904, June 7, 1985, as amended at 53 FR 27837, July 25, 1988]

[[Page 283]]

                                 General



Sec. 1955.132  Pilot projects.

    FmHA or its successor agency under Public Law 103-354 may conduct 
pilot projects to test policies and procedures for the management and 
disposition of inventory property which deviate from the provisions of 
this subpart, but are not inconsistent with the provisions of the 
authorizing statute or other applicable Acts. A pilot project may be 
conducted by FmHA or its successor agency under Public Law 103-354 
employees or by contract with individuals, organizations or other 
entities. Prior to initiation of a pilot project, FmHA or its successor 
agency under Public Law 103-354 will publish notice in the Federal 
Register of its nature, scope, and duration.
[55 FR 3943, Feb. 6, 1990]



Sec. 1955.133  Nondiscrimination.

    (a) Title VI provisions. If the inventory real property to be sold 
secured a loan that was subject to Title VI of the Civil Rights Act of 
1964, and the property will be used for its original or similar purpose, 
or if FmHA or its successor agency under Public Law 103-354 extends 
credit and the property then becomes subject to Title VI, the buyer will 
sign Form FmHA or its successor agency under Public Law 103-354 400-4. 
``Assurance Agreement.'' The instrument of conveyance will contain the 
following statement:

    The property described herein was obtained or improved through 
Federal financial assistance. This property is subject to the provisions 
of Title VI of the Civil Rights Act of 1964 and the regulations issued 
pursuant thereto for so long as the property continues to be used for 
the same or similar purposes for which the Federal financial assistance 
was extended.

    (b) Affirmative Fair Housing Marketing Plan. Exclusive listing 
brokers or auctioneers selling SFH properties having 5 or more 
properties in the same subdivision listed or offered for sale at the 
same time will prepare and submit to FmHA or its successor agency under 
Public Law 103-354 an acceptable Form HUD 935.2, ``Affirmative Fair 
Housing Marketing Plan,'' for each such subdivision in accordance with 
Sec. 1901.203(c) of Subpart E of Part 1901 of this chapter.
    (c) Equal Housing Opportunity logo. All FmHA or its successor agency 
under Public Law 103-354 and contractor sale advertisements will contain 
the Equal Housing Opportunity logo.



Sec. 1955.134  Loss, damage, or existing defects in inventory real property.

    (a) Property under contract. If a bid or offer has been accepted by 
the FmHA or its successor agency under Public Law 103-354 and through no 
fault of either party, the property is lost or damaged as a result of 
fire, vandalism, or an act of God between the time of acceptance of the 
bid or offer and the time the title of the property is conveyed by FmHA 
or its successor agency under Public Law 103-354, FmHA or its successor 
agency under Public Law 103-354 will reappraise the property. The 
reappraised value of the property will serve as the amount FmHA or its 
successor agency under Public Law 103-354 will accept from the 
purchaser. However, if the actual loss based on the reduction in market 
value of the property as determined by FmHA or its successor agency 
under Public Law 103-354 is less than $500, payment of the full purchase 
price is required. In the event the two parties cannot agree upon an 
adjusted price, either party, by mailing notice in writing to the other, 
may terminate the contract of sale, and the bid deposit or earnest 
money, if any, will be returned to the offeror.
    (b) Existing defects. FmHA or its successor agency under Public Law 
103-354 does not provide any warranty on property sold from inventory. 
Subsequent loans may be made, in accordance with applicable loan making 
regulations for the respective loan program, to correct defects.
[50 FR 23904, June 7, 1985, as amended at 53 FR 27837, July 25, 1988]



Sec. 1955.135  Taxes on inventory real property.

    Where FmHA or its successor agency under Public Law 103-354 owned 
property is subject to taxation, taxes and assessment installments will 
be prorated between FmHA or its successor agency under Public Law 103-
354 and the purchaser as of the date the title is

[[Page 284]]

conveyed in accordance with the conditions of Forms FmHA or its 
successor agency under Public Law 103-354 1955-45 or FmHA or its 
successor agency under Public Law 103-354 1955-46. The purchaser will be 
responsible for paying all taxes and assessment installments accruing 
after the title is conveyed. The County Supervisor or District Director 
will advise the taxing authority of the sale, the purchaser's name, and 
the description of the property sold. Only the prorata share of 
assessment installments for property improvements (water, sewer, curb 
and gutter, etc.) accrued as of the date property is sold will be paid 
by FmHA or its successor agency under Public Law 103-354 for inventory 
property. At the closing, payment of taxes and assessment installments 
due to be paid by FmHA or its successor agency under Public Law 103-354 
will be paid from cash proceeds FmHA or its successor agency under 
Public Law 103-354 is to receive as a result of the sale or by voucher 
and will be accomplished by one of the following:
    (a) For purchasers receiving FmHA or its successor agency under 
Public Law 103-354 credit and required to escrow, FmHA or its successor 
agency under Public Law 103-354's share of accrued taxes and assessment 
installments will be deposited in the purchaser's escrow account.
    (b) For purchasers not required to escrow, accrued taxes and 
assessment installments may be:
    (i) Paid to the local taxing authority if they will accept payment 
at that time; or
    (ii) Paid to the purchaser. If appropriate, for program purchasers, 
the funds can be deposited in a supervised bank account until the taxes 
can be paid.
    (c) Except for SFH, deducted from the sale price (which may result 
in a promissory note less than the sale price), if acceptable to the 
purchaser.
[56 FR 6953, Feb. 21, 1991]



Sec. 1955.136  Environmental Assessment (EA) and Environmental Impact Statement (EIS).

    (a) Prior to a final decision on some disposal actions, an 
environmental assessment must be made and when necessary, an 
enviornmental impact statement. Detailed guidance on when and how to 
prepare an EA or an EIS is found in Subpart G of Part 1940 of this 
Chapter. Assessments must be made for those proposed conveyances that 
meet one of the following criteria:
    (1) The conveyance is controversial for environmental reasons and/or 
is qualified within those categories described in Sec. 1955.137 of this 
subpart.
    (2) The FmHA or its successor agency under Public Law 103-354 
approval official has reason to believe that conveyance would result in 
a change in use of the real property. For example, farmland would be 
converted to a nonfarm use; or an industrial facility would be changed 
to a different industrial use that would produce increased gaseous, 
liquid or solid wastes over the former use or changes in the type or 
contents of such wastes. Assessments are not required for conveyance 
where the real property would be retained in its former use within the 
reasonably foreseeable future.
    (b) When an EA or EIS is prepared it shall address the requirements 
of Departmental Regulation 9500-3, ``Land Use Policy,'' in connection 
with the conversion to other uses of prime and unique farmlands, 
farmlands of statewide or local importance, prime forest and prime 
rangelands, the alteration of wetlands or flood plains, or the creation 
of nonfarm uses beyond the boundaries of existing settlements.



Sec. 1955.137  Real property located in special areas or having special characteristics.

    (a) Real property located in flood, mudslide hazard, wetland or 
Coastal Barrier Resources System (CBRS). (1) Use restrictions. Executive 
Order 11988, ``Floodplain Management,'' and Executive Order 11990, 
``Protection of Wetlands,'' require the conveyance instrument for 
inventory property containing floodplains or wetlands which is proposed 
for lease or sale to specify those uses that are restricted under 
identified Federal, State and local floodplains or wetlands regulations 
as well as other appropriate restrictions. The restrictions shall be to 
the uses of the property by the lessee or purchaser

[[Page 285]]

and any successors, except where prohibited by law. Applicable 
restrictions will be incorporated into quitclaim deeds in a format 
similar to that contained in Exhibits H and I of RD Instruction 1955-C 
(available in any Agency office). A listing of all restrictions will be 
included in the notices required in paragraph (a)(2) of this section.
    (2) Notice of hazards. Acquired real property located in an 
identified special flood or mudslide hazard area as defined in, subpart 
B of part 1806 of this chapter will not be sold for residential purposes 
unless determined by the county official or district director to be safe 
(that is, any hazard that exists would not likely endanger the safety of 
dwelling occupants).
    (3) Limitations placed on financial assistance. (i) Financial 
assistance is limited to property located in areas where flood insurance 
is available. Flood insurance must be provided at closing of loans on 
program-eligible and nonprogram (NP)-ineligible terms. Appraisals of 
property in flood or mudslide hazard areas will reflect this condition 
and any restrictions on use. Financial assistance for substantial 
improvement or repair of property located in a flood or mudslide hazard 
area is subject to the limitations outlined in, paragraph 3b (1) and (2) 
of Exhibit C of subpart G of part 1940.
    (ii) Pursuant to the requirements of the Coastal Barrier Resources 
Act (CBRA) and except as specified in paragraph (a)(3)(v) of this 
section, no credit sales will be provided for property located within a 
CBRS where:
    (A) It is known that the purchaser plans to further develop the 
property;
    (B) A subsequent loan or any other type of Federal financial 
assistance as defined by the CBRA has been requested for additional 
development of the property;
    (C) The sale is inconsistent with the purpose of the CBRA; or
    (D) The property to be sold was the subject of a previous financial 
transaction that violated the CBRA.
    (iii) For purposes of this section, additional development means the 
expansion, but not maintenance, replacement-in-kind, reconstruction, or 
repair of any roads, structures or facilities. Water and waste disposal 
facilities as well as community facilities may be repaired to the extent 
required to meet health and safety requirements, but may not be improved 
or expanded to serve new users, patients or residents.
    (iv) A sale which is not in conflict with the limitations in 
paragraph (a)(3)(ii) of this section shall not be completed until the 
approval official has consulted with the appropriate Regional Director 
of the U.S. Fish and Wildlife Service and the Regional Director concurs 
that the proposed sale does not violate the provisions of the CBRA.
    (v) Any proposed sale that does not conform to the requirements of 
paragraph (a)(3)(ii) of this section must be forwarded to the 
Administrator for review. Approval will not be granted unless the 
Administrator determines, through consultation with the Department of 
Interior, that the proposed sale does not violate the provisions of the 
CBRA.
    (b) Wetlands located on FSA inventory property. Perpetual wetland 
conservation easements (encumbrances in deeds) to protect and restore 
wetlands or converted wetlands that exist on suitable or surplus 
inventory property will be established prior to sale of such property. 
The provisions of paragraphs (a) (2) and (3) of this section also apply, 
as does paragraph (a)(1) of this section insofar as floodplains are 
concerned. This requirement applies to either cash or credit sales. 
Similar restrictions will be included in leases of inventory properties 
to beginning farmers or ranchers. Wetland conservation easements will be 
established as follows:
    (1) All wetlands or converted wetlands located on FSA inventory 
property which were not considered cropland on the date the property was 
acquired and were not used for farming at any time during the period 
beginning on the date 5 years before the property was acquired and 
ending on the date the property was acquired will receive a wetland 
conservation easement.
    (2) All wetlands or converted wetlands located on FSA inventory 
property that were considered cropland on the date the property was 
acquired or were used for farming at any time during the period 
beginning on the date 5

[[Page 286]]

years before the property was acquired and ending on the date the 
property was acquired will not receive a wetland conservation easement.
    (3) The following steps should be taken in determining if 
conservation easements are necessary for the protection of wetlands or 
converted wetland on inventory property:
    (i) NRCS will be contacted first to identify the wetlands or 
converted wetlands and wetland boundaries of each wetland or converted 
wetland on inventory property.
    (ii) After receiving the wetland determination from NRCS, the FSA 
county committee will review the determination for each inventory 
property and determine if any of the wetlands or converted wetlands 
identified by NRCS were considered cropland on the date the property was 
acquired or were used for farming at any time during the period 
beginning on the date 5 years before the property was acquired and 
ending on the date the property was acquired. Property will be 
considered to have been used for farming if it was primarily used for 
agricultural purposes including but not limited to such uses as 
cropland, pasture, hayland, orchards, vineyards and tree farming.
    (iii) After the county committee has completed their determination 
of whether the wetlands or converted wetlands located on an inventory 
property were used for cropland or farming, the U.S. Fish and Wildlife 
Service (FWS) will be contacted. Based on the technical considerations 
of the potential functions and values of the wetlands on the property, 
FWS will identify those wetlands or converted wetlands that require 
protection with a wetland conservation easement along with the 
boundaries of the required wetland conservation easement. FWS may also 
make other recommendations if needed for the protection of important 
resources such as threatened or endangered species during this review.
    (4) The wetland conservation easement will provide for access to 
other portions of the property as necessary for farming and other uses.
    (5) The appraisal of the property must be updated to reflect the 
value of the land due to the conservation easement on the property.
    (6) Easement areas shall be described in accordance with State or 
local laws. If State or local law does not require a survey, the 
easement area can be described by rectangular survey, plat map, or other 
recordable methods.
    (7) In most cases the FWS shall be responsible for easement 
management and administration responsibilities for such areas unless the 
wetland easement area is an inholding in Federal or State property and 
that entity agrees to assume such responsibility, or a State fish and 
wildlife agency having counterpart responsibilities to the FWS is 
willing to assume easement management and administration 
responsibilities. The costs associated with such easement management 
responsibilities shall be the responsibility of the agency that assumes 
easement management and administration.
    (8) County officials are encouraged to begin the easement process 
before the property is taken into inventory, if possible, in order to 
have the program completed before the statutory time requirement for 
sale.
    (c) Historic preservation. (1) Pursuant to the requirements of the 
National Historic Preservation Act and Executive Order 11593, 
``Protection and Enhancement of the Cultural Environment,'' the Agency 
official responsible for the conveyance must determine if the property 
is listed on or eligible for listing on the National Register of 
Historic Places. (See subpart F of part 1901 of this chapter for 
additional guidance.) The State Historic Preservation Officer (SHPO) 
must be consulted whenever one of the following criteria are met:
    (i) The property includes a structure that is more than 50 years 
old.
    (ii) Regardless of age, the property is known to be of historical or 
archaeological importance; has apparent significant architectural 
features; or is similar to other Agency properties that have been 
determined to be eligible.
    (iii) An environmental assessment is required prior to a decision on 
the conveyance.
    (2) If the result of the consultations with the SHPO is that a 
property may be eligible or that it is questionable, an

[[Page 287]]

official determination must be obtained from the Secretary of the 
Interior.
    (3) If a property is listed on the National Register or is 
determined eligible for listing by the Secretary of Interior, the Agency 
official responsible for the conveyance must consult with the SHPO in 
order to develop any necessary restrictions on the use of the property 
so that the future use will be compatible with preservation objectives 
and which does not result in an unreasonable economic burden to public 
or private interest. The Advisory Council on Historic Preservation must 
be consulted by the State Director or State Executive Director after the 
discussions with the SHPO are concluded regardless of whether or not an 
agreement is reached.
    (4) Any restrictions that are developed on the use of the property 
as a result of the above consultations must be made known to a potential 
bidder or purchaser through a notice procedure similar to that in 
Sec. 1955.13(a)(2) of this subpart.
    (d) Highly erodible farmland. (1) The FSA county official will 
determine if any inventory property contains highly erodible land as 
defined by the NRCS and, if so, what specific conservation practices 
will be made a condition of a sale of the property.
    (2) If the county official does not concur in the need for a 
conservation practice recommended by NRCS, any differences shall be 
discussed with the recommending NRCS office. Failure to reach an 
agreement at that level shall require the State Executive Director to 
make a final decision after consultation with the NRCS State 
Conservationist.
    (3) Whenever NRCS technical assistance is requested in implementing 
these requirements and NRCS responds that it cannot provide such 
assistance within a time frame compatible with the proposed sale, the 
sale arrangements will go forward. The sale will proceed, conditioned on 
the requirement that a purchaser will immediately contact (NRCS) have a 
conservation plan developed and comply with this plan. The county 
official will monitor the borrower's compliance with the recommendations 
in the conservation plan. If problems occur in obtaining NRCS 
assistance, the State Executive Director should consult with the NRCS 
State Conservationist.
    (e) Notification to purchasers of inventory property with reportable 
underground storage tanks. If the Agency is selling inventory property 
containing a storage tank which was reported to the Environmental 
Protection Agency (EPA) pursuant to the provisions of Sec. 1955.57 of 
subpart B of this part, the potential purchaser will be informed of the 
reporting requirement and provided a copy of the report filed by the 
Agency.
    (f) Real property that is unsafe. If the Agency has in inventory, 
real property, exclusive of any improvements, that is unsafe, that is it 
does not meet the definition of ``safe'' as contained in Sec. 1955.103 
of this subpart and which cannot be feasibly made safe, the State 
Director or State Executive Director will submit the case file, together 
with documentation of the hazard and a recommended course of action to 
the National Office, ATTN: appropriate Deputy Administrator, for review 
and guidance.
    (g) Real property containing hazardous waste contamination. All 
inventory property must be inspected for hazardous waste contamination 
either through the use of a preliminary hazardous waste site survey or 
Transaction Screen Questionnaire. If possible contamination is noted, a 
Phase I or II environmental assessment will be completed per the advice 
of the State Environmental Coordinator.
[62 FR 44401, Aug. 21, 1997]



Sec. 1955.138  Property subject to redemption rights.

    If, under State law, FmHA or its successor agency under Public Law 
103-354's interest may be sold subject to redemption rights, the 
property may be sold provided there is no apparent likelihood of its 
being redeemed.
    (a) A credit sale of a program or suitable property subject to 
redemption rights may be made to a program applicant when the property 
meets the standards for the respective loan program. In areas where 
State law does not provide for full recovery of the cost

[[Page 288]]

of repairs during the redemption period, a program sale is generally 
precluded unless the property already meets program standards.
    (b) Each purchaser will sign a statement acknowledging that:
    (1) The property is subject to redemption rights according to State 
law, and
    (2) If the property is redeemed, ownership and possession of the 
property would revert to the previous owner and likely result in loss of 
any additional investment in the property not recoverable under the 
State's provisions of redemption.
    (c) The signed original statement will be filed in the purchaser's 
County or District Office case file.
    (d) If real estate brokers or auctioneers are engaged to sell the 
property, the County Supervisor or District Director will inform them of 
the redemption rights of the borrower and the conditions under which the 
property may be sold.
    (e) The State Director, with prior approval of OGC, will issue a 
State supplement incorporating the requirements of this section and 
providing additional guidance appropriate for the State.
[50 FR 23904, June 7, 1985, as amended at 53 FR 27837, July 25, 1988]



Sec. 1955.139  Disposition of real property rights and title to real property.

    (a) Easements, rights-of-way, development rights, restrictions or 
the equivalent thereof. The State Director is authorized to convey these 
rights for conservation purposes, roads, utilities, and other purposes 
as follows:
    (1) Except as provided in paragraph (a)(3) of this section, 
easements or rights-of-way may be conveyed to public bodies or utilities 
if the conveyance is in the public interest and will not adversely 
affect the value of the real estate. The consideration must be adequate 
for the inventory property being released or for a purpose which will 
enhance the value of the real estate. If there is to be an assessment as 
a result of the conveyance, relative values must be considered, 
including any appropriate adjustment to the property's market value, and 
adequate consideration must be received for any reduction in value.
    (2) Except as provided in paragraph (a)(3) of this section easements 
or rights-of-way may be sold by negotiation for market value to any 
purchaser for cash without giving public notice if the conveyance would 
not change the classification from program/suitable to NP or surplus, 
nor decrease the value by more than the price received. Sale proceeds 
will be handled in accordance with Subpart B of Part 1951 of this 
chapter.
    (3) For FSA properties only, easements, restrictions, development 
rights or similar legal rights may be granted or sold separately from 
the underlying fee or sum of all other rights possessed by the 
Government if such conveyances are for conservation purposes and are 
transferred to a State, a political subdivision of a State, or a private 
nonprofit organization. Easements may be granted or sold to a Federal 
agency for conservation purposes as long as the requirements of 
Sec. 1955.139(c)(2) of this subpart are followed. If FSA has an 
affirmative responsibility such as protecting an endangered species as 
provided for in paragraph (a)(3(v) of this section, the requirements in 
Sec. 1955.139(c) of this subpart do not apply.
    (i) Conservation purposes include but are not limited to protecting 
or conserving the following environmental resources or land uses:
    (A) Fish and wildlife habitats of local, regional, State, or Federal 
importance,
    (B) Floodplain and wetland areas as defined in Executive Orders 
11988 and 11990,
    (C) Highly erodible land as defined by SCS,
    (D) Important farmland, prime forest land, or prime rangeland as 
defined in Departmental Regulation 9500-3, Land Use Policy,
    (E) Aquifer recharge areas of local, regional or State importance,
    (F) Areas of high water quality or scenic value, and
    (G) Historic and cultural properties.
    (ii) Development rights may be sold for conservation purposes for 
their market value directly to a unit of local or State governmental or 
a private nonprofit organization by negotiation.
    (iii) An easement, restriction or the equivalent thereof may be 
granted or

[[Page 289]]

sold for less than market value to a unit of local, State, Federal 
government or a private nonprofit organization for conservation 
purposes. If such a conveyance will adversely affect the FmHA or its 
successor agency under Public Law 103-354 financial interest, the State 
Director will submit the proposal to the Administrator for approval 
unless the State Director has been delegated approval authority in 
writing from the Administrator to approve such transactions based upon 
demonstrated capability and experience in processing such conveyances. 
Factors to be addressed in formulating such a request include the 
intended conservation purpose(s) and the environmental importance of the 
affected property, the impact to the Government's financial interest, 
the financial resources of the potential purchaser or grantee and its 
normal method of acquiring similar property rights, the likely impact to 
environment should the property interest not be sold or granted and any 
other relevant factors or concerns prompting the State Director's 
request.
    (iv) Property interests under this paragraph may be conveyed by 
negotiation with any eligible recipient without giving public notice if 
the conveyance would not change program/suitable property to NP or 
surplus. Sales proceeds will be handled in accordance with Subpart B of 
Part 1951 of this chapter. Conveyances shall include terms and 
conditions which clearly specify the property interest(s) being conveyed 
as well as all appropriate restrictions and allowable uses. The 
conveyances shall also require the owner of such interest to permit the 
FmHA or its successor agency under Public Law 103-354, and any person or 
government entity designated by the FmHA or its successor agency under 
Public Law 103-354, to have access to the affected property for the 
purpose of monitoring compliance with terms and conditions of the 
conveyance. To the maximum extent possible, the conveyance should 
designate an organization or government entity for monitoring purposes. 
In developing the conveyance, the approval official shall consult with 
any State or Federal agency having special expertise regarding the 
environmental resource(s) or land uses to be protected.
    (v) For FP cases except when FmHA or its successor agency under 
Public Law 103-354 has an affirmative responsibility to place a 
conservation easement upon a farm property, easements under the 
authority of this paragraph will not be established unless either the 
rights of all prior owner(s) have been met or the prior owner(s) 
consents to the easement. Examples of instances where an affirmative 
responsibility exists to place an easement on a farm property include 
wetland and floodplain conservation easements required by Sec. 1955.137 
of this subpart or easements designed as environmental mitigation 
measures and required in the implementation of Subpart G of Part 1940 of 
this chapter for the purpose of protecting federally designated 
important environmental resources. These resources include: Listed or 
proposed endangered or threatened species, listed or proposed critical 
habitats, designated or proposed wilderness areas, designated or 
proposed wild or scenic rivers, historic or archaeological sites listed 
or eligible for listing on the National Register of Historic Places, 
coastal barriers included in Coastal Barrier Resource Systems, natural 
landmarks listed on national Registry of Natural Landmarks, and sole 
source aquifer recharge as designated by the Environmental Protection 
Agency.
    (vi) For FP cases whenever a request is made for an easement under 
the authority of this paragraph and such request overlaps an area upon 
which FmHA or its successor agency under Public Law 103-354 has an 
affirmative responsibility to place an easement, that required portion 
of the easement, either in terms of geographical extent or content, will 
not be considered to adversely impact the value of the farm property.
    (4) A copy of the conveyance instrument will be retained in the 
County or District Office inventory file. The grantee is responsible for 
recording the instrument.
    (b) Mineral and water rights, mineral lease interests, air rights, 
and agricultural or other leases. (1) Mineral and water rights, mineral 
lease interests, mineral

[[Page 290]]

royalty interests, air rights, and agricultural and other lease 
interests will be sold with the surface land and will not be sold 
separately, except as provided in paragrah (a) of this section and in 
Sec. 1955.66(a)(2)(iii) of Subpart B of Part 1955 of this chapter. If 
the land is to be sold in separate parcels, any rights or interests that 
apply to each parcel will be included with the sale.
    (2) Lease or royalty interests not passing by deed will be assigned 
to the purchaser when property is sold. The County Supervisor or 
District Director, as applicable, will notify the lessee or payor of the 
assignment. A copy of this notice will be furnished to the purchaser.
    (3) The value of such rights, interests or leases will be considered 
when the property is appraised.
    (c) Transfer of FSA inventory property for conservation purposes. 
(1) In accordance with the provisions of this paragraph, FSA may 
transfer, to a Federal or State agency for conservation purposes (as 
defined in paragraph (a)(3)(i) of this section), inventory property, or 
an interest therein, meeting any one of the following three criteria and 
subject only to the homestead protection rights of all previous owners 
having been met.
    (i) A predominance of the land being transferred has marginal value 
for agricultural production. This is land that NRCS has determined to be 
either highly erodible or generally not used for cultivation, such as 
soils in classes IV, V, VII or VIII of NRCS's Land Capability 
Classification, or
    (ii) A predominance of land is environmentally sensitive. This is 
land that meets any of the following criteria:
    (A) Wetlands, as defined in Executive Order 11990 and USDA 
Regulation 9500.
    (B) Riparian zones and floodplains as they pertain to Executive 
Order 11988.
    (C) Coastal barriers and zones as they pertain to the Coastal 
Barrier Resources Act or Coastal Zone Management Act.
    (D) Areas supporting endangered and threatened wildlife and plants 
(including proposed and candidate species), critical habitat, or 
potential habitat for recovery pertaining to the Endangered Species Act.
    (E) Fish and wildlife habitats of local, regional, State or Federal 
importance on lands that provide or have the potential to provide 
habitat value to species of Federal trust responsibility (e.g., 
Migratory Bird Treaty Act, Anadromous Fish Conservation Act).
    (F) Aquifer recharges areas of local, regional, State or Federal 
importance.
    (G) Areas of high water quality or scenic value.
    (H) Areas containing historic or cultural property; or
    (iii) A predominance of land with special management importance. 
This is land that meets the following criteria:
    (A) Lands that are in holdings, lie adjacent to, or occur in 
proximity to, Federally or State-owned lands or interest in lands.
    (B) Lands that would contribute to the regulation of ingress or 
egress of persons or equipment to existing Federally or State-owned 
conservation lands.
    (C) Lands that would provide a necessary buffer to development if 
such development would adversely affect the existing Federally or State-
owned lands.
    (D) Lands that would contribute to boundary identification and 
control of existing conservation lands.
    (2) When a State or Federal agency requests title to inventory 
property, the State Executive Director will make a preliminary 
determination as to whether the property can be transferred.
    (3) If a decision is made by the State Executive Director to deny a 
transfer request by a Federal or State agency, the requesting agency 
will be informed of the decision in writing and informed that they may 
request a review of the decision by the FSA Administrator.
    (4) When a State or Federal agency requests title to inventory 
property and the State Executive Director determines that the property 
is suited for transfer, the following actions must be taken prior to 
approval of the transfer:
    (i) At least two public notices must be provided. These notices will 
be published in a newspaper with a wide circulation in the area in which 
the requested property is located. The notice

[[Page 291]]

will provide information on the proposed use of the property by the 
requesting agency and request any comments concerning the negative or 
positive aspects of the request. A 30-day comment period should be 
established for the receipt of comments.
    (ii) If requested, at least one public meeting must be held to 
discuss the request. A representative of the requesting agency should be 
present at the meeting in order to answer questions concerning the 
proposed conservation use of the property. The date and time for a 
public meeting should be advertised.
    (iii) Written notice must be provided to the Governor of the State 
in which the property is located as well as at least one elected 
official of the county in which the property is located. The 
notification should provide information on the request and solicit any 
comments regarding the proposed transfer. All procedural requirements in 
paragraph (c) (3) of this section must be completed in 75 days.
    (5) Determining priorities for transfer or inventory lands.
    (i) A Federal entity will be selected over a State entity.
    (ii) If two Federal agencies request the same land tract, priority 
will be given to the Federal agency that owns or controls property 
adjacent to the property in question or if this is not the case, to the 
Federal agency whose mission or expertise best matches the conservation 
purposes for which the transfer would be established.
    (iii) In selecting between State agencies, priority will be given to 
the State agency that owns or controls property adjacent to the property 
in question or if that is not the case, to the State agency whose 
mission or expertise best matches the conservation purpose(s) for which 
the transfer would be established.
    (6) In cases where land transfer is requested for conservation 
purposes that would contribute directly to the furtherance of 
International Treaties or Plans (e.g., Migratory Bird Treaty Act or 
North American Waterfowl Management Plan), to the recovery of a listed 
endangered species, or to a habitat of National importance (e.g., 
wetlands as addressed in the Emergency Wetlands Resources Act), priority 
consideration will be given to land transfer for conservation purposes, 
without reimbursement, over other land disposal alternatives.
    (7) An individual property may be subdivided into parcels and a 
parcel can be transferred under the requirements of this paragraph as 
long as the remaining parcels to be sold make up a viable sales unit, 
suitable or surplus.
[50 FR 23904, June 7, 1985, as amended at 51 FR 13479, Apr. 21, 1986; 53 
FR 27838, July 25, 1988; 53 FR 35781, Sept. 14, 1988; 57 FR 36592, Aug. 
14, 1992; 62 FR 44403, Aug. 21, 1997]



Sec. 1955.140  Sale in parcels.

    (a) Individual property subdivided. An individual property, other 
than Farm Credit Programs property, may be offered for sale as a whole 
or subdivided into parcels as determined by the State Director. For MFH 
property, guidance will be requested from the National Office for all 
properties other than RHS projects. When farm inventory property is 
larger than a family-size farm, the county official will subdivide the 
property into one or more tracts to be sold in accordance with 
Sec. 1955.107 of this subpart. Division of the land or separate sales of 
portions of the property, such as timber, growing crops, inventory for 
small business enterprises, buildings, facilities, and similar items may 
be permitted if a better total price for the property can be obtained in 
this manner. Environmental effects should also be considered pursuant to 
subpart G of part 1940 of this chapter. Any applicable State laws will 
be set forth in a State supplement and will be complied with in 
connection with the division of land. Subdivision of acquired property 
will be reported on Form RD 1955-3C, ``Acquired Property--Subdivision,'' 
in accordance with the FMI.
    (b) Grouping of individual properties. The county official for FCP 
cases, and the State Director for all other cases, may authorize the 
combining of two or more individual properties into a single parcel for 
sale as a suitable program property.
[62 FR 44403, Aug. 21, 1997]



Sec. 1955.141  Transferring title.

    (a)-(c) [Reserved]

[[Page 292]]

    (d) Rent increases for MFH property. After approval of a credit sale 
for an occupied MFH project, but prior to closing, the purchaser will 
prepare a realistic budget for project operation (and a utility 
allowance, if applicable) to determine if a rent increase may be needed 
to continue or place project operations on a sound basis. Exhibit C of 
Subpart C of Part 1930 of this chapter will be followed in processing 
the request for a rent increase. In processing the rent increase, the 
purchaser will have the same status as a borrower. An approved rent 
increase will be effective on or after the date of closing.
    (e) Interest credit and rental assistance for MFH property. Interest 
credit and rental assistance may be granted to program applicants 
purchasing MFH properties in accordance with the provisions of Exhibit E 
of subpart C of part 1930 of this chapter.
[53 FR 27838, July 25, 1988, as amended at 56 FR 2257, Jan. 22, 1991; 57 
FR 36592, Aug. 14, 1992; 60 FR 34455, July 3, 1995]



Secs. 1955.142-1955.143  [Reserved]



Sec. 1955.144  Disposal of NP or surplus property to, through, or acquisition from other agencies.

    (a) Property which cannot be sold. If NP or surplus real or chattel 
property cannot be sold (or only token offers are received for it), the 
appropriate Assistant Administrator shall give consideration to 
disposing of the property to other Federal Agencies or State or local 
governmental entities through the General Services Administration (GSA). 
Chattel property will be reported to GSA using Standard Form 120, 
``Report of Excess Personal Property,'' with transfer documented by 
Standard Form 122, ``Transfer Order Excess Personal Property.'' Real 
property will be reported to GSA using Standard Form 118, ``Report of 
Excess Real Property,'' Standard Form 118A, ``Buildings, Structures, 
Utilities and Miscellaneous Facilities (Schedule A),'' Standard Form 
118B, ``Land (Schedule B)'' and Standard Form 118C, ``Related Personal 
Property (Schedule B), '' with final disposition documented by a 
``Receiving Report,'' executed by the recipient with original forwarded 
to the Finance Office and a copy retained in the inventory file. Forms 
and preparation instructions will be obtained from the appropriate GSA 
Regional Office by the State Office.
    (b) Urban Homesteading Program (UH). Section 810 of the Housing and 
Community Development Act of 1979, as amended, authorizes the Secretary 
of Housing and Urban Development (HUD) to pay for acquired FmHA or its 
successor agency under Public Law 103-354 single family residential 
properties sold through the HUD-UH Program. Local governmental units may 
make application through HUD to participate in the UH Program. State 
Directors will be notified by the Assistant Administrator for Housing, 
when local governmental units in their States have obtained funding for 
the UH Program. The notification will provide specific guidance in 
accordance with the ``Memorandum of Agreement between the Farmers Home 
Administration or its successor agency under Public Law 103-354 and the 
Secretary of Housing and Urban Development'' dated October 2, 1981. (See 
Exhibit C of this subpart.) A Local Urban Homesteading Agency (LUHA) is 
authorized a 10 percent discount of the listed price on any SFH 
nonprogram property for the UH Program. No discount is authorized on 
program property.
[50 FR 23904, June 7, 1985, as amended at 53 FR 27839, July 25, 1988; 55 
FR 3943, Feb. 6, 1990]

    Editorial Note: At 60 FR 34455, July 3, 1995, Sec. 1955.144 was 
amended by removing the second through the fourth sentences. However, 
there are no undesignated paragraphs in the 1995 edition of this volume.



Sec. 1955.145  Land acquisition to effect sale.

    The State Director is authorized to acquire land which is necessary 
to effect sale of inventory real property. This action must be 
considered only on a case-by-case basis and may not be undertaken 
primarily to increase the financial return to the Government through 
speculation. The State Director's authority under this section may not 
be redelegated. For MFH and other organization-type loans, prior 
approval must be obtained from the appropriate Assistant Administrator 
prior to land acquisition.

[[Page 293]]

    (a) Alternate site. Where real property has been determined to be NP 
due to location and where it is economically feasible to relocate the 
structure thereby making it a program property, the State Director may 
authorize the acquisition of a suitable parcel of land to relocate the 
structure if economically feasible. The remaining NP parcel of land will 
be sold for its market value.
    (b) Additional land. Where real property has been determined NP for 
reasons that may be cured by the acquisition of adjacent land or an 
alternate site, in order to cure title defects or encroachments or where 
structures have been built on the wrong land and where it is 
economically feasible, the State Director may authorize the acquisition 
of additional land at a price not in excess of its market value.
    (c) Easements or rights-of-way. The State Director may authorize the 
acquisition of easements, rights-of-way or other interests in land to 
cure title defects, encroachments or in order to make NP property a 
program property, if economically feasible.
[53 FR 27839, July 25, 1988]



Sec. 1955.146  Advertising.

    (a) General. When property is being sold by FmHA or its successor 
agency under Public Law 103-354 or through real estate brokers, it is 
the servicing official's responsibility to ensure adequate advertising 
of property to achieve a timely sale. The primary means of 
advertisements are newspaper advertisements in accordance with FmHA or 
its successor agency under Public Law 103-354 Instruction 2024-F 
(available in any FmHA or its successor agency under Public Law 103-354 
office), public notice using Form FmHA or its successor agency under 
Public Law 103-354 1955-41, ``Notice of Sale,'' and notification of 
known interested parties. Other innovative means are encouraged, such as 
the use of a bulletin board to display photographs of inventory 
properties for sale with a brief synopsis of the property attached; 
posting Forms FmHA or its successor agency under Public Law 103-354 
1955-40 or FmHA or its successor agency under Public Law 103-354 1955-
43, as appropriate, in the reception area to attract applicant and 
broker interest; posting notices of sale at employment centers; door-to-
door distribution of sales notices at apartment complexes; radio and/or 
television spots; group meetings with potential applicants/investors/
real estate brokers; and advertisements in magazines and other 
periodicals. If FmHA or its successor agency under Public Law 103-354 
personnel are not available to perform these services, FmHA or its 
successor agency under Public Law 103-354 may contract for such services 
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).
    (b) Large-value and complex properties. Advertising for MFH, B&I and 
other large-value or complex properties should also be placed in 
appropriate newspapers and publications designed to reach the type of 
particular purchasers most likely to be interested in the inventory 
property. The State Director will assist the District Director in 
determining the scope of advertising necessary to adequately market 
these properties. Advertising for MFH and other complex properties must 
also include appropriate language stressing the need to obtain and 
submit complete application materials for the type program involved.
    (c) MFH restrictive-use provisions. Advertisements for multi-family 
housing projects will advise prospective purchasers of any restrictive-
use requirements that will be attached to the project and added to the 
title of the property.
    (d) Racial and socio-economic considerations. In accordance with the 
policies set forth in Sec. 1901.203(c) of subpart E of part 1901 of this 
chapter, the approval official will make a special effort to insure that 
those prospective purchasers in the marketing area who traditionally 
would not be expected to apply for housing assistance because of 
existing racial or socio-economic patterns are reached.
    (e) Rejected application for SFH loan. If an application for a SFH 
loan is being rejected because income is too high, a statement should be 
included in the rejection letter that inventory properties

[[Page 294]]

may be available for which they may apply.
[50 FR 23904, June 7, 1985, as amended at 53 FR 27839, July 25, 1988; 58 
FR 38928, July 21, 1993]



Sec. 1955.147  Sealed bid sales.

    This section provides guidance on the sale of all FmHA or its 
successor agency under Public Law 103-354 inventory property, except 
suitable FP real property which will not be sold by sealed bid. Before a 
sealed bid sale, the State Director will determine and document the 
minimum sale price acceptable. In determining a minimum sale price, the 
State Director will consider the length of time the property has been in 
inventory, previous marketing efforts, the type property involved, and 
potential purchasers. Program financing will be offered on sales of 
program and suitable property. For NP or surplus property, credit may be 
extended to facilitate the sale. When a group of properties is to be 
sold at one time, advertising may indicate that FmHA or its successor 
agency under Public Law 103-354 will consider bids on an individual 
property or a group of properties and FmHA or its successor agency under 
Public Law 103-354 will accept the bid or bids which are in the best 
financial interest of the Government. Credit, however, may not exceed 
the market value of the property nor may the term exceed the period for 
which the property will serve as adequate security. Sealed bids will be 
made on Form FmHA or its successor agency under Public Law 103-354 1955-
46 with any accompanying deposit in the form ofcashier's check, 
certified check, postal or bank money order or bank draft payable to 
FmHA or its successor agency under Public Law 103-354. For program and 
suitable property, the minimum deposit will be the same as outlined in 
Sec. 1955.130(e)(1) of this subpart. For NP or surplus property, the 
minimum deposit will be ten percent (10%). The bid will be considered 
delivered when actually received at the FmHA or its successor agency 
under Public Law 103-354 office. All bids will be date and time stamped. 
Advertisements and notices will request bidders to submit their bid in a 
sealed envelope marked as follows:

SEALED BID OFFER __________*__________.'' (*Insert ``PROPERTY 
IDENTIFICATION NUMBER __________).

    (a) Opening bids. Sealed bids will be held in a secured file before 
bid opening which will be at the place and time specified in the notice. 
The bid opening will be public and usually held at the FmHA or its 
successor agency under Public Law 103-354 office. The County Supervisor, 
District Director, or State Director or his/her designee will open the 
bids with at least one other FmHA or its successor agency under Public 
Law 103-354 employee present. Each bid received will be tabulated 
showing the name and address of the bidder, the amount of the bid, the 
amount and form of the deposit, and any conditions of the bid. The 
tabulation will be signed by the County Supervisor, District Director or 
State Director or his/her designee and retained in the inventory file.
    (b) Successful bids. The highest complying bid meeting the minimum 
established price will be accepted by the approval official; however, it 
will be subject to loan approval by the appropriate official when a 
credit sale is involved. For SFH and FP (surplus property) sales, 
preference will be given to a cash offer on NP or surplus property sales 
which is at least ____*____ percent of the highest offer requiring 
credit [*Refer to Exhibit B of FmHA or its successor agency under Public 
Law 103-354 Instruction 440.1 (available in any FmHA or its successor 
agency under Public Law 103-354 office) for the current percentage.] 
Otherwise, equal bids will be accepted by public lot drawing. For 
program or suitable property sales, no preference will be given to 
program purchasers unless two identical high bids are received, in which 
case the bid from the program purchaser will receive preference. If a 
bid is received from any purchaser with a request for credit that 
(considering any deposit) exceeds the market value of the property or 
requests a term which exceeds the period for which the property will 
serve as adequate security, the bidder will be given the opportunity to 
reduce the credit request and/or term with no accompanying change in the 
offered price.

[[Page 295]]

    (c) Unsuccessful bids. Deposits of unsuccessful bidders will be 
returned by certified mail with letter of explanation, return receipt 
requested. If there were no acceptable bids, the letter will advise each 
bidder of any anticipated negotiations for the sale of the property and 
deposits will be returned.
    (d) Disqualified bids. Any bid that does not comply with the terms 
of the offer will be disqualified. Minor deviations and defects in bid 
submission may be waived by the FmHA or its successor agency under 
Public Law 103-354 official approving the sale.
    (e) Failure to close. If a successful bidder fails to perform under 
the terms of the offer, the bid deposit will be retained as full 
liquidated damages and will be remitted according to Instruction FmHA or 
its successor agency under Public Law 103-354 1951-B (available in any 
FmHA or its successor agency under Public Law 103-354 office) for 
application to the General Fund. However, if a credit sale complying 
with the FmHA or its successor agency under Public Law 103-354 notice is 
an element of the offer and FmHA or its successor agency under Public 
Law 103-354 disapproves the credit application, then the bid deposit 
will be returned to the otherwise successful bidder. Upon determination 
that the successful bidder will not close, the State Director may 
authorize either another sealed bid or auction sale of direct 
negotiations with the next highest bidder, all available unsuccessful 
bidders, or other interested parties.
    (f) No acceptable bid. Where no acceptable bid is received although 
adequate competition is evident, the State Director may authorize a 
negotiated sale in accordance with Sec. 1955.108(d) of this subpart.
[50 FR 23904, June 7, 1985, as amended at 53 FR 27839, July 25, 1988; 54 
FR 6875, Feb. 15, 1989; 55 FR 3943, Feb. 6, 1990]



Sec. 1955.148  Auction sales.

    This section provides guidance on the sale of all inventory property 
by auction, except FSA real property. Before an auction, the State 
Director, with the advice of the National Office for organizational 
property, will determine and document the minimum sale price acceptable. 
In determining a minimum sale price, the State Director will consider 
the length of time the property has been in inventory, previous 
marketing efforts, the type property involved, and potential purchasers. 
Program financing will be offered on sales of program and property. For 
NP property, credit may be offered to facilitate the sale. Credit, 
however, may not exceed the market value of the property nor may the 
term exceed the period for which the property will serve as adequate 
security. For program property sales, no preference will be given to 
program purchasers. The State Director will also consider whether an 
Agency employee will conduct an auction or whether the services of a 
professional auctioneer are necessary due to the complexity of the sale. 
When the services of a professional auctioneer are advisable, the 
services will be procured by contract in accordance with RD Instruction 
2024-A (available in any Agency Office). Chattel property may be sold at 
public auction that is widely advertised and held on a regularly 
scheduled basis without solicitation. Form RD 1955-46 will be used for 
auction sales. At the auction, successful bidders will be required to 
make a bid deposit. For program and suitable property, the bid deposit 
will be the same as outlined in Sec. 1955.130(e)(1) of this subpart. For 
NP property sales, a bid deposit of 10 percent is required. Deposits 
will be in the form of cashier's check, certified check, postal or bank 
money order or bank draft payable to the Agency, cash or personal checks 
may be accepted when deemed necessary for a successful auction by the 
person conducting the auction. Where credit sales are authorized, all 
notices and publicity should provide for a method of prior approval of 
credit and the credit limit for potential purchasers. This may include 
submission of letters of credit or financial statements prior to the 
auction. The auctioneer should not accept a bid which requests credit in 
excess of the market value. When the highest bid is lower than the 
minimum amount acceptable to the Agency, negotiations should be 
conducted with the highest bidder or in turn, the next highest bidder or 
other persons to obtain an executed bid at

[[Page 296]]

the predetermined minimum. Upon purchaser's default, the approval 
official will remit the bid deposit as a Miscellaneous Collection 
according to RD Instruction 1951-B (available in any agency office). The 
bid deposit will be remitted only when the bidder defaults; otherwise it 
will be used at closing towards a down payment or closing costs, as 
applicable. The closing will be conducted in accordance with the 
procedures prescribed in this subpart for the type property and program 
involved.
[62 FR 44404, Aug. 21, 1997]



Sec. 1955.149  Exception authority.

    (a) The Administrator may, in individual cases, make an exception to 
any requirement or provision of this subpart or address any omission of 
this subpart which is not inconsistent with the authorizing statute or 
other applicable law if the Administrator determines that the 
Government's interest would be adversely affected or the immediate 
health and/or safety of tenants or the community are endangered if there 
is no adverse effect on the Government's interest. The Administrator 
will exercise this authority upon request of the State Director with 
recommendation of the appropriate program Assistant Administrator or 
upon request initiated by the appropriate program Assistant 
Administrator. Requests for exceptions must be made in writing and 
supported with documentation to explain the adverse effect, propose 
alternative courses of action, and show how the adverse effect will be 
eliminated or minimized if the exception is granted.
    (b) The Administrator may authorize withholding sale of surplus farm 
inventory property temporarily upon making a determination that sales 
would likely depress real estate market and preclude obtaining at that 
time the best price for such land.



Sec. 1955.150  State supplements.

    State Supplements will be prepared with the assistance of OGC as 
necessary to comply with State laws or only as specifically authorized 
in this Instruction to provide guidance to FmHA or its successor agency 
under Public Law 103-354 officials. State Supplements applicable to MFH, 
B&I, and CP must have prior approval of the National Office. Request for 
approval for those affecting MFH must include complete justification, 
citations of State law, and an opinion from OGC.

Exhibit A to Subpart C--Notice of Flood, Mudslide Hazard or Wetland Area

TO:________
DATE:________
    This is to notify you that the real property located at ____________ 
is in a floodplain, wetland or area identified by the Federal Insurance 
Administration of the Federal Emergency Management Agency as having 
special flood or mudslide hazards. This identification means that the 
area has at least one percent chance of being flooded or affected by 
mudslide in any given year. For floodplains and wetlands on the 
property, restrictions are being imposed. Specific designation(s) of 
this property is(are) (special flood) (mudslide hazard) (wetland)*. The 
following restriction(s) on the use of the property will be included in 
the conveyance and shall apply to the purchasers, purchaser's heirs, 
assigns and successors and shall be construed as both a covenant running 
with the property and as equitable servitude subject to release by the 
Farmers Home Administration or its successor agency under Public Law 
103-354 (FmHA or its successor agency under Public Law 103-354) when/if 
no longer applicable:

(INSERT RESTRICTIONS)

    The FmHA or its successor agency under Public Law 103-354 will 
increase the number of acres placed under easement, if requested in 
writing, provided that the request is supported by a technical 
recommendation of the U.S. Fish and Wildlife Service. Where additional 
acreage is accepted by FmHA or its successor agency under Public Law 
103-354 for conservation easement, the purchase price of the inventory 
farm will be adjusted accordingly.
 _______________________________________________________________________
(County Supervisor, District Director or Real Estate Broker)
ACKNOWLEDGEMENT________
DATE:________
    I hereby acknowledge receipt of the notice that the above stated 
real property is in a (special flood) (mudslide hazard) (wetland) * area 
and is subject to use restrictions as above cited. [Also, if I purchase 
the property through a credit sale, I agree to insure the property 
against loss from (floods) (mudslide) * in accordance with requirements 
of the FmHA or its successor agency under Public Law 103-354.]
 _______________________________________________________________________
(Prospective Purchaser)


[[Page 297]]


* Delete the hazard that does not apply.
[57 FR 31644, July 17, 1992]



PART 1956--DEBT SETTLEMENT--Table of Contents




                          Subpart A--[Reserved]

 Subpart B--Debt Settlement--Farm Loan Programs and Multi-Family Housing

Sec.
1956.51  Purpose.
1956.52--1956.53  [Reserved]
1956.54  Definitions.
1956.55--1956.56  [Reserved]
1956.57  General provisions.
1956.58--1956.65  [Reserved]
1956.66  Compromise and adjustment of nonjudgment debts.
1956.67  Debts which the debtor is able to pay in full but refuses to do 
          so.
1956.68  Compromise or adjustment without debtor's signature.
1956.69  [Reserved]
1956.70  Cancellation.
1956.71  Settling uncollectible recapture receivables.
1956.72--1956.74  [Reserved]
1956.75  Chargeoff.
1956.76--1956.83  [Reserved]
1956.84  Approval or rejection.
1956.85  Payments and receipts.
1956.86--1956.95  [Reserved]
1956.96  Delinquent adjustment agreements.
1956.97  Disposition of promissory notes.
1956.98  [Reserved]
1956.99  Exception authority.
1956.100  OMB control number.

       Subpart C--Debt Settlement--Community and Business Programs

1956.101  Purposes.
1956.102  Application of policies.
1956.103--1956.104  [Reserved]
1956.105  Definitions.
1956.106--1956.108  [Reserved]
1956.109  General requirements for debt settlement.
1956.110  Joint debtors.
1956.111  Debtors in bankruptcy.
1956.112  Debts ineligible for settlement.
1956.113--1956.117  [Reserved]
1956.118  Approval authority.
1956.119--1956.123  [Reserved]
1956.124  Compromise and adjustment.
1956.125--1956.129  [Reserved]
1956.130  Cancellation.
1956.131--1956.135  [Reserved]
1956.136  Chargeoff.
1956.137  Adjustment of unpaid principal--Indian Tribal Land Acquisition 
          loans.
1956.138  Processing.
1956.139  Collections.
1956.140--1956.141  [Reserved]
1956.142  Delinquent adjustment agreements.
1956.143  Debt restructuring--hospitals and health care facilities.
1956.144  [Reserved]
1956.145  Disposition of essential FmHA or its successor agency under 
          Public Law 103-354 records.
1956.146  [Reserved]
1956.147  Debt settlement under the Federal Claims Collection Act.
1956.148  Exception authority.
1956.149  [Reserved]
1956.150  OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 31 U.S.C. 3711; 42 U.S.C. 
1480.

    Source: 51 FR 45434, Dec. 18, 1986, unless otherwise noted.



                          Subpart A--[Reserved]



 Subpart B--Debt Settlement--Farm Loan Programs and Multi-Family Housing

    Source: 56 FR 10147, Mar. 11, 1991, unless otherwise noted.



Sec. 1956.51  Purpose.

    This subpart delegates authority and prescribes policy and 
procedures for settlement of debts owed to the United States under the 
Farm Credit loan programs of the Farm Service Agency (FSA) and the 
Multi-Family Housing (MFH) program of the Rural Housing Service (RHS). 
It also applies to Nonprogram (NP) loans secured by MFH property of the 
RHS. Settlement of claims against recipients of grant funds for reasons 
such as the use of funds for improper purposes is also covered by this 
subpart. Settlement of claims against third party converters, and 
Economic Opportunity (EO) loans is authorized under the Federal Claims 
Collection Standards, 4 CFR parts 101-105. This subpart does not apply 
to RHS direct Single Family Housing (SFH) loans or RHS NP loans secured 
by SFH property.
[61 FR 59779, Nov. 22, 1996]



Secs. 1956.52--1956.53  [Reserved]



Sec. 1956.54  Definitions.

    Adjustment. The reduction of a debt or claim conditioned upon 
completion of payment of the adjusted amount at a specific future time 
or times, with or

[[Page 298]]

without the payment of any consideration when the adjustment offer is 
approved. An adjustment is not a final settlement until all payments 
under the adjustment agreement(s) have been made.
    Amount of debt. The outstanding balance of the amount loaned 
including principal and interest plus any outstanding advances, 
including interest, and subsidy to be recaptured made by the Government 
on behalf of the borrower.
    Cancellation. The final discharge of a debt without any payment on 
it.
    Chargeoff. The writing off of a debt and termination of collection 
activity without release of personal liability.
    Compromise. The satisfaction of a debt or claim by the acceptance of 
a lump-sum payment of less than the total amount owed on the debt or 
claim.
    Debt forgiveness. For the purposes of servicing Farm Loan Programs 
loans, debt forgiveness is defined as a reduction or termination of a 
direct FLP loan in a manner that results in a loss to the Government. 
Included, but not limited to, are losses from a writedown or writeoff 
under subpart S of part 1951 of this chapter, debt settlement, after 
discharge under the provisions of the bankruptcy code, and associated 
with release of liability. Debt cancellation through conservation 
easements or contracts is not considered debt forgiveness for loan 
servicing purposes.
    Debtor. The borrower of funds under any of the FmHA or its successor 
agency under Public Law 103-354 programs. This includes co-signors, 
guarantors and persons or entities that initially obtained or assumed a 
loan. Debtor also includes grant recipients.
    Farm Loan Programs (FLP) loans. Farm Ownership (FO), Operating (OL), 
Soil and Water (SW), Economic Emergency (EE), Emergency (EM), Recreation 
(RL), Special Livestock (SL), Softwood Timber (ST) loans, and/or Rural 
Housing Loans for farm services buildings (RHF).
    Housing programs. All programs and claims arising under programs 
administered by FmHA or its successor agency under Public Law 103-354 
under title V of the Housing Act of 1949.
    Servicing office. The FmHA or its successor agency under Public Law 
103-354 office that is responsible for the account.
    Settlement. The compromise, adjustment, cancellation, or chargeoff 
of a debt owed to FmHA or its successor agency under Public Law 103-354. 
The term ``Settlement'' is used for convenience in referring to 
compromise, adjustment, cancellation, or chargeoff actions, individually 
or collectively.
    United States Attorney. An attorney for the United States Department 
of Justice.
[56 FR 10147, Mar. 11, 1991, as amended at 58 FR 21344, Apr. 21, 1993; 
62 FR 10157, Mar. 5, 1997]



Secs. 1956.55--1956.56  [Reserved]



Sec. 1956.57  General provisions.

    (a) Application of policies. All debtors are entitled to impartial 
treatment and uniform consideration under this subpart. Accordingly. 
FmHA or its successor agency under Public Law 103-354 personnel charged 
with any responsibility in connection with debt settlement will adhere 
strictly to the authorizations, requirements, and limitations in this 
subpart, and will not substitute individual feelings or sympathies in 
connection with any settlement.
    (b) Information needed for debt settlement. A debtor requesting debt 
settlement must submit complete and accurate information from which a 
full determination of his/her financial condition can be made. This 
should include, where applicable, but is not limited to, obtaining 
verification of employment, providing expense verification, verifying 
farm program benefits (e.g., Farm Service Agency/Commodity Credit 
Corporation payments), and examining county records to determine what 
other assets the debtor has or recently disposed of. When a FLP debtor 
is continuing to farm, a farm operating plan must be obtained. Also, 
where a spouse is not a co-debtor the spouse's income will be considered 
in meeting family living expenses. If it appears that a debtor will not 
be able to pay in full and the indebtedness is eligible for settlement 
under this subpart, action should be taken, if possible, to avoid

[[Page 299]]

unnecessary litigation to enforce collection. If the debt is eligible 
for settlement, the debt settlement authorities of FmHA or its successor 
agency under Public Law 103-354 should be explained and the privileges 
thereof extended to the debtor. The information obtained from the debtor 
should be documented on a debt settlement form.
    (c) Negotiating a settlement. County Supervisors may approve or 
reject compromises, adjustments, cancellations, or chargeoffs of SFH 
debts (to include recapture receivables), regardless of the amount. 
District Directors and County Supervisors cannot approve other debt 
settlement actions; therefore, other than SFH debt settlements, they 
will make no statements to a debtor concerning the action that may be 
taken upon a debtor's application. In negotiating a settlement, all of 
the factors which are pertinent to determining ability to pay will be 
discussed to assist the debtor in arriving at the proper type and terms 
of a settlement. The present and future repayment ability of a debtor, 
the factors mentioned in this subpart, and any other pertinent 
information will be the basis of determining whether the debt should be 
collected in full, compromised, adjusted, canceled, or charged off. It 
is impossible in cases eligible for debt settlement to forecast 
accurately the debtor's future repayment ability over a long period of 
time; consequently, the period of time during which payments on 
settlement offers are to be made should not exceed five years. Debtors 
have the right to make voluntary settlement offers in any amount should 
they elect to do so. Adjustment offers will not be approved in any case 
unless there is reasonable assurance that the debtor will be able to 
make the payments as they become due.
    (d) Disposition of property. Security may be retained by the debtor 
only under the conditions specified in Sec. 1956.66 of this subpart.
    (e) Proceeds from the disposal of security prior to approval of a 
debt settlement offer. A debtor is not required to have disposed of the 
security prior to application for debt settlement for a loan to be 
settled. However, if a debtor has disposed of security prior to applying 
for debt settlement, proceeds from the disposed security must first be 
applied on the debtor's account, irrespective of an application for debt 
settlement unless the conditions specified in Sec. 1956.66 of this 
subpart are met.
    (f) County Committee review. The County Committee will not review 
proposed settlement action for Housing Program loans. Except for the 
cancellation of those debts discharged in bankruptcy where there is no 
remaining security, proposed settlement actions for Farmer Program loans 
will be reviewed for approval or rejection by the County Committee, and 
no settlement shall be approved if it is more favorable to the debtor 
than recommended by the appropriate County Committee.
    (g) Settlement when legal or investigative action has been taken, 
recommended, or is contemplated. (1) Debts cannot be settled:
    (i) If the matter has been referred either to the Office of the 
Inspector General (OIG) under Sec. 1962.49(a) of subpart A of part 1962 
of this chapter or to Office of the General Counsel (OGC) because of 
suspected criminal violation, or criminal prosecution is pending because 
of an illegal act(s) committed by the debtor in connection with the debt 
or the security for that debt, the procedure outlined in paragraph 
(g)(3) of this section will be followed, unless, the OIG has declined to 
investigate the matter or, OGC has advised otherwise, or the case is in 
the hands of the United States Attorney.
    (ii) If a request for referral to the United States Attorney to 
institute a civil action to protect the interest of the Government has 
been made by FmHA or its successor agency under Public Law 103-354.
    (iii) Except as provided in paragraph (g)(3) of this section, if the 
case has been referred to the United States Attorney and is not closed.
    (2) If a debtor's account is involved in a fiscal irregularity 
investigation in which final action has not been taken or the account 
shows evidence that a shortage may exist and an investigation will be 
requested, the account will not be approved for settlement.
    (3) When a claim has been referred to, or a judgment has been 
obtained by the

[[Page 300]]

United States Attorney, and the debtor requests settlement, the employee 
in charge of the account will explain to the debtor that the United 
States Attorney has exclusive jurisdiction over the claim or judgment, 
that FmHA or its successor agency under Public Law 103-354 has no 
authority to agree to a settlement offer when the United States 
Attorney's file is not closed, and that if the debtor wishes to make a 
compromise or adjustment offer when the United States Attorney's file is 
not closed, if will be submitted with any related payment directly to 
the United States Attorney for a decision on the settlement offer.
    (h) Advice from OGC. State Directors will obtain, when necessary, 
advice from the OGC in handling proposed debt settlement actions which 
involve legal problems.
    (i) Settlement of claims against estates. Settlement of a claim 
against an estate under the provisions of this subpart will be based on 
the recovery that may reasonably be expected, taking into consideration 
such items as the security, costs of administration, allowances of minor 
children and surviving spouse, allowable funeral expenses, and dower and 
courtesy rights, and specific encumbrances on the property having 
priority over claims of the Government.
    (j) Joint debtors. Settlement may not be approved for one joint 
debtor unless approved for all debtors. ``Joint debtors'' includes all 
parties (individuals, partnerships, joint operators, cooperatives, 
corporations, estates) who are legally liable for payment of the debt.
    (1) Separate and individual adjustment offers from joint debtors 
must be accepted and processed only as a joint offer. Joint debtors must 
be advised that all debtors will remain liable for the balance of the 
debt until all payments due under the joint offer have been made.
    (2) A separate Form FmHA or its successor agency under Public Law 
103-354 1956-1 will be completed by each debtor, unless the debtors are 
members of the same family and all necessary financial information on 
each debtor can be shown clearly on a single application. Separate 
applications will be sent to the State Office as a unit.
    (3) If one debtor applies for compromise, adjustment, or 
cancellation, or if the debt is to be charged off, and the other 
debtor(s) is deceased or has received a discharge of the debt in 
bankruptcy, or the whereabouts of the other debtor(s) is unknown, or it 
is impossible or impracticable to obtain the signature of the other 
debtor(s), Form FmHA or its successor agency under Public Law 103-354 
1956-1 or Form FmHA or its successor agency under Public Law 103-354 
1956-2 (for housing loans) ``Cancellation or Charge-off of FmHA or its 
successor agency under Public Law 103-354 Indebtedness,'' will be 
prepared by showing at the top of the form the name of the debtor 
requesting settlement, following by the name of the other debtor.
    For example, ``John Doe, joint debtor with Bill Doe, deceased,'' 
``John Doe, joint debtor with Sam Doe, discharged in bankruptcy,'' 
``John Doe, joint debtor with Mary Doe, impossible or impracticable to 
obtain signature,'' as appropriate. In addition to the information 
concerning settlement of the debt by the applicant, information which 
justifies settlement of the debt as to the debtor(s) not joining in the 
application will be shown on Form FmHA or its successor agency under 
Public Law 103-354 1956-1, or 1956-2 for housing loans.
    (k) Settlement where debtor owes more than one type of Agency loan. 
It is not the policy to settle any loan indebtedness of a debtor who is 
also indebted on another agency loan and who will continue as an active 
borrower. In such case, the facts will be fully documented in part VIII 
of Form RD 1956-1.
    (l) No previous debt forgiveness. Debt settlement may not be 
approved for any direct Farm Loan Programs loan if the borrower has 
received debt forgiveness on any other direct loan as defined in 
Sec. 1956.54 of this subpart.
[56 FR 10147, Mar. 11, 1991, as amended at 58 FR 21344, Apr. 21, 1993; 
62 FR 10157, Mar. 5, 1997]



Secs. 1956.58--1956.65  [Reserved]



Sec. 1956.66  Compromise and adjustment of nonjudgment debts.

    Nonjudgment debts which the debtor is unable to pay may be 
compromised

[[Page 301]]

or adjusted in accordance with applicable provisions of this section, 
and the debtor may retain the security property, if any. Application 
will be made on Form RD 1956-1 by the debtor; or if the debtor is unable 
to act, by another party having legal authority to act for the debtor. 
Collection of a lump sum offer may be deferred until the debtor is 
advised that the offer is approved. Upon full payment of the approved 
compromise or adjustment amount, the Agency will release the debtor from 
liability by delivering the note(s) to the debtor stamped ``Satisfied by 
compromise or adjustment.''
    (a) FLP debts. The debt or any extension thereof on which compromise 
or adjustment is requested does not have to be due and payable under the 
terms of the note or other instrument, or because of acceleration by 
written notice prior to the date of application. Nonjudgment secured FLP 
debts may be compromised or adjusted in accordance with the following 
conditions:
    (1) Security may be retained by the debtor if the debtor offers an 
amount at least equal to the current fair market value (including any 
crop security) less any prior lien amounts. Any remaining unsecured debt 
may be debt settled.
    (2) Where the debtor is able to pay an amount in excess of the lump 
sum compromise offer, an adjustment offer must call for a lump sum 
payment as set out in paragraph (a)(1) of this section, plus any 
additional amounts the Agency determines the debtor is able to pay over 
a period of time not to exceed 5 years.
    (3) The acceptability of a compromise or adjustment offer will be 
arrived at by determining and evaluating:
    (i) Statement of indebtedness owed on any prior liens. Statements 
will be retained in the debtor's file.
    (ii) Value of existing security as determined by a current appraisal 
made or obtained by the Agency. The appraisal will be retained in the 
debtor's file.
    (iii) Debtor's total present income and probable sources, amount and 
stability of income over the next 5 years. Old age pensions, other 
public assistance, and veteran's disability pensions will not be 
considered as sources of funds for making compromise and adjustment 
offers.
    (iv) Amount of debtor's other debts.
    (v) Amount of debtor's essential family living expenses, and farm or 
business operation expenses necessary to continue the operation, if 
applicable.
    (vi) Age and health when the debtor is largely depending on income 
from an occupation where manual labor is required.
    (vii) Size of debtor's family, their ages and health.
    (viii) Value of debtor's assets in relation to debts and liens of 
third parties. Reasonable equity in a modest nonsecurity homestead 
occupied by the debtor will not be considered as available for 
settlement. Nonsecurity property in excess of minimum family living 
needs which is not exempt from levy and execution should be considered 
in determining the debtor's ability to pay.
    (b) Housing debts (both Single-family and Multi-family). Nonjudgment 
secured debts may be compromised or adjusted as follows:
    (1) The debt is fully matured under the terms of the note or other 
instrument; or has been accelerated by written notice prior to the date 
of the settlement application.
    (2) A compromise offer must at least equal the value of the security 
as determined by FmHA or its successor agency under Public Law 103-354 
(less any prior liens) plus any additional amount FmHA or its successor 
agency under Public Law 103-354 determines the debtor is able to pay 
based on a current financial statement.
    (3) An adjustment offer must meet the requirements of paragraph 
(b)(2) of this section, except the debt (or the amount offered) is to be 
scheduled for payment over the shortest period FmHA or its successor 
agency under Public Law 103-354 determines is feasible based on the 
debtor's financial resources, but not to exceed 5 years.
    (c) Unsecured debts. Unsecured debts considered under this paragraph 
(c) are most frequently account balances remaining after the debtor has 
sold security property to another party/entity, the security has been 
liquidated through foreclosure, or FmHA or its successor agency under 
Public Law 103-

[[Page 302]]

354 has accepted a deed in lieu of foreclosure and the borrower was not 
released from liability. An offer to compromise or adjust an unsecured 
debt must represent the maximum amount FmHA or its successor agency 
under Public Law 103-354 determines the debtor can pay based on a 
current financial statement and other information available to FmHA or 
its successor agency under Public Law 103-354. An adjustment offer is to 
be scheduled for payment over the shortest period FmHA or its successor 
agency under Public Law 103-354 determines is feasible, but not to 
exceed 5 years.
[56 FR 10147, Mar. 11, 1991, as amended at 58 FR 21345, Apr. 21, 1993; 
62 FR 10157, Mar. 5, 1997]



Sec. 1956.67  Debts which the debtor is able to pay in full but refuses to do so.

    Debts which the debtor may have the ability to pay in full but has 
refused to do so may be compromised or adjusted in the following 
situations on Form FmHA or its successor agency under Public Law 103-354 
1956-1:
    (a) When the full amount cannot be collected because of the refusal 
of the debtor to pay the debt in full and the OGC advises that the 
Government is unable to enforce collection in full within a reasonable 
time by enforced collection proceedings, the debt may be compromised. In 
determining inability to collect, the following factors will be 
considered:
    (1) Availability of assets or income which may be realized by 
enforced collection proceedings, considering the applicable exemptions 
available to the debtor under State and Federal law.
    (2) Inheritance prospects within 5 years.
    (3) Likelihood of debtor obtaining nonexempt property or income 
within 5 years, out of which there could be collected a substantially 
larger sum than the amount of the present offer.
    (4) Uncertainty as to price the security or other property will 
bring at forced sale.
    (b) The debt may be compromised or adjusted when the OGC has advised 
in writing that:
    (1) There is a real doubt concerning the Government's ability to 
prove its case in court for the full amount of the debt, and
    (2) The amount offered represents a reasonable settlement 
considering:
    (i) The probability of prevailing on the legal issues involved.
    (ii) The probability of proving facts to establish full or partial 
recovery, with due regard to the availability of witnesses and other 
pertinent factors.
    (iii) The probable amount of court costs and attorney's fees which 
may be assessed against the Government if it is unsuccessful in 
litigation.
    (c) When the cost of collecting the debt does not justify enforced 
collection of the full amount, the amount accepted in compromise or 
adjustment may reflect an appropriate discount for administrative and 
litigation costs of collection. Such discount will not exceed $2,000 
unless the OGC advises that in the particular case a larger discount is 
appropriate. The cost of collecting may be a substantial factor in 
settling small debts but normally will not carry great weight in 
settling large debts.



Sec. 1956.68  Compromise or adjustment without debtor's signature.

    Debts of a living debtor may be compromised or adjusted if it is 
impossible or impracticable to obtain a signed application and all other 
requirements of this section applicable to compromise or adjustment with 
a signed application have been met. Form FmHA or its successor agency 
under Public Law 103-354 1956-1 will show:
    (a) The sources from which the information was obtained.
    (b) That a current effort was made to obtain the debtor's signature 
and the date(s) of such effort.
    (c) The specific reasons why it was impossible or impracticable to 
obtain the signature of the debtor and, if the debtor refused to sign, 
the reason(s) given.



Sec. 1956.69  [Reserved]



Sec. 1956.70  Cancellation.

    Nonjudgment debts may be canceled in the following instances:
    (a) With application. The debt or any extension thereof on Farmer 
Programs debts do not have to be due and payable

[[Page 303]]

under the terms of the note or other instrument, or because of 
acceleration by written notice prior to the date of application. Debts 
due the FmHA or its successor agency under Public Law 103-354 may be 
canceled upon application of the debtor, or if a debtor is unable to 
act, upon application of a guardian, executor, or administrator, subject 
to the following conditions:
    (1) The FmHA or its successor agency under Public Law 103-354 
employee in charge of the account furnishes a report and favorable 
recommendation concerning the cancellation.
    (2) There is no known security for the debt and the debtor has no 
other assets from which the debt could be collected.
    (3) The debtor is unable to pay any part of the debt and has no 
reasonable prospect of being able to do so.
    (b) Without application. Debts due the FmHA or its successor agency 
under Public Law 103-354 may be canceled upon a report and the favorable 
recommendation of the employee in charge of the account in the following 
instances:
    (1) Deceased debtors. The following conditions must exist:
    (i) There is no known security; and
    (ii) An administrator or executor has not been appointed to settle 
the debtor's estate and the financial condition of the estate has been 
investigated and it has been established that there is no reasonable 
prospect of recovery; or
    (iii) An administrator or executor has been appointed to settle the 
estate of the debtor; and
    (A) A final settlement has been made and confirmed by the probate 
court and the Government's claim was recognized properly and the 
Government has received all funds it was entitled to, or
    (B) A final settlement has not been made and confirmed by the 
probate court but there are no assets in the estate from which there is 
any reasonable prospect of recovery, or
    (C) Regardless of whether a final settlement has been made, there 
were assets in the estate from which recovery might have been affected 
but such assets have been disposed of or lost in a manner which OGC 
advises will preclude any reasonable prospect of recovery by the 
Government.
    (2) Disappeared debtors. The debt may be canceled without 
application where the debtor has no known assets or future debt-paying 
ability, has disappeared and cannot be found without undue expense, and 
there is no existing security for the debt. Reasonable efforts will be 
made to locate the debtor. These efforts will generally include 
contacts, either in person or in writing, with postmasters, motor 
vehicle licensing and title authorities, telephone directories, city 
directories, utility companies, State and local governmental agencies, 
other Federal agencies, employees, friends, and credit agency skip 
locate reports, known relatives, neighbors and County Committee members. 
Also, the debtor's loan file should be reviewed carefully for possible 
leads that may be of assistance in locating the debtor. The efforts made 
to locate the debtor, including the names and dates of contacts, and the 
information furnished by each person, will be fully documented in the 
appropriate space on Form FmHA or its successor agency under Public Law 
103-354 1956-1 or Form FmHA or its successor agency under Public Law 
103-354 1956-2 for housing loans.
    (3) Debtors discharged in bankruptcy. If there is no security for 
the debt, debts discharged in bankruptcy shall be canceled by the use of 
Form FmHA or its successor agency under Public Law 103-354 1956-1 or 
Form FmHA or its successor agency under Public Law 103-354 1956-2, for 
housing loans, with attachments as below. No attempt will be made to 
obtain the debtor's signature and County Committee review is 
unnecessary. If the debtor has executed a new promise to pay prior to 
discharge and has otherwise accomplished a valid reaffirmation of the 
debt in accordance with advice from OGC, the debt is not discharged.
    (i) Chapter 7 Bankruptcy cases will be documented with a copy of the 
``Discharge of Debtor'' order(s) by the court for all obligors.
    (ii) For debts identified as being part of an unsecured claim under 
Chapter 11, the cancellation will be documented with a copy of the 
organization plan, copy of the order by the court confirming the plan, a 
copy of the order completing the plan (a similar order), and

[[Page 304]]

an opinion by OGC that the confirming order has discharged the 
obligor(s) of liability to that part of the debt.
    (iii) For debts identified as being part of an unsecured claim under 
chapters 12 or 13, the cancellation will be documented with a copy of 
the reorganization plan and confirmation order, as above, a copy of the 
order completing the plan and closing the case, and an opinion by OGC 
that the completion order has discharged the obligor(s) of liability to 
that portion of the debt.
    (c) Signature of debtor cannot be obtained. Debts of a living debtor 
may be canceled if it is impossible or impracticable to obtain a signed 
application and the requirements in paragraph (a) of this section 
concerning cancellation with application have been met or if the debt 
has been discharged in bankruptcy and there is no security. Form FmHA or 
its successor agency under Public Law 103-354 1956-1 will state:
    (1) The sources of information obtained.
    (2) That a current effort was made to obtain the debtor's 
application and the date of such effort.
    (3) The specific reasons why it was impossible or impracticable to 
obtain the signature of the debtor and, if the debtor refused to sign, 
the reason(s) given.



Sec. 1956.71  Settling uncollectible recapture receivables.

    The settlement of uncollectible recapture receivables will be fully 
documented on a debt settlement form and retained in the case file.
[58 FR 21345, Apr. 21, 1993]



Secs. 1956.72--1956.74  [Reserved]



Sec. 1956.75  Chargeoff.

    (a) Judgment debts. Subject to the provisions of Sec. 1956.57(g)(3), 
judgment debts may be charged off by use of Form FmHA or its successor 
agency under Public Law 103-354 1956-1 or Form FmHA or its successor 
agency under Public Law 103-354 1956-2 for housing upon a report and 
favorable recommendation of the employee in charge of the account 
provided:
    (1) The United States Attorney's file is closed, and
    (2) The requirements of Sec. 1956.70(b)(2) have been met, or two 
years have elapsed since any collections were made on the judgment and 
the debtor(s) has no equity in property on which the judgment is a lien 
or on which it can presently be made a lien.
    (b) Nonjudgment debts. Debts which cannot be settled under other 
sections of this subpart may be charged off using Form FmHA or its 
successor agency under Public Law 103-354 1956-1 or Form FmHA or its 
successor agency under Public Law 103-354 1956-2 for housing loans 
without the debtor's signature subject to the following provisions:
    (1) When the principal balance is $2,000 or less and efforts to 
collect have been unsuccessful or it is apparent that further collection 
efforts would be ineffectual or uneconomical,
    (2) When the OGC advises in writing that the claim is legally 
without merit.
    (3) Even though FmHA or its successor agency under Public Law 103-
354 considers the claim to be valid, when efforts to induce voluntary 
payments are unsuccessful and the OGC advises in writing that evidence 
necessary to prove the claim in court cannot be produced, or
    (4) When the employee in charge of the account recommends the 
chargeoff and has made the following determinations on the basis of 
information in FmHA or its successor agency under Public Law 103-354's 
official files or from other informed reliable sources:
    (i) That the debtor is:
    (A) Unable to pay any part of the debt and has no apparent future 
debt repayment ability as specified in Sec. 1956.66(a); or
    (B) Able to pay part or all of the debt but is unwilling to do so, 
it is clear that the Government cannot enforce collection of a 
significant amount from assets or income, and an opinion is received 
from OGC to that effect; and
    (ii) There is no security for the debt.
    (c) For debts identified as being part of an unsecured claim under a 
confirmed Chapter 11 plan, the chargeoff will be documented with a copy 
of the organization plan, a copy of the court order confirming the plan, 
an opinion by OGC that the order confirming the

[[Page 305]]

plan has discharged the debtor(s) of liability on the unsecured part of 
the debt.



Secs. 1956.76--1956.83  [Reserved]



Sec. 1956.84  Approval or rejection.

    (a)--(d)  [Reserved].
    (e) Appeal rights. A debtor whose debt settlement offer is rejected 
will be notified of appeal rights pursuant to subpart B of part 1900 of 
this chapter. In cases where the adverse decision maker is the County 
Committee, the FmHA or its successor agency under Public Law 103-354 
official will advise the debtor of appeal rights. If the debtor 
exercises his/her right to a meeting, the County Committee must meet 
with the debtor. If the meeting does not result in a resolution, the 
debtor may exercise his/her right to a hearing. If the hearing officer 
reverses the adverse County Committee decision, the case will be 
forwarded to the appropriate debt settlement approval official for 
consideration of approval.
[58 FR 21345, Apr. 21, 1993]



Sec. 1956.85  Payments and receipts.

    (a) Servicing office handling. (1) An application with which the 
debtor offers a lump-sum payment in compromise, or with which the debtor 
offers an initial payment on an adjustment offer, will be accompanied by 
the payments required at the time such application is filed in the 
servicing office.
    (2) Except as provided in paragraph (a)(3) of this section, payments 
offered by debtors in settlement of debts will be deposited and 
transmitted as required in subpart B, C, and K of part 1951 of this 
chapter.
    (3) Checks or check transmittal letter containing restrictive 
notations such as ``Settlement in full'' or ``Payment in full,'' or in 
those exceptional instances when the debtor refuses to sign the Form 
FmHA or its successor agency under Public Law 103-354 1956-1 in 
connection with a compromise offer, will be forwarded to the State 
Office where they will be retained until approval or rejection of the 
offer. The use of restrictive notations will be discouraged to the 
fullest extent possible.
    (b) Finance Office handling. (1) All payments evidenced by Form FmHA 
or its successor agency under Public Law 103-354 451-2, ``Schedule of 
Remittances,'' on Form FmHA or its successor agency under Public Law 
103-354 1944-9, ``Multiple Family Housing Payment Transmittal,'' bearing 
the legend ``Compromise Offer--FmHA or its successor agency under Public 
Law 103-354'' or ``Adjustment Offer--FmHA or its successor agency under 
Public Law 103-354,'' will be held in the Deposits FundAccount by the 
Finance Office until notification is received from the State Office of 
the approval or rejection of the offer. In cases of approved offers, 
remittances will be applied in accordance with established policies, 
beginning with the oldest loan included in the settlement, except that 
when the request for settlement includes loans made from different 
revolving funds the Finance Office will prorate the amount received, on 
the basis of the total principal balance due the respective revolving 
funds. Upon notification of a rejection of a debtor's offer and receipt 
of a request from the State Director for a refund, the Finance Office 
will refund to the debtor, in care of the employee in charge of the 
account, the amount held in the Deposits Fund Account representing a 
rejected compromise or adjustment offer.
    (2) When a debtor's adjustment offer is approved, the accounts 
involved will not be adjusted in the records of the Finance Office until 
all payments have been made. Form FmHA or its successor agency under 
Public Law 103-354 1956-1 will be held in a suspense file pending 
payment of the full amount of the approved offer. The original Form FmHA 
or its successor agency under Public Law 103-354 1956-1 in approved 
cases will be retained in the Finance Office.
[56 FR 10147, Mar. 11, 1991, as amended at 58 FR 21345, Apr. 21, 1993]



Secs. 1956.86--1956.95  [Reserved]



Sec. 1956.96  Delinquent adjustment agreements.

    The employee in charge of the account should notify debtors in 
advance of the due dates of payments on debt settlement agreements. The 
employee in charge of the account should also

[[Page 306]]

promptly contact debtors who are delinquent on debt settlement payments 
and find out their reasons for not making payments when due, and their 
plans for completing their agreements. In instances in which the debtor 
is delinquent under the terms of the debt settlement and is likely to be 
financially unable to meet the terms of the debt settlement agreement, 
FmHA or its successor agency under Public Law 103-354 may cancel the 
existing agreement and process a different type of settlement more 
consistent with the debtor's repayment ability, provided the facts in 
the case justify such action. This settlement will be processed in 
accordance with the procedure for the new agreement. An extension may be 
given by FmHA or its successor agency under Public Law 103-354 to extend 
for 90 days the time for making the payments when the circumstances of 
the case justify an extension. Extensions for a greater period of time 
may be made by the State Director upon recommendation of the County 
Committee (for FP loans) and the employee in charge of the account. A 
decision not to extend the time for making payments is not appealable. 
When an adjustment agreement is cancelled, the debtor will be notified 
of the reasons in writing. The cancellation of an adjustment offer is 
appealable. If an agreement is cancelled, any payments received shall be 
retained as payments on the debt owed at the time of the adjustment 
offer.
[58 FR 21345, Apr. 21, 1993]



Sec. 1956.97  Disposition of promissory notes.

    (a) Notes evidencing debts settled by completed adjustments, 
completed compromise with or without signature, or canceled with 
signature will be returned to the debtor or to the debtor's legal 
representative. The original and copies of notes will be stamped 
``Satisfied by Approved Compromise,'' ``Satisfied by Approved 
Cancellation,'' or ``Satisfied by Completed Adjustment Offer.'' In such 
cases, the security instrument(s) will be released of record according 
to State law.
    (b) Notes evidencing debts canceled without application will be 
placed in the debtor's case folder and disposed of pursant to FmHA or 
its successor agency under Public Law 103-354 Instruction 2033-A 
(available in any FmHA or its successor agency under Public Law 103-354 
office). However, if the debtor requests the notes, they may be stamped 
``Satisfied By Approved Cancellation'' and returned.
    (c) Notes evidencing charged off debts will be retained in the 
servicing office and will not be stamped or returned to the debtor. They 
will be destroyed six years after charged off pursuant to FmHA or its 
successor agency under Public Law 103-354 Instruction 2033-A (available 
in any FmHA or its successor agency under Public Law 103-354 office).
    (d) In case of a transfer of security with assumption for less than 
the debt, the promissory note will be attached to the assumption 
agreement covered by the note and kept in the transferee's file.
[56 FR 10147, Mar. 11, 1991. Redesignated and amended at 58 FR 21346, 
Apr. 21, 1993]



Sec. 1956.98  [Reserved]



Sec. 1956.99  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 affect the Government's interest. The Administrator will 
exercise this authority only at the request of the State Director and on 
the recommendation of the appropriate program Assistant Administrator. 
Requests for exceptions must be made in writing by the State Director 
and supported with documentation to explain the adverse affect on the 
Government's interest, propose alternative courses of action, and show 
how the adverse affect will be eliminated or minimized if the exception 
is granted. Any settlement actions approved by the Administrator under 
this section will be documented on Form FmHA or its successor agency 
under Public Law 103-354 1956-1 and returned to the State Office for 
submission to the Finance Office.

[[Page 307]]



Sec. 1956.100  OMB control number.

    The collection of information requirements in this regulation have 
been approved by the Office of Management and Budget and assigned OMB 
control number 0575-0118. Public reporting burden for this collection of 
information is estimated to vary from 15 to 20 minutes per response, 
with an average of 20 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 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 Information and 
Regulatory Affairs, Office of Management and Budget, Washington, DC 
20503.



       Subpart C--Debt Settlement--Community and Business Programs

    Source: 53 FR 13100, Apr. 21, 1988, unless otherwise noted.



Sec. 1956.101  Purposes.

    This subpart delegates authority and prescribes policies and 
procedures for debt settlement of Water and Waste Disposal System loans; 
Community Facility loans; Association Recreation loans; Watershed loans 
and advances; Resource, Conservation and Development loans; Rural 
Renewal loans; direct Business and Industry loans; Irrigation and 
Drainage loans; Shift-in-land-use loans; and Indian Tribal Land 
Acquisition loans; and Section 306C WWD loans. Settlement of Economic 
Opportunity Cooperative loans, Claims Against Third Party Converters, 
Nonprogram loans, Rural Business Enterprise/Television Demonstration 
Grants, Rural Development Loan Fund loans, Intermediary Relending 
Program loans, Nonprofit National Corporations Loans and Grants, and 601 
Energy Impact Assistance Grants, is not authorized under independent 
statutory authority and settlement under these programs is handled 
pursuant to the Federal Claims Collection Joint Standards, 4 CFR parts 
101-105 as described in Sec. 1956.147 of this subpart.
[62 FR 33511, June 19, 1997]



Sec. 1956.102  Application of policies.

    (a) General. If a debt is eligible for settlement, the debt 
settlement authorities of the Farmers Home Administration or its 
successor agency under Public Law 103-354 (FmHA or its successor agency 
under Public Law 103-354) should be explained and the privileges thereof 
extended to the debtor. All debtors are entitled to impartial treatment 
and uniform consideration under this subpart. Accordingly, FmHA or its 
successor agency under Public Law 103-354 personnel charged with any 
responsibility in connection with debt settlement will adhere strictly 
to the authorizations, requirements, and limitations in this subpart.
    (b) For hospitals and health care facilities only. Loan servicing 
and debt restructuring options according to Sec. 1956.143 of this 
subpart must be exhausted before the other settlement authorities of 
this subpart are applicable.
[53 FR 13100, Apr. 21, 1988, as amended at 59 FR 46160, Sept. 7, 1994]



Secs. 1956.103--1956.104  [Reserved]



Sec. 1956.105  Definitions.

    (a) Settlement. The compromise, adjustment, cancellation, or 
chargeoff of a debt owed to FmHA or its successor agency under Public 
Law 103-354. The term ``settlement'' is used for convenience in 
referring to compromise, adjustment, cancellation, or chargeoff actions, 
individually or collectively.
    (b) Compromise. The satisfaction of a debt, including a release of 
liability, by the acceptance of a lump-sum payment of less than the 
total amount owed on the debt.
    (c) Adjustment. The satisfaction of a debt, including a release of 
liability, when acceptance is conditioned upon completion of payment of 
the adjusted amount at a specific future time or times, with or without 
the payment of any consideration when the adjustment offer is approved. 
An adjustment is not a final settlement until all payments

[[Page 308]]

under the adjustment agreement have been made.
    (d) Cancellation. The final discharge of a debt with a release of 
liability.
    (e) Chargeoff. To write off a debt and terminate all servicing 
activity without a release of liability. This is not a final discharge 
of the debt, but rather a decision upon the part of the agency to remove 
the debt from agency receivables.
    (f) Debtor. The borrower of loan funds under any of the FmHA or its 
successor agency under Public Law 103-354 programs specified in 
Sec. 1956.101 of this subpart.
    (g) Security. All that serves as collateral for the FmHA or its 
successor agency under Public Law 103-354 loan(s), including, but not 
limited to, revenues, tax levies, municipal bonds, and real and chattel 
property.
    (h) Servicing official. The FmHA or its successor agency under 
Public Law 103-354 official who is primarily responsible for servicing 
the account.
    (i) United States Attorney. An attorney for the United States 
Department of Justice.
    (j) Independent Qualified Fee Appraiser. An individual who is a 
designated member of the American Institute of Real Estate Appraisers, 
Society of Real Estate Appraisers, or an equivalent organization, 
requiring appraisal education, testing, and experience.
    (k) Indian Tribal Land Acquisition loans. Loans which have been made 
under the Indian Land Acquisition Act to Indian tribes or tribal 
corporations recognized by the Secretary of the Interior, for the 
purchase of land within tribal reservations and Alaskan Communities. (25 
U.S.C. 488)
[53 FR 13100, Apr. 21, 1988, as amended at 54 FR 47510, Nov. 15, 1989]



Secs. 1956.106--1956.108  [Reserved]



Sec. 1956.109  General requirements for debt settlement.

    (a) Debt due and payable. The debt or any extension thereof on which 
settlement is requested must be due and payable under the terms of the 
note or other instrument, or because of acceleration by written notice 
prior to the date of application for settlement, unless the debt is to 
be cancelled without application under Sec. 1956.130(b) or charged off 
under Sec. 1956.136 of this subpart.
    (b) Disposition of security. Ordinarily, all security will be 
disposed of prior to the date of application for settlement. There are 
exceptions:
    (1) It may be necessary to abandon security through the debt 
settlement process. For example, a community may be rendered 
uninhabitable by a toxic or hazardous substance. In such cases, debt 
settlement may proceed provided the servicing official determines:
    (i) That further collection efforts with respect to the security in 
question would be ineffective or uneconomical,
    (ii) That it is in the best interests of the Government to proceed 
with debt settlement,
    (iii) That the proposal otherwise meets the requirements appropriate 
to the type of settlement under consideration, and
    (iv) The approval of the Administrator is obtained.
    (2) A servicing action may have been carried out which resulted in a 
less than complete disposition of security. For example, the Government 
may have consented to a voluntary sale of a debtor's real and chattel 
property without reference to other security, which might include, but 
is not limited to: an additional lien on revenue, a third party pledge 
of security, or a pledge of personal liability. In such cases, debt 
settlement may proceed provided the requirements of Sec. 1956.109(b)(1) 
of this subpart are met.
    (3) Security can be retained under the compromise and adjustment 
offers as specified in Sec. 1956.124 of this subpart.
    (4) Settlement of a claim against an estate will be based on the 
recovery that may reasonably be expected, taking into consideration such 
items as the security, costs of administration, allowances of minor 
children and surviving spouse, allowable funeral expenses, dower and 
curtesy rights, and specific encumbrances on the property having 
priority over claims of the Government.
    (c) Proceeds from the sale of security. Proceeds from the sale of 
security must be applied on the debtor's account, taking into 
consideration the disposition requirements of any grant

[[Page 309]]

agreement, prior to the date of application for settlement, except when 
security is retained as provided for in Sec. 1956.109(b) of this 
subpart. Debtors will not be allowed to sell security and use the 
proceeds as part or all of the debt settlement offer.
    (d) County Committee review. Proposed settlement actions will be 
reviewed by the County Committee except for the cancellation of debts 
discharged in bankruptcy under Sec. 1956.130(b)(1) of this subpart or 
when a claim has been referred to a United States Attorney under 
Sec. 1956.112(d) of this subpart. No settlement shall be approved if it 
is more favorable to the debtor than recommended by the County 
Committee.
    (e) Assistance from Office of General Counsel (OGC). When necessary, 
State Directors will obtain advice from OGC in handling proposed debt 
settlement actions.
    (f) Format. Form FmHA or its successor agency under Public Law 103-
354 1956-1, ``Application for Settlement of Indebtedness,'' will be 
utilized for all settlement actions under this subpart.



Sec. 1956.110  Joint debtors.

    Settlements may not be approved for one joint debtor unless approved 
for all debtors. Joint debtors includes all parties, individuals, and 
organizations, who are legally liable for payment of the debt.
    (a) Individual settlement offers from joint debtors can be accepted 
and processed only as a joint offer. A separate Form FmHA or its 
successor agency under Public Law 103-354 1956-1 will be completed by 
each debtor unless the debtors are members of the same family and all 
necessary financial information on each debtor can be shown clearly on a 
single application.
    (b) If one of the joint debtors is deceased or has received a 
discharge of the debt in bankruptcy, or if the whereabouts of one of the 
debtors is unknown, or it is otherwise impossible or impractical to 
obtain the signature of the debtor, the application for settlement may 
be accepted without that debtor's signature if it contains adequate 
information on each of the debtors to justify settlement of the debt as 
to each of the debtors. The name of the debtor requesting settlement 
will be shown at the top of Form FmHA or its successor agency under 
Public Law 103-354 1956-1 followed by name and status of the other 
debtor. For example, ``John Doe, joint debtor with Jane Doe, deceased.''
    (c) Joint debtors must be advised in writing that all debtors will 
remain liable for the balance of the debt until any payment(s) due under 
the joint offer have been made.



Sec. 1956.111  Debtors in bankruptcy.

    FmHA or its successor agency under Public Law 103-354 personnel will 
process reorganization plans of debtors filing under Chapter 9, Chapter 
11, or Chapter 13 as follows:
    (a) Plans submitted by debtors under Chapters 9, 11, and 13 must be 
sent by the servicing official to the State Director who will recommend 
either acceptance or rejection of the plans and refer them to the United 
States Attorney through OGC. When the plan calls for the adjustment of a 
debt to FmHA or its successor agency under Public Law 103-354, the State 
Director will obtain the advice of the Administrator before providing 
OGC with a recommendation on acceptance or rejection of this plan.
    (b) The United States Attorney will advise the State Director, 
through OGC, as to approval or rejection of the debtor's reorganization 
plan. The State Director will then notify the Finance Office by 
memorandum of the terms and conditions of the bankruptcy reorganization 
plan, including any adjustment of the debt.



Sec. 1956.112  Debts ineligible for settlement.

    Debts will not be settled:
    (a) If referral to the Office of Inspector General (OIG) and/or to 
the OGC is contemplated or pending because of suspected criminal 
violation, or
    (b) If civil action to protect the interests of the Government is 
contemplated or pending, or
    (c) If an investigation for suspected fiscal irregularity is 
contemplated or pending, or
    (d) When a claim has been referred to or a judgment has been 
obtained by the United States Attorney and the debtor

[[Page 310]]

requests settlement, the servicing official will explain to the debtor 
that the United States Attorney has exclusive jurisdiction over the 
claim or judgment, and therefore, FmHA or its successor agency under 
Public Law 103-354 has no authority to agree to a settlement offer. If 
the debtor wishes to make a settlement offer, it must be submitted with 
any related payment directly to the United States Attorney for 
consideration.



Secs. 1956.113--1956.117  [Reserved]



Sec. 1956.118  Approval authority.

    District Directors cannot approve debt settlement actions. 
Therefore, they will make no statements to a debtor concerning the 
action that may be taken upon a debtor's application. Subject to this 
subpart, the compromise, adjustment, cancellation, or chargeoff of debts 
will be approved or rejected:
    (a) By the State Director when the outstanding balance of the 
indebtedness involved in the settlement is less then $50,000, including 
principal, interest, and other charges.
    (b) By the Administrator or his designee when the outstanding 
balance of the indebtedness involved in the settlement is $50,000 or 
more, including principal, interest, and other charges.



Secs. 1956.119--1956.123  [Reserved]



Sec. 1956.124  Compromise and adjustment.

    Nonjudgment debts may be compromised or adjusted upon application of 
the debtor(s), or if the debtor is an individual and unable to act, upon 
application of the guardian, executor, or administrator of the debtor's 
estate.
    (a) General provisions. Debts, regardless of the amount, may be 
compromised or adjusted subject to the following:
    (1) The debt or any extension thereof on which compromise or 
adjustment is requested is due and payable under the terms of the note 
or other instrument, or because of acceleration by written notice, prior 
to the date of application for settlement.
    (2) The period of time during which payments on adjustment offers 
are to be made cannot exceed five years without the approval of the 
Administrator.
    (3) Efforts will be made to avoid applications for settlement in 
which debtors offer a specified amount payable upon notice of approval 
of the proposed settlement.
    (b) Debtor's ability to pay. In evaluating the debtor's settlement 
application, it is essential that reliable information be obtained in 
sufficient detail to assure that the offer accurately reflects the 
debtor's ability to pay. The debtor's income, expenses, and nonsecurity 
assets are critical factors in determining the type of settlement and 
the amount which the debtor can reasonably be expected to offer. 
Critical information should include the following:
    (1) The debtor's total present income from all sources will be 
determined. In addition, careful consideration will be given to the 
probable sources, amount, and stability of income to be received over a 
reasonable period of years. For individuals, public welfare assistance 
and pensions, including old age pensions and pensions received by 
veterans for pensionable disabilities will not be considered as sources 
of funds with which to make compromise and adjustment offers.
    (2) The debtor's operation and maintenance expenses, and, in the 
case of individuals, probable living expenses.
    (3) The priority of payments on debts to third parties.
    (4) When the debtor is largely dependent on income from an 
occupation in which manual labor is required, age and health of the 
individual are vital factors in determining the ability to pay. The 
number in the debtor's family, their ages and condition of health, will 
also be weighed in determining the ability to pay. However, when the 
debtor's income is from investments, business enterprises, or management 
efforts, age and health of both individual and family are of less 
importance.
    (5) The value of the debtor's assets in relation to debts and liens 
of third parties is important in determining the debtor's ability to 
pay. It is recognized that debtors must retain a reasonable equity in 
essential nonsecurity property in order to continue normal operations 
and, in the case of an individual,

[[Page 311]]

to meet family living expenses over a period of years. Under this policy 
a reasonable equity in a modest nonsecurity homestead occupied by the 
debtor, whether or not exempt from levy and execution will not be 
considered as available for offer in settlement. Nonsecurity property 
which is in excess of minimum business and/or family living needs and 
which is not exempt from levy and execution should be considered when 
determining the debtor's ability to pay.
    (c) Debtor unable to pay in full. Debts may be compromised or 
adjusted and security property retained by the debtor, provided:
    (1) The debtor is unable to pay the indebtedness in full, and
    (2) The debtor has offered an amount equal to the present fair 
market value of all security or facility financed, and
    (3) The debtor has offered any additional amount which the debtor is 
able to pay, and
    (4) The total amount offered represents a reasonable determination 
of the debtor's ability to pay.
    (d) Debtor able to pay in full but refuses to do so. If the debtor 
has the ability to pay in full but refuses to do so, debts may be 
compromised or adjusted and security property retained by the debtor 
under certain conditions:
    (1) The OGC advises that the Government is unable to enforce 
collection in full within a reasonable time by enforced collection 
proceedings, and the amount offered represents a reasonable settlement 
considering:
    (i) Availability of assets or income which may be realized by 
enforced collection proceedings, considering the applicable exemptions 
available to the debtor under State and Federal law, and
    (ii) Inheritance prospects within 5 years, and
    (iii) Likelihood of debtor obtaining nonexempt property or income 
within 5 years out of which there could be collected a substantially 
larger sum than the amount of the present offer, and
    (iv) Uncertainty as to the price that the security or other property 
will bring at forced sale, or
    (2) The OGC advises that there is a real doubt concerning the 
Government's ability to prove its case in court for the full amount of 
the debt, and the amount offered represents a reasonable settlement 
considering:
    (i) The probability of prevailing on the legal issues involved, and
    (ii) The probability of proving facts to establish full or partial 
recovery, with due regard to the availability of witnesses and other 
pertinent factors, and
    (iii) The probable amount of court costs and attorney's fees which 
may be assessed against the Government if it is unsuccessful in 
litigation, or
    (3) When the cost of collecting the debt does not justify enforced 
collection of the full amount. In such cases, the amount accepted in 
compromise or adjustment may reflect an appropriate discount for 
administrative and litigious costs of collection. Such discount will not 
exceed $600 unless the OGC advises that in the particular case a larger 
discount is appropriate. The cost of collecting may be a substantial 
factor in settling small debts but normally will not carry great weight 
in settling large debts.



Secs. 1956.125--1956.129  [Reserved]



Sec. 1956.130  Cancellation.

    Nonjudgment debts, regardless of the amount, may be cancelled with 
or without application by the debtor.
    (a) With application by debtor. Debts may be cancelled upon 
application of the debtor(s), or if the debtor is an individual and 
unable to act, upon application of the guardian, executor, or 
administrator of the debtor's estate. The following conditions apply:
    (1) The servicing official furnishes a favorable recommendation 
concerning the cancellation, and
    (2) There is no known security for the debt and the debtor has no 
other assets from which the debt could be collected, and
    (3) The debtor is unable to pay any part of the debt and has no 
reasonable prospect of being able to do so, and
    (4) The debt or any extension thereof is due and payable under the 
terms of the note or other instrument, or because of acceleration by 
written notice prior to the date of application.

[[Page 312]]

    (b) Without application by debtor. Debts may be cancelled upon a 
favorable recommendation of the servicing official in the following 
instances:
    (1) Debtors discharged in bankruptcy. If there is no security for 
the debt, debts discharged in bankruptcy shall be cancelled by the use 
of Form FmHA or its successor agency under Public Law 103-354 1956-1 
with a copy of the Bankruptcy Court's Discharge Order attached. No 
attempt will be made to obtain the debtor's signature and County 
Committee review is unnecessary. If the debtor has executed a new 
promise to pay prior to discharge and has otherwise accomplished a valid 
reaffirmation of the debt in accordance with advice from OGC, the debt 
is not discharged.
    (2) Impossible or impractical to obtain a debtor's signature. Debts 
may be cancelled if it is impossible or impractical to obtain a signed 
application and the requirements of Sec. 1956.130(a) (1), (2), and (3) 
only of this subpart are met. Form FmHA or its successor agency under 
Public Law 103-354 1956-1 will document:
    (i) The sources of information obtained.
    (ii) That a current effort was made to obtain the debtor's 
application and the date of such effort.
    (iii) The specific reasons why it was impossible or impracticable to 
obtain the signature of the debtor and, if the debtor refused to sign, 
the reason(s) given.
    (3) Deceased debtors (individuals only). The following conditions 
must exist:
    (i) There is no known security,
    (ii) An administrator or executor has not been appointed to settle 
the debtor's estate but the financial condition of the estate has been 
investigated and it has been established that there is no reasonable 
prospect of recovery, or
    (iii) An administrator or executor has been appointed to settle the 
estate of the debtor, and
    (A) A final settlement has been made and confirmed by the probate 
court and the Government's claim was recognized properly and the 
Government has received all funds it was entitled to, or
    (B) A final settlement has not been made and confirmed by the 
probate court, but there are no assets in the estate from which there is 
any reasonable prospect of recovery, or
    (C) Regardless of whether a final settlement has been made, there 
were assets in the estate from which recovery might have been effected 
but such assets have been disposed of or lost in a manner which the OGC 
advises will preclude an reasonable prospect of recovery by the 
Government.
    (4) Disappeared debtor (individuals only). The following conditions 
must exist:
    (i) The debtor has disappeared and cannot be found without undue 
expense. Reasonable efforts either in person or in writing will be made 
to locate the debtor. These efforts, including the names and dates of 
contacts, and the information furnished by each person, will be fully 
documented on Form FmHA or its successor agency under Public Law 103-354 
1956-1,
    (ii) There is no known security for the debt and the debtor has no 
other assets from which the debt could be collected, and
    (iii) The debtor is unable to pay any part of the debt and has no 
reasonable prospect of being able to do so.



Secs. 1956.131--1956.135  [Reserved]



Sec. 1956.136  Chargeoff.

    (a) Judgment debts. Subject to the provisions of Sec. 1956.112(d) of 
this subpart, judgment debts, regardless of the amount, may be charged 
off without the debtor's signature upon a favorable recommendation of 
the servicing official provided:
    (1) The United States Attorney's file is closed, and
    (2) The requirements of Sec. 1956.130(b)(1), (2), (3), or (4) of 
this subpart have been met, as appropriate, or two years have elapsed 
since any collections were made on the judgment and the debtor(s) has no 
equity in property on which the judgment is a lien or on which it can 
presently be made a lien.
    (b) Nonjudgment debts. Debts which cannot be settled under other 
sections of this subpart may be charged off without the debtor's 
signature upon a favorable recommendation of the servicing official in 
the following instances:

[[Page 313]]

    (1) When the OGC advises in writing that the claim is legally 
without merit, or that evidence necessary to prove the claim in court 
cannout be produced.
    (2) When there is no known security for the debt, the debtor has no 
other assets from which the debt could be collected, and the debtor:
    (i) Is unable to pay any party of the debt and has no reasonable 
prospect of being able to do so, or
    (ii) Is able to pay part or all of the debt but refuses to do so, 
and an opinion is received from OGC to the effect that the Government 
cannot enforce collection of a significant amount from assets or income.
    (3) When the debtor is deceased (individuals only), disappeared 
(individuals only), or when it is impossible or impractical to obtain 
the debtor's signature, and the conditions of Sec. 1956.136(b)(2) of 
this subpart are met.



Sec. 1956.137  Adjustment of unpaid principal--Indian Tribal Land Acquisition loans.

    This section pertains exclusively to the reduction of unpaid 
principal on Indian Tribal Land Acquisition loans. (Pub. L. 101-82.)
    (a) Application by borrower. Upon application by the borrower, the 
FmHA or its successor agency under Public Law 103-354 Administrator may 
adjust the unpaid principal balance only, on any loan or loans, to the 
current fair market value of the land purchased with the proceeds of the 
loans. A separate application will be made for each loan. To be 
eligible, each application must meet the following conditions:
    (1) The current fair market value of the land has declined by at 
least 25 percent since the land was purchased by the borrower with FmHA 
or its successor agency under Public Law 103-354 loan funds. Current 
fair market value shall be determined through an appraisal by an 
independent qualified fee appraiser, as defined in Sec. 1956.105(j) of 
this subpart and selected by mutual agreement between the borrower and 
FmHA or its successor agency under Public Law 103-354. The borrower will 
submit its selection of an appraiser, together with the appraiser's 
qualifications, in writing, to FmHA or its successor agency under Public 
Law 103-354 for acceptance or rejection. The cost of the appraisal shall 
be paid by the borrower.
    (2) The land has been held by the borrower for at least 5 years.
    (3) The Secretary of Interior or designee finds, and states in 
writing to FmHA or its successor agency under Public Law 103-354, that 
the borrower has insufficient income to both repay the loan or loans and 
provide normal tribal governmental services.
    (b) Review of application decision. If an application is rejected, 
the borrower may request a review of this decision under subpart B of 
part 1900 of this chapter.
    (c) Future applications. A borrower that had a loan adjusted under 
this section shall not submit an application for another adjustment on 
the same loan for a period of 5 years from the date the last reduction 
became effective.
    (d) Processing. All requests for principal adjustment will be 
forwarded to the National Office with the following information:
    (1) Form FmHA or its successor agency under Public Law 103-354 1956-
1. Complete only parts I, II, VI, and VIII. Part VI, Debtors Offer and 
Certification, will be made in a separate attachment and contain the 
adjusted unpaid principal amount for which FmHA or its successor agency 
under Public Law 103-354 approval is requested. In part VI of the form, 
type ``see attached.''
    (2) Letter from the Secretary of Interior or Designee. Reference to 
this letter should be made in part VIII of Form FmHA or its successor 
agency under Public Law 103-354 1956-1.
    (3) For first time requests, the State Director's determination of 
the appraised value of the land when the loan (or loans) was made and 
the current fair market value appraisal as determined by an independent 
qualified fee appraiser.
    (4) For subsequent requests, the current and previous fair market 
value appraisal as determined by an independent qualified fee appraiser.
    (5) Draft of Form FmHA or its successor agency under Public Law 103-
354 1951-33, ``Reamortization Request,'' if applicable. Upon concurrence 
by the National Office, the adjusted unpaid

[[Page 314]]

principal and outstanding accrued interest may be reamortized at the 
original note rate for the balance of the existing term of the note and 
in accordance with the other applicable provisions of subpart E of part 
1951 of this chapter. The approved original of Form FmHA or its 
successor agency under Public Law 103-354 1956-1 will be sent to the 
Finance Office together with a copy of Form FmHA or its successor agency 
under Public Law 103-354 1951-33 signed by the State Director.
[54 FR 47510, Nov. 15, 1989, as amended at 58 FR 21346, Apr. 21, 1993]



Sec. 1956.138  Processing.

    (a) Approval. When a debt settlement application is approved, the 
State Director will:
    (1) Send the original approved Form FmHA or its successor agency 
under Public Law 103-354 1956-1 to the Finance Office.
    (2) Notify debtors in writing of settlement approval, including the 
specific amount and terms of the offer that were accepted, for 
compromise and adjustment offers under Sec. 1956.124 and cancellations 
with application under Sec. 1956.130(a) of this subpart.
    (3) Not be required to notify debtors of settlement approval when 
debts are cancelled without application under Sec. 1956.130(b) or 
charged off under Sec. 1956.136 of this subpart.
    (b) Requesting additional information. When rejection appears to be 
necessary either because of lack of information or because the amount of 
a compromise or adjustment offer is inadequate, the State Director may 
request the servicing official to obtain the additional information or 
make an effort to obtain a more acceptable offer, as the circumstances 
justify. Notice of rejection of an offer will be withheld in such cases 
until sufficient time has elapsed to enable the debtor to present 
further information or a new offer.
    (c) Rejection. When a debt settlement application is rejected, the 
State Director will:
    (1) Insert the reasons for rejection on the Form FmHA or its 
successor agency under Public Law 103-354 1956-1.
    (2) Retain the original Form FmHA or its successor agency under 
Public Law 103-354 1956-1 in the State Office and return case files and 
copies of Form FmHA or its successor agency under Public Law 103-354 
1956-1 to the servicing official.
    (3) Request the Finance Office to return any adjustment or 
compromise payment held by the Finance Office to the borrower, in care 
of the servicing official.
    (4) Return any adjustment or compromise payment held by the State 
Office to the borrower, in care of the servicing official.
    (5) Notify the debtor in writing of the reasons for the rejection 
for compromise and adjustment offers under Sec. 1956.124 and 
cancellations with application under Sec. 1956.130(a) of this subpart.
    (d) Appeal rights. In accordance with Subpart B of Part 1900 of this 
chapter, the debtor will be given the right to appeal the rejection of 
any debt settlement offer made by the debtor under this subpart.



Sec. 1956.139  Collections.

    (a) When the debtor offers a lump-sum payment in compromise or an 
initial payment on an adjustment offer, that payment will accompany the 
settlement application at the time the application is filed with the 
servicing official.
    (b) Except as provided in paragraph (c) of this section, debt 
settlement payments will be deposited and transmitted as required in 
Subpart B of Part 1951 of this chapter.
    (c) Checks or check transmittal letters containing restrictive 
notations such as ``Settlement in full'' or ``Payment in full,'' will be 
forwarded to the State Office where they will be retained until approval 
or rejection of the offer. The use of restrictive notations will be 
discouraged to the fullest extent possible.
    (d) All payments evidenced by Form FmHA or its successor agency 
under Public Law 103-354 451-2, ``Schedule of Remittances,'' bearing the 
legend ``Compromise Offer--FmHA or its successor agency under Public Law 
103-354'' or ``Adjustment Offer--FmHA or its successor agency under 
Public Law 103-354,'' will be held in the Deposits Fund Account by the 
Finance Office until notification is received from the

[[Page 315]]

State Office of the approval or rejection of the offer.
    (1) Upon receipt of an approved Form FmHA or its successor agency 
under Public Law 103-354 1956-1, remittances will be applied in 
accordance with established policies, beginning with the oldest loan 
included in the settlement, except that when the request for settlement 
includes loans made from different revolving funds, the Finance Office 
will prorate the amount received on the basis of the total principal 
balance due the respective revolving funds.
    (2) Upon notification of a rejection of a debtor's offer and receipt 
of a request from the State Director for a refund, the Finance Office 
will refund to the debtor, in care of the servicing official, the amount 
held in the Deposits Fund Account.
    (e) When a debtor's adjustment offer is approved, the accounts 
involved will not be adjusted in the records of the Finance Office until 
all payments have been made. Form FmHA or its successor agency under 
Public Law 103-354 1956-1 will be held in a suspense file pending 
payment of the full amount of the approved offer.
    (f) If an approved debt settlement agreement is later voided by the 
State Director in accordance with Sec. 1956.142(e) of this subpart, any 
payments which have been received shall be retained as payments on the 
debt owed at the time the compromise or adjustment offer was approved.



Secs. 1956.140--1956.141  [Reserved]



Sec. 1956.142  Delinquent adjustment agreements.

    (a) The servicing official is responsible for notifying debtors in 
advance of the due dates of payments on debt settlement agreements and 
for monitoring compliance with the terms of settlement agreements. If a 
payment is delinquent, the servicing official should contact the debtor 
promptly to determine the reason for the delinquency and the debtor's 
plan for completing the agreement.
    (b) Delinquencies of 30 days or more will be reported to the State 
Director along with other pertinent information and the recommendation 
of the servicing official regarding further handling of the case.
    (c) The State Director may extend, for ninety days, the time for 
making the payments when the circumstances of the case justify an 
extension. Extensions for a greater period of time may be made by the 
State Director upon the recommendation of the County Committee and the 
servicing official.
    (d) When the debtor is financially unable to meet the terms of the 
debt settlement agreement, the State Director may void the existing 
agreement and process a new settlement more consistent with the debtor's 
repayment ability, provided the facts in the case justify such action.
    (e) If the State Director determines that the debtor cannot or will 
not meet the terms of the settlement agreement and if the facts do not 
justify approval of a new settlement agreement, the State Director will 
void the existing agreement and direct the servicing official to take 
other servicing actions appropriate to the circumstances of the case.
    (f) When an adjustment agreement is voided, the State Director will 
notify the debtor giving the reasons in writing, with a copy to the 
Finance Office and to the servicing official. Upon receipt, the Finance 
Office will return the original Form FmHA or its successor agency under 
Public Law 103-354 1956-1 to the State Office.



Sec. 1956.143  Debt restructuring--hospitals and health care facilities.

    This section pertains exclusively to delinquent Community Facility 
hospital and health care facility loans. Those facilities which are 
nonprogram (NP) loans as defined in Sec. 1951.203 (f) of subpart E of 
part 1951 of this chapter are excluded. The purpose of debt 
restructuring is to keep the hospital or health care facility in 
operation with manageable debt.
    (a) Definitions. As used in this section, the following definitions 
apply:
    Consolidation. The combining of two or more debt instruments into 
one instrument, normally accompanied by reamortization.
    Debt writedown. A one-time reduction of the debt owed to FmHA or its 
successor agency under Public Law 103-354

[[Page 316]]

including principal and interest. This reduction will be the minimum 
amount necessary to meet the level of the facility's ability to service 
the debt. The writedown will be applied first to interest and then 
principal.
    Delinquency due to circumstances beyond the control of the debtor. 
Includes situations such as: The debtor has less money than planned due 
to unexpected and uncontrollable events such as unexpected loss of 
service area population, unforeseeable costs incurred for compliance 
with State or Federal regulatory requirements, or the loss of key 
personnel.
    Delinquent debtor. For purposes of this section, delinquency is 
defined as being 180 days behind schedule on the FmHA or its successor 
agency under Public Law 103-354 payments. That is, one full annual 
installment or the equivalent for monthly, quarterly, or semiannual 
installments.
    Eligibility. Applicants must be delinquent due to circumstances 
beyond their control and have acted in good faith by trying to fulfill 
the agreements with FmHA or its successor agency under Public Law 103-
354 in connection with the delinquent loans.
    Interest rate reduction. Reduction of the interest rate on the 
restructured loan to as low as the poverty line interest rate in effect 
on community and business programs loans.
    Loan deferral. The temporary delay of principal and interest 
payments for up to 6 months. The debtor must be able to demonstrate the 
ability to pay the debt, as restructured, at the end of this delay 
period.
    Net recovery value. A calculation of the net value of the collateral 
and other assets held by the debtor. This value would be determined by 
adding the fair market value of FmHA or its successor agency under 
Public Law 103-354's interest in any real property pledged as collateral 
for the loan, plus the value of any other assets pledged or otherwise 
available for the repayment of the debt, minus the anticipated 
administrative and legal expenses that would be incurred in connection 
with the liquidation of the loan. This value of the assets should be 
calculated based upon the facility continuing to operate as a going 
concern. Therefore, the facility should be valued not merely as an empty 
building but as a facility continuing to offer health care services 
which may, or may not, be similar to those offered by the current 
operators.
    Operations review. A study of management and business operations of 
the facility by an independent expert. For example, a study of a 
hospital and nursing home would include such areas as: general and 
administrative, dietary, housekeeping, laundry, nursing, physical plant, 
social services, income potential, Federal, State, and insurance 
payments, and rate analysis. Also, recommendations and conclusions are 
to be included in the study which would indicate the creditworthiness of 
the facility and its ability to continue as a going concern. In 
analyzing a debtor's proposed restructuring plan, FmHA or its successor 
agency under Public Law 103-354 may contract for the completion of an 
operations review. These reviews will be developed by individuals and 
entities who have demonstrated an expertise in the analysis of health 
care facilities from an operational and administrative standpoint. FmHA 
or its successor agency under Public Law 103-354 will consider the 
following criteria for selection: past experience in health care 
facility analysis, a familiarity with the problems of rural health care 
facilities, a knowledge of the particular area currently served by the 
facility in question, and a willingness to work with both FmHA or its 
successor agency under Public Law 103-354 and the debtor in developing a 
final plan for restructuring.
    Restructured loan. A revision of the debt instruments including any 
combination of the following: writing down of accumulated interest 
charges and principal, deferral, consolidation, and adjustment of the 
interest rates and terms, usually followed by reamortization.
    (b) Debtor notification. All servicing actions permitted under 
subpart E of part 1951 of this chapter are to be exhausted prior to 
consideration for debt restructuring under this section. To this end, 
the servicing official must ensure that the casefile clearly documents 
that all servicing actions under subpart E of part 1951 of this chapter

[[Page 317]]

have been exhausted and that the debtor is at least 1 full year's debt 
service behind schedule for a minimum of 180 days. The debtor then 
should be informed of the debt restructuring available under this 
section by using language similar to that provided in Guide 1 of this 
subpart (available in any FmHA or its successor agency under Public Law 
103-354 Office) as follows:
    (1) Any introductory paragraph;
    (2) A paragraph concerning prior servicing attempts;
    (3) A discussion of eligibility, as defined in this section, 
including the provision that the debtor acted in good faith in 
connection with their FmHA or its successor agency under Public Law 103-
354 loan and that the delinquency was caused by circumstances beyond 
their control;
    (4) Two paragraphs that explain the goal of the debt restructuring 
program;
    (5) A paragraph stating that debt restructuring may include a 
combination of servicing actions listed in paragraph (a) of this 
section;
    (6) Information that details what the debtor must do to apply for 
restructuring. A response must be received within 45 days of receipt of 
this letter to request consideration for debt restructuring and the 
request must include projected balance sheets, budgets, and cash-flow 
statements which include and clearly identify funding of the FmHA or its 
successor agency under Public Law 103-354 reserve account for the next 3 
years;
    (7) A discussion of FmHA or its successor agency under Public Law 
103-354's analysis and calculation process; and
    (8) A paragraph identifying the FmHA or its successor agency under 
Public Law 103-354 official who may be contacted for assistance.
    (c) State Director's restructuring determination. Upon receipt of 
the delinquent debtor's request for debt restructuring consideration, 
the State Director will:
    (1) Within 15 days of receipt of debtor's request, if an operations 
review is deemed necessary, send a memorandum to the Administrator 
asking for program authority to contract for the review in accordance 
with Exhibit D of FmHA or its successor agency under Public Law 103-354 
Instruction 2024-A (available in any FmHA or its successor agency under 
Public Law 103-354 Office). The name of the debtor involved and the 
projected amount of funds anticipated to be spent for the contract 
should also be provided. It is anticipated that an operations review 
will be necessary in most cases and that the only exceptions would be 
for smaller health care facilities or facilities that have developed a 
proposed plan that is comprehensive and realistic. Upon receipt of the 
Administrator's program contracting approval authority, a contract is to 
be awarded to an organization qualified to perform an operations review 
as defined in paragraph (a) of this section. The operations review 
normally will be completed and delivered to FmHA or its successor agency 
under Public Law 103-354 within 60 days of the award date.
    (2) Contract for an appraisal to be performed by an independent, 
qualified fee appraiser. Note: To the extent possible, the appraisal 
should be scheduled for completion no later than the completion date of 
the operations review.
    (3) Complete an analysis of the operations review, appraisal, and 
other documented information, and make an eligibility determination.
    (i) Eligibility determination. The State Director must conclude that 
the debtor is eligible for debt restructuring consideration. This 
conclusion will be clearly documented in the casefile based on a review 
of the following:
    (A) The debtor acted in good faith with regard to the delinquent 
loan. The casefile must reflect the debtor's cooperation in exploring 
servicing alternatives. The casefile should contain no evidence of 
fraud, waste, or conversion by the debtor, and no evidence that the 
debtor violated the loan agreement or FmHA or its successor agency under 
Public Law 103-354 regulations.
    (B) The delinquency was caused by circumstances beyond the control 
of the debtor. This determination will be based on the debtor's 
narrative on this issue, which is a required part of the application for 
debt restructuring, and a separate review of the debtor's casefile and 
operations.
    (C) As part of the application for debt restructuring, the debtor 
submitted a

[[Page 318]]

proposed operating plan that presents feasible alternatives for 
addressing the delinquency.
    (ii) Debtor determined eligible. If the debtor is determined to be 
eligible for debt restructuring, a determination of a net recovery value 
and level of debt the facility will support will be made. It is 
anticipated that meetings with the debtor, the contractor who performed 
the operations review, and others, as appropriate, could be necessary to 
develop these values; although it should be emphasized throughout these 
meetings that any calculations and conclusions reached are preliminary 
in nature, pending final review by the Administrator. For debt 
restructuring calculations and computing a feasible cash-flow 
projection, the following order and combinations of loan servicing 
actions will be followed:
    (A) Loan deferral for up to 6 months.
    (B) Interest rate reduction to not less than the poverty line rate 
as determined by FmHA or its successor agency under Public Law 103-354 
Instruction 440.1, exhibit B (available in any FmHA or its successor 
agency under Public Law 103-354 Office). Interest rate reduction will be 
considered only in conjunction with an extension of the term of the loan 
to the remaining useful life of the facility or 40 years, whichever is 
less.
    (C) Debt writedown. Other creditors of the debtor, representing a 
substantial portion of the total debt, are expected to participate in 
the development of a restructuring plan which includes debt writedown. 
Debt writedown participation by other creditors should be on a pro rata 
basis with the FmHA or its successor agency under Public Law 103-354 
writedown. However, failure of these creditors to agree to participate 
in the plan shall not preclude the use of principal and interest 
writedown by FmHA or its successor agency under Public Law 103-354 if it 
is determined that this option results in the least cost to the Federal 
Government.
    (iii) Debtor determined ineligible. If the State Director concludes 
that the debtor is not eligible for debt restructuring consideration for 
any of the reasons listed in paragraph (c)(3)(i) of this section, then 
the debtor will be notified by a letter that includes the following 
information:
    (A) The basis for the determination;
    (B) The next step in servicing the loan: possible acceleration if 
the delinquency is not cured; and
    (C) The debtor may appeal this determination in accordance with 
subpart B of part 1900 of this chapter.
    (iv) State Director's recommendation. Upon completion of the 
determination of net recovery value and restructured debt in accordance 
with paragraph (c)(3)(ii) of this section, and prior to formal 
presentation to the borrower, the State Director will forward a 
recommendation to the National Office with the following documentation:
    (A) That all other servicing efforts have been exhausted as required 
in paragraph (b) of this section.
    (B) Financial statements including balance sheets, income and 
expense, cash-flows for the most recent actual year, and projections for 
the next 3 years. The amount of FmHA or its successor agency under 
Public Law 103-354's restructured debt and reserve account requirements 
are to be clearly indicated on the projected statements. Also, operating 
statistics including number of beds, patient days of care, outpatient 
visits, occupancy percentage, etc., for the same periods of time must be 
included.
    (C) Copies of the operations review, developed for the particular 
loan, and appraisal.
    (D) Calculations of the net recovery value.
    (E) Debt restructuring calculations including a listing of the 
various servicing combinations used in these calculations as contained 
in paragraph (c)(3)(ii) of this section. For example:
    (1) Interest rate reduced from the applicant's current rate on all 
loans to the poverty line rate as determined by FmHA or its successor 
agency under Public Law 103-354 instruction 440.1, exhibit B (available 
in any FmHA or its successor agency under Public Law 103-354 Office); 
and
    (2) Extension of the terms from 25 to 30 years.
    (F) Information concerning discussions with the debtor and their 
agreement or disagreement with the calculations and recommendations.

[[Page 319]]

    (G) If debt restructuring is proposed:
    (1) A draft of Form FmHA or its successor agency under Public Law 
103-354 1951-33, if applicable, and any other necessary comments or 
requirements that may be required by OGC and Bond Counsel in 
Sec. 1951.223 (c)(3) and (4) of subpart E of part 1951 of this chapter.
    (2) A draft of Form FmHA or its successor agency under Public Law 
103-354 1956-1, if applicable. Complete only parts I, II, VI, and VIII. 
Part VI, ``Debtor's Offer and Certification,'' will be in a separate 
attachment and contain the adjusted unpaid principal amount for which 
FmHA or its successor agency under Public Law 103-354 approval is 
requested. In Part VI of the form, type ``see attached.''
    (H) If the proposed restructured debt will not cash-flow or is less 
than the net recovery value, omit the items in paragraph (c)(3)(iv)(G) 
of this section.
    (d) National Office processing of State Director's request.
    (1) After reviewing the recommendation to either debt restructure or 
liquidate for the net recovery value, the Administrator, after 
concurring, modifying, or not concurring in the recommendation, will 
return the submission for further processing.
    (2) If a debt writedown is used in the restructuring process, the 
amount will be included in the National Office transmittal memorandum. 
The draft Form FmHA or its successor agency under Public Law 103-354 
1956-1 will not need to be finalized and returned to the Administrator 
for signature. The State Director's signature on the final copy will be 
sufficient. However, a copy of the National Office memorandum is to be 
attached to the form when completed.
    (e) Debtor notification of debt restructuring and net recovery value 
calculations. The State Director will provide a copy of the basis for 
the debt restructuring or net recovery determination to the debtor.
    (1) If the value of the restructured loan is equal to, or greater 
than, the recovery value, the debtor will be made an offer to accept the 
restructured debt by using language similar to that provided in Guide 2 
of this subpart (available in any FmHA or its successor agency under 
Public Law 103-354 Office) and including the following paragraphs:
    (i) An introductory paragraph indicating that FmHA or its successor 
agency under Public Law 103-354 has concluded its consideration of the 
debtor's request;
    (ii) A paragraph indicating FmHA or its successor agency under 
Public Law 103-354's approval of the debt restructuring request and that 
acceptance must be received by FmHA or its successor agency under Public 
Law 103-354 within 45 days from receipt of this letter; and
    (iii) That the debtor's acceptance will require the execution of a 
Shared Appreciation Agreement similar to Guide 4 of this subpart 
(available in any FmHA or its successor agency under Public Law 103-354 
Office) and possible new debt instruments accompanied by Bond Counsel 
opinions.
    (2) If the debt analysis calculations indicate that a restructured 
debt would be less than the net recovery value of the security, a letter 
using language similar to that provided in Guide 3 of this subpart 
(available in any FmHA or its successor agency under Public Law 103-354 
Office), will be sent to the debtor that includes the following 
paragraphs:
    (i) An introductory paragraph indicating that FmHA or its successor 
agency under Public Law 103-354 has concluded its consideration of the 
debtor's request;
    (ii) Paragraphs indicating that:
    (A) The debtor may pay FmHA or its successor agency under Public Law 
103-354 the net recovery value of the loan. The debtor will be given 30 
days from receipt of this letter to inform FmHA or its successor agency 
under Public Law 103-354 of its intent, 90 days to finalize the payoff, 
and will be notified that an election to pay off FmHA or its successor 
agency under Public Law 103-354 would require the execution of a Net 
Recovery Buy Out Recapture Agreement, similar to that provided in Guide 
5 of this subpart (available in any FmHA or its successor agency under 
Public Law 103-354 Office); or
    (B) If the debt is not paid off at the net recovery value, FmHA or 
its successor agency under Public Law 103-354 will proceed to liquidate 
the loan.

[[Page 320]]

    (f) Debtor responses to debt restructuring and net recovery value 
calculations. Responses from the debtor will be handled as follows:
    (1) Acceptance of FmHA or its successor agency under Public Law 103-
354's restructured debt offer. When a debtor accepts the offer for debt 
restructuring, processing will be in accordance with Sec. 1951.223 (c) 
of subpart E of part 1951 of this chapter using the adjusted unpaid 
principal and outstanding accrued interest at the Administrator's 
approved interest rate and terms. The debtor will be required to execute 
a Shared Appreciation Agreement which will provide that, should the 
debtor sell or transfer title to the facility within the next 10 years, 
FmHA or its successor agency under Public Law 103-354 is entitled to a 
portion of any gain realized. This agreement will include language 
similar to that found in Guide 4 of this subpart (available in any FmHA 
or its successor agency under Public Law 103-354 Office). The original 
of Form FmHA or its successor agency under Public Law 103-354 1956-1, 
with appropriate attachments signed by the State Director, and a copy of 
the Shared Appreciation Agreement will be sent to the Finance Office. 
Note: All documents pertaining to this transaction will be sent to the 
Finance Office in one single complete package; and
    (2) Acceptance by debtor to pay off loan at the recovery value. 
Processing of this transaction will be in accordance with Sec. 1956.124 
of this subpart. However, the account does not need to be accelerated. 
The debtor will be required to execute a Net Recovery Buy Out Recapture 
Agreement, similar to that found in Guide 5 of this subpart (available 
in any FmHA or its successor agency under Public Law 103-354 Office). 
The original of Form FmHA or its successor agency under Public Law 103-
354 1956-1, with appropriate attachments signed by the State Director, 
and a copy of the recorded Net Recovery Buy Out Recapture Agreement will 
be sent to the Finance Office. The executed Net Recovery Buy Out 
Recapture Agreement will be recorded in the county in which the facility 
is located. The Finance Office will credit the accounts of debtors who 
entered into Net Recovery Buy Out Recapture Agreements with the amount 
paid by the debtor (net recovery value). Note: All documents pertaining 
to this transaction will be sent to the Finance Office in one single 
complete package.
    (g) Collection and processing of recapture.
    (1) When FmHA or its successor agency under Public Law 103-354 
becomes aware of the sale or transfer of title to the facility on which 
there is an effective Net Recovery Buy Out Recapture Agreement (Guide 5 
of this subpart available in any FmHA or its successor agency under 
Public Law 103-354 Office) or a Shared Appreciation Agreement (Guide 4 
of this subpart available in any FmHA or its successor agency under 
Public Law 103-354 Office) outstanding and a determination is made that 
a recapture is appropriate, FmHA or its successor agency under Public 
Law 103-354 will notify the debtor of the following:
    (i) Date and amount of recapture due; and
    (ii) FmHA or its successor agency under Public Law 103-354 action to 
be taken if debtor does not respond within the designated timeframe with 
the amount of recapture due.
    (2) When the recapture is received, the payment will be processed on 
Form FmHA or its successor agency under Public Law 103-354 451-2 as a 
miscellaneous collection in accordance with subpart B of part 1951 of 
this chapter. The Form FmHA or its successor agency under Public Law 
103-354 451-2 along with a copy of the Net Recovery Buy Out Recapture 
Agreement (Guide 5 of this subpart available in any FmHA or its 
successor agency under Public Law 103-354 Office) or Shared Appreciation 
Agreement (Guide 4 of this subpart available in any FmHA or its 
successor agency under Public Law 103-354 Office), as appropriate, will 
be forwarded to the Finance Office.
    (3) When the amount of the recapture has been paid and credited to 
the debtor's account, the debtor will be released from liability by 
using Form FmHA or its successor agency under Public Law 103-354 1965-8, 
``Release from Personal Liability,'' modified as appropriate.
    (h) No recapture due. If FmHA or its successor agency under Public 
Law 103-

[[Page 321]]

354 determines there is no recapture due, the Net Recovery Buy Out 
Recapture Agreement (Guide 5 of this subpart available in any FmHA or 
its successor agency under Public Law 103-354 Office) or Shared 
Appreciation Agreement (Guide 4 of this subpart available in any FmHA or 
its successor agency under Public Law 103-354 Office) will be 
appropriately annotated, the Recapture Agreement released from the 
record, and the Agreement returned to the debtor.
[59 FR 46160, Sept. 7, 1994]



Sec. 1956.144   [Reserved]



Sec. 1956.145  Disposition of essential FmHA or its successor agency under Public Law 103-354 records.

    FmHA or its successor agency under Public Law 103-354 Instruction 
2033-A (available in any FmHA or its successor agency under Public Law 
103-354 office) identifies an ``essential FmHA or its successor agency 
under Public Law 103-354 record'' as the original of any document or 
record which provides evidence of indebtedness or obligation to FmHA or 
its successor agency under Public Law 103-354 and includes, but is not 
limited to: promissory notes, assumption agreements and valuable 
documents, such as bonds fully registered as to principal and interest.
    (a) Essential FmHA or its successor agency under Public Law 103-354 
records evidencing debts settled by compromise, completed adjustment or 
cancelled with application will be returned to the debtor or to the 
debtors' legal representative. The appropriate legend, such as 
``Satisfied by Approved Compromise,'' and the date of the final action 
will be stamped or typed on the original document. This same information 
plus the date the original document is returned to the debtor will be 
shown on a copy to be placed in the debtor's case folder.
    (b) Essential FmHA or its successor agency under Public Law 103-354 
records evidencing debts cancelled without application will be placed in 
the debtor's case folder and disposed of pursuant to FmHA or its 
successor agency under Public Law 103-354 Instruction 2033-A (available 
in any FmHA or its successor agency under Public Law 103-354 office). 
However, if the debtor requests the document(s), they must be stamped 
``Satisfied by Approved Cancellation'' and returned.
    (c) Essential FmHA or its successor agency under Public Law 103-354 
records evidencing charged off debts will be retained in the servicing 
office and will not be stamped or returned to the debtor. They will be 
destroyed six years after chargeoff pursuant to FmHA or its successor 
agency under Public Law 103-354 Instruction 2033-A (available in any 
FmHA or its successor agency under Public Law 103-354 office).
[53 FR 13100, Apr. 21, 1988, as amended at 58 FR 21346, Apr. 21, 1993]



Sec. 1956.146  [Reserved]



Sec. 1956.147  Debt settlement under the Federal Claims Collection Act.

    The U.S. Department of Justice (DOJ) and the General Accounting 
Office are charged with the responsibility for implementing the Federal 
Claims Collection Act and have promulgated the Federal Claims Collection 
Act Joint Standards (FCCAJS) (4 CFR parts 101-105) to inform Government 
Agencies on how to settle debts and claims which the Agency does not 
have independent statutory authority to settle. With the exception of 
loans and claims with outstanding balances of $20,000 or less, exclusive 
of interest, penalties, and administrative costs, settlements must be 
submitted to and approved by the United States Attorney or the DOJ. Debt 
Settlement of Economic Opportunity Cooperative loans, Claims Against 
Third Party Converters, Nonprogram loans, Industrial Development Grants, 
Rural Development Loan Fund loans, Intermediary Relending Program loans, 
Nonprofit National Corporations Loans and Grants, Indian Tribal Land 
Acquisition Loans (to the extent settlement cannot be effected pursuant 
to Sec. 1956.137), and 601 Energy Impact Assistance Grants are programs 
that must be settled under the FCCAJS.
    (a) Debt settlement of the subject loans and claims falls in the 
following categories:
    (1) Settlement of loans and claims may be approved by the 
Administrator

[[Page 322]]

when the outstanding balance of the indebtedness involved in the 
settlement in $20,000 or less, exclusive of interest, penalties, and 
administrative costs. These loans and claims will be submitted to the 
National Office on Form FmHA or its successor agency under Public Law 
103-354 1956-1, ``Application for Settlement of Indebtedness,'' for debt 
settlement. Subsequent to approval, Form FmHA or its successor agency 
under Public Law 103-354 1956-1 will be distributed in accordance with 
the Forms Manual Insert (FMI).
    (2) Loans and claims with an outstanding balance of $200,000 or less 
inclusive of interest, penalties, and administrative costs, but with an 
outstanding balance greater than $20,000, exclusive of interest, 
penalties, and administrative costs, after approval by the State 
Director will be referred to your Regional Office of the General Counsel 
(OGC) for referral to the United States Attorney in whose judicial 
district the debtor can be found. The form to be used is the Claims 
Collection Litigation Report (CCLR). This form should be available 
through the U.S. Attorney. A memorandum from the State Director should 
be attached to the CCLR recommending acceptance of the debt settlement. 
If the State Director after reviewing the CCLR does not recommend 
acceptance, the State Director has the authority to reject the debt 
settlement.
    (3) Loans and claims with an outstanding balance over $200,000, 
inclusive of interest, penalties, and administrative costs, will be 
referred to the Administrator and will include the following:
    (i) The case file(s).
    (ii) A completed CCLR.
    (iii) Copies of the notes, security agreements, and mortgages.
    (iv) A current appraisal of any security owned by the debtor.
    (v) A narrative which will include:
    (A) Recommendation for the acceptance of the debt settlement.
    (B) The type of loan involved, a short history of the loan, and why 
the debtor failed.
    (C) Steps taken to collect the loan(s).
    (D) An analysis of the debtor's future repayment ability. This 
should discuss if the debtor has any other assets or has concealed or 
improperly transferred assets, if known. If the debtor is an individual, 
this should include consideration of the debtor's present and potential 
income and inheritance prospects.
    (E) Why acceptance of the debt settlement offer is in the best 
interest of the Government.
    (4) If the Administrator concurs with the recommendation for the 
debt settlement, it will be referred by the FmHA or its successor agency 
under Public Law 103-354 National Office to OGC for referral to the 
Commercial Litigation Branch, Civil Division, U.S. Department of 
Justice, Washington, DC 20530.
    (b) When a debtor has a Community Programs or Business and Industry 
loans(s) and defined in this subpart, these loan(s) will be debt settled 
under the authority of the Consolidated Farm and Rural Development Act. 
In such cases, the subject loans and claims should be listed under part 
II(B) on Form FmHA or its successor agency under Public Law 103-354 
1956-1, as other debts owed FmHA or its successor agency under Public 
Law 103-354. Normally, all the security for the subject loans and claims 
should be disposed of prior to the submission for debt settlement.
    (c) It is not necessary to obtain approval of the United States 
Attorney or the DOJ (as the case may be) in cases where FmHA or its 
successor agency under Public Law 103-354 decides not to settle a loan 
or claim.
[55 FR 30197, July 25, 1990, as amended at 59 FR 46162, Sept. 7, 1994]



Sec. 1956.148  Exception authority.

    The Administrator may make an exception to any requirement or 
provision of this subpart which is not inconsistent with the authorizing 
statute or other applicable law if the Administrator determines that 
application of the requirement or provision would adversely affect the 
Government's interest. Requests for exceptions must be made in writing 
by the State Director and supported with documentation to explain the 
adverse effect on the Government's interest, propose alternative

[[Page 323]]

courses of action, and show how the adverse effect will be eliminated or 
minimized if the exception is granted. Any settlement actions approved 
by the Administrator under this section will be documented on Form FmHA 
or its successor agency under Public Law 103-354 1956-1 and returned to 
the State Office for submission to the Finance Office.



Sec. 1956.149  [Reserved]



Sec. 1956.150  OMB control number.

    The reporting requirements contained in this regulation have been 
approved by the Office of Management and Budget and assigned OMB control 
number 0575-0124. Public reporting burden for this collection of 
information is estimated to vary from \1/2\ hour to 30 hours per 
response with an average of 8.14 hours per response, including the time 
for reviewing instructions, searching existing data sources, gathering 
and maintaining the data needed, and completing and reviewing the 
collection of information. Send comments regarding this burden estimate 
or any other aspect of this collection of information, including 
suggestions for reducing this burden, to Department of Agriculture, 
Clearance Officer, OIRM, Ag Box 7630, Washington, D.C. 20250; and to the 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Washington, DC 20503.
[59 FR 46162, Sept. 7, 1994]



PART 1957--ASSET SALES--Table of Contents




                  Subpart A--Rural Housing Asset Sales

Sec.
1957.1  General.
1957.2  Transfer with assumptions.
1957.3  [Reserved]
1957.4  Graduation.
1957.5  [Reserved]
1957.6  Appeal reviews.
1957.7--1957.50  [Reserved]

    Authority: Pub. L. 99-509, sec 2001(b)(1).

    Source: 54 FR 47958, Nov. 20, 1989, unless otherwise noted.



                  Subpart A--Rural Housing Asset Sales



Sec. 1957.1  General.

    Pursuant to the Omnibus Budget Reconciliation Act of 1986, Public 
Law 99-509, the Farmers Home Administration or its successor agency 
under Public Law 103-354 sold certain of the portfolio of loans made 
under section 502 of the Housing Act of 1949 to the Rural Housing Trust, 
1987-1. The sale was without recourse to FmHA or its successor agency 
under Public Law 103-354 except for certain provisions providing for 
FmHA or its successor agency under Public Law 103-354's payment of 
interest credit amounts and agreement to compensate the Rural Housing 
Trust 1987-1 for future cash flow changes due to revised borrowers 
rights as set forth in FmHA or its successor agency under Public Law 
103-354 regulations. The sale documents to Rural Housing Trust 1987-1 
recognize that the FmHA or its successor agency under Public Law 103-354 
loans were assigned subject to rights provided to theseborrowers under 
documentation to recognize the rights of FmHA or its successor agency 
under Public Law 103-354 borrowers under regulations of FmHA or its 
successor agency under Public Law 103-354 as they may exist from time to 
time and to service the loans in accordance with then current FmHA or 
its successor agency under Public Law 103-354 regulations. In addition, 
as provided in Sec. 1957.6 of this subpart, FmHA or its successor agency 
under Public Law 103-354 has retained review, but not hearing authority 
under the FmHA or its successor agency under Public Law 103-354 Appeal 
Procedure, 7 CFR part 1900, Subpart B. Failure of private servicers to 
comply with FmHA or its successor agency under Public Law 103-354 
regulations in servicing loans sold to the Rural Housing Trust 1987-1 
may be redressed in the review process under the Appeal Procedure.



Sec. 1957.2  Transfer with assumptions.

    FmHA or its successor agency under Public Law 103-354 regulations 
governing transfers and assumptions will not

[[Page 324]]

apply to these loans. Individuals who what to purchase property securing 
a loan held by the Rural Housing Trust 1987-1, and who are eligible for 
an FmHA or its successor agency under Public Law 103-354 Sec. 502 loan 
will be given the same priority by FmHA or its successor agency under 
Public Law 103-354 as a transferee of a Sec. 502 loan if the property is 
then suitable for the FmHA or its successor agency under Public Law 103-
354 RH program and is located in an eligible area. The Master Servicer 
of the Rural Housing Trust, 1987-1, may permit an assumption if it is 
deemed by the Master Servicer to be in the financial interest of the 
Trust, but in such case the transferee would not be eligible for FmHA or 
its successor agency under Public Law 103-354 loan servicing benefits 
under FmHA or its successor agency under Public Law 103-354 regulations.



Sec. 1957.3  [Reserved]



Sec. 1957.4  Graduation.

    Borrowers will not be required to graduate to other credit.



Sec. 1957.5  [Reserved]



Sec. 1957.6  Appeal reviews.

    The Master Servicer, acting through its subservicer, will have the 
responsibility to conduct hearings under the appeal process. Final 
review of an adverse decision upheld under the appeal process will 
remain with FmHA or its successor agency under Public Law 103-354 and be 
conducted by the Agency's National Appeal Staff, Washington, DC, under 
the FmHA or its successor agency under Public Law 103-354 Appeal 
Procedures, 7 CFR part 1900, subpart B. This review is final and will 
conclude the appellant's administrative appeal process.



Secs. 1957.7--1957.50  [Reserved]



PART 1962--PERSONAL PROPERTY--Table of Contents




        Subpart A--Servicing and Liquidation of Chattel Security

Sec.
1962.1  Purpose.
1962.2  Policy.
1962.3  Authorities and responsibilities.
1962.4  Definitions.
1962.5  [Reserved]
1962.6  Liens and assignments on chattel property.
1962.7  Securing unpaid balances on unsecured loans.
1962.8  Liens on real estate for additional security.
1962.9-1962.12  [Reserved]
1962.13  Notification to potential purchasers.
1962.14  Account and security information in UCC cases.
1962.15  [Reserved]
1962.16  Accounting by County Supervisor.
1962.17  Disposal of chattel security, use of proceeds and release of 
          lien.
1962.18  Unapproved disposition of chattel security.
1962.19  Claims against Commodity Credit Corporation (CCC).
1962.20--1962.25  [Reserved]
1962.26  Correcting errors in security instruments.
1962.27  Termination or satisfaction of chattel security instruments.
1962.28  [Reserved]
1962.29  Payment of fees and insurance premiums.
1962.30  Subordination and waiver of FmHA or its successor agency under 
          Public Law 103-354 liens of chattel security.
1962.31--962.33  [Reserved]
1962.34  Transfer of chattel security and EO property and assumption of 
          debts.
1962.35--1962.39  [Reserved]
1962.40  Liquidation.
1962.41  Sale of chattel security or EO property by borrowers.
1962.42  Repossession, care, and sale of chattel security or EO property 
          by the County Supervisor.
1962.43  [Reserved]
1962.44  Distribution of liquidation sale proceeds.
1962.45  Reporting sales.
1962.46  Deceased borrowers.
1962.47  Bankruptcy and insolvency.
1962.48  [Reserved]
1962.49  Civil and criminal cases.
1962.50  [Reserved]

                          Exhibits to Subpart A

Exhibit A--Memorandum of Understanding Between Commodity Credit 
          Corporation and Farmers Home Administration or its successor 
          agency under Public Law 103-354
Appendix 1--Furnishing Notice or Information to Commodity Credit 
          Corporation
Exhibit B--Memorandum of Understanding and Blanket Commodity Lien Waiver
Exhibit C--Memorandum of Understanding Between Farmers Home 
          Administration or its successor agency under Public Law 103-
          354 and Commodity Credit Corporation

[[Page 325]]

Exhibit D--Notice to Borrower's Attorney Regarding Loan Servicing 
          Options
Exhibit D-1--[Reserved]
Exhibit E--Releasing Security Sales Proceeds and Determining 
          ``Essential'' Family Living and Farm Operating Expenses
Exhibit F [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

    Source: 50 FR 45783, Nov. 1, 1985, unless otherwise noted.



        Subpart A--Servicing and Liquidation of Chattel Security



Sec. 1962.1  Purpose.

    This subpart delegates authorities and gives procedures for 
servicing, care, and liquidation of Farmers Home Administration or its 
successor agency under Public Law 103-354 (FmHA or its successor agency 
under Public Law 103-354) chattel security, Economic Opportunity (EO) 
loan property, and note only loans. Security servicing for Nonprogram 
(NP) loans on farm property will be according to subpart J of part 1951 
of this chapter.
[50 FR 45783, Nov. 1, 1985, as amended at 58 FR 52654, Oct. 12, 1993]



Sec. 1962.2  Policy.

    Chattel security, EO property and note only loans will be serviced 
to accomplish the loan objectives and protect FmHA or its successor 
agency under Public Law 103-354's financial interest. To accomplish 
these objectives, security will be serviced in accordance with the 
security instruments and related agreements, including any authorized 
modifications, provided the borrower has reasonable prospects of 
accomplishing the loan objectives, properly maintains and accounts for 
the security, and otherwise satisfactorily meets the loan obligations 
including repayment.



Sec. 1962.3  Authorities and responsibilities.

    (a) Redelegation of authority. Authority will be redelegated to the 
maximum extent possible consistent with program requirements and 
available resources. The State Director, District Director and County 
Supervisor are authorized to redelegate, in writing, any authority 
delegated to them in this subpart to any employee determined by them to 
be qualified.
    (b) Responsibilities--(1) FmHA or its successor agency under Public 
Law 103-354 personnel. The State Director, District Director and County 
Supervisor are responsible for carrying out the policies and procedures 
in this subpart.
    (2) Borrower. The borrower is responsible for repaying the loans, 
maintaining, protecting, and accounting to FmHA or its successor agency 
under Public Law 103-354 for all chattel security, and complying with 
all other requirements specified in promissory notes, security 
instruments, and related documents.
    (c) 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 affect the Government's interest. The 
Administrator will exercise this auhority 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.
    (d) Farms in more than one jurisdiction. If the farm is situated in 
more than one State, County, or Parish, the loan will be serviced by the 
County Office serving the County in which the borrower's residence is 
located. If the borrower is a corporation, cooperative, partnership or 
joint operation is the borrower's residence is not 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.
[50 FR 45783, Nov. 1, 1985, as amended at 51 FR 13480, Apr. 21, 1986]



Sec. 1962.4  Definitions.

    As used in this subpart, the following definitions apply:

[[Page 326]]

    Abandonment. Voluntary relinquishment by the borrower of control of 
security or EO property without providing for its care.
    Acquired chattel property. Former security or EO property of which 
FmHA or its successor agency under Public Law 103-354 has become the 
owner (See Sec. 1955.20 of Subpart A of Part 1955 of this chapter).
    Basic security. Consists of all equipment serving as security for 
FmHA or its successor agency under Public Law 103-354 loans. It also 
consists of real estate and all foundation herds and flocks, including 
replacements, which serve as a basis for the farming operation outlined 
in the Farm and Home Plan or yearly budget which serve as security for 
FmHA or its successor agency under Public Law 103-354 loans. With 
respect to livestock herds and flocks, animals that are sold as a result 
of the normal culling process are basic security unless the borrower has 
replacements that will keep numbers and production up to planned levels. 
However, if a borrower plans to make a significant reduction in his 
basic livestock herd or flocks, the animals or birds that are sold in 
making this reduction will be considered basic security.
    Borrower. When a loan is made to an individual, the individual is 
the borrower. When a loan is made to an entity, the cooperative, 
corporation, partnership or joint operation is the borrower.
    Chattel security. Chattel property which may consist of, but is not 
limited to, inventory; accounts; contract rights; general intangibles; 
crops; livestock; fish; farm, business, and recreational equipment; and 
supplies, and which is covered by financing statements and security 
agreements, chattel mortgages, and other security instruments.
    Civil action. Court proceedings to protect FmHA or its successor 
agency under Public Law 103-354's financial interests such as obtaining 
possession of property from borrowers or third parties, judgments on 
indebtedness evidenced by notes or other contracts or judgments for the 
value of converted property, or judicial foreclosure. Bankruptcy and 
similar proceedings to impound and distribute the bankrupt's assets to 
creditors and probate and similar proceedings to settle and distribute 
estates of incompetents or of decendents under a will, or otherwise, and 
pay claims of creditors are not included.
    Criminal action. Prosecution by the United States to exact 
punishment in the form of fines or imprisonment for alleged violations 
of criminal statutes. These include but are not limited to violations 
such as:
    Unauthorized sale of security.
    Purchase of security with intent to defraud and without payment of 
the purchase price to FmHA or its successor agency under Public Law 103-
354;
    Falsification of assets or liabilities in loan applications;
    Application for a loan for an authorized purpose with intent to use 
and use of loan funds for an unauthorized purpose;
    Decision after obtaining a loan to use and using the funds for an 
unauthorized purpose and then making false statements regarding their 
use;
    By scheme, trick, or other device, covering up or concealing misuse 
of funds or authorized dispositions of security or EO property or other 
illegal action; or
    Any other false statements or representations relating to FmHA or 
its successor agency under Public Law 103-354 matters. To establish that 
a criminal act was committed by selling EO property, it is necessary to 
show that the borrower, at the time the loan agreement or the check on 
the supervised bank account was signed, intended to sell the property in 
violation of the loan agreement. The Federal criminal statute of 
limitations bars institution of criminal action 5 years after the date 
the act was committed. Unauthorized disposition of even minor items by 
the borrower will be considered criminal violations.
    Default. Failure of the borrower to observe the agreements with FmHA 
or its successor agency under Public Law 103-354 as contained in notes, 
security instruments, and similar or related instruments. Some examples 
of default or factors to consider in determining whether a borrower is 
in default are when a borrower:

[[Page 327]]

    Is delinquent, and the borrower's refusal or inability to pay on 
schedule, or as agreed upon, is due to lack of diligence, lack of sound 
farming or other operation, or other circumstances within the borrower's 
control.
    Ceases to conduct farming or other operations for which the loan was 
made or to carry out approved changed operations.
    Has disposed of security or EO property without FmHA or its 
successor agency under Public Law 103-354 approval, has not cared 
properly for such property, has not accounted properly for such property 
or the proceeds from its sale, or taken some action which resulted in 
bad faith or other violations in connection with the loan.
    Has progressed to the point to be able to obtain credit from other 
sources, and has agreed in the note or other instrument to do so but 
refuses to comply with that agreement.
    EO property. Nonsecurity chattel property purchased, refinanced, or 
improved with EO loan funds.
    EO property essential for minimum family living needs. Nonsecurity 
chattel or real property required to provide food, shelter, or other 
necessities for the family or to produce income without which the family 
would not have such necessities. This includes livestock, poultry, or 
other animals used as food or to produce food for the family or to 
produce income for minimum essential family living needs; modest amounts 
of real property needed for family shelter or to produce food or income 
for minimum essential family living needs, and items such as equipment, 
tools, and motor vehicles, which are of minimum value and are essential 
for family living needs or to produce income for that purpose. Any such 
item of a value in excess of the minimum need may be sold and a portion 
of the sale proceeds used to purchase a similar item of less value to 
meet such need. The remainder of the proceeds will be paid on the EO 
loan.
    Farm income. Proceeds from the sale of chattel security which is 
normally sold annually during the regular course of business such as 
crops, feeder livestock and other farm products.
    Farmer Program loans. These loans and Farm Ownership (FO), Operating 
(OL), Soil and Water (SW), Recreation (RL), Economic Emergency (EE), 
Emergency (EM), Economic Opportunity (EO) and Special Livestock (SL) 
loans and Rural Housing loans made for farm service buildings (RHF).
    FmHA or its successor agency under Public Law 103-354. The United 
States of America, acting through the Farmers Home Administration or its 
successor agency under Public Law 103-354 and its predecessor 
administrative agencies.
    Foreclosure sale. Act of selling security either under the ``Power 
of Sale'' in the security instrument or through court proceedings.
    Liquidation. The act of selling security or EO property to close the 
loan when no further assistance will be given; or instituting civil suit 
against a borrower to recover security or EO property or against third 
parties to recover security or its value or to recover amounts owed to 
FmHA or its successor agency under Public Law 103-354; or filing claims 
in bankruptcy or similar proceedings or in probate or administrative 
proceedings to close the loan.
    Normal income security. All security not considered basic security, 
including crops, livestock, poultry products, Agricultural Stabilization 
and Conservation Service payments and Commodity Credit Corporation 
payments, and other property covered by Farmers Home Administration or 
its successor agency under Public Law 103-354 liens that is sold in 
conjunction with the operation of a farm or other business, but shall 
not include any equipment (including fixtures in States that have 
adopted the Uniform Commercial Code), or foundation herd or flock. that 
is the basis of the farming or other operation, and is the basic 
security for a Farmers Home Administration or its successor agency under 
Public Law 103-354 farmer program loan.
    Office of the General Counsel (OGC). The Regional Attorneys, 
Attorneys-in-Charge, and National Office staff of the Office of the 
General Counsel of the United States Department of Agriculture.
    Purchase money security interest. Special type of security interest 
which, if properly perfected, takes priority over

[[Page 328]]

an earlier-perfected security interest. A security interest is a 
purchase money security interest to the extent that it is taken by the 
seller of the collateral to secure all or part of its purchase price or 
by a lender who makes loans or is obligated to make loans or otherwise 
gives value to enable the debtor to acquire the particular collateral or 
obtain rights in it. Such value must be given not later than the time 
the debtor acquires the collateral or obtains rights in it.
    Repossessed property. Security or EO property in FmHA or its 
successor agency under Public Law 103-354's custody, but still owned by 
the borrower.
    Security. Also means ``Chattel security'' when appropriate.
[50 FR 45783, Nov. 1, 1985, as amended at 51 FR 13481, Apr. 21, 1986; 53 
FR 35783, Sept. 14, 1988]



Sec. 1962.5  [Reserved]



Sec. 1962.6  Liens and assignments on chattel property.

    (a) Chattel property not covered by Agency lien. (1) When additional 
chattel property not presently covered by an Agency lien is available 
and needed to protect the Government's interest, the County Supervisor 
will obtain one or more of the following:
    (i) A lien on such property.
    (ii) An assignment of the proceeds from the sale of agricultural 
products when such products are not covered by the lien instruments.
    (iii) An assignment of other income, including FSA Farm Programs 
(formerly ASCS) payments.
    (2) When a current loan is not being made to a borrower, a crop lien 
will be taken as additional security when the County Supervisor 
determines in individual cases that it is needed to protect the 
Government's interests. However, a crop lien will not be taken as 
additional security for Farm Ownership (FO), Rural Housing (RH), Labor 
Housing (LH), and Soil and Water (SW) loans. When a new security 
agreement or chattel mortgage is taken, all existing security items will 
be described on it.
    (b) [Reserved]
    (c) Assignments of upland cotton, rice, wheat and feed grain 
payments. Borrowers may assign FSA Farm Programs (formerly ASCS) 
payments under upland cotton, rice, wheat and feed grain programs.
    (1) Obtaining assignments. Assignments will be obtained as follows:
    (i) Only when it appears necessary to collect operating-type loans.
    (ii) Only for the crop year for which operating-type loans are made, 
and
    (iii) For only the amount anticipated for payments as indicated on 
Form FmHA 1962-1, ``Agreement for the Use of Proceeds/Release of Chattel 
Security,'' of the applicable upland cotton, rice, wheat and feed grain 
programs.
    (2) Selecting counties. The County Supervisor then will:
    (i) Determine, at the time of loan processing for indebted borrowers 
and new applicants, who must give assignments and obtain them no later 
than loan closing. Special efforts will be made to obtain the bulk of 
assignments before the sign-up period for enrolling in the annual Feed 
Grain and Wheat set aside programs.
    (ii) Obtain assignments from selected borrowers on Form ASCS-36, 
``Assignments of Payment,'' which will be obtained from FSA Farm 
Programs.
    (3) Releasing assignments and handling checks. (i) The County 
Supervisor will inform FSA Farm Programs that releasing its assignment 
whenever a borrower pays the amount due for the year on the operating-
type loan debt or pays the debt in full.
    (ii) Checks obtained as a result of an assignment will be made only 
to the Agency, and the proceeds used as indicated on Form FmHA 1962-1.
[61 FR 35929, July 9, 1996]



Sec. 1962.7  Securing unpaid balances on unsecured loans.

    The County Supervisor will take a lien on a borrower's chattel 
property in accordance with Sec. 1962.6 of this subpart if it is 
necessary to rely on such property for the collection of the borrower's 
unsecured indebtedness, or if it will assist in accomplishing loan 
objectives.



Sec. 1962.8  Liens on real estate for additional security.

    The County Supervisor may take the best lien obtainable on any real 
estate

[[Page 329]]

owned by the borrower, including any real estate which already serves as 
security for another loan. Additional liens will be taken only when the 
borrower is delinquent, the existing security is not adequate to protect 
FmHA or its successor agency under Public Law 103-354 interests, and the 
borrower has substantial equity in the real estate to be mortgaged, and 
taking such mortgage will not prevent making an FmHA or its successor 
agency under Public Law 103-354 real estate loan, if needed, later.
    (a)-(b) [Reserved]
[50 FR 45783, Nov. 1, 1985, as amended at 53 FR 35783, Sept. 14, 1988; 
56 FR 15824, Apr. 18, 1991; 61 FR 35930, July 9, 1996]



Secs. 1962.9-1962.12   [Reserved]



Sec. 1962.13  Notification to potential purchasers.

    (a) In States without a Central Filing System (CFS), all Farm Credit 
Programs borrowers prior to loan closing or prior to any servicing 
actions which require taking a lien on farm products, such as crops or 
livestock, must provide the names and addresses of potential purchasers. 
A written notice will be sent by the Agency, certified mail, return 
receipt requested, to these potential purchasers to protect the 
Government's security interest.
    (1) The name and address of the debtor.
    (2) The name and address of any secured party.
    (3) The Social Security number or tax ID number of the debtor.
    (4) A description of the farm products given as security by the 
debtor, including the amount of such products where applicable, the crop 
year, the county in which the products are located, and a reasonable 
description of the farm products.
    (5) Any payment obligation imposed on the potential purchaser by the 
secured party as a condition for waiver or release of lien. The original 
or a copy of the written notice also must be sent to the purchaser 
within 1 year before the sale of the farm products. The written notice 
will lapse on either the expiration period of the Financing Statement or 
the transmission of a letter signed by the County Supervisor and showing 
that the statement has lapsed or the borrower has performed all 
obligations to the Agency.
    (b) Lists of borrowers whose chattels or crops are subject to an 
Agency lien may be made available, upon request, to business firms in a 
trade area, such as sale barns and warehouses, that buy chattels or 
crops or sell them for a commission. These lists will exclude those 
borrowers whose only crops for sale require FSA Farm Programs (formerly 
ASCS) marketing cards. The list is furnished only as a convenience and 
may be incomplete or inaccurate as of any particular date.
    (1)-(2) [Reserved]
[61 FR 35930, July 9, 1996, as amended at 62 FR 10157, Mar. 5, 1997]



Sec. 1962.14  Account and security information in UCC cases.

    Within 2 weeks after receipt of a written request from the borrower, 
the Agency must inform the borrower of the security and the total unpaid 
balance of the the Agency indebtedness covered by the Financing 
Statement.
    (a) If the Agency fails to provide the information, it may be liable 
for any loss caused the borrower and, in some States, other parties, and 
also may lose some of its security rights. The UCC provides that the 
borrower is entitled to such information once every 6 months without 
charge, and the the Agency may charge up to $10 for each additional 
statement. However, the Agency provides them without charge.
    (b) Although the UCC only requires the Agency to give information 
pursuant to the borrower's written request, the Agency will also answer 
oral requests. Furthermore, the UCC does not prohibit giving this 
information to others who have a proper need for it, such as a bank or 
another creditor contemplating advancing additional credit to the 
borrower.
[50 FR 45783, Nov. 1, 1985, as amended at 54 FR 47960, Nov. 20, 1989; 61 
FR 35930, July 9, 1996]



Sec. 1962.15  [Reserved]



Sec. 1962.16  Accounting by County Supervisor.

    The Agency will maintain a current record of each borrower's 
security.

[[Page 330]]

Whenever an inspection is performed, the borrower must advise the Agency 
of any changes in the security and will complete and sign Form FmHA 
1962-1 in accordance with Sec. 1924.56 if it has not been previously 
completed for the year.
    (a) Agency responsibilities. Chattel security will be inspected 
annually except in cases where the Agency official has justified in 
assessment or analysis review that no undue risk exists. An FO borrower 
who has been current with the Agency and who has provided chattels as 
additional security is an example of a case where an inspection may not 
be needed. All inspections will be recorded in the running record of the 
borrower's file. More frequent inspections should be made for delinquent 
borrowers or borrowers that have been indebted for less then 1 full crop 
year. The Agency official will discuss the provisions of Secs. 1962.17 
and 1962.18 and assist the borrower in completing the form. If a 
borrower does not plan to dispose of any chattel security, the form 
should be completed to show this and should be signed. When the Agency 
official has other contacts with the borrower, the official should also 
check for dispositions and acquisitions of security. Changes will be 
recorded on the form, dated and initialed by the borrower and the agency 
official. The purpose of all inspections is to:
    (1) Verify that the borrower possesses all the security,
    (2) Determine security is properly maintained, and
    (3) Supplement security instruments.
    (b) Dispositions. The County Supervisor will record all dispositions 
of chattel security on Form FmHA or its successor agency under Public 
Law 103-354 1962-1, and on the file copy of the security agreement or 
chattel mortgage. The original security instrument must not be altered. 
Additional acquired chattel security should be entered on the file copy 
of the security agreement or chattel mortgage and must be described on 
subsequent security instruments.
    (c) Unapproved dispositions. Unapproved dispositions of security 
will be handled in accordance with Secs. 1962.18 and 1962.49 of this 
subpart.
[50 FR 45783, Nov. 1, 1985, as amended at 58 FR 46075, Sept. 1, 1993; 61 
FR 35930, July 9, 1996]



Sec. 1962.17  Disposal of chattel security, use of proceeds and release of lien.

    (a) General. (1) The borrower must account for all security. When 
the borrower sells security, the property and proceeds remain subject to 
the Agency's lien until the lien is released. All checks, drafts, or 
money orders which the borrower receives for the sale of collateral 
listed on Form FmHA 1962-1 (available in any Agency office) must be 
payable to both the borrower and the Agency unless all Agency loan 
installments for the period of the form have been paid including any 
past-due installments. If the borrower disposes of collateral or uses 
the proceeds in a way not listed on Form FmHA 1962-1, the borrower will 
have violated the loan agreement, and the Government will not release 
its security interest in the collateral. Releases of sales proceeds will 
be terminated when the borrower's accounts are accelerated.
    (2) Section 1924.56 requires that there must always be a current 
Form FmHA 1962-1 in the file of a borrower with a loan secured by 
chattels. If a borrower asks the Agency to release proceeds from the 
sale of chattels and there is a current Form FmHA 1962-1 in the file, 
the request will be approved or disapproved in accordance with paragraph 
(b) of this section. If the borrower's request for release is denied, 
the borrower must be given attachment 1 of exhibit A of subpart S of 
part 1951 of this chapter, a written explanation of the reasons for the 
denial, and the opportunity for an appeal in accordance with 7 CFR part 
780. Immediately upon determining that the borrower does not have a 
current Form FmHA 1962-1 in the file, the County Supervisor will 
immediately contact the borrower to develop one.
    (3) If the borrower requests a change(s) to Form FmHA 1962-1, and 
the County Supervisor can approve the change(s), the borrower and the 
County Supervisor will initial and date each change in accordance with 
item (6) in

[[Page 331]]

the Forms Manual Insert (FMI) for Form FmHA 1962-1. The form will be 
marked ``Revised'' and the borrower will be notified in writing 
confirming that the change(s) has been approved.
    (b) Use of Form FmHA 1962-1. (1) County Supervisors are authorized 
to approve or disapprove dispositions of Agency chattel security in 
accordance with this subpart. The County Supervisor, with the assistance 
of the borrower, will complete Form FmHA 1962-1 in accordance with the 
FMI (available in any Agency office) to show how, when, and to whom the 
borrower will sell, exchange, or consume security and use sale proceeds 
(include milk sale proceeds). Government payments, crop insurance and 
insurance proceeds derived from the loss of security will also be 
accounted for on Form FmHA 1962-1. This includes, for example, sale 
proceeds on hand and crops in storage. Only the proceeds from the sale 
of normal income security can be used to pay essential family and farm 
operation expenses. Proceeds from the sale of basic security will not be 
used for essential family living and farm operatingexpenses. In addition 
to payment of prior liens, basic security can only be released for the 
purposes listed in paragraphs (b)(2)(iv) through (b)(2)(vii). When 
proceeds from the disposition of normal income security are to be used 
to pay essential family living or farm operating expenses, County 
Supervisors must approve the disposition. Any disposition of basic or 
normal income security must be recorded on Form FmHA 1962-1. However, 
the borrower is responsible for providing the County Supervisor with the 
necessary information to update the Farm and Home Plan and Form FmHA 
1962-1.
    (2) Under all circumstances, sales proceeds must be remitted to 
creditors with liens on the proceeds, in order of priority of those 
liens. Proceeds which are released by a prior lienholder or which are in 
excess of the amount due to prior lienholder and which come to the 
Agency can be used as follows:
    (i) The Form FmHA 1962-1 must provide for releases of normal income 
security so that the borrower can pay essential family living and farm 
operating expenses. However, proceeds from the sale of basic security 
will not be used to pay essential family living or farm operating 
expenses.
    (ii) Essential expenses are those which are basic, crucial or 
indispensable. The following items are guidelines of what normally may 
be considered essential family living and farm operating expenses:

Household operating
Food, including lunches
Clothing and personal care
Health and medical expenses, including medical insurance
House repair and sanitation
School, church, recreation
Personal insurance
Transportation
Furniture
Hired labor
Machinery repair
Farm building and fence repair
Interest on loans and credit or purchase agreement
Rent on equipment, land, and buildings
Feed for animals
Seed
Fertilizer
Pesticides, herbicides, and spray materials
Farm supplies not included above
Livestock expenses, including medical supplies, artificial insemination, 
and veterinarian bills
Machinery hire
Fuel and oil
Personal property tax
Real estate taxes
Water charges
Property and crop insurance
Auto and truck expenses
Utilities payments
Payments on contracts or loans secured by farmland, necessary farm 
equipment, livestock, or other chattels
Essential farm machinery. An item of essential farm machinery which is 
beyond repair may be replaced when the County Supervisor determines that 
replacement is a better choice than alternatives such as the lease of a 
similar piece of machinery or the hiring of the service.

    (iii) All of the items in paragraph (b)(2)(ii) of this section may 
not always be considered essential for every family and farming 
operation. County Supervisors must consider the individual borrower's 
operation, what is typical for that type of operation in the area 
administered by the County Supervisor, and what would be an efficient 
method of production considering the borrower's resources. County 
Supervisors will refer to exhibit E of this

[[Page 332]]

subpart for guidance in determining whether an expense will be 
considered essential and the amount of proceeds which should be 
released. When the borrower and County Supervisor cannot agree that an 
expense is essential, the County Supervisor will notify the borrower, in 
writing, of why the requested release was denied, including why it is 
not basic, crucial or indispensable to the family and/or the farming 
operation and will give the borrower an opportunity to appeal in 
accordance with subpart B of part 1900 of this chapter and paragraphs 
(a)(2) and (b)(5) of this section.
    (iv) Proceeds can be applied to the Agency debt.
    (v) Proceeds can be used to purchase property better suited to the 
borrower's need if the Agency will acquire a lien on the new property. 
The new property, together with any proceeds applied to the the Agency 
indebtedness, will have a value to the Agency at least equal to the 
value of the lien formerly held by the Agency on the old security.
    (vi) Proceeds can be used to preserve the security because of a 
natural disaster or other severe catastrophe, when the need for funds 
cannot be met by other means or with an Agency loan or an Agency loan 
cannot be made in time to prevent the borrower and Agency from suffering 
a substantial loss.
    (vii) Property can be exchanged, with prior Agency approval and in 
accordance with paragraph (b)(5) of this section, for property which is 
better suited to the borrower's needs if the Agency will acquire a lien 
on the new property, at least equal in value to the lien held on the 
property exchanged.
    (viii) Property can be consumed by the borrower as follows:
    (A) Livestock can be used by the borrower's family for subsistence.
    (B) If crops serve as security and usually would be marketed, the 
County Supervisor can allow such crops to be fed to livestock, provided, 
this is preferable to direct marketing and also provided that the Agency 
obtains a lien (or assignment) on the livestock and livestock products 
at least equal to the lien on the crops.
    (3) The borrower must maintain records of dispositions of property 
and the actual use of proceeds and must make these records available to 
the Agency at the end of the period covered by the Form FmHA 1962-1, or 
when requested by the Agency. The County Supervisor will complete the 
``Actual'' columns on that form, indicating approval or disapproval, 
making sure that the dispositions of property and uses of proceeds were 
as agreed upon. If they were not, the County Supervisor will take the 
actions required by Sec. 1962.18 of this subpart. On the form, the 
County Supervisor will note approval or disapproval of each disposition.
    (4) If, for any sale, the amount of proceeds actually received is 
above or below the amount of proceeds planned to be received as shown on 
Form FmHA 1962-1, the borrower will immediately notify the County 
Supervisor. If the borrower sells security to a purchaser not listed on 
the Form FmHA 1962-1, the borrower must immediately notify the County 
Supervisor of what property has been sold and of the name and business 
address of the purchaser. Such notification may be by telephone to the 
County Office, by letter, by visit to the County Office, or any other 
method the borrower chooses.
    (5) If a borrower wants to dispose of chattel security which is not 
listed on Form FmHA 1962-1 or wants to dispose of chattel security in a 
way not listed in the ``How'' section or wants to use proceeds in a way 
not listed in the ``Use of Proceeds'' section on Form FmHA 1962-1, the 
borrower must obtain the Agency consent before the disposition or before 
the proceeds are used. The Agency must give consent for the release of 
normal income security if the change is necessary for the borrower to 
meet essential family living and farm operating expenses. The Agency 
must also give consent if the conditions set out on the form and in 
paragraph (b)(2) of this section are met. The borrower may obtain prior 
consent by telephoning the county office, by letter, by visiting the 
county office, or by any other method the borrower chooses. When 
revisions are agreed to over the telephone, the County Supervisor must 
revise the Form FmHA 1962-1 contained in the borrower's case file, 
initial and date the change, and mark

[[Page 333]]

the form ``Revised.'' The County Supervisor will then either write to 
the borrower and send a copy of the ``Revised'' form to the borrower 
asking the borrower to date and initial the change and return the form 
to the county office, or the County Supervisor will ask the borrower to 
date and initial the change the next time the borrower is in the county 
office. Changes that would result in a major change (examples of major 
changes are: Feeder pig to sow operation, cow/calf to feeder steer 
operation, dairy to row crop, etc.) in a borrower's operation will 
always require a visit to the county office so that the County 
Supervisor and the borrower can complete a new farm and home plan and 
revise Form FmHA 1962-1. The County Supervisor will be responsible for 
determining if the requested change is major or not. If a revision 
cannot be agreed upon, see Sec. 1924.56 of subpart B of part 1924 of 
this chapter.
    (c) Release of liens. (1) Liens will be released by the County 
Supervisor when security is sold, exchanged or consumed, provided the 
conditions set out on Form FmHA 1962-1 and in this subpart are met.
    (2) Junior Agency liens on chattels and crops serving as security 
for Agency loans can be released when such property has no present or 
prospective security value or enforcement of the Agency lien would be 
ineffectual or uneconomical. The following information will be 
documented in the running case record:
    (i) The present market value of the chattels or crops, as determined 
by the County Supervisor, on which the Agency has a valueless junior 
lien.
    (ii) The names of the prior lienholders, amount secured by each 
prior lien, and the present market value of any property which serves as 
security for the amount. The value of all property which serves as 
security for amounts owed to prior lienholders must be considered to 
determine whether the junior Agency lien has any present or prospective 
value.
    (3) Liens obtained through a mutual mistake can be released. The 
reasons for the release must be documented in the running case record.
    (4) Liens can be released when there is no evidence of an existing 
indebtedness secured by the lien in the records of the Agency, County, 
State, or Finance Office.
    (5) Liens on separate items of chattels can be released to another 
creditor for any authorized Farm Credit Programs loan purpose when it 
has been determined by a current appraisal that the value of the 
remaining security is substantially greater than the remaining Agency 
debt.
    (d) Processing the release of chattel security. (1) If the borrower 
or an interested third party requests a release of specific items which 
must be recorded under the UCC or chattel mortgage laws, Form FmHA 462-
12, ``Statements of Continuation, Partial Release, Assignments, etc.,'' 
Form FmHA 460-1, ``Partial Release,'' or other Forms approved by OGC and 
required by State statute will be used. Care must be used to be sure 
that only specific items are released; for example, if a borrower 
requests a release of five cows, make sure that not all the cattle are 
released from the Agency lien. When specific items are listed on the 
security agreement, the County Supervisor should record the disposition 
on the work copy of the security agreement and on Form FmHA 1962-1.
    (2) Assignments and consent to payment of proceeds will be processed 
under subpart A of part 1941 of this chapter and recorded on Form FmHA 
1962-1.
    (i) When it is necessary to temporarily amend Form FmHA 441-18, 
``Consent to Payment of Proceeds From Sale of Farm Products,'' or Form 
FmHA 441-25, ``Assignment of Proceeds From the Sale of Dairy Products 
and Release of Security Interest,'' Form FmHA 462-9, ``Temporary 
Amendment of Consent to Payment of Proceeds From Sale of Farm 
Products,'' will be used. All amendments of assignment agreements will 
be made on forms approved by OGC. The State Director will issue a State 
Supplement with the advice of OGC and prior approval of the National 
Office on the use of other forms. The original form after completion 
will be forwarded directly to the person or firm making the payment

[[Page 334]]

against which the assignment is effective, and a copy will be kept in 
the borrower's case file. All amendments of assignment agreements will 
be approved and recorded on Form FmHA 1962-1. Conditions of this section 
must be met. The County Supervisor will see that payments are made in 
accordance with the original consent when the amendment period expires. 
Normally, a temporary amendment will not exceed a six month period.
    (ii) When the Agency is not expecting payment from the proceeds of a 
product on which it has a lien but the purchaser of the product inquires 
about payment, a letter should be written to the purchaser as follows:

    The FmHA has a security interest in the (name of product) being sold 
to you by (name and address of borrower), but at the present time is not 
looking to the proceeds from the sale of that product for payment on the 
debt owned to this agency. Therefore, until further notice, it will not 
be necessary for you to make payment to the Agency for such product.

    (e) Releases of liens on wool and mohair marketed by consignment--
(1) Conditions. Liens on wool and mohair may be released when the 
security is marketed by consignment, provided all the following 
conditions are met:
    (i) The producer assigns to the Agency the proceeds of any advances 
made, or to be made, on the wool or mohair by the broker, less shipping, 
handling, processing, and marketing costs.
    (ii) The producer assigns to the Agency the proceeds of the sale of 
the wool or mohair, less any remaining costs in shipping, handling, 
processing, and marketing, and less the amount of any advance (including 
any interest which may have accrued on the advance) made by the broker 
against the wool or mohair.
    (iii) The producer and broker agree that the net proceeds of any 
advances on, or sale of, the wool or mohair will be paid by checks made 
payable jointly to the producer and the Agency.
    (2) Authority. The County Supervisor may execute releases of the 
Government's lien on wool and mohair on Form FmHA 462-4, ``Assignment, 
Acceptance, and Release.'' Since Form FmHA 462-4 is not a binding 
agreement until executed by all parties in interest, including the 
producer, the broker and the Government, the County Supervisor may 
execute it before other parties sign it.
    (f) Notice of termination of security interest to purchasers of farm 
products under consents or assignments upon payment in full. County 
Supervisors will notify purchasers of farm products as soon as the 
Agency has received payment in full of indebtedness for collection of 
which it has accepted assignments or consents to payment of proceeds 
from the sale of the farm products. When Form FmHA 441-18 is in effect 
under the UCC, the notice to the purchaser will be made on Form FmHA 
460-8, ``Notice of Termination of Security Interest in Farm Products.'' 
When assignments have been used, the notice to the purchaser will be by 
letter or by forms prescribed by State Supplements.
    (g) Release of Agency interest in insurance policies. When an Agency 
lien on property covered by insurance has been released, the County 
Supervisor is authorized to notify the insurance company of the release.
[50 FR 45783, Nov. 1, 1985, as amended at 51 FR 13481, Apr. 21, 1986; 52 
FR 32121, Aug. 26, 1987; 53 FR 35784, Sept. 14, 1988; 56 FR 15824, Apr. 
18, 1991; 57 FR 18680, Apr. 30, 1992; 57 FR 60085, Dec. 18, 1992; 58 FR 
46075, Sept. 1, 1993; 61 FR 35930, 35931, July 9, 1996]



Sec. 1962.18  Unapproved disposition of chattel security.

    (a) General. When the County Supervisor learns that a borrower has 
made a disposition of chattel security in a manner not provided for on 
Form FmHA or its successor agency under Public Law 103-354 1962.1 or 
becomes aware of the misuse of proceeds by a borrower, corrective action 
must be taken to protect the Government's interest.
    (b) Notice to borrowers. When a borrower has not properly accounted 
for the use of proceeds from the sale of chattel security, the County 
Supervisor must request restitution by use of a letter similar to Guide 
Letter 1962-A-5.
    (1) If the borrower makes restitution or provides suffficient 
information to enable the County Supervisor to post-approve the 
transaction on Form

[[Page 335]]

FmHA or its successor agency under Public Law 103-354 1962-1, no further 
action will be taken against the borrower. Post-approval can only be 
given under the conditions set out in 1962.17(b) of this subpart. Only 
one such transgression can be allowed in any period covered by the Form 
FmHA or its successor agency under Public Law 103-354 431-2, or other 
similar plan of operation acceptable to FmHA or its successor agency 
under Public Law 103-354, between annual security inspections, whichever 
is appropriate, and this must be made clear to the borrower.
    (2) If the borrower does not make restitution, if the County 
Supervisor cannot post-approve the transaction, or if the borrower makes 
a second unauthorized disposition of security or a misuse of proceeds 
after settling the first offense as provided in paragraphs (a) and (b) 
of this section, the County Supervisor will proceed in accordance with 
Sec. 1962.49 of this subpart.
[54 FR 14791, Apr. 13, 1989]



Sec. 1962.19  Claims against Commodity Credit Corporation (CCC).

    This section is based on a Memorandum of Understanding between CCC 
and FmHA or its successor agency under Public Law 103-354 (see Exhibit A 
of this subpart). The memorandum sets forth the procedure to follow when 
producers sell or pledge to CCC as loan collateral under the Price 
Support Program, commodities on which FmHA or its successor agency under 
Public Law 103-354 holds a prior lien, and when the proceeds, or an 
agreed amount from them, are not remitted to FmHA or its successor 
agency under Public Law 103-354 to apply against the producer's 
indebtedness to FmHA or its successor agency under Public Law 103-354. 
In addition to the procedures outlined in Exhibit A, the following 
apply:
    (a) County Office action. (1) Claims will not be filed with CCC 
until it is determined that the amount involved cannot be collected from 
the borrower. Therefore, after preliminary notice is given of this fact 
to CCC by the State Director, the County Supervisor will make immediate 
demand on the borrower for the amount of the CCC loan or the portion of 
it which should have been applied to the borrower's account. If payment 
is made, the State Director will be notified.
    (i) If payment is not made, the County Supervisor will determine 
whether or not the case should be liquidated in accordance with 
Sec. 1962.40 of this subpart. Any liquidation action will be taken 
immediately. If the borrower has no property from which recovery can be 
made through liquidation or, if after liquidation, an unpaid balance 
remains on the indebtedness secured by the commodity pledged or sold to 
CCC, the County Supervisor will make a full report to the State Director 
on Form FmHA or its successor agency under Public Law 103-354 455-1, 
``Request for Legal Action,'' with a recommendation that a claim be 
filed againt CCC. However, if the indebtedness is paid through 
liquidation action, the State Director will be notified by memorandum.
    (ii) If the facts do not warrant liquidation action, the State 
Director will be notified, and a recommendation will be made that no 
claim be filed against CCC.
    (2) On receiving information from the State Director that CCC has 
called the borrower's loan, the County Supervisor will act to protect 
FmHA or its successor agency under Public Law 103-354's interest with 
respect to the commodity if CCC is repaid.
    (b) State Office action. (1) The State Director, on receipt of 
reports and recommendations from the County Supervisor, will:
    (i) If in agreement with the County Supervisor's recommendation not 
to file a claim against CCC or if notice is received that the 
indebtedness has been paid, forward notice to CCC.
    (ii) If in agreement with the County Supervisor's recommendation to 
file a claim against CCC, refer the case to OGC with a statement of 
facts.
    (iii) If OGC determines that FmHA or its successor agency under 
Public Law 103-354 holds a prior lien on the commodity and the amount 
due on its loan is not collectible from the borrower, send CCC a copy of 
the OGC memorandum with a complete statement of facts supporting the 
claim through the applicable ASCS office or notify CCC if

[[Page 336]]

the OGC memorandum does not support FmHA or its successor agency under 
Public Law 103-354's claim.
    (2) The State Director will notify the County Supervisor promptly on 
receiving information from CCC that the borrower's loan is being called.
    (3) If collection cannot be made from the borrower or other party 
(see paragraph 5 of Exhibit A of this Subpart), the State Director will 
give CCC the reasons, FmHA or its successor agency under Public Law 103-
354 will then be paid by CCC through the applicable ASCS office.



Secs. 1962.20--1952.25  [Reserved]



Sec. 1962.26  Correcting errors in security instruments.

    The County Supervisor may use Form FMHA 462-12, to correct minor 
errors in a financing statement when the errors are not serious (i.e., a 
slightly misspelled name). OGC will be asked to determine whether or not 
such errors are in fact minor. The County Supervisor may also use Form 
FmHA or its successor agency under Public Law 103-354 462-12 to add 
chattel property to the financing statement (i.e., a new type or item of 
chattel or crops on land not previously described).



Sec. 1962.27  Termination or satisfaction of chattel security instruments.

    (a) Conditions. The County Supervisor may terminate financing 
statements and satisfy chattel mortgages, chattel deeds of trust, 
assignments, severence agreements and other security instruments when:
    (1) Payment in full of all debts secured by collateral covered by 
the security instruments has been received; or
    (2) All security has been liquidated or released and the proceeds 
properly accounted for, including collection or settlement of all claims 
against third party converters of security, even though the secured 
debts are not paid in full. This includes collection-only and debt 
settlement cases; or
    (3) The U.S. Attorney has accepted a compromise offer in full 
settlement of the indebtedness and has asked that action be taken to 
satisfy or terminate such instruments; or
    (4) FmHA or its successor agency under Public Law 103-354 has a 
financing statement or other lien instrument which describes the real 
estate upon which crops are located but neither the borrower non FmHA or 
its successor agency under Public Law 103-354 has an interest in the 
crops because the borrower no longer occupies or farms the premises 
described in the lien instrument. Such action will only relate to the 
crops.
    (b) Form of payment. (1) Security instruments may be satisfied or 
the financing statements may be terminated on receipt of final payment 
in currency, coin, U.S. Treasury check, cashier's or certified check, 
bank draft, postal or bank money order, or a check issued by a party 
known to be financially responsible.
    (2) When the final payment is tendered in a form other than those 
mentioned above, the security instruments will not be satisfied until 15 
days after the date of the final payment. However, in UCC States the 
termination statement will be signed and sent to the borrower within 10 
days after receipt of the borrower's written request but not until the 
10th day unless it previously has been ascertained that the payment 
check or other instrument has been paid by the bank on which it was 
drawn. (See subsection (c) of this section for the reason for the 10-day 
requirement.)
    (c) Filing or recording termination statements. Financing statements 
will be terminated by use of Form FmHA or its successor agency under 
Public Law 103-354 462-12 if provided by a State supplement. (1) Under 
UCC provisions if FmHA or its successor agency under Public Law 103-354 
fails to give a termination statement to the borrower within 10 days 
after written demand, it will be liable to the borrower for $100 and, in 
addition, for any loss caused to the borrower by such failure unless 
otherwise provided by a State supplement. In the absence of demand for a 
termination statement by the borrower, a termination statement will be 
delivered to the borrower when the notes have been paid in full.
    (2) However, if FmHA or its successor agency under Public Law 103-
354 has

[[Page 337]]

been meeting the borrower's annual operating credit needs in the past 
and expects to do so the next year, the financing statements need not be 
terminated in the absence of such demand unless a loan for the 
succeeding year will not be made or earlier termination is required by a 
State supplement.
    (d) Filing or recording satisfactions. Satisfactions of chattel 
mortgages and similar instruments will be made on Form FmHA or its 
successor agency under Public Law 103-354 460-4, ``Satisfaction,'' or 
other form approved by the State Director. The original of the 
satisfaction form will be delivered to the borrower for recording or 
filing and the copy will be retained in the borrower's case file. 
However, if the State supplement based on State law requires recording 
or filing by the mortgagee, a second copy will be prepared for the 
borrower and the original will be recorded or filed by the County 
Supervisor. When State statutes provide that satisfactions may be 
accomplished by marginal entry on the records of the recording office, 
or when Form FmHA or its successor agency under Public Law 103-354 460-4 
is not legally sufficient because special circumstances require some 
other form of satisfaction, County Supervisors are authorized to make 
such satisfactions according to Statesupplements. In such cases, Form 
FmHA or its successor agency under Public Law 103-354 460-4 will not be 
prepared but a notation of the satisfaction will be made on the copy of 
Form FmHA or its successor agency under Public Law 103-354 451-1, 
``Acknowledgment of Cash Payment,'' or Form FmHA or its successor agency 
under Public Law 103-354 456-3, ``Journal Voucher for Write-Off or 
Judgment,'' which will be retained in the borrower's case folder.
    (e) Satisfaction or termination of lien when old loans cannot be 
identified. When a request is received for the satisfaction of a crop or 
chattel lien, or for the termination of a financing statement and the 
status of the account secured by the lien cannot be ascertained from 
County Office records, the County Supervisor will prepare a letter to 
the Finance Office reflecting all the pertinent information available in 
the County Office regarding the account. The letter will request the 
Finance Office to tell the County Supervisor whether the borrower is 
still indebted to FmHA or its successor agency under Public Law 103-354 
and, if so, the status of the account. If the Finance Office reports to 
the County Supervisor that the account has been paid in full or 
otherwise satisfied or that there is no record of an indebtedness in the 
name of the borrower, the County Supervisor is authorized to issue a 
satisfaction of the security instruments on Form FmHA or its successor 
agency under Public Law 103-354 460-4 or other approved form or to 
effect the satisfaction by marginal release, or a termination on Form 
FmHA or its successor agency under Public Law 103-354 462-12 as 
appropriate.



Sec. 1962.28  [Reserved]



Sec. 1962.29  Payment of fees and insurance premiums.

    (a) Fees. (1) Security instruments. Borrowers must pay statutory 
fees for filing or recording financing statements or other security 
instruments (including Form FmHA or its successor agency under Public 
Law 103-354 462-12, or other renewal statements) and any notary fees for 
executing these instruments. They also must pay costs of obtaining lien 
search reports needed in properly servicing security as outlined in this 
subpart. Whenever possible, borrowers should pay these fees directly to 
the officials giving the service. When cash is accepted by FmHA or its 
successor agency under Public Law 103-354 employees to pay these fees, 
Form FmHA or its successor agency under Public Law 103-354 440-12, 
``Acknowledgment of Payment for Recording, Lien Search and Releasing 
Fees,'' will be executed. If the borrower cannot pay the fees, or if 
there are fees referred to in paragraphs (a) (2) and (3) of this section 
that must be paid by FmHA or its successor agency under Public Law 103-
354, the County Supervisor may pay them as a petty purchase or as the 
bill of a creditor of FmHA or its successor agency under Public Law 103-
354 in accordance with FmHA or its successor agency under Public Law 
103-354 Instructions 2024-E, copies of which are

[[Page 338]]

available in any FmHA or its successor agency under Public Law 103-354 
office.
    (2) Satisfactions. The borrower must pay fees for filing or 
recording satisfactions or termination statements unless a State 
supplement based on State law requires FmHA or its successor agency 
under Public Law 103-354 to pay them.
    (3) Notary fees. FmHA or its successor agency under Public Law 103-
354 will pay fees for notary service for executing releases, 
subordinations, and related documents for and on behalf of FmHA or its 
successor agency under Public Law 103-354 if the service cannot be 
obtained without cost.
    (b) Insurance premiums. County Supervisors are authorized to voucher 
for the payment of bills for insurance premiums on chattel security, 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). Bills may be paid when:
    (1) A borrower cannot pay the premiums from the borrower's own 
resources at the time due;
    (2) Anticipated crop income does not materialize which would 
normally be released for the payment of crop insurance.
    (3) It is not pratical to process a loan for that purpose;
    (4) It is necessary to protect FmHA or its successor agency under 
Public Law 103-354's interests; and
    (5) The amount advanced can be charged to the borrower under the 
provisions of the security instrument.
[50 FR 45783, Nov. 1, 1985, as amended at 53 FR 35785, Sept. 14, 1988; 
56 FR 15825, Apr. 18, 1991; 57 FR 36592, Aug. 14, 1992]



Sec. 1962.30  Subordination and waiver of FmHA or its successor agency under Public Law 103-354 liens on chattel security.

    (a) Purposes. Subject to the limitations set out in paragraph (b) of 
this section, FmHA or its successor agency under Public Law 103-354 
chattel liens may be subordinated to a lien of another creditor to 
permit that creditor to lend for any authorized Farmer Programs loan 
purpose provided FmHA or its successor agency under Public Law 103-354's 
security interest will not be adversely affected.
    (b) Limitations. (1) An FmHA or its successor agency under Public 
Law 103-354 lien priority should be subordinated to the non-FmHA or its 
successor agency under Public Law 103-354 creditor's lien only so far as 
crops, livestock increase, feeder livestock, or other normal farm income 
security is concerned. If the non-FmHA or its successor agency under 
Public Law 103-354 lender will not make a loan unless FmHA or its 
successor agency under Public Law 103-354 agrees to subordinate more of 
its priority, FmHA or its successor agency under Public Law 103-354 may 
subordinate any lien it holds on basic chattel security. The FmHA or its 
successor agency under Public Law 103-354 should not give up any more of 
its priority on basic chattel security than is absolutely necessary to 
provide the non-FmHA or its successor agency under Public Law 103-354 
lender with the security it requires.
    (2) When an obligation secured by a lien prior to that of FmHA or 
its successor agency under Public Law 103-354 is about to mature or has 
matured and the prior lienholder desires to extend or renew the 
obligation, or the obligation can be refinanced, the FmHA or its 
successor agency under Public Law 103-354 lien may be subordinated. 
However, the relative lien position of FmHA or its successor agency 
under Public Law 103-354 must be maintained.
    (3) The subordination will be limited to a specific amount.
    (4) A subordination in favor of only one creditor will be 
outstanding at any one time in connection with the same security.
    (5) A subordination may also be executed to enable a borrower to 
obtain necessary crop insurance if the creditor to whom a subordination 
has been given on that crop consents in writing to payment of the 
insurance premiums from the crop or insurance proceeds. When a 
subordination is executed to enable the borrower to obtain crop 
insurance on crops under lien to FmHA or its successor agency under 
Public Law 103-354, the borrower will assign the insurance proceeds to 
FmHA or its successor agency under Public Law 103-354 or name FmHA or 
its successor

[[Page 339]]

agency under Public Law 103-354 in the loss-payable clause of the 
policy.
    (6) Waivers of FmHA or its successor agency under Public Law 103-354 
lien priority, instead of subordinations, may be executed in favor of a 
creditor who has made or will make advances for any authorized Farmer 
Programs loan purpose.
    (7) In accordance with the Food Security Act of 1985 (Pub. L. 99-
198) after December 23, 1985, if an individual or any member, 
stockholder, partner, or joint operator of an entity is convicted under 
Federal or State law of planting, cultivating, growing, producing, 
harvesting or storing a controlled substance (see 21 CFR Part 1308, 
which is Exhibit C of Subpart A of Part 1941 of this chapter and is 
available in any FmHA or its successor agency under Public Law 103-354 
office, for the definition of ``controlled substance'') prior to the 
issuance of the subordination in any crop year the individual or entity 
shall be ineligible for a subordination for the crop year, in which the 
individual or member, stockholder, partner, or joint operator of the 
entity was convicted and the four succeeding crop years. Applicants will 
attest on Form FmHA or its successor agency under Public Law 103-354 
410-1, ``Application for FmHA or its successor agency under Public Law 
103-354 Services,'' that as individuals or that its members, if an 
entity, have not been convicted of such crime after December 23, 1985. A 
decision to reject a subordination request for this reason is not 
appealable.
    (8) The loan funds will not be used for any purpose that will 
contribute to excessive erosion of highly erodible land or to the 
conversion of wetlands to produce an agricultural commodity as further 
explained in Exhibit M to Subpart G of Part 1940 of this chapter. This 
requirement will be monitored throughout the term of the loan.
    (c) Approval. Loan approval officials may approve subordinations and 
waivers of FmHA or its successor agency under Public Law 103-354 OL lien 
priority if the amount of the proposed subordination or waiver, plus the 
principal balance of existing subordinations or waivers, is not more 
than their OL approval authority stated in tables which are available 
from any FmHA or its successor agency under Public Law 103-354 office. 
Loan approval officials may approve subordinations and waivers of FmHA 
or its successor agency under Public Law 103-354 EM and EE loans lien 
priority if the amount of the subordination or waiver plus the unpaid 
principal balance of existing EM and EE loans and subordinations does 
not exceed their EM or EE loan approval authority stated in tables which 
are available from any FmHA or its successor agency under Public Law 
103-354 Office. When the lien priority for more than one type of loan is 
subordinated or waived, the total amount of the approval official's 
authority will be limited to the loan with the lowest approval authority 
for that official. However, the State Director may approve 
subordinations or waivers regardless of the amount. State Directors may 
redelegate their authority for approving subordinations to qualified 
State Office employees.
    (d) Forms. (1) Subordinations or lien waivers authorized in this 
Subpart will be made on Form FmHA or its successor agency under Public 
Law 103-354 460-2, ``Subordination by the Government,'' or on other 
forms approved by the State Director with OGC's advice. If Form FmHA or 
its successor agency under Public Law 103-354 460-2 does not conform to 
a State's recording requirements, a State supplement may be used, if 
approved by OGC, to modify the form.
    (2) Form FmHA or its successor agency under Public Law 103-354 431-2 
or other similar plan of operation acceptable to FmHA or its successor 
agency under Public Law 103-354 will show the subordination or lien 
waiver and repayment.
    (3) Items 1, 22, 23 and 24 will be completed on Form FmHA or its 
successor agency under Public Law 103-354 410-1.
    (e) Loans under CCC program. See Exhibits B and C of this Subpart.
    (1) When the ASCS County Office makes CCC loans to the borrower, 
FmHA or its successor agency under Public Law 103-354 will not execute a 
form of subordination or lien waiver.

[[Page 340]]

    (2) When the full value of a CCC loan on cotton is to be advanced to 
the borrower by a bank, ginner, or warehouseman whom the County 
Supervisor considers financially responsible, and when a check or draft 
issued by the bank, ginner, or warehouseman is made payable to FmHA or 
its successor agency under Public Law 103-354, or jointly to FmHA or its 
successor agency under Public Law 103-354 and the borrower, and is 
delivered to the County Supervisor, the County Supervisor may then 
execute the lienholder's waiver on Form CCC Cotton A even though item 2 
of that form shows that the CCC loan will be distributed to such a bank, 
ginner, or warehouseman. Loan approval officials may approve waivers of 
crop liens in accordance with subsection (c) of this section.
    (3) If the commodity covered by the CCC loan is released by CCC or 
redeemed by the borrower, the FmHA or its successor agency under Public 
Law 103-354 lien will be restored to the priority it held before the CCC 
loan was made.
    (4) When the borrower wishes to rotate or exchange a new crop for an 
old crop that is stored under the CCC Grain Reserve Program, the County 
Supervisor and the ASCS official will proceed as set out in Exhibit C of 
this subpart.
[50 FR 45783, Nov. 1, 1985, as amended at 51 FR 40786, Nov. 10, 1986; 53 
FR 7338, Mar. 8, 1988; 53 FR 8740, Mar. 16, 1988; 57 FR 18680, Apr. 30, 
1992]



Secs. 1962.31--1962.33  [Reserved]



Sec. 1962.34  Transfer of chattel security and EO property and assumption of debts.

    Chattel and EO property may be transferred to eligible or ineligible 
transferees who agree to assume the outstanding loan, subject to the 
provisions set out in this section. A transfer and assumption may also 
be made when one or more of the borrowers or the former spouse and co-
obligor of a divorced borrower withdraws from the operation or dies. The 
transfer of accounts secured by real estate or both real estate and 
chattels will be processed under Subpart A of Part 1965 of this chapter. 
The transferor (borrower) must be sent Attachment 1 of exhibit A of 
subpart S of part 1951 of this chapter as soon as the borrower contacts 
the County Supervisor inquiring about a transfer. In accordance with the 
Food Security Act of 1985 (Pub. L. 99-198) after December 23, 1985, if a 
loan is being transferred and assumed by an eligible or ineligible 
transferee, and if an individual or any member, stockholder, partner, or 
joint operator of an entity transferee is convicted under Federal or 
State law of planting, cultivating, growing, producing, harvesting or 
storing a controlled substance (see 21 CFR Part 1308, which is Exhibit C 
of Subpart A of Part 1941of this chapter and is available in any FmHA or 
its successor agency under Public Law 103-354 office, for the definition 
of ``controlled substance'') prior to the approval of the transfer and 
assumption in any crop year, the individual or entity shall be 
ineligible for a transfer and assumption of a loan for the crop year in 
which the individual or member, stockholder, partner, or joint operator 
of the entity was convicted and the four succeeding crop years. 
Transferee applicants will attest on Form FmHA or its successor agency 
under Public Law 103-354 410-1, ``Application for FmHA or its successor 
agency under Public Law 103-354 Services,'' that as individuals or that 
its members, if an entity, have not been convicted of such crime after 
December 23, 1985. A decision to reject an application for transfer and 
assumption for this reason is not appealable.
    (a) Transfer to eligibles. Transfers of chattel security and EO 
property to a transferee who is eligible for the kind of loan being 
assumed or who will become eligible after the transfer may be approved, 
provided:
    (1) The transferee assumes the total outstanding balance of the FmHA 
or its successor agency under Public Law 103-354 debts or that portion 
of the outstanding balance equal to the present market value of the 
chattel security or EO property, less any prior liens, if the property 
is worth less than the entire debt.
    (2) Generally the debts assumed will be paid in accordance with the 
rates and terms of the existing notes or assumption agreements. Form 
FmHA or

[[Page 341]]

its successor agency under Public Law 103-354 460-9, ``Assumption 
Agreement (Same Terms-Eligible Transferee),'' will be used. Any 
delinquency and any deferred interest outstanding will be scheduled for 
payment on or before the date the transfer is closed. If the existing 
loan repayment period is extended, the debt being assumed may be 
rescheduled using Form FmHA or its successor agency under Public Law 
103-354 1965-13, ``Assumption Agreement (Farmer Programs Loans).'' The 
new repayment period may not exceed that for a new loan of the same type 
and the current interest rate for such loans will be charged. If any 
deferred interest is not paid by the time the transfer takes place, it 
must be added tothe principal balance and the loan must be assumed at 
new rates and terms. Upon request of an applicant assuming a loan at new 
rates and terms and and/or an applicant eligible to receive limited 
resource rates and terms, the interest rate charged by FmHA or its 
successor agency under Public Law 103-354 will be the lower of the 
interest rates in effect at the time of loan approval or loan closing. 
If the applicant does not indicate a choice, the loan will be closed at 
the rate in effect at the time of loan approval. Interest rates are 
specified 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) for the type assistance involved.
    (3) The transfer of EM actual loss loans, or EM loans made before 
September 12, 1975, will be made as provided under paragraph (b) of this 
section. However, when one or more of the borrowers or jointly obligated 
partners or joint operators withdraw from the operation and those 
remaining desire to assume the total indebtedness and continue the 
operation, a transfer to the remaining borrowers, partners, or joint 
operators may be made as an eligible transferee.
    (4) The requirements found in Exhibit M to Subpart G of Part 1940 of 
this chapter are met.
    (b) Transfer to ineligibles. Transfer of the chattel security and EO 
property to a transferee who is not eligible for the kind of loan being 
assumed may be approved, provided:
    (1) It is in the Agency's financial interest to approve the transfer 
of security or EO property and assumption of the debts rather than to 
liquidate the security or EO property immediately.
    (2) The transferee assumes the total outstanding balance of the 
Agency debt, or an amount equal to the present market value of the 
security or EO property as determined by the County Supervisor, less any 
prior liens, if the value is less than the entire debts.
    (3) Agency debts assumed will be repaid in amortized installments 
not to exceed 5 years using Form FmHA 1965-13. The Farm Credit Programs 
NP interest rate for chattel property set forth in a National Office 
issuance, in effect at the time of loan approval, will be charged. Any 
deferred interest not paid by the time the transfer takes place must be 
added to the principal balance. The transferred property, including EO 
property, will be subject to any existing Agency lien. In the absence of 
an existing Agency lien, new lien instruments will be executed.
    (4) The transferee can repay the Agency in accordance with the 
assumption agreement and can legally enter into the contract.
    (5) The requirements found in Exhibit M to Subpart G of Part 1940 of 
this chapter are met.
    (6) The transferee has never been liable for a previous Farm Loan 
Programs (FLP) loan or loan guarantee which was reduced or terminated in 
a manner that resulted in a loss to the Government.
    (c) Effect of signature. In all cases the purpose and effect of 
signing an assumption agreement or other evidence of indebtedness is to 
engage separate and individual personal liability, regardless of any 
State law to the contrary.
    (d) Release of transferor from liability. The borrower and any 
cosigner may be released from personal liability to Agency when all the 
chattel security or EO property is transferred to an eligible or 
ineligible applicant and the total outstanding debt or that portion of 
the debt equal to the present market

[[Page 342]]

value of the security is assumed. However, no such release will be 
granted to any borrower who was liable for any direct FLP loan which was 
reduced or terminated in a manner that resulted in a loss to the 
Government. The appropriate official is authorized to approve releases 
from liability in accordance with Sec. 1962.34(h) of this subpart. When 
there will be no release from liability, the transferor and co-signer of 
a Farm Credit Programs loan must be sent a letter similar to exhibit F 
of subpart A of part 1955 of this chapter (available in any Agency 
office).
    (e) Agency actions. (1) Transfer to eligible applicant. The Agency 
will determine the transferee's eligibility for the type of loan to be 
assumed.
    (2) Release from liability. If the total outstanding debt is not 
assumed, the Agency must make the following determinations before it 
releases the transferor from personal liability:
    (i) The transferor and any cosigner do not have reasonable ability 
to pay all or a substantial part of the balance of the debt not assumed 
after considering their assets and income at the time of transfer,
    (ii) The transferor and any cosigner have cooperated in good faith, 
used due diligence to maintain the security against loss, and have 
otherwise fulfilled the covenants incident to the loan to the best of 
their ability, and
    (iii) The transferee will assume a portion of the indebtedness at 
least equal to the present market value of the security.
[50 FR 45783, Nov. 1, 1985, as amended at 51 FR 4139, Feb. 3, 1986; 51 
FR 6734, Feb. 26, 1986; 51 FR 13482, Apr. 21, 1986; 51 FR 40786, Nov. 
10, 1986; 51 FR 45439, Dec. 18, 1986; 53 FR 7338, Mar. 8, 1988; 53 FR 
10358, Mar. 31, 1988; 53 FR 17688, May 18, 1988; 53 FR 35785, Sept. 14, 
1988; 56 FR 3396, Jan. 30, 1991; 56 FR 12646, Mar. 27, 1991; 56 FR 
15825, Apr. 18, 1991; 58 FR 52654, Oct. 12, 1993; 60 FR 28321, May 31, 
1995; 61 FR 35931, July 9, 1996; 62 FR 10157, Mar. 5, 1997]



Secs. 1962.35--1962.39  [Reserved]



Sec. 1962.40  Liquidation.

    (a) Voluntary liquidation--(1) General. When a borrower contacts the 
agency and asks about voluntarily liquidating security, the borrower 
will be sent attachments 1 and 2 of exhibit A of subpart S of part 1951 
of this chapter or attachments 1, 3 and 4, and the preliminary 
application forms by certified mail, or the forms will be hand delivered 
at the County Office. The servicing notices which provide possible 
alternatives to liquidation provide a maximum of 60 days for the 
borrower to apply for servicing. Therefore, the agency will not discuss 
liquidation or methods of liquidation until 60 days after the borrower 
receives the notices except in serious situations which are documented 
in detail in the case file. During the 60-day time period the County 
Supervisor may answer questions regarding the servicing notices. After 
60 days, the borrower will be told that liquidation can be accomplished 
by:
    (i) Selling the security under Sec. 1962.41 of this subpart,
    (ii) Transferring the security under Sec. 1962.34 of this subpart,
    (iii) Conveying the security to the agency under Subpart A of Part 
1955 of this chapter, or
    (iv) Refinancing the debt with another lender.

The provisions of these regulations will be explained to the borrower.
    (2) Lien search. The County Supervisor will obtain a current lien 
search report to determine the effect that liens of other parties will 
have on liquidation, the record lienholders to whom notices of sale will 
be given, and the distribution that will be made of the sales proceeds. 
Normally, lien searches should be obtained from the same source as is 
used when making a loan. If obtaining the searches from third party 
sources causes undue delay which interferes with orderly liquidation, 
searches may be made by the County Supervisor. If the lien search is 
made by third parties, the borrower will pay the cost from personal 
funds or if the borrower refuses, the agency will pay the cost and 
charge it to the borrower's account in accordance with the security 
instrument or EO Loan Agreement. The records to be searched and the 
period covered by the search will be in accordance with a State 
supplement.
    (b) Involuntary liquidation--(1) General. When a borrower makes an 
unapproved disposition of security, the directions in Secs. 1962.18 and 
1962.49 of this

[[Page 343]]

subpart will be followed. In all other cases, when the County 
Supervisor, with the advice of the District Director, determines that 
continued servicing of the loan will not accomplish the objectives of 
the loan, or that further servicing cannot be justified under the policy 
stated in Sec. 1962.2 of this subpart, liquidation of the account(s) 
will be accomplished as quickly as possible under this section and 
subpart A of part 1955 of this chapter. When liquidation is begun, it is 
the agency policy to liquidate all security and EO property, except EO 
property that the County Supervisor determines is essential for minimum 
family living needs. The present market value of security that may be 
retained by the borrower for minimum family living needs will not exceed 
$600. However, only so much of the security and EO property will be 
liquidated as necessary to pay the indebtedness.
    (2) Farm Loan Programs loan cases. In Farm Loan Programs loan cases, 
borrowers who are 90 days past due (60 days delinquent) on their 
payments must receive exhibit A with attachments 1 and 2 or attachments 
1, 3, and 4 of exhibit A of subpart S of part 1951 of this chapter in 
cases involving nonmonetary default. The County Supervisor will send 
these forms to the borrower as soon as a decision is made to liquidate. 
The procedures set out in subpart S of part 1951 of this chapter shall 
be followed and any appeal must be concluded before any liquidation 
action (including termination of releases of sales proceeds) is taken. 
If the borrower fails to return attachment 2 of exhibit A of subpart S 
of part 1951 of this chapter and a preliminary application within 60 
days, the County Supervisor will send attachments 9 and 10 or 9-A and 
10-A, as appropriate, of exhibit A of subpart S of part 1951 of this 
chapter. If the borrower fails to return attachments 4, 6, 6-A, 10, or 
10-A of exhibit A of subpart S of part 1951 of this chapter within 60 
days, the borrower's account will be accelerated in accordance with 
Sec. 1955.15(d)(2) of subpart A of part 1955 of this chapter and 
paragraphs (b)(2) (i) and (ii) of this section. The County Supervisor 
will then attempt to repossess the security in accordance with 
Sec. 1962.42 of this subpart. If this is not possible, the case will be 
referred for civil action in accordance with Sec. 1962.49 of this 
subpart. Unmatured installments will be accelerated as follows:
    (i) The District Director will accelerate all unmatured installments 
by using exhibits D, E, or E-1 of subpart A of part 1955 of this chapter 
except in cases referred to OGC for civil action, if the notice has 
previously been given.
    (ii) Exhibits D, E, or E-1 of subpart A of part 1955 of this chapter 
will be sent to the last known address of each obligor, with a copy to 
the Finance Office in those cases referred to OGC for civil action. 
County Office and Finance Office loan records will be adjusted to mature 
the entire indebtedness only.
    (3) Lien search. The County Supervisor will follow the directions 
set out in paragraph (a)(2) of this section.
    (c) Multiple loans and loans secured by both real estate and 
chattels. Follow the provisions of Sec. 1965.26(c) of subpart A of part 
1965 of this chapter for liquidating these loans.
    (d) Assignment of direct loans. When liquidation of a direct loan is 
approved, the State Director will be asked by the official who approved 
the liquidation to immediately obtain an assignment of the loan to if 
the promissory note is not held in the County Office. Pending the 
assignment, preliminary steps to effect liquidation should be taken, but 
civil or other court action will not be started and claims will not be 
filed in bankruptcy or similar proceedings or in probate or 
administration proceedings with respect to the insured loan claim, 
unless essential to protect Government's interests and OGC recommends 
such action. However, other steps need not be held up pending 
assignment. If any problems are encountered in obtaining the assignment, 
OGC may be contacted for advice.
    (e) Protective advances. (1) After attachments 1 and 2 or 1, 3, and 
4 of exhibit A of subpart S of part 1951 of this chapter have been sent 
and if security is in danger of loss or deterioration, the State 
Director will protect Government's interest and approve protective 
advances in payment of:
    (i) Delinquent taxes or assessments that constitute prior liens 
which would

[[Page 344]]

be paid ahead of the Agency under Sec. 1962.44(a) of this subpart.
    (ii) Premiums on insurance essential to protect FmHA or its 
successor agency under Public Law 103-354's interest, and
    (iii) Other costs including transportation necessary to protect or 
preserve the security.
    (2) However, such advances may not be made unless the amount 
advanced becomes a part of the debt secured by the Agency's lien, or is 
for expenses of administration of estates or for litigation. If a case 
is in the hands of the U.S. Attorney, such advances may not be made 
without the U.S. Attorney's concurrence. Moreover, such advances may not 
be made in any case to pay expenses incurred by a U.S. Marshal or other 
similar official such as a local sheriff. However, if the official 
seizes the property and delivers it to the Agency for sale by the 
Agency, costs incurred by the Agency after delivery to the Agency will 
be paid.
    (3) The County Supervisor will submit a report on the need for such 
advances to the State Director, including:
    (i) Borrower's County Office case file;
    (ii) Current lien search report;
    (iii) Statement of the type and value of the property and of the 
circumstances which may result in the loss or deterioration of such 
property; and
    (iv) A recommendation as to whether or not the advance should be 
approved.
    (4) [Reserved]
    (f) When a borrower's security property is liquidated voluntarily or 
involuntarily and there is an unpaid balance on the account, the County 
Supervisor will meet with the borrower within 30 days to assist the 
borrower in developing a debt settlement offer in accordance with 
subpart B of part 1956 of this chapter.
[50 FR 45783, Nov. 1, 1985, as amended at 51 FR 4139, Feb. 3, 1986; 53 
FR 35785, Sept. 14, 1988; 56 FR 15825, Apr. 18, 1991; 57 FR 36592, Aug. 
14, 1992; 57 FR 60085, Dec. 18, 1992; 61 FR 35931, July 9, 1996; 62 FR 
10157, Mar. 5, 1997]



Sec. 1962.41  Sale of chattel security or EO property by borrowers.

    Borrowers who are liquidating voluntarily and who have not been sent 
exhibit A and attachments 1 and 2 or 1, 3 and 4 of subpart S of part 
1951 of this chapter will be processed in accordance with paragraph 
(a)(1) of Sec. 1962.40 of this subpart before any sale occurs.
    (a) Public sale. A borrower may voluntarily liquidate chattels by 
selling the property at auction in the borrower's own name. RD 455-3, 
``Agreement for Sale by Borrower (Chattels and/or Real Estate)'', will 
be executed by the borrower, all lienholders, and the clerk of the sale 
or other person who will receive the sale proceeds before execution by 
the County Supervisor. When EO property is involved delete from the 
Agency lien wherever it appears on the forms. No Agency official is 
authorized to bid at such sales. The County Supervisor will arrange to 
promptly receive the proceeds of the sale due the Agency for application 
on the borrower's indebtedness.
    (b) Private sale. The borrower may sell chattel security or EO 
property at a private sale if:
    (1)(i) The borrower has ready purchasers and can sell all of the 
property for its present market value; or
    (ii) The property is perishable; or
    (iii) The property is of a type customarily sold on a recognized 
market; or
    (iv) The property consists of items of small value or a limited 
number of items which do not justify public sale.
    (2) Form FmHA or its successor agency under Public Law 103-354 1962-
1 may be used to approve liquidation of such security. The County 
Supervisor will document in the running case record the reasons that a 
public sale was not justified.
    (3) Form FmHA or its successor agency under Public Law 103-354 455-3 
is completed before the sale.
    (c) Government takes possession. The borrower may also turn over 
possession of the chattels to the agency by signing Form RD 455-4, 
``Agreement for Voluntary Liquidation of Chattel Security.'' This form 
authorizes the agency to sell the security at either public or private 
sale. If the agency hires a caretaker, services should be obtained by 
use of Form AD-838, ``Purchase Order.''
    (d) Record of Sale. The sale will be recorded on Form FmHA 1962-1.

[[Page 345]]

    (e) Unpaid debt. If the sale results in less than full payment of 
the debt, the servicing official will have the County Committee review 
the case to determine if the borrower can be released of personal 
liability in accordance with paragraph (f) of this section. The borrower 
will be notified of the County Committee's recommendation for or against 
a release of personal liability.
    (f) Release of liability. The borrower and any co-signer may be 
released from personal liability to the agency when all the chattel 
security or EO property is sold at the present market value and the 
proceeds are applied on the loan accounts. If the County Committee 
recommends a release of liability based on the following comment, the 
comment will be typed on the County Committee Certification and executed 
by the committee, and be further processed and approved in accordance 
with Sec. 1962.34(h) of this subpart:

    In our opinion (name of borrower and any co-signer) does not have 
reasonable ability to pay all or a substantial part of the balance of 
the debt owed after the cash sale, taking into consideration his or her 
assets and income at the time of the conveyance. The borrower has 
cooperated in good faith, used due diligence to maintain property 
against loss, and has otherwise fulfilled the convenants incident to the 
loan to the best of his or her ability. (Name of borrower and any 
cosigner) has not been liable for a previous Farm Loan Programs (FLP) 
loan which was reduced or terminated in a manner that resulted in a loss 
to the Government. Therefore, we recommend that the borrower and any 
cosigner be released from personal liability for any balance due on the 
indebtedness upon completion of the transaction.

    Form RD 1965-8, ``Release From Personal Liability'' will be given to 
the borrower to release him/her from liability. If a release from 
liability cannot be granted, the borrower will be sent a letter similar 
to exhibit F of subpart A of part 1955 of this chapter (available in any 
agency office). The account will then be considered for debt settlement.
[50 FR 45783, Nov. 1, 1985, as amended at 51 FR 13482, Apr. 21, 1986; 53 
FR 35785, Sept. 14, 1988; 56 FR 15825, Apr. 18, 1991; 57 FR 60085, Dec. 
18, 1992; 62 FR 10157, Mar. 5, 1997]



Sec. 1962.42  Repossession, care, and sale of chattel security or EO property by the County Supervisor.

    (a) Repossession. Except as provided in paragraph (d) of this 
section, prior to any repossession of agency security a borrower and all 
cosigners on the note must receive exhibit A and attachments 1 and 2, or 
1, 3 and 4 of subpart S of part 1951 of this chapter and the application 
forms. The appropriate procedures of subpart S of part 1951 of this 
chapter must be followed and any appeal must be concluded. The County 
Supervisor will take possession of security or EO property when the 
value of the property, based on appraisal, is substantially more than 
the estimated sale expenses and the amount of any prior lien, and if the 
prior lienholder does not intend to enforce the lien. See Sec. 1955.20 
of subpart A of part 1955 of this chapter.
    (1) Conditions. The County Supervisor will take possession under any 
of the following conditions:
    (i) When RD 455-4 has been executed. For EO property this form will 
be revised by placing a period after ``interest'' in the first sentence 
beginning ``The Debtor'' and deleting the remainder of that clause; 
deleting the words ``collateral covered by the security instruments'' in 
the second part of the sentence and inserting instead ``property covered 
by the debtor's loan agreement which is referred to as the collateral.''
    (ii) When the borrower has abandoned the property.
    (iii) When peaceable possession can be obtained, but the borrower 
has not executed RD 455-4.
    (iv) When the property is delivered to the agency as a result of 
court action.
    (v) When Form RD 455-5, ``Agreement of Secured Parties to Sale of 
SecurityProperty,'' is executed by all prior lienholders. If prior 
lienholders will not agree to liquidate the property, their liens may be 
paid if their notes and liens are assigned to the agency on forms 
prepared or approved by OGC. When prior liens are paid, the payment will 
be made in accordance with RD Instruction 2024-A (available in any 
agency office) and charged to the borrower's account.

[[Page 346]]

    (vi) When arrangements cannot be made with the borrower or a member 
of the borrower's family to sell EO property in accordance with the loan 
agreement.
    (2) Recording. A list, dated and signed by the servicing official, 
of all security or EO property repossessed except for those items on 
Form RD 455-4, will be maintained in the borrower's case file. Whenever 
the servicing official is transferred to another position or leaves the 
agency or there is a change in jurisdiction, the District Director will 
give the succeeding servicing official in writing, the names of such 
borrowers and a list of the property repossessed in the custody of the 
servicing official and caretakers, its location, and the names and 
addresses of the caretakers.
    (b) Care. The County Supervisor will arrange for the custody and 
care of repossessed property as follows:
    (1) Livestock. Care and feeding of livestock will be obtained by 
contract pursuant to subpart B of part 1955 of this chapter. The value 
of animal products (such as milk) may constitute all or part of the 
contractor's quotation, and if this is desired, such a statement should 
be included in the solicitation. Possession of the livestock will be 
turned over to the contractor only after the contract is awarded using 
Form AD-838, ``Purchase Order.'' If a contractor's services are needed 
for a longer period than is authorized in paragraph (c)(4)(i) of this 
section, the State Director may authorize the County Supervisor to 
continue obtaining the necessary services for the time needed.
    (2) Machinery, equipment, tools, harvested crops, and other 
chattels. Property will be stored and cared for pending sale. Storage 
and necessary services may be obtained by contract using Form FmHA or 
its successor agency under Public Law 103-354 AD-838. Use of property by 
the contractor is not authorized.
    (3) Crops. Form FmHA or its successor agency under Public Law 103-
354 AD-838 will be used for obtaining services for the custody, care, 
and disposition of growing crops and for unharvested matured crops 
unless the crops are to be sold in place. Where a loanlord is involved, 
written consent of the landlord should be obtained. If landlord consent 
cannot be obtained, where applicable, the circumstances should be 
reported to the State Director for advice.
    (c) Sale. Repossessed property may be sold by FmHA or its successor 
agency under Public Law 103-354 at public or private sale for cash under 
Form FmHA or its successor agency under Public Law 103-354 455-4, 
``Agreement for Voluntary Liquidation of Chattel Security,'' Form FmHA 
or its successor agency under Public Law 103-354 1955-41, ``Notice of 
Sale,'' the power of sale in security agreements under the UCC, or in 
crop and chattel mortgages and similar instruments if authorized by a 
State supplement. Also, repossessed property may be sold at private sale 
when the borrower executes Form FmHA or its successor agency under 
Public Law 103-354 455-11, ``Bill of Sale `B' (Sale by Private Party).''
    (1) Tests and inspections of livestock. If required by State law as 
a condition of sale, livestock will be tested or inspected before sale. 
A State supplement will be issued for those States.
    (2) Public sales. Such sales will be made to the highest bidder. 
They may be held on the borrower's farm or other premises, at public 
sale barns, pavilions, or at other advantageous sales locations. No FmHA 
or its successor agency under Public Law 103-354 employee will bid on or 
acquire property at public sales except on behalf of FmHA or its 
successor agency under Public Law 103-354 in accordance with 
Sec. 1955.20 of subpart A of part 1955 of this chapter. The County 
Supervisor will attend all public sales of repossessed property.
    (3) Private sales. FmHA or its successor agency under Public Law 
103-354 will sell perishable property such as fresh fruits and 
vegetables for the best price obtainable. FmHA or its successor agency 
under Public Law 103-354 will sell staple crops such as when, rye, oats, 
corn, cotton, and tobacco for a price in line with current market 
quotations for products of similar grade, type, or other recognized 
classification. Chattel property sold under Form FmHA or its successor 
agency under Public Law 103-354 455-4, other

[[Page 347]]

than perishable property and staple crops, will not be sold for less 
than the minimum price in the agreement. FmHA or its successor agency 
under Public Law 103-354 will sell other property, including that sold 
when the borrower executes Form FmHA or its successor agency under 
Public Law 103-354 455-11, for its present market value.
    (4) Selling period. Repossessed property will be sold as soon as 
possible. However, when notice is required by paragraph (c)(5) of this 
section, the sale will not be held until the notice period has expired.
    (i) The sale will be made within 60 days, unless a shorter period is 
indicated by a State supplement because of State law. Crops will be sold 
when the maximum return can be realized but not later than 60 days after 
harvesting, or the normal marketing time for such crops. The State 
Director may extend the sale time within State law limits.
    (ii) These requirements do not apply to irrigation or other 
equipment and fixtures which, together with real estate, serve as 
security for FmHA or its successor agency under Public Law 103-354 real 
state loans and will be sold or transferred with the real estate. 
However, a State Supplement will be issued for any State having a time 
limit within which such items must be sold along with or as a part of 
the real estate.
    (5) Notice. (i) Notice of public or private sale of repossessed 
property when required will be given to the borrower and to any party 
who has filed a financing statement or who is known by the County 
Supervisor to have a security interest in the property, except as set 
forth below. The notice will be delivered or mailed so that it will 
reach the borrower and any lienholder at least 5 days (or longer time if 
specified by a State supplement) before the time of any public sale or 
the time after which any private sale will be held. Form FmHA or its 
successor agency under Public Law 103-354 1955-41, ``Notice of Sale,'' 
may be used for public or private sales.
    (A) Notice of the borrower or lienholder is not required when the 
property is sold under Form FmHA or its successor agency under Public 
Law 103-354 455-4 because the parties are placed on notice when they 
execute the form. When the sale involves only collateral which is 
perishable, will decline quickly in value, or is a type customarily sold 
on a recognized market, notice is not required but may be given if time 
permits to maintain good public relations.
    (B) Notice only to lienholder is required when repossessed property 
is sold at private sale and the borrower executes Form FmHA or its 
successor agency under Public Law 103-354 455-11.
    (C) If the property is to be sold under a chattel mortgage, the 
manner of notice will be set forth in a State supplement or on an 
individual case basis.
    (ii) Notice of Internal Revenue Service (IRS). If a Federal tax lien 
notice has been filed in the local records more than 30 days before the 
sale of the repossessed security, notice to the District Director of IRS 
must be given at least 25 days before the sale. It should be given by 
sending a copy of Form FmHA or its successor agency under Public Law 
103-354 1955-41 and a copy of the filed Notice of Federal Tax Lien (Form 
IRS 668). If the security is perishable, the full 25 days' notice must 
be given to the District Director by registered or certified mail or by 
personal service before the sale. Also, the sale proceeds must be held 
for 30 days after the sale so that they may be claimed by IRS on the 
basis of its tax lien priority. In such perishable property cases, the 
proceeds or an amount large enough to pay the IRS tax lien will be 
forwarded to the Finance Office with a notation ``Hold in suspense 30 
days because of Federal Tax Lien.'' OGC will advise the Finance Office 
about disposing of the funds.
    (6) Advertising. (i) Private sales and sales at established public 
auctions will be advertised by FmHA or its successor agency under Public 
Law 103-354 only if required by a State supplement based on State law.
    (ii) Other public sales, whether under power of sale in the lien 
instrument or under Form FmHA or its successor agency under Public Law 
103-354 455-4, will be widely publicized to assure large attendance and 
a fair sale by one or more of the following methods customarily used in 
the area.

[[Page 348]]

    (A) The sale may be advertised by posting or distributing handbills, 
posting Form FmHA or its successor agency under Public Law 103-354 1955-
41, or a revision of it approved by OGC to meet State law requirements, 
or by a combination of these methods. The length of time and place of 
giving notice will be covered by a State supplement.
    (B) Advertising in newspapers or spot advertisting on local radio or 
TV stations may be used depending on the amount of property to be sold 
and the cost in relation to the value of the property, the customs in 
the area, and State law requirements. When newspaper advertising is 
required, a State supplement will indicate the types of newspapers to be 
used, the number and times of insertions of the advertisement, and the 
form of notice of sale. All advertising must contain non-discrimination 
clauses.
    (7) Payment of costs and prior lienholders. If expenses must be paid 
before the sale or if cash proceeds are not available from the sale of 
the property to pay costs referred to in Sec. 1962.44(b) of this subpart 
or to pay lienholders, such costs or prior liens will be paid 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). The amount of the voucher will be charged to 
the borrower's account, except as limited by State law in a State 
Supplement. No costs in the repossession and sale of security should be 
incurred unless they can be charged to the borrower's account, and in no 
event will the Government pay them. However, if costs are legally 
chargeable to the borrower, they may be paid as provided in this 
subpart, and charged to an account set up for the officials or other 
persons found responsible for them.
    (8) Bill of sale or transfer of title. If a purchaser requests a 
written conveyance of repossessed property sold by FmHA or its successor 
agency under Public Law 103-354 at public or private sale, the County 
Supervisior will execute and deliver to the purchaser Form FmHA or its 
successor agency under Public Law 103-354 455-12, ``Bill of Sale `C' 
(Sale Through Government as Liquidating Agent),'' or other necessary 
instruments to convey all the rights, title, and interests of the 
borrower and FmHA or its successor agency under Public Law 103-354. A 
State supplement will be issued as necessary for conveying title to 
motor vehicles and boats.
    (d) Risk of injury. If a farmer program loan borrower has abandoned 
security and the security is in danger of being substantially harmed or 
damaged, the County Supervisor will attempt to repossess the security as 
explained in paragraph (a) of this section. Then the County Supervisor 
will send the borrower and all cosigners on the note attachments 1, 3 
and 4 of exhibit A of subpart S of part 1951 of this chapter. The 
security will be cared for as explained in paragraph (b) of this section 
until all appeal rights have been given and any appeal has been 
concluded. When the appeal process is concluded, the security will be 
returned to the borrower or sold in accordance with paragraph (c) of 
this section, depending on the outcome of any appeal. The County 
Supervisor will document the abandonment and the danger of substantial 
damage in the borrower's case file. In the case of livestock, 
abandonment occurs if a borrower stops caring for the animals, as 
determined by the County Supervisor. However, an independent third party 
(not an FmHA or its successor agency under Public Law 103-354 employee) 
must determine that livestock is in danger of substantial damage. 
Protective advances may be made in accordance with Sec. 1962.40(e) of 
this subpart.
[50 FR 45783, Nov. 1, 1985, as amended at 51 FR 13482, Apr. 21, 1986; 53 
FR 35786, Sept. 14, 1988; 56 FR 15825, Apr. 18, 1991; 57 FR 36592, Aug. 
14, 1992; 62 FR 10158, Mar. 5, 1997]



Sec. 1962.43  [Reserved]



Sec. 1962.44  Distribution of liquidation sale proceeds.

    This section applies to proceeds of nonjudicial liquidation sales 
conducted under the power of sale in lien instruments or under Form FmHA 
or its successor agency under Public Law 103-354 455-4, Form FmHA or its 
successor agency under Public Law 103-354 455-3, or Form FmHA or its 
successor agency under Public Law 103-354 462-2.

[[Page 349]]

    (a) [Reserved]
    (b) Order of payment. Sales proceeds will be distributed in the 
following order of priority.
    (1) To pay expenses of sale including advertising, lien searches, 
tests and inspection of livestock, and transportation, custody, care, 
storage, harvesting, marketing, and other expenses chargeable to the 
borrower, including reimbursement of amounts already paid by the Agency 
and charged to the borrower's account. Bills can be paid, after 
liquidation has been approved, for essential repairs and parts for 
machinery and equipment to place it in reasonable condition for sale, 
provided written agreements from any holders of liens which are prior to 
those of the Agency state that such bills may be paid from the sales 
proceeds ahead of their liens.
    (i) However, any such expenses incurred by the U.S. Marshal or other 
similar official such as a local sheriff may not be paid from sale 
proceeds turned over to the Agency.
    (ii) On the other hand, if the U.S. Marshal or other similar 
official such as a local sheriff has taken possession of the property 
and delivered it to the Agency for sale, such costs incurred by the 
Agency after delivery of the property to it may be paid from the 
proceeds of the sale.
    (2) To pay liens which are prior to the Agency liens provided that:
    (i) State and local tax liens on security or EO property which are 
prior to the liens of the Agency will be paid only when demand is made 
by tax collecting officials before distributing the sale proceeds. The 
sale proceeds will not be used to pay real estate, income, or other 
taxes which are not a lien against the security, or to pay substantial 
amounts of personal property taxes on nonsecurity personal property.
    (ii) If action is threatened or taken by the sheriff or other 
official to collect taxes not authorized in suparagraph (b)(2)(i) of 
this section to be paid out of the security or the sale proceeds, the 
sale will be postponed unless an arrangement can be made to deposit in 
escrow with a responsible, disinterested party an amount equal to the 
tax claim, pending determination of priority rights. When the sale is 
postponed, or an escrow arrangement is made, the matter will be reported 
promptly to the State Director for referral to OGC.
    (iii) If the Agency subordinations have been approved, their intent 
will be recognized in the use of sale proceeds even though the creditor 
in whose favor the the Agency lien was subordinated did not obtain a 
lien. If there are other third party liens on the property, however, the 
lien-holders must agree to the use of the sale proceeds to pay such 
creditor first.
    (3) To pay rent for the current crop year from the sale proceeds of 
other than basic security or EO property. However, there must be no 
liens junior to the Agency other than the landlord's lien, if any, and 
the borrower must consent in writing to the payment.
    (4) To pay debts owed the Agency which are secured by liens on the 
property sold.
    (5) To pay liens junior to those of the Agency in accordance with 
their priorities on the property sold, including any landlord's liens 
for rent unless such liens already have been paid. Junior liens will not 
be paid unless, on request, the lienholder gives proof of the existence 
and the amount of his or her lien.
    (6) To pay on any EO unsecured debt.
    (7) To pay rent for the current crop year if the borrower consents 
in writing to payment and if such rent has not already been paid as 
provided in paragraph (b) (2), (3), or (5) of this section.
    (8) To pay on any other the Agency debts, either unsecured or 
secured by liens on property which is not being sold. However, in 
justifiable circumstances, the State Director may approve the use of a 
part or all of the remainder of such sale proceeds by the borrower for 
other purposes, provided the other the Agency debts are adequately 
secured, or the borrower arranges to pay the other debts from income or 
other sources and these payments can be depended upon.
    (9) To pay the remainder to the borrower.
    (c) [Reserved]
[50 FR 45783, Nov. 1, 1985, as amended at 61 FR 35931, July 9, 1996]

[[Page 350]]



Sec. 1962.45  Reporting sales.

    Form FmHA or its successor agency under Public Law 103-354 1955-3, 
``Advice of Property Acquired,'' will be prepared and distributed 
according to the FMI when property is acquired by FmHA or its successor 
agency under Public Law 103-354.



Sec. 1962.46  Deceased borrowers.

    Immediately on learning of the death of any person liable to the 
Agency, the County Supervisor will prepare Form FmHA 455-17, ``Report on 
Deceased Borrower,'' to determine whether any special servicing action 
is necessary unless the County Supervisor recommends settlement of the 
indebtedness under Subpart B of Part 1956 of this chapter. If a survivor 
will not continue with the loan, it may be necessary to make immediate 
arrangements with a survivor, executor, administrator, or other 
interested parties to complete the year's operations or to otherwise 
protect or preserve the security.
    (a) Reporting. The borrower's case files including Form 455-17 will 
be forwarded promptly to the State Director for use in deciding the 
action to take if any of the following conditions exist (When it is 
necessary to send an incomplete Form FmHA 455-17, any additional 
information which may affect the State Director's decision will be sent 
as soon as available on a supplemental Form FmHA 455-17 or in a 
memorandum.):
    (1) Probate or other administration proceedings have been started or 
are contemplated.
    (2) The debts owed to the Agency are inadequately secured and the 
state has other assets from which collection could be made.
    (3) The Agency's security has a value in excess of the indebtedness 
it secures and the deceased obligor owes other debts to the Agency which 
are unsecured or inadequately secured.
    (4) The County Supervisor recommends continuation with a survivor 
who is not liable for the indebtedness or recommends transfer to, and 
assumption by, another party.
    (5) The County Supervisor recommends, but does not have authority to 
approve liquidation.
    (6) The County Supervisor wants advice on servicing the case.
    (b) Probate or administration proceedings. Generally, probate or 
administration proceedings are started by relatives or heirs of the 
deceased or by other creditors. Ordinarily, the Agency will not start 
these proceedings because of the problems of designating an 
administrator or other similar official, posting bond, and paying costs. 
If probate or administration proceedings are started by other parties or 
at the Agency's request, and any security is to be liquidated by the 
Agency instead of by the administrator or executor or other similar 
official, it will be liquidated in accordance with the advice of OGC. 
The State Director may request OGC to recommend that the U.S. Attorney 
bring probate or administration proceedings when it appears that:
    (1) Such proceedings will not be started by other parties;
    (2) The Agency's interests could best be protected by filing a proof 
of claim in such proceedings, and
    (3) Public administrators or other similar officials or private 
parties, including banks and trust companies, are eligible to, and will 
serve as administrator or other similar official and will provide the 
required bond.
    (c) Filing proof of claim. When a proof of claim is to be filed, it 
will be prepared on a form approved by OGC, executed by the State 
Director, and transmitted to OGC. It will be filed by OGC or by an the 
Agency official as directed by OGC or it will be referred by OGC to the 
U.S. Attorney for filing if representation of the Agency by counsel may 
be required. If a judgment claim is involved, the notification to the 
U.S. Attorney will be the same as for judgment claims in bankruptcy. If 
a direct loan is involved, the proof of claim will not be prepared until 
the note has been assigned to the Government. A proof of claim will be 
filed when probate or administration proceedings are started, unless:
    (1) After considering liens and priority rights of the Agency and 
other parties, costs of administration, and charges against the estate, 
the Agency cannot reach the assets in the estate except for the Agency's 
own security

[[Page 351]]

and the Agency will liquidate the security by foreclosure or otherwise 
if necessary to collect its claim, or
    (2) Continuation with an individual or transfer to and assumption by 
another party is approved, and either the debt owed to the Agency is 
fully secured, or the amount of the debt in excess of the value of the 
security which could be collected by filing a claim is obtained in cash 
or additional security, or
    (3) The debt owed to the Agency by the estate is settled under 
Subpart B of Part 1956 of this chapter, well ahead of the deadline for 
filing proof of claim.
    (d) Priority of claims. (1) Each secured claim will take its 
relative lien priority to the extent of the value of the property 
serving as security for it. These claims include those secured by 
mortgages, deeds of trust, landlord's contractual liens, and other 
contractual liens or security instruments executed by the borrower or 
real or personal property. However, tax, judgment, attachment, 
garnishment, laborer's, mechanic's, materialmen's, landlord's statutory 
liens, and other noncontractual lien claims may or may not be secured 
claims. Therefore, if any noncontractual claims are allowed as secured 
claims and the the Agency claim is not paid in full, the advice of OGC 
will be obtained as to whether they constitute secured claims and as to 
their relative priorities.
    (2) Unsecured claims will be handled as follows:
    (i) The remaining assets of the estate, including any value of 
security for more than the amount of the secured claims against it, are 
to be applied first to payment of administration costs and charges 
against the estate and second to unsecured debts of the deceased.
    (ii) If the total of the remaining assets in the estate being 
administered is not enough to pay all administration costs, charges 
against the estate, and unsecured debts of the deceased, the 
Government's unsecured claims against the remaining assets will have 
priority over all other unsecured claims, except the costs of 
administration and charges against the estate. Under such circumstances 
unsecured claims are payable in the following order of priority:
    (A) Costs of administration and charges against the estate unless 
under State law they are payable after the Government's unsecured 
claims. Such costs and charges include costs of administration of the 
estate, allowable funeral expenses, allowances of minor children and 
surviving spouse, and dower and curtesy rights.
    (B) The Government's unsecured claims.
    (3) A State supplement will be issued as needed taking into 
consideration 31 U.S.C. Sec. 3713 lien waivers and subordinations, and 
notice and other statutory provisions which affect lien priorities.
    (e) Withdrawal of claim. It may not be necessary to withdraw a claim 
when it is paid in full by someone other than the estate or when 
compromised. However, when it is necessary to permit closing of an 
estate, compromise of a claim, or for other justifiable reasons, the 
State Director will recommend to OGC that the claim be withdrawn on 
receipt of cash or security, or both, of a value at least equal to the 
amount that could be recovered under the claim against the estate. When 
the Agency keeps existing security, arrangements must be made to assure 
that withdrawal of the claim will not affect the Agency's rights under 
the existing notes or security instruments with respect to the retained 
security. In some cases, with OGC's advice, the claim may be properly 
handled without filing a formal petition for withdrawal of the claim. 
However, if the claim has been referred to the U.S. Attorney, or if a 
formal withdrawal of the claim is necessary, the matter will be referred 
by OGC to the U.S. Attorney.
    (f) Liquidation of security. When the County Supervisor determines 
that the account of a deceased borrower is in monetary or nonmonetary 
default, and liquidation is necessary because no survivor or third party 
has applied to assume the borrower's the Agency loan, chattel security 
and real estate security will be liquidated promptly in accordance with 
this subpart and subpart A of part 1965 of this chapter. Before 
liquidation, the notices required by subpart S of part 1951 of this 
chapter

[[Page 352]]

will be sent to the executor of the estate and/or other appropriate 
person(s) or entity(ies) as advised by OGC. If a suvivor(s) or heir(s) 
who will continue with the borrower's operation applies for servicing, 
the Agency will determine whether these individuals meet the 
requirements of paragraph (g) of this section. If a third party who will 
not continue with the borrower's operation applies for servicing, the 
requirements of Sec. 1962.34 of this subpart, or Sec. 1965.47 of subpart 
A of part 1965 of this chapter, as applicable, must be met. To qualify 
for servicing, the eligibility and feasibilityrequirements in 
Sec. 1951.909 of subpart S of part 1951 of this chapter must also be 
met. However, the borrower's estate is not eligible for servicing. After 
the provisions of subpart S of part 1951 of this chapter have been 
complied with, and the opportunity to appeal has expired, the State 
Director will request OGC to effect collection if the proceeds from the 
sale of security are insufficient to pay in full the indebtedness owed 
to the Agency and other assets are available in the estate or in the 
hands of heirs.
    (g) Continuation of secured debt and transfer or security. When a 
surviving member of a deceased borrower's family or other person is 
interested in continuing the loan and taking over the security for the 
benefit of all or a part of the deceased borrower's family who were 
directly dependent on the borrower for their support at the time of the 
borrower's death, continuation may be approved subject to the following:
    (1) Any individual who is liable for the indebtedness of the 
deceased borrower may continue with the loan provided that individual 
can comply with the obligations of the notes or other evidence of debt 
and chattel or real estate security instruments and so long as 
liquidation is not necessary to protect the interest of the Agency. When 
an individual who is liable for the indebtedness is to continue with the 
account, Form 450-10, ``Advice of Borrower's Change of Address or 
Name,'' will be sent to the Finance Office to change the account to that 
individual's name. A new case number will be assigned or, if the 
continuing individual already has a case number, that number will be 
used regardless of whether that individual assumed all or a portion of 
the amount of the debt owed by the estate of the deceased.
    (2) When a surviving member of a deceased borrower's family, a 
relative or other individual who is not liable for the indebtedness 
desires to continue with the farming or other operations and the loan, 
the State Director may approve the transfer of chattel or real estate 
security or both to the individual and the assumption of the debt 
secured by such property without regard to whether the transferee is 
eligible for the type of loan being assumed, subject to the following 
conditions:
    (i) The transferee will continue the farming or other operations for 
the benefit of all or a part of the deceased borrower's family who were 
directly dependent on the borrower for their support at the time of 
death.
    (ii) The amount to be assumed and the repayment rates and terms will 
be the same as provided in Sec. 1962.34(a) of this Subpart.
    (iii) The State Director determines that the continuation will not 
adversely affect repayment of the loan.
    (iv) The transferee has never been liable for a previous Farm Loan 
Programs direct farm loan or loan guarantee which was reduced or 
terminated in a manner that resulted in a loss to the Government.
    (3) In determining whether to continue with individuals, whether 
they are already liable or assume the indebtedness, all pertinent 
factors will be considered including whether:
    (i) Probate or administration proceedings have been or will be 
started and, with OGC's advice, whether the filing of a claim on the 
debt owed to the Agency in such proceedings is necessary to protect the 
Agency's interests.
    (ii) Arrangements can be made with the heirs, creditors, executors, 
administrators, and other interested parties to transfer title to the 
security to the continuing individual and to avoid liquidating the 
assets so that the individual can continue with the loan on a feasible 
basis.
    (4) If continuation is approved, all reasonable and practical steps, 
short of foreclosure or other litigation, will be

[[Page 353]]

taken to vest title to the security in the joint debtor or transferee.
    (5) The deceased borrower's estate may be released from liability 
for the the Agency indebtedness if title to the security is vested in 
the joint debtor or transferee, and:
    (i) The full amount of the debt is assumed, or
    (ii) If only a portion of the debt is assumed, the amount assumed 
equals the amount as determined by OGC which could be collected from the 
assets of the estate of the deceased borrower, including the value of 
any security or EO property, and the County Committee recommends release 
of liability.
    (h) Special servicing of deceased EO borrower cases. If the EO loan 
is secured, all paragraphs in this section will be followed. If the EO 
loan is unsecured, paragraphs (a), (b), (c), (d), and (e) of this 
section will be followed along with the following requirements.
    (1) An individual who is liable for the indebtedness of the deceased 
borrower and wishes to continue with the EO debt and the EO property, 
may do so in accordance with paragraph (g)(1) of this section.
    (2) A surviving member of the deceased borrower's family, a joint 
operator with the deceased borrower, a relative, or other individual who 
is not liable for the EO debt who desires to continue with the farming 
or other operation may do so in accordance with paragraph (g)(2) of this 
section. This individual must execute a loan agreement in addition to 
the assumption agreement and secure the EO debt with a lien on the 
remaining EO property when title to the property is vested in the 
individual and the County Supervisor determines that security is 
necessary to protect the interests of the deceased borrower's family or 
the Agency.
    (3) If no individual listed in paragraphs (h) (1) and (2) of this 
section wishes to continue, but a member of the borrower's family turns 
over to the Agency the EO property in which the estate has an interest 
and which is not essential for minimum family living needs, the County 
Supervisor will take possession of EO property and sell it in accordance 
with Sec. 1962.42 of this Subpart. If this cannot be done, or if real 
property is involved, the case will be referred to OGC. If the property 
is sold, notice will be delivered to any of the borrower's heirs who are 
in possession of the property and to any administrator or executor of 
the borrower's estate.
[50 FR 45783, Nov. 1, 1985, as amended at 51 FR 4140, Feb. 3, 1986; 51 
FR 45439, Dec. 18, 1986; 56 FR 15826, Apr. 18, 1991; 61 FR 35931, July 
9, 1996; 62 FR 10158, Mar. 5, 1997]



Sec. 1962.47  Bankruptcy and insolvency.

    (a) County Supervisor's responsibility. (1) If a borrower becomes a 
debtor in proceedings under any State or Federal bankruptcy or State 
insolvency law, the County Supervisor will promptly report the facts and 
forward the borrower's case file and other pertinent information and 
documents to the State Director for appropriate handling. The County 
Supervisor will keep the State Director informed of further 
developments, but will take no other action unless directed by the State 
Director or OGC. The State Director will have Form FmHA or its successor 
agency under Public Law 103-354 1951-6, ``Borrower Account Description 
Flag,'' prepared and processed through the ``Automated Discrepency 
Processing System,'' in accordance with the ``Field Office Transaction 
Manual.'' This will indicate on the borrower's account that bankruptcy 
action is pending, (BAP).
    (2) If the borrower has no attorney, the County Supervisor will 
mention this in the report sent to the State Director. The State 
Director will ask OGC's advice on how to handle such a case to make sure 
that the borrower is given any required notice of loan servicing 
alternatives.
    (3) Farmer Programs borrowers. (i) The County Supervisor will send 
the following servicing notices to the attorney of a Farmer Program 
borrower as soon as the County Supervisor learns that a bankruptcy has 
been filed: Attachments 1 and 2 of exhibit A (and not exhibit A) of 
subpart S of part 1951 of this chapter together with exhibit D of this 
subpart, and the application forms required by Sec. 1951.907 of subpart 
S of part 1951 of this chapter. In addition, the attorneys of borrowers 
with confirmed Chapter 11, 12, or 13 plans who are 180

[[Page 354]]

days delinquent on their plan will be sent these notices unless OGC 
advises that sending the notice is inconsistent with the provisions of 
the confirmed bankruptcy plan or other provisions of the Bankruptcy 
Code. The County Supervisor will send courtesy copies of these notices 
at the same time to the borrower and a dated copy of exhibit D only to 
OGC. The servicing notices explain that the Agency wants the borrower to 
know about the various Farmer Program loan servicing tools.
    (ii) If, after consultation with OGC, it is determined that the 
borrower is under the jurisdiction of the bankruptcy court, and the 
borrower wants to be considered for loan servicing, the following 
conditions must be met. The borrower must complete and return attachment 
2 of exhibit A of subpart S of part 1951 of this chapter and the 
required preliminary application forms within 60 days from the 
attorney's receipt of the notices required by this section. The 
borrower's attorney, in writing, must also request servicing on behalf 
of the borrower within the 60-day time period. FmHA or its successor 
agency under Public Law 103-354 will connsider this request to be an 
acknowledgment that FmHA or its successor agency under Public Law 103-
354 will not be interfering with any rights or protections under the 
Bankruptcy Code and its automatic stay provisions. FmHA or its successor 
agency under Public Law 103-354's processing of the application may 
include consideration of primary and preservation loan servicing options 
and notification of FmHA or its successor agency under Public Law 103-
354's decision on the application in accordance with subpart S of part 
1951 of this chapter, and holding any mediation, meetings or appeals 
requested by the borrower. However, the account will not be accelerated 
until FmHA or its successor agency under Public Law 103-354 has obtained 
any necessary relief from the automatic stay as determined by OGC.
    (iii) In chapters 11, 12, and 13 cases, if the borrower files a 
bankruptcy plan covering the FmHA or its successor agency under Public 
Law 103-354 debt, FmHA or its successor agency under Public Law 103-354 
will evaluate the merits of the plan and inform OGC of its 
recommendation for voting on or objecting to the plan. A plan will not 
be rejected by FmHA or its successor agency under Public Law 103-354 
simply because it is not consistent with FmHA or its successor agency 
under Public Law 103-354's loan servicing regulations. The Government's 
Attorney (who represents FmHA or its successor agency under Public Law 
103-354's interest in bankruptcy court) is free to object to the plan in 
accordance with the provisions of the Bankruptcy Code. If a borrower is 
operating under a confirmed bankruptcy plan, desires to apply for loan 
servicing and qualifies for servicing under FmHA or its successor agency 
under Public Law 103-354's regulations, the borrower must also comply 
with provisions of the Bankruptcy Code practiced in that jurisdiction 
concerning modification of the plan. If a plan is confirmed before 
servicing and any appeal is completed under FmHA or its successor agency 
under Public Law 103-354 regulations, FmHA or its successor agency under 
Public Law 103-354 will complete the servicing or appeals process, and 
may consent to a post-confirmation modification of the plan if it is 
consistent with the Bankruptcy Code and FmHA or its successor agency 
under Public Law 103-354 regulations as appropriate.
    (iv) In chapter 7 cases, the Agency will not provide Primary Loan 
Servicing to a borrower discharged in bankruptcy before or after January 
6, 1988, unless the borrower has reaffirmed the entire the Agency debt. 
If the chapter 7 debtor wants to reaffirm the debt, the Agency must 
accept the reaffirmation if permitted under bankruptcy law. If the the 
Agency debt is reaffirmed, the loan application will be processed in 
accordance with subpart S of part 1951 of this chapter. If the borrower 
reaffirms the the Agency debt in order to be considered for 
restructuring but is later denied restructuring, the borrower may revoke 
the reaffirmation. No reaffirmation is necessary for any discharged 
chapter 7 borrower to be eligible for Preservation Loan Service Programs 
in accordance with Sec. 1951.911 of subpart S of part 1951 of this 
chapter.
    (b) State Director's responsibility. On receipt of the file and 
related material,

[[Page 355]]

the State Director will determine whether the Agency has security for 
the debt and whether the debtor has other assets from which the Agency 
could make a substantial collection. If the file does not contain enough 
current information to allow the State Director to make these decisions, 
the State Director will ask the County Supervisor to provide whatever 
information is needed, such as a current appraisal.
    (1) In Chapter 7 cases only, if there is no security and no other 
asset from which a substantial recovery could be made, the file and 
related material will be returned to the County Office with a memorandum 
indicating the State Director's determination and advising that a proof 
of claim will not be filed unless the County Supervisor learns that the 
debtor has assets not previously known to exist. If assets are found 
before the time for filing claims has expired (90 days from the first 
date set for the first meeting of creditors), the County Supervisor will 
resubmit the case to the State Director.
    (2) In all Chapter 11, 12 and 13 cases and in Chapter 7 cases where 
a substantial recovery can be made, the State Director will take the 
following actions:
    (i) Form FmHA ``Proof of Claim of the United States of America,'' or 
other form approved by OGC will be executed. The proof of claim will 
cover all indebtedness to the Agency, except any judgments obtained by a 
U.S. Attorney. Proofs of Claim will be handled according to a State 
Supplement approved by OGC. If the proof of claim is submitted to OGC, 
the State Director will identify for OGC in memorandum (not on the proof 
of claim) the security which was taken for each loan.
    (ii) If the State Director knows that a judgment has been obtained 
by a U.S. Attorney, the State Director will notify OGC even though that 
judgment has been charged off.
    (iii) The State Director, on OGC's advice, will instruct the County 
Supervisor about actions to take with respect to meetings of creditors.
    (iv) If a direct loan is not held by the Agency and has not been 
assigned to the Agency the State Director will arrange to have the note 
repurchased. If there is a problem accomplishing this, the State 
Director will ask OGC for advice.
    (v) The State Director will take no other action without OGC's 
approval.
    (c) Adjustment of debts when debtors are in bankruptcy. The Agency 
personnel do not have the authority to accept or reject a reorganization 
plan on behalf of the United States for debtors filing under chapter 11, 
12, or 13 when the plan calls for part of the Agency debt to be 
cancelled.
    (1) Plans submitted by debtors under chapters 11, 12, and 13 must be 
sent to the State Director who will refer them to the United States 
Attorney through the Regional Attorney. When the plan calls for the 
adjustment of a debt to FmHA or its successor agency under Public Law 
103-354, the State Director will provide the Regional Attorney with a 
recommendation on acceptance or rejection of the plan.
    (2) The U.S. Attorney will advise the FmHA or its successor agency 
under Public Law 103-354 State Director through the Regional Attorney as 
to approval or rejection of the debtor's reorganization plan. Upon 
notification of an approval, the State Director will notify the Finance 
Office by memorandum of the terms and conditions of the bankruptcy 
reorganization plan including any adjustment of the debtor's debt.
    (d) Liquidation. (1) No security can be liquidated without OGC 
approval.
    (2) If a bankruptcy is dismissed and liquidation of the account is 
necessary, liquidation will be accomplished in accordance with 
Sec. 1962.40 of this subpart and Sec. 1965.26 of subpart A of part 1965 
of this chapter as appropriate. The borrower will be notified of FmHA or 
its successor agency under Public Law 103-354's servicing options by the 
notices required by subpart S of part 1951 of this chapter. The 
borrower's attorney of record will be sent a courtesy copy of the 
notices when they are sent to the borrower.
    (3) Except as provided in this paragraph, in chapter 11, 12, or 13 
cases, if liquidation is necessary while the bankruptcy is pending, the 
borrower's attorney will be sent exhibit D and attachments 1 and 2 of 
exhibit A of subpart S of part 1951 of this chapter and

[[Page 356]]

any additional attachments required by subpart S of part 1951 of this 
chapter. The County Supervisor will send courtesy copies of these 
notices at the same time to the borrower and a dated copy of exhibit D 
only to OGC. No notices will be sent under this paragraph to the 
borrower or the borrower's attorney if OGC advises that such act is 
inconsistent with the provisions of a confirmed bankruptcy plan or other 
provisions of the Bankruptcy Code. If the borrower applies for servicing 
within 60 days of the borrower's receipt of a notice under this 
paragraph, the application will be processed under this paragraph and in 
accordance with Sec. 1962.47(a)(3)(ii) and (a)(3)(iii) of this section. 
However, the account will not be accelerated until FmHA or its successor 
agency under Public Law 103-354 has obtained any necessary relief from 
the automatic stay as determined by OGC. After consultation with OGC as 
to the timing and the appropriate notice of acceleration, the account 
will be accelerated in accordance with subpart A of part 1955 of this 
chapter.
    (4) Except as provided in this paragraph, in chapter 11, 12 or 13 
cases if liquidation is necessary after the case is closed, the borrower 
will be sent exhibit D-1 of this subpart and attachments 1 and 2 of 
subpart S of part 1951 of this chapter and any additional attachments 
required by subpart S of part 1951 of this chapter. The borrower's 
attorney of record will be sent a courtesy copy of exhibit D-1, and OGC 
will be sent a dated copy. No notices will be sent under this paragraph 
to the borrower or the borrower's attorney if OGC advises that such act 
is inconsistent with the provisions of a confirmed bankruptcy plan or 
other provisions of the Bankruptcy Code. If an application for servicing 
is received under this paragraph, it will be processed in accordance 
with subpart S of part 1951 of this chapter and in accordance with 
advice from OGC if required before FmHA or its successor agency under 
Public Law 103-354 can approve loan servicing. If an amendment to the 
confirmed plan is required, the provisions of Sec. 1962.47(a)(3)(iii) of 
this subpart apply. If the borrower does not qualify for loan servicing 
and any appeal has been resolved in favor of FmHA or its successor 
agency under Public Law 103-354, the account will be accelerated in 
accordance with subpart A of part 1955 of this chapter and the advice of 
OGC concerning the appropriate notice of acceleration.
    (5) In chapter 7 farmer program loan cases, if liquidation is 
necessary either while the bankruptcy is pending or after the case is 
closed (see paragraph (c)(2) of this section if the case is dismissed), 
it will be handled as follows: After discharge, loans can be liquidated 
if the borrower has not reaffirmed the debt and the property is no 
longer part of the estate. Liquidation can proceed prior to discharge if 
the court approves an abandonment order and lifts the automatic stay. 
Exhibit D-1 of this subpart and attachments 1 and 2 of exhibit A of 
subpart S of part 1951 of this chapter will be sent to the borrower if 
the borrower's attorney was not previously notified under subpart S of 
part 1951 of this chapter during the course of the bankruptcy 
proceeding. If the notices are sent, the borrower's attorney of record 
will be sent a courtesy copy of exhibit D-1, and a dated copy of exhibit 
D-1 will be sent to OGC. If these notices are not required, the borrower 
will be sent an acceleration notice (exhibit E of subpart A of part 1955 
of this chapter), and there will be no appeal of the acceleration. Then 
the account will be liquidated.
    (e) After prior review and approval by OGC, a State Supplement will 
be issued to explain any rules or practices of local bankruptcy judges 
or trustees which affect the provisions of this section.
[51 FR 34580, Sept. 30, 1986, as amended at 51 FR 45439, Dec. 18, 1986; 
52 FR 39207, Oct. 21, 1987; 56 FR 15826, Apr. 18, 1991; 58 FR 21346, 
Apr. 21, 1993; 61 FR 35931, July 9, 1996]



Sec. 1962.48  [Reserved]



Sec. 1962.49  Civil and criminal cases.

    All cases in which court actions to effect collection or to enforce 
FmHA or its successor agency under Public Law 103-354 rights are 
recommended, as well as actions relating to apparent violations of 
Federal criminal statutes, will be handled under this section.

[[Page 357]]

    (a) Criminal action. When facts or circumstances indicate that 
criminal violations may have been committed by an applicant, a borrower, 
or third party purchaser, the State Director will refer the case to the 
appropriate Regional Inspector General for Investigations, Office of 
Inspector General (OIG), USDA, in accordance with FmHA or its successor 
agency under Public Law 103-354 Instruction 2012-B (available in any 
FmHA or its successor agency under Public Law 103-354 office) for 
criminal investigation. Any questions as to whether a matter should be 
referred will be resolved through consultation with OIG for 
Investigations and the State Director and confirmed in writing. In order 
to assure protection of the financial and other interest of the 
government, a duplicate of the notification will be sent to the Office 
of General Counsel (OGC). After OIG has accepted any matter for 
investigation, FmHA or its successor agency under Public Law 103-354 
staff must coordinate with OIG in advance regarding any administrative 
action on the matter/borrower other than routine servicing actions on 
existing loans. Cases requiring further action by OGC will be handled in 
accordance with paragraph (c) of this section.
    (b) Civil action. Court action or other judicial process will be 
recommended to OGC when all other reasonable and proper efforts and 
methods to obtain payment, to remove other defaults, and to protect FmHA 
or its successor agency under Public Law 103-354's property/financial 
interests have been exhausted. However, if an emergency situation exists 
or criminal action is to be recommended, the case will be submitted to 
OGC without taking the action necessary to report the information 
required by Part II of Form FmHA or its successor agency under Public 
Law 103-354 455-22, ``Information for Litigation.'' This is because 
delay in submitting cases in emergency situations may affect the 
financial interests of FmHA or its successor agency under Public Law 
103-354 and collection efforts may adversely affect the criminal 
investigation and/or criminal prosecution.
    (1) Civil action will be recommended when one or more of the 
following conditions exists:
    (i) There is a need to repossess security or EO property or to 
foreclose a lien and such action cannot be accomplished by other means 
authorized in this subpart.
    (ii) There is a need for filing claims against third parties because 
of a conversion of security or other action.
    (iii) Payment due on debts are not made in accordance with the 
borrower's ability to pay, and the borrower has assets or income from 
which collection can be made.
    (iv) The borrower has progressed to the point that credit can be 
obtained from other sources, has agreed in the note or other instrument 
to do so, but refuses to comply with that agreement.
    (v) FmHA or its successor agency under Public Law 103-354 or its 
security becomes involved in court action through foreclosure by a 
third-party lienholder or through some other action.
    (vi) Other conditions exist which indicate that court action may be 
necessary to protect FmHA or its successor agency under Public Law 103-
354's interests.
    (2) Claims of less than $600 principal will not be referred to OGC 
for court action unless:
    (i) A statement of facts is submitted as to the exact manner in 
which the interest of FmHA or its successor agency under Public Law 103-
354, other than recovery of the amount involved, would be adversely 
affected if suit were not filed; and
    (ii) Collection of a substantial part of the claim can be made from 
assets and income that are not exempt under State or Federal law. A 
State supplement will be issued to set forth such exemptions or a 
summary of those exemptions with respect to property to which FmHA or 
its successor agency under Public Law 103-354 normally would look for 
payment such as real estate, livestock, equipment, and income.
    (3) When a borrower has not properly accounted for the proceeds of 
the sale of security, it is the general policy to

[[Page 358]]

look first to the borrower for restitution rather than to third-party 
purchasers. In line with this policy the remaining chattel security on 
which FmHA or its successor agency under Public Law 103-354 holds a 
first lien usually will be liquidated before demand is made, or civil 
action to recover from third-party purchasers.
    (i) When the County Supervisor determines that full collection 
cannot be made from the borrower and that it will be necessary to 
collect the full value of the security purchased by a converter, a 
demand (see Guide Letter 1962-A-1, a copy of which is available in any 
FmHA or its successor agency under Public Law 103-354 county office) 
will be sent to the purchaser at the same time that Exhibit D or E of 
Subpart A of Part 1955 of this chapter, is sent to the borrower.
    (ii) When the County Supervisor determines that it is likely that 
action will have to be taken to collect from third-party pruchasers, the 
County Supervisor will notify such purchasers by letter (see Guide 
Letter 1962-A-2, a copy of which is available in any FmHA or its 
successor agency under Public Law 103-354 county office) that FmHA or 
its successor agency under Public Law 103-354 security has been 
purchased by them and that they may be called upon to return the 
property or pay the value thereof in the event restitution is not made 
by the borrower. If it later becomes necessary to make demand on such 
third-party purchasers, FmHA or its successor agency under Public Law 
103-354 will do so unless the case already has been referred to OGC or 
the U.S. Attorney, in which event the demand will be made by one of 
those offices.
    (iii) When restitution is made by the borrower, or a determination 
is made, with the advice of OGC, that the facts in the case do not 
support the claim against the third-party purchaser, the third-party 
purchaser will be informed by the County Supervisor that FmHA or its 
successor agency under Public Law 103-354 will take no adverse action 
(see Guide Letter 1962-A-3, a copy of which is available in any FmHA or 
its successor agency under Public Law 103-354 county office). 
Ordinarily, it will not be necessary to inform the third-party purchaser 
of OGC's decision when OGC determines that the facts support the claim 
against the third-party purchaser but no substantial part of the claim 
can be collected. If OGC makes such a determination and the third-party 
purchaser asks what determination has been made, the County Supervisor 
will say that no further action is to be taken on the claim ``at this 
time.''
    (iv) In addition, unless personal contacts with the third-party 
purchaser, or other efforts to collect demonstrate that further demand 
would be futile, and a satisfactory compromise offer has not been 
received, a follow-up letter (see Guide Letter 1962-A-4, a copy of which 
is available in any FmHA or its successor agency under Public Law 103-
354 county office) will be sent by the State Director as soon as 
possible after the 15-day period set forth in the demand letter has 
expired. Unless response to the State Director's followup letter or 
personal contacts or other efforts indicate that further demand would be 
futile, an additional follow-up letter will be sent to the third-party 
purchaser by OGC after the case has been referred to that office.
    (c) Handling civil and criminal cases. All cases in which court 
actions to effect collection or to enforce the rights of FmHA or its 
successor agency under Public Law 103-354 are recommended, will be 
forwarded to OGC by the State Director in accordance with paragraph 
(c)(3) of this section.
    (1) County Office actions. Forms FmHA or its successor agency under 
Public Law 103-354 455-1, ``Request for Legal Action,'' and FmHA or its 
successor agency under Public Law 103-354 455-22 will be prepared. Form 
FmHA or its successor agency under Public Law 103-354 455-2, ``Evidence 
of Conversion,'' will be prepared for each unauthorized disposal. The 
original and two copies of Forms FmHA or its successor agency under 
Public Law 103-354 455-1 and FmHA or its successor agency under Public 
Law 103-354 455-22 and, wh=n applicable, FmHA or its successor agency 
under Public Law 103-354 455-2 together with the borrower's case file, 
will be submitted to the State Office. Signed statements should be 
obtained, if possible, from the borrower, any third

[[Page 359]]

party purchasers, or others to support the information contained on Form 
FmHA or its successor agency under Public Law 103-354 455-1. Appropriate 
recommendations regarding civil actions will be made on Forms FmHA or 
its successor agency under Public Law 103-354 455-1 and FmHA or its 
successor agency under Public Law 103-354 455-22 against the borrower or 
others. When a case is referred to the State Office the County 
Supervisor will keep that office informed of any future developments in 
the case. If Attachments l, 2 and other appropriate attachments to 
Exhibit A of Subpart S of Part 1951 of this chapter have not been sent, 
they will now be sent to the borrower and any other obligor(s) on the 
note. Any appeal must be concluded before a civil action can be filed.
    (2) District Office actions. Exhibits D, E, or E-1 of subpart A of 
part 1955 of this chapter will be prepared and sent after any appeal is 
concluded.
    (3) State Office actions. (i) upon receipt of Form FmHA or its 
successor agency under Public Law 103-354 455-1 and, when applicable, 
Form FmHA or its successor agency under Public Law 103-354 455-2, the 
State Director will analyze each form to determine if all of the 
necessary information is documented and, if not, whether an appropriate 
effort was made to obtain the information. If all the necessary 
information is not documented, the State Director will return the case 
and request the County Supervisor to obtain the information to complete 
Forms FmHA or its successor agency under Public Law 103-354 455-1 and 
455-2. The State Director may assign any qualified FmHA or its successor 
agency under Public Law 103-354 employee to help a County Supervisor 
obtain the information necessary to complete the reports. After diligent 
efforts, if FmHA or its successor agency under Public Law 103-354 
employees are unable to obtain the additional information, the case will 
be returned to the State Office with an explanation of why the 
information is unavailable.
    (ii) After all of the pertinent information available has been 
obtained, the State Director will refer the case to OGC for civil 
action, if referral is required under the policy expressed in this 
section. If such referral is not required, the State Director will set 
forth in Item 19 of Form FmHA or its successor agency under Public Law 
103-354 455-1 the basis for the determination not to refer the case and 
instructions for follow-up servicing action. The State Director will not 
recommend a third-party conversion claim to the OGC if more than one 
year has run from the date of the annual accounting following the 
disposition of security, unless the Administrator or delegate determines 
a longer period of time should be applied either because of compelling 
circumstances such as the case has been referred to and accepted by OIG 
for criminal or civil investigation. The period of time during which a 
suit may be filed is set by federal statute and is not changed by this 
section. Demands on third-party purchasers will be made in accordance 
with paragraph (b) of this section. In cases referred to OGC, the State 
Director will make comments and recommendations regarding the civil 
aspects of the case on Form FmHA or its successor agency under Public 
Law 103-354 455-1.
    (A) When cases are referred to OGC, the County Office case file, 
Form FmHA or its successor agency under Public Law 103-354 455-1, and, 
when appropriate, Form FmHA or its successor agency under Public Law 
103-354 455-2 will be transmitted. In addition, when the institution of 
civil court proceedings by FmHA or its successor agency under Public Law 
103-354 is recommended, the notes, financing statements, security 
agreements, loan agreements, other legal instruments and copies thereof, 
as required by OGC, and Form FmHA or its successor agency under Public 
Law 103-354 451-11, ``Statement of Account,'' and Form FmHA or its 
successor agency under Public Law 103-354 455-22 will be submitted to 
OGC. The State Director, with the advice of OGC, will determine the 
number of copies of such instruments needed and the information required 
on the certified statement of account. Each request for a certified 
statement of account will specify the type of information needed.
    (B) Notes, statements of account, files, or other documents and 
copies thereof needed in referring cases to

[[Page 360]]

OGC for civil court or other action will be obtained from the Finance 
Office, or County Office, by the State Director. When the time required 
for obtaining the above material or documents may jeopardize FmHA or its 
successor agency under Public Law 103-354's interest by permitting the 
diversion or dissipation of assets which otherwise could be expected as 
a source of payment, the Finance Office, upon the request of the State 
Director, will forward such material or documents directly to OGC or (at 
the State Director's direction) to the U.S. Attorney.
    (d) Actions on cases referred to OGC. When a civil case is referred 
to OGC, the State Director will notify the County Supervisor of the 
referral and will return the County Office case file when it is no 
longer needed. The State Director will also prepare and distribute Form 
FmHA or its successor agency under Public Law 103-354 1951-6 according 
to the FMI. The FmHA or its successor agency under Public Law 103-354 
field office will process the descriptive code via the FmHA or its 
successor agency under Public Law 103-354 field office terminal system. 
This will flag the borrower's account indicating court action is pending 
(CAP). After notice of the referral is received by the County 
Supervisor, no collection or servicing action will be taken except upon 
specific instructions from the State Director or OGC. However, when a 
borrower voluntarily proposes to make a payment on an account, the 
County Supervisor will accept the collection unless notice has been 
received that the case has been referred to the U.S. Attorney for civil 
action. The County Supervisor will immediately notify OGC directly by 
memorandum, with a copy sent to the State Director, of any collections 
received. The County Supervisor also will notify the State Director and 
OGC of any developments which may affect a case which has been referred 
to OGC.
    (e) Actions on cases referred to the U.S. Attorney and on judgement 
cases (including third-party judgements). OGC will notify the State 
Director, the Finance Office, and the County Supervisor when a case is 
referred to the U.S. Attorney or is otherwise closed. When a case is 
referred to the U.S. Attorney, the Finance Office will discontinue 
mailing Form FmHA or its successor agency under Public Law 103-354 1951-
9, Annual ``Statement of Loan Account,'' to such borrowers. OGC will 
also notify the State Director when a judgement (including third-party) 
is obtained.
    (1) When the County Supervisor receives notice from OGC that a 
judgment (including third-party) has been obtained, the County 
Supervisor will establish a judgment account by completing Form FmHA or 
its successor agency under Public Law 103-354 1962-20, ``Notice of 
Judgment,'' in accordance with the FMI. The FmHA or its successor agency 
under Public Law 103-354 field office will process the judgment or the 
third party judgment via the FmHA or its successor agency under Public 
Law 103-354 field office terminal.
    (2) After notice has been received that a case has been referred to 
the U.S. Attorney or a judgment has been obtained and has not been 
returned to FmHA or its successor agency under Public Law 103-354 5by 
the U.S. Attorney, no action will be taken by the County Supervisor 
except upon specific instructions from the State Director, OGC, or the 
U.S. Attorney. However, the County Supervisor will keep the State 
Director informed of any developments which may affect the FmHA or its 
successor agency under Public Law 103-354 security interest or any 
pending court action to enforce collection. If information is obtained 
indicating that such debtors have assets or income not previously 
reported by the County Supervisor to the State Director from which 
collection of such judgment accounts can be obtained, the facts will be 
reported to the State Director. The State Director immediately will 
notify OGC of any developments which might have a bearing on cases 
referred to the U.S. Attorney, including such judgment cases.
    (i) If the debtor proposes to make a payment, FmHA or its successor 
agency under Public Law 103-354 employees will not accept such payment 
but will offer to assist in preparing a letter for the debtor's 
signature to be used in transmitting the payment to the U.S. Attorney. 
In such case, the debtor will

[[Page 361]]

be advised to make payment by check or money order payable to the 
Treasurer of the United States.
    (ii) Collection items received through the mail from the debtor or 
from other sources by the County Office to be applied to such accounts 
will be forwarded by the County Supervisor through OGC to the 
appropriate U.S. Attorney. Likewise, collections received by the 
District Director or the State Office will be forwarded through OGC to 
the appropriate U.S. Attorney. Such items will be forwarded in the form 
received except that cash will be converted into money orders made 
payable to the Treasurer of the United States. The money order receipts 
will remain attached to the money orders. Form FmHA or its successor 
agency under Public Law 103-354 451-1 will not be issued in any such 
case. The debtor will be informed in writing by the County Supervisor of 
the disposition of the amount received.
    (3) When the U.S. Attorney has returned a judgment case to FmHA or 
its successor agency under Public Law 103-354, the County Supervisor is 
responsible for servicing it as follows:
    (i) When the judgment debtor has the ability to make periodic 
payments, action will be taken by the County Supervisor to make 
arrangements for the judgment debtor to do so.
    (ii) Any payments received from such debtor by FmHA or its successor 
agency under Public Law 103-354 will be handled by issuing Form FmHA or 
its successor agency under Public Law 103-354 451-1 and converting and 
transmitting such payments as provided in Subpart B of Part 1951 of this 
chapter. The U.S. Attorney will be informed through OGC of payments 
received only when the debtor pays a judgment in full.
    (iii) At the time of the annual review of collection-only or 
delinquent and problem cases, the County Supervisor will determine 
whether such judgment debtors, whose judgments have not been charged off 
and who are not making regular and satisfactory payments, have assets or 
income from which the judgment can be collected. If such debtors have 
either assets or income from which collection can be made and they have 
declined to make satisfactory arrangements for payment, the facts will 
be reported by the County Supervisor to the State Director. The State 
Director will notify OGC of developments when it appears that 
collections can be enforced out of income or assets.
    (iv) Such judgments will not be renewed or revived unless there is a 
reason to believe that substantial assets have or may become subject 
thereto.
    (v) Such judgments may be released only by the U.S. Attorney when 
they are paid in full or compromised.
    (4) In all judgment cases, any proposed compromise or adjustment 
will be handled in accordance with Subpart B of Part 1956 of this 
chapter.
    (5) If the debtor requests information as to the amount of 
outstanding indebtedness, such information, including court costs, 
should be obtained from the Finance Office if the County Supervisor does 
not have that information. If questions arise as to the payment of court 
costs, information as to such costs will be obtained through the State 
Office from OGC.
[50 FR 45783, Nov. 1, 1985, as amended at 51 FR 45439, Dec. 18, 1986; 53 
FR 35787, Sept. 14, 1988; 54 FR 42799, Oct. 18, 1989; 55 FR 35296, Aug. 
29, 1990; 57 FR 60085, Dec. 18, 1992]



Sec. 1962.50  [Reserved]

                          Exhibits to Subpart A

    Exhibit A--Memorandum of Understanding Between Commodity Credit 
  Corporation and Farmers Home Administration or its successor agency 
                        under Public Law 103-354

    IT IS HEREBY AGREED by and between the Farmers Home Administration 
or its successor agency under Public Law 103-354 (hereinafter referred 
to as ``FHA'') and the Commodity Credit Corporation (hereinafter 
referred to as ``CCC'') that the following procedure will be observed in 
those cases where producers sell to CCC or pledge to CCC as loan 
collateral under the Price Support Program, agricultural commodities 
such as, but not limited to, cotton, tobacco, peanuts, rice, soybeans, 
grains, on which FHA holds a prior lien and the proceeds from such sales 
or loans are not remitted to FHA for application against the loan(s) 
secured by such lien:
    1. When an FHA County Supervisor learns that an FHA borrower has 
obtained a loan from CCC on a commodity or sold a commodity to CCC under 
such circumstances, he

[[Page 362]]

shall immediately notify his State Director. The State Director, 
immediately upon receipt of the notice, shall furnish CCC (see Appendix 
1) with the name and address of such borrower, the county of his 
location at the time the commodity was placed under loan or sold, and 
the amount of the FHA loan secured by the lien.
    2. When CCC receives such a notice from FHA, CCC shall take steps to 
prevent the making of any further loans on or purchases of the commodity 
of the borrower. If the CCC loan is still outstanding and CCC calls the 
loan, CCC shall notify the FHA State director of the demand.
    3. If the CCC loan is repaid, whether prior to or after the receipt 
by CCC of the notice from FHA, the FHA State Director shall be notified 
immediately, at which time CCC will have discharged its responsibility 
under this agreement.
    4. FHA shall, in each case in which the CCC loan is not repaid or 
the commodity has been sold to CCC, endeavor to collect from the 
borrower the amount due on the FHA loan. Such collection efforts shall 
include the making of demand on the borrower and the following of FHA's 
normal administrative policies with respect to the collection of debts, 
but shall not include the making of demand for payment upon the area 
peanut producer cooperative marketing associations through which CCC 
makes price support available to producers. If collection efforts are 
not successful, the FHA County Supervisor shall make a complete report 
on the matter to his State Director. If the State Director determines 
that the amount due on the FHA lien is not collectable by administrative 
action, he shall refer the matter to the appropriate local office of the 
General Counsel, with a full statement of the facts, for a determination 
of the validity of the FHA lien. If it is determined by the General 
Counsel's Office that FHA holds a valid prior lien on the commodity, the 
State Director shall furnish CCC with a copy of such determination, 
together with all other pertinent information, and shall request payment 
to FHA of the lesser of (1) the amount due on its loan, or (2) the value 
of the commodity at the time the CCC loan or purchase was made (based on 
the market value of the commodity on the local market nearest to the 
place where the commodity was stored). The information to be furnished 
CCC shall include (a) the principal balance plus interest due FHA on the 
date of the request, (b) the amount due on the FHA loan at the time the 
CCC loan or purchase was made, and (c) the amount of the CCC loan or 
purchase proceeds, if any, applied by the producer against the FHA loan. 
FHA shall continue to make collection efforts and shall notify CCC of 
any amount collected from the producer or any other party.
    5. Upon receipt of evidence, including a copy of the determination 
of the Office of the General Counsel, from the State Director of FHA 
that the proceeds from the CCC loan or purchase have not been received 
by FHA from the borrower, and that collection cannot be made by FHA, CCC 
will if the CCC loan has not been repaid or if CCC has purchased the 
commodity, pay FHA the amount specified in paragraph 4 above or deliver 
the commodity (or warehouse receipts representing the commodity) to FHA: 
Provided, That if CCC has any information indicating that collection may 
be made by FHA from the borrower or any other party, it may notify FHA 
and delay payment pending additional collection efforts by FHA.
    6. It is the desire of both FHA and CCC that claims to be processed 
under this agreement receive prompt attention by both parties and be 
disposed of as soon as possible. Instructions for the implementation of 
these procedures at the field office level will be developed and issued 
by the Washington offices of FHA and CCC.
    7. Any question with regard to the handling of any claim hereunder 
shall be reported by the applicable ASCS office to ASCS in Washington 
and by the FHA State Director to the National Office of FHA.
    This Memorandum of Understanding supersedes the agreement entered 
into between FmHA or its successor agency under Public Law 103-354 and 
CCC on November 5, 1951.
    Entered into as of this 29th day of May, 1973.

    Farmers Home Administration or its successor agency under Public Law 
103-354,    

                                                   Frank B. Elliott,    
                                                   Acting Administrator.

    Commodity Credit Corporation,    

                                                   Kenneth E. Frick,    
                                               Executive-Vice President.

    Appendix 1--furnishing notice or information to commodity credit    
                               corporation                              
------------------------------------------------------------------------
                Commodity                            Direct to          
------------------------------------------------------------------------
Cotton...................................  Prairie Village, Kansas, ASCS
                                            Commodity Office.           
Tobacco..................................  Applicable tobacco           
                                            association.                
Peanuts..................................  Applicable peanut            
                                            association.                
All other commodities....................  Applicable State ASCS office.
------------------------------------------------------------------------

[44 FR 4437, Jan. 22, 1979]

Exhibit B--Memorandum of Understanding and Blanket Commodity Lien Waiver

    The Farmers Home Administration or its successor agency under Public 
Law 103-354 (FmHA or its successor agency under Public

[[Page 363]]

Law 103-354) sometimes makes loans to farmers on the security of 
agricultural commodities that are eligible for price support under loan 
and purchase programs conducted by the Commodity Credit Corporation 
(CCC). FmHA or its successor agency under Public Law 103-354 and CCC 
desire that price support be made available to farmers without 
unnecessarily impairing or undermining the respective security interests 
of FmHA or its successor agency under Public Law 103-354 and CCC in and 
without undue inconvenience to producers and FmHA or its successor 
agency under Public Law 103-354 and CCC in securing lien waivers on such 
commodities.
    Now, therefore, it is agreed as follows:
    (1) Upon request of an official of a State ASCS office, the FmHA or 
its successor agency under Public Law 103-354 State Director in such 
State shall furnish designated county ASCS offices with the names of 
producers in the trade area from whom FmHA or its successor agency under 
Public Law 103-354 holds currently effective liens on commodities with 
respect to which CCC conducts price support programs. FmHA or its 
successor agency under Public Law 103-354 will try to furnish a complete 
and current list of the names of such producers; however, FmHA or its 
successor agency under Public Law 103-354's liens with respect to any 
commodity will not be affected by an error in or omission from such 
lists.
    (2) For a loan disbursed by a county ASCS office, CCC will issue a 
draft in the amount (Iess fees and charges due under CCC program 
regulations) of the loan on, or purchase price of, the commodity payable 
jointly to FmHA or its successor agency under Public Law 103-354 and the 
producer if (a) his name is on the Iist furnished by FmHA or its 
successor agency under Public Law 103-354, or (b) he names FmHA or its 
successor agency under Public Law 103-354 as lienholder. The draft will 
indicate the commodity covered by the loan or purchase.
    (3) On issuance of the draft, the security interest of FmHA or its 
successor agency under Public Law 103-354 shall be subordinated to the 
rights of CCC in the commodity with respect to which the loan or 
purchase is made. The word ``subordinated'' means that, in the case of a 
loan, CCC's security interest in the commodity shall be superior and 
prior in right to that of FmHA or its successor agency under Public Law 
103-354 and that, on purchase of a commodity by CCC or its acquisition 
by CCC in satisfaction of a loan, the security interest of FmHA or its 
successor agency under Public Law 103-354 in such commodity shall 
terminate.
    (4) Nothing contained in this Memorandum of Understanding shall be 
construed to affect the rights and obligations of the parties except as 
specifically provided herein.
    (5) This agreement may be terminated by either party on 30 days' 
written notice to the other party.

    Dated: July 20, 1980.


                                                  Ray V. Fitzzerald,    
                                        Executive Vice President. CCC.  

    Dated: July 14, 1980.

                                                   Gordon Cavanaugh,    
 Administrator, FmHA or its successor agency under Public Law 103-354.  
[53 FR 35787, Sept. 14, 1988]

      Exhibit C--Memorandum of Understanding Between Farmers Home 
  Administration or its successor agency under Public Law 103-354 and 
                      Commodity Credit Corporation

                         Rotation of Grain Crops

    Under the Commodity Credit Corporation (CCC) Farmer-Owned Grain 
Reserve Program, a producer may request to rotate or exchange new crop 
grain for the original crop grain that is in the Farmer-Owned Grain 
Reserve Program and already encumbered by CCC. The Farmers Home 
Administration or its successor agency under Public Law 103-354 (FmHA or 
its successor agency under Public Law 103-354) may have subordinated 
their first lien position to CCC on the original grain placed in reserve 
and/or may have a first lien on the new crop. FmHA or its successor 
agency under Public Law 103-354 and CCC desire to devise a mechanism 
whereby the CCC can relinquish its first lien position on the original 
grain reserve crop to FmHA or its successor agency under Public Law 103-
354 and in turn the FmHA or its successor agency under Public Law 103-
354 can relinquish its first lien position to CCC on the replacement 
grain reserve crop.
    Now, therefore, it is agreed as follows:
    (1) Upon receipt of a memorandum from an Agricultural Stabilization 
and Conservation Service (ASCS) County Executive Director or other 
designated county office official requesting the rotation of a grain 
reserve crop for a producer borrower(s), the FmHA or its successor 
agency under Public Law 103-354 County Supervisor and the ASCS county 
office official will jointly indicate approval or rejection of the 
request on the bottom of the original and a copy of the memorandum 
(Approval Memorandum) as follows:
    ``We hereby agree to and authorize the rotation of the subject 
producer's grain crops in accordance with the provisions of the 
Memorandum of Understanding between Farmers Home Administration or its 
successor agency under Public Law 103-354 and Commodity Credit 
Corporation dated________.''

[[Page 364]]

 FmHA or its successor agency under Public Law 103-354__________________
 ASCS___________________________________________________________________
    In the memorandum, ASCS will include the name(s) of the producer(s) 
desiring to rotate the grain crops, the approximate number of bushels 
being rotated, the type of crop, years' crop being rotated and the 
location of the original grain reserve crop (approximate land and 
facility description).
    (2) Upon execution of the Approval Memorandum by both ASCS and FmHA 
or its successor agency under Public Law 103-354, the security interest 
of FmHA or its successor agency under Public Law 103-354 in the new crop 
grain shall be subordinated to the security interest of CCC in such 
grain and the security interest of CCC in the original crop grain shall 
be subordinated to the security interest of FmHA or its successor agency 
under Public Law 103-354 in such grain. At that point in time it will be 
the responsibility of each agency and the borrower to account for their 
respective interests in the grain crops and/or proceeds from the sale of 
the grain. The crop rotation and subordination of liens will only 
involve the amount of grain that has been specifically provided for in 
the memorandum from ASCS.
    (3) If there is an intervening third party lien and it is impossible 
for FmHA or its successor agency under Public Law 103-354 or CCC to have 
a first lien on their respective grain crops, the request of the 
producer to rotate crops will not be granted.
    (4) Nothing contained in this Memorandum of Understanding shall be 
construed to affect the rights and obligations of the parties except as 
specifically provided herein.
    (5) This agreement may be terminated by either party on 30 days 
written notice to the other party.
[44 FR 4437, Jan. 22, 1979]

   Exhibit D--Notice to Borrower's Attorney Regarding Loan Servicing 
                                 Options

Procedure Reference: FmHA or its successor agency under Public Law 103-
354 Instruction 1962-A.

Purpose: This Exhibit or a version approved by the Regional OGC will be 
used by a County Supervisor to send the attachments 1 and 2 of exhibit A 
of subpart S of part 1951 of this chapter to the borrower's attorney 
when the borrower has filed for bankruptcy or is currently under the 
jurisdiction of bankruptcy court.

 _______________________________________________________________________
________________________________________________________________________

RETURN ADDRESS



Borrower's Attorney's Address

    Dear     : This letter provides important information which the 
Farmers Home Administration or its successor agency under Public Law 
103-354 (FmHA or its successor agency under Public Law 103-354) requests 
you to provide to your client ________ who has filed a bankruptcy 
petition. Subject to the applicable provisions of the Bankruptcy Code 
and FmHA or its successor agency under Public Law 103-354 regulations, 
FmHA or its successor agency under Public Law 103-354 may take action to 
enforce its security instrument given by ________ as security for an 
FmHA or its successor agency under Public Law 103-354 loan(s). However, 
your client may be able to cure one or all of the problems indicated 
below so that it will not be necessary for FmHA or its successor agency 
under Public Law 103-354 to enforce its security instrument.

    [  ] Loan payments are $________ past due.

    [  ] Your client has disposed of some of the property used to secure 
the FmHA or its successor agency under Public Law 103-354 loan(s). Your 
client did not get written approval for this action. This property is

 _______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

    [  ] Your client has breached the agreement(s) contained in the 
security instrument executed by your client in favor of FmHA or its 
successor agency under Public Law 103-354 by taking the following 
action(s)

 _______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

    [  ] Your client has failed to make the required payments under a 
confirmed bankruptcy plan.
    [  ] Your client has

 _______________________________________________________________________
________________________________________________________________________

    Before the Farmers Home Administration or its successor agency under 
Public Law 103-354 (FmHA or its successor agency under Public Law 103-
354) can act to enforce its security instruments, its regulations 
require FmHA or its successor agency under Public Law 103-354 to provide 
borrowers with notice of servicing options. The enclosed forms explain 
some of the loan servicing options that FmHA or its successor agency 
under Public Law 103-354 has available. In order for FmHA or its 
successor agency under Public Law 103-354 to ascertain whether your 
client is eligible for these options, it is necessary for FmHA or its 
successor agency under Public Law 103-354 personnel to work closely with

[[Page 365]]

your client. If your client requests this contact in the manner 
described below, we hope that we can assist him or her. However, if 
favorable action is not possible, we will notify you, and provide your 
client with the opportunity to appeal the decision. We will not 
accelerate the account or initiate foreclosure until we comply with the 
applicable provisions of the bankruptcy code.
    If your client wants to apply for primary and/or preservation loan 
servicing relief from FmHA or its successor agency under Public Law 103-
354, you must provide FmHA or its successor agency under Public Law 103-
354 with a letter evidencing a request for servicing on behalf of your 
client within 60 days from your receipt of this letter. To apply for 
servicing, your client must also submit a signed copy of Attachment 2 
and complete and return the preliminary application forms within this 
60-day period. By this response, you will be acknowledging that when 
FmHA or its successor agency under Public Law 103-354 processes your 
client's application for loan servicing it is not interfering with any 
rights or protections your client may have under the Bankruptcy Code and 
its automatic stay provisions. FmHA or its successor agency under Public 
Law 103-354's processing of the application may include considering the 
borrower for primary and preservation loan servicing options, notifying 
the borrower of FmHA or its successor agency under Public Law 103-354's 
decision on the application in accordance with subpart S of part 1951-S 
of this chapter, and holding any mediation, meetings or appeals 
requested by your client. If your client fails to complete and return 
the required information within the 60-day period, FmHA or its successor 
agency under Public Law 103-354 will proceed to enforce its security 
instrument as allowed under the Bankruptcy Code and FmHA or its 
successor agency under Public Law 103-354 regulations.
    If your client has recently filed under chapter 7, in order for FmHA 
or its successor agency under Public Law 103-354 to provide primary loan 
servicing to your client after discharge, your client must reaffirm the 
FmHA or its successor agency under Public Law 103-354 debt in accordance 
with the provisions of the Bankruptcy Code. No reaffirmation is 
necessary for your client to be eligible for preservation loan service 
programs.
    If your client is operating under a confirmed bankruptcy plan, and 
desires to apply for loan servicing and qualifies for servicing under 
FmHA or its successor agency under Public Law 103-354's regulations, you 
must also comply with provisions of the Bankruptcy Code practiced in 
your jurisdiction concerning modification of the plan. If your client's 
plan has not yet been confirmed by the Bankruptcy Court, you may choose 
to file a proposed plan which may or may not contain restructuring 
features similar to those available under FmHA or its successor agency 
under Public Law 103-354 regulations. The Government, of course, is free 
to object to the proposed plan in accordance with provisions of the 
Bankruptcy Code. If a plan is confirmed before servicing and any appeal 
is completed under FmHA or its successor agency under Public Law 103-354 
regulations, FmHA or its successor agency under Public Law 103-354 will 
complete the servicing or appeals process, and may consent to a post-
confirmation modification of the plan, if appropriate, in accordance 
with the advice from OGC.
    FmHA or its successor agency under Public Law 103-354's farmer 
program debt servicing regulation is found at 7 CFR, part 1951, subpart 
S. We cannot promise you or your client that a request for debt 
servicing will be approved. However, we can promise that a request will 
be fully and fairly considered by FmHA or its successor agency under 
Public Law 103-354.
      Sincerely,
      County Supervisor
Attachments
[56 FR 15827, Apr. 18, 1991]

                         Exhibit D-1--[Reserved]

      Exhibit E--Releasing Security Sales Proceeds and Determining 
         ``Essential'' Family Living and Farm Operating Expenses

                         Family Living Expenses

    Expenses for household operating, food, clothing, medical care, 
house repair, transportation, insurance and household appliances, i.e., 
stove, refrigerator, etc., are essential family living expenses. We do 
not expect there will be any disagreements over this. However, when 
proceeds are less than expenses, there might be disagreements about the 
amounts FmHA or its successor agency under Public Law 103-354 should 
release to pay for particular items within these broad categories. For 
example, FmHA or its successor agency under Public Law 103-354 has to 
release for transportation expenses, but should FmHA or its successor 
agency under Public Law 103-354 release so that a borrower can buy a new 
car? If at planning time or during the crop year it appears that there 
will be sales proceeds available to pay for the borrower's operating and 
living expenses, including the expense of a new car, the Form FmHA or 
its successor agency under Public Law 103-354 1962-1 can be completed to 
show that FmHA or its successor agency under Public Law 103-354 plans to 
release for a new car. On the other hand, it would also be proper to 
complete the Form FmHA or its successor agency under Public Law 103-354 
1962-1 to release for a used car or for gas and repairs to the 
borrower's present

[[Page 366]]

car. Since it is necessary for FmHA or its successor agency under Public 
Law 103-354 to release for essential family living expenses and because 
transportation is an essential family living expense, some proceeds must 
be released for transportation. However, nothing requires FmHA or its 
successor agency under Public Law 103-354 to release for a specific 
expense; usually, there will be several ways to use proceeds to provide 
for essential family living expenses. We must provide the borrower with 
a written decision and an opportunity to appeal whenever there is a 
disagreement over the use of proceeds or whenever we reject a request 
for a release.

                         Farm Operating Expenses

    We would expect farm operating expenses to present more of a problem 
than family living expenses. There will probably be a few disagreements 
over whether an expense is an operating expense (as opposed to a capital 
expense), but it is more likely that there will be disagreements over 
the amount FmHA or its successor agency under Public Law 103-354 should 
release for operating expenses and whether a particular farm operating 
expense is ``essential.'' As is the case with family living expenses, 
disagreements will most likely arise when proceeds are less than 
expenses.
    To resolve disputes over the amount to be released, remember that we 
must be reasonable and release enough to pay for essential farm 
operating expenses. Although a borrower might not always agree that 
enough money is being released, if the borrower's essential farm 
operating expenses are being paid, we are fulfilling the requirements of 
the statute. We must provide the borrower with an opportunity to appeal 
when there is a disagreement over the use of proceeds or when we reject 
a request for a release.
    Section 1962.17 of this subpart states that essential expenses are 
those which are ``basic, crucial or indispensable.'' Whether an expense 
is basic, crucial or indispensable depends on the circumstances. For 
example, feed is a farm operating expense, but it is not always an 
essential expense. If adequate pasture is available to meet the needs of 
the borrower's animals, feed is not essential. Feed is essential if 
animals are confined in lots. Hiring a custom harvester is a farm 
operating expense, but is not an essential expense if the farmer has the 
equipment and labor to harvest the crop just as well as a custom 
harvester. Hired labor is an operating expense which might be essential 
in a dairy operation but not in a beef cattle operation. Payments to 
creditors are essential if the creditor is unable to restructure the 
debt or to carry the debt delinquent. Renting land is not essential if 
the borrower plans to use it to grow corn which can be purchased for 
less than the cost of production. Paying outstanding bills is essential 
if a supplier is refusing to provide additional credit but not if the 
supplier is willing to carry a balance due. Of course, the long term 
goal of any farming operation is to pay all of its expenses, but when 
this is not possible, FmHA or its successor agency under Public Law 103-
354 and the borrower must work together to decide which farm operating 
expenses are essential and demand immediate attention and cannot be 
neglected. These are the essential expenses.
    We absolutely must release to pay for essential family living and 
farm operating expenses; there are no exceptions to this. When deciding 
whether an expense is essential and when deciding how much to release, 
the choices we make must be rational, reasonable, fair and not extreme. 
They must be based on sound judgment, supported by facts, and explained 
to the borrower. Following these rules will help us avoid disagreements 
with borrowers.
[56 FR 15829, Apr. 18, 1991]

                    Exhibit F of Subpart A [Reserved]



PART 1965--REAL PROPERTY--Table of Contents




  Subpart A--Servicing of Real Estate Security For Farm Loan Programs 
                    Loans and Certain Note-Only Cases

Sec.
1965.1  Purpose.
1965.2  General policies.
1965.3  Borrower's responsibilities.
1965.4  FmHA or its successor agency under Public Law 103-354's 
          responsibility.
1965.5  Servicing certain insured Farm Ownership (FO) loans.
1965.6  Consent of lienholders.
1965.7  Definitions.
1965.8--1965.10  [Reserved]
1965.11  Preservation of security and protection of liens.
1965.12  Subordination of FmHA or its successor agency under Public Law 
          103-354 mortgage.
1965.13  Consent by partial release or otherwise to sale, exchange or 
          other disposition of a portion of or interest in security, 
          except leases.
1965.14  Subordination of FmHA or its successor agency under Public Law 
          103-354 real estate mortgages to easements to the U.S. Fish 
          and Wildlife Service (formerly the Bureau of Sport Fisheries 
          and Wildlife).
1965.15  Subordination of FmHA or its successor agency under Public Law 
          103-354's lien to the Commodity Credit Corporation's (CCC) 
          security interest taken for loans made for farm storage and 
          drying equipment.
1965.16  Consent to junior liens.

[[Page 367]]

1965.17  Lease of security.
1965.18  Transfer of upland cotton, peanut, or tobacco allotments.
1965.19  Severance agreement.
1965.20  [Reserved]
1965.21  Assignment and release of Soil Conservation or similar program 
          payments.
1965.22  Deceased borrower.
1965.23  Bankruptcy and insolvency.
1965.24  Servicing note-only cases.
1965.25  Release of FmHA or its successor agency under Public Law 103-
          354 mortgage without monetary consideration in certain cases.
1965.26  Liquidation action.
1965.27  Transfer of real estate security.
1965.28--1965.30  [Reserved]
1965.31  Taking liens on real estate as additional security in servicing 
          FmHA or its successor agency under Public Law 103-354 loans.
1965.32  [Reserved]
1965.33  Cosigners--SFH loans.
1965.34  [Reserved]
1965.35  Exception authority.
1965.36  State Supplements and reference to the OGC.
1965.37  Redelegation of authority.
1965.38--1965.49  [Reserved]
1965.50  OMB control number.

                          Exhibits to Subpart A

Exhibit A--Memorandum of Understanding Between Bureau of Sport Fisheries 
          and Wildlife and the Farmers Home Administration or its 
          successor agency under Public Law 103-354 [Note]
Exhibit B--Notification of Other Lienholders Intent to Foreclose [Note]
Exhibit C--Processing Guide [Note]
Exhibit D--Equity Recapture Agreement [Note]

        Subpart B--Security Servicing for Multiple Housing Loans

1965.51  General.
1965.52  Definitions.
1965.53--1965.54  [Reserved]
1965.55  Authority of State Director.
1965.56--1965.57  [Reserved]
1965.58  Responsibilities.
1965.59--1965.60  [Reserved]
1965.61  General loan servicing requirements.
1965.62  [Reserved]
1965.63  Issuance or transfer of stock, or change in membership, or 
          membership interests in organizations indebted to FmHA or its 
          successor agency under Public Law 103-354.
1965.64  [Reserved]
1965.65  Transfer of real estate security and assumption of loans.
1965.66--1965.67  [Reserved]
1965.68  Consolidation.
1965.69  [Reserved]
1965.70  Reamortization.
1965.71  [Reserved]
1965.72  Deceased borrower.
1965.73  Bankruptcy and insolvency.
1965.74  Divorce actions.
1965.75  Abandonment.
1965.76  [Reserved]
1965.77  Consent to sale or other disposition of security property.
1965.78  [Reserved]
1965.79  Subordination.
1965.80  [Reserved]
1965.81  Severance agreements.
1965.82  [Reserved]
1965.83  Consent to junior liens.
1965.84  [Reserved]
1965.85  Default and liquidation.
1965.86  [Reserved]
1965.87  Miscellaneous security.
1965.88  Obtaining additional security for inadequately secured loans.
1965.89  Equity take-out for loans made after December 15, 1989.
1965.90  Payment in full.
1965.91  Servicing loans in formerly eligible areas.
1965.92  Information to be provided to IRS on RRH transfers, voluntary 
          conveyances, foreclosures, and 100% membership changes.
1965.93  [Reserved]
1965.94  State supplements.
1965.95  [Reserved]
1965.96  Nondiscrimination.
1965.97  Exception authority.
1965.98--1965.99  [Reserved]
1965.100  OMB control number.

                        Subparts C--D [Reserved]

   Subpart E--Prepayment and Displacement Prevention of Multi-Family 
                              Housing Loans

1965.201  General.
1965.202  Definitions.
1965.203  Nonprofit organization and public agency interest lists.
1965.204  Processing prepayment requests and related rent increases.
1965.205  Borrower request to prepay.
1965.206  Review of borrower prepayment request by Servicing Office.
1965.207  Prohibition on prepayment for loans made on or after December 
          15, 1989, to build or acquire new units.
1965.208  Restrictive-use provisions related to LH projects with grants.
1965.209  Restrictive-use provisions after prepayment.
1965.210  Loans approved prior to December 14, 1989--RHS actions when 
          processing prepayment requests.
1965.211  Evaluation of the borrower's ability to prepay the loan.
1965.212  Appraisals.
1965.213  Offer of incentives to borrowers.

[[Page 368]]

1965.214  Offering and processing of incentives.
1965.215  Borrower rejection of incentive offer--approving/disapproving 
          prepayment.
1965.216  Borrower not subject to restrictive-use provisions nor 
          prohibition on prepayment, no incentive agreement is reached 
          and prepayment cannot be accepted.
1965.217  Processing applications for transfers to nonprofit 
          corporations or public agencies.
1965.218  Accepting prepayment when nonprofit organizations do not apply 
          to purchase or funds are not available.
1965.219  FmHA or its successor agency under Public Law 103-354 
          processing of prepayment.
1965.220-1965.221  [Reserved]
1965.222  Violations of restrictive-use provisions.
1965.223  Relationship with acceleration of accounts, bankruptcy, 
          foreclosure, or inventory properties.
1965.224  Prepayment of loans caused by advance payments on the account.
1965.225-1965.248  [Reserved]
1965.249  Exception authority.
1965.250  OMB control number.

                          Exhibits to Subpart E

Exhibit A-1  Required Clauses for Active Borrowers With Projects Subject 
          to Restrictive-Use Provisions as a Result of Specific Loan 
          Making or Loan Servicing Actions
Exhibit A-2  Required Clauses for Projects Made Subject to Restrictive-
          Use Provisions When a Loan is Transferred to a Nonprofit 
          Organization or Public Agency to Avert Prepayment
Exhibit A-3  Required Clauses for Prepaid Projects Which Were Subject to 
          Restrictive-Use Provisions Prior to the Prepayment
Exhibit A-4  Required Clauses for Prepaid Projects Which Became Subject 
          to Restrictive-Use Provisions at the Time of Prepayment
Exhibit B  Report on Prepayment [Reserved]
Exhibit C  Checklist for Reporting Prepayment [Reserved]
Exhibit D  Methodology for Determining Prepayment Incentives [Reserved]
Exhibit D-1  Worksheet for Incentive Calculations [Reserved]
Exhibit E  Administration Guidance for Making Prepayment Determinations 
          [Reserved]
Exhibit F  Prepayment and Displacement Prevention Grant Agreement
Exhibit G-1  Restrictive-Use Agreement
    (To be used with exhibit A-3 of this subpart)
Exhibit G-2  Restrictive-Use Agreement
    (To be used with paragraph (A) to exhibit A-4 of this subpart)
Exhibit G-3  Restrictive-Use Agreement
    (To be used with paragraph (B) to exhibit A-4 to this subpart)
Exhibit G-4  Restrictive-Use Agreement
    (To be used with paragraph (C) to exhibit A-4 to this subpart)

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.



  Subpart A--Servicing of Real Estate Security for Farm Loan Programs 
                    Loans and Certain Note-Only Cases

    Source: 51 FR 4140, Feb. 3, 1986, unless otherwise noted.



Sec. 1965.1  Purpose.

    This subpart delegates authority and prescribes policies and 
procedures for servicing real estate, leasehold interests, and certain 
note-only cases for Farmers Home Administration or its successor agency 
under Public Law 103-354 (FmHA or its successor agency under Public Law 
103-354) Farmer Program (FP) loans. Security servicing for borrowers who 
have both FmHA or its successor agency under Public Law 103-354 FP and 
Single Family Housing (SFH) loans, (excluding Technical Assistance 
Grants and Site loans), will be according to this subpart. Security 
servicing for borrowers who are indebted for SFH loans only, will be 
according to subpart C of part 1965 of this chapter. Security servicing 
for Nonprogram (NP) loan(s) on farm real estate and chattel property 
will be according to subpart J of part 1951 of this chapter. For 
borrowers who have both a FP and NP loan, security servicing will be in 
accordance with the applicable FP regulations and subpart J of part 1951 
of this chapter. This subpart does not apply to FmHA or its successor 
agency under Public Law 103-354 guaranteed loans, Rural Rental Housing 
(RRH) loans, Labor Housing (LH) loans, Business and Industrial (B&I) 
loans, Community Programs (CP) loans, Shift-in-Land-Use (Grazing 
Association) loans, Irrigation and Drainage (I&D) loans, or Indian 
Tribal Land Acquisition loans.
[58 FR 52654, Oct. 12, 1993]

[[Page 369]]



Sec. 1965.2  General policies.

    (a) The terms ``nonprogram (NP)'' and ``ineligible'' may be used 
interchangeably throughout this subpart but are identical in their 
meaning.
    (b) FmHA or its successor agency under Public Law 103-354 will 
service real estate security in a manner that best accomplishes the loan 
objectives and protects the Government's financial interest. To 
accomplish this, FmHA or its successor agency under Public Law 103-354 
will service the real estate security in accordance with the security 
instruments and related agreements, including any authorized 
modifications and the provisions of this subpart.
    (c) The Federal Equal Credit Opportunity Act prohibits creditors 
from discriminating against credit applicants on the basis of race, 
color, religion, national origin, sex, marital status, age (provided 
that the applicant has the capacity to enter into a binding contract); 
because all or part of the applicant's income is derived from any public 
assistance, program; or because the applicant has in good faith 
exercised any right under the Consumer Credit Protection Act. The 
Federal agency that administers compliance with this law is the Federal 
Trade Commission, Equal Credit Opportunity, Washington, DC 20580.
    (d) If the farm is situated in more than one State, county or 
parish, the loan will be serviced by the County Office servicing the 
county in which the borrower's residence is located. If the borrower is 
a corporaton, cooperative, partnership or joint operation or if the 
borrower's residence is not on the farm, the loan will be serviced by 
the County Office servicing the county in which the farm or a major 
portion of the farm is located.
[51 FR 13482, Apr. 21, 1986, as amended at 58 FR 52654, Oct. 12, 1993]



Sec. 1965.3  Borrower's responsibilities.

    Each borrower is responsible for repaying principal and interest on 
a timely basis pursuant to the loan documents, paying real estate taxes 
in accordance with subpart A of part 1925 of this chapter, providing 
adequate property insurance in accordance with subpart A of part 1806 of 
this chapter (FmHA or its successor agency under Public Law 103-354 
Instruction 426.1), maintaining, protecting, and accounting to the FmHA 
or its successor agency under Public Law 103-354 for all real estate 
security, and complying with other loan requirements.
[51 FR 4140, Feb. 3, 1986, as amended at 57 FR 36592, Aug. 14, 1992]



Sec. 1965.4  FmHA or its successor agency under Public Law 103-354's responsibility.

    The County Supervisor, District Director or other servicing official 
is responsible for informing borrowers of their responsibilities in 
connection with the loan, seeing that the security is being properly 
maintained and accounted for, and servicing the account and security in 
accordance with this subpart. When a borrower fails to maintain, 
protect, or account for the security, as required by the loan documents, 
or makes unauthorized disposition or use of any security, FmHA or its 
successor agency under Public Law 103-354 will institute prompt action 
to protect FmHA or its successor agency under Public Law 103-354's 
interest. The County Supervisor, District Director or other servicing 
official will obtain any needed legal advice from the Office of the 
General Counsel (OGC) through the State Director. Once a case has been 
referred to the OGC for legal action, no further action will be taken by 
the County Supervisor, District Director or other servicing official 
without prior clearance from OGC. If the case has been referred to the 
U.S. Attorney, clearance with the U.S. Attorney will be obtained through 
the OGC. All FmHA or its successor agency under Public Law 103-354 
employees will document actions taken to service a loan in the running 
case record in the borrower's FmHA or its successor agency under Public 
Law 103-354 file(s). When a servicing action affects a borrower's 
account (e.g., a foreclosure action is pending), the appropriate FmHA or 
its successor agency under Public Law 103-354 servicing official will 
notify the Finance Office.

[[Page 370]]



Sec. 1965.5  Servicing certain insured Farm Ownership (FO) loans.

    (a) Servicing actions. When an insured FO mortgage running to the 
lender as mortgagee is not held by the FmHA or its successor agency 
under Public Law 103-354 under trust assignment, or declaration of 
trust, or in the insurance fund (called insured FO mortgage held by the 
lender in this subpart) and a written subordination or partial release 
or other servicing document is requested, the document will be executed 
by the holder on a form prepared or approved by OGC. In those cases, 
execution of the document will constitute consent.
    (b) Execution of documents. The County Supervisor is authorized to 
execute on behalf of the Government, all necessary forms, 
statisfactions, releases, and other documents required to complete any 
transactions in this subpart after the transaction has been approved by 
the appropriate approving official. The documents will be executed on 
behalf of the United States in the following form:
    (1) ``United States of America,'' when the mortgage names the United 
States as mortgagee, or when a mortgage running to the lender is not 
under a trust or declaration of trust and the note is held by the 
insurance fund.
    (2) ``United States of America, for Itself and as Trustee,'' when an 
FO mortgage is held by the FmHA or its successor agency under Public Law 
103-354 under a trust assignment or declaration of trust, regardless of 
whether the note is held by a lender or by the insurance fund.



Sec. 1965.6  Consent of lienholders.

    When this subpart requires the consent of other lienholders, consent 
will be obtained and furnished in writing to the FmHA or its successor 
agency under Public Law 103-354 by the borrower before the FmHA or its 
successor agency under Public Law 103-354 enters into a transaction 
which affects its security or its lien. This consent will, unless 
otherwise provided in a State Supplement, include an agreement as to the 
disposition of any funds involved in the transaction.



Sec. 1965.7  Definitions.

    As used in this subpart, the following definitions apply:
    (a) Borrower. When a loan is made to an individual, the individual 
is the borrower. When a loan is made to an entity, the cooperative, 
corporation, partnership, or joint operation is the borrower.
    (b) County Supervisor also includes Assistant County Supervisor who 
has written delegated authority to carry out purposes of this subpart.
    (c) District Director also includes Assistant District Director who 
has written delegated authority to carry out purposes of this subpart.
    (d) FmHA or its successor agency under Public Law 103-354 loans, 
FmHA or its successor agency under Public Law 103-354 accounts, FmHA or 
its successor agency under Public Law 103-354 interests, FmHA or its 
successor agency under Public Law 103-354 security, FmHA or its 
successor agency under Public Law 103-354 debts and similar terms apply 
to indebtedness owed to, or insured by, the United States of America 
acting through the FmHA or its successor agency under Public Law 103-
354, and to related security instruments.
    (e) Farmer Program loan includes only Farm Ownership (FO), Operating 
(OL), Soil and Water (SW), Economic Emergency (EE), Emergency (EM), 
Recreation (RL), Economic Opportunity (EO), Softwood Timber (ST) and 
Special Livestock (SL) loans, and/or Rural Housing Loans for farm 
service buildings (RHF).
    (f) Foreclosure sale. The act of selling security either under the 
``Power of Sale'' in the security instrument or through court 
proceedings.
    (g) Leasehold. A right to use farm property for a specific period of 
time under conditions provided for a lease agreement.
    (h) Mortgage. Any form of security interest or lien upon any rights 
or interest in real property of any kind. In Louisiana and Puerto Rico 
the term ``mortgage'' also refers to any security interest in chattel 
property.
    (i) Non-Program (NP) Loan. An NP loan results when credits are 
extended to ineligible applicants and/or transferees in connection with 
loan assumptions and sale of inventory properties.

[[Page 371]]

    (j) Note includes any note, bond, assumption agreement or other 
evidence of indebtedness.
    (k) Security. Property of any kind subject to a real or personal 
property lien including, among other things, appurtenant rights of 
development, leasehold, grazing or other use privileges.
    (l) Servicing action includes, among other things, the cash sale or 
transfer of real estate and chattel property and the assumption of 
loans.
[51 FR 4140, Feb. 3, 1986, as amended at 52 FR 26138, July 13, 1987; 53 
FR 35794, Sept. 14, 1988]



Secs. 1965.8--1965.10  [Reserved]



Sec. 1965.11  Preservation of security and protection of liens.

    (a) Inspection of security. The County Supervisor will inspect farm 
real estate security a minimum of one time every 3 years for accounts 
that are current. More frequent inspections will be made when a borrower 
is delinquent or otherwise in default or when problems exist involving 
the security. If all or part of the security is located in another 
County Office area, the County Supervisor for that area may be requested 
to inspect the property. Security on non-farm tracts will be inspected 
when:
    (1) Liquidation action is likely to be taken;
    (2) The property has been abandoned;
    (3) Necessary to protect the interest of the Government; or
    (4) Requested by the borrower.
    (b) Action by FmHA or its successor agency under Public Law 103-354 
for account of borrower. When necessary to protect the interest of the 
Government, actions will be taken by FmHA or its successor agency under 
Public Law 103-354 for the account of the borrower as provided below. 
Any advances made for the following purposes will be considered 
protective advances and will be paid 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). 
Loans may be reamortized without regard to loan limits to include 
protective advances when authorized on an individual case basis by the 
State Director.
    (1) Abandoned and Custodial Property. Determinations of abandonment 
will be made according to Sec. 1955.55 of Subpart B of Part 1955 of this 
chapter. Services for the management, care, and maintenance of custodial 
property will be obtained according to Sec. 1955.55 of Subpart B of Part 
1955 of this chapter. Custodial property may be leased according to the 
provisions of Sec. 1955.66(a)(1) of Subpart B of Part 1955 of this 
chapter.
    (2) Maintenance. Complete information concerning the borrower's 
failure to adequately maintain the security will be documented in the 
case file. If there is a prior lien, expenditures for maintenance will 
not be made unless the prior lienholder refuses to make them. Evidence 
of this unwillingness to do so should be included in the case file.
    (3) Taxes and assessments. Real estate taxes and assessments will be 
handled in accordance with subpart A of part 1925 of this chapter.
    (4) Insurance. For FmHA or its successor agency under Public Law 
103-354 loans secured by liens on real estate, property insurance will 
be obtained and serviced in accordance with requirements for the kind of 
loan involved, and in accordance with Subpart A of part 1806 of this 
chapter (FmHA or its successor agency under Public Law 103-354 
Instruction 426.1), and when appropriate, Subpart B of Part 1806 of this 
chapter (FmHA or its successor agency under Public Law 103-354 
Instruction 426.2).
    (c) Actions by third parties which affect security--(1) General 
provisions. When third parties bring suit or take any other action which 
could affect property servicing as security, borrowers are expected to 
protect their own interests in the property. A few examples of actions 
by third parties are: condemnation proceedings, foreclosure, trespass 
suits, and actions to quiet title.
    (i) County Supervisor's responsibility. When the County Supervisor 
learns about a third party action which could jeopardize the 
Government's interest in the security or when the County Supervisor or 
the Government is made a party to a court proceeding, the County 
Supervisor will immediately send the borrower exhibit B of this subpart

[[Page 372]]

(available in any FmHA or its successor agency under Public Law 103-354 
office) if another lienholder is foreclosing, and attachments 1, 3 and 4 
of exhibit A of subpart S of part 1951 of this chapter. Then the County 
Supervisor will send the following documents to the State Director: the 
County Office case file, complete with information concerning the 
action; recommendations for FmHA or its successor agency under Public 
Law 103-354 servicing action; a copy of any petition or complaint, as 
soon as available; current account balances; a current appraisal report; 
the name and address of the borrower's attorney, if any; and other 
information which the County Supervisor believes important such as 
unpaid taxes, judgments, or other liens.
    (ii) State Director's responsibility. The State Director will 
consult OGC about all lawsuits involving the property and any other 
third party actions when OGC's advice would be helpful. The State 
Director will then advise the County Supervisor of the actions to be 
taken to protect the Government's interest in the property. The payment 
of other liens by FmHA or its successor agency under Public Law 103-354 
will be authorized by the State Director only to protect the 
Government's interest, not for the protection of the borrower's interest 
or the interest of any third party. When foreclosure by another creditor 
or any other action which would cause the borrower to lose possession of 
the property is imminent, the State Director may consider making a 
subsequent loan or guaranteed loan, or approving a subordination to 
permit another lender to make a loan, provided:
    (A) The requirements for the primary servicing program(s), a 
subsequent loan, guaranteed loan or subordination are met, and such 
assistance is necessary to enable the borrower to retain the property, 
and
    (B) The borrower has the ability and resources necessary to overcome 
the problems that caused the foreclosure or other action, and
    (C) The third party agrees to postpone further action pending the 
processing of the primary servicing programs, a subsequent loan, 
guaranteed loan or subordination.
    (iii) Other actions. The State Director may also approve a transfer 
and assumption under this subpart provided the action will adequately 
protect the Government's interest and the third party agrees to delay 
further action pending processing of the transfer and assumption. The 
State Director will notify the County Supervisor of the actions to be 
taken to protect the Government's interest.
    (2) Sale by a prior lien foreclosure. When FmHA or its successor 
agency under Public Law 103-354 learns that a prior lienholder is 
contemplating foreclosure, the prior lienholder will be contacted to 
determine the amount of the prior lien indebtedness and the estimated 
cost of a foreclosure sale. An insured note which is not held by the 
insurance fund will, whenever possible, be assigned to the insurance 
fund before a foreclosure sale. Otherwise, the assignment will be 
completed as soon as feasible after the foreclosure sale.
    (i) Decision to pay off the prior lien. When, under State law, it is 
necessary prior to foreclosure to acquire the prior lienholder's rights 
to protect the Government's junior lien interest, title evidence will be 
obtained. Information clearly supporting the need to acquire the prior 
lienholder's rights must be documented and made a part of the file. 
Payment of the prior lien and required costs may be made with the advice 
of OGC, provided:
    (A) The Government will obtain a greater recovery of the secured 
debt (not an inventory profit) than it could by bidding at the 
foreclosure sale, and
    (B) After acquisition of the prior lien and completion of any 
appeals in favor of FmHA or its successor agency under Public Law 103-
354, the account will be accelerated and liquidated in accordance with 
Sec. 1965.26(b) of this subpart. No exception will be made to this 
provision.
    (ii) Decision not to pay off the prior lien. If FmHA or its 
successor agency under Public Law 103-354 decides not to pay off the 
prior lien, one of the following actions will be taken.
    (A) Making a bid. Bidding will be completed in accordance with 
Sec. 1955.15(f) (6) and (7) of subpart A of part 1955 of this chapter. 
Information clearly supporting the bid as being to

[[Page 373]]

the Government's financial advantage must be documented and made a part 
of the file. When FmHA or its successor agency under Public Law 103-354 
enters a bid, actions will be taken in accordance with Secs. 1955.15(g) 
and 1955.18 of subpart A of part 1955 of this chapter.
    (B) Making no bid. When the State Director determines that no bid 
will be entered by FmHA or its successor agency under Public Law 103-
354, the County Supervisor will, at the discretion of the State 
Director, attend the sale and make a narrative report to the State 
Director outlining the results of the foreclosure sale and plans for 
future servicing of the account. If the Government is to rely on its 
redemption rights, that fact will be indicated in the report. 
Unsatisfied farmer program loan accounts will be handled in accordance 
with Sec. 1955.18 (f) of subpart A of part 1955 of this chapter.
    (iii) Acquisition of property by exercise of Government redemption 
rights. If the Government for any reason did not protect its interest at 
the time of the foreclosure sale and if the Government has any 
redemption rights, the State Director will determine whether to redeem 
the property in accordance with Sec. 1955.13 of subpart A of part 1955 
of this chapter.
    (3) Foreclosure sale subject to FmHA or its successor agency under 
Public Law 103-354 mortgage. When FmHA or its successor agency under 
Public Law 103-354 learns that a junior lienholder is foreclosing, the 
County Supervisor will send the borrower attachments 1 and 3 and 4 of 
exhibit A of subpart S of part 1951 of this chapter and exhibit B of 
this subpart. If the borrower contacts FmHA or its successor agency 
under Public Law 103-354 and wants to apply for servicing relief, the 
request will be processed in accordance with subpart S of part 1951 of 
this chapter. If the junior lienholder forecloses and the property is 
sold subject to the FmHA or its successor agency under Public Law 103-
354 mortgage, following the resolution of any appeal in favor of FmHA or 
its successor agency under Public Law 103-354, the borrower's account 
will be accelerated and liquidated in accordance with the applicable 
portion of Sec. 1955.15 of subpart A of part 1955 of this chapter.
    (d) Divorce actions. See Sec. 1965.27 (b)(5)(iii) of this subpart 
for directions on servicing security after divorce. A subsequent loan 
made as a result of a divorce action will be handled in accordance with 
Sec. 1965.27(b)(13) of this subpart.
[51 FR 4140, Feb. 3, 1986, as amended at 53 FR 35794, Sept. 14, 1988; 56 
FR 15829 Apr. 18, 1991; 57 FR 20741, May 15, 1992; 57 FR 36592, Aug. 14, 
1992; 58 FR 38928, July 21, 1993]



Sec. 1965.12  Subordination of FmHA or its successor agency under Public Law 103-354 mortgage.

    In accordance with the Food Security Act of 1985 (Public Law 99-198) 
after December 23, 1985, if an individual or any member, stockholder, 
partner, or joint operator of an entity is convicted under Federal or 
State law of planting, cultivating, growing, producing, harvesting, or 
storing a controlled substance (see 21 CFR part 1308, which is exhibit C 
to subpart A of part 1941 of this chapter and is available in any FmHA 
or its successor agency under Public Law 103-354 office, for the 
definition of ``controlled substance'') prior to the issuance of the 
subordination in any crop year, the individual or entity shall be 
ineligible for a subordination for the crop year in which the individual 
or member, stockholder, partner, or joint operator of the entity was 
convicted and the four succeeding crop years. Applicants for 
subordinations will attest on Form FmHA or its successor agency under 
Public Law 103-354 465-1, ``Application for Partial Release, 
Subordination, or Consent,'' that as individuals or that its members, if 
an entity, have not been convicted of such crime after December 23, 
1985. A decision to reject an application for subordination for this 
reason is not appealable. Softwood timber (ST) loans will not be 
subordinated.
    (a) Conditions for subordination. A subordination may be granted for 
any authorized Farmer Programs loan purpose subject to the following 
conditions:
    (1) The FmHA or its successor agency under Public Law 103-354 debt 
cannot be refinanced on terms which the borrower can reasonably be 
expected to meet;

[[Page 374]]

    (2) The transaction will further the objectives for which the FmHA 
or its successor agency under Public Law 103-354 loan or loans were 
made;
    (3) The terms and conditions of the prior lien will be such that the 
borrower can reasonably be expected to meet them, as well as all other 
debts;
    (4) An assignment of the beneficial interest in any stock required 
in connection with a loan will be obtained as security, when possible 
and when needed;
    (5) The FmHA or its successor agency under Public Law 103-354 
indebtedness after the subordination will be adequately secured or will 
not be adversely affected by the transaction;
    (6) When the FmHA or its successor agency under Public Law 103-354 
indebtedness was not fully secured by the market value of the security 
before the transaction, a subordination may be granted only if the 
market value of the total real estate security will be increased through 
improvement or acquisition by an amount at least equal to the additional 
advance. For Section 502 SFH loans subject to recapture, FmHA or its 
successor agency under Public Law 103-354 indebtedness will be 
determined in accordance with subpart I of part 1951 of this chapter.
    (7) The funds obtained will not be used for any purpose that will 
contribute to excessive erosion of highly erodible land or to the 
conversion of wetlands to produce an agricultural commodity as further 
explained in exhibit M to subpart G of part 1940 of this chapter. This 
requirement will be monitored throughout the term of the loan.
    (8) When a non-farm tract secures an SFH loan, the other lender's 
funds will only be used for the same purposes and with the same 
limitations that would be applicable if an SFH loan were made.
    (9) When additional land is to be acquired with proceeds from the 
subordination, Form FmHA or its successor agency under Public Law 103-
354 440-2, ``County Committee Certification or Recommendation,'' will be 
completed before the subordination is approved. A subordination for 
purchase of additional land will not be approved without favorable 
recommendation of the County Committee.
    (10) Any proposed development will be planned and performed in 
accordance with subpart A of part 1924 of this chapter, or in a manner 
directed by the creditor and agreed to by FmHA or its successor agency 
under Public Law 103-354 which reasonably attains the objectives of 
subpart A of part 1924 of this chapter.
    (11) Funds used to develop or to acquire land will be handled as 
prescribed in subpart A of part 1902 of this chapter. If the creditor 
will not permit the use of a supervised bank account, FmHA or its 
successor agency under Public Law 103-354 and the creditor may agree to 
another arrangements which will assure that funds will be spent for the 
planned purposes.
    (12) In cases of land purchase or exchange of property, the FmHA or 
its successor agency under Public Law 103-354 will obtain a valid 
mortgage on the acquired land. Title clearance and loan closing will be 
required as for an initial or subsequent FO loan, as appropriate. The 
mortgage will be recorded when the subordination is delivered to the 
other lender.
    (13) When FmHA or its successor agency under Public Law 103-354 
subordinates its lien to that of another lender when the primary purpose 
of the new loan funds is not to reduce the existing FmHA or its 
successor agency under Public Law 103-354 loan, written justification 
for allowing the subordination must be prepared and made a part of the 
borrower's case file. The approval official will decide whether or not 
to allow the subordination based on the following factors, which should 
be addressed in the written justification:
    (i) The new loan funds must be needed to accomplish the objectives 
in Sec. 1965.2 of this subpart;
    (ii) The conditions in paragraph (a)(1) through (a)(7) of this 
section must be met.
    (b) Subordination on real estate owned by an entity member(s). When 
the borrower is an entity and FmHA or its successor agency under Public 
Law 103-354 has taken real estate as additional security on property 
owned by an entity member(s), a subordination for any authorized Farmer 
Programs loan purpose may be approved when it is

[[Page 375]]

needed for the entity member(s) to finance a separate operation. The 
subordination, however, may be approved only if it does not leave the 
FmHA or its successor agency under Public Law 103-354 indebtedness 
inadequately secured or otherwise adversely affected.
    (c) Request for subordination. When a borrower requests the FmHA or 
its successor agency under Public Law 103-354 to subordinate a mortgage, 
Form FmHA or its successor agency under Public Law 103-354 465-1, 
``Application for Partial Release, Subordination, or Consent,'' will be 
prepared. If an agreement to give notice of foreclosure is required for 
approval of an initial FmHA or its successor agency under Public Law 
103-354 loan, an agreement with the new prior lienholder will be 
obtained as required in subpart B of part 1927 of this chapter. In case 
of an insured mortgage held by the lender, the holder's consent will be 
obtained in accordance with Sec. 1965.5 of this subpart. Any other 
lienholder's consent to the transaction and use of the proceeds will be 
obtained as provided in Sec. 1965.6 of this subpart.
    (d) Appraisal. A current appraisal report will be prepared in 
accordance with subpart E of part 1922 of this chapter when property is 
to be purchased or exchanged, or when the existing appraisal report is 
more than 1 year old or is inadequate to make the determination required 
in this paragraph. When an appraisal is required by FmHA or its 
successor agency under Public Law 103-354 in connection with a 
subordination being granted to the Federal Land Bank (FLB), the 
appraiser may recommend, or the loan approval official may find, the 
market value of the total security to be equal to the market value of 
the real estate plus the value of the FLB stock. This determination will 
be recorded on a separate sheet and attached to the appraisal report. 
When a subordination is granted in connection with any FmHA or its 
successor agency under Public Law 103-354 loan to permit a loan by 
another lender, the FmHA or its successor agency under Public Law 103-
354 appraiser is authorized to use the appraisal report prepared for the 
other lender in determining the recommended market value of the property 
in accordance with subpart E of part 1922 of this chapter.
    (e) Approval authority--(1) Nonfarm tracts. County Supervisors and 
District Directors are authorized to approve subordinations under this 
section which do not exceed their respective loan approval authorities, 
as outlined in exhibit C of FmHA or its successor agency under Public 
Law 103-354 Instruction 1901-A (available in any FmHA or its successor 
agency under Public Law 103-354 Office). State Directors are authorized 
to approve any subordination which exceeds the approval authority for 
County Supervisors or District Directors.
    (2) Farm tracts. County Supervisors and District Directors may 
approve subordinations for any authorized Farmer Programs loan purpose 
when the FmHA or its successor agency under Public Law 103-354 
indebtedness plus the subordinations does not exceed the official's 
approval authority for the type(s) of loan(s) as outlined in exhibit C 
of FmHA or its successor agency under Public Law 103-354 instruction 
1901-A. When more than one type of loan is involved in the 
subordination, the loan approval authority of County Supervisors and 
District Directors will be the highest combination amount authorized in 
exhibit C of FmHA or its successor agency under Public Law 103-354 
Instruction 1901-A for any of the loan types involved, except for 
subordination of real estate security for operating credit, for which 
the authority is reserved to the State Director. State Directors are 
authorized to approve any subordination, consistent with this subpart, 
which exceeds the approval authority of County Supervisors and District 
Directors.
    (f) Processing. When the approval of the subordination by the State 
Director is required or when the County Supervisor or District Director 
desires advice before approval of the subordination, the borrower's case 
folder with current documents to support the applicable determinations, 
such as, where appropriate, Forms FmHA or its successor agency under 
Public Law 103-354 431-2, ``Farm and Home Plan'' (or other plan of 
operation acceptable to FmHA or its successor agency under Public Law 
103-354), FmHA or its successor

[[Page 376]]

agency under Public Law 103-354 431-1, ``Long-Time Farm and Home Plan,'' 
FmHA or its successor agency under Public Law 103-354 1944-3, ``Budget 
and/or Financial Statement,'' FmHA or its successor agency under Public 
Law 103-354 1922-1, ``Appraisal Report--Farm Tract,'' FmHA or its 
successor agency under Public Law 103-354 1922-8, ``Uniform Residential 
Appraisal Report,'' FmHA or its successor agency under Public Law 103-
354 440-2, other necessary forms, and Form FmHA or its successor agency 
under Public Law 103-354 465-1 will be sent to the State Office. As 
required by this section, Form FmHA or its successor agency under Public 
Law 103-354 440-2 will be completed when a subordination is granted for 
the purchase of additional land. After approval of the subordination, it 
will be closed in accordance with State Supplements to the maximum 
extent possible as provided in Sec. 1965.36 of this subpart. However, 
when legal advice on an individual case is necessary, Form FmHA or its 
successor agency under Public Law 103-354 465-1, any subordination form 
furnished in connection therewith, the original or a copy of the FmHA or 
its successor agency under Public Law 103-354 mortgage, the refinancing 
mortgage or agreement, and related documents will be submitted to the 
OGC for review and preparation of the necessary instruments and closing 
instructions. The documents and closing instructions will be sent to the 
County Office. If the signature of the State Director is required on 
some of the instruments, the docket and closing instructions will be 
routed through the State Office. The subordination will be completed in 
accordance with the closing instructions.
    (g) Reamortizing existing FmHA or its successor agency under Public 
Law 103-354 debts other than SFH. The County Supervisor, District 
Director, or State Director (as appropriate) may consent to a 
reamortization of an existing FmHA or its successor agency under Public 
Law 103-354 debt when a subordination is granted to the debt of another 
lender. The reamortization will be allowed only when the borrower cannot 
reasonably be expected to meet installments when due. Reamortizations of 
Farmer Program loans will be processed in accordance with subpart S of 
part 1951 of chapter. Reamortization of SFH loans will be processed in 
accordance with subpart G of part 1951 of this chapter.
[51 FR 4140, Feb. 3, 1986, as amended at 51 FR 40787, Nov. 10, 1986; 52 
FR 26138, July 13, 1987; 53 FR 7339, Mar. 8, 1988; 53 FR 8740, Mar. 16, 
1988; 53 FR 17688, May 18, 1988; 53 FR 35794, Sept. 14, 1988; 54 FR 
8523, Mar. 1, 1989; 56 FR 67484, Dec. 31, 1991; 57 FR 18680, Apr. 30, 
1992; 58 FR 26682, May 5, 1993; 58 FR 44752, 44753, Aug. 25, 1993; 58 FR 
52654, Oct. 12, 1993]



Sec. 1965.13  Consent by partial release or otherwise to sale, exchange or other disposition of a portion of or interest in security, except leases.

    See subpart S of part 1951 of this chapter when a combination of NP, 
ST and other FP loans are involved. If a FP loan is being deferred and 
reamortized as an ST loan, partial releases are authorized as provided 
in Subpart S of Part 1951 of this chapter. However, there is no 
authority for FmHA or its successor agency under Public Law 103-354 
employees to consent to partial release or sale, exchange or other 
disposition of a portion of the security for an existing ST loan.
    (a) Provisions of FmHA or its successor agency under Public Law 103-
354 mortgages. In all FmHA or its successor agency under Public Law 103-
354 mortgages except SFH loan mortgages prepared before October 1, 1950, 
and a few OL, EM, Special Livestock (SL), and Water Facilities (WF) loan 
mortgages, the borrower has agreed not to sell, transfer, assign, 
mortgage, or otherwise encumber the security or any portion of or 
interest in it without the prior written consent of the mortgagee. 
Furthermore, in the case of the few SFH, OL, EM, SL, and WF loan 
mortgages not requiring FmHA or its successor agency under Public Law 
103-354 consent, any property, or any part of it or interest in it, 
which is subject to the FmHA or its successor agency under Public Law 
103-354 mortgage and which is disposed of by the borrower without 
consent remains subject to the mortgage lien. In all FmHA or its 
successor agency under Public Law 103-354 mortgages theborrower 
expressly agrees not to engage, without prior consent, in certain 
specified transactions, including the cutting or removal of timber,

[[Page 377]]

or mining or removal of gravel, oil, gas, coal, or other minerals, 
except small amounts used by the borrower for ordinary domestic 
purposes. The sale of timber (other than harvests for thinning purposes 
approved by FmHA or its successor agency under Public Law 103-354 on a 
farm plan), mining products, removal of gravel, oil, gas, coal, or other 
minerals by unit or lump sum payments will be considered as disposition 
of a portion of the security, except: For Farmer Program loans approved 
after December 23, 1985, the sale of such products, other than timber, 
will be considered a disposition of a portion of the security only if 
the rights to the products were specifically included as a part of the 
appraisal value of the real estate securing the loan; if the rights were 
not included in the appraisal, then FmHA or its successor agency under 
Public Law 103-354 has no lien on the rights to oil, gas or other 
minerals located under the real estate. Any payment or other 
compensation the borrower may receive for damages to the surface of the 
collateral real estate resulting from exploration for or recovery of 
minerals will be assigned to FmHA or its successor agency under Public 
Law 103-354 and will be used to repair the damage or used as authorized 
in Sec. 1965.13(f) of this subpart. This section explains how and under 
what circumstances FmHA or its successor agency under Public Law 103-354 
will grant partial releases, and give its consent to certain 
transactions affecting the security. Subordinations, transfers, consents 
to junior liens, leases and severance agreements are discussed 
individually in other sections of this subpart. Releases granted in 
connection with a final payment on real estate will be handled in 
accordance with subpart D of part 1951 of this chapter.
    (b) Conditions of FmHA or its successor agency under Public Law 103-
354 consent. A State Supplement will be developed, with guidance of OGC, 
and issued to provide guidance for handling of easements or rights-of-
way in connection with the development, extension, construction or 
modification of community based programs, such as rural water districts, 
drainage, and irrigation districts, without requiring monetary 
consideration or detailed appraisals. Otherwise, FmHA or its successor 
agency under Public Law 103-354 may consent to certain transactions 
affecting the security (for example, a sale or an exchange of security 
or granting a right-of-way across security) and/or grant a partial 
release if:
    (1) The transaction will further the objectives for which the FmHA 
or its successor agency under Public Law 103-354 loan or loans were 
made;
    (2) The proposed use of the funds including the payment of 
reasonable costs and expenses incident to the transaction will improve 
the borrower's ability to repay the FmHA or its successor agency under 
Public Law 103-354 loan(s) or is necessary to place the borrower's 
operation on a sound basis;
    (3) The consideration is adequate for the security being disposed of 
or the rights granted (see paragraph (c) of this section);
    (4) Orderly repayment of the FmHA or its successor agency under 
Public Law 103-354 indebtedness will not be impaired (does not apply in 
condemnation cases after final judgment or award which is not appealed);
    (5) The transaction will not interfere with successful operation of 
any farming or other enterprise providing the borrower with repayment 
ability (does not apply in condemntation cases after final judgment or 
award which is not appealed);
    (6) The market value of the remaining security is adequate to secure 
the unpaid balance of the FmHA or its successor agency under Public Law 
103-354 debts, or if the market value of the security before the 
transaction was inadequate to fully secure the FmHA or its successor 
agency under Public Law 103-354 debts, the FmHA or its successor agency 
under Public Law 103-354's security interest is not adversely affected;
    (7) The requirements of Sec. 1965.6 of this subpart are met; and
    (8) The borrower cannot graduate to other credit.
    (c) Exchange of property. When an exchange of property serving as 
security for an FmHA or its successor agency under Public Law 103-354 
loan results in a balance owing to the FmHA or its successor agency 
under Public Law 103-

[[Page 378]]

354 borrower, the provisions of this section applicable to a sale of a 
portion of the security will apply as to disposition of proceeds. When 
property is exchanged, the property acquired by the FmHA or its 
successor agency under Public Law 103-354 borrower must meet 
requirements of the program objectives, purposes and limitations 
outlined in this subpart relating to the type of loan involved as well 
as respective requirements for appraisal, title clearance and security. 
Requests for exchange of property which cannot be approved under this 
section may be submitted to the National Office for consideration, 
provided the request meets conditions in Sec. 1965.35 of this subpart.
    (d) Appraisals. When the official authorized to approve the 
transaction is uncertain whether the proposed consideration is adequate, 
or for any other reason considers an appraisal necessary to complete 
Form FmHA or its successor agency under Public Law 103-354 465-1, or 
when the transaction involves more than $10,000, a new appraisal report 
will be obtained in accordance with subpart E of part 1922 of this 
chapter. However, a new appraisal report need not be obtained if there 
is an appraisal report not over 1 year old in the case file which will 
permit the official authorized to approve the transaction to make the 
proper determination of the market value of the property being retained 
and the market value of the portion to be released. When a new appraisal 
is not required, the appraiser will indicate the estimate of values and 
the basis for it in the comments section of the existing appraisal 
report. The notation will be initialed and dated. When a new appraisal 
report is required, it will be completed to show the present market 
value of the property being retained. The rights to mining products, 
gravel, oil, gas, coal or other minerals will be specifically included 
as a part of the appraised value of the real estate securing the loans. 
Also, the present market value of the property being released will be 
shown under the comments section of the same appraisal report. 
Information regarding sales of comparable properties used in arriving at 
the present market value of the property being released will be shown in 
the comments section or on an attached sheet.
    (1) Stationary units. If timber or minerals, including sand, gravel, 
and stone which appear to be worth more than $2,000 are to be sold on 
the basis of the timber stand or the mineral deposit rather than the 
units to be removed, the borrower will be encouraged to obtain the 
assistance of a qualified technician other than an FmHA or its successor 
agency under Public Law 103-354 employee to provide advice on the 
quality or value of the timber or minerals, and the manner in which they 
should be sold. Generally, assistance can be obtained from State or 
Federal employees who are located in the area, such as U.S. Department 
of Agriculture Forest Service employees.
    (2) Units removed. When timber or minerals including sand, gravel, 
or stone, are to be sold on the basis of the units to be removed, or 
when an easement or a right-of-way is to be sold or granted, the 
employee authorized to make the appraisal may insert the date, and 
initial a notation on the existing appraisal report instead of making a 
new appraisal report. The notation should show (i) the unit value of 
timber or minerals, or the value of the easement or right-of-way, based 
on the consideration being paid for similar items in the area; and (ii) 
the manner in which the remaining property will be affected. If the 
market value of the remaining property is significantly decreased, a 
market value appraisal of the remaining property usually will be 
required.
    (e) Authority of the County Supervisor and District Director--(1) 
General. County Supervisors and District Directors may approve 
transactions for purposes authorized in this subpart when the FmHA or 
its successor agency under Public Law 103-354 indebtedness after the 
transaction does not exceed their approval authority for the type of 
loan or a combination of types of loans as outlined in exhibit C of FmHA 
or its successor agency under Public Law 103-354 Instruction 1901-A 
(available in any FmHA or its successor agency under Public Law 103-354 
Office). When more than one type of loan is involved in the transaction, 
the loan approval authority of County Supervisors and District

[[Page 379]]

Directors will be the highest combination amount authorized in exhibit C 
of FmHA or its successor agency under Public Law 103-354 Instruction 
1901-A for any of the loan types involved. State Directors are 
authorized to approve any transaction, consistent with this subpart, 
which exceeds the approval authority of County Supervisors and District 
Directors.
    (2) Forest products. County Supervisors and District Directors can 
approve most applications for consent or release involving the harvest 
or sale of forest products. In the case of 3 percent loans for forestry 
purposes, applications for consent or release will be forwarded to the 
State Director for approval if:
    (i) The harvest or sale is not in accordance with strict provisions 
of the initially approval forestry plan,
    (ii) Future repayments on the 3 percent advance are scheduled on any 
basis other than equal annual installments,
    (iii) There is a lien on the forest land prior to the lien of the 
FmHA or its successor agency under Public Law 103-354, or
    (iv) There is a delinquency on any FmHA or its successor agency 
under Public Law 103-354 real estate loan.
    (3) Terms of a sale. County Supervisors and District Directors may 
approve sales made on the following terms.
    (i) Sale of a portion of the security for its market value on the 
following terms:
    (A) For SFH loans, refer to Sec. 1965.110 of subpart C of part 1965 
of this chapter.
    (B) For all other loans, not less than 10 percent (of the purchase 
price) down and payments not to exceed ten annual installments of 
principal plus interest at not less than the current rate being charged 
on regular FO loans plus 1 percent or the rate on the borrower's 
note(s), whichever is greater. Payments may be in equal or unequal 
installments with a balloon final installment. For farmer program loans 
approved after December 23, 1985, the sale of mining products gravel, 
oil, gas, coal, or other minerals will be considered a sale of security 
only if the rights to such products were specifically included as a part 
of the appraised value of the real estate securing the loan; if the 
rights were not included in the appraisal, then FmHA or its successor 
agency under Public Law 103-354 has no lien on the rights to such 
products located under the real estate.
    (ii) In each case it must be determined that:
    (A) The government's security rights, including the right to 
foreclose on either the portion being sold or retained, are not 
impaired,
    (B) The down payment and any subsequent payments are applied to the 
FmHA or its successor agency under Public Law 103-354 debt(s), prior 
lien(s), or otherwise used as authorized in this section under paragraph 
(f) of this section, and
    (C) If applicable, the requirements of subpart G of part 1940 of 
this chapter must be met.
    (iii) In each case the following conditions must be met:
    (A) Any amount to be paid FmHA or its successor agency under Public 
Law 103-354 from the down payment and subsequent payments must be 
assigned to FmHA or its successor agency under Public Law 103-354,
    (B) The property sold will not be released prior to either full 
payment of the borrower's account or receipt of full amount of sale 
proceeds with proper application or release of the proceeds, and
    (C) The borrower must agree in writing that the sale proceeds will 
not affect the borrower's primary and continued obligation for making 
payments under terms of the note or any other agreements approved by 
FmHA or its successor agency under Public Law 103-354.
    (f) Use of proceeds. County Supervisors or District Directors may 
approve transactions if the proceeds will be used in one of the 
following ways.
    (1) Proceeds may be applied on liens in order of priority. Written 
consent of any prior or junior lienholder will be obtained by the 
borrower and delivered to the FmHA or its successor agency under Public 
Law 103-354 if any proceeds are not to be applied in accordance with 
lien priorities.

[[Page 380]]

    (2) The borrower may use a portion of any proceeds to pay customary 
incidental costs appropriate to the transaction and reasonable in amount 
which the borrower cannot arrange to pay for personal funds or cannot 
have the purchaser pay. The costs may, for example include real estate 
taxes which must be paid to consummate the transaction; cost of title 
examination, surveys, abstracts, title insurance, reasonable attorney's 
fees, real estate broker's commissions and judgment liens. In any State 
in which it is necessary to obtain the insured note from the lender to 
present to the recorder before a release of a portion of the land from 
the mortgage, the borrower must pay any cost for postage and insurance 
of the note while in transit. The County Supervisor will advise the 
borrower when requesting a partial release that the borrower must pay 
the cost. If the borrower is unable to pay the costs from personal 
funds, they may be deducted from the sale proceeds. The amount of the 
charge will be based on the statement of actual cost furnished by the 
payee.
    (3) Proceeds may be used for development of land owned by the 
borrower or for enlargement, if development or enlargement is necessary 
to improve the borrower's debt-payment ability and to place the 
borrower's operation on a sound basis, or to otherwise further the 
objectives of the loan. The use of proceeds for these purposes will not 
conflict with the loan purposes, restrictions or requirements of the 
type loan(s) involved. Any proposed development work will be in 
accordance with subpart A of part 1924 of this chapter. Funds to be used 
for development or enlargement will be handled under subpart A of part 
1902 of this chapter.
    (4) When FmHA or its successor agency under Public Law 103-354 loans 
secured by a lien on real estate will be adequately secured after a 
transaction affecting the real estate takes place, proceeds may, with 
the consent of the State Director and other lienholders on the real 
estate, be used as follows:
    (i) Applied to delinquent or unmatured FmHA or its successor agency 
under Public Law 103-354 loan installments when the borrower is 
otherwise unable to meet the installments.
    (ii) For other than SFH loans, applied on debts owed creditors other 
than FSA Farm Credit Programs to the extent needed to establish a basis 
for continuation of the other creditor's account, if the following 
requirements are met:
    (A) A feasible farm and home plan will be developed in accordance 
with Sec. 1924.56 of subpart B of part 1924 of this chapter. Voluntary 
debt adjustment will be utilized, as appropriate, in accordance with 
subpart A of part 1903 of this chapter.
    (B) Proceeds will not be used to pay current crop/operating year 
family living and/or operating expenses, as developed in the Annual Plan 
in accordance with Sec. 1924.56 of subpart B of part 1924 of this 
chapter.
    (iii) Develop land not owned by the borrower which is essential to 
the borrower's operation in an amount not to exceed $10,000, provided: 
the improvements are needed to improve the borrower's repayment ability 
and the borrower has tenure arrangements which justify the use of the 
proceeds on the land not owned by the borrower. Development work 
performed will be in accordance with subpart A of part 1924 of this 
chapter. Funds will be handled under subpart A of part 1902 of this 
chapter.
    (5) When liquidation action is pending in accordance with 
Sec. 1965.26 of this subpart, the County Supervisor or District Director 
is authorized to approve transactions only when all the proceeds (other 
than costs authorized in paragraph (f)(2) of this section) will be 
applied to the liens against the security in the order of their 
priority.
    (g) Authority of the State Director. The State Director is 
authorized to approve transactions that exceed the approval authority 
granted in paragraph (e) of this section to the County Supervisor and 
District Director, or that involve an easement or right-of-way granted 
or conveyed without monetary compensation or for a token consideration. 
When approving these transactions, the State Director must determine 
that the requirements of paragraph (b) of this section are met.

[[Page 381]]

    (h) Processing. FmHA or its successor agency under Public Law 103-
354's consent will be given by approving a completed Form FmHA or its 
successor agency under Public Law 103-354 465-1 if the transaction meets 
the conditions of paragraph (b) of this section. Also, when requested, 
FmHA or its successor agency under Public Law 103-354 will give a 
written partial release on Form FmHA or its successor agency under 
Public Law 103-354 460-1, ``Partial Release,'' or other form approved by 
OGC. A formal release may not be delivered for 15 days after the payment 
is received unless payment is made in the form of cash, money order, 
certified check, or check from a reputable lending agency. Releases not 
delivered will usually be voided 30 days after notification to the 
requesting party that the release is available. When an insured FO 
mortgage is held by the lender, the holder's consent will be obtained 
only if a written partial release or other written servicing document is 
requested by the borrower. When the approval of a transaction by the 
State Director is required, or when the County Supervisor or District 
Director desires advice in connection with approval of a transaction, 
the borrower's case folder, Form FmHA or its successor agency under 
Public Law 103-354 465-1, and any other information pertinent to the 
transaction will be sent to the State Office.
    (i) Liquidation. If FmHA or its successor agency under Public Law 
103-354 is unable to approve a partial sale, the partial sale cannot be 
used as the basis for liquidation in the following circumstances:
    (1) The spouse or children of the borrower become the owner of the 
property.
    (2) The sale results from a divorce or legal separation and the 
spouse of the borrower becomes the owner of the property.
    (3) An intervivos trust becomes the owner of the property so long as 
the borrower is a beneficiary of the trust and there is no change in 
occupancy of the property.
[51 FR 4140, Feb. 3, 1986, as amended at 52 FR 26139, July 13, 1987; 53 
FR 35795, Sept. 14, 1988; 56 FR 10154, Mar. 11, 1991; 57 FR 775, Jan. 9, 
1992; 58 FR 44752, Aug. 25, 1993; 58 FR 52654, Oct. 12, 1993; 61 FR 
35931, July 9, 1996]



Sec. 1965.14  Subordination of FmHA or its successor agency under Public Law 103-354 real estate mortgages to easements to the U.S. Fish and Wildlife Service, 
          (formerly the Bureau of Sport Fisheries and Wildlife).

    Exhibit A (available in any FmHA or its successor agency under 
Public Law 103-354 office) of this subpart, ``Memorandum of 
Understanding between Bureau of Sport Fisheries and Wildlife (now the 
U.S. Fish and Wildlife Service) and the Farmers Home Administration or 
its successor agency under Public Law 103-354,'' outlines the procedure 
to follow in processing a subordination of an FmHA or its successor 
agency under Public Law 103-354 mortgage on wetlands on which the Bureau 
of Sport Fisheries and Wildlife requests an easement for waterfowl 
habitats. The County Supervisor will handle the request in accordance 
with the steps outlined in Exhibit A and applicable processing portions 
of Sec. 1965.12 of this subpart.



Sec. 1965.15  Subordination of FmHA or its successor agency under Public Law 103-354's lien to the Commodity Credit Corporation's (CCC) security interest taken 
          for loans made for farm storage and drying equipment.

    The CCC makes loans under its Farm Storage and Drying Equipment Loan 
Program for the purchase, construction, erection, remodeling, or 
installment of either farm storage or drying equipment or both and 
requires that any loan at the discretion of the approving committee, be 
secured by a lien on the real estate. When the CCC proposes to make a 
loan to an FmHA or its successor agency under Public Law 103-354 
borrower and requests a subordination of the FmHA or its successor 
agency under Public Law 103-354

[[Page 382]]

real estate lien, the request will be handled on an individual case 
basis under Sec. 1965.12 of this subpart. A borrower's request for the 
FmHA or its successor agency under Public Law 103-354's consent to a 
severance agreement or other similar instrument for an item or items to 
be acquired with a CCC loan will be handled under Sec. 1965.19 of this 
subpart.



Sec. 1965.16  Consent to junior liens.

    As a general policy, FmHA or its successor agency under Public Law 
103-354 borrowers will be discouraged from giving other creditors junior 
liens on real estate securing an FmHA or its successor agency under 
Public Law 103-354 loan. (For Sections 502 and 504 loans, see 
Sec. 1965.111 of Subpart C of Part 1965 of this chapter).
    (a) Processing request. When consent to a junior lien is requested 
by a borrower, the County Supervisor may consent by executing Form FmHA 
or its successor agency under Public Law 103-354 465-1 or other form 
approved by OGC for use in the state provided:
    (1) The terms of the junior lien debt are such that repayment is not 
likely to jeopardize payment of the FmHA or its successor agency under 
Public Law 103-354 loan;
    (2) Operating plans made with the junior lienholder are consistent 
with plans made with FmHA or its successor agency under Public Law 103-
354;
    (3) Total debt against the security will not exceed its market 
value; and
    (4) The junior lienholder agrees in writing not to foreclose the 
mortgage before a discussion with the County Supervisor and after giving 
a reasonable specified period of written notice to FmHA or its successor 
agency under Public Law 103-354.
    (b) Consent not requested or granted. When a junior lien is placed 
on any property without FmHA or its successor agency under Public Law 
103-354 consent and consent cannot be granted under this section, FmHA 
or its successor agency under Public Law 103-354 may continue with the 
loan as long as the borrower pays FmHA or its successor agency under 
Public Law 103-354 loans as agreed, maintains the security, and meets 
all other conditions of the loan. The existence of a junior lien cannot 
be treated as a default. The County Supervisor will continue to service 
the loan to protect the Government's security interest.



Sec. 1965.17  Lease of security.

    (a) General provisions. When the County Supervisor learns that a 
borrower is leasing or intends to lease all or a portion of the 
security, the County Supervisor will ask the borrower for a copy of the 
lease, if it is written. If the borrower leases or proposes to lease the 
real estate security for a term of more than 3 years or with an option 
to purchase, the County Supervisor will normally initiate liquidation 
action in accordance with Sec. 1965.26(b) of this subpart. However, if 
under unusual circumstances the County Supervisor believes FmHA or its 
successor agency under Public Law 103-354 should consent to such a lease 
arrangement, prior approval of the Assistant Administrator, Farmer 
Programs, or the Administrator, if a SFH loan is secured by the same 
security, is required. The State Director should forward such a request, 
along with a justification to the National Office. No action will be 
taken to disapprove or to approve a lease if the lease is for less than 
three years and contains no option to purchase; however, if under the 
lease of security, the borrower ceases to operate the farm, action will 
be taken in accordance with Sec. 1965.26(d) of this subpart.
    (b) Liquidation. No action to initiate liquidation based on the 
lease will be taken unless the borrower:
    (1) Enters into a lease for a term of more than 3 years; or
    (2) Enters into a lease for any term containing an option to 
purchase.
    (c) Mineral leases. When a borrower requests consent to lease the 
mineral rights to security, the County Supervisor may consent provided 
the proposed use of the leased rights will not result in the 
Government's security interest being adversely affected. If applicable, 
the requirements of Subpart G of Part 1940 of this chapter must be met. 
A borrower does not need FmHA or its successor agency under Public Law 
103-354's consent to lease the mineral rights securing a Farmer Program 
loan approved after December 23, 1985,

[[Page 383]]

unless the oil, gas or other minerals were included on FmHA or its 
successor agency under Public Law 103-354's real estate appraisal. If 
FmHA or its successor agency under Public Law 103-354 consent is needed 
and consent is given, lease payments can be used for prospective 
payments on FmHA or its successor agency under Public Law 103-354 loans. 
Any payment or other compensation the borrower may receive for damages 
to the surface of the collateral real estate resulting from exploration 
for or recovery of minerals will be assigned to FmHA or its successor 
agency under Public Law 103-354 and will be used to repair the damage or 
used as authorized in Sec. 1965.13(f) of this Subpart. Form FmHA or its 
successor agency under Public Law 103-354 465-1 will be used to process 
requests under this section. The County Supervisor should carefully 
document the facts to support the determinations reached concerning the 
effects of a mineral lease on the Government security. Assignment of 
income will be taken by use of Form FmHA or its successor agency under 
Public Law 103-354 443-16, ``Assignment of Income from Real Estate 
Security,'' or other form approved by OGC which is necessary to comply 
with State law.
[51 FR 4140, Feb. 3, 1986, as amended at 53 FR 35795, Sept. 14, 1988; 58 
FR 52654, Oct. 12, 1993]



Sec. 1965.18  Transfer of upland cotton, peanut, or tobacco allotments.

    (a) General. Agriculture Stabilization and Conservation Service 
(ASCS) regulations, pursuant to approved legislation, permit the 
transfer of upland cotton, peanut, or tobacco allotments by one or more 
of the following transactions: (1) Sale, (2) lease, or (3) transfer by 
the owner to another farm owned or controlled by the owner. These 
regulations require, among other things, that no allotment be 
transferred from a farm which is subject to a mortgage or other lien, 
unless the transfer is agreed to by the lienholders. It is FmHA or its 
successor agency under Public Law 103-354's policy to approve the 
transfer of any crop allotments permitted by the ASCS regulations if the 
conditions and requirements of this subpart can be met. FmHA or its 
successor agency under Public Law 103-354 personnel should familiarize 
themselves with the States ASCS policies and requirements concerning the 
sale, lease, or transfer of allotments to assure compliance with 
established FmHA or its successor agency under Public Law 103-354 
policies and servicing of security.
    (b) Authorization. County Supervisors are authorized to approve a 
transfer of upland cotton, peanut, or tobacco allotment by execution of 
a completed Form FmHA or its successor agency under Public Law 103-354 
465-1. County Supervisors are also authorized to execute the lienholder 
or mortgagee agreement on appropriate ASCS forms provided by ASCS for 
those cases in which a transfer is approved.
    (c) Transfer by sale. Crop allotments enhance the value of a farm 
mortgaged to the FmHA or its successor agency under Public Law 103-354 
and constitute security for the FmHA or its successor agency under 
Public Law 103-354 loan. Accordingly, when a borrower whose farm is 
mortgaged to the FmHA or its successor agency under Public Law 103-354 
inquires about the sale of any of the allotted acres or requests the 
FmHA or its successor agency under Public Law 103-354 to sign the 
required lienholder or mortgagee agreement, the request will be treated 
the same as for a sale of a portion of the security and approval of the 
sale can be granted only in accordance with the applicable conditions 
and requirements of Sec. 1965.13 of this subpart. The sale proceeds may 
be used as authorized in Sec. 1965.13(f) of this subpart.
    (d) Transfer of allotment by lease. The County Supervisor has the 
authority to approve a lease of all or a portion of an allotment for a 1 
year period, provided the lease or its terms will not adversely affect 
the repayment of the loan; leasing is not an alternative to or means of 
delaying liquidation; and the lease and use of proceeds will further the 
objectives of the loan. If a 1 year lease is approved, the lease 
proceeds may be used as farm income as outlined in Sec. 1962.17(b) of 
Subpart A of Part 1962 of this chapter. Leases for a period of more than 
1 year will be granted only with the concurrence of the District 
Director. When a lease is for more

[[Page 384]]

than 1 year, an assignment of the rental proceeds should be obtained.
    (e) Transfer of allotment by owner to other land owned or controlled 
by the owner. A transfer by an owner to other land owned or controlled 
by the owner is normally interpreted by the ASCS as a permanent transfer 
and can be avoided only by stipulating in the mortgage approval that the 
transfer is to be considered as a lease for the appropriate number of 
years. This type of transfer will be approved only as a lease under 
conditions in paragraph (d) of this section to assure that the crop 
allotment on the security is not adversely affected.



Sec. 1965.19  Severance agreement.

    Form FmHA or its successor agency under Public Law 103-354 440-26, 
``Consent and Subordination Agreement,'' will be completed when a 
borrower requests FmHA or its successor agency under Public Law 103-
354's consent to a severance agreement, or other instrument of similar 
effect, so that items to be acquired by the borrower through other 
credit and subject to a chattel lien will not become a part of the real 
estate securing the FmHA or its successor agency under Public Law 103-
354 debt. Some examples of items which may be acquired subject to a 
chattel lien are silos, storage bins, bulk milk tanks, irrigation or 
income producing facilities, non-farm enterprise facilities, and 
recreational equipment. County Supervisors are authorized to give FmHA 
or its successor agency under Public Law 103-354 consent by executing 
Form FmHA or its successor agency under Public Law 103-354 440-26 and 
any necessary severance agreements, provided that the following 
determinations are made:
    (a) The financing arrangements are in the best interest of the 
Government and the borrower.
    (b) The transaction will not adversely affect FmHA or its successor 
agency under Public Law 103-354's security position and will be within 
the borrower's debt-paying ability, and
    (c) The facility does not exceed the borrower's needs, is modest in 
cost and design; and is otherwise in line with FmHA or its successor 
agency under Public Law 103-354 financing policies. OGC will be 
requested to approve any severance agreement submitted by a borrower 
that is of a type not previously approved for use in the State and, when 
necessary, to issue closing instructions. The State Director may request 
the OGC to prepare a severance agreement instrument for use in the 
State.



Sec. 1965.20  [Reserved]



Sec. 1965.21  Assignment and release of Soil Conservation or similar program payments.

    The County Supervisor may take an assignment on income to be 
received under USDA Programs or similar contracts to protect the 
financial interest of the Government or to facilitate loan servicing. 
The assignments of all or a portion of the income from the assignment 
may be released to the borrower by the County Supervisor when not to the 
financial detriment of the Government, and when payments due on all FmHA 
or its successor agency under Public Law 103-354 loans have been made 
from other income or the assigned income is needed for family living and 
farm operating expenses. This income will not be shown on Form FmHA or 
its successor agency under Public Law 103-354 1962-1, ``Agreement for 
the Use of Proceeds/ Release of Chattel Security.'' The receipt of these 
proceeds and their planned use will be clearly identified on the current 
farm pan.



Sec. 1965.22  Deceased borrower.

    Deceased borrower cases will be handled under Sec. 1962.46 of 
subpart A of part 1962 of this chapter.



Sec. 1965.23  Bankruptcy and insolvency.

    Bankruptcy and insolvency cases will be handled under Sec. 1962.47 
of subpart A of part 1962 of this chapter. For SFH loans, refer to 
subpart C of part 1965 of this chapter.



Sec. 1965.24  Servicing note-only cases.

    Each loan made on a note-only basis without real estate security 
will be serviced in a manner consistent with the best interests of the 
FmHA or its successor agency under Public Law 103-354.

[[Page 385]]

    (a) Sale of real property on which improvements were made with note-
only FmHA or its successor agency under Public Law 103-354 funds. Any 
loan evidenced only by an unsecured note will be collected by voluntary 
means at the time of the sale of the property, if possible. If 
collection is not possible, the loan may be assumed by the purchaser of 
the property on the terms of the note if the assumption is determined to 
be in the FmHA or its successor agency under Public Law 103-354's best 
financial interest. If collection or assumption cannot be effected, 
consideration should be given to settling the account in accordance with 
Subpart B of Part 1956 of this chapter, if it is eligible, obtaining 
judgment, or classifying it as collection-only. In case of a judgment 
sale, the State Director with the advice of OGC and the U.S. Attorney, 
will authorize an employee to attend the sale and if appropriate, enter 
a bid on behalf of the Government under Subpart A of Part 1955 of this 
chapter.
    (b) Assumption of note-only when real property securing another FmHA 
or its successor agency under Public Law 103-354 loan is involved. When 
a borrower has an FmHA or its successor agency under Public Law 103-354 
loan secured by real estate and another FmHA or its successor agency 
under Public Law 103-354 loan evidenced only by a note and the real 
estate is to be transferred and the entire secured real estate debt is 
to be assumed, all or a part of the unsecured note up to the present 
market value of the property in excess of existing liens must also be 
assumed.
[51 FR 4140, Feb. 3, 1986, as amended at 51 FR 45439, Dec. 18, 1986]



Sec. 1965.25  Release of FmHA or its successor agency under Public Law 103-354 mortgage without monetary consideration in certain cases.

    (a) Additional real estate security owned by an entity member(s). 
Real estate owned by a member(s) of an entity-borrower, which was taken 
as additional security for a loan secured by real estate, may be 
released if it is needed for the entity member(s) to finance a separate 
operation and the remaining real estate adequately secures the entity 
loan(s). A release will not be considered if a subordination can be 
approved for the same purpose. The County Supervisor will document in 
the case file why a subordination is not feasible.
    (b) Release of real estate from mortgage because of mutual mistake. 
Land or buildings included in the mortgage through mutual mistake, when 
substantiated by the facts of the situation, may be released from the 
mortgage by the State Director. The release is contingent on a 
determination of the State Director, with the advice of the OGC, that a 
mutual error existed at the time such property was included in the 
Government's mortgage.
    (c) No evidence of indebtedness. The FmHA or its successor agency 
under Public Law 103-354 mortgage may be released by the County 
Supervisor in situations where there is no evidence of an existing 
indebtedness secured by the mortgage in the records of the FmHA or its 
successor agency under Public Law 103-354 County, State, and Finance 
Offices.
    (d) Release of valueless liens. State Directors are authorized to 
release FmHA or its successor agency under Public Law 103-354 mortgages 
or other liens when the mortgages or liens have no present or 
prospective value or when their enforcement would likely be ineffectual 
or uneconomical. This includes release of a junior lien on the 
borrower's dwelling financed with an SFH loan and located on a nonfarm 
tract when the junior lien was taken as additional security for a Farmer 
Program loan(s). This authority does not extend to valueless judgment 
liens or valueless statutory redemption rights except with the consent 
of the OGC. The following information will be obtained in determining 
present or prospective value:
    (1) Appraisal report. A market value appraisal report on the 
security prepared by an FmHA or its successor agency under Public Law 
103-354 employee authorized to appraise under subpart E of part 1922 of 
this chapter.
    (2) Lienholders. The names of the holders of prior liens on the 
property, the amount secured by each lien which is prior to the FmHA or 
its successor agency under Public Law 103-354, the amount of taxes or 
assessments, and

[[Page 386]]

other items which might constitute a prior claim. This information will 
be recorded in the running case record of the borrower's County Office 
case folder and submitted to the State Director for review.
[51 FR 4140, Feb. 3, 1986, as amended at 53 FR 35795, Sept. 14, 1988; 56 
FR 15830, Apr. 18, 1991; 57 FR 18681, Apr. 30, 1992; 58 FR 44752, Aug. 
25, 1993]



Sec. 1965.26  Liquidation action.

    (a) Voluntary liquidation--(1) General. When a borrower contacts 
FmHA or its successor agency under Public Law 103-354 and asks about 
voluntarily liquidating security, the borrower will be sent attachments 
1 and 2 of exhibit A of subpart S of part 1951 of this chapter or 
attachments 1, and 3, and 4 and the preliminary application forms by 
certified mail, or the forms will be hand delivered at the County 
Office. The servicing notices which provide possible alternatives to 
liquidation provide a maximum of 60 days for the borrower to apply for 
servicing. Therefore, FmHA or its successor agency under Public Law 103-
354 will not discuss liquidation or methods of liquidation until 60 days 
after the borrower receives the notices except in serious situations 
which are documented in detail in the case file. During the 60-day time 
period the County Supervisor may answer questions regarding the 
servicing notices. After 60 days, the borrower will be told that 
liquidation can be accomplished by:
    (i) Selling the security under paragraph (f) of this section.
    (ii) Transferring the security under Sec. 1965.27 of this subpart.
    (iii) Conveying all security to FmHA or its successor agency under 
Public Law 103-354 as outlined in subpart A of part 1955 of this 
chapter.
    (iv) Refinancing the Farm Loan Programs debt with another lender. 
The servicing official will explain the provisions of these regulations 
to the borrower.
    (2) Sale or transfer for less than secured debt. If the property is 
to be sold or transferred for less than the total secured debts against 
it, the property will be appraised immediately to determine its present 
market value. The appraisal will be completed by an authorized agency 
employee in accordance with subpart E of part 1922 of this chapter and 
placed in the borrower's case file. If a qualified agency appraiser is 
not available, the State Executive Director may contract for an 
appraisal in accordance with RD Instruction 2024-A (available in any 
agency office).
    (b) Involuntary liquidation--(1) General. When the servicing 
official, with the advice of the District Director, determines that 
continued servicing of the loan will not accomplish the objectives of 
the loan, or that further servicing cannot be justified under the policy 
stated in Sec. 1965.2 of this subpart, liquidation of the account will 
be accomplished as quickly as possible under this section and subpart A 
of part 1955 of this chapter.
    (2) Farm Loan Programs loan cases. In Farm Loan Programs loan cases, 
borrowers who are 90 days past due (60 days delinquent) on their 
payments, must receive Exhibit A with attachments 1 and 2, or 
attachments 1, 3, and 4 of exhibit A of subpart S of part 1951 of this 
chapter in cases involving nonmonetary default. The servicing official 
will send these forms to the borrower as soon as a decision is made to 
liquidate. The procedures set out in subpart S of part 1951 of this 
chapter shall be followed and any appeal must be concluded before any 
liquidation action, including termination of releases of sales proceeds, 
is taken. If the borrower fails to return attachment 2 of exhibit A of 
subpart S of part 1951 of this chapter and a complete application within 
60 days, the servicing official will send attachments 9 and 10 or 9-A 
and 10-A of exhibit A of subpart S of part 1951 of this chapter. If the 
borrower fails to return attachment 4, 6, 6-A, 10, or 10-A of exhibit A 
of subpart S of part 1951 of this chapter within 60 days, the servicing 
official will submit the case to the District Director in accordance 
with the provisions of Sec. 1955.15 of subpart A of part 1955 of this 
chapter.
    (3) [Reserved]
    (4) Acceleration of account. When foreclosure is approved, 
acceleration of the account and demand for payment will be accomplished 
according to the applicable paragraphs of Sec. 1955.15 of subpart A of 
part 1955 of this chapter.

[[Page 387]]

    (c) Multiple loans and loans secured by both real estate and 
chattels.
    (1) When a borrower is indebted to the agency for more than one type 
of FLP loan, a thorough study should be made of each loan and the effect 
liquidation of one or more of the loans would have on any and all other 
loans. When liquidation of one or more FLP loans secured by real estate 
and chattels is necessary, and it will jeopardize the repayment of or 
the accomplishment of the purpose of the other loans, liquidation of all 
real estate and all chattel security for all loans will be started at 
the same time. Chattel security will be liquidated under subpart A of 
part 1962 of this chapter, except when real estate is transferred in 
accordance with Sec. 1965.27 of this subpart.
    (2) SFH loans on nonfarm tracts should not be routinely liquidated 
because the borrower could not be successful in the farming operation. 
If the nonfarm property secures only a SFH loan(s), it will not be 
liquidated unless the appropriate provisions of subpart G of part 1951 
of this chapter have been met, including the offering of payment 
assistance and/or moratorium, if eligible. When the nonfarm security is 
also additional security for a farmer program loan(s), consideration 
will be given to continuing with the SFH loan after the other security 
for the farmer program loan is liquidated provided:
    (i) The borrower has acted in good faith, has satisfactorily 
accounted for all security, and has met loan obligations to the best of 
the borrower's ability;
    (ii) All security for loans other than the SFH nonfarm security is 
liquidated either voluntarily or through foreclosure;
    (iii) The borrower wishes to retain the dwelling and will likely 
have repayment ability to continue repaying the housing loan;
    (iv) Provided the County Committee agrees to the compromise or 
adjustment offer in accordance with Sec. 1956.57(f) of subpart B of part 
1956 of this chapter, the borrower will further agree to compromise or 
adjust the farmer program debt as follows:
    (A) When the market value of the nonfarm SFH property is greater 
than the amount of the SFH debt (including total subsidy granted if 
subject to recapture of subsidy), the borrower will make a cash payment 
equal to his/her equity in the SFH property, and any additional amount 
he/she is able to pay, on the farmer program debt.
    (B) When the market value of the nonfarm SFH property is less than 
the amount of the SFH total debt, the borrower will make a cash payment 
of any amount he/she is able to pay, and the lien to secure the FP debt 
will be released as a valueless lien.
    (C) If the borrower cannot make a cash payment as outlined in 
paragraph (c)(2)(iv)(A) of this section, the County Supervisor will have 
the borrower execute an Equity Recapture Agreement similar to exhibit D 
of this subpart, (available in any RHS office), pledging to pay to RHS 
an amount equal to the difference between the SFH debt and the market 
value of the SFH security as of the date of acceleration of the FP 
loan(s). The amount will be based on a current appraisal of the SFH 
security property. The County Supervisor will notify the Finance Office 
in accordance with the Automated Data Processing Systems (ADPS) Manual 
when an Equity Recapture Agreement is executed. The original signed 
Agreement will be attached to the original SFH promissory note and a 
copy to the borrower's RHS County Office file. The borrower's file will 
be retained in the RHS County Office until the equity is paid pursuant 
to the Agreement. The noncash credit will be applied as of the date the 
Agreement was executed. Under such an Agreement, the payment will be due 
when the borrower sells the SFH property, ceases to occupy it, or 
graduates to another lender. After the borrower executes the Agreement, 
the remaining FP debt may be settled as appropriate. An equity 
receivable account will be established by the Finance Office in the 
amount of the Equity Recapture Agreement, and the County Office will 
remit collection under the Agreement, in the same manner as an SFH 
subsidy recapture receivable. In addition, the following statement 
should be recorded in the body of Form RHS 451-2, ``Schedule of 
Remittance:'' Equity Receivable Payment.
    (v) In some States FmHA or its successor agency under Public Law 
103-354

[[Page 388]]

is prohibited by State law from foreclosing the SFH loan when the 
nonfarm security is merely additional security for the farmer program 
loan(s). In this case, the Farmer Program real estate mortgage on the 
SFH property cannot be released and the Farmer Program debt cannot be 
settled unless the conditions set forth in paragraph (c)(2) (i), (iii), 
and (iv) of this section are complied with.
    (3) RHS SFH loans on farm tracts must be considered for payment 
assistance and/or moratorium at the time servicing options are being 
considered for the FLP loan(s) prior to acceleration. The RHS county 
office file will be documented to show that payment assistance and 
moratorium were considered. When the Notice of Intent notices, set forth 
in subpart S of part 1951 of this chapter are sent to a borrower who 
also has an RHS loan, and the dwelling is security for the farm loan(s) 
and is located on the farm tract, it will not be necessary for RHS to 
meet the additional requirements of subpart G of part 1951 of this 
chapter prior to accelerating the RHS loan accounts. The RHS accounts 
will be accelerated at the same time the Notice of Intent notices, set 
forth in subpart S of part 1951 of this chapter are sent to the 
borrower. If it is later determined that the FLP loan(s) is to receive 
additional servicing in lieu of liquidation, the RHS loan will be 
reinstated simultaneously with the FLP servicing actions and may be 
reamortized in accordance with Sec. 1951.315 of subpart G of part 1951 
of this chapter.
    (d) Operation of the security. A borrower with farmer program 
loan(s) who without FmHA or its successor agency under Public Law 103-
354 consent does not operate the farm or recreational facility is 
violating agreements with FmHA or its successor agency under Public Law 
103-354. If the borrower requests consent to cease operating the farm, 
or the County Supervisor becomes aware of a failure to operate after the 
fact, the County Supervisor will fully develop the facts, and:
    (1) If the borrower is not the farm operator, but is involved in the 
farming operation, i.e., management (Example: sharing in day-to-day 
activities and management decisions as well as the costs and returns of 
the operation), and will continue to occupy the security, the County 
Supervisor can give consent with concurrence of the District Director. 
For inoperative entities, at least one partner of the partnership, one 
joint operator of the joint operation, one stockholder of the 
corporation or one member of the cooperative must meet the involvement/
occupancy criteria.
    (2) If the failure to operate the security is due to old age, poor 
health, or death in the family and the borrower or the borrower's family 
will continue to occupy the security, the District Director can give 
consent. For inoperative entities, at least one partner (or family) of 
the partnership, one joint operator (or family) of the joint operation, 
one stockholder (or family) of a corporation or one member (or family) 
of a cooperative must meet the occupancy criteria.
    (3) If the failure to operate the security will be compounded by the 
borrower or the borrower's family not occupying the security and the 
failure to occupy is due to conditions beyond the borrower's control, 
the State Director can give consent if it is determined that the 
borrower will reoccupy the property within a reasonable period of time, 
not to exceed five years, and the conditions of paragraph (d)(1) or 
(d)(2) could then be met.
    (4) If consent cannot be given after complying with the requirements 
of Sec. 1965.26(b) of this section pertaining to notice and appeals, 
such a borrower's accounts will be accelerated immediately in accordance 
with Sec. 1955.15(d)(2) of subpart A of part 1955 of this chapter, based 
on the failure to operate.
    (5) When liquidation of an account is necessary because of failure 
to operate, the State Director may, in lieu of foreclosure, permit the 
borrower to pay the account under an accelerated repayment agreement, in 
accordance with Sec. 1965.26(e) of this subpart.
    (e) Accelerated repayment agreement. When liquidation of an account 
is necessary because of failure to graduate to other credit or for 
failure to operate, the State Director may, in lieu of foreclosure, 
permit the borrower to pay the

[[Page 389]]

account under an accelerated repayment agreement. The State Director 
will determine that:
    (1) Authorization for repayment of the debt under an accelerated 
repayment agreement is necessary to protect the Government's financial 
interest,
    (2) The borrower can reasonably be expected to meet the accelerated 
payments, and
    (3) The borrower will continue to comply with other requirements of 
the loans and security instruments.
    (4) When an understanding is reached with the borrower, Form FmHA or 
its successor agency under Public Law 103-354 1965-11, ``Accelerated 
Repayment Agreement,'' will be prepared and executed in accordance with 
the Forms Manual Insert (FMI) for each note accelerated. Accounts 
rescheduled under Form FmHA or its successor agency under Public Law 
103-354 1965-11 will be reclassified as NP loans. The balance of the 
debt will be scheduled for repayment in annual or monthly amortized 
installments. If the borrower has monthly income, monthly payments will 
be scheduled. If annual payments are scheduled, the first installment 
may be less than an equal amortized installment if it is due less than a 
full year after the date the agreement is executed and the borrower will 
not be able to pay the first full amortized installment. If the borrower 
fails to meet any installment when due as provided in the agreement, 
foreclosure action will be initiated. Rates and terms authorized are:
    (i) For real estate purpose loans secured by real estate when the 
remaining repayment period exceeds 10 years, the term generally will not 
exceed 10 years. In justified cases, the term may be up to 15 years. In 
no case may the term exceed the final due date of the note. An 
amortization factor for 20 to 25 years may be used, with a balloon 
installment due on the final due date. The interest rate will be that in 
effect for regular FO loans on the date the agreement is executed plus 1 
percent or the interest rate of the note, whichever is greater.
    (ii) For loans for operating purposes secured by real estate when 
the remaining repayment period exceeds 2 years, the term may not exceed 
5 years and in no case may the term exceed the final due date of the 
note. The interest rate will be that in effect for regular OL loans on 
the date the agreement is executed plus 1 percent or the interest rate 
of the note, whichever is greater.
    (iii) For loans for either real estate or operating purposes when 
the remaining repayment period is less than 10 years or 2 years, 
respectively, the State Director may authorize a shorter term. For loans 
made for a combination of loan purposes, the State Director may 
authorize an accelerated repayment term of up to 10 years, not to exceed 
the final due date of the note. The interest rate will be as specified 
in (e)(4)(i) or (ii) of this section.
    (f) Cash sales. This paragraph applies to a sale of all real estate 
security. Before any cash sale, farmer program borrowers must be sent 
Attachment l of exhibit A of subpart S of part 1951 of this chapter. 
When a cash sale of mortgaged real estate will not result in the secured 
debts being paid in full, the County Supervisor is authorized to approve 
the sale for an amount not less than the present market value of the 
property and release the Government's liens, provided:
    (1) A substantial recovery can be made on the FmHA or its successor 
agency under Public Law 103-354 secured indebtedness based on the recent 
appraisal report required by paragraph (a)(2) of this section.
    (2) All the proceeds are applied on the mortgage debts in accordance 
with their respective priorities except authorized costs as specified in 
Sec. 1965.13(f)(2) of this subpart.
    (3) Any applicable requirements of subpart G of part 1940 of this 
chapter must be met.
    (4) The agency's liens against the security property are not 
released until the appropriate sale proceeds for application on the 
Government's claim are received. The release will be made on forms 
approved or prepared by OGC.
    (5) When the debt is not paid in full and a deficiency judgment is 
not to be obtained, a release of liability of the borrower can be 
processed:
    (i) The County Committee has recommended release of liability by 
determining that the borrower(s) and any cosigner do not have reasonable 
ability

[[Page 390]]

to pay all or a substantial part of the balance of the debt owed after 
the cash sale, taking into consideration their assets and income at the 
time of the sale; and that the borrower and any cosigner have cooperated 
in good faith, used due diligence to maintain the security against loss, 
and have otherwise fulfilled the covenants incident to the loan to the 
best of their ability; and by recommending that the borrower and any 
cosigner be released from personal liability for any balance due on the 
secured indebtedness upon completion of the transaction. This action 
will be documented by checking the appropriate block on Form FmHA or its 
successor agency under Public Law 103-354 440-2, ``County Committee 
Certification or Recommendation,'' as specified in the Forms Manual 
Insert.
    (ii) When the Agency debt less the market value and prior liens is 
$1 million or more (including principal, interest, and other charges), 
release of liability must be approved by the Administrator or designee; 
otherwise, the State Executive Director must approve the release of 
liability. All cases requiring a release of liability will be submitted 
in accordance with exhibit A of subpart B of part 1956 of this chapter 
(available in any agency office).
    (iii) The borrower has never been liable for any direct FLP loan or 
loan guarantee which was reduced or terminated in a manner resulting in 
a loss to the Government.
    (6) If a release from liability cannot be granted, the borrowers 
will be sent a letter similar to exhibit F of subpart A of part 1955 of 
this chapter (available in any agency office). The servicing official 
will meet with the borrower within 30 days to assist the borrower in the 
development of a debt settlement offer in accordance with subpart B of 
part 1956 of this chapter. (available in any agency office).
    (g) Account balances. When security property is sold for an amount 
not less than the market value or an assumption of an amount equal to 
the market value is approved, the account balance will be handled as 
follows:
    (1) When the seller or transferor (and cosigner, if any) is not 
released from liability, the account balance after the assumption is 
processed, or cash proceeds are applied, will be settled according to 
subpart B of part 1956 of this chapter or reclassified to collection 
only.
    (2) When the transferor will be released of liability Form FmHA or 
its successor agency under Public Law 103-354 1965-8 ``Release from 
Personal Liability'' will be given to the borrower and otherwise 
distributed in accordance with the Forms Manual Insert.
    (3) In the case of a sale outside the program for less than the debt 
owed, Form FmHA or its successor agency under Public Law 103-354 1965-8 
will be given to the borrower and otherwise distributed in accordance 
with the Forms Manual Insert.
[51 FR 4140, Feb. 3, 1986, as amended at 51 FR 13482, Apr. 21, 1986; 51 
FR 45440, Dec. 18, 1986; 53 FR 35795, Sept. 14, 1988; 56 FR 6954, Feb. 
21, 1991; 56 FR 12646, Mar. 27, 1991; 56 FR 15830, Apr. 18, 1991; 58 FR 
44752, Aug. 25, 1993; 58 FR 52654, Oct. 12, 1993; 60 FR 28321, May 31, 
1995; 60 FR 55122, 55147, Oct. 27, 1995; 62 FR 10158, Mar. 5, 1997]



Sec. 1965.27  Transfer of real estate security.

    When the mortgage requires the consent of the Agency to any proposed 
sale or other transfer of real estate security, the borrower should be 
reminded that before firm agreements have been reached with a purchaser 
of all or a portion of the security, the borrower and purchaser should 
contact the County Supervisor concerning the proposed sale. Farm Loan 
Programs (FLP) loan borrowers must be sent attachment 1 of exhibit A of 
subpart S of part 1951 of this chapter within 3 working days after the 
borrower contacts the County Supervisor inquiring about a transfer. If a 
proposed sale would not result in the FLP accounts being paid in full at 
the time of sale, the County Supervisor should explain thoroughly the 
requirements of this section and Sec. 1965.13 or Sec. 1965.26 of this 
subpart, as appropriate. When the transferor is receiving a substantial 
down payment from the sale of the property, the purchaser must be 
required to contact other sources of credit in an effort to secure a 
loan for repayment of the FLP loan(s) in full. Transfer with assumption 
of real estate security on NP terms will be in accordance with subpart J 
of part 1951 of this chapter.

[[Page 391]]

When real estate security, including water, access development or other 
rights is to be sold and the mortgage requires the Agency's consent to 
the sale and the transaction cannot be approved under the appropriate 
sections of this subpart, the account will be liquidated as required in 
Sec. 1965.26 of this subpart or will be handled in accordance with 
Sec. 1965.27 (g) of this subpart. In accordance with the Food Security 
Act of 1985 (Pub. L. 99-198) after December 23, 1985, if a loan is being 
transferred and assumed by an eligible or ineligible transferee, and if 
an individual or any member, stockholder, partner, or joint operator of 
an entity transferee is convicted under Federal or State law of 
planting, cultivating, growing, producing, harvesting, or storing a 
controlled substance (see 21 CFR part 1308, which is exhibit C to 
subpart A of part 1941 of this chapter and is available in any agency 
office, for the definition of ``controlled substance'') prior to the 
approval of the transfer and assumption in any crop year, the individual 
or entity shall be ineligible for a transfer and assumption of a loan 
for the crop year in which the individual or member, stockholder, 
partner, or joint operator of the entity was convicted and the four 
succeeding crop years. Transferee applicants will attest on 410-1, 
``Application for Services,'' that as individuals or that its members, 
if an entity, have not been convicted of such crime after December 23, 
1985.
    (a) Authority. County Supervisors, District Directors, and State 
Directors are authorized to approve initial and subsequent transfers of 
real estate security to eligible or ineligible transferees, to approve 
assumptions in accordance with the respective loan approval authorities 
in exhibit C of FmHA or its successor agency under Public Law 103-354 
Instruction 1901-A (available in any FmHA or its successor agency under 
Public Law 103-354 office). When a transfer is not within the County 
Supervisor or District Director's approval authority, the docket and the 
transferor's case file will be sent to the District Director, State 
Director, or the Administrator as appropriate, for approval or 
disapproval.
    (b) General policies. The following general policies will be 
applicable when an FmHA or its successor agency under Public Law 103-354 
borrower transfers, or proposes to transfer, real estate which is 
security for an FmHA or its successor agency under Public Law 103-354 
loan(s). The loan account(s) will be assumed by use of Form FmHA or its 
successor agency under Public Law 103-354 1965-13, ``Assumption 
Agreement for Farmer Program Loans,'' Form FmHA or its successor agency 
under Public Law 103-354 460-9, ``Assumption Agreement (Same Terms--
Eligible Transferee),'' or Form FmHA or its successor agency under 
Public Law 103-354 1965-15, ``Assumption Agreement (Single Family 
Housing Loans),'' for SFH Loans.
    (1) Agreement. Form FmHA or its successor agency under Public Law 
103-354 465-5, ``Transfer of Real Estate Security,'' will be completed 
to reflect the agreement between the transferor and the transferees. 
This agreement will not be completed for farmer program loan borrowers 
until the borrower has received attachment l of exhibit A of subpart S 
of part 1951 of this chapter.
    (2) Assignment. If an insured loan is involved, the Finance Office 
will have the note assigned to the insurance fund when the assumption 
agreement changes the terms of the note.
    (3) Amount assumed. All transfers will be based on present market 
value. When the total secured FmHA or its successor agency under Public 
Law 103-354 debt(s) exceeds the present market value, the transferee 
will assume an amount of principal and interest equal to the present 
market value as determined under Sec. 1965.26 (a)(2) of this subpart, 
less prior liens and any authorized costs. Otherwise, the transferee 
will assume the total FmHA or its successor agency under Public Law 103-
354 secured debt(s). The unpaid principal balance and accrued interest 
will be shown in Table I of Form FmHA or its successor agency under 
Public Law 103-354 1965-13 and the accrued interest will be computed 
from Form FmHA or its successor agency under Public Law 103-354 451-26, 
``Transaction Record,'' or obtained from the monthly payment account 
Status Report. Balances may be confirmed through the field office 
terminal system. The transferee will be

[[Page 392]]

informed of the amount of the principal and interest owed, the total 
amount paid as of the closing date which has not been credited to the 
account, the amount that would be required to be paid to place the 
account on schedule as of the previous installment due date, the amount 
of interest, if any, that accrued during a deferral period, and any 
accounts that must be paid to bring any monthly payments up to date. 
Whenever reasonably possible, any delinquency should be paid at the time 
of assumption. However, this is not required if the total FmHA or its 
successor agency under Public Law 103-354 debt to be assumed is within 
the debt paying ability of the transferee. If the transferor received a 
loan deferral under subpart S of part 1951 of this chapter, the interest 
that accrued during the deferral period must be paid by the time the 
transfer takes place, or such interest will be added to the loan 
principal and the loan must be assumed on ineligible terms.
    (4) Payment of costs. The payment of customary incidental costs 
appropriate to transfer of real estate will be the responsibility of the 
transferor and transferee. Costs may, for example, include real estate 
taxes, title examination, title insurance, abstracts, surveys, 
reasonable attorney's fees, real estate brokers fees and junior liens. 
State Directors may, in individual cases, approve the payment of 
transferor's costs by the transferee which are reasonable in amount and 
which the transferor cannot pay from personal funds provided:
    (i) Cash equity due the transferor (if any) is applied first to 
payment of costs and the transferor will not be receiving any cash 
payment above costs.
    (ii) Payment of any junior liens by the transferee does not exceed 
$5,000.
    (iii) Real estate commission does not exceed the customary rate for 
the type of property for the area.
    (iv) The transferee's personal funds equal to the transferee's 
costs, including the transferor's costs to be paid by the transferee, 
and transferor's equity (if any) will be held in escrow by an FmHA or 
its successor agency under Public Law 103-354 designated closing agent 
for disbursing at closing of the transfer.
    (v) The payment of the costs by the transferee is advantageous to 
the government. The probability of foreclosure, voluntary conveyance, 
maintenance and disposal of the security will be considered in making 
the determination.
    (5) Assumption on same terms. In the following situations only, the 
debt will be assumed on the same terms as in the original note. The 
interest rate, final due date, account status (current, delinquent, 
ahead of schedule) and repayment schedule will not be changed at the 
time of the assumption. The interest rate and repayment schedule may be 
changed after the assumption, in accordance with FmHA or its successor 
agency under Public Law 103-354 loan servicing regulations. Form FmHA or 
its successor agency under Public Law 103-354 1965-13 will be processed 
via the FmHA or its successor agency under Public Law 103-354 field 
office terminal system. Except as noted below, Form FmHA or its 
successor agency under Public Law 103-354 460-9, will be executed by the 
assuming parties. The name, case number, and address, as applicable, 
will be changed to that of the transferees on the Finance Office 
records. In each of the following situations, Forms FmHA or its 
successor agency under Public Law 103-354 465-5 and 460-9 must be 
prepared and distributed in accordance with the applicable FMI.
    (i) EM actual loss loans may be assumed on the same terms by those 
who were actually involved in the operation at time of the loss and meet 
one of the following requirements:
    (A) If an individual received the actual loss loan, the transferee 
must be either an individual who is an immediate family member of the 
borrower or an entity which is made up of only immediate family members 
of the borrower. Such a transferee can assume the entire amount of the 
actual loss loan on the same terms.
    (B) If a partnership on a joint operation received the actual loss 
loan, the transferee must be either a partner or a joint operator who 
was a partner or joint operator in the partnership or joint operation at 
the time the actual loss loan was made, or an entity which is made up of 
only those who were

[[Page 393]]

partners in the partnership or joint operators in the joint operation at 
the time the actual loss loan was made. Such transferees can assume the 
entire amount of the actual loss loan on the same terms.
    (C) If a corporation/cooperative received the actual loss loan, the 
transferee must be either a stockholder/member who was a stockholder/
member of the corporation/cooperative at the time the actual loss loan 
was made or an entity which is made up of only stockholders/members who 
were stockholders/members of the corporation/cooperative at the time the 
actual loss loan was made. Such transferees can assume on the same terms 
only that portion of the actual loss loan equal to the transferee's 
percentage of ownership in the corporation/cooperative (or, in the case 
of an entity transferee, the combined percentages of the individual 
stockholders/members).
    (ii) A deceased borrower's spouse, other relative or joint tenant 
who did not sign the note but who acquires title to the property will be 
allowed to assume the loan on the same terms. Form FmHA or its successor 
agency under Public Law 103-354 465-5 will not be completed.
    (iii) When one of the jointly liable individual borrowers withdraws 
from the operation and conveys his/her interest in the security to the 
remaining borrower, who will repay the total indebtedness, and 
assumption agreement is not required. This paragraph does not apply to 
partners in a partnership, joint operators in a joint operation, 
stockholders in a corporation or members of a cooperative. The previous 
joint owner will be released from liability for the indebtedness by 
completing Parts 1 and 3 of Form FmHA or its successor agency under 
Public Law 103-354 1965-8, ``Release from Personal Liability,'' 
provided:
    (A) A divorce decree or property settlement document did not make 
the withdrawing party responsible for loan payments;
    (B) The withdrawing party's interest in the security is conveyed to 
the person with whom the loan will be continued; and
    (C) The person with whom the loan will be continued has adequate 
repayment ability.
    (iv) As immediate family member of an individual borrower who wants 
to assume a debt with the existing borrower(s) may do so on the same 
terms. After the transfer, the assuming family member may own the 
property jointly with the existing borrower(s) or subject to a life 
estate of the existing borrower. Also, an entity which is made up of 
only the individual borrower and the borrower's immediate family members 
may assume on the same terms the entire amount of a loan received by the 
individual borrower. Title to the real estate security would have to be 
transferred to the entity.
    (v) If there is only one stockholder/member/partner/joint operator 
of a corporation/cooperative/partnership/joint operation who is 
personally liable on the note, and that stockholder/member/partner/joint 
operator withdraws from the operation or dies, all of the remaining 
individuals will be required to assume personal liability on the loan(s) 
or else the transfer will not be approved. A Form FmHA or its successor 
agency under Public Law 103-354 465-5 does not have to be processed 
unless title to the real estate is transferred.
    (vi) If a stockholder/member/partner/joint operator or another 
corporation/cooperative/partnership/joint operation buy out the 
ownership interest of the other stockholders/members/partners/joint 
operators and continues to operate the farm; and if the remaining 
stockholder(s)/member(s)/partner(s)/joint operator(s) is not personally 
liable on the note(s), that stockholder(s)/member(s)/partner(s)/joint 
operator(s) will be required to assume personal liability on the loan(s) 
or else the transfer will not be approved. A Form FmHA or its successor 
agency under Public Law 103-354 465-5 does not have to be processed 
unless title to the real estate is transferred.
    (vii) New stockholders/members/partners/joint operators entering the 
corporation/cooperative/partnership/joint operation will be required to 
assume personal liability on the loan or else the transfer will not be 
approved. A Form FmHA or its successor agency under Public Law 103-354 
465-5 does not

[[Page 394]]

have to be processed unless title to the real estate is transferred.
    (6) Loan type. The type(s) of loan will remain the same for all 
loans except that loans which are transferred to ineligible applicants 
will be classified as NP.
    (7) Transfer of a portion of the security. Generally, title to all 
FmHA or its successor agency under Public Law 103-354 real estate 
security, including any water, access, development or other rights, must 
be conveyed to the transferee not later than the date of closing of the 
transfer. However, a transfer of a portion of the FmHA or its successor 
agency under Public Law 103-354 real estate security with an assumption 
of the total indebtedness may be approved, provided:
    (i) The portion of the FmHA or its successor agency under Public Law 
103-354 security transferred has a present market value at least equal 
to the total indebtedness owed by the borrower or such indebtedness is 
reduced by a cash payment to the present market value of the property;
    (ii) The transaction is advantageous to the Government; and
    (iii) In cases of SFH loans, the portion of the property improved 
with SFH funds is conveyed to the person assuming the SFH loan.
    (iv) The security retained by the transferor will be released from 
the Government's lien. The transferor will be released from liability if 
the conditions of paragraph (f) of this section are met.
    (8) Partial transfer and assumption. When a request is made by a 
borrower to transfer a portion of the real estate security the 
transferee must assume an amount which meet the requirements of 
paragraph (b)(3) of this section. The considerations for approval will 
be as set forth in Sec. 1965.13(b) of this subpart. Whole notes must be 
assumed; notes cannot be split. The portion of the security transferred 
will be released from the transferor's mortgage by partial release. When 
the assumption is by an eligible transferee, or by an ineligible 
transferee on terms of 5 years or less, the transferor may be released 
of liability on the loans assumed. The transferor will not be released 
of liability when the transferee is ineligible and terms exceed 5 years. 
Before approving a partial transfer and assumption it must be determined 
that the transaction is necessary for the borrower to establish a debt 
structure compatible with repayment ability, management ability or other 
limiting factor such as health, labor or markets available.
    (9) Multiple sales and assumptions. When a request is made by a 
borrower to transfer the real estate security as parcels to two or more 
transferees with each assuming a portion of the debt, the County 
Supervisor may send the proposed action to the State Director for 
consideration if the County Supervisor recommends that the transaction 
would be advantageous to the Government. The total debt owed on all 
outstanding notes must be assumed by the transferees even though a 
portion of the security may be retained by the transferor. The County 
Supervisor will submit to the State Director the complete factual 
information concerning the transaction, including appraisal reports 
showing the present market value of each portion to be transferred; 
value of the total unit before subdivision; the amount of indebtedness 
to be assumed by each transferee; and the cases file with other 
pertinent information outlining the reasons for the proposed actions. If 
approved by the State Director, new security instruments will be 
required for each transferee at closing and any security retained by the 
transferor will be released from the Government lien. This policy is to 
permit transfer to two or more transferees when the transferor owes more 
than one note evidencing indebtedness or the indebtedness on one note is 
to be divided between transferees. OGC guidance will be requested in 
these case to ensure enforceable liens are obtained.
    (10) Dual security. When the account(s) is secured by both chattels 
and real estate, all the chattel security must be transferred, sold or 
liquidated by the time of the transfer of real estate, except that in 
cases of EM, EE, or SL security, the real estate security may be 
transferred without transfer or liquidation of the chattel security upon 
prior approval of the National Office.
    (11) Consent of other lienholders. Written consent to a proposed 
transfer and

[[Page 395]]

assumption must be obtained if required by any other lienholder(s).
    (12) Junior liens. When the full amount of the FmHA or its successor 
agency under Public Law 103-354 debt is assumed, there must be no liens, 
judgments, or other claims against the security which are junior to any 
FmHA or its successor agency under Public Law 103-354 liens being 
assumed unless the State Director determines that the liens, judgments, 
or claims will not adversely affect the Government's security interests 
and that the transferee's ability to pay the FmHA or its successor 
agency under Public Law 103-354 debt will not be impaired. When less 
than the full amount of the FmHA or its successor agency under Public 
Law 103-354 debt is being assumed, there must be no liens, judgments, or 
other claims against the security which are junior to any FmHA or its 
successor agency under Public Law 103-354 loans being assumed.
    (13) Loans. A loan for which the transferee is eligible may be made 
in connection with a transfer, subject to the policies and procedures 
governing the type of loan being made. When the transfer is being made 
to an eligible FO applicant, FO loan funds may be used to pay for the 
equity in the property being transferred. When real estate security for 
an SFH loan is transferred to a person eligible under subpart A of part 
1944 of this chapter for an SFH loan to purchase the real estate, SFH 
loan funds may be used to pay for the equity in the property being 
transferred other than income-producing land or buildings. In lieu of a 
subsequent loan of the kind involved, the Government's lien may be 
subordinated to enable the transferor to take a first mortgage, or 
permit another lender to take a first mortgage, in return for furnishing 
the funds needed in connection with the transfer. In these cases, the 
subordination will be processed in accordance with the applicable 
provisions of Sec. 1965.12 of this subpart. For other than SFH loans, 
the transferor may convey title to the property by warranty deed or by 
purchase contract or similar instrument which meets the conditions of 
Sec. 1943.16 (a)(3) of subpart A of part 1943 of this chapter. Prior 
lienholder's agreements will be obtained in accordance with subpart B of 
part 1927 of this chapter. When necessary to settle a divorce action, a 
subsequent loan may be made, or a subordination may be granted to permit 
the remaining borrower to obtain a loan in an amount not to exceed the 
equity in the property provided the purchase of land is an authorized 
loan purpose or the subordination is in accordance with Sec. 1965.12 of 
this subpart. (Also see Sec. 1965.11(d) of this subpart.)
    (14) Payments. When a payment is made to the transferor in 
connection with the transfer and assumption, and the full amount of the 
FmHA or its successor agency under Public Law 103-354 secured debt is 
not being assumed and other FmHA or its successor agency under Public 
Law 103-354 debts owed by the transferor are not adequately secured, the 
State Director may, as a condition of approving the transfer, require 
that all or a part of any payment be applied on the debts.
    (15) Down payment. An eligible transferee who is financially able, 
will be required to make a downpayment on the FmHA or its successor 
agency under Public Law 103-354 secured debts. When a downpayment is 
required it will be collected at closing.
    (16) Date. The effective date of the assumption will be the date on 
which Form FmHA or its successor agency under Public Law 103-354 1965-13 
is signed.
    (17) Nondiscrimination assurance. When the property transferred will 
continue to be used for the same or a similar purpose, and the 
assistance was subject to the Civil Rights Act of 1964 and subpart E of 
part 1901 of this chapter which prohibits discrimination on the basis of 
race, color, national origin, handicap, age, religion, marital status, 
or sex in programs or activities receiving Federal financial assistance, 
the transferees must agree to comply with requirements of the statute 
and the regulation. The transferee will be required to sign a Form 400-
4, ``Assurance Agreement.''
    (18) Recapture of subsidy. Recapture of SFH subsidy in connection 
with assumption will be as provided in subpart I of part 1951 of this 
chapter.
    (19) County Committee. The County Committee, except for SFH loans, 
must

[[Page 396]]

find that the transferee will honestly endeavor to make payments in 
accordance with the assumption agreement, maintain the security, and 
carry out the other obligations in connection with the loan. (See 
paragraph (g)(6) of this section.)
    (20) Environmental requirements. Applicable provisions of subpart G 
of part 1940 of this chapter are met, as well as those requirements 
found in exhibit M to subpart G of part 1940.
    (21) Form FmHA or its successor agency under Public Law 103-354 
1910-11, ``Applicant Certification, Federal Collection Policies for 
Consumer or Commercial Debts.'' For all transfers, the County Supervisor 
must review Form FmHA or its successor agency under Public Law 103-354 
1910-11, ``Applicant Certification, Federal Collection Policies for 
Consumer or Commercial Debts,'' with the applicant. A copy of the signed 
and dated form will be given to the applicant and the original placed in 
the loan docket.
    (c) Assumption of loans by eligible transferees--(1) Eligibility. A 
loan may be assumed on eligible terms by an applicant (including an 
entity applicant) who meets all of the eligibility and loan purpose 
requirements for the type of loan being assumed or whose situation after 
the transfer of the real estate will satisfy the eligibility and loan 
purpose requirements. Eligibility and loan purpose requirements can be 
found in the loan making regulations applicable to the type of loan 
being assumed. (See paragraph (b)(5) of this section for a list of 
situations in which the debt can be assumed on the same terms as in the 
existing note.) Eligible applicants can assume loans so long as their 
FmHA or its successor agency under Public Law 103-354 principal and 
interest indebtedness after the assumption does not exceed the maximum 
loan limits for the type(s) of loan(s) involved. Loans may also be 
assumed on eligible terms under the following conditions:
    (i) SFH assumptions. An applicant who is eligible for SFH assistance 
under subpart A of part 1944 of this chapter may assume a low-or-
moderate, or an above-moderate income SFH loan. An above-moderate loan 
assumed by a low-or-moderate applicant will be reclassified and serviced 
as a low-or-moderate loan. Where a property securing an SFH loan is 
located in an area which has been redesignated from rural to nonrural, 
the loan may be transferred without regard to the nonrural designation.
    (ii) NP loan. An NP loan may be assumed by an applicant who is 
determined eligible for an FO loan if the property is a suitable farm 
tract, or an applicant eligible for an SFH loan if the property is a 
suitable dwelling on a farm or non-farm tract. When closing the 
assumption, the loan will be reclassified as ``FO'' or ``SFH'', as 
applicable. See subpart J of part 1951 of this chapter.
    (iii) EE, SL, and other type loans no longer being made. EE, SL, and 
other type loans no longer being made may be assumed:
    (A) Subject to the FO loan limitations and rates and terms set forth 
in subpart A of part 1943 of this chapter by an immediate family member 
of an individual borrower, an immediate family member of any partner of 
a partnership, joint operator of a joint operation, stockholder of a 
corporation or member of a cooperative, an entity which is made up of 
only immediate family members of an individual borrower, or an entity 
which is made up of only immediate family members of any partner(s), 
joint operator(s) stockholder(s) or member(s).
    (B) Subject to the FO loan limitations and rates and terms set forth 
in subpart A of part 1943 of this chapter by an applicant who is 
determined eligible for an FO loan if the property has a suitable farm 
tract, or by an applicant eligible for an SFH loan if the property has a 
suitable dwelling on a farm or non-farm tract. When closing an 
assumption under this paragraph or paragraph (A) above, the loan will be 
reclassified as ``FO'' or ``SFH,'' as applicable.
    (C) On ineligible rates and terms in accordance with paragraph (d) 
of this section for all other transferees. The ineligible term 
assumption(s) will be serviced in accordance with Sec. 1965.34 of this 
subpart.
    (iv) EM actual loss loans. See paragraph (b)(5)(i) of this section.

[[Page 397]]

    (v) Other loan types currently being made--(A) Individual 
transferees. If real estate security is transferred to an individual who 
meets all of the eligibility requirements and loan purpose requirements 
for the type of loan being assumed, the loan may be assumed on eligible 
terms. This applies to transfers of real estate from individual 
borrowers and from entity borrowers, including entities in which the 
transferee had an interest.
    (B) Entity transferees. If real estate security is transferred to an 
entity which meets all of the eligibility requirements and loan purposes 
requirements for the type of loan being assumed, the loan may be assumed 
on eligible terms.
    (C) EM non-actual loss loans (if currently being made). These loans 
can be assumed on eligible terms. The loan making regulation requirement 
that an applicant must have suffered an actual loss in order to be 
eligible for a non-actual loss loan does not apply, for the purposes of 
this paragraph. If EM non-actual loss loans are not currently being 
made, refer to (c)(1)(iii) of this section.
    (2) Rates and terms. Except as provided in paragraph (b)(5) of this 
section and in this paragraph, an applicant may request the interest 
rate charged by the agency to be the lower of the rate in effect at 
either the time the assumption is approved or closed. If the applicant 
does not indicate a choice, the assumption will be closed at the rate in 
effect at the time of loan approval. Interest rates are specified in 
agency National Office issuances (available in any agency office) for 
the type loan involved. The approval official will approve the 
assumption by executing and delivering a copy of Form RD 1940-1, 
``Request for Obligation of Funds,'' to the assuming party. The field 
office will process the assumption via the field office terminal system 
in accordance with Form 1965-13. The repayment period will not exceed 
the repayment period for a new loan of the type involved; for example, 
FO--40 years, OL--7 years, EM--depends on loan purpose and SFH--33 
years. An NP loan will be considered an FO or SFH loan as appropriate, 
if the applicant and the property meet the requirements of paragraph 
(c)(1) of this section. Above-moderate loans assumed by low-or moderate-
income applicants will be assumed at the current low- or moderate-income 
SFH interest rate. (See exhibit C to subpart A of part 1944 for income 
categories). See subparts A of parts 1941 and 1943 of this chapter for 
the definition of a limited resource applicant and an explanation of 
limited resource eligibility criteria; FO and OL loans may be assumed at 
the current rate in effect for limited resource loans if the applicant 
is a limited resource applicant.
    (d) Assumption of loans by ineligible transferees. When a borrower 
sells or proposes to sell the real estate security to a person(s) or 
entity not eligible to assume the debt under paragraph (b)(5) or (c) of 
this section, the debt may be assumed on NP terms in accordance with 
subpart J of part 1951 of this chapter. No assumption can be approved if 
the transferee has been liable for any Farm Loan Program (FLP) loan or 
loan guarantee which was reduced or terminated in a manner resulting in 
a loss to the Government.
    (e) Consent of FmHA or its successor agency under Public Law 103-354 
not required to transfer. When the agency mortgage(s) does not require 
the Government's consent to the sale of the security and the borrower 
conveys or proposes to convey the security to a person who is ineligible 
or unwilling to assume the agency debt in accordance with paragraphs (c) 
or (d) of this section, the Government will not consent to the sale. 
However, the sale cannot be used as a reason for liquidation. In such 
cases involving SFH loans, the County Supervisor will advise the State 
Director of the sale. If the SFH loan account is delinquent or the loan 
is otherwise in default, the County

Supervisor will also advise the State Director of the nature of the 
default and any specific plans that may have been made to correct the 
default. If the State Director decides to continue with the account, it 
will be serviced in the name of the original agency borrower, in the 
usual manner. In such cases involving farmer program loans, they will be 
serviced in accordance with

[[Page 398]]

the provisions of subpart S of part 1951 of this chapter.
    (f) Release of transferor from liability. The borrower may be 
released from personal liability when all of the real estate security is 
transferred under paragraph (c) or (d) of this section and the total 
outstanding debt or that portion of the debt equal to the present market 
value of the security is assumed. Release shall not be granted to any 
borrower or cosigner who was liable for any FLP direct loan which was 
reduced or terminated in a manner resulting in a loss to the Government. 
When the Agency debt less the market value and prior liens is $1 million 
or more (including principal, interest and other charges), release of 
liability must be approved by the Administrator or designee; otherwise, 
the State Director must approve the release of liability. When the total 
outstanding debt is not assumed and an FLP borrower is to being released 
from liability, the borrower must be sent a letter similar to exhibit F 
of subpart A of part 1955 of this chapter (available in any agency 
office). In FLP cases, the County Committee must take certain action if 
it is to recommend that the transferor(s) and any cosigner be released 
from liability. They must determine that the transferor(s) and any 
cosigner do not have reasonable ability to pay all or a substantial part 
of the balance of the debt not assumed after considering their assets 
and income at the time of transfer; that the transferor and any cosigner 
have cooperated in good faith, used due diligence to maintain the 
security against loss, and have otherwise fulfilled the covenants 
incident to the loan to the best of their ability; and recommend that 
the transferor and any cosigner be released of personal liability upon 
the transferees' assumption of that portion of the indebtedness equal to 
the present market value of the security. This action will be documented 
by checking the appropriate block on Form 440-2, ``County Committee 
Certification or Recommendation,'' as specified in the Forms Manual 
Insert.
    (g) Processing transfers and assumptions of indebtedness. When the 
transfer is not within the County Supervisor's approval authority, the 
docket with the transferor's case file will be sent to the District 
Director or the State Office, as appropriate, for approval or 
disapproval.
    (1) Refund of unused funds, loan funds not advanced, transaction 
record. Unexpended funds in the supervised bank account will be applied 
as a refund unless FO, SW, RL, or EM security is transferred to an 
eligible applicant and the funds are needed for completing planned 
development. Any obligations of or request for loan funds not yet 
advanced will be cancelled. Form FmHA or its successor agency under 
Public Law 103-354 451-26, or the monthly payment account Status Report 
will be used to compute the unpaid balance due on the effective date of 
the transfer.
    (2) Preparation and distribution of transfer docket. Loan docket 
processing and forms required will be the same as for an initial or 
subsequent loan of the type(s) involved.
    (i) Checking docket forms. When the transfer docket forms, including 
those applicable forms, shown in exhibit C (available in any FmHA or its 
successor agency under Public Law 103-354 office) of this subpart have 
been completed, the approval official will determine that the proposed 
transfer conforms to the applicable procedural requirements, each form 
is prepared correctly in accordance with the FMI or other appropriate 
instructions, and items such as names, addresses, and the amount of the 
indebtedness to be assumed are the same on all forms in which the items 
appear.
    (ii) Information on the availability of other credit. An eligible 
transferee must meet the ``no credit elsewhere'' requirements for the 
type of loan being assumed. The County Supervisor will record in the 
running case record the pertinent information concerning the 
negotiations made by an eligible transferee and the discussion by FmHA 
or its successor agency under Public Law 103-354 personnel with the 
applicant's creditors and other lenders. The investigation and 
availability of other credit for eligible transferees will be documented 
as required for the kind of loan being assumed. This must be 
sufficiently clear and adequate to establish that other credit is not 
available to pay the debt in full, which would make

[[Page 399]]

the transfer unnecessary. Any letters from lenders or other evidence 
which may have been obtained indicating that the applicant is unable to 
obtain satisfactory credit elsewhere will be included in the loan 
docket.
    (iii) Transferor records. The transferor's copies of notes, 
mortgages and other instruments in connection with the security are to 
be made available to the transferee.
    (iv) Distribution of transfer docket forms. The necessary forms will 
be distributed in accordance with the appropriate loan processing 
regulation and the FMI for the form. See exhibit C (available in any 
FmHA or its successor agency under Public Law 103-354 office) of this 
subpart which identifies the FmHA or its successor agency under Public 
Law 103-354 forms that will be used as appropriate.
    (v) Other transfer docket items when applicable. Other transfer 
docket items may include a mortgage title policy, title evidence or 
report of lien search, foreclosure notice agreement, original or 
certified copy of deed to any property to be taken as additional 
security, purchase contract or other instrument of ownership, and 
information on prior mortgage(s) and cosigner(s). When the County 
Supervisor is the approval official, in lieu of including the document 
evidencing ownership, he or she may include a statement in the docket 
indicating that the document has been seen and reviewed. When less than 
the total amount of the indebtedness is assumed, the transferor's 
financial statement will be included. When an initial or subsequent loan 
is involved, include any additional forms required by the appropriate 
loan making regulation.
    (3) Collections and receipts. During the period that a transfer is 
pending in the County Office, payments received by the Finance Office 
will continue to be applied to the transferor's account and Form FmHA or 
its successor agency under Public Law 103-354 451-26 will be forwarded 
to the County Office. When the County Supervisor has received a payment 
on the account which is not included in the latest transaction record or 
monthly payment account Status Report, the amount will be deducted from 
the total amount of principal and interest only when received in the 
form of currency and coin, treasury check, cashier's check, certified 
check, postal or bank money order, or bank draft (this figure will be 
based on the latest information available) before completing the 
assumption agreement and having it signed. The following will also be 
done:
    (i) Transaction record. When the borrower has made a direct payment 
to the Finance Office and there is no record of the payment in the 
County Office, the account will be assumed on the basis of the latest 
record in the County Office. In those cases, the application of the 
direct payment will be reversed from the account and the assumption 
agreement will be processed in the Finance Office. The Finance Office 
will contact the County Supervisor to determine the disposition of the 
proceeds from the direct payment.
    (ii) Identification of payments. For payment received on the date of 
transfer, Form FmHA or its successor agency under Public Law 103-354 
451-2, ``Schedule of Remittances,'' will be prepared to show ``Transfer 
in process for account owed by (borrower's name and case number), to be 
transferred to (name of borrower and case number, if known).'' If the 
borrower number portion of the case number has not yet been assigned for 
a transferee, only the State and County portion of the case number will 
be shown. A statement for the information of the Finance Office will be 
attached to the assumption agreement showing the date of Form FmHA or 
its successor agency under Public Law 103-354 451-2 and the amount paid.
    (iii) Payment. When a payment is due on the assumption agreement 
shortly after the transfer is completed, the payment should, if 
possible, be collected at the time of transfer and remitted in the name 
of the transferee.
    (4) Farms and Home plans and financial statements. When an 
assumption will be for less than the amount of the indebtedness and a 
release of liability is involved, a current financial and income 
statement of the transferor will be obtained on Forms FmHA or its 
successor agency under Public Law 103-354 1944-3 or FmHA or its 
successor agency under Public Law 103-354 431-2 or other plan of 
operation acceptable to FmHA or its

[[Page 400]]

successor agency under Public Law 103-354.
    (5) Appraisal report. Forms FmHA or its successor agency under 
Public Law 103-354 1922-1 or FmHA or its successor agency under Public 
Law 103-354 1922-8, as appropriate, will be obtained when the amount to 
be assumed is less than the full amount of the indebtedness, when 
required in connection with an initial or subsequent loan to be 
processed with the transfer, or when the loan approval official requests 
a current appraisal.
    (6) County Committee certification and recommendation. The complete 
transfer docket, except SFH loans, will be presented to the County 
Committee for review.
    (i) The transfer will be contingent upon the County Committee 
certification on Form FmHA or its successor agency under Public Law 103-
354 440-2 for an eligible applicant. This action will be documented by 
checking the appropriate block on Form FmHA or its successor agency 
under Public Law 103-354 440-2, as specified in the Forms Manual Insert.
    (ii) When the County Committee recommends a release of the 
transferor and any cosigner from liability when real estate security is 
being transferred under paragraph (c) or (d) of this section with an 
assumption of less than the total debt, the provisions of paragraph (f) 
of this section will be followed.
    (iii) When the total outstanding debt is not assumed, a farmer 
program loan borrower who is not being released from liability must be 
sent a letter similar to exhibit F of subpart A of part 1955 of this 
chapter.
    (7) Property insurance. The transferee will obtain property 
insurance in accordance with the property insurance requirement for the 
loan(s) involved. If insurance is required, it may be obtained either by 
transfer of the existing coverage by the transferor or by acquisition of 
new coverage by the transferee. The insurance company will be notified 
by the County Supervisor immediately after completion of the transfer. 
When the full amount of the FmHA or its successor agency under Public 
Law 103-354 indebtedness is being assumed and an insurance premium has 
been advanced to the account, the transfer will not be completed until 
the amount of the premium has been charged to the transferor's account.
    (8) Title clearance and legal services. Title clearance and legal 
services for closing transfers will be accomplished in accordance with 
subpart B of part 1927 of this chapter. When the original repayment 
terms are altered, it may be necessary to obtain a new mortgage from the 
transferee to continue FmHA or its successor agency under Public Law 
103-354's lien on the transferred real estate. The advice of OGC will be 
obtained on a state-by-state basis and implemented through State 
supplements to provide for new mortgages when required, and to further 
provide instructions on whether the original mortgage should be 
released. Title clearance and legal services for the above transfer(s) 
are not required when the interest of anyone liable on the note is 
conveyed to another liable on the note who assumes the total 
indebtedness on the same terms, provided a subsequent loan or 
subordination is not involved. For all other kinds of transfers, title 
clearance and loan closing services will not be required unless the 
approval official, with the advice of OGC, determines that the services 
are needed to maintain FmHA or its successor agency under Public Law 
103-354's security position or for other reasons. If another mortgagee's 
mortgage requires the mortgagee's consent to the transfer, consent will 
be obtained.
    (9) Assumption agreements, releases from personal liability, 
receipts. When the full amount of the debt is assumed or a release from 
personal liability is otherwise approved under this subpart and all of 
the security is being transferred, Forms FmHA or its successor agency 
under Public Law 103-354  1965-13; 460-9 (as applicable); 451-1, 
``Acknowledgment of Cash Payment;'' and 1965-8, will be prepared and 
distributed according to the FMI.
    (h) Transfer of security without FmHA or its successor agency under 
Public Law 103-354 consent or approval. When a borrower transfers or 
proposes to transfer real estate security to another party and FmHA or 
its successor agency under Public Law 103-354 is unable or

[[Page 401]]

unwilling to approve the transferee as either an eligible or ineligible 
applicant, the conveyance cannot be used as the basis for liquidation if 
the borrower's spouse or children become the owner of the property or if 
an intervivos trust becomes the owner of the property so long as the 
borrower is a trust beneficiary and there is no change in occupancy of 
the property. If the transfer is to someone other than a spouse, child 
or intervivos trust and the County Supervisor determines that it is not 
in the best interest of FmHA or its successor agency under Public Law 
103-354 to liquidate to the loan(s) in accordance with Sec. 1965.26 of 
this subpart, the following actions will be taken in order listed:
    (1) The County Supervisor will advise the State Director of the 
transfer or proposed transfer of the security and reasons why FmHA or 
its successor agency under Public Law 103-354 cannot approve the 
transferee as eligible or ineligible. Complete details of the transfer 
conditions, terms and consideration will be submitted to the State 
Director with the borrower (transferor) file. Current information on 
status of the loan(s) owed FmHA or its successor agency under Public Law 
103-354 and of any debts owed other lenders on the property will be 
included with a current appraisal of the FmHA or its successor agency 
under Public Law 103-354 security and security equity position. The 
appraisal will be completed in accordance with subpart E of part 1922 of 
this chapter. Recommendations of the County Committee, County 
Supervisor, and District Director will be included on the following:)
    (i) Reasons why continuation of the loan would be in the best 
interest of the Government.
    (ii) The effect continuation of the account will have on the FmHA or 
its successor agency under Public Law 103-354 program in the area.
    (iii) Comments and opinion on adequacy of security and ability of 
transferor to pay the FmHA or its successor agency under Public Law 103-
354 debt.
    (2) The State Director will review all information submitted and 
request additional information needed to reach a decision. This includes 
advice of OGC. After deciding, the State Director will either:
    (i) Return the file to the County Supervisor with instructions to 
proceed with liquidation of the account in accordance with 
Sec. 1965.26(b) of this subpart and state reasons for the decision; or
    (ii) Return the file to the County Supervisor stating reasons for 
the decision and giving consent to continue the account as an NP loan 
with instructions for obtaining liability of the transferee, maintaining 
security position and future servicing. If FmHA or its successor agency 
under Public Law 103-354 is adequately secured and the entire FmHA or 
its successor agency under Public Law 103-354 debt will be paid in 5 
years or less from date of the transfer, the borrower-transferor can be 
released of liability under paragraph (f) of this section and the 
account serviced in the name of the transferee. If the entire FmHA or 
its successor agency under Public Law 103-354 debt will not be paid 
within 5 years from date of the transfer, the borrower will not be 
released of liability, the account will continue to be serviced in the 
borrower's name and the borrower will remain liable for the debt under 
the terms of the security instruments. Advice of OGC will be obtained as 
needed to determine the borrower's continued liability and adequacy of 
security.
[51 FR 4140, Feb. 3, 1986, as amended at 51 FR 6735, Feb. 26, 1986; 51 
FR 13483, Apr. 21, 1986; 51 FR 40787, Nov. 10, 1986; 51 FR 45440, Dec. 
18, 1986; 53 FR 7339, Mar. 8, 1988; 53 FR 35797, Sept. 14, 1988; 54 FR 
29333, July 12, 1989; 56 FR 3396, Jan. 30, 1991; 56 FR 12646, Mar. 27, 
1991; 56 FR 15831, Apr. 18, 1991; 56 FR 67484, Dec. 31, 1991; 58 FR 
44752, Aug. 25, 1993; 58 FR 52654, Oct. 12, 1993; 60 FR 28321, May 31, 
1995; 62 FR 10159, Mar. 5, 1997]



Secs. 1965.28--1965.30  [Reserved]



Sec. 1965.31  Taking liens or real estate as additional security in servicing FmHA or its successor agency under Public Law 103-354 loans.

    Additional liens will not be taken for other loans on marginal land 
used for the production of softwood timber if the land is presently 
securing an ST loan.

[[Page 402]]

    (a) Liens. When taking real estate as additional security, the best 
lien obtainable will be taken on any real estate owned by the borrower, 
including any real estate which already serves as security for another 
loan. Normally, the prior concurrence of the District Director will be 
obtained. Liens will be taken only when:
    (1) Present security for the loan is not adequate to protect the 
interests of the FmHA or its successor agency under Public Law 103-354, 
and
    (2) The borrower is delinquent, has substantial equity in the real 
estate to be mortgaged and it is determined that the taking of the 
mortgage will not prevent the making of an FmHA or its successor agency 
under Public Law 103-354 real estate loan, which might be needed in the 
foreseeable future.
    (b) Real estate. Before taking real estate as additional security 
for an FmHA or its successor agency under Public Law 103-354 loan the 
following items will be documented in the running record:
    (1) the facts which justify taking the real estate lien;
    (2) A conservative estimate of the present market value of the real 
estate to be mortgaged. (It will not be necessary to submit an appraisal 
of the property to be mortgaged.);
    (3) A brief description of any existing liens on the property, and 
the repayment terms and the unpaid balance on the debts secured by 
existing liens, unless this is accurately reflected on a recent 
financial statement; and
    (4) The name of the title holder and how title of the property is 
held. (Title evidence need not be required.)
    (c) Forms. Each real estate lien taken as additional security for 
the FmHA or its successor agency under Public Law 103-354 loans will be 
taken on Form FmHA or its successor agency under Public Law 103-354 
1927-1 (state), ``Real Estate Mortgage or Deed of Trust for 
______(Insured Loans to Individuals)'' unless a State supplement 
requires the use of a form of mortgage comparable to that which secures 
the existing loan(s) to be additionally secured. The notes evidencing 
the FmHA or its successor agency under Public Law 103-354 loans for 
which the additional security will be taken will be described in the 
same mortgage.
[51 FR 4140, Feb. 3, 1986, as amended at 52 FR 26139, July 13, 1987; 53 
FR 35798, Sept. 14, 1988; 56 FR 67484, Dec. 31, 1991; 58 FR 52655, Oct. 
12, 1993]



Sec. 1965.32  [Reserved]



Sec. 1965.33  Cosigners--SFH loans.

    See Sec. 1965.129 of subpart C of this part for servicing SFH loans 
with cosigners.



Sec. 1965.34  [Reserved]



Sec. 1965.35  Exception authority.

    The Administrator or delegate may, in individual cases, make an 
exception to any requirement or provision of this subpart or address any 
omission of this subpart which is not inconsistent with the authorizing 
statute or other applicable law if the Administrator determines that the 
Government's interest would be adversely affected or the immediate 
health and/or safety of tenants or the community are endangered if there 
is no adverse effect on the Government's interest. The Administrator 
will exercise this authority upon the request of the State Director with 
recommendation of the appropriate program Assistant Administrator; or 
upon request initiated by the appropriate program Assistant 
Administrator. Requests for exceptions must be made in writing and 
supported with documentation to explain the adverse effect, propose 
alternative courses of action, and show how the adverse effect will be 
eliminated or minimized if the exception is granted.



Sec. 1965.36  State Supplements and reference to the OGC.

    State Supplements will be prepared, with the advice of the OGC, as 
necessary to carry out this subpart and forwarded to the National Office 
for prior or post approval.



Sec. 1965.37  Redelegation of authority.

    The State Director is authorized to redelegate in writing any 
authority delegated to the State Director in this subpart to one or more 
of the following State Office employees: Chief, Farmer Programs; Farmer 
Programs Specialist.

[[Page 403]]



Secs. 1965.38--1965.49  [Reserved]



Sec. 1965.50  OMB control number.

    The collection of information requirements in this regulation have 
been approved by the Office of Management and Budget and have been 
assigned OMB control number 0575-0086.

                          Exhibits to Subpart A

    Note: The exhibits referenced in this subpart are available in any 
FmHA or its successor agency under Public Law 103-354 office.

Exhibit A--Memorandum of Understanding Between Bureau of Sport Fisheries 
and Wildlife and the Farmers Home Administration or its successor agency 
                        under Public Law 103-354

    Exhibit B--Notification of Other Lienholders Intent to Foreclose

                       Exhibit C--Processing Guide

                  Exhibit D--Equity Recapture Agreement



        Subpart B--Security Servicing for Multiple Housing Loans

    Source: 49 FR 49590, Dec. 21, 1984, unless otherwise noted.



Sec. 1965.51  General.

    This subpart prescribes the policies, procedures, and authorizations 
for servicing and liquidating all Farmers Home Administration or its 
successor agency under Public Law 103-354 (FmHA or its successor agency 
under Public Law 103-354) multiple housing type loans and labor housing 
grants. These loans include Rural Rental Housing (RRH), Rural 
Cooperative Housing (RCH), Rural Housing Site (RHS), and Farm Labor 
Housing (LH). The servicing functions described in this subpart are for 
the purpose of assisting the borrower in meeting the objectives of the 
loan, repaying loans on schedule, complying with FmHA or its successor 
agency under Public Law 103-354 agreements and regulations, protecting 
the interest of FmHA or its successor agency under Public Law 103-354, 
and maintaining the security property. Borrowers will be required to pay 
their debts to the FmHA or its successor agency under Public Law 103-354 
and other creditors according to their agreements. Borrowers shall be 
required to operate their facilities according to FmHA or its successor 
agency under Public Law 103-354 regulations and applicable State and 
local laws and regulations. State Directors with the assistance of the 
Office of General Counsel (OGC) should issue necessary State Supplements 
to assure compliance with State laws. After careful analysis, and 
borrower in default who does not evidence prospects of attaining 
successful operations within a reasonable time will have its loan(s) 
liquidated according to authorizations contained in this subpart and 
Subpart A of Part 1955 of this chapter.



Sec. 1965.52  Definitions.

    (a) Borrowers. ``Borrowers'' means all individuals, partnerships, 
cooperatives, trusts, public agencies, private or public corporations, 
and other organizations which have received a loan or grant from FmHA or 
its successor agency under Public Law 103-354 for LH, RRH, RCH, or RHS 
purposes.
    (b) Case file. ``Case file'' includes the total cumulative records 
concerning a borrower.
    (c) District Director. For the purpose of this subpart, the term 
also includes the Assistant District Director, and other qualified 
District Office staff who may be delegated responsibilities under this 
subpart according to the provisions of Subpart F or Part 2006 (available 
in an FmHA or its successor agency under Public Law 103-354 office). 
Area Loan Specialists and Island Directors, and other qualified members 
of their staff in Alaska and Hawaii, respectively, are included in this 
definition. In the case of LH loans still being serviced in the County 
Office, this definition also includes qualified County Office staff.
    (d) FmHA or its successor agency under Public Law 103-354. ``FmHA or 
its successor agency under Public Law 103-354'' means the United States 
of America acting through the Farmers Home Administration or its 
successor agency under Public Law 103-354 of the United States 
Department of Agriculture; it

[[Page 404]]

also includes FmHA or its successor agency under Public Law 103-354's 
predecessor agencies.
    (e) Governing body. ``Governing body'' means those elected or 
appointed officials of an organization or public agency type borrower 
responsible for compliance with the security instruments and the 
operations of the project.
    (f) Mortgage. ``Mortgage'' also includes deeds of trust and similar 
real estate security instruments and, where appropriate, chattel 
security instruments.
    (g) Note. ``Note'' includes any note, bond, assumption agreement, or 
other evidence of indebtedness, including the obligations of LH grant 
only recipients operating under a grant agreement. All LH grant only 
recipients will be serviced in strict accordance with their grant 
agreement, appropriate program regulations, and this subpart.
    (h) OGC. ``OGC'' means the Regional Attorney or the Attorney in 
charge in the field office of the Office of General Counsel of the 
United States Department of Agriculture.
    (i) Servicing. ``Servicing'' includes the broad scope of activities 
undertaken by FmHA or its successor agency under Public Law 103-354 to 
see that the objectives of the loan are carried out; to assure 
compliance with the respective policies, procedures and authorizations 
set forth for each respective loan program; or to bring to a successful 
conclusion each loan or grant made by FmHA or its successor agency under 
Public Law 103-354 through transfer, sale, reamortization, payment or 
liquidation.



Secs. 1965.53--1965.54  [Reserved]



Sec. 1965.55  Authority of State Director.

    (a) Each State Director is authorized to perform the following 
functions upon determining that the action will not be to the financial 
detriment of FmHA or its successor agency under Public Law 103-354:
    (1) Require additional security in accordance with Sec. 1965.88 of 
this subpart.
    (2) Require borrowers to carry insurance of the types and amounts 
determined necessary on the real estate and chattel property mortgaged 
to the FmHA or its successor agency under Public Law 103-354. The 
borrower must carry adequate liability insurance as required by exhibit 
B, paragraph XV B 3 of subpart C of part 1930 of this chapter. Evidence 
of insurance is required for Multiple Housing loans according to the 
provisions of subpart A of part 1806 of this chapter (FmHA or its 
successor agency under Public Law 103-354 Instructions 426.1).
    (3) Approve the issuance of transfer of stock, change of beneficial 
interest, change of membership, admittance of new or substitute 
partners, or withdrawal of partners from a partnership; provided, the 
State Director determines that the requirements of Sec. 1965.63 of this 
subpart have been met, and that the change will not jeopardize the 
successful operation of the project, the soundness of the loan, or the 
eligibility of the borrower.
    (4) Approve transfers with assumption of FmHA or its successor 
agency under Public Law 103-354 loan accounts when all development has 
been completed and the unpaid principal balance and accrued interest 
does not exceed the State Director's loan approval authority as set 
forth in subpart A of part 1901 of this chapter for the type of loan(s) 
involved. Transfers will be processed according to Sec. 1965.65 of this 
subpart.
    (5) Approve the reamortization of FmHA or its successor agency under 
Public Law 103-354 indebtedness that is within the State Director's loan 
approval authority as set forth in subpart A of part 1901 of this 
chapter for the type of loan(s) involved according to the provisions of 
Sec. 1965.70 of this subpart.
    (6) Consent to the sale, exchange, or release of security property 
according to the applicable provisions of Sec. 1965.77 of this subpart.
    (7) Accept payment of RRH, RCH and LH loans subject to the 
provisions of subpart E of this part.
    (8) Approve subordination of FmHA or its successor agency under 
Public Law 103-354 lien position if the total debt against the security 
after the transaction is within the State Director's approval authority 
as set forth in subpart A of part 1901 of this chapter

[[Page 405]]

for the type of loan(s) involved according to the provisions of 
Sec. 1965.79 of this subpart.
    (9) Approve requests from borrowers for the creation of additional 
indebtedness on the security property. Such approvals must take into 
account the provisions of loan resolutions or other agreements with FmHA 
or its successor agency under Public Law 103-354 and other existing 
creditors. If the proposed additional debt would make the total 
outstanding obligations of the borrower exceed the FmHA or its successor 
agency under Public Law 103-354 loan approval limit of the State 
Director as set forth in subpart A of part 1901 of this chapter, 
complete documentation and the State Director's recommendations must be 
sent to the National Office for prior review and authorization to 
approve.
    (10) Renew existing security instruments in accordance with FmHA or 
its successor agency under Public Law 103-354 State Supplements after 
consulting with OGC.
    (11) Approve, with the concurrence of OGC, changes in a borrower's 
legal organization such as revisions to certificates of limited 
partnership, partnership agreements, articles of incorporation or 
charter, bylaws, or trust agreements when the changes proposed will 
promote better borrower organization and business operation, and will 
not adversely affect the repayment of the loan, impair the security 
rights of the FmHA or its successor agency under Public Law 103-354, or 
make the borrower ineligible for the existing FmHA or its successor 
agency under Public Law 103-354 loan or grant assistance.
    (12) Approve the borrower's execution, extension, renewal, 
modification, or cancellation of contracts of types not covered 
elsewhere in this section when the State Director, with the advice of 
OGC, determines that the action is in the best interests of both the 
borrower and the FmHA or its successor agency under Public Law 103-354; 
and in the case of RRH, RCH, and LH projects, will not be detrimental to 
the tenants or members.
    (13) Approve the extension or expansion of facilities and services 
in accordance with the respective loan program regulations when the 
action will best serve the interest of both the borrower and the FmHA or 
its successor agency under Public Law 103-354.
    (14) Approve the lease of security property according to 
Sec. 1965.61(e) of this subpart.
    (b) The State Director may reject any servicing request not in 
accordance with the guidelines of this subpart.
    (c) Any borrower directly and adversely affected by action under 
this subpart will be granted the appropriate appeal rights according to 
subpart B of part 1900 of this chapter.
    (d) The State Director may request from the National Office any 
authority not specifically delegated to the State Director. Written 
requests consistent with the intent and requirements of each respective 
loan program must be submitted to the National Office for prior 
authorization and must include the complete docket and the State 
Director's specific recommendations.
[49 FR 49590, Dec. 21, 1984, as amended at 55 FR 29564, July 20, 1990; 
56 FR 2257, Jan. 22, 1991; 58 FR 38928, July 21, 1993]



Secs. 1965.56--1965.57  [Reserved]



Sec. 1965.58  Responsibilities.

    (a) District Directors will: (1) Keep sufficiently informed of 
borrower operations to know whether they are operating successfully and 
complying with their obligations to the FmHA or its successor agency 
under Public Law 103-354,
    (2) Furnish borrowers with information, notices, reminders, fair 
housing posters, advice and assistance, and take other actions regarding 
the loan obligations and compliance therewith as considered necessary to 
determine whether borrowers are operating successfully, are complying 
with their loan obligations, and are likely to continue with compliance. 
This includes conducting all civil rights compliance reviews to 
determine compliance with all appropriate legislation regarding 
nondiscrimination in federally financed programs, in accordance with 
Subpart E of Part 1901 of this chapter,
    (3) Promptly report to the State Director the failure of any 
borrower to comply with the terms and conditions of its agreements with 
FmHA or its

[[Page 406]]

successor agency under Public Law 103-354 after noncompliance has been 
brought to the attention of the borrower and recommended corrective 
action has not been taken,
    (4) Furnish training and technical guidance not readily available 
through other sources to borrowers to protect the FmHA or its successor 
agency under Public Law 103-354's interests. This training and guidance 
may relate to business operations, project management, personnel 
training, membership activities, fair housing requirements and policy, 
or any other phase which vitally affects the borrower's operations,
    (5) Maintain the Management Card System according to FmHA or its 
successor agency under Public Law 103-354 Instruction 1905-A (available 
in any FmHA or its successor agency under Public Law 103-354 office) to 
assure prompt compliance by borrowers with FmHA or its successor agency 
under Public Law 103-354 requirements relating to repayments, budgets 
and reports, taxes, insurance and bond renewals, reports required by 
State law or regulations as indicated in State Supplements, security 
instrument expirations, and other items of loan and security servicing,
    (6) Maintain the official borrower case files according to the 
requirements of FmHA or its successor agency under Public Law 103-354 
Instruction 2033-A (available in FmHA or its successor agency under 
Public Law 103-354 State and District offices), and MISTR according to 
FmHA or its successor agency under Public Law 103-354 Instruction 2033, 
and
    (7) Promptly collect FmHA or its successor agency under Public Law 
103-354 loan payments and service security for the FmHA or its successor 
agency under Public Law 103-354 loans.
    (b) State Director will:
    (1) Coordinate and direct loan servicing activities relating to 
borrowers and perform other functions as prescribed by this subpart.
    (2) Delegate in writing any authority delegated to the State 
Director in this subpart unless otherwise restricted, to only those 
State Office staff members who, in the opinion of the State Director, 
have been adequately trained and who demonstrate their knowledge in 
understanding and administering the MFH policies and procedures of FmHA 
or its successor agency under Public Law 103-354. The individual 
delegation of responsibility and authority may be limited or expanded in 
scope, or revoked, as deemed appropriate by the State Director and will 
be prepared according to FmHA or its successor agency under Public Law 
103-354 Instruction 2006-F (available in any FmHA or its successor 
agency under Public Law 103-354 office). Unless specifically authorized 
elsewhere in this subpart, the authorities of the State Director may not 
be delegated below the State Office staff level. (The State Office staff 
does not include District Office staff for the purposes of this 
subpart.)
    (3) Ensure that District Directors carry out their responsibilities 
for loan servicing and provide the District Office with appropriate 
technical guidance, training and follow-up supervision to service loans.
    (4) Coordinate as appropriate with OGC.
    (5) Maintain necessary liaison with State and local officials.



Secs. 1965.59--1965.60  [Reserved]



Sec. 1965.61  General loan servicing requirements.

    (a) Payments. Payments will be handled according to the applicable 
provisions of subparts A and B of part 1951 of this chapter, and 
subparts D and E of part 1944 of this chapter.
    (b) Borrower reports, audits, and analyses. Borrower reports, 
audits, and analyses, including the approval or disapproval of annual 
operating budgets, requests for rent and occupancy charge changes, and 
occupancy problems will be processed and handled according to subpart C 
of part 1930 of this chapter.
    (c) Maintenance. Project maintenance is of utmost importance. All 
projects must be adequately maintained by the borrower not only to 
protect the FmHA or its successor agency under Public Law 103-354's 
interest, but also to attract potential clients (tenants for rental 
projects, members for cooperative projects, purchasers for RHS). 
Maintenance should be reviewed during each supervisory visit and 
appropriate

[[Page 407]]

recommendations made to the borrower. The District Director will inspect 
the real estate security as required by subpart C of part 1930 of this 
chapter.
    (d) Actions by third parties affecting FmHA or its successor agency 
under Public Law 103-354 security. Cases including third party action 
will be handled according to the provisions of Sec. 1965.104(c) of 
subpart C of part 1965 of this chapter, except that references to the 
County Supervisor shall be construed to mean District Director when 
applied to multiple housing type programs.
    (e) Lease of security property. The leasing of property (except to 
tenants for specific program purposes) serving as security for multiple 
housing loans and grants other than as indicated in this section is not 
authorized. Approval of leases by the State District is authorized in 
the following cases:
    (1) Leases to public housing authorities. RRH and RCH borrowers may 
be permitted to renew and continue leasing all or part of the housing 
facilities to a housing authority with the benefits of the HUD Section 
23 leasing program. No new leases will be entered into. The lease will 
be on a form provided by the housing authority and must be on terms that 
will enable the borrower to continue the objectives of the loan and make 
payments on schedule.
    (2) Lease of a portion of the security property. When the RRH or RCH 
or LH borrower will continue to operate the facilities for the purpose 
for which the loan or grant was made, the State Director or his/her 
designee may approve the leasing of related facilities such as kitchens, 
recreation facilities and community buildings, subject to the applicable 
provisions of Sec. 1944.212 of subpart E of part 1944 of this chapter 
for RRH and RCH and Sec. 1944.158 of subpart D of part 1944 of this 
chapter for LH and under the following conditions:
    (i) The lease is advantageous to the borrower and the tenants, and 
will not impair the FmHA or its successor agency under Public Law 103-
354's interest.
    (ii) The amount of the consideration is adequate. The consideration 
must be sufficient to pay all prorated operating and maintenance 
expenses, a prorated share of the annual reserve deposit, and the 
prorated part of the loan amortization at the note rate of interest.
    (iii) The lease should provide at its termination for the 
restoration of the leased space to its original condition or a condition 
acceptable to the owner and FmHA or its successor agency under Public 
Law 103-354.
    (iv) Consent to the lease shall not exceed 3 years at a time unless 
the State Director determines with the prior written concurrence of the 
National Office that a longer lease is clearly more advantageous to the 
borrower, the tenants, and the FmHA or its successor agency under Public 
Law 103-354.
    (v) If foreclosure action has been approved, consent to lease and 
use of proceeds will be granted only under directions from OGC or the 
U.S. Attorney, as appropriate.
    (vi) When another lienholder's mortgage requires consent of that 
lienholder to a lease, written consent will be obtained prior to FmHA or 
its successor agency under Public Law 103-354 approval of the lease.
    (vii) The authority to approve the lease of laundry facilities or 
commissary stores may be redelegated in writing to the District Director 
by the State Director.
    (3) Mineral leases. Mineral leases will be handled according to 
Sec. 1965.113 of subpart C of part 1965 of this chapter except that all 
references to County Supervisor will be construed to mean District 
Director when applied to the Multiple Housing Programs.
    (4) Processing. When a borrower requests consent to lease a portion 
of the security property or the District Director discovers that the 
borrower is leasing the security without consent, Form FmHA or its 
successor agency under Public Law 103-354 465-1, ``Application for 
Partial Release, Subordination or Consent,'' will be prepared.
    (i) The form will show the terms of the proposed lease and will 
specify the use of proceeds, including any proceeds to be released to 
the borrower.
    (ii) The form will be submitted through the District Director to the 
State Director, along with a copy of the lease, official borrower case 
files, the District Director's comments and recommendations, and any 
other information pertinent to the transaction.

[[Page 408]]

    (iii) The State Director will review the material, obtain the 
guidance of OGC prior to indicating approval or disapproval on Form FmHA 
or its successor agency under Public Law 103-354 465-1, and provide 
additional servicing instructions to the District Director.
    (f) Consent of lienholders. Before FmHA or its successor agency 
under Public Law 103-354 consents to any transaction which affects its 
security or lien position, the written consent of any other lienholders 
must be obtained. The consent will include an agreement on the 
disposition of any funds resulting from the transaction and will be 
consistent with the respective loan program requirements.
[49 FR 49587, Dec. 21, 1984, as amended at 50 FR 39640, Sept. 30, 1985; 
56 FR 2257, Jan. 22, 1991; 58 FR 40956, July 30, 1993]



Sec. 1965.62  [Reserved]



Sec. 1965.63  Issuance or transfer of stock, or change in membership, or membership interests in organizations indebted to FmHA or its successor agency under 
          Public Law 103-354.

    Organizations which may be indebted to FmHA or its successor agency 
under Public Law 103-354 include, but are not limited to: public bodies, 
broadly-based nonprofit corporations, nonprofit organizations of 
farmworkers, associations of farmers, RCH consumer cooperatives, profit 
and limited profit corporations, trusts, profit and limited profit 
general partnerships, and limited partnerships. This section describes 
the policy of FmHA or its successor agency under Public Law 103-354 in 
approving changes of members, ownership interest, and transfer or 
issuance of stock in these organizations, to determine the continued 
eligibility of the borrower entity. It does not apply to the sale or 
exchange of title to the security property, or the conversion from one 
form of ownership to another such as changing a general partnership to a 
limited partnership. Stock, partnership, or membership changes which the 
State Director is not authorized to approve under the conditions of this 
section will be submitted to the National Office for handling.
    (a) Profit and limited profit corporations, general partnerships, 
limited partnerships, and trusts. Ownership changes within the existing 
borrower entity will be processed as follows:
    (1) Ownership changes totalling 100 percent of the ownership 
interests in a project within any consecutive 12-month period will be 
treated as transfers and processed under the provisions of Sec. 1965.65 
of this subpart.
    (2) Ownership changes in excess of 50% but less than 100% within the 
first five years of loan or assumption closing, will be subject to 
Sec. 1965.65(a)(4) of this subpart which covers hardship provisions and 
the restrictions on subsequent changes. However, changes in only the 
limited partner interests in a limited partnership will not be subject 
to the restrictions of Sec. 1965.65(a)(4) of this subpart when completed 
in accordance with the approved partnership agreement.
    (3) Other ownership changes of 50% or less within any consecutive 12 
month period will be processed without restriction.
    (4) All changes of less than 100% will be processed according to 
paragraph (e) of this section.
    (b) Public bodies, broadly-based nonprofit corporations, or 
nonprofit organizations of farmworkers. FmHA or its successor agency 
under Public Law 103-354 consent will not be required for broadly-based 
nonprofit corporations or nonprofit organizations of farmworkers 
indebted to FmHA or its successor agency under Public Law 103-354 to 
change or transfer membership. Each organization, however, must maintain 
the number and type of members required by its Articles of Incorporation 
and Bylaws. Organizations will only permit membership changes as 
authorized by the organizational documents previously approved by FmHA 
or its successor agency under Public Law 103-354. Should the minimum 
number of required members in any organization fall below that 
prescribed by their organizational documents, the following actions will 
be taken:
    (1) The District Director will provide the State Director with a 
complete written report of the circumstances, including the 
organization's plan for obtaining additional membership, and the 
continued operation of the project. The District Director should submit

[[Page 409]]

this report only after he or she has personally met with the governing 
body and found that they will not be able or willing to comply with FmHA 
or its successor agency under Public Law 103-354 requirements. The 
report should be precise and include recommendations on further 
servicing actions.
    (2) The State Director will review the report and evaluate any 
adverse effect the noncompliance will have on the loan. If it appears 
that the interest of the United States will be adversely affected, the 
State Director will forward the material together with appropriate 
comments and recommendations, to the OGC for review and guidance in the 
continued servicing or liquidation of the account as appropriate. The 
State Director will provide the District Director with instructions for 
servicing the account.
    (c) Associations of farmers. Changes in membership will be governed 
by the organizational documents previously approved by FmHA or its 
successor agency under Public Law 103-354 and any eligibility 
requirements set forth in program regulations. (See subpart D of part 
1944 of this chapter.) In those cases where proposed membership changes 
are not covered in the documents or are in conflict with the provisions 
of subpart D of part 1944 of this chapter, case files will be submitted 
for National Office consideration.
    (d) RCH consumer cooperatives. Changes in the membership of RCH 
consumer cooperatives will be processed according to the provisions of 
subpart E of part 1944 of this chapter.
    (e) Processing organizational membership changes. Organizations are 
required by their loan agreement or resolution to obtain prior FmHA or 
its successor agency under Public Law 103-354 consent to transfer stock, 
or to transfer or change any interest in the borrower entity. (The 
admission or substitution of limited partners in a limited partnership 
does not require prior authorization. See paragraph (e)(3) of this 
section.) Therefore, when organizations request FmHA or its successor 
agency under Public Law 103-354 consent to: issue additional stock, 
transfer stock, change membership or membership interests other than 
limited partner interests in limited partnership, admit new or 
substitute general partners of any kind, withdraw general partners of 
any kind, alter the beneficiary of the trust, or when such a change has 
taken place without prior FmHA or its successor agency under Public Law 
103-354 consent, the District Director shall process and submit Form 
FmHA or its successor agency under Public Law 103-354 465-1 to the State 
Director. The State Director is authorized under Sec. 1965.55(a) of this 
subpart to approve or disapprove these transfers or changes on Form FmHA 
or its successor agency under Public Law 103-354 465-1. For approval, 
the State Director must determine that the following conditions have 
been met:
    (1) The borrower has provided a listing showing the name, address, 
Employer Indentification or Social Security number, and percent of 
ownership of each member, stockholder, general partner, or beneficiary 
of a trust that will have an interest in the organization.
    (2) All new or substitute general partners, and all new or 
substitute trustees, members, stockholders in privately held 
corporations, or beneficiaries that will hold an interest in the 
organization in excess of 10 percent have submitted a current, dated, 
and signed financial statement showing assets and liabilities, with 
information on the status and repayment schedule of each debt. (The 
admission of limited partner in a limited partnership is addressed in 
Sec. 1965.63(e)(3) of this subpart.) In cases involving publicly held 
corporation borrowers, borrowers will be required to notify FmHA or its 
successor agency under Public Law 103-354 of stockholders admitted to 
the organization in accordance with the approved articles of 
incorporated and bylaws. However, FmHA or its successor agency under 
Public Law 103-354 consent is required when there are changes in the 
overall corporate management or in the organizational documents. (All 
other changes in stockholders in publicly held corporations are subject 
to the requirements of this section.) All financial statements submitted 
must comply with the reporting requirements set forth in exhibit A-7 to 
subpart E of part 1944 of this chapter. A resume must also be submitted, 
together

[[Page 410]]

with a statement setting forth any identity of interest as described in 
exhibit A-7 to subpart E of part 1944 of this chapter. The resume should 
explain the past performance, experience, qualifications, and abilities 
of the individual or organization, who is obtaining an interest in the 
borrower organization. A determination must be made before approval that 
the incoming individual or organization described in this section will 
not adversely affect the borrower's continued eligibility under the 
requirements of subpart E of part 1944 of this chapter.
    (3) The admission of limited partners in a limited partnership on 
the basis of the limited partnership agreement previously approved by 
FmHA or its successor agency under Public Law 103-354 does not 
constitute a change requiring redetermination of eligibility. Borrowers 
admitting new or substitute limited partners are however required to 
notify FmHA or its successor agency under Public Law 103-354 at least 
annually with a listing showing the name, address, Taxpayer 
Identification number, and percent of ownership of each new or 
substitute limited partner. The borrower must also provide copies of any 
amendments to the organizational documents effecting such changes in the 
organization together with an opinion from the borrower's attorney 
certifying that the changes in limited partner interests have been 
completed in accordance with the approved partnership agreement.
    (4) The borrower is unable to provide the housing or other 
facilities from its own resources and is unable to obtain the necessary 
credit from private or cooperative sources on terms and conditions that 
would enable the borrower to refinance the FmHA or its successor agency 
under Public Law 103-354 indebtedness and operate the project for 
amounts within the payment ability of those eligible to occupy the 
housing or benefit from the project. When tenants are benefiting from 
any FmHA or its successor agency under Public Law 103-354 or other 
Government subsidy program, the continued availability of the subsidy 
will be considered in making this decision. For profit and limited 
profit organizations, the assets of the individual general partners, 
members or stockholders will also be considered.
    (5) The type of change must not adversely affect the operations of 
the project. Liens may not be taken against the FmHA or its successor 
agency under Public Law 103-354 security. Payments on any debt incurred 
for the purchase of the stock or interest in the organization will not 
be considered authorized debt payments and will not be included in 
project operations as a budgeted expense. In those cases where the 
withdrawing member or ownership interest proposes to use a security 
agreement or other document to secure an equity payment, the State 
Director must determine that:
    (i) The payment is not contingent on the planned sale of the project 
or additional owership interests;
    (ii) An assignment of interests to secure a promissory note, in the 
case of a limited partnership, is restricted to the limited partners 
interests only and not the general partner interest;
    (iii) In cases other than the limited partner's interest in a 
limited partnership, that there is no reversionary interest held in the 
entity; and
    (iv) Any security agreement or equity note, clearly indicates the 
necessity of FmHA or its successor agency under Public Law 103-354 
approval before any substitutions of interests take place, regardless of 
any default on the equity note.
    (6) In the case of the sale of the interest of a general partner, or 
the admission or substitution of any general partner, in either a 
limited partnership or a general partnership, the new or substitute 
general partner must agree to assume the responsibilities and 
obligations of the original general partner under the terms of the FmHA 
or its successor agency under Public Law 103-354 promissory note, 
mortgage, and the borrower's partnership agreements. The assumption of 
any personal liability of the transferring general partner by the 
assuming general partner in a limited partnership may be waived by the 
State Director with the advice of the OGC if the organizational papers 
require that liability be limited to the asssets of the partnership 
according to Sec. 1944.21(a)(2) of subpart E of part 1944 of this 
chapter. After consulting OGC,

[[Page 411]]

the State Director will require the new or substitute general partner to 
execute an agreement as follows for the inclusion in position 5 of the 
official case file:

       Assumption of Original or Withdrawing Partner's Obligations

    In consideration for being approved by the Farmers Home 
Administration or its successor agency under Public Law 103-354 (FmHA or 
its successor agency under Public Law 103-354) for admission as a 
general partner into ____________(the partnership), the undersigned 
hereby assumes all responsibilities and obligations of ____________ 
under the terms of the Partnership Agreement dated ____________, the 
terms of (a) (all) note(s) or assumption agreement(s) dated ____________ 
in the respective amount(s) of ____________, and the terms of the FmHA 
or its successor agency under Public Law 103-354 security instrument(s) 
taken on the partnership property dated ____________ and filed for 
record in the ____________ office at


 _______________________________________________________________________


Document No. or Book and Page No.


 _______________________________________________________________________


Date


 _______________________________________________________________________


Signature of New or Substitute Partner


    (7) Any withdrawing stockholder, member, or partner personally 
liable for the FmHA or its successor agency under Public Law 103-354 
indebtedness will not be released of liability unless the new 
stockholder, member, or partner is made personally liable for the FmHA 
or its successor agency under Public Law 103-354 debt on an agreement 
approved by OGC, and the State Director determines that the assets and 
net worth of the new stockholder, member, or partner are substantially 
the same as, or greater than, that of the party to be released.
    (8) The State Director must determine that approval of the 
transaction will not adversely affect the FmHA or its successor agency 
under Public Law 103-354 program in the area, that the objectives of the 
loan will not be changed, and that the successful operation of the 
project will not be jeopardized. In making this determination, the State 
Director must consider the past performance, experience, qualifications 
and abilities of any individual or organization obtaining an interest in 
the borrower organization, other than a limited partner holding a 
minority interest in a limited partnership. Serious consideration must 
also be given to an individual having a record or reputation for 
discriminating against individuals because of their race, color, 
national origin, handicap or other prohibited basis.
    (9) Organizational papers must be amended to reflect the changes and 
a copy submitted to FmHA or its successor agency under Public Law 103-
354 to be retained in the case files. The amendment should specify that 
FmHA or its successor agency under Public Law 103-354 must approve all 
membership changes (except the admission of limited partners described 
in Sec. 1965.63(e)(3) of this subpart) or transfers, if they do not 
already do so. OGC will review any proposed changes of beneficial 
interests in a trust to determine that all applicable program 
requirements have been met.
[49 FR 49590, Dec. 21, 1984, as amended at 56 FR 2257, Jan. 22, 1991]



Sec. 1965.64  [Reserved]



Sec. 1965.65  Transfer of real estate security and assumption of loans.

    (a) General. The transfer may be approved only if it is determined 
that the transfer would ensure the further availability of the housing 
and related facilities for very-low, low, and moderate income families 
or persons and would be in the best interests of the residents and the 
Federal Government.
    (1) The requirements of this section apply when:
    (i) Title to the security property is transferred, either when the 
project is sold or through a change in the borrowing legal entity, such 
that the new entity is considered a distinct and separate legal entity 
from the original borrower;
    (ii) An unauthorized sale of a project has occurred or will occur 
through a land contract or similar contract;
    (iii) The liability for the FmHA or its successor agency under 
Public Law 103-354 indebtedness has been or will be assumed by an 
organization, entity or individual who is not presently liable for the 
debt;
    (iv) Membership interests within a borrower entity have been or will 
be changed 100 percent within any consecutive 12-month period as 
indicated by Sec. 1965.63(a) of this subpart.
    (2) When the mortgage or deed of trust requires FmHA or its 
successor agency under Public Law 103-354 consent to the sale or other 
transfer or real estate security, the borrower

[[Page 412]]

should be advised of its provisions. Before firm agreements are reached 
between the borrower and the proposed purchaser or transferee, the 
borrower should notify the District Director of the proposed sale or 
transfer. The District Director shall then explain the requirements of 
this subpart.
    (3) Proposed transfers must not be the detriment of the FmHA or its 
successor agency under Public Law 103-354 or the tenant. LH loans will 
only be transferred under this subpart when they will continue to be 
used to provide housing for farm laborers as defined in subpart D of 
part 1944 of this chapter. Cooperative loans will only be transferred 
when they will be used for the purpose of providing low income rental 
housing to promote the general welfare of the community.
    (4) The transfer of projects as defined in Sec. 1944.205 of subpart 
E of part 1944 of this chapter, in which the FmHA or its successor 
agency under Public Law 103-354 loan transfer is needed to remove a 
hardship which adversely impacts the present borrower and was caused by 
circumstances beyond the borrower's control, such as:
    (i) Illness or death of the principals;
    (ii) Court order requiring the division of security property;
    (iii) The individual borrower faces serious financial difficulties 
due to circumstances beyond the borrower's control, which will force 
him/her out of operation. These circumstances do not include 
transferring the property to obtain the equity needed to permit the 
borrower to apply for additional FmHA or its successor agency under 
Public Law 103-354 loans or to raise capital to support the borrower's 
other financial interests not including the FmHA or its successor agency 
under Public Law 103-354 financed project. Borrowers under this type of 
hardship must be able to show that they have acted in good faith, 
demonstrated their managerial skills and financial abilities; and 
otherwise complied with all other agreements made with FmHA or its 
successor agency under Public Law 103-354. Hardship transfers due to 
construction cost overruns will only be considered in the case of 
individual borrower accounts. (If additional funds are needed to cover 
cost overruns for any other type of borrower entity, consideration 
should be given to the admission of new partners, sale of stock, etc., 
under the provisions of Sec. 1965.63 of this subpart to continue 
ownership of the project.)
    (5) When the State Director determines that a hardship is present 
and the official case files have been adequately documented to clearly 
identify the hardship, a transfer may occur without penalty to the 
transferor. When a hardship is not present and the loan(s) are less than 
5 years old, transfer requests should be processed but the transferor 
(including principals) will be ineligible for further loans or 
participation in the transferee or other RRH applicant entities for the 
remainder of the 5-year period. The start of the 5-year period begins on 
the date of FmHA or its successor agency under Public Law 103-354 loan 
closing and/or any subsequent transfer.
    (6) Transfers of RRH projects with initial or subsequent loans 
(except loans for the purpose of repairs to existing units) that are at 
least 5 years old will be processed according to the provisions of this 
subpart without penalty to the transferor. The transferor (including the 
principals) may continue to participate in the RRH program through new 
and existing projects assuming he/she has performed satisfactorily and 
meets the eligibility criteria of Sec. 1944.211 of subpart E of part 
1944 of this chapter.
    (7) In all cases, the purchaser is required to provide evidence of 
its inability to obtain credit elsewhere on rates and term that will not 
cause rental rates in excess of what low- and moderate-income tenants 
could afford, considering the availability of any rent subsidies that 
may be available to the project.
    (8) All transfers are subject to the payment application system 
conversion requirements in subpart K of part 1951 of this chapter.
    (9) For all transfers, the District Director must review Form FmHA 
or its successor agency under Public Law 103-354 1910-11, ``Applicant 
Certification, Federal Collection Policies for Consumer or Commercial 
Debts,'' with the applicant. A copy of the signed and

[[Page 413]]

dated form will be given to the applicant and the original placed in the 
loan docket.
    (b) State Director authority. The State Director is authorized under 
Sec. 1965.55(a)(4) of this subpart to approve initial and subsequent 
transfers, with an appropriate assumption of the FmHA or its successor 
agency under Public Law 103-354 unpaid loan balance(s) when the 
principal amount (including any authorized junior liens) plus accrued 
interest is within the State Director's loan approval authority, subject 
to the following general conditions and requirements:
    (1) Transfers will be made to either eligible or ineligible 
applicants. Eligible applicants are those applicants meeting all of the 
eligibility criteria as defined by the appropriate loan program 
regulations. Ineligible applicants are those applicants failing to meet 
the eligibility requirements for the respective loan type. Transfers to 
eligible applicants will receive preference over transfers to ineligible 
applicants, provided recovery to FmHA or its successor agency under 
Public Law 103-354 is not less than it would be if the transfer were to 
an ineligible applicant.
    (i) Transfers to eligible applicants will generally be completed on 
the basis of the same terms if the loan account is current or can be 
brought current when the transfer and assumption is closed.
    (ii) Transfers to eligible applicants desiring to assume delinquent 
loans which cannot be brought current at the time of closing, and 
transfers to ineligible applicants, will be transferred on the basis of 
new terms.
    (2) The approval official must determine that the security is 
adequate for the FmHA or its successor agency under Public Law 103-354 
indebtedness being assumed. If the State Director determines that the 
total secured FmHA or its successor agency under Public Law 103-354 
debt(s) exceeds the present market value of the security, the transferee 
must assume an amount at least equal to the present market value less 
any prior liens. In those cases, the transferor will be released from 
liability and the remaining debt will also be processed according to the 
applicable provisions of subpart B of part 1956 of this chapter. When 
the present market value of the security equals or exceeds the debt the 
transferee will assume the total FmHA or its successor agency under 
Public Law 103-354 secured debt(s). Security will be upgraded if 
necessary to meet FmHA or its successor agency under Public Law 103-354 
standards.
    (3) The transferor shall not receive an equity payment as part of a 
transfer unless:
    (i) All unpaid FmHA or its successor agency under Public Law 103-354 
indebtedness against the property is assumed;
    (ii) All real estate and personal property taxes owned by the 
project are current;
    (iii) All FmHA or its successor agency under Public Law 103-354 loan 
payments on the project are current;
    (iv) The reserve account is at the authorized level at the time of 
the transfer;
    (v) The State Director receives National Office authorization to 
proceed, if the preceding requirements cannot be met and it can be 
demonstrated that no other alternative, including liquidation, would be 
in the best interests of FmHA or its successor agency under Public Law 
103-354 and the tenants; and
    (vi) When the transfer is NOT being made in connection with a 
request for prepayment of the FmHA or its successor agency under Public 
Law 103-354 loan;
    (A) Any equity payment paid to the transferor shall be paid in cash 
at the time of the transfer; or
    (B) If paid on terms;
    (1) The rates and terms are documented and the transferee is able to 
show that the obligation can be met from outside sources of income 
without jeopardizing the operation of the project. No rental or other 
project income (except authorized return to owner as specified in the 
loan agreement or resolution) shall be used to make payments on the 
obligation;
    (2) No present or future liens will be attached to the secured 
project real estate, personal property, accounts, or revenue from the 
operation of the project;
    (3) The equity payment to the seller will be provided from outside 
sources

[[Page 414]]

or from any authorized return to owner, and not from a planned sale of 
the project or additional membership interests beyond those identified 
in the transferee's organizational documents approved by FmHA or its 
successor agency under Public Law 103-354;
    (4) The seller does not and will not have a reversionary interest in 
the FmHA or its successor agency under Public Law 103-354 encumbered 
property;
    (5) In the case of a limited partnership, the right of FmHA or its 
successor agency under Public Law 103-354 to approve or disapprove the 
substitution of general partners in accordance with Sec. 1965.63 of this 
subpart has not and will not be superseded by any agreement between the 
purchaser and seller which implies prior consent by FmHA or its 
successor agency under Public Law 103-354 for partner changes in the 
case of default; and the right to assign partnership interests is 
restricted to only the limited partners' interests and such right does 
not include the general partners' interests;
    (6) An opinion is provided from the transferee's legal counsel 
certifying that the financial and other arrangements comply with all 
FmHA or its successor agency under Public Law 103-354 requirements of 
this section; and
    (7) An assignment of project income will be taken by FmHA or its 
successor agency under Public Law 103-354 in accordance with the 
requirements of Sec. 1944.221(b) of subpart E of part 1944 of this 
chapter as additional security with the advice and guidance of OGC;
    (vii) When the transfer is being made to avert prepayment of the 
FmHA or its successor agency under Public Law 103-354 loan, an equity 
loan may be made in accordance with the provisions of subpart E of this 
part and subpart E of part 1944 of this chapter. If additional equity is 
to be paid by the purchaser to the seller above the amount of equity 
recognized by FmHA or its successor agency under Public Law 103-354 in 
the prepayment valuation of the project, the provisions of paragraph 
(b)(3)(vi) of this section will apply.
    (4) No payment will be received by the transferor for regular equity 
or equity in connection with a prepayment action unless all FmHA or its 
successor agency under Public Law 103-354 loans against the project are 
assumed in full or the payment to the transferor is applied in total 
against non-FmHA or its successor agency under Public Law 103-354 prior 
liens. The State Director may require that all or a part of any equity 
payment be applied against other FmHA or its successor agency under 
Public Law 103-354 loans owed by the borrower on other FmHA or its 
successor agency under Public Law 103-354 projects owned by the borrower 
that are not current, if the FmHA or its successor agency under Public 
Law 103-354 loans against the project being purchased are assumed in 
full and all prior liens paid in full.
    (5) Upon completion of the transfer there must be no liens, 
judgments, or other claims against the security being transferred other 
than those by FmHA or its successor agency under Public Law 103-354 and 
those authorized liens to which FmHA or its successor agency under 
Public Law 103-354 has previously agreed, unless prior written approval 
is obtained from the National Office.
    (6) When the loan(s) is secured by both chattel and real estate, all 
chattel security must be transferred, sold, or liquidated by the time of 
closing the transfer of the real estate.
    (7) The transferee must complete and submit Form HUD 935.2, 
``Affirmative Fair Housing Marketing Plan,'' for the State Director's 
approval as required by Sec. 1901.203 of subpart E of part 1901 of this 
chapter.
    (8) When the spouse of a deceased individual borrower is not 
currently liable for the indebtedness, a transfer and assumption to the 
spouse can be accomplished through use of Form FmHA or its successor 
agency under Public Law 103-354 1965-9, ``Multiple Family Housing 
Assumption Agreement and Form FmHA or its successor agency under Public 
Law 103-354 1965-10, `Information on Assumption of Multiple Family 
Housing Loans,'' on the same rates and terms if the account is current 
or new rates and terms if the account is not current. If the spouse is 
determined to be an eligible applicant according to applicable 
provisions of the respective loan program and this Subpart, the approval 
official may

[[Page 415]]

waive the submission by the assuming spouse of any form or material not 
required by OGC to complete the assumption, if the present forms and 
materials in the current casefile are otherwise acceptable.
    (9) The transfer must be completed with the advice and closing 
instructions of the OGC.
    (10) The rents to the tenants can be increased only if the 
provisions of paragraph XI of exhibit B to subpart C of part 1930 of 
this chapter are met.
    (11) The transferee will be required to submit reports according to 
Sec. 1930.122 of subpart C of part 1930 of this chapter.
    (12) Forms FmHA or its successor agency under Public Law 103-354 
1944-50, ``Multiple Family Housing Borrower/Project Characteristics'' 
and 1944-51, ``Multiple Family Housing Obligation--Fund Analysis'' must 
be processed in accordance with their respective FMIs for all 
transferees to update the accounting system.
    (c) Transfers to eligible applicants. Transfers of security with an 
assumption of FmHA or its successor agency under Public Law 103-354 
debts by transferees who are eligible applicants for the type of loan 
being assumed may be approved subject to the general conditions 
contained in paragraph (b) of this section and the following:
    (1) All transfers to eligible borrowers will subject the borrower to 
the appropriate restrictive-use provisions contained in exhibits A-1 or 
A-2 of subpart E of this part.
    (2) All necessary repairs to assure that the housing will be decent, 
safe and sanitary should be made prior to the transfer whenever 
possible. When repairs cannot be completed prior to closing, the 
necessary funds will be escrowed and the repairs will be identified, 
agreed upon prior to closing and documented as specified in Sec. 1924.5 
of subpart A of part 1924 of this chapter. Also, any improvements 
required by FmHA or its successor agency under Public Law 103-354 to 
meet the accessibility requirements of section 15b.41 of subpart F of 
part 15b of subtitle A (see Sec. 1944.215(b)(6) of subpart E of part 
1944 of this chapter) should be considered part of any substantial 
rehabilitation work undertaken as part of the transfer. All repairs will 
be in accordance with the provisions of subpart A of part 1924 of this 
chapter. Funds for such improvements or repairs will be from sources in 
the following priority: Transferor's equity payment; contributions by 
the transferee; reserve account being transferred provided the amount 
remaining in the reserve account will be adequate to meet the repairs 
and expenses in the immediate or near future; if loan funds are 
available, from the use of an RRH or LH loan when appropriate.
    (3) For rental and RCH (as applicable) projects, the transferor's 
project operating accounts, reserve account, any tenant security 
deposits, any balance remaining in the transferor's supervised bank 
account which are needed to complete project development, and any 
equipment purchased with project funds will be transferred to the 
transferee. Any funds remaining in an RA contract not disbursed by the 
transferor will be assigned to the transferee, unless RA is not needed 
for current eligible residents or another form of subsidy is to be used. 
Any RA determined to not be needed will be reassigned in accordance with 
the provisions of paragraph XV of exhibit E to subpart C of part 1930 of 
this chapter.
    Funds in the reserve account should be at the scheduled level and 
transferred to the transferee at the time of transfer. If an equity loan 
is to be made by FmHA or its successor agency under Public Law 103-354, 
reserve and other accounts must be at the scheduled level at the time of 
transfer.
    (4) Any excess development funds held in a supervised bank account 
must be refunded to the respective loan account upon receipt of the 
transfer request.
    (5) A loan and/or grant may be made to the transferee in connection 
with a transfer subject to the policies and procedures governing the 
kind of loan and/or grant being made. Loan and/or grant funds may not be 
used, however, to pay equity to a transferor unless authorized in 
accordance with subpart E of this part to avert prepayment.
    (6) The transferees must prepare operating budgets, as required by 
the appropriate program regulations governing the kind of loan being 
transferred, covering the first partial year and the

[[Page 416]]

next full year's operation. The budgets must be realistic and reflect 
sufficient funds to pay operation and maintenance expenses, fund any 
required reserve, and keep the FmHA or its successor agency under Public 
Law 103-354 account(s) current. The charges for the use of the facility 
or services must be within the payment ability of those it is intended 
to serve. A current utility allowance must also be prepared when 
required by program regulations.
    (7) For transfers of RRH and RCH loan accounts, current executed 
tenant and former member certifications using Form FmHA or its successor 
agency under Public Law 103-354 1944-8, ``Tenant Certification,'' or a 
HUD approved form of ``Certification or Recertification of Tenant 
Eligibility'' for any tenants receiving Section 8 subsidy, must be on 
file with FmHA or its successor agency under Public Law 103-354 or 
provided for each tenant, as required by Exhibit B to subpart C of part 
1930 of this chapter, evidencing that the units are or will be occupied 
by tenants meeting the FmHA or its successor agency under Public Law 
103-354 eligibility requirements when the transfer is closed.
    (8) For transfers of RRH and LH loan accounts, all leases should 
also be assigned to the transferee no later than the date of closing.
    (9) The proper type of loan agreement or loan resolution for the 
type of transferee involved must be in effect and secured in the 
mortgage or deed of trust at the time of transfer. If changes are needed 
in the exisiting loan agreement or loan resolution to accomplish this, 
amendments must be made to the existing loan agreement or resolution 
secured by the mortgage on the security property with the advice of the 
transferee's attorney and approval of OGC or by any other method 
acceptable to OGC. If the RRH transferee wishes to convert to the loan 
agreement/resolution format of Form 1944-33, ``Loan Agreement''; 1944-
34, ``Loan Agreement''; or 1944-35, ``Loan Resolution'', as appropriate, 
the transferee may accomplish this by amending the existing loan 
agreement/resolution with the advice of transferee's attorney and 
concurred in by OGC.
    (10) When the transfer is NOT being made in connection with a 
request for prepayment of the FmHA or its successor agency under Public 
Law 103-354 loan, a limited profit RRH transferee's initial investment 
and rate of return in the project will remain the same as that 
originally provided to the transferor. However, if a loan to a nonprofit 
or profit type borrower is being transferred to a limited profit type 
transferee, the initial investment to be shown in the loan resolution or 
agreement will be ``None'' unless an exception is made by the State 
Director. (The State Director's authority to establish initial 
investment will not be delegated to other State Office staff.) Any 
initial investment established by the State Director should not exceed 
the amount shown in the transferor's loan agreement/resolution with a 
rate of return which will not exceed the rate set forth in 
Sec. 1944.215(n) of subpart E of part 1944 of this chapter when the 
transfer is approved. An exception will be considered when the following 
conditions are met and fully documented in the casefile:
    (i) The transferee contributes funds for repairs or authorized 
improvements beyond those which would have been paid from the 
transferor's equity as indicated in paragraph (c)(2) of this section, or
    (ii) The transferee contributed sufficient cash to reduce the loan 
principal being assumed to no more than 95% (97% for loan agreements 
dated on or after March 11, 1988) of the original development cost 
(unless an exception is made in writing by the National Office), or
    (iii) The transferee's total contributions for the repairs and debt 
reduction identified in paragraphs (c)(9) (i) and (ii) of this section, 
exceed 5% (3% for loans approved on or after March 11, 1988) of the 
purchase price, or
    (iv) The transfer is referred to the National Office with the 
appropriate recommendations and a request to establish an initial 
investment for the transferee for those cases in which the State 
Director requests advice and assistance.
    (11) When the transfer is being made to avert prepayment of the FmHA 
or its successor agency under Public Law

[[Page 417]]

103-354 loan, the recognized equity and/or rate of return may be 
increased in connection with an incentive offer made under the 
provisions of subpart E of this part.
    (12) If the transfer involves an RRH or RCH loan using interest 
credit with a Form FmHA or its successor agency under Public Law 103-354 
1944-7, ``Multiple Family Housing Interest Credit and Rental Assistance 
Agreement,'' in effect, the transferee may also receive interest credit 
by executing a new Form FmHA or its successor agency under Public Law 
103-354 1944-7 effective the date of transfer. RRH and RCH loans will 
not be converted from a subsidized (interest credit) basis to a 
nonsubsidized (full profit) basis as part of the transfer process. If 
the transfer is to be made on a nonprofit or limited profit basis, the 
transferee may receive interest credit if the loan is eligible for 
interest credit according to exhibit H to subpart C of part 1930 of this 
chapter. A new Form FmHA or its successor agency under Public Law 103-
354 1944-7 will be executed by the transferee, attached to Form FmHA or 
its successor agency under Public Law 103-354 1965-10, ``Information on 
Assumption of Multiple Family Housing Loans,'' and a copy of Form FmHA 
or its successor agency under Public Law 103-354 1944-50, and forwarded 
to the Finance Office, MFH Unit, when the transfer is closed. The 
borrower project data on Form FmHA or its successor agency under Public 
Law 103-354 1944-50 should have been established when the transfer was 
approved.
    (13) A transferee may participate in the RA program if the 
transferor's project is an eligible project and the transferee is an 
eligible borrower according to exhibit E to subpart C of part 1930 of 
this chapter. If the transferor participates in the RA programs, the 
transferee may assume the remaining portion of the transferor's RA 
agreement when the transferee is eligible. When the transferee is 
assuming the transferor's RA agreement, Form FmHA or its successor 
agency under Public Law 103-354 1944-55, ``Multiple Family Housing 
Transfer of Rental Assistance,'' will be executed and attached to the 
new or existing Form FmHA or its successor agency under Public Law 103-
354 1944-27. A copy of Form FmHA or its successor agency under Public 
Law 103-354 1944-55 and a copy of Form FmHA or its successor agency 
under Public Law 103-354 1944-50 will be attached to Form FmHA or its 
successor agency under Public Law 103-354 1965-10 and forwarded to the 
Finance Office. If the transferee will not be assuming an existing RA 
agreement, the agreement will be suspended by memorandum to the Finance 
Office. Subsequently, the State Director must transfer the suspended RA 
unit(s) to another project(s), using Form FmHA or its successor agency 
under Public Law 103-354 1944-55, in accordance with exhibit E of 
subpart C of part 1930 of this chapter.
    (14) If a project operates under the HUD Section 8 program, the 
Housing Assistance Payment (HAP) contract must also be assigned to the 
transferee with prior approval from HUD. This approval must be obtained 
so that the assignment of the HAP contract occurs no later than the 
closing of the transfer.
    (15) The transferee must thoroughly understand all loan requirements 
including the tenant eligibility, management, reserve account, audit, 
and reporting requirements of applicable FmHA or its successor agency 
under Public Law 103-354 regulations; and the loan agreement or loan 
resolution and the content of the signed Form FmHA or its successor 
agency under Public Law 103-354 400-4, ``Assurance Agreement.'' Before 
the transfer is closed the District Director shall carefully review with 
the transferee subpart L of part 1944 of this chapter, subpart C of part 
1930 of this chapter, the applicable loan program regulations, and the 
loan agreement or resolution with the transferee.
    (16) Release of liability will be considered according to the 
following:
    (i) When all FmHA or its successor agency under Public Law 103-354 
security is transferred and the total outstanding debt is assumed, the 
transferor will be released from liability.
    (ii) In those cases where the value of the security transferred and 
debt assumed is less than the full amount of the FmHA or its successor 
agency under Public Law 103-354 debt, the

[[Page 418]]

transferor may be released from liability if the State Director 
determines that the transferor has no reasonable debt-paying ability 
considering assets and income at the time of the transfer, and certifies 
that the transferor has cooperated in good faith, has used due diligence 
to maintain the security property against loss, and has otherwise 
fulfilled the covenants incident to the loan to the best of the 
borrower's ability. The approval official must execute a memorandum 
containing the following statement for inclusion in the official case 
file.

    (Transferor's name), in our opinion, does not have reasonable debt-
paying ability to pay the balance of the debt not assumed after 
considering its assets and income at the time of the transfer. 
Transferors have cooperated in good faith, used due diligence to 
maintain the security against loss, and otherwise fulfilled the 
covenants incident to the loan to the best of its ability. Therefore, we 
recommend that the transferor be released of personal liability upon the 
transferee's assumption of that portion of the indebtedness equal to the 
present market value of the security property.


    (d) Transfers to ineligible applicants. The transfer of an FmHA or 
its successor agency under Public Law 103-354 loan account to a 
transferee who is an ineligible applicant for the type of loan involved 
will be considered only when the transfer is needed as a method for 
servicing a problem case in which the objectives of the original loan 
cannot be realized and an eligible transferee is not available. 
Transfers will not be considered when they basically serve as a method 
or provide a means by which members of a borrower-organization can 
obtain an equity payment, or when they serve basically as a method of 
providing a source of credit for purchasers. The State Director is 
authorized to approve transfers to ineligible applicants, subject to the 
general conditions of paragraph (b) of this section and the following:
    (1) Ineligible applicants can only be approved when a downpayment is 
made equivalent to a minimum of 10 percent of the remaining loan balance 
to be assumed. Each ineligible transferee will be encouraged to make as 
large a downpayment on the FmHA or its successor agency under Public Law 
103-354 secured indebtedness as the transferee is financially able.
    (2) The transferee must have the ability to pay the FmHA or its 
successor agency under Public Law 103-354 debt(s) according to the 
assumption agreement and must possess the legal capacity to enter into 
the contractual agreement.
    (3) The balance of the FmHA or its successor agency under Public Law 
103-354 indebtedness assumed must be scheduled for repayment in 2 years 
or less for RHS accounts, and usually 10 years or less for other types 
of multiple family loan accounts. If longer terms are needed for LH, 
RRH, or RCH projects with multiple unit structures, the State Director 
may authorize longer terms up to 20 years. (Single Family type 
structures may be sold on terms for 15 years or less.) Amortized monthly 
or annual installments will be charged with interest to the transferee 
at the rate currently applicable to above-moderate RH loans, including 
insurance charges, or at the rate of interest specified in the note(s) 
being assumed, whichever is greater. Form FmHA or its successor agency 
under Public Law 103-354 1965-9 will be executed by the transferee.
    (4) The State Director may release the transferor from liability 
under the same provisions as stated in paragraph (c)(14) of this section 
only when all of the real estate security for a loan is transferred, the 
total outstanding indebtedness or that portion of the debt equal to the 
present market value of the security is scheduled for repayment in five 
years or less from the date of the assumption agreement.
    (5) When an ineligible transferee assumes an FmHA or its successor 
agency under Public Law 103-354 loan where the present borrower has 
personal liability and it is scheduled for repayment in more than 5 
years from the date of the assumption agreement, the transferor must 
acknowledge their continued liability for the debt by signing an 
agreement as follows:

            Continued Liability Agreement of Present Debtors

    The undersigned hereby acknowledges the continued personal liability 
for the indebtedness owed to the FmHA or its successor agency under 
Public Law 103-354 and assured

[[Page 419]]

by ____________ (assuming parties) under assumption agreement dated 
____________.


 _______________________________________________________________________
________________________________________________________________________
________________________________________________________________________

________________________________________________________________________

Date

    (The original of the signed agreement will be attached to the 
original assumption agreement, a copy filed in the transferee's District 
Office case folder, and a copy provided the transferor.)

    (6) Transfers to ineligible applicants of loans made on or after 
December 21, 1979, will not be authorized without the prior consent and 
authorization of the National Office. Authorization must be requested in 
writing and include all the information required in paragraph (e) of 
this section.
    (7) Transfers to ineligible applicants of projects subject to 
restrictive-use provisions will continue to retain the applicable 
restrictive-use provisions and cause the project to be operated in 
conformance with FmHA or its successor agency under Public Law 103-354 
instructions. If it is determined by FmHA or its successor agency under 
Public Law 103-354 that the housing is no longer needed to house 
eligible tenants in accordance with the provisions of subpart E of this 
part, the restrictive-use provisions may be released.
    (8) Those loans which are transferred to ineligible applicants will 
be classified as Nonprogram Property (NP) and serviced according to this 
subpart to the extent possible. Those cases which cannot be serviced 
according to this subpart will be forwarded to the National Office for 
advice and guidance.
    (e) Submission to National Office. In those cases where the proposed 
transfer cannot be made in compliance with paragraphs (a) and (b) or (c) 
of this section, the State Director may submit the entire proposal, 
complete with all the case files, the State Director's specific 
recommendations and justifications to the National Office for review, 
consideration, and any special instructions for handling the account(s). 
The State Director must have determined prior to submission however, 
that it is in the best interest of the FmHA or its successor agency 
under Public Law 103-354 to permit the transfer before submitting the 
proposal for consideration. All transfers where the total indebtedness 
(principal and interest) exceed the State Director's approval authority 
must be submitted to the National Office for prior review and 
authorization to approve the transfer request.
    (f) Processing transfers. (1) Form FmHA or its successor agency 
under Public Law 103-354 465-5, ``Transfer of Real Estate Security,'' 
must be completed to reflect the agreement between the transferor and 
transferee. The form will be prepared to show all agreements involved 
such as the proration of taxes and insurance, title, legal and filing 
fees, equity and method of payment, charges to the loan account other 
than principal and interest, future dated payments presently credited to 
the account, assignment of project accounts and leases, and other 
appropriate items. Additional information may also be attached to this 
form when necessary to fully describe the proposed transaction. The 
transfer will become effective the data Form FmHA or its successor 
agency under Public Law 103-354 1965-9 is executed.
    (2) Form FmHA or its successor agency under Public Law 103-354 1965-
9 will be executed according to the FMI. The unpaid principal balance 
and accrued interest to be shown on Form FmHA or its successor agency 
under Public Law 103-354 1965-9 and 1965-10 will be determined by 
accessing the project account record via field terminal. When this is 
not possible, the unpaid principal balance, accrued interest, and any 
other charges will be computed from Form FmHA or its successor agency 
under Public Law 103-354 1951-53, ``Multiple Family Housing Transaction 
Record'' or Form FmHA or its successor agency under Public Law 103-354 
451-11, ``Statement of Account.'' The transferee will be advised of the 
total amount paid as of the closing date which has not been credited to 
the account, the payment required to place the account on schedule as of 
the previous installment due date and, any payments required to bring 
any monthly or annual payments current, and the

[[Page 420]]

amount needed to bring the reserve account current less any authorized 
withdrawals. If the loan account or the reserve account cannot be 
brought current, or less than the total debt is assumed, the transfer 
will be closed on new terms and the interest rate charged by FmHA or its 
successor agency under Public Law 103-354 will be the current rate being 
charged for those loans at the time of loan closing, or the interest 
rate at the time of approval (the date Form FmHA or its successor agency 
under Public Law 103-354 1944-51 is approved), whichever is less.
    (3) When the property transferred will continue to be used for the 
same or a similar purpose for which Federal financial assistance was 
extended, the transferee must sign Form FmHA or its successor agency 
under Public Law 103-354 400-4.
    (4) An appraisal will be required for each transfer, except those 
completed on a same terms basis for which the State Director is 
satisfied that the security is adequate. (An appraisal will always be 
required for transfers on new terms.) An FmHA or its successor agency 
under Public Law 103-354 designated MFH appraiser will be responsible 
for preparing an appraisal report within 30 days of the District 
Director's receipt of the completed application when the total 
indebtedness will not be assumed, or the State Director may accept an 
independent appraisal provided by the transferor or transferee under the 
conditions later specified in this paragraph when the total debt is 
being assumed and the FmHA or its successor agency under Public Law 103-
354 designated MFH appraiser is unable to complete an appraisal within 
30 days of the District Office's receipt of the completed application. 
If the last appraisal is less than 1 year old and the transfer is within 
the State Director's authority, the FmHA or its successor agency under 
Public Law 103-354 designated appraiser may supplement the present 
appraisal report, in lieu of preparing a new appraisal by attaching 
information on the present market value. A new appraisal will be 
prepared according to the requirements of FmHA or its successor agency 
under Public Law 103-354 Instruction 1922-B (available in any FmHA or 
its successor agency under Public Law 103-354 office) when the current 
appraisal is over 1 year old, or when the State Director determines a 
new appraisal report is needed. An independent appraisal may NOT be 
accepted from the transferor or transferee for the initial appraisal 
required of FmHA or its successor agency under Public Law 103-354 under 
provisions of subpart E of this part. The conditions under which the 
State Director may accept an independent appraisal from the transferor 
or transferee in lieu of an FmHA or its successor agency under Public 
Law 103-354 prepared appraisal are:
    (i) The expense of the appraisal will be paid by the transferee or 
transferor without obligation to FmHA or its successor agency under 
Public Law 103-354,
    (ii) The appraisal will be prepared by an accredited Senior Real 
Property Appraiser (SRPA), Senior Real Estate Analyst (SREA) or Member, 
Appraisal Institute (MAI) real estate appraiser. The State Appraiser/
Trainer may accept an appraisal report from other than an accredited 
SPRA, SREA or MAI appraiser if he or she determines that:
    (A) There are no accredited appraisers within a reasonable distance 
from the project location, and
    (B) The individual preparing the appraisal has satisfactorily 
completed a minimum of 80 hours of accredited appraisal courses.
    (iii) The appraisal report form will be Form FmHA or its successor 
agency under Public Law 103-354 1922-7, ``Appraisal Report for Multi-
Unit Housing,'' or the Federal Home Loan Mortgage Corporation form, 
FHLMC Form 71A, and it will include adequate documentation to support 
the appraised value and the qualifications of the appraiser.
    (iv) The total FmHA or its successor agency under Public Law 103-354 
debt will be assumed by the transferee.
    (v) A review of the appraisal will be made by the State Appraiser/
Trainer according to FmHA or its successor agency under Public Law 103-
354 Instruction 1922-B (available in any FmHA or its successor agency 
under Public Law 103-354 office) using Form FmHA or its successor agency 
under

[[Page 421]]

Public Law 103-354 1922-13, ``Reviewer's Appraisal Analysis.''
    (vi) The appraised value of the property is sufficient to secure the 
existing FmHA or its successor agency under Public Law 103-354 debt, 
planned subsequent FmHA or its successor agency under Public Law 103-354 
loan(s), and any authorized junior liens.
    (5) Form FmHA or its successor agency under Public Law 103-354 1965-
9 will be executed according to the FMI when the full debt will be 
assumed at the same rate and terms. The loan account(s) must be current 
at the time of the transfer and the reserve account on schedule, less 
any authorized withdrawals, if the transfer is to be at the same rate 
and terms.
    (6) Form FmHA or its successor agency under Public Law 103-354 1965-
9 will be executed according to the FMI when an account cannot be 
brought current at the time of transfer or less than the full debt is 
assumed. The loan repayment period may be extended to the maximum term 
authorized by the appropriate loan program, considering the value and 
economic life of the security. Transfers on new terms are also subject 
to the following conditions:
    (i) The interest rate charged for all loans, except LH loans, will 
be the current rate being charged for those loans at the time of loan 
closing, or the interest rate at the time of approval (the date Form 
FmHA or its successor agency under Public Law 103-354 1944-51 is 
approved), whichever is less. The interest rate of LH loans will be the 
rate specified in the note, except that loans transferred to public 
bodies, nonprofit organizations of farmworkers, and broadly-based 
nonprofit corporations for LH purposes may be at a one percent interest 
rate regardless of the rate specified in the note if the State Director 
determines that the reduction is necessary in order to maintain rental 
rates at a level affordable to the tenants. If the State Director 
determines that the transfer at one percent is necessary for other types 
of LH transferees, the case should be submitted to the National Office, 
with the State Director's recommendations and justifications for 
consideration.
    (ii) Loans for RRH and RCH projects which are amortized on an annual 
payment basis and transferred through the use of Form FmHA or its 
successor agency under Public Law 103-354 1965-9 shall be converted to a 
monthly payment amortization and are subject to PASS.
    (iii) LH loans may continue to be transferred on a DIAS basis or may 
be converted to PASS when the approval official determines such a 
conversion will not be detrimental to the successful operation of the 
project.
    (7) The following paragraph is to be inserted in Form FmHA or its 
successor agency under Public Law 103-354 1965-9 whenever the full 
amount of equity has not been paid in cash or through an equity loan 
made by FmHA or its successor agency under Public Law 103-354 to avert 
prepayment:

    The assuming party covenants and agrees that irrespective of any 
other agreement to the contrary, (a) no present or future lien(s) have 
or will be attached to the partnership property encumbered by FmHA or 
its successor agency under Public Law 103-354 or the income therefrom, 
(b) the equity payable to the seller will be provided from outside 
sources or from any authorized return on investment and not from a 
planned sale of the project, (c) the right of FmHA or its successor 
agency under Public Law 103-354 to approve or disapprove the 
substitution of partners in a general or limited partnership transferee 
organization (this phrase may be stricken when the transferee is an 
individual) has not and will not be superseded by any agreement between 
the purchaser and seller that implies prior consent by FmHA or its 
successor agency under Public Law 103-354 on partner changes in the case 
of default, (d) the seller does not and will not have a reversionary 
interest in the FmHA or its successor agency under Public Law 103-354 
encumbered property, and (e) the requirements of Sec. 1965.65 of FmHA or 
its successor agency under Public Law 103-354 Instruction 1965-B (7 CFR 
part 1965) have been met.

    (8) All RRH, RCH, and LH loans, including those approved prior to 
December 21, 1979, which are transferred to eligible applicants will 
become subject to the restrictive-use provisions of section 502(c) of 
title V, Housing Act of 1949, as amended. The restrictive-use language 
set forth in the appropriate exhibits A-1 or A-2 in accordance with 
Secs. 1965.214(g) and 1965.216(c)(3) of subpart E of this part must be 
added, with the advice of OGC, to the assumption agreement, security 
instruments, and

[[Page 422]]

loan agreement/resolution. The restrictive-use period will begin on the 
date the transfer and assumption is closed.
    (9) When the transfer docket forms are completed, the approval 
official must determine that:
    (i) The proposed transfer conforms to the applicable procedural 
requirements and that determinations of hardship status, eligibility, 
etc., are clearly documented in the casefile.
    (ii) Each form is prepared correctly according to the FMI or other 
appropriate regulations, and
    (iii) Items such as names, addresses, and the amount of the 
indebtedness to be assumed are the same on all forms in which those 
items appear.
    (10) The District Director will record in the Running Case Record or 
in memo form, the pertinent information concerning the negotiations made 
between an eligible transferee, FmHA or its successor agency under 
Public Law 103-354 personnel, the applicant's creditors, and other 
lenders concerning the availability of other credit. The investigation 
on the availability of other credit for eligible transferees will be 
documented in the case file as required for the kind of loan being 
assumed. Any letters from lenders or other evidence which may have been 
obtained indicating that the applicant is unable to obtain credit 
elsewhere on rates and terms that would not cause rental rates to be in 
excess of what low and moderate income tenants could afford will be 
included in the docket.
    (11) A compliance review should be conducted as required by subpart 
E of part 1901 of this chapter, if a current one has not recently been 
completed.
    (12) The District Director will forward the transferee's application 
docket and the official case file, with any comments and recommendations 
to the State Office. The following table will be used as a guide in 
distributing the necessary forms for a transfer docket:

[[Page 423]]



                                                                                                                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Total                                                                                       
            Form No.                 Name of form or      number of         Signed by borrower            Number for loan docket       Copy for borrower
                                        document            copies                                                                                      
--------------------------------------------------------------------------------------------------------------------------------------------------------
*SF 424.2......................  Application for                   3  1.............................  2-O&1C........................  1-O.              
                                  Federal Assistance                                                                                                    
                                  (For Construction).                                                                                                   
*HUD Form 2530/FmHA or its       Previous Participation            2  1.............................  2-O&1C........................  1-C.              
 successor agency under Public    Certification.                                                                                                        
 Law 103-354.                                                                                                                                           
1944-37........................  *Information to be                2  0.............................  1-O...........................  1-C.              
                                  Submitted with                                                                                                        
                                  Preapplication for                                                                                                    
                                  Loan as required by                                                                                                   
                                  program regulations                                                                                                   
                                  specifically related                                                                                                  
                                  to applicant                                                                                                          
                                  eligibility.                                                                                                          
                                 *Letter of Application            2  1.............................  1-O...........................  ..................
                                  with applicable                                                                                                       
                                  attachments as                                                                                                        
                                  required in Subpart G                                                                                                 
                                  of Part 1822 of this                                                                                                  
                                  chapter or of Subpart                                                                                                 
                                  D or E of Part 1944                                                                                                   
                                  of this chapter.                                                                                                      
                                 **Evidence of Legal               2  1.............................  1-O...........................  1-C.              
                                  Authority (Copies of                                                                                                  
                                  citation of specific                                                                                                  
                                  provisions of State                                                                                                   
                                  Constitution,                                                                                                         
                                  statutory authority,                                                                                                  
                                  etc.).                                                                                                                
                                 **Proof of                        2  1.............................  1-O...........................  1-C.              
                                  Organization                                                                                                          
                                  (certified copy of                                                                                                    
                                  Charter, Articles of                                                                                                  
                                  Incorporation, or                                                                                                     
                                  Certificate of                                                                                                        
                                  Limited Partnership,                                                                                                  
                                  etc.).                                                                                                                
                                 **Certified copies of             2  1.............................  1-O...........................  1-C.              
                                  bylaws, partnership                                                                                                   
                                  agreement, or                                                                                                         
                                  regulations.                                                                                                          
                                 **List of names,                  2  1.............................  1-O...........................  1-C.              
                                  addresses and social                                                                                                  
                                  security or Tax                                                                                                       
                                  Identification                                                                                                        
                                  Numbers of officers,                                                                                                  
                                  directors, and                                                                                                        
                                  members, and                                                                                                          
                                  ownership interest                                                                                                    
                                  held by each.                                                                                                         
                                 A current financial               2  1.............................  1-O...........................  1-C.              
                                  statement from the                                                                                                    
                                  transferee, and                                                                                                       
                                  others, as required                                                                                                   
                                  by appropriate                                                                                                        
                                  program regulations.                                                                                                  
                                 *Credit Report(s).....  ...........  ..............................  ..............................  ..................
FmHA or its successor agency     Transfer of Real                  3  1-O...........................  1-O...........................  1-C.              
 under Public Law 103-354 465-5.  Estate Security\2\.                                                                                                   
*FmHA or its successor agency    Statement of Budget               2  2-O&1C........................  1-O...........................  1-C.              
 under Public Law 103-354 1930-   and Cash Flow                                                                                                         
 7.                               (Excluding                                                                                                            
                                  Depreciation)                                                                                                         
                                  (Operating Budget--                                                                                                   
                                  first year)                                                                                                           
                                  (Operating Budget--                                                                                                   
                                  typical year).                                                                                                        
*Exhibit A-6 to Instruction      Housing Allowances for            3  2-O&1C........................  1-O...........................  1-C.              
 1944-E.                          utilities and Other                                                                                                   
                                  Public Services.                                                                                                      
HUD 935.2......................  Affirmative Fair                  2  2-O&1C........................  1-O...........................  1-C.              
                                  Housing Marketing                                                                                                     
                                  Plan.                                                                                                                 
*FmHA or its successor agency    Equal Opportunity                 2  2-O&1C........................  1-O...........................  1-C.              
 under Public Law 103-354 400-1.  Agreement.                                                                                                            
*FmHA or its successor agency    Assurance Agreement...            2  2-O&1C........................  2-O&C.........................  1-C.              
 under Public Law 103-354 400-4.                                                                                                                        
FmHA or its successor agency     Multiple Family                   3  ..............................  1.............................  ..................
 under Public Law 103-354 1944-   Housing Borrower/                                                                                                     
 50.                              Project                                                                                                               
                                  Characteristics.                                                                                                      

[[Page 424]]

                                                                                                                                                        
FmHA or its successor agency     Multiple Family                   3  2-O&1C........................  1-O...........................  1-C.              
 under Public Law 103-354 1944-   Housing Obligation/                                                                                                   
 51.                              Fund Analysis.                                                                                                        
FmHA or its successor agency     Transaction Record                1  ..............................  1.............................  ..................
 under Public Law 103-354 451-    (most recent).                                                                                                        
 26.                                                                                                                                                    
*FmHA or its successor agency    Request for Statement             2  ..............................  2-O&C.........................  ..................
 under Public Law 103-354 451-    of Account.                                                                                                           
 10.                                                                                                                                                    
*FmHA or its successor agency    Statement of Account..            1  ..............................  1.............................  ..................
 under Public Law 103-354 451-                                                                                                                          
 11.                                                                                                                                                    
*FmHA or its successor agency    Status of Account.....            1  ..............................  1.............................  ..................
 under Public Law 103-354 451-                                                                                                                          
 25.                                                                                                                                                    
*FmHA or its successor agency    Appraisal Report for              1  ..............................  1-O...........................  ..................
 under Public Law 103-354 1922-   Multi-Unit Housing                                                                                                    
 7.                               (see paragraph (f)(4)                                                                                                 
                                  of this section.                                                                                                      
*FmHA or its successor agency    Reviewer's Appraisal    ...........  ..............................  ..............................  ..................
 under Public Law 103-354 1922-   Analysis.                                                                                                             
 13.                                                                                                                                                    
*FmHA or its successor agency    Uniform Residential               1  ..............................  1-0...........................  ..................
 under Public Law 103-354 1922-   Appraisal Report.                                                                                                     
 8.                                                                                                                                                     
*FmHA or its successor agency    Valuation of Buildings            1  ..............................  1-O...........................  ..................
 under Public Law 103-354 426-1.                                                                                                                        
*FmHA or its successor agency    Development Plan......            2  1-O...........................  2-O&C.........................  1-C.              
 under Public Law 103-354 424-1.                                                                                                                        
*FmHA or its successor agency    Multiple Family                   4  1-O...........................  1-O...........................  1-O.              
 under Public Law 103-354 1965-   Housing Assumption                                                                                                    
 9.                               Agreement.                                                                                                            
*FmHA or its successor agency    Information on                    2  1.............................  1-O...........................  .                 
 under Public Law 103-354 1965-   Assumption of                                                                                                         
 10.                              Multiple Family                                                                                                       
                                  Housing Loans.                                                                                                        
*FmHA or its successor agency    Multiple Family                   2  ..............................  1-C...........................  1-C.              
 under Public Law 103-354 1965-   Housing Release from                                                                                                  
 18.                              Personal Liability.                                                                                                   
*FmHA or its successor agency    Supplementary Payment             3  1-O...........................  2-O&C.........................  1-C.              
 under Public Law 103-354 440-9.  Agreement  \1\.                                                                                                       
*FmHA or its successor agency    Interest Credit and               3  1-O...........................  1-O...........................  1-C.              
 under Public Law 103-354 1944-   Rental Assistance                                                                                                     
 7.                               Agreement (RRH and                                                                                                    
                                  RCH loans).\1\                                                                                                        

[[Page 425]]

                                                                                                                                                        
*FmHA or its successor agency    Rental Assistance                 2  1-O...........................  1-O...........................  1-C.              
 under Public Law 103-354 1944-   Agreement.                                                                                                            
 27.                                                                                                                                                    
                                 *Loan Agreement.......            2  1-O...........................  1-O...........................  1-C.              
--------------------------------------------------------------------------------------------------------------------------------------------------------
O--Original; C--Copy.                                                                                                                                   
*--When applicable.                                                                                                                                     
**--When applicable is an organization.                                                                                                                 
                                                                                                                                                        
\1\--The original Form will not be executed until date of closing the transfer.                                                                         
\2\--When requested, prepare an additional copy for delivery to transferor.                                                                             
\3\--Applicant must sign and date this form unless a similar certification is obtained on the application form. For ineligible transferees, delete the  
  first sentence referring to other credit in item 42 of the form. The applicant must initial each deletion.                                            

[[Page 426]]

                                                                                                                                                        


Other transfer docket items may include a mortgagee title policy, title 
evidence or report of lien search, foreclosure notice agreement, 
original or certified copy of deed to any property, purchase contract or 
other instrument of ownership, assignment of HUD Section 8 Housing 
Assistance Payments contract, and information on prior or junior 
mortgage(s). When less than the total amount of the indebtedness is 
assumed, the transferor's financial statement will be included. When an 
initial or subsequent loan is involved, include any additional forms 
required by the appropriate loan making instruction. (Subsequent loans 
will not be made to pay equity unless authorized in accordance with 
subpart E of this part to avert prepayment.)
    (13) The following additional information is required for an equity 
loan to a nonprofit organization in conjunction with the transfer:
    (i) Identity of Interest statement between transferor and 
transferee,
    (ii) Statement of experience of organization and all principals,
    (iii) Management Plan and Agreement in accordance with exhibit B of 
subpart C of part 1930 of this chapter,
    (iv) Proposed Application for Occupancy, Lease, and Occupancy Rules 
and Regulations in accordance with exhibit B of subpart C of part 1930 
of this chapter.
    (v) Option or purchase agreement,
    (vi) Proposed budget showing anticipated rents with updated figures 
on required reserve contributions,
    (vii) Data on current tenants' incomes, rents and RA, and incomes of 
those on the waiting list to show amount of RA which will be needed for 
current tenants and other eligible occupants based on the proposed 
budget.
    (viii) If rehabilitation will be undertaken at the time of the loan, 
plans and specifications and method of construction must be outlined,
    (ix) A breakdown of packaging and administration costs to be paid 
with any advance to nonprofit organizations or public agencies 
purchasing a project to avert prepayment, if an advance has not 
previously been applied for.
    (x) If needed, a request for initial operating funds and a detailed 
breakdown of expenses anticipated to be paid from the funds, and
    (xi) District Office comments and recommendations and the State 
Office evaluation.
    (14) If the transfer is within the State Director's loan approval 
authority, the docket will be forwarded to OGC for review and necessary 
closing instructions. If the transfer is not within the State Director's 
loan approval authority, or all planned development is not complete; the 
complete transfer docket, borrower case file, OGC comments, and complete 
comments and recommendations of both the District and State Director 
will be forwarded to the National Office for review and approval 
authorization.
    (15) During the period that a transfer is pending in the District 
Office, payments received by the Finance Office will continue to be 
applied to the transferor's account. Those payments include any 
downpayments made in connection with the transfer for reducing the 
amount of the debt to be assumed. Any payment on the account not 
included in the latest transaction record will be deducted from the 
total amount of principal and interest calculated from the latest 
information available before the assumption agreement is completed and 
signed.
    (i) Identification. Payments received on the date of transfer will 
be remitted as Regular payments on Form FmHA or its successor agency 
under Public Law 103-354 1951-55 ``Collection Log.'' The payments will 
be credited to the transferor's borrower and project number when the 
payment should be credited prior to the transfer. The payments will be 
credited to the transferee's borrower and project number when the 
payment should be credited after the transfer.
    (ii) Payment. When a payment is due on the assumption agreement 
shortly after the transfer is completed, the payment should if possible, 
be collected at the time of transfer and remitted in the transferee's 
name.
    (g) Closing transfer cases. (1) Title clearance and legal services, 
including OGC closing instructions, will be obtained according to 
subpart B of part 1927 of this chapter.

[[Page 427]]

    (2) The parties to the transfer are responsible for obtaining legal 
services necessary to accomplish the transfer. A profit or limited 
profit organization transferee may use any designated attorney or title 
insurance company to close the transfer according to the applicable 
closing instructions. The attorney or the title insurance company and 
their principals or employees must not be members, officers, directors, 
trustees, stockholders or partners of the transferee or transferor 
entity. Nonprofit organization transferees may use a designated attorney 
who is a member of their organization if the cost is reasonable, typical 
for the area, and is earned.
    (3) The transferee will obtain fire and extended coverage insurance, 
and flood insurance when required, according to the appropriate program 
requirements for the outstanding loan(s) involved, unless the State 
Director requires additional insurance as a condition of approval after 
evaluating the potential for loss due to special hazards associated with 
the project. When insurance is required, it may be obtained either by 
transfer of the existing coverage by the transferor or by acquisition of 
a new policy by the transferee. When the full amount of the FmHA or its 
successor agency under Public Law 103-354 debt is being assumed and an 
amount has been advanced for insurance premiums or any other purposes, 
the transfer will not be completed until the Finance Office has charged 
the advance to the transferor's account.
    (4) The proper type of loan agreement or resolution for type of 
transferee involved must be in effect at the time of the transfer. If 
changes are needed in the existing loan agreement or resolution cited in 
the mortgage, the changes should be made by amending the existing loan 
agreement or resolution after obtaining the advice of OGC.
    (5) The restrictive language contained in Sec. 1944.176(d)(1) of 
subpart D of part 1944 of this chapter and Sec. 1944.236(b)(1) of 
subpart E of part 1944 of this chapter must be inserted in the deed of 
conveyance or other instruments as required by OGC for RRH, RCH, and LH 
loans.
    (6) At a time no later than the transfer closing, the transferee 
will be provided copies of the security instruments (promissory note, 
mortgage or deed of trust, rental assistance agreement, loan agreement 
of resolution, etc.) which were executed by the transferor or previous 
borrower to originally secure the loan being assumed.
    (7) A servicing visit should be scheduled within 90 days of closing 
to verify the transferee's compliance with program requirements.
    (h) Transfer not completed. If for any reason a transfer will not be 
completed after approval, the District Director will immediately notify 
the State Director.
[49 FR 49587, Dec. 21, 1984]

    Editorial Note: For Federal Register citations affecting 
Sec. 1965.65, see the List of CFR Sections Affected in the Finding Aids 
section of this volume.



Secs. 1965.66--1965.67  [Reserved]



Sec. 1965.68  Consolidation.

    General. Loans and/or loan agreements/resolutions may be 
consolidated to reduce the administrative burden (recordkeeping, 
budgeting, etc.), to improve the cost effectiveness and efficiencies of 
project operations, and/or to effectively utilize the physical 
facilities common to projects. State Directors may approve the 
consolidations with the advice of OGC and when the following conditions 
are met:
    (a) Consolidation of loans.
    (1) The loans are being transferred under Sec. 1965.65(f)(6) of this 
subpart on new terms to the transferee, OR.
    (2) An initial and subsequent loan(s) under one project number were 
closed on the same date at the same rates and terms, i.e., same interest 
rate and final due date.
    (3) The promissory notes and the loan agreements/resolutions will be 
consolidated.
    (4) The conditions for consolidation of loan agreements/resolutions 
must be met.
    (5) The total indebtedness (principal plus accrued interest, overage 
and late fees) of all loans being consolidated does not exceed the State 
Director's approval authority.
    (6) If consolidation of loans is not possible on the Amortization 
Effective Date (AED) for the loans, consolidation

[[Page 428]]

should occur as soon as possible after the AED is established.
    (b) Processing consolidation of loans. (1) Form FmHA or its 
successor agency under Public Law 103-354 1944-52, ``Multiple Family 
Housing Promissory Note,'' will be prepared for the notes or assumption 
agreements being consolidated according to the FMI. If the District 
Office does not have possession of the original note or assumption 
agreement, the District Director will call the Finance Office to request 
the return of the original form so it is in the District Office before a 
new Form FmHA or its successor agency under Public Law 103-354 1944-52 
is processed, or as soon as possible thereafter. Promissory notes should 
be prepared on a monthly payment basis, as appropriate.
    (2) A new Form FmHA or its successor agency under Public Law 103-354 
1944-7, ``Interest Credit and Rental Assistance Agreement,'' will be 
prepared and signed by the borrower for the new consolidated promissory 
note and distributed according to the FMI. The Interest Credit Plan 
originally established for the project will apply to the consolidated 
note. If the Interest Credit Plan is changed with the new Form FmHA or 
its successor agency under Public Law 103-354 1944-7, the District 
Office will enter the new plan for the project through their field 
office terminal.
    (3) Form FmHA or its successor agency under Public Law 103-354 1965-
17, ``Multiple Family Housing Note Consolidation,'' will be completed to 
show all of the notes which have been consolidated in the new Form FmHA 
or its successor agency under Public Law 103-354 1944-52. A copy of the 
completed Form FmHA or its successor agency under Public Law 103-354 
1965-17 will be sent to the Finance Office for processing. The AMAS M5A 
screen for the project should be reviewed by the District Office and 
updated, as appropriate, when submitting Form FmHA or its successor 
agency under Public Law 103-354 1965-17 for processing.
    (4) The original and District Office copies of all notes or 
assumption agreements that are consolidated will be stamped 
``consolidated,'' by the District Office. The original instruments being 
consolidated will be stapled to the ``consolidated'' note and filed in 
the safe in the District Office. When the consolidated note has been 
paid in full or otherwise satisfied, it and all other instruments will 
be handled according to the provisions of Sec. 1951.15 of subpart A of 
part 1951.
    (5) A consolidated loan agreement or resolution using Forms FmHA or 
its successor agency under Public Law 103-354 1944-33A, ``Consolidated 
Loan Agreement RRH Insured Loan to an Individual Operating on a Profit 
Basis or RRH Loan to an Individual Operating on a Limited Profit 
Basis,'' FmHA or its successor agency under Public Law 103-354 1944-34A, 
``Consolidated RRH Loan Agreement To a Partnership Operating on a Profit 
Basis, To a Limited Partnership Operating on a Profit Basis, To a 
Partnership Operating on a Limited Profit Basis, To a Limited 
Partnership Operating on a Limited Profit Basis,'' or FmHA or its 
successor agency under Public Law 103-354 1944-35A, ``Consolidated Loan 
Resolution RRH Loan to a Broadly Based Nonprofit Corporation, RRH Loan 
to a Profit Type Corporation, RRH Loan to Profit Type Corporation 
Operating on a Limited Profit Basis,'' as appropriate, will be prepared 
for RRH loans to reflect current reporting requirements and the 
authorized initial investment attributable to the owner after the 
consolidation has occurred. A revised consolidated loan agreement or 
resolution will be prepared for LH loans containing the requirements of 
exhibit C, D, or E of subpart D of part 1944 of this chapter, as 
appropriate.
    (6) Consolidation of notes will only be accomplished with the 
guidance and assistance of OGC. Under no circumstances will promissory 
notes be consolidated if the security position of FmHA or its successor 
agency under Public Law 103-354 will be adversely affected.
    (7) New security instruments which describe the consolidated note 
will be filed to perfect the FmHA or its successor agency under Public 
Law 103-354 lien position. If the new lien position taken is junior only 
to the previous lien position securing the loans being

[[Page 429]]

consolidated, the previous security instruments may be released with the 
guidance and assistance of OGC.
    (c) Consolidation of loan agreements/resolutions (project 
consolidation). (1) The security for the loans must be on the total 
project, ``project'' being defined per subpart C of part 1930 of this 
chapter.
    (2) The State Director may approve the consolidation of loan 
agreements/resolutions irrespective of the total indebtedness 
represented by all loan agreements/resolutions being consolidated.
    (3) The loan agreements being consolidated are for loans made for 
the same purpose (for example, loans specifically made for senior 
citizen projects cannot be consolidated with loans for family projects, 
unless the consolidated project is redesignated ``mixed'' and the units 
previously designated ``senior citizen'' are restricted to tenants 
meeting the requirements for ``senior citizen'' as specified in exhibit 
B of subpart C of part 1930 of this chapter), to the same borrower 
entity and have the same plan of operation (nonprofit, limited profit or 
full profit), and are operating under the same type of Interest Credit, 
if applicable.
    (4) The requirements of subpart C of part 1930 of this chapter 
concerning reporting, accounting and project management will be 
fulfilled as a single project.
    (5) All project accounts being consolidated must be current after 
the consolidation processes, unless authorized by the National Office.
    (6) RA agreements will not be consolidated; each RA agreement will 
be tracked under a separate RA number through AMAS. The RA can be 
assigned to eligible tenants in the new ``project'' per assignment 
priorities. The waiting list(s) for the projects being consolidated will 
be combined.
    (7) For consolidation of loan agreements/resolutions of loans in 
which no loan to build or acquire new units was made on or after 
December 15, 1989, the restrictive-use provisions of section 502(c) of 
title V, Housing Act of 1949, as amended will apply. The appropriate 
restrictive-use language set forth in exhibit A-1 of subpart E of this 
part for RRH, RCH or LH loans will be added, with the advice of OGC, to 
the loan agreement/ resolution and security instruments as a condition 
of FmHA or its successor agency under Public Law 103-354 approval of the 
action. The restrictive-use period will begin on the date the 
consolidation is effective.
    (8) For consolidation of loan agreements/resolutions of loans for 
which a loan to build or acquire new units was made on or after December 
15, 1989, the consolidated loan may never be prepaid.
    (d) Processing loan agreement/resolution consolidations. (1) Form 
FmHA or its successor agency under Public Law 103-354 1965-17A will be 
completed to show all of the notes for the projects being consolidated. 
The AMAS M5A screen for all projects should be reviewed and updated 
before submitting Form FmHA or its successor agency under Public Law 
103-354 1965-17A.
    (2) A consolidated loan agreement or resolution using Form FmHA or 
its successor agency under Public Law 103-354 1944-33A, 1944-34A, or 
1944-35A, as appropriate, will be prepared for RRH loans to reflect 
current reporting requirements and the authorized initial investment 
attributable to the owner after the consolidation has occurred. A 
revised consolidated loan agreement or resolution will be prepared for 
LH loans containing the requirements of exhibit C, D, or E of subpart D 
of part 1944 of this chapter, as appropriate.
    (3) Consolidation of projects will only be accomplished with the 
guidance and assistance of OGC. Under no circumstances will projects be 
consolidated if the security position of FmHA or its successor agency 
under Public Law 103-354 will be adversely affected.
    (4) All of the general requirements of paragraph (c) of this section 
must be met.
    (5) Neither the terms nor the due date of the loan(s) involved are 
altered, and other security instruments remain unchanged, and are not 
released.
    (6) All of the loan agreements or loan resolutions being 
consolidated may be secured by one deed of trust or mortgage describing 
all of the loans for the projects if required by OGC.
[56 FR 25351, June 4, 1991, as amended at 56 FR 66964, Dec. 27, 1991; 58 
FR 38930, July 21, 1993; 62 FR 25070, May 7, 1997]

[[Page 430]]



Sec. 1965.69  [Reserved]



Sec. 1965.70  Reamortization.

    (a) General. State Directors may approve the reamortization of RRH, 
RCH, and LH loan accounts within their approval authority for the type 
of loan involved. RHS loans will not be reamortized and will be serviced 
according to program requirements. If an RHS loan becomes seriously 
delinquent and efforts to sell the lots are not successful, the account 
will be liquidated according to subpart A of part 1955 of this chapter. 
The reamortization of an account will make the borrower subject to the 
restrictive-use provisions contained in exhibit A-1 of subpart E of this 
part.
    (b) Conditions for reamortization. The conditions under which a 
reamortization will be considered are:
    (1) The borrower has made extra payments and/or refunds totaling 10 
percent or more of the original loan amounts being reamortized (from 
sources other than the sale of units within the LH, RRH, or RCH 
project), and the State Director determines that the borrower and the 
tenants cannot reasonably be expected to meet their obligations unless 
the account is reamortized to reduce substantially the FmHA or its 
successor agency under Public Law 103-354 installments and rental rates; 
or,
    (2) The borrower has a substantial delinquency which was caused by 
circumstances beyond the ultimate control of the borrower that cannot be 
cured within one year, and the borrower has acted in good faith and has 
complied with all applicable FmHA or its successor agency under Public 
Law 103-354 procedures and policies governing the particular program 
under which the loan is made; or
    (3) The borrower has received an equity loan as an incentive to 
avert prepayment, or a subsequent loan has been made to a nonprofit 
corporation or public agency to purchase a project to avert prepayment; 
or
    (4) And, all of the following conditions exist and are adequately 
documented in the official case file and on Form FmHA or its successor 
agency under Public Law 103-354 1951-33, ``Reamortization Request,'' as 
appropriate:
    (i) The reamortization will not operate to the financial detriment 
of the FmHA or its successor agency under Public Law 103-354 or impair 
the security rights of the FmHA or its successor agency under Public Law 
103-354.
    (ii) The budget or plan of operations for the borrower provides 
reasonable assurance that the newly scheduled payments will be made 
according to the terms of the proposed reamortization, and that the 
charges for the use of the facility or service are within the payment 
ability of those it is intended to serve and are comparable to other 
similar units in the area; and, the rent increase procedures set forth 
in exhibit C of subpart C of part 1930 of this chapter will be followed 
if any increase in rental rates is required.
    (iii) The Board of Directors and membership will retain, or have 
definite plans for obtaining, membership and community support; and, 
will provide competent management for the continued operation of the 
borrower entity and the facility financed with the loan.
    (iv) The State Director believes that reamortization will enable the 
borrower to operate successfully and carry out the purpose of the loan.
    (v) The FmHA or its successor agency under Public Law 103-354 lien 
position remains unchanged.
    (vi) The approval official must be satisfied that the security 
(including the potential income for debt service) will be adequate to 
protect the FmHA or its successor agency under Public Law 103-354's 
interests over the term of the reamortization. An appraisal as required 
by FmHA or its successor agency under Public Law 103-354 Instruction 
1922-B (available in any FmHA or its successor agency under Public Law 
103-354 office) must be made and must reflect that the security is 
adequate for the principal and interest being reamortized when the 
reamortization will extend the term of the repayment period more than 5 
years.
    (vii) The borrower has corrected any management deficiencies which 
may have contributed to the borrower's previous inability to generate 
sufficient income to bring or keep the account

[[Page 431]]

current. Such actions may include revision of the management plan or 
employment of professional management services.
    (viii) All MFH loans being reamortized must be closed on PASS, 
except LH loans specified in Sec. 1951.501(a)(2)(i) of subpart K of part 
1951 of this chapter. All initial and subsequent loans must convert to 
PASS in connection with the reamortization.
    (ix) When recoverable cost items are involved, they are first 
capitalized by adding them to the principal loan balance outstanding on 
the oldest loan and then the entire indebtedness (principal plus 
outstanding interest, overage and late fees) is reamortized.
    (x) Audit receivables may not be reamortized.
    (c) Submission to National Office. When the unpaid indebtedness of 
the borrower's account(s) to be reamortized exceeds the State Director's 
approval authority and the State Director determines that the conditions 
of paragraph (b) of this section can be met, the request for 
reamortization, official case file and all other pertinent information, 
along with complete comments and recommendations by both the State and 
District Directors, will be sent to the National Office. The State 
Director shall submit all subsequent reamortization requests for the 
same project to the National Office for prior authorization.
    (d) Processing reamortizations. To reamortize the account, the 
following actions will be taken:
    (1) Form FmHA or its successor agency under Public Law 103-354 1965-
16, ``Multiple Family Housing Reamortization Agreement,'' will be 
completed according to the FMI. The effective date and the due date for 
all payments will be the first of the month, except for LH loans whose 
due date will be established in accordance with the FMI.
    (2) If the note or assumption agreement being reamortized is not 
held in the District Office, the District Director will obtain the 
promissory note and any assumption agreement from the Finance Office 
before processing the reamortization.
    (3) On the back of the original of the note or assumption agreement 
(new terms), below all signatures and endorsements, the District 
Director will insert the following: ``A reamortization agreement dated 
______ 19__, in the principal sum of $______, has been given to modify 
the payment schedule of the note.''
    (4) The end of the amortization period will be the final due date of 
the note being reamortized, unless the term is extended with the advice 
and guidance of OGC (and it is permissible according to State and local 
Statutes), and the FmHA or its successor agency under Public Law 103-354 
lien position is not altered. (Any extension of the final due date will 
not exceed the lesser of the remaining useful life of the security 
property or the maximum term authorized by the respective loan program 
authorizations.)
    (5) The interest rate for the account will be unchanged except when 
the final due date has been extended. The interest rate charged will be 
the rate at the time the Reamortization Request (Form FmHA or its 
successor agency under Public Law 103-354 1951-33) is approved, or the 
current interest rate at closing, whichever is less.
    (6) The reamortization will be processed with the guidance of OGC.
    (7) If the borrower is to receive interest credit benefits following 
the reamortization of the account, the current interest credit agreement 
will be cancelled and a new Form FmHA or its successor agency under 
Public Law 103-354 1944-7 will be prepared and attached to Form FmHA or 
its successor agency under Public Law 103-354 1965-16 for submission to 
the Finance Office.
    (8) The prepayment restrictive-use provisions of section 502(c) of 
title V, Housing Act of 1949, as amended will apply. The appropriate 
restrictive-use language set forth in exhibit A-1 of subpart E of this 
part for RRH, RCH or LH loans will be added with the advice of OGC, to 
the loan agreement/ resolution and security instruments, as a condition 
of FmHA or its successor agency under Public Law 103-354 approval of the 
action. The restrictive-use period will begin on the date the 
amortization agreement is effective.

[[Page 432]]

    (9) Reamortizations will always be closed the first day of the 
month. Unpaid interest to the date of closing may be capitalized.
[49 FR 49587, Dec. 21, 1984, as amended at 50 FR 8605, Mar. 4, 1985; 52 
FR 24288, June 30, 1987; 55 FR 25081, June 20, 1990; 56 FR 25352, June 
4, 1991; 56 FR 66964, Dec. 27, 1991; 58 FR 38930, July 21, 1993]



Sec. 1965.71  [Reserved]



Sec. 1965.72  Deceased borrower.

    Deceased borrower cases will be handled according to the policy 
outlined in Sec. 1962.46 of subpart A of part 1962 of this chapter 
except that all references to the County Supervisor are now construed to 
mean the District Director. The advice of OGC will be obtained as 
necessary.



Sec. 1965.73  Bankruptcy and insolvency.

    Bankruptcy and insolvency cases will be handled according to the 
policy outlined in Sec. 1962.47 of subpart A of part 1962 of this 
chapter except that all references to the County Supervisor now mean 
District Director. The handling of bankruptcy cases varies from state to 
state. Therefore, the State Director may issue State Supplements 
providing more specific guidance to expedite the handling of those 
cases. The advice of OGC will be obtained as necessary.



Sec. 1965.74  Divorce actions.

    When individual borrowers with loans are involved in a divorce 
action, the District Director will review the case after the final 
divorce decree has been granted to determine if any action is needed for 
the future servicing of the account. The District Office file will be 
submitted to the State Director for advice if the District Director is 
uncertain of the servicing actions needed to protect the FmHA or its 
successor agency under Public Law 103-354's interest or if continuation 
of the loan with the remaining borrower is not authorized. No subsequent 
loan will be made to pay any equity as a result of a divorce action.



Sec. 1965.75  Abandonment.

    When the District Director believes that the borrower has abandoned 
a project, an immediate check with the appropriate sources (for example: 
tenants, management agents, assessor's office, etc.) will be made to 
determine if the borrower has moved and, if so, whether a forwarding 
address can be determined so that further servicing actions can be 
taken.
    (a) A property is considered abandoned when any or all of the 
following conditions exist:
    (1) The borrower cannot be located after the District Director has 
made diligent efforts to contact the borrower. This condition also 
applies to those instances where the general partner(s) of a limited 
partnership cannot be located and the limited partners are unknown or 
cannot be located.
    (2) The project remains unoccupied for an extended period of time 
and the borrower makes no effort to maintain the security property, 
secure eligible occupants, and/or comply with the objectives of the loan 
within a reasonable period of time as specified by the District Director 
in a certified letter sent to the borrower requesting compliance.
    (b) If the property is not being maintained and the District 
Director determines that the borrower has abandoned the project, the 
District Director will attempt to contact any prior lienholders with a 
request that they take control of the property and make any emergency 
repairs necessary. If no prior lienholder is involved or the prior 
lienholder cannot immediately be contacted or refuses to make the 
emergency repair, the District Director will immediately notify the 
State Director and request permission to take possession of the property 
pending liquidation, make emergency repairs to prevent further 
deterioration of the security, and to enter into a lease with the 
individual tenants, or a management or caretaker's agreement, on behalf 
of the borrower.
    (c) A caretaker or management agent will normally be obtained when 
the borrower has abandoned the security property or has failed to 
maintain its operation and the State Director determines, with the 
advice of OGC, that the FmHA or its successor agency under Public Law 
103-354 should take possession of the property to best protect the 
interest of the Government subject to the following:

[[Page 433]]

    (1) Selection of a caretaker or management agent. Persons or firms 
chosen as caretakers or management agents should have experience in 
operating and managing similar properties or have business background or 
experience which qualifies them to perform the needed services. They 
must be located near the property to provide day-to-day supervision or 
appoint a qualified local person to meet this requirement. Caretakers 
will normally be selected for unoccupied projects or those not suitable 
for occupancy. Management agents will only be selected for projects 
which are occupied or suitable for occupancy. Selection procedures will 
be in accordance with Sec. 1955.63(a) of subpart B of part 1955 of this 
chapter, and will be appropriately documented. (No other actions 
specified in subpart B of part 1955 may be implemented until such time 
as liquidation action has been approved in writing by the appropriate 
FmHA or its successor agency under Public Law 103-354 official.)
    (2) Fees. The amount of the management agent or caretaker fee should 
be no more than the typical rate for similar services in the area. The 
amount may be based on a percentage of the income from the property or a 
flat fee amount. The fees will be considered a recoverable cost and 
charged to the borrower's account. The fees will be paid on a monthly 
basis in accordance with FmHA or its successor agency under Public Law 
103-354 Instruction 2024-A (available in any FmHA or its successor 
agency under Public Law 103-354 office).
    (3) Rental rates for abandoned projects. Rental rates will normally 
remain the same for eligible occupants as when the project was under the 
control of the borrower. Rental rates may be revised with the approval 
of the State Director under the following conditions:
    (i) The lease agreement between the borrower and tenant permits 
changing the rates.
    (ii) A change of rates is needed to provide income sufficient to pay 
operational and maintenance expenses, including the caretaker's fee, and 
to repay the loan on schedule.
    (iii) Any increase will not result in rental rates above the payment 
ability of eligible occupants, unless the State Director has given the 
authority to rent units to ineligible occupants.
    (d) All these actions shall be fully documented in the official case 
file. Liquidation will immediately be instituted according to subpart A 
of part 1955 of this chapter.
    (e) When the project is occupied but rent is not paid or collected, 
the eligibility of the occupants cannot be determined, and the borrower 
has failed to comply with the objectives of the loan within a reasonable 
period of time as specified by the District Director in a certified 
letter sent to the borrower requesting compliance, the State Director 
should refer the case to the Regional Attorney for guidance, including 
the possibility of having a receiver appointed.
[49 FR 49590, Dec. 21, 1984, as amended at 57 FR 36592, Aug. 14, 1992]



Sec. 1965.76  [Reserved]



Sec. 1965.77  Consent to sale or other disposition of security property.

    (a) General policies. The State Director may approve requests for 
and consent to:
    (1) Use of proceeds from the sale of a portion of or an interest in 
the security,
    (2) Exchange of all or a part of the undeveloped security for other 
real estate, or
    (3) Granting or conveyance of rights-of-way subject to the 
conditions and requirements of this section.
    (b) Processing requests. These requests will be made on Form FmHA or 
its successor agency under Public Law 103-354 465-1. The District 
Director will forward a properly completed and executed Form FmHA or its 
successor agency under Public Law 103-354 465-1, the proposed deed, 
easement, or other form of title conveyance, and the case file to the 
State Director with a memorandum containing additional information, as 
needed, to justify the approval or disapproval of the proposed 
transaction.
    (c) Conditions of approval. The State Director may grant consent 
provided:
    (1) The orderly payment of the FmHA or its successor agency under 
Public Law 103-354 indebtedness will not be impaired. Except that in 
condemnation

[[Page 434]]

case, after the final judgment or award has been granted and is not 
appealed, the necessary adjustments in project operation will be 
approved to comply with the court order.
    (2) The transaction will not interfere with the successful operation 
of the multiple housing project or prevent the borrower from carrying 
out the purpose for which the loan was made. This requirement will not 
apply in the case of a condemnation action in which a final judgment or 
award has been made and is not appealed.
    (3) The sale of individual units or developed portions of an RRH, 
RCH or LH project shall require the prior concurrence and authorization 
of the National Office.
    (4) If property to be sold or exchanged is to be used for the same 
or similar purpose for which the FmHA or its successor agency under 
Public Law 103-354 loan or grant was made, the purchaser shall execute 
Form FmHA or its successor agency under Public Law 103-354 400-4. The 
agreement will remain in effect as long as the property continues to be 
used for the same or similar purpose for which the FmHA or its successor 
agency under Public Law 103-354 loan or grant was made.
    (5) The consideration is at least equal to the market value of the 
security property disposed of or the rights being granted. However, 
right-of-way easements may be granted or conveyed without consideration 
or with only the minimal consideration being offered if the approval 
official determines: the value of the security property will not be 
reduced; its suitability for the intended purpose will not be impaired; 
and the easement is granted for the borrower to develop additional lots 
or units which will be integrated into the project or to a public body 
for enhancement of streets or utilities benefitting the project.
    (i) An FmHA or its successor agency under Public Law 103-354 
official authorized to appraise multi-unit housing properties shall 
either make a new appraisal as required by FmHA or its successor agency 
under Public Law 103-354 Instruction 1922-B (available in any FmHA or 
its successor agency under Public Law 103-354 office) if the current 
appraisal is more than one year old, or supplement the present appraisal 
report by inserting in or attaching to the ``Remarks'' section, 
information as to the market value of the security disposed; or
    (ii) The approval official may also accept a value determination for 
such easements which has been provided by other competent sources at no 
cost to the Government which is mutually acceptable to the borrower and 
FmHA or its successor agency under Public Law 103-354;
    (iii) However, if the proceeds are to be used for development or 
enlargement, a new appraisal reflecting the market value of the security 
property as improved or enlarged will be made in all cases.
    (iv) The State Director may request an appraisal for any transaction 
under this section involving security property whenever necessary.
    (6) The remaining property is adequate security for the unpaid 
balance of the FmHA or its successor agency under Public Law 103-354 
loan, or the transaction will not adversely affect FmHA or its successor 
agency under Public Law 103-354's security position or interfere with 
the successful operation of the security property.
    (7) The proceeds from the disposition of the security are used for 
one or more of the following purposes:
    (i) To pay the customary incidental closing costs such as title and 
recording fees appropriate to the transaction, including additional real 
estate tax the borrower is required to pay for the year for which 
arrangements to pay cannot otherwise be made.
    (ii) To pay debts owed to any prior lienholders.
    (iii) To make extra payments on the FmHA or its successor agency 
under Public Law 103-354 loan.
    (iv) To pay costs necessary to determine the reasonableness of an 
offer or asking price, such as fees for appraisal of minerals, land, or 
timber where the necessary appraisal cannot be obtained without costs.
    (v) To pay real estate brokers' commission if a borrower can 
reasonably expect to obtain proceeds in an amount at least equal to the 
commission in excess of what could otherwise be obtained had the sale 
been made without

[[Page 435]]

the assistance of the real estate broker.
    (vi) To develop or enlarge the borrower's facility for purposes for 
which a loan of the same type involved could be made, if the development 
or enlargement is necessary to improve the borrower's debt-paying 
ability, place the operation on a more sound basis, or otherwise further 
the objectives of the FmHA or its successor agency under Public Law 103-
354 loan. Any proposed development will be planned and performed 
according to subpart A of part 1924 of this chapter and funds to be used 
for development or enlargement will be handled according to subpart A of 
part 1902 of this chapter.
    (vii) To purchase or acquire property to be used for purposes for 
which a loan of the same type involved is authorized, if the FmHA or its 
successor agency under Public Law 103-354 debt will be as well secured 
after the transaction as before. FmHA or its successor agency under 
Public Law 103-354 will obtain a lien on the acquired property, and will 
obtain title evidence according to subpart B of part 1927 of this 
chapter.
    (viii) To pay any additional income tax which the borrower must pay 
for the year because of the capital gain or royalty tax attributable to 
the transactions. Funds for back taxes must be estimated and held in a 
supervised bank account until actual payment of the tax.
    (8) FmHA or its successor agency under Public Law 103-354 liens are 
not released until receipt of the appropriate sales proceeds for 
application on the Government's claim.
    (d) Releasing security. Security for FmHA or its successor agency 
under Public Law 103-354 loans addressed in this subpart will be 
released according to applicable program regulations and as follows:
    (1) Borrowers will be held strictly accountable to the FmHA or its 
successor agency under Public Law 103-354 for all proceeds derived from 
the sale of mortgaged property which the FmHA or its successor agency 
under Public Law 103-354 is entitled to receive under its lien.
    (2) Consent to disposition of part, or an interest in, security 
property as authorized in this subpart may be given by approving a 
completed Form FmHA or its successor agency under Public Law 103-354 
465-1 or other forms approved by OGC or prescribed in State Supplements. 
Upon request for consent, the District Director will forward Form FmHA 
or its successor agency under Public Law 103-354 465-1, the borrower's 
case folder, and any other pertinent information to the State Director.
    (i) Chattel security may be released from a chattel mortgage by use 
of Form FmHA or its successor agency under Public Law 103-354 460-1, 
``Partial Release,'' or other approved form, and from a security 
interest under the Uniform Commercial Code by use of Form FmHA or its 
successor agency under Public Law 103-354 462-12, ``Statements of 
Continuation, Partial Release, Assignment, Etc.'' Satisfaction or 
termination of chattel security instruments will be accomplished 
following the guidance of subpart A of part 1962 of this chapter.
    (ii) Real estate security may be released by use of Form FmHA or its 
successor agency under Public Law 103-354 460-1 or other form approved 
by OGC. Satisfaction or termination of real estate security instruments 
when the FmHA or its successor agency under Public Law 103-354 debt has 
been paid in full or satisfied by debt settlement action will be 
accomplished with the use of Form FmHA or its successor agency under 
Public Law 103-354 460-4, ``Satisfaction.''
    (iii) Any consent which would result in the FmHA or its successor 
agency under Public Law 103-354 loan account being paid in full will be 
subject to the prepayment provisions of Sec. 1965.90 of this subpart and 
subpart E of this part as applied to RRH, RCH, and LH loans.
[49 FR 49590, Dec. 21, 1984, as amended at 56 FR 67484, Dec. 31, 1991; 
58 FR 38930, July 21, 1993]



Sec. 1965.78  [Reserved]



Sec. 1965.79  Subordination.

    (a) General policies. The State Director is authorized to approve 
requests for subordination of LH, RRH or RCH loans according to this 
section, if the total debt against the security after the transaction 
does not exceed the

[[Page 436]]

State Director's loan approval authority for the type of loan involved. 
Subordination by the State Director will only be considered for 
individual LH borrowers on farm tracts, multiple housing loans on 
nonfarm tracts to obtain construction financing, and in those cases 
where FmHA or its successor agency under Public Law 103-354 loan funds 
are unavailable or the funds can be provided from the private sector at 
competitive or less costly rates than those offered by FmHA or its 
successor agency under Public Law 103-354. All other subordination 
requests, and those exceeding the State Director's approval authority 
limit must be submitted to the National Office for prior authorization 
to approve. Each request for subordination will be made on Form FmHA or 
its successor agency under Public Law 103-354 465-1. The District 
Director will forward a properly completed and executed copy of the form 
to the State Director with a memorandum containing any needed 
information to justify approval or disapproval of the request.
    (b) Conditions of approval. Subordination of the FmHA or its 
successor agency under Public Law 103-354 lien will only be authorized 
when it will enable the present borrower to permit another creditor to 
refinance, extend, reamortize, or increase the amount of a prior lien, 
or place a lien ahead of the FmHA or its successor agency under Public 
Law 103-354 lien. When the prior lien is being increased by an amount 
which exceeds normal transaction costs or a new prior lien is being 
placed against the security, an FmHA or its successor agency under 
Public Law 103-354 official authorized to make appraisals for the type 
of project involved will supplement the present appraisal report by 
inserting in the ``Remarks'' section information as to the market value 
of the security after the transaction if the appraisal is less than one 
year old. If the appraisal is more than one year old, a new appraisal as 
required by FmHA or its successor agency under Public Law 103-354 
Instruction 1922-B (available in any FmHA or its successor agency under 
Public Law 103-354 office) must be completed. The State Director may 
also request an appraisal at any time deemed appropriate. In all cases, 
the following conditions must be met:
    (1) The FmHA or its successor agency under Public Law 103-354 
multiple housing account must be current and the borrower must be 
capable of providing adequate management.
    (2) The transaction must further the objectives for which the FmHA 
or its successor agency under Public Law 103-354 loan or loans were made 
and FmHA or its successor agency under Public Law 103-354's debt must be 
adequately secured or will not be adversely affected.
    (3) The proposed use of the funds will improve the borrower's 
ability to repay the FmHA or its successor agency under Public Law 103-
354 loan(s) or is necessary to place the borrower's operation on a sound 
basis.
    (4) The borrower is unable to refinance the FmHA or its successor 
agency under Public Law 103-354 loan on terms which can reasonably be 
expected to be met yet still meet the original intent of the program.
    (5) The terms and conditions of the prior lien will be such that the 
borrower can reasonably be expected to meet them as well as all other 
debts.
    (6) The amount of the indebtedness against the security property, 
including the amount of the subordination, will not exceed its present 
market value.
    (7) When an increase in the amount of the prior lien or a new prior 
lien is involved, subordination will be granted only when the funds will 
be used for the same purposes for which the loan of the same type is 
authorized; except, all LH loans on a farm tract may be subordinated for 
essential farm improvements and any other purpose for which an FmHA or 
its successor agency under Public Law 103-354 Farm Ownership loan can be 
made as described in Sec. 1943.16 of subpart A of part 1943 of this 
chapter. LH loans will not be subordinated to provide operating capital 
or purchase chattels. If the LH loan is secured only by the LH units and 
the project site, the LH loan will only be subordinated for purposes for 
which an LH loan may be made.
    (8) Any proposed development will be planned and performed according 
to subpart A of part 1924 of this chapter or

[[Page 437]]

in a manner directed by the other creditor which reasonably attains the 
objectives of subpart A of part 1924 of this chapter and is concurred 
with by the State Director.
    (9) Funds to be used for development or enlargement of farm 
operations will be handled as prescribed for loan funds in subpart A of 
part 1902 of this chapter except that, if the creditor will not permit 
the use of a supervised bank account, arrangements should be made to 
assure that funds will be spent for planned purposes and should be 
approved by the District Director before being released.
    (10) In case of land purchase, FmHA or its successor agency under 
Public Law 103-354 will obtain the best lien obtainable on the land 
purchased.
    (11) Subordinations need not cover the entire site. If a 
subordination is requested to permit an interim lender to advance 
construction funds, only the portion of the site scheduled for 
construction will be subordinated. If the entire farm tract has been 
taken as security for a LH loan, subordination of the lien on all 
property except the minimum adequate site, including necessary ingress 
and egress, on which the LH units are situated, may be authorized for 
any purpose consistent with the LH program regulations and paragraph 
(b)(7) of this subpart. For RHS loans, the prorated portion of the lien 
for the individual lots may be subordinated to permit construction of 
dwelling units utilizing conditional commitments as authorized in the 
RHS program regulations.
    (12) All subordination requests will be forwarded to OGC for review. 
The guidance of OGC should be obtained in the preparation of the 
documents necessary to effect the subordination.
    (13) The subordination is for a specific amount.
    (14) The proposed action will not change the nature of the 
borrower's activities so as to make it ineligible for appropriate loan 
program assistance.
    (15) The subordination must not adversely impact the agency's 
ability to service the loan according to program regulations, and has 
been determined to be within the bounds of good judgment considering the 
intent, funding limitations, and respective program authorities.
    (16) An agreement to provide notice of foreclosure must be obtained 
from any new prior lienholder as required in subpart B of part 1927 of 
this chapter. As appropriate, any junior lienholders consent to the 
transaction and use of proceeds will be obtained prior to approval of 
the transaction.
[49 FR 49587, Dec. 21, 1984; 50 FR 21583, May 28, 1985, as amended at 56 
FR 67484, Dec. 31, 1991]



Sec. 1965.80  [Reserved]



Sec. 1965.81  Severance agreements.

    (a) General policies. Severance agreements or other instruments of 
similar effect under which a borrower may acquire through other credit, 
items such as laundry equipment, air conditioning units, and basic 
household furnishings that will not become part of real estate security, 
may be approved by the State Director, provided:
    (1) The transaction will not adversely effect the FmHA or its 
successor agency under Public Law 103-354's security position and any 
additional obligations incurred will be within the borrower's repayment 
ability.
    (2) The items covered by the severance agreement are needed in the 
successful operation of the security property.
    (3) The financing arrangements are otherwise sound and proper.
    (b) Handling requests. Requests will be made on Form FmHA or its 
successor agency under Public Law 103-354 465-1. The District Director 
will forward to the State Director a properly completed and executed 
Form FmHA or its successor agency under Public Law 103-354 465-1, any 
proposed severance agreement, the case file, and specific 
recommendations regarding the request.
    (c) Consent and approval. The State Director will indicate approval 
or disapproval on Form FmHA or its successor agency under Public Law 
103-354 465-1. The OGC will be requested to prepare or approve the form 
of severance agreement and issue any special instructions when 
necessary.

[[Page 438]]



Sec. 1965.82  [Reserved]



Sec. 1965.83  Consent to junior liens.

    (a) General policies. Borrowers will be strongly discouraged from 
giving junior liens to other creditors on the FmHA or its successor 
agency under Public Law 103-354 security property. Each request for 
consent to junior liens will be made on Form FmHA or its successor 
agency under Public Law 103-354 465-1.
    (b) Conditions of approval. The State Director may approve a junior 
lien if the request for the lien is authorized prior to the lien being 
placed against the property under the following conditions:
    (1) The junior lien will enable the borrower to obtain additional 
credit to make needed improvements or repairs on the security property 
for purposes for which a loan of the same type involved could be made 
and funds in the reserve account have been depleted. Except, zero 
interest loans available from other Federal, State or local agencies, 
authorities, or commissions; and those from utility companies regulated 
by such governmental bodies, may be secured by a junior lien when the 
State Director determines it is in the best interest of the FmHA or its 
successor agency under Public Law 103-354, borrower and tenants 
irrespective of the balance in the reserve account.
    (2) The junior lien will improve the borrower's total financial 
condition or debt-paying ability as it relates to the multiple family 
housing project.
    (3) The terms of the junior lien will not jeopardize the borrower's 
ability to repay the FmHA or its successor agency under Public Law 103-
354 indebtedness and, in the case of RRH, RCH, and LH loans, will not 
result in increased rental rates for the project unless authorized 
according to exhibit C to subpart C of part 1930 of this chapter.
    (4) The junior creditor agrees in writing that foreclosure action 
under their lien will not be initiated before holding a discussion with 
the District Director and after giving a reasonable period of notice to 
FmHA or its successor agency under Public Law 103-354, and any operating 
plans of the junior lien holder are consistent with FmHA or its 
successor agency under Public Law 103-354 requirements.
    (5) Security for the junior lien must not include project income or 
revenue.
    (6) No junior liens will be authorized in connection with a transfer 
of ownership.
    (7) The total debt (including the outstanding FmHA or its successor 
agency under Public Law 103-354 loan balance) is within the State 
Director's approval authority.
    (8) All other requests for consent to junior liens must be submitted 
to the National Office with complete comments and recommendations from 
both the District Director and State Director, and all of the borrower's 
case files. Such requests will be reviewed on a case-by-case basis and 
appropriate authorization given or withheld depending on the individual 
merits of the proposal and its compatibility with the respective loan 
program requirement.
    (9) When a junior lien is placed on any property without the prior 
consent of FmHA or its successor agency under Public Law 103-354, the 
account will be serviced for liquidation with the guidance of OGC 
according to the security instruments. However, the State Director may 
request permission to post approve the junior lien by submitting a 
formal request to the National Office provided he/she determines that 
all other conditions set forth in this section are met.



Sec. 1965.84  [Reserved]



Sec. 1965.85  Default and liquidation.

    (a) General. Liquidation will be recommended only after all efforts 
by FmHA or its successor agency under Public Law 103-354 officials have 
failed to effect a satisfactory solution whereby the borrower will 
comply with its obligations under the note, mortgage, loan agreements or 
resolution, and all related security agreements and other instruments. 
Liquidation, whether by voluntary conveyance or foreclosure, will be 
handled in strict accordance with the provisions of subpart A of part 
1955 of this chapter. FmHA or its successor agency under Public Law 103-
354 Form 1965-11, ``Accelerated Repayment Agreement,'' will not be used 
in lieu of foreclosure for RRH, LH, or RCH loans

[[Page 439]]

unless specific prior written authorization is received from the 
National Office.
    (b) Servicing delinquent accounts. Delinquent multiple housing 
accounts will be serviced according to the respective program 
requirements and the following:
    (1) The District Director will service delinquent accounts with 
guidance and assistance as necessary from the State Director. Every 
delinquent borrower will be serviced according to a routine established 
for the particular loan type by the State Director. The following 
sequential steps should be taken for each delinquent account:
    (i) Each quarterly delinquency Report Code 616 and 621 or other 
official FmHA or its successor agency under Public Law 103-354 Report 
will be reviewed for accuracy by the State Director. The following 
delinquency classification system for multi-housing accounts may be 
used. The District Director will classify each account on the Report 
Code 621, as follows:

D1--Delinquent; a servicing plan or action has not been formulated
D2--Audit trail has been completed to verify amount delinquent
D3--Agreement has been made with borrower to become current within a set 
period
D4--Transfer or substitution of membership interests is in process to 
correct the delinquency
D5--Reamortization is in process
D6--Account has been accelerated
D7--Borrower is in bankruptcy
D8--Voluntary conveyance is planned
D9--A subsequent loan is planned to correct delinquency
D10--Other (litigation, abandonment before action taken, etc.)
C1--Current (D/O records show the account current)
C2--Audit trail completed that shows D/O or F/O error (double 
maturities, misapplication, etc.) and action taken has been taken to 
correct the error
C3--Account paid current since latest Report Code 616 or 621
C4--Other
C5--Requesting an exception to the late fee charged to the account 
according to subpart K of part 1951 of this chapter, when appropriate.
X1--Property in inventory (from foreclosure, voluntary conveyance or 
bankruptcy)
X2--Credit Sale finalized
X3--Charge-off of account in process
X4--Transfer or reamortization closed; waiting for F/O to process
X5--Other

    (ii) if the report is in error, the District Director will 
immediately contact the Finance Office and provide any information 
necessary to correct the report and/or remove the account from the 
delinquent status. These communications with the Finance Office should 
be directed to the Multiple-Family Housing unit. Before contacting the 
Finance Office, the District Director must complete a field audit of the 
account to be submitted with the inquiry.
    (iii) If the report is accurate and a delinquency indeed exists, the 
District Director will immediately contact the borrower to determine the 
reason for the delinquency and will attempt to collect either in a lump 
sum or in additional monthly payments over a short period of time, 
usually not to exceed one year. This should include foregoing any cash 
return until the account is current.
    (iv) Within 30 days of receipt of the quarterly delinquency report, 
the District Director will submit to the State Director a detailed 
report with specific comments and recommendations for servicing each 
delinquent account. This report will classify the accounts and indicate 
which accounts are actually delinquent. Emphasis will be placed on 
performing delinquency servicing actions to reduce true delinquencies. 
The State Director will assist the District Director in developing a 
realistic servicing plan for each delinquent account. The State Director 
will prepare a statewide delinquency reduction plan annually and update 
it quarterly based on the delinquency reports and information provided 
by the District Directors. Appropriate consideration should be given to 
reamortizing, transferring, conveying or foreclosing accounts 
recognizing the willingness of the borrower to cooperate and comply with 
FmHA or its successor agency under Public Law 103-354 requirements and 
to meet the purposes for which the loan was made. Consideration should 
also be given to:
    (A) Adequate budgeting of project income and expenses.
    (B) Improving management and outreach.

[[Page 440]]

    (C) Implementing interest credit and/or rental assistance if the 
borrower and project qualify.
    (D) Participating in the HUD Section 8 program for existing housing 
through the local Public Housing Agency (PHA).
    (E) Effecting a justified rent increase according to applicable 
program requirements.
    (F) Obtaining an assignment of project income.
    (2) District Directors should be firm in dealing with the borrower 
or the borrower's representative. However, the management agent is not 
the party ultimately responsible for the loan, and it is therefore 
imperative that the borrower fully understand the consequences of the 
default. Courtesy, cooperation and sound judgment must be involved. If 
the delinquent account cannot be brought current within a reasonable 
period, steps should be taken according to subpart A of part 1955 of 
this chapter to protect the Government's interest.
    (c) Failure to maintain reserves. A borrower's failure to maintain 
adequate reserves should be treated in a manner similar to delinquent 
accounts. The District Director should carefully monitor the required 
transfers to the reserve account. Borrowers who fail to make the 
required transfers or use reserve funds without prior FmHA or its 
successor agency under Public Law 103-354 authorizations should be 
carefully counseled. Demand should be made upon borrowers misusing the 
reserve account to promptly correct any deficiency. As appropriate, the 
District Director may request assistance from the State Director. As 
necessary to protect the Government's interests, assistance from OGC 
should be requested through the State Office.
    (d) Nonmonetary defaults. Attempts to resolve nonmonetary defaults 
should be handled whenever possible at the District Office level with 
appropriate guidance and assistance from the State Office. The State 
Director should counsel with OGC, to determine the appropriate servicing 
actions in those cases where nonmonetary defaults cannot be resolved at 
the District Office level. These actions may include liquidation of the 
account.
    (e) Liquidation. Liquidation of all multiple-family type loans will 
be handled according to the applicable portions of subpart A of part 
1955 of this chapter. In cases of forced liquidation where the 
acceleration notice has been delivered and the borrower has willfully 
failed to make the required loan payments, eligible tenants are not 
occupying the units and/or the borrower is not collecting the approved 
rents or transmitting the required payments to FmHA or its successor 
agency under Public Law 103-354, any outstanding interest credit 
agreement will be cancelled after the appeal period prescribed in 
subpart B of part 1900 of this chapter has expired. However, the rental 
assistance agreement will not be cancelled until the foreclosure action 
has been completed and the redemption period has expired according to 
paragraph XIV B 5 of exhibit E of subpart C of part 1930 of this 
chapter. In no cases will RA be renewed during the redemption period. In 
all liquidation cases, the State Director will be responsible for the 
final decision to liquidate the account based upon an opinion from the 
OGC and the following information supplied by the District Director:
    (1) The specific recommendations of the District Director on the 
method of carrying out the liquidation,
    (2) The case file and any other pertinent information developed in 
support of the accusations,
    (3) A summary of FmHA or its successor agency under Public Law 103-
354 efforts to work out an acceptable solution short of liquidation,
    (4) A current appraisal of the security property as required by FmHA 
or its successor agency under Public Law 103-354 Instruction 1922-B 
(available in any FmHA or its successor agency under Public Law 103-354 
office) will be completed by an FmHA or its successor agency under 
Public Law 103-354 official authorized to make that particular type of 
appraisal and an estimate of the net amount that may be realized from 
the sale of the assets,
    (5) The most recent balance sheet or financial statement from the 
borrower,
    (6) A current statement of account from the Finance Office, and
    (7) A problem case report using Form FmHA or its successor agency 
under

[[Page 441]]

Public Law 103-354 465-7, ``Report on Real Estate Problem Case,'' or 
exhibit A to subpart A of part 1955 of this chapter as appropriate.
[49 FR 49587, Dec. 21, 1984, as amended at 50 FR 8605, Mar. 4, 1985; 51 
FR 11564, Apr. 4, 1986]



Sec. 1965.86  [Reserved]



Sec. 1965.87  Miscellaneous security.

    (a) Membership liability agreements. As a loan approval requirement, 
some borrowers may have special agreements with members of the 
organization for the purchase of shares of stock or for the payment of a 
pro rata share of the loan in the event of default, or they may have 
instruments which are commonly referred to as individual liability 
agreements which are usually assigned to and held by the FmHA or its 
successor agency under Public Law 103-354 as additional security for the 
loan. In other cases the borrower's note may be endorsed by individuals. 
These security and liability instruments will be serviced in a manner 
indicated by the agreements to adequately protect the interest of the 
FmHA or its successor agency under Public Law 103-354. The State 
Director will develop servicing actions with the assistance of OGC.
    (b) Other security. Other security such as collateral assignments, 
assignments of rents, Housing Assistance Payments Contracts, and notices 
of lienholder interest will be serviced according to acceptable 
practices in the respective states. The State Director should develop 
any special servicing actions with the assistance of OGC to protect the 
interest of FmHA or its successor agency under Public Law 103-354. 
Evidence of the security will be filed in the loan docket in the 
District Office. A notation will be made on the Management System Card 
showing that the security has been retained. When other security is 
taken, a plan for servicing it should be developed by the approval 
official and included as an approval condition at the outset.



Sec. 1965.88  Obtaining additional security for inadequately secured loans.

    (a) General policies. As a general policy, additional security for 
multiple housing loans should not be needed or taken to protect the 
interest of FmHA or its successor agency under Public Law 103-354. 
However, the State Director may authorize taking additional security in 
the form of real estate or other security as described in 
Sec. 1965.87(b) of this subpart when the additional security is needed 
to enhance the chances that the FmHA or its successor agency under 
Public Law 103-354 will not suffer a loss and any of the following 
conditions exist:
    (1) The account is behind schedule.
    (2) The property has not been properly managed or maintained.
    (3) There is serious doubt that the borrower can carry out the 
objectives of the loan.
    (b) Conditions of approval. In cases where the District Director 
determines that the conditions as stated in paragraph (a) of this 
section exist, the borrower's case file will be forwarded to the State 
Director with a memorandum providing the following information:
    (1) The facts which justify the taking of additional security.
    (2) A conservative estimate of the market value of any real estate 
to be mortgaged; however, it will not be necessary to make a formal 
appraisal of the property to be mortgaged unless determined necessary by 
the State Director.
    (3) A brief description of any existing liens on the additional 
security including the repayment terms and the unpaid balance.
    (4) The name of the title holder and how title to the property is 
held. Title evidence need not be required.
    (5) A plan for servicing the additional security to be taken.
    (6) A description of the other servicing alternatives available to 
assure that the objectives of the loan will be met and to protect the 
Government from loss.
    (c) Processing. The guidance and assistance of OGC will be obtained 
whenever additional security is taken. The highest quality security 
available will be taken whenever additional security is considered.
[49 FR 49590, Dec. 21, 1984. Redesignated at 55 FR 29564, July 20, 1990]

[[Page 442]]



Sec. 1965.89  Equity take-out for loans made after December 15, 1989.

    For initial loans made or insured pursuant to contracts entered into 
on or after December 15, 1989, equity loans may be guaranteed by FmHA or 
its successor agency under Public Law 103-354 after a 20-year period, 
from the date of the loan, has elapsed. The following steps will be 
followed when a borrower wishes to receive this equity:
    (a) Borrower submits a plan requesting an equity loan which ensures 
that the cost of amortizing the loan doesn't result in the displacement 
of very low-income tenants or substantially alter the income mix of the 
tenants in the project.
    (b) FmHA or its successor agency under Public Law 103-354 will 
determine whether the housing will continue to remain decent, safe, and 
sanitary and that the local housing market is such that the housing will 
continue to meet the needs of eligible tenants for the remaining life of 
the initial loan.
    (c) In accordance with the conditions outlined in subpart E of this 
part, FmHA or its successor agency under Public Law 103-354 will offer 
to guarantee an equity loan to the borrower which may be repaid from an 
occupancy surcharge account in accordance with subpart K of part 1951 of 
this chapter. In addition it must be determined that such an equity loan 
would not impose undue hardship on tenants or unreasonable cost to the 
Federal Government. The guaranteed loan will not exceed the lesser of:
    (1) The amount determined and calculated in accordance with the 
equity loan instructions contained in subpart E of this part or (2) 30 
percent of the appraised value of the project at the time of the initial 
loan as shown on the appraisal for that loan.
    (d) If the borrower indicates preliminary acceptance of the equity 
loan, an application will be completed in accordance with subpart E of 
part 1944 of this chapter and two appraisals will be conducted in the 
manner outlined in subpart E of part for loans to nonprofit 
organizations.
    (e) When the actual amount of the guaranteed equity loan is 
determined, the borrower will indicate acceptance of the loan.
[55 FR 29564, July 20, 1990, as amended at 56 FR 66964, Dec. 27, 1991; 
58 FR 38930, July 21, 1993]



Sec. 1965.90  Payment in full.

    (a) Prepayment of multi-family housing loans. Subpart E of this part 
must be complied with for all multi-family housing loans that are 
planned to be prepaid prior to the scheduled final due date of the loan.
    (b) Borrower responsibility. Borrowers must advise the District 
Office servicing the account of any plan to pay the account in full 6 
months prior to the date of the planned payment in full.
    (c) FmHA or its successor agency under Public Law 103-354 
responsibility. The FmHA or its successor agency under Public Law 103-
354 District Office must ensure payments in full and releases of 
security are processed in accordance with subpart D of part 1951 of this 
chapter and other appropriate program requirements and regulations. FmHA 
or its successor agency under Public Law 103-354's interest in property 
insurance will be released in accordance with Sec. 1806.4 (a)(3) of 
subpart A of part 1806 of this chapter (paragraph IV A 3 of FmHA or its 
successor agency under Public Law 103-354 Instruction 426.1). In all 
cases, references to County Supervisors will be construed to mean 
District Directors when applied to multi-family housing borrowers.
[58 FR 38930, July 21, 1993]



Sec. 1965.91  Servicing loans in formerly eligible areas.

    All servicing actions contained in this subpart are authorized 
without regard to whether the area is no longer defined as an eligible 
area.



Sec. 1965.92  Information to be provided to IRS on RRH transfers, voluntary conveyances, foreclosures, and 100% membership changes.

    State Offices are to provide information to the National Office for 
submission to IRS at their request on RRH transfers, voluntary 
conveyances and foreclosures that were finalized (the deed recorded) 
subsequent to January 22, 1985. In addition, information is to be 
provided on changes of membership

[[Page 443]]

interests that are covered under Sec. 1965.63 of this subpart which 
result in a 100 percent change in the entity membership, such as, 
beneficial interests, partnership interests and stock transfers. Exhibit 
A to this subpart (available in any FmHA or its successor agency under 
Public Law 103-354 office) must be completed for each project affected 
with particular attention given to supplying the Employer Identification 
and/or the Social Security numbers of the parties involved. Field 
Offices should not contact the borrowers or transferees for information 
that is not otherwise available from the casefiles, except in the case 
of missing Taxpayer Identification numbers. Exhibit A available in any 
FmHA or its successor agency under Public Law 103-354 office will be 
prepared when the servicing action is completed and sent to the National 
Office within 30 days of the servicing action.
[49 FR 49587, Dec. 21, 1984, as amended at 52 FR 24291, June 30, 1987; 
58 FR 38930, July 21, 1993]



Sec. 1965.93  [Reserved]



Sec. 1965.94  State supplements.

    State supplements will be prepared with the advice of OGC as 
necessary to comply with State laws and to provide guidance to the 
District Director in the servicing actions required. All State 
supplements, unless specifically authorized by particular subsections of 
this subpart must be submitted for prior National Office approval before 
implementation. Requests for approval must include complete 
justification, citations of State law, and appropriate legal opinions 
from the respective Regional Attorney.



Sec. 1965.95  [Reserved]



Sec. 1965.96  Nondiscrimination.

    Each instrument of conveyance for any transfer or foreclosure sale 
of real property subject to Title VI of the Civil Rights Act of 1964 
will contain the following convenant:

    The property described herein was obtained or improved through 
Federal financial assistance. This property is subject to the provisions 
of Title VI of the Civil Rights Act of 1964 and the Rehabilitation Act 
of 1973 and the regulations as issued pursuant thereto for so long as 
the property continues to be used for the same or similar purposes for 
which the Federal financial assistance was extended or for so long as 
the purchaser owns it, whichever is later.



Sec. 1965.97  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 requirement of this Subpart not inconsistent with 
the authorizing statute if the Administrator finds that application of 
the requirement would adversely affect the interest of the Government or 
the immediate health or safety of the tenants or the community. The 
Administrator will exercise the authority only at the request of the 
State Director. The State Director will submit the request supported by 
data which demonstrates the adverse impact, identifies the particular 
requirement involved, shows proper alternative courses of action, and 
identifies how the adverse impact will be eliminated.



Secs. 1965.98--1965.99  [Reserved]



Sec. 1965.100  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 0575-0100. Public reporting burden 
for this collection of information is estimated to vary from 10 minutes 
to 4.25 hours per response, with an average of 1.67 hours per response 
including time for reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. Send comments regarding this 
burden estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden, to Department of 
Agriculture, Clearance Officer, OIRM, Room 404-W, Washington, DC 20250; 
and to the Office of Management and Budget, Paperwork Reduction Project 
(OMB 0575-0100), Washington, DC 20503.
[56 FR 28039, June 19, 1991, as amended at 58 FR 38930, July 21, 1993]

[[Page 444]]



                        Subparts C--D [Reserved]



   Subpart E--Prepayment and Displacement Prevention of Multi-Family 
                              Housing Loans

    Source: 58 FR 38931, July 21, 1993, unless otherwise noted.



Sec. 1965.201  General.

    Requests to pay Multi-Family Housing (MFH) loans in full require 
that certain actions be taken to ensure the affordability of housing for 
specified tenants for a guaranteed period of time. The requirement 
applies to all projects, whether or not they are subject to restrictive-
use provisions or prohibitions on prepayment. This subpart provides 
step-by-step guidance for use by Farmers Home Administration or its 
successor agency under Public Law 103-354 (FmHA or its successor agency 
under Public Law 103-354) and MFH borrowers when prepayment requests are 
made. The steps outlined are mandated by the Rural Rental Housing 
Displacement Prevention Provisions of the Housing and Community 
Development Act of 1987. When a MFH project is subject to multiple FmHA 
or its successor agency under Public Law 103-354 MFH loans, and the 
borrower offers prepayment or payment in full for one or more but not 
all of the MFH loans on the project, the borrower will not be allowed to 
pay off the most restrictive loan without invoking the prepayment 
provisions of this subpart, unless the borrower agrees to be bound by 
the more restrictive provisions for the balance of the time period 
remaining on the more restrictive loan being paid in full.



Sec. 1965.202  Definitions.

    Affordable housing. Housing with a rent rate which does not create 
new or increased rent overburden for tenants of prepaying projects.
    Displaced tenant. A displaced tenant is a tenant who is either 
forced to move from a project or a tenant who experiences new or 
increased rent overburden as a result of prepayment of a MFH loan. The 
new or increased rent overburden may occur at the time of prepayment or 
at any time in the future restrictive-use provisions are in force.
    Income limits. Very low, low, and moderate income are defined in 
accordance with exhibit C of subpart A or part 1944 of this chapter 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    Letter of priority entitlement (LOPE). A letter issued by FmHA or 
its successor agency under Public Law 103-354 to a tenant displaced 
through a prepayment action that will give the tenant priority on 
waiting lists at any FmHA or its successor agency under Public Law 103-
354 project for which they may qualify.
    Local nonprofit corporation or public agency. A public agency or 
nonprofit corporation which operates primarily in the local community 
and its trade area. Local nonprofit corporations must have a broad based 
board reflecting various interests in the community or trade area. A 
public agency must be organized in accordance with State and local 
statutes. Either type of organization must include as one of its primary 
purposes developing or managing low-income housing or community 
development projects, which meet the requirements of 
Sec. 1944.211(a)(10)(i) of subpart E of part 1944 of this chapter. 
County-wide agencies/corporations may meet the definition of local 
organization if, in the judgment of the District Office, the community's 
trade area is county-wide. Tenant associations and cooperatives may meet 
the definition if they are organized as nonprofit organizations.
    Market Area. The market area is the community in which the project 
is located and those outlying rural areas which are impacted by the 
project (excluding all other established communities).
    Minorities. Individuals such as members of the following groups: 
African-American, not of Hispanic Origin; Hispanic; American Indian or 
Alaskan Native; and Asian or Pacific Islander. Refer to FmHA or its 
successor agency under Public Law 103-354 Instruction 1900-A (available 
in any FmHA or its successor agency under Public Law 103-354 office) for 
further clarification and a description of each group.
    Prepayment. A loan which has been paid by the borrower in full, 
before the

[[Page 445]]

loan maturity date. After a prepayment, no FmHA or its successor agency 
under Public Law 103-354 loan remains on the property and the property 
is removed from the FmHA or its successor agency under Public Law 103-
354 program, although restrictive-use provisions may remain.
    Prohibition on prepayment. Loans which may not be prepaid prior to 
the final amortization date as described in Sec. 1965.208 of this 
subpart.
    Protected population. Individuals or families, whether very low, 
low, or moderate income, who are current tenant or wish to occupy rural 
rental housing (RRH) or labor housing (LH), and who are protected by a 
particular restrictive-use provision.
    Regional or national nonprofit corporation or public agency. Any 
public agency or nonprofit corporation meeting the conditions in 
Sec. 1965.216(c) of this subpart, which operates in an area larger than 
the local community and its trade area, or, if a nonprofit corporation, 
does not also have a broadly-based membership and board of directors 
reflecting various interests in the community or trade area, and does 
not have among its officers or directorate persons or parties with a 
material interest in (or persons or parties related to any person or 
party with such an interest) in loans financed under section 515 that 
have been prepaid. The primary purposes of the organization need not 
include developing or managing low-income housing or community 
development projects.
    Rent overburden. Shelter costs (rent and anticipated utility costs) 
exceeding 30 percent of a tenant's adjusted income, or the amount of 
payment designated by a third-party payor as shelter cost, whichever is 
greater.
    Restrictive-use provisions. Conditions restricting the use of the 
property to housing for very low-, low- and/or moderate-income tenants, 
whether or not the FmHA or its successor agency under Public Law 103-354 
loan is in force or has been paid in full as described in Sec. 1965.209 
of this subpart.
    Section 8. Tenant rental subsidies as provided under the Housing and 
Urban Development (HUD) section 8 Housing Assistance Payment Program.
    Unsubsidized conventional housing. Housing which receives no 
interest or project based rent subsidies, and which has no maximum 
income limits for its residents. When a borrower submits a request for 
prepayment of the FmHA or its successor agency under Public Law 103-354 
loan, the anticipated use of the project will be considered as 
unsubsidized conventional housing.



Sec. 1965.203  Nonprofit organization and public agency interest lists.

    Nonprofit organizations and public agencies interested in being 
notified of projects being offered for sale by FmHA or its successor 
agency under Public Law 103-354 borrowers wishing to prepay should 
contact FmHA or its successor agency under Public Law 103-354. Local 
nonprofit and public agencies wishing to purchase projects in one 
district need only contact the applicable FmHA or its successor agency 
under Public Law 103-354 District Office. Organizations or agencies 
interested in one state only should contact the FmHA or its successor 
agency under Public Law 103-354 State Office. National and regional 
nonprofit organizations interested in receiving multi-state 
notifications should contact the FmHA or its successor agency under 
Public Law 103-354 National Office. Interested organizations should 
submit their names, addresses, contact persons, and the areas in which 
they wish to purchase. The notification to FmHA or its successor agency 
under Public Law 103-354 must be updated annually if the organization 
wishes to continue to receive notifications of pending prepayments. FmHA 
or its successor agency under Public Law 103-354 will send notices 
requesting the update at least 30 days prior to removing the 
organization's name from the list. The National Office will not verify 
the eligibility of the organizations requesting notification, but will 
periodically forward the names of interested organizations to State 
Offices. The State Office will periodically compile a list of interested 
nonprofit organizations and public agencies and forward the list to its 
District Offices.

[[Page 446]]



Sec. 1965.204  Processing prepayment requests and related rent increases.

    (a) Chronological order of steps in processing prepayment requests. 
Prior to approving prepayment of an FmHA or its successor agency under 
Public Law 103-354 MFH loan, FmHA or its successor agency under Public 
Law 103-354 must determine the eligibility and ability of the borrower 
to prepay the loan; attempt to keep needed housing in the very low-, 
low-, and moderate-income market; and ease the transition of tenants 
that may be affected by the conversion of a federally-financed project 
to unsubsidized conventional housing. The remainder of this procedure 
provides the chronological order for the actions to be taken:
    (1) Borrower written request for prepayment (Sec. 1965.205 and 
exhibit C of this subpart).
    (2) Required notifications (Sec. 1965.206 of this subpart).
    (3) Evaluation of borrower ability to prepay (Sec. 1965.211 and 
exhibit E of this subpart).
    (4) FmHA or its successor agency under Public Law 103-354 incentive 
offer and borrower decision regarding incentives (Secs. 1965.213 and 
1965.214 and exhibits D and E of this subpart).
    (5) Evaluation of project need by FmHA or its successor agency under 
Public Law 103-354 (Sec. 1965.210 and exhibit E of this subpart).
    (6) Approval of prepayment under exception authority (Sec. 1965.215 
and exhibit E of this subpart).
    (7) Sale to nonprofit organizations or public agencies 
(Secs. 1965.216 and 1965.217 of this subpart).
    (8) Approval of prepayment in the absence of interest in purchase by 
nonprofit organization of public agency (Secs. 1965.218 and 1965.219 of 
this subpart).
    (9) Actions to be taken in the event of restrictive-use violations 
(Sec. 1965.222 of this subpart).
    (10) Relationship of these procedures to other servicing actions 
(Sec. 1965.223 of this subpart).
    (11) Prepayment of loans due to advance payments or completion of 
amortized payments (Sec. 1965.224 of this subpart).
    (b) Rent increases resulting from prepayment process. If rent 
increases are necessary due to the making of an equity loan to avert 
prepayment with or without a transfer, the procedures for tenant 
notifications and comment will be followed as set forth in paragraphs IV 
B of exhibit C to subpart C of part 1930 of this chapter. The reason for 
the rent increase will be shown as ``to meet the additional expense 
incurred in order to avert removal of (name of project) from the FmHA or 
its successor agency under Public Law 103-354 program.''
[58 FR 38931, July 21, 1993, as amended at 58 FR 40956, July 30, 1993]



Sec. 1965.205  Borrower request to prepay.

    (a) Prior to initiating a formal prepayment request, borrowers 
considering prepaying their loans should meet with the applicable FmHA 
or its successor agency under Public Law 103-354 Servicing Office to 
discuss the prepayment request and the requirements of this procedure. 
The borrower will be provided with exhibit C of this subpart, to aid in 
completing the prepayment request package.
    (b) At the meeting, the Servicing Office will inform the borrower 
that the project will be evaluated as unsubsidized conventional multi-
family housing for the purposes of determining eligibility for 
incentives. An appraisal will be completed to determine if any equity 
exists in the project when valued as unsubsidized conventional multi-
family housing. The components of the incentive offer, if any, will be 
dependent upon the amount of equity as follows:
    (1) If the project has equity in excess of the borrower's initial 
investment, an equity loan and a combination of additional incentives 
may be considered;
    (2) If no equity exists, but it can be shown that the project can be 
prepaid and operated successfully in the subject market, a combination 
of incentives not including an equity loan will be considered; or
    (3) If, based upon the Servicing Office's knowledge of the market it 
appears likely the project would not qualify for an equity loan, the 
Servicing Office should so inform the borrower during the meeting. 
However, in no instance will the Servicing Office personnel discourage 
eligible borrowers from

[[Page 447]]

submitting a prepayment request, should the borrower so desire.
    (c) Borrowers seeking to prepay MFH loans must submit a complete 
prepayment request to the Servicing Official at least 180 days in 
advance of the anticipated prepayment date (unless an exception is 
granted in accordance with Sec. 1965.215 (f)(2) of this subpart). A 
prepayment request will not be considered complete nor will the 180-day 
period begin until all of the following items have been submitted:
    (1) A written request to prepay the FmHA or its successor agency 
under Public Law 103-354 loan on a specified date;
    (2) Complete and documented information necessary to prepare the 
prepayment report as outlined in exhibit B of this subpart and to make 
the required determination needed to develop an incentive offer as 
outlined in exhibit D of this subpart. Exhibit C of this subpart should 
be used as guidance for the documentation necessary to complete the 
request;
    (3) Documentation of the borrower's ability to prepay under the 
conditions specified in the prepayment request. Exhibit C of this 
subpart should be used as guidance for the documentation necessary;
    (4) Certification that the housing will continue to be administered 
in accordance with Fair Housing Act policies;
    (5) A statement from the borrower accepting restrictive-use 
provisions in the release documents if the borrower wishes to prepay the 
loan subject to restrictions; and
    (6) Evidence that actions required by any applicable State laws 
related to prepayment have been met.



Sec. 1965.206  Review of borrower prepayment request by Servicing Office.

    The Servicing Office will determine whether the prepayment request 
is in conformance with Sec. 1965.205 of this subpart. Within 15 working 
days of receipt of a prepayment request, the Servicing Office will take 
the following actions:
    (a) Return of incomplete requests. If an incomplete request is 
submitted, the Servicing Official will return the request to the 
borrower specifying the additional information needed.
    (b) Receipt of complete requests. If a complete prepayment request 
is submitted, the Servicing Official will:
    (1) Acknowledge the request. Send an acknowledgment letter to the 
borrower specifying the date of receipt of the complete request and 
informing the borrower that prepayment commitments should not be 
finalized until FmHA or its successor agency under Public Law 103-354 
issues a letter of approval.
    (2) Notify current tenants. Notify each tenant household by 
Certified Mail, Return Receipt Requested, of the receipt of the 
prepayment request and prepare notices for the borrower to post in 
public areas of the project. The notices are to remain posted until a 
final determination is made on the prepayment request or the prepayment 
offer is withdrawn. The Servicing Official will not wait to determine if 
submitted information is accurate or if the prepayment will be accepted 
or denied before notifying tenants. FmHA or its successor agency under 
Public Law 103-354 Guide Letter 1965-E-2 (available in any FmHA or its 
successor agency under Public Law 103-354 office) may be used as a 
guide. The following issues are to be addressed in the letter:
    (i) The borrower proposes to prepay the FmHA or its successor agency 
under Public Law 103-354 loan and remove the housing from the FmHA or 
its successor agency under Public Law 103-354 program if all prepayment 
requirements imposed by FmHA or its successor agency under Public Law 
103-354 are met;
    (ii) FmHA or its successor agency under Public Law 103-354's 
preliminary determination that the borrower's request to prepay will/
will not be approved;
    (iii) The likely effect of the prepayment on tenants living at the 
project. Include:
    (A) The level at which rents at the project are projected to be set 
if prepayment is accepted;
    (B) Restrictive-use provisions the borrower has agreed to maintain 
and the terms of the restrictions;
    (C) Whether Section 8 or State or local subsidy will remain with the 
project; and

[[Page 448]]

    (D) Whether the borrower has the option to terminate section 8 
assistance at the next renewal period (opt-out), and if so, when.
    (iv) FmHA or its successor agency under Public Law 103-354 must make 
a determination as to whether tenants would be displaced due to 
increased rents, and whether there is alternative housing available in 
the community that is comparable in quality, size, location and rent 
structure before deciding to accept the prepayment;
    (v) Conditions under which prepayment will be accepted;
    (vi) A 30-day tenant comment period will be available for tenants to 
present comments concerning the proposed prepayment. Tenants will be 
allowed to review the information used by FmHA or its successor agency 
under Public Law 103-354 to make the determinations regarding 
prepayment;
    (vii) Tenants will be given immediate priority for other federally-
financed housing if there will be any displacement;
    (viii) Tenants will be kept apprised of all decisions reached 
regarding acceptance of the prepayment and action dates;
    (ix) Tenants will be given the opportunity to submit evidence at any 
appeal hearing the borrower may request;
    (x) If prepayment is accepted, tenants choosing to stay in their 
units and pay the higher rents, with or without Federal, State, or other 
subsidy, are entitled to do so, unless evicted for cause unrelated to 
prepayment; and
    (xi) Any other information relevant to the case.
    (3) Notify National Office. The Servicing Office is to notify the 
FmHA or its successor agency under Public Law 103-354 State Office, who 
will notify the Assistant Administrator, Housing, FmHA or its successor 
agency under Public Law 103-354 National Office, in writing using the 
format of FmHA or its successor agency under Public Law 103-354 Guide 
Letter 1965-E-1 (available in any FmHA or its successor agency under 
Public Law 103-354 office). National Office notification must be sent by 
the State Office within 20 working days of the receipt of a complete 
request by the Servicing Office.
    (4) Notify other agencies. The FmHA or its successor agency under 
Public Law 103-354 State and Servicing Offices, as appropriate, will 
notify other agencies of the borrower's intent to prepay the FmHA or its 
successor agency under Public Law 103-354 loan. The agencies contacted 
will include nonprofit organizations; local, State, and Federal 
agencies; and public organizations who have expressed an interest in 
purchasing a project and who provide housing assistance to low- and 
moderate-income people. The interest list, compiled in accordance with 
Sec. 1965.203 of this subpart, is to be used in notifying organizations 
of the borrower's intent to prepay. Letters sent to the agencies will 
inform the organizations of the offer to prepay, the extent of any 
anticipated displacement, and the possibility of transfer with 
incentives or sale to a nonprofit organization or public agency. 
Organizations contacted will be advised that an offer to sell may be 
forthcoming. Generally, the FmHA or its successor agency under Public 
Law 103-354 State Office will notify State and Federal agencies and the 
appropriate Servicing Office will notify local agencies.
    (5) New tenant notification. (i) The borrower will be required to 
submit for approval proposed language to be used as an addendum to 
leases for all tenants moving into the project while the prepayment 
request is pending. The language will specify the effect of the 
prepayment on the tenants if prepayment is accepted. The recommended 
language to be included in the leases is as follows:

    ``The mortgage on this project may be repaid to the Federal 
Government on or after (date). (At that time/ (date restrictive-use 
provisions expire)/ (other relevant date), your rent may be raised to 
______/ and/or you may be asked to move from this project.''

    (ii) The borrower will also be required to provide new tenants with 
copies of all letters sent to existing tenants advising them of the 
status of the prepayment. The Servicing Office will also send new 
tenants any additional correspondence sent to existing tenants, but will 
inform the new tenants that they will not be eligible for an LOPE.

[[Page 449]]

    (6) On-going tenant notification. The Servicing Office will 
periodically notify tenants of the status of the prepayment request and 
actions being taken. Tenant notifications are to continue until the loan 
is prepaid, an incentive or loan to a nonprofit is obligated, or the 
prepayment request is withdrawn. Notification will be sent to tenants as 
each decision is made or one year after the last notification, whichever 
is earlier.



Sec. 1965.207  Prohibition on prepayment for loans made on or after December 15, 1989, to build or acquire new units.

    Loans made on or after December 15, 1989, to build or acquire new 
RRH units may not be prepaid for the life of the loan, even if the 
borrower is willing to sign restrictions agreeing to operate the project 
for low- and moderate-income people after prepayment. The prohibition 
and conditions for use are described in subpart E of part 1944 of this 
chapter.



Sec. 1965.208  Restrictive-use provisions related to LH projects with grants.

    For LH projects with any size grant, no incentive will be offered 
since the grant agreement obligates the borrower to operate the housing 
for its intended use for a 50-year period.



Sec. 1965.209  Restrictive-use provisions after prepayment.

    (a) Restrictive-use provisions protect tenants in prepaid projects 
from future rent increases that would create new or increased rent 
overburden. Restrictive-use provisions apply to all loans approved 
between December 21, 1979, and December 14, 1989, all subsequent loans 
approved on or after December 15, 1989, and those loans approved prior 
to December 21, 1979, subsequently made subject to restrictive-use 
provisions as a result of:
    (1) A servicing action;
    (2) Acceptance of prepayment incentives; or
    (3) Restrictions accepted as a condition of prepayment as specified 
in this subpart and exhibits A-1 through A-4 of this subpart.
    (b) The restrictions mandate that conditions of occupancy, rent, and 
charges other than rent be maintained so that the housing will continue 
to be affordable to the protected population of tenants. Priority for 
tenants entering the project after prepayment must continue to be for 
those tenants in the lowest income category in the protected population, 
if determined eligible for the units. Borrower responsibilities under 
restrictive-use provisions are discussed in greater detail in 
Sec. 1965.215 (e)(6) of this subpart.



Sec. 1965.210  Loans approved prior to December 15, 1989--RHS actions when processing prepayment requests.

    For loans approved prior to December 15, 1989, that have not 
subsequently accepted prepayment incentives, the Servicing Office or 
other designated office must evaluate the need for the housing to 
determine the level of incentives to be offered, including equity loans, 
and whether the prepayment may be legally accepted with or without 
restrictive-use provisions. A reasonable effort must be made to enter 
into an agreement with the borrower to maintain the housing for low-
income use that takes into consideration the economic loss the borrower 
may suffer by foregoing prepayment. When developing an incentive offer, 
the Servicing Office or other designated office must first offer 
incentives other than equity loans, unless it is determined that 
alternative incentives are not adequate to provide a fair return to the 
borrower, prevent prepayment of the loan, or prevent displacement of the 
tenants. The guidance provided in Secs. 1965.213 and 1965.214 and 
Exhibit E of this subpart (available in any Rural Development State or 
District Office) will be used to determine the appropriate incentive 
package. Once an incentive offer has been accepted on a project, the 
project will be considered ineligible for future incentive offers until 
such time as the restrictive-use period associated with the incentive 
offer has expired.
[62 FR 25070, May 7, 1997]



Sec. 1965.211  Evaluation of the borrower's ability to prepay the loan.

    The borrower's ability to prepay the loan will be evaluated in 
accordance with exhibit E of this subpart. If it is

[[Page 450]]

determined the borrower does not have the ability to finance the 
prepayment, the prepayment request will be denied. The borrower will be 
notified of the reasons for the decision and appeal rights will be 
given.



Sec. 1965.212  Appraisals.

    To determine the appropriate incentives to offer a borrower, an 
appraisal must be completed. The purpose of the appraisal is to 
determine if the borrower's current equity in the project exceeds the 
initial investment. The project will be appraised as unsubsidized 
conventional multi-family housing. The effect on value of any hard and 
soft costs of conversion of the project from subsidized housing to 
unsubsidized conventional housing will be considered. Additionally, 
project reserve accounts and the present worth of any unexpired non-FmHA 
or its successor agency under Public Law 103-354 project based tenant 
subsidies will be valued as assets of the project for inclusion in the 
appraisal. FmHA or its successor agency under Public Law 103-354 
Instruction 1922-B (available in any FmHA or its successor agency under 
Public Law 103-354 office) will be used for guidance in conducting 
multi-family housing appraisals. After receipt of the appraisal, the 
Servicing Official or other designated official will determine the 
amount of the equity loan, if any, the number of Rental Assistance (RA) 
units necessary, the amount of annual return on investment to be 
offered, and whether excess Section 8 rents may be released to the 
borrower, if applicable.



Sec. 1965.213  Offer of incentives to borrowers.

    The Servicing Official must offer an incentive package to the 
borrower as an inducement to not prepay if the borrower's loan(s) is not 
subject to prohibitions on prepayment or the borrower has not previously 
accepted incentive offers on the project for which the associated 
restrictive-use period has not expired. If a prepayment incentive offer 
which includes any equity loan is accepted, the equity loan may be 
processed and closed with the current borrower or any eligible 
transferee.
    (a) Availability of incentives. Incentives may be offered only if 
the restrictive period has expired for any RRH project loan.
    (b) Available incentives. One or more of the following incentives 
will be offered to the borrower. The amount of incentives will be 
determined in accordance with Exhibits D and E of this subpart 
(available in any Rural Development State or District Office).
    (1) Equity loans. In RRH projects, a subsequent loan may be offered 
for equity for the difference between the current unpaid loan balance 
and a maximum of 90 percent of the project's value appraised as 
unsubsidized conventional housing. Equity loans may not be offered 
unless the servicing official determines that other incentives offered 
under this paragraph are not adequate to provide a fair return on the 
investment of the borrower, to prevent prepayment of the loan, or to 
prevent the displacement of project tenants.
    (2) Rental assistance. Additional RA will be offered if needed by 
current tenants if found necessary by a market determination of need. 
The number of RA units offered will be based upon:
    (i) The increase in rent overburden that will be experienced by 
tenants, in the project as a result of the incentives offered. The 
Multiple Housing Tenant File System (MTFS) will be reviewed to determine 
the number of tenants that will be rent overburdened by the increase in 
rents resulting from any subsequent loan made for equity. The number of 
RA units offered will be equal to the number of tenants experiencing 
rent overburden; and/or
    (ii) A change in the market increasing the need for affordable 
housing. This criteria will usually be used when the project is 
experiencing substantial vacancies due to market factors. Generally, if 
the incentive offer contains a substantial equity loan, it would be 
unlikely that this provision would be consistent with the determination 
that the project is located in a strong unsubsidized market.
    (iii) Reamortizing the existing debt under the provisions of 
Sec. 1965.70 of subpart B of this part should be examined to determine 
if reamortization will lower existing debt service, thereby reducing 
tenant rent overburden and the need for additional RA.

[[Page 451]]

    (3) Increase the maximum annual return on investment--(i) Borrower 
equity. The borrower's equity in the project may be increased. The new 
equity is the difference between the value of the project appraised as 
unsubsidized conventional housing in conjunction with the incentive loan 
(if offered) and the unpaid balances of all loans against the project, 
including the incentive loan. If no new appraisal is made, equity will 
be determined by subtracting the outstanding balances of all loans 
against the project from the value shown in the most recent FmHA or its 
successor agency under Public Law 103-354 appraisal completed for the 
project prior to receipt of the prepayment request.
    (ii) Rate of return. Borrowers not eligible to receive an equity 
loan but who are determined likely to prepay will be offered an 
incentive package which may include an increased rate of return. The 
rate to be offered will be the greater of the borrower's current rate 
established in the initial loan, or 2 percent above the 30-year Treasury 
Bond rate, rounded to the nearest \1/4\ percent. The appropriate 
Treasury Bond rate will be determined from newspapers or available 
financial publications and will be the rate published for the first day 
of the month following receipt of the complete prepayment request. The 
rate of return for borrowers receiving equity loans will remain at the 
rate currently established in the initial loan.
    (iii) Recept of increased return. Regardless of any increased return 
on investment agreed to as part of the incentive offer, the actual 
withdrawal of the return remains subject to conditions specified in 
paragraph XII B of exhibit B of subpart C of part 1930 of this chapter.
    (4) Excess section 8 rents. For projects with project-based section 
8 rents, the owner may be permitted to receive rents considered in 
excess of the amounts needed to meet annual project operating and 
maintenance, debt service, and reserve expenses. In conjunction with the 
acceptance of excess section 8 rents as an incentive, the reserve 
account will be adjusted to reflect adequate funding for long-term 
repair, replacement and maintenance costs.
    (5) Conversion or modification of interest credit. Convert full 
profit loans to limited profit Plan II loans or increase the interest 
subsidy for loans with section 8 assistance to make contract rents more 
financially feasible. The conversion would be accomplished by changing 
the designation of the project to Plan II.
    (c) Development of incentive package--(1) Borrowers requesting 
immediate conversion from low and moderate-income use. The required 
borrower information and criteria to be used in determining the 
incentives to offer, along with the steps to develop the incentive 
offer, are listed in exhibits D and E of this subpart.
    (2) Projects committed to low- and moderate-income use after 
prepayment by parties other than FmHA or its successor agency under 
Public Law 103-354. In accordance with exhibits D and E of this subpart, 
incentives will be reduced in proportion to the length of time a project 
is committed to low- and moderate-income use after prepayment through 
requirements of parties other than FmHA or its successor agency under 
Public Law 103-354. The commitment for extended use may be voluntary or 
required by legal restrictions on use. The effect on the value of the 
project will be taken into consideration during the appraisal process.
    (3) Adjustment of project reserve accounts. The reserve account must 
be maintained in conformance with the requirements of paragraph XIII B 2 
c of exhibit B of subpart C of part 1930 of this chapter. At the time an 
incentive offer is developed, the maximum reserve amount should be 
adjusted to include the costs of any deferred maintenance items or 
expected long-term repair or replacement costs of the project.
    (d) Letter offering incentives to borrowers. Within 20 days of the 
end of the tenant comment period, a letter will be sent to borrowers 
outlining the elements of the incentive offer developed in accordance 
with this section and exhibits D and E of this subpart. The letter will 
include the following:
    (1) A statement that the package is a one-time incentive being 
offered in return for the extension of the low and moderate income use 
of the housing.

[[Page 452]]

The letter will establish that, by accepting the incentives outlined in 
the letter, the borrower will be subject to a restrictive-use provision 
obligating the housing to low- and moderate-income use in the FmHA or 
its successor agency under Public Law 103-354 program for 20 years from 
the date the extended use agreement is executed, and prohibited from 
future incentive offers on the project so long as the restrictive-use 
provisions remain in effect.
    (2) The amount of the equity loan being offered (if any). Any offer 
of an equity loan will include a statement that the borrower is subject 
to:
    (i) A continued eligibility determination in accordance with subpart 
E of part 1944 of this chapter; and
    (ii) Appropriation limitations. When an incentive offer that 
includes an equity loan is accepted by a borrower, funding the 
components of the offer is considered binding on FmHA or its successor 
agency under Public Law 103-354. If funds are not immediately available 
to fund an incentive loan, the amount of the offer will be included on a 
funding waiting list maintained by the National Office. Priority for 
funding is based on the date of receipt of the original complete 
prepayment request, as specified in Sec. 1965.205 of this subpart.
    (3) The maximum amount of any increased return on investment 
offered.
    (4) The number of RA units that will be provided to protect existing 
tenants from rent overburden due to other incentives that may increase 
rental rates in the project.
    (5) Interest credit or additional interest credit if needed to 
protect existing tenants from rent overburden due to other incentives 
that may increase rental rates in the project.
    (6) The offer of borrower receipt of excess project-based section 8 
rents, if applicable.
    (7) The offer must be accepted or rejected in writing within 30 
days, or the prepayment request will be voided.
    (8) Appropriation limitations may restrict available incentives each 
year. The actual receipt of the preceding incentives may not be 
forthcoming in the near future. However, the offer is binding on FmHA or 
its successor agency under Public Law 103-354. Acceptance of the 
incentive offer by the borrower will cause the request to be maintained 
on the waiting list for funding until obligated.
[58 FR 38931, July 21, 1993, as amended at 62 FR 25071, May 7, 1997]



Sec. 1965.214  Offering and processing of incentives.

    (a) Borrower does not respond to incentive offer. If the borrower 
does not respond to the incentive offer within 30 calendar days of the 
date of the letter offering incentives, the State Office will advise the 
National Office by means of FmHA or its successor agency under Public 
Law 103-354 Guide Letter 1965-E-1 (available in any FmHA or its 
successor agency under Public Law 103-354 office) to remove the name 
from the waiting list. Tenants and any agencies notified in accordance 
with Sec. 1965.206 (b) of this subpart will be notified by the Servicing 
Office that the borrower has ceased to pursue the prepayment request and 
prepayment will not take place.
    (b) Borrower rejects the incentive offer. If the borrower rejects 
the incentive offer within 30 calendar days, a determination of the 
continued need for the housing as subsidized housing will be made in 
accordance with Sec. 1965.215 (b) and exhibit E of this subpart. Tenants 
will be notified that the borrower has rejected the incentive offer and 
that a decision will be made by FmHA or its successor agency under 
Public Law 103-354 whether to accept the prepayment. The tenants will be 
informed of the factors used in making the decision.
    (c) Borrower indicates acceptance of the incentive package. If the 
borrower indicates a willingness to accept an incentive package which 
includes an equity loan, a complete loan application in accordance with 
exhibit A-11 of subpart E of part 1944 of this chapter will be required. 
If an appraisal of the property has not been completed as required in 
Sec. 1965.212 of this subpart, one will be made at this time in 
accordance with FmHA or its successor agency under Public Law 103-354 
Instruction 1922-B

[[Page 453]]

(available in any FmHA or its successor agency under Public Law 103-354 
office). The Servicing Official will determine the feasibility of the 
loan, including any needed reamortization of existing loans. No equity 
loan is to be made without sufficient RA to protect current tenants 
against new or increased rent overburden.
    (d) Application for transfer with incentives. If a transfer is to 
take place simultaneously with the incentive, a complete transfer 
application package, in accordance with Sec. 1965.65 of subpart B of 
part 1965 of this chapter, will be submitted. A completed application 
for an equity loan, if applicable, will be completed and submitted in 
accordance with paragraph (c) of this section. The determination of 
borrower eligibility, evaluation of the transfer and any equity loan 
will be made concurrently. If a proposed transferee is determined not to 
be eligible for the transfer and assumption, appeal rights concerning 
transferee eligibility will be provided to the proposed transferee. If 
the FmHA or its successor agency under Public Law 103-354 decision is 
upheld, the borrower will be given an additional 15 days to reconsider 
whether to accept the original incentive offer.
    (e) Notification that incentives are ready for funding. When the 
borrower indicates that the final incentive offer is acceptable, and the 
processing of the incentive application is complete, the Servicing 
Official will notify the State Office, which in turn will notify the 
National Office of all required information through use of FmHA or its 
successor agency under Public Law 103-354 Guide Letter 1965-E-1 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (1) All interested agencies contacted in accordance with 
Sec. 1965.206 (b) of this subpart and tenants will be advised that 
prepayment of the loan will not take place. If the ownership is to be 
transmitted, tenants will be so advised. Any rent increases resulting 
from acceptance of an incentive offer will be processed in accordance 
with Sec. 1965.204(b) of this subpart.
    (2) The National Office will issue authorizations to obligate 
incentives to the extent possible, depending upon the availability of 
loan funds and RA. Authorizations will be issued in the order in which 
complete prepayment requests were received as set forth in Sec. 1965.205 
of the subpart. To fully utilize all available prepayment incentive loan 
funds and RA, projects with fully processed incentive packages may be 
authorized prior to authorizing packages with earlier receipt dates for 
which incentives have not been fully processed. Any other required 
National Office authorizations will be given at the same time.
    (f) Processing the incentives. When authorization to proceed is 
received, the Servicing Office will process the incentives, with or 
without a transfer and make the following amendments to the loan and RA 
agreements with the assistance of the Office of the General Counsel 
(OGC), as appropriate:

(Note: If the project is to be transferred at the time the incentive is 
processed, all obligations will be made to the transferee)

    (1) If the annual return on investment is increased, a statement 
will be added to the loan agreement specifying that, ``The maximum 
annual return on investment is being increased by $______ for a total 
maximum annual return of $______.'' No equity level or rate of return 
need be mentioned.
    (2) If a conversion of profit type is made, the procedures of 
paragraph IV A 2 d of exhibit B of subpart C of part 1930 of this 
chapter will be followed. If the interest subsidy is increased, a new 
Form FmHA or its successor agency under Public Law 103-354 1944-7, 
``Multiple Family Housing Interest Credit and Rental Assistance 
Agreement,'' will be executed.
    (3) Any change in the amount of RA will require the execution of a 
new RA agreement or a change in the existing RA agreement, as described 
in paragraph V C of exhibit E of subpart C of part 1930 of this chapter.
    (4) Loans for equity will be made in accordance with subpart E of 
part 1944 of this chapter. In accordance with Sec. 1951.517 (b)(1) of 
subpart K of part 1951 of this chapter, the equity loan will be 
established as a Predetermined Amortization Schedule System (PASS) loan 
and all existing loans on the project will be converted to PASS. All 
assumptions and transfers will be processed in accordance with 
Sec. 1965.65 of subpart B

[[Page 454]]

of this part. All existing project loans may be consolidated and 
reamortized in accordance with Secs. 1965.68 and 1965.70 of subpart B of 
this part, unless consolidation is not necessary to maintain feasibility 
of the project for the current tenants or reduce the level of monthly 
rental subsidies. All delinquent loans must be brought current, cost 
items paid in full, and project operating and reserve accounts brought 
current. All project operating and reserve accounts will remain at 
authorized levels during and after the closing of the incentive package, 
regardless of whether a transfer was included as part of the prepayment. 
All taxes, assessments and other liens must be prorated, brought current 
or paid in full as appropriate. Deferred maintenance identified in 
previous inspections must be performed before any equity may be received 
by the borrower or transferor, as applicable.
    (g) Restrictive-use provisions. The restrictive-use provisions 
contained in exhibit A-1 of this subpart will be inserted in the deed, 
security instruments, loan agreement/resolution, assumption agreement, 
and/or reamortization agreement, as appropriate with the advice of OGC.
[58 FR 38931, July 21, 1993, as amended at 58 FR 40956, July 30, 1993]



Sec. 1965.215  Borrower rejection of incentive offer--approving/disapproving prepayment.

    (a) Approving or disapproving prepayments. If the borrower rejects 
the incentive offer and indicates a preference to prepay, prepayment may 
be approved in accordance with paragraph (d) of this section within 180 
days of the decision that the prepayment can be accepted if the 
determinations required in paragraph (c) of this section can be made. 
Exhibit E of this subpart provides additional guidance for making the 
necessary determinations. The State Director or other designated 
official in the National Office, with the recommendation of the 
Servicing Official, will make the decision to either approve or 
disapprove the prepayment request.
    (b) Determining the need for housing. (1) The Servicing Office or 
other designated office will review the following, using exhibit E of 
this subpart as a guide:
    (i) Local market conditions;
    (ii) Information submitted as support for the prepayment request;
    (iii) Responses to the 30-day tenant comment period;
    (iv) the effect of the prepayment on minorities, handicapped 
individuals, and families with children; and
    (v) Any other relevant information.
    (2) The results of the determination of need will be documented in 
the case file.
    (c) Conditions under which prepayment may be approved. In certain 
instances, prepayment may be approved after a borrower has rejected the 
incentive offer. If the decision is made to approve a prepayment 
request, restrictive-use provisions will be inserted in the deed, deed 
of release or satisfaction, if the project is determined to be needed 
under the provisions of the following paragraphs (1)(i) and (ii) of this 
section. The borrower will also execute the applicable restrictive-use 
agreement. If the project has section 8 assistance, the local HUD Area 
Office must be notified. To determine whether a prepayment offer can be 
approved, the following decision steps must be followed by the Servicing 
Office:
    (1) The loan is not currently subject to restrictive-use provisions 
nor prohibition on prepayment. To determine whether a loan not subject 
to restrictive-use provisions or prohibition on prepayment may prepay, 
and if so, what restrictions must be inserted in the release documents, 
the following determinations must be made.
    (i) If the Servicing Office cannot make the determination that 
housing opportunities to minorities will not be materially affected as a 
result of the prepayment, the borrower may prepay if the borrower agrees 
to the following restrictions and inclusion of the applicable 
restrictive language found in paragraph (A) or (B) of exhibit A-4 of 
this subpart, and to execute the applicable Restrictive-Use Agreement 
found in exhibit G-2 or G-3 of this subpart;
    (A) Maintain the housing for low- and moderate-income people for a 
minimum period of 20 years from the date

[[Page 455]]

of the closing of the last loan or servicing action. At the end of the 
restrictive-use period, offer to sell the housing to a qualified 
nonprofit organization or public agency in accordance with paragraph 
(e)(9) of this section and paragraph (A) of exhibit A-4 of this subpart; 
or
    (B) If 20 years from the date of the closing of the last loan or 
servicing action has already lapsed, offer to sell the housing to a 
qualified nonprofit organization or public agency in accordance with 
paragraph (e)(9) of this section and paragraph (B) of exhibit A-4 of 
this subpart;
    (ii) If the Servicing Office determines that housing opportunities 
to minorities will not be materially affected as a result of prepayment, 
but that there is an inadequate supply of safe, decent, and affordable 
rental housing within the market area, the borrower may prepay if the 
borrower agrees to the following restrictions and inclusion of the 
applicable restrictive-use language found in paragraph (C) of exhibit A-
4 of this subpart and agrees to execute the Restrictive-Use Agreement 
found at exhibit G-4 of this subpart:

Maintain the housing for current eligible tenants in occupancy as of the 
date of the prepayment for the life of the project or until the current 
tenants are no longer eligible for the housing under FmHA or its 
successor agency under Public Law 103-354 regulations, or the tenants 
choose to vacate of their own will. The owner will ensure the tenants 
will not be displaced due to a change in the use of the housing, an 
increase in the rental or other charges as a result of the prepayment, 
or a decrease in income. Existing tenants are protected to ensure that 
none experience new or increased rent overburden until each voluntarily 
moves from the project.
    (iii) If the Servicing Office determines that housing opportunities 
to minorities will not be materially affected as a result of prepayment, 
and that there is an adequate supply of safe, decent, and affordable 
rental housing within the market area for the foreseeable future, the 
borrower may prepay without restrictions. The provisions of paragraph 
(c)(3) of this section will apply.
    (2) The loan is subject to restrictive-use provisions and the 
borrower agrees to continue to adhere to the provisions after 
prepayment. In accordance with exhibit A-3 of this subpart, the borrower 
agrees to continue to maintain the housing in accordance with the 
restrictions already in effect. The borrower must also agree to execute 
the Restrictive-Use Agreement found at exhibit G-1 to this subpart.
    (3) It is determined by FmHA or its successor agency under Public 
Law 103-354 that restrictions are not needed. If actions in accordance 
with Sec. 1965.206 (b)(2) of this subpart and paragraph (e)(3) of this 
section have been taken to ensure that alternative rental housing will 
be made available to each tenant upon displacement, the prepayment may 
be accepted without restrictions if:
    (i) For loans not subject to restrictive-use provisions nor 
prohibition on prepayment, it is determined by FmHA or its successor 
agency under Public Law 103-354 that housing opportunities for 
minorities will not be materially affected as a result of the 
prepayment. Exhibit E of this subpart will be used to assist in making 
this determination.
    (ii) For loans subject to restrictive-use provisions, it is 
determined Federal or other financial assistance provided to residents 
will no longer be provided, due to no fault, action or lack of action on 
the part of the borrower. If a borrower applies to have restrictions 
removed after prepayment because Federal or other financial assistance 
will no longer be provided, the restrictions will be released only if 
the loss of Federal or other financial assistance could not have been 
reasonably anticipated at the time of acceptance of the prepayment.
    (iii) Regardless of whether or not the loan is subject to 
restrictive-use provisions, a determination is made by FmHA or its 
successor agency under Public Law 103-354 that there is no longer a need 
for the housing (in accordance with exhibit E of this subpart).
    (4) Projects with both LH loans and grants. If a prepayment is 
accepted on an LH loan for a project which also has an LH grant, 
restrictive-use provisions for the project may be released only

[[Page 456]]

under the conditions specified in the Grant Agreement.
    (5) Documentation. Thorough documentation of the reasons and 
decision to approve prepayment will be entered in the casefile and 
appended to the prepayment report. Any additional materials used to 
reach the decision will be included in the casefile.
    (d) Borrower notification of approval or disapproval of prepayment. 
The Servicing Office or other designated office will notify the borrower 
as to whether the prepayment has been approved or disapproved within:
    (1) 15 days of the borrower's rejection of an incentive offer for 
loans not subject to restrictive-use provisions nor prohibited from 
prepayment; or
    (2) 60 days of a complete prepayment request by a borrower subject 
to restrictive-use provisions.
    (e) Processing acceptance of prepayment. After approval of a 
prepayment, the following actions must be taken:
    (1) Completion of the prepayment report and notification of the 
National Office. If prepayment is approved, the Servicing Office or 
other designated office will complete a prepayment report in the format 
of exhibit B of this subpart, and submit the report with all 
documentation on each prepaid loan to the State Director or other 
designated official for indefinite retention. Any information for the 
report supplied by the borrower must include documentation and 
verification by the Servicing Office. For prepayment of on-farm labor 
housing units, only items relevant to the on-farm units need be 
completed. The State Office will notify the National Office in the 
format of FmHA or its successor agency under Public Law 103-354 Guide 
Letter 1965-E-1 (available in any FmHA or its successor agency under 
Public Law 103-354 office) indicating that the prepayment has been 
accepted. A copy of the prepayment report will be included in the 
materials forwarded to the National Office.
    (2) Notify interested agencies. All interested agencies notified in 
accordance with Sec. 1965.206 (b)(4) of this subpart will be notified of 
the decision to accept the prepayment. Agencies which may aid displaced 
tenants will be advised of any anticipated displacement, the level at 
which post-prepayment rents will be set and any restrictive-use 
provisions which will remain in the deeds of release. Other agencies 
will be advised that no offer to sell will be made.
    (3) Notify tenants. The Servicing Office will send an additional 
notice to tenants at least 60 days prior to the prepayment. The 
prepayment may not take place less than 60 days from the tenant 
notification or 180 days from the initial notification unless an 
exception is allowed in accordance with paragraph (f)(2) of this 
section. Tenant notices will be sent certified mail to each tenant and 
also posted at the project in public areas. Copies of the notice will 
remain posted at the project until the prepayment is accepted and all 
existing tenants voluntarily vacate their units. The notice and 
attachments will contain all of the following information appropriate 
for the prepayment action and any other relevant information necessary 
to allow tenants to make informed choices (FmHA or its successor agency 
under Public Law 103-354 Guide Letter 1965-E-3 (available in any FmHA or 
its successor agency under Public Law 103-354 office) and attachments 
are provided as a guide for this purpose). The notice will contain the 
following applicable statements and information:
    (i) All relevant information concerning the prepayment has been 
reviewed and FmHA or its successor agency under Public Law 103-354 has 
decided to accept the prepayment on (date).
    (ii) Fully detailed reason(s) describing why the prepayment was 
approved. Also include the reasons for acceptance of the prepayment in 
less than 180 days (if applicable).
    (iii) At the time of prepayment, rents are expected to be 
$____________.
    (iv) The tenant will be affected by this change on (date the 
tenant's current lease expires, date of the prepayment or other mandated 
date, whichever is later.)
    (v) (The following statement should be included if the loan is being 
prepaid but will retain restrictive-use provisions.) All current 
eligible tenants may continue to occupy the housing until the tenants 
decide to voluntarily move, the tenants no longer meet eligibility 
requirements or the restrictive-use provisions expire on (insert 
expiration

[[Page 457]]

date), whichever is sooner. The rents of current eligible tenants may 
not be increased as a result of current owner actions to exceed levels 
which create new or increased rent overburden as established by FmHA or 
its successor agency under Public Law 103-354 regulations, in accordance 
with title V of the Housing Act of 1949, during the period of eligible 
tenant occupancy during the restricted period. However, declines in 
tenant income shall not require corresponding reductions in rent levels. 
A tenant, or those wishing to occupy the housing (if applicable), as 
well as the Government, may seek enforcement of the provisions. Annual 
income recertifications will continue to be required in order to protect 
eligible tenant rents. The preceding requirements are binding on the 
current owner and any successors in interest.
    (vi) (The following statement should be included if the project has 
project-based section 8 rents.) Eligible tenant rents will continue to 
be subsidized by the Department of Housing and Urban Development (HUD) 
until (insert the date the section 8 contract expires). (If applicable, 
include the following.) If section 8 subsidies are not continued after 
(insert the date the section 8 contract expires), the owner of the 
project will continue eligible tenant rents at levels that will not 
create or increase rent overburden until (insert date the restrictive-
use expires. However, declines in tenant income shall not require 
corresponding reductions in rent levels.
    (vii) (The following statement should be included if project-based 
HUD section 8 or other subsidies will expire prior to 2 years after the 
prepayment.) Eligible tenants currently residing in the project who may 
subsequently be displaced or experience rent overburden due to the 
prepayment may qualify for certain protections. The following 
protections are available to eligible tenants who believe they have 
experienced displacement or rent overburden:
    (A) Letters of Priority Entitlement (LOPE) to other FmHA or its 
successor agency under Public Law 103-354 housing. Tenants may apply for 
LOPEs up until the day the tenants' rents are scheduled to be increased. 
These letters will be valid for 60 days after issuance. All LOPEs will 
be issued in accordance with title VI of the Civil Rights Act of 1964, 
as codified in subpart E of part 1901 of this chapter.
    (B) Tenants currently receiving rental assistance (RA) will be able 
to continue to receive RA if they move to other FmHA or its successor 
agency under Public Law 103-354 financed housing in which they are 
eligible for RA.
    (C) Tenants choosing to stay in their units after prepayment and pay 
higher rents, with or without Federal, State or other subsidy, are 
entitled to do so, unless evicted for a cause unrelated to prepayment.
    (viii) Eligible tenants residing in prepaying projects will also be 
sent:
    (A) A list of project names, locations, number of apartments, senior 
citizen or family designation, and unit sizes of other FmHA or its 
successor agency under Public Law 103-354 projects in the market area.
    (B) The names and locations of other subsidized housing; and
    (C) Addresses and telephone numbers of the applicable HUD area 
office, and other agencies which administer housing subsidies or aid in 
relocation anywhere in the market area.
    (ix) Tenants will be allowed to review the information used to make 
any of the determinations regarding acceptance of the prepayment, 
prepayment rent increases and alternatives to prepayment.
    (4) Issue LOPEs. Upon request by a tenant for an LOPE, the Servicing 
Official will prepare the letter and forward the letter to the tenant 
(FmHA or its successor agency under Public Law 103-354 Guide Letter 
1965-E-4 (available in any FmHA or its successor agency under Public Law 
103-354 office) may be used as a guide). The LOPE, which is to be 
addressed to FmHA or its successor agency under Public Law 103-354 
borrowers, will include:
    (i) A tenant with an LOPE has 60 days to apply in writing to other 
FmHA or its successor agency under Public Law 103-354 projects in any 
location in the country.
    (ii) A tenant with an LOPE is to be placed at the top of all waiting 
lists in FmHA or its successor agency under Public Law 103-354 projects 
applied to,

[[Page 458]]

which have appropriate units the tenant qualifies for. Such tenants will 
follow only those tenants with LOPEs who were previously placed on the 
waiting list. Handicapped tenants on the list for handicapped units 
which have appropriate design features will maintain priority over non-
handicapped tenants with LOPEs.
    (iii) The tenant will not be removed from the priority position on 
the waiting list until the tenant moves to a unit utilizing an LOPE or 
is purged from the waiting list in accordance with exhibit B or subpart 
C of part 1930 of this chapter.
    (iv) If the tenant holding the LOPE is receiving RA in the prepaying 
project, and uses the LOPE to move to a Plan II project for which the 
tenant would qualify for RA, the RA will be transferred to the project 
to which the tenant moves. The RA will be reassigned to that tenant 
without competition. RA brought to a project by a tenant from a 
prepaying project will remain at the receiving project if the tenant 
subsequently moves to another FmHA or its successor agency under Public 
Law 103-354 project.
    (v) If the tenant's current security deposit of (a specified amount) 
has not been released by the prepaying project by the date a tenant 
moves, the new landlord will be encouraged to defer collection of the 
new security deposit until the tenant's current deposit is refunded, 
even if the date of release is after the date the tenant occupies the 
new unit.
    (5) Approval of tenant leases. Prior to accepting the prepayment, 
the Servicing Office will also review and approve a modified tenant 
lease to be used for all protected tenants during any applicable 
restrictive-use period. This lease will explain the restrictive-use 
provisions, who is protected, describe the limits on rents during the 
period of restrictions, explain that no tenant can have a lease renewal 
denied for other than ``good cause'' (which cannot include income 
level), that charges, rules and regulations, and services may not change 
substantially from those aplicable at present, and explain all other 
provisions necessary to protect affected tenants including Fair Housing 
Act Amendment provisions. The lease shall retain provisions for annual 
income certification. The approved lease, with signatures of both the 
borrower and FmHA or its successor agency under Public Law 103-354, will 
be maintained by the Servicing Office until expiration of the 
restrictive-use period, although FmHA or its successor agency under 
Public Law 103-354 will not be responsible for monitoring compliance. If 
the owner wishes to make subsequent modifications to the lease, FmHA or 
its successor agency under Public Law 103-354 will review the lease to 
ensure that none of the modifications are contrary to the intent of this 
regulation.
    (6) Borrower responsibilities after prepayment. Prior to accepting 
the prepayment, the Servicing Official will meet with the borrower to 
discuss borrower obligations under restrictive-use and fair housing 
provisions remaining in effect after the prepayment is accepted. The 
Servicing Official will review the applicable restrictive-use 
requirements, if any, in detail with the borrower. In particular, the 
Servicing Official will explain that the applicable provisions of 
subpart C of part 1930 of this chapter specific to tenant rights and 
relations shall remain in effect during the restrictive-use period. 
Owners of prepaid projects will be responsible for ensuring that rental 
procedures, verification and certification of income and/or employment, 
lease agreements, rent or occupancy charges, and termination and 
eviction remain consistent with the provisions set forthin subpart C of 
part 1930 of this chapter, and also adhere to applicable local, State, 
and Federal laws. The borrower will be informed that it is the 
borrower's responsibility to obtain FmHA or its successor agency under 
Public Law 103-354 concurrence with any changes to the preceding rental 
procedures that may deviate from those approved at the time of the 
prepayment prior to implementing the changes. Any changes proposed must 
be consistent with the objectives of the program and the regulations. 
Documentation, including annual income recertifications, shall be 
maintained to evidence compliance in the event there is a future 
complaint or audit. The

[[Page 459]]

former borrower must be able to document that acceptable waiting lists 
were maintained, units were rented to appropriate tenants, and rents 
were established at appropriate levels in accordance with the applicable 
restrictive-use provisions. The former borrower must also agree to make 
the documentation available for Government inspection upon request. The 
former borrower and any successors in interest will be required to 
provide the following signed and dated certification to the applicable 
Servicing Office or other designated office within 30 days of the 
beginning of each calendar year for the full period of the restrictive-
use provisions:

    (Name of owner) certifies that (name of project) is being operated 
in compliance with the restrictive-use provisions contained in 
(applicable release document) and the Restrictive-Use Agreement which 
set forth certain requirements for operation of the project for the 
benefit of low- and moderate-income people in conformance with 
applicable FmHA or its successor agency under Public Law 103-354 
regulations (Name of borrower) understands that failure to operate the 
project in conformance with the restrictive-use provisions may cause a 
tenant or the Government to seek enforcement of the provisions.
    The borrower must also agree to execute the applicable Restrictive-
Use Agreement found at exhibits G-1 thru 4 to this Subpart.

    (7) Servicing Office responsibilities after prepayment. Upon 
prepayment, the Servicing Office will send a notice to all tenants 
informing the tenants of the acceptance of the prepayment. The borrower 
will be notified that a copy of the notice must be posted and maintained 
in public areas in the project until all restrictive-use provisions 
expire. FmHA or its successor agency under Public Law 103-354 Guide 
Letter 1965-E-5 (available in any FmHA or its successor agency under 
Public Law 103-354 office) will be used for the notice. The Servicing 
Office or other designated office will monitor receipt of the 
certaification referred to in paragraph (e)(6) of this section and 
maintain case files on the prepaid project until such time as the 
restrictive-use provisions expire. The Servicing Office or other 
designated office will take such actions as necessary to follow-up on 
receipt of the annual certifications from each prepaid borrower. If the 
Servicing Office is unable to obtain borrower cooperation, the Servicing 
Office shall refer the case to the State Office for transmittal to the 
National Office for further servicing guidance and/or enforcement 
actions.
    (8) Payment in full and release of security. Prior to releasing 
security instruments, FmHA or its successor agency under Public Law 103-
354 must be certain that full payment has been received. Security 
instruments will be released in accordance with Sec. 1965.90 (b) of 
subpart B of part 1965 of this chapter.
    (9) Sale to nonprofit organization or public agency at end of 
restrictive-use period. Borrowers who are subject to the restrictive-use 
provisions contained in paragraph (A) or (B) of exhibit A-4 of this 
subpart are required to attempt to sell the project to a nonprofit 
organization or public agency at the end of the restrictive-use period. 
Advertising the project for sale will be carried out in the same manner 
and time period as required for sale to nonprofits or public agencies 
within the program as stated in Sec. 1965.216 (b), (c), and (d) of this 
subpart. Advertising will be conducted for a minimum of 180 days 
beginning at least 6 months prior to the expiration of the restrictive-
use period. If 6 months do not remain between the date of prepayment and 
the end of the restrictive-use period the project will be advertised for 
sale for a minimum of 180 days.
    (f) Denial, postponement, waiver, or withdrawal of prepayment 
request--(1) Denial of prepayment request. Borrowers for whom there is 
no prohibition on prepayment will be denied a request to prepay if the 
conditions required for prepayment stated in paragraph (c) of this 
section and exhibit E of this subpart cannot be met, or if information 
submitted with the prepayment request to prepay, the Servicing Official 
will send a letter to the borrower stating the reasons for the denial 
and the right to appeal the rejection, in accordance with subpart B of 
part 1900 of this chapter and Secs. 1965.213 and 1965.215 and exhibits D 
and E of this subpart. The letter denying the prepayment reuest may 
revise the original incentive offer if new information documenting the

[[Page 460]]

loss the borrower may suffer if not allosed to prepay has been brought 
to the attention of the Servicing Office. If a letter is sent offering a 
revised incentive, rights to appeal the denial will not be included.
    (2) Postponement of prepayment requests. Prepayment requests will be 
denied if the request was received less than 180 days in advance of the 
project prepayment date unless the Servicing Office determines that 
there is sufficient time to consider tenant comments, verify information 
submitted with the prepayment report, and verify that all tenant leases 
are extended for a 180-day period from the date of the prepayment 
request and include current rents and conditions. Prepayment will be 
postponed if necessary to allow sufficient time for the second tenant 
notification to be sent at least 60 days prior to the prepayment, unless 
all tenant leases are extended to the end of the 60 days, and at least 
30 days has passed since the first notification letters were sent. The 
extension of tenant leases does not substitute for the insertion of 
restrictive-use provisions in the release documents or for allowing 
sufficient time for tenant comments.
    (3) Withdrawal or cancellation of prepayment requests. Prepayment 
authorization will be cancelled if the prepayment is not received within 
180 days of the final approval of the prepayment.
    (g) Borrower appeals of prepayment disapproval. The borrower may 
appeal the decision to deny prepayment without restrictive-use 
provisions within 30 days of the receipt of the rejection, in accordance 
with subpart B of part 1900 of this chapter. The incentive offer may be 
appealed at the same time if the borrower chooses. Tenants will be 
notified if a borrower appeal is pending, given the right to send 
written testimony to the appeal officer, and have one representative at 
the appeal hearing. If the decision to deny prepayment is upheld or the 
incentive offer is modified, the borrower will be given an additional 30 
days to respond to the incentive offer. Based upon the borrower response 
and whether the loan is subject to restrictive-use provisions, the 
Servicing Office will act in accordance with appropriate sections of 
this subpart. Borrowers subject to restrictive-use provisions will not 
be granted appeal rights.



Sec. 1965.216  Borrower not subject to restrictive-use provisions nor prohibition on prepayment, no incentive agreement is reached and prepayment cannot be 
          accepted.

    In instances where the borrower is not subject to restrictive-use 
provisions and no incentive agreement can be reached between FmHA or its 
successor agency under Public Law 103-354 and the borrower, and the 
prepayment cannot be accepted under Sec. 1965.215 and exhibit E of this 
subpart because a need remains for the housing, the borrower will be 
required to offer to sell the project to a nonprofit organization or 
public agency. The following steps will be taken:
    (a) Determination of fair market value. Within 60 days of the 
termination of any appeals or the decision to deny prepayment if no 
appeal was requested, the fair market value of the project as 
unsubsidized conventional housing will be determined. The value arrived 
at will result from two appraisals. One appraisal will be the appraisal 
contracted and paid for by FmHA or its successor agency under Public Law 
103-354 that was used to establish the incentives previously offered. 
The second appraisal will be obtained and paid for by the borrower. Both 
appraisals will be conducted by qualified independent appraisers in 
accordance with FmHA or its successor agency under Public Law 103-354 
Instruction 1922-B (available in any FmHA or its successor agency under 
Public Law 103-354 office). If the fair market values arrived at are 
within 10 percent of each other, the Servicing Office and the borrower 
will negotiate to arrive at a mutually acceptable value. If the values 
differ by more than 10 percent, the independent appraisers will be asked 
to review their appraisals to determine if the values can be reconciled 
to within 10 percent. If FmHA or its successor agency under Public Law 
103-354 and the borrower

[[Page 461]]

are unable to negotiate a mutually acceptable value or the appraisers 
are unable to reconcile their appraisals within 30 days of the 
completion of the appraisals, the State Office and the borrower will 
jointly select a third independent qualified appraiser whose appraisal 
will be binding on FmHA or its successor agency under Public Law 103-354 
and the borrower. The third appraisal will be completed within 60 days 
of selection of the appraiser. The cost of the third appraisal shall be 
divided evenly between FmHA or its successor agency under Public Law 
103-354 and the borrower.
    (b) Efforts to market and sell the project to nonprofit 
organizations or public agencies. Once the fair market value of the 
project has been established, the borrower is to attempt to market the 
project to nonprofit organizations and public agencies. The following 
actions are to take place:
    (1) The Servicing Official is to provide the borrower with a list of 
nonprofit organizations and public agencies which have notified FmHA or 
its successor agency under Public Law 103-354 of their interest in 
purchasing projects that are attempting to prepay. The list will include 
nonprofit organizations and public agencies that have notified the FmHA 
or its successor agency under Public Law 103-354 Servicing, State, and 
National Offices of their interest.
    (2) The Servicing Official will instruct the borrower to contact 
each nonprofit organization and public agency on the list within 10 days 
of establishing project fair market value. The sequence of contacting 
nonprofit organizations and public agencies is set forth in paragraphs 
(b)(3) (i) and (ii) of this section. Materials notifying nonprofit 
organizations and public agencies of the project's availability will 
include sufficient information regarding the project and its operation 
for interested purchasers to make an informed decision. If an interested 
purchaser requests additional information concerning the project, the 
borrower shall promptly provide the requested materials.
    (3) The borrower must advertise and offer to sell the project for a 
minimum of 180 days. The borrower may choose to suspend advertising and 
other sales efforts while eligibility of an interested purchaser is 
determined. However, if the purchaser is determined to be ineligible, 
the borrower must resume advertising until a minimum of 180 days has 
passed. The borrower may satisfy the 180-day requirement by continuing 
advertising and sales efforts during the eligibility review of an 
interested purchaser. If additional offers are received during this time 
period, the offers will be reserved as back-up offers until the 
eligibility determination of the initial purchaser is completed.
    (i) Sales preference to local nonprofit organizations or public 
agencies. The borrower will first advertise the project for sale to 
qualified local nonprofit organizations or public agencies as defined in 
Sec. 1965.202 of this subpart. The Servicing Official will be 
responsible for determining that all appropriate means for contacting 
such organizations have been utilized including local media, and all 
necessary information provided. Exclusive advertising to local nonprofit 
organizations and public agencies must continue for a minimum of 60 
days. If more than one qualified nonprofit corporation or public agency 
submits an offer to purchase the project, a local nonprofit organization 
or public agency must be given preference over a regional or nationwide 
organization, regardless of when offers to purchase are received.
    (ii) Advertising to regional or nationwide organizations. If no 
qualified local nonprofit organization or public agency is found to 
purchase the housing within the first 60 days, the Servicing Official 
will authorize the borrower to advertise for an existing qualified 
national or regional nonprofit organization to purchase the housing. 
Advertising must begin between 60 and 120 days after advertising to 
local organizations began. Advertisements will be placed, as 
appropriate, in national housing publications and other media determined 
appropriate by the State Office or other designated office, including 
those serving minority groups exclusively.
    (c) Qualifications of nonprofit borrower to purchase. 
Notwithstanding the requirements of Sec. 1944.211(a)(10) of subpart E of 
part 1944 of this chapter, nonprofit

[[Page 462]]

organizations for the purpose of this paragraph need not be broadly-
based (unless qualifying as a local nonprofit organization as defined in 
Sec. 1965.202 of this subpart) nor organized solely to provide housing. 
Nonprofit organizations determined qualified to buy the housing through 
this procedure must:
    (1) Be capable of managing the housing and related facilities for 
its remaining useful life, either by self management or through a 
management agent.
    (2) Agree that no subsequent transfer of the housing and related 
facilities will be permitted during the remaining useful life of the 
housing and related facilities unless the FmHA or its successor agency 
under Public Law 103-354 Administrator determines that the transfer will 
further the provision of housing and related facilities for low-income 
families or persons, or there is no longer a need for such housing and 
related facilities. Generally, transfers between qualified nonprofit 
organizations and/or public agencies will be acceptable. However, under 
no condition will a transfer be approved to an entity in which the 
nonprofit transferor or a member of the nonprofit entity holds an 
ownership interest.
    (3) Agree to obligate itself and successors in interest to maintain 
the housing for very low- and low-income families or persons for the 
remaining useful life of the project and related facilities, although no 
currently eligible moderate-income tenants will be required to move. The 
provision in exhibit A-2 of this subpart will be used and inserted in 
the deed, security instrument, loan agreement/resolution and/or 
assumption agreement, as appropriate.
    (4) Show financial feasibility of the project including anticipated 
funding to be authorized in accordance with Sec. 1965.217(d) of this 
subpart. Financial feasibility may also include any regular RA or debt 
forgiveness RA allocations which can reasonably be anticipated to be 
available for the project at the time of the transfer.
    (5) Have no identity of ownership or controlling interest, 
regardless of degree, except as management agent between:
    (i) Officers or directorate persons or parties with a material 
interest (or persons or parties related to any person or party with such 
interest) in loans financed under section 515 that have been prepaid; 
and
    (ii) Officers or directorate persons or parties with a material 
interest (or persons or parties related to any person or party with such 
an interest) in the purchasing entity.
    (6) Evidence compliance with paragraph (c)(5) of this section. An 
officer legally authorized to execute documents on behalf of the 
purchasing nonprofit entity shall execute the following statement:

    (Name of purchasing nonprofit entity) certifies that no officer or 
directorate of (name of purchasing nonprofit entity) has been a person 
or party with a material interest (or persons or parties related to any 
person or party with such interest) in any loans financed under section 
515 that have been prepaid.

    (d) Priority between nonprofit organizations and public agencies. If 
more than one qualified organization or public agency submits an offer 
to purchase the project, the following criteria, in descending order of 
importance, will be used to establish priority:
    (1) Local nonprofit organizations and public agencies have priority 
over regional and national nonprofit organizations and public agencies;
    (2) Nonprofit organizations and public agencies with the most 
successful experience in developing and managing subsidized housing; and
    (3) Nonprofit organizations and public agencies with the longest 
experience in developing and managing subsidized housing.



Sec. 1965.217  Processing applications for transfers to nonprofit corporations or public agencies.

    (a) Determining eligibility. After an option to purchase is signed 
between a borrower and nonprofit corporation or public agency, the 
purchasing organization will file a complete application in accordance 
with Sec. 1965.65 (f) of subpart B of this part. FmHA or its successor 
agency under Public Law 103-354 will make a determination of the 
eligibility of the borrower and feasibility of the proposed transfer and 
subsequent

[[Page 463]]

loan. Consolidation and reamortization of the loans will be considered 
when a transfer takes place.
    (b) Appeal rights when a purchaser is not selected. If a nonprofit 
organization or public agency is not accepted by FmHA or its successor 
agency under Public Law 103-354 to purchase the project because the 
purchaser is found to be ineligible, the transfer is found to be not 
feasible or because the organization has lower priority than another 
applicant in accordance with Sec. 1965.216 (b), (c), or (d) of this 
subpart, appeal rights will be given to the applicant organization in 
accordance with subpart B of part 1900 of this chapter.
    (c) Authorization for transfer. When the transfer and loan(s) are 
ready to be obligated, the National Office will be notified in the 
format of FmHA or its successor agency under Public Law 103-354 Guide 
Letter 1965-E-1 (available in any FmHA or its successor agency under 
Public Law 103-354 office). If the loan will exceed the State Director's 
approval authority, the entire case file shall be sent to the National 
Office for review. The National Office will give approval authority and 
authorize funding for purchase of projects which have complied with the 
provisions outlined in this section. Subject to the nationwide maximum 
funding allowed, the authorizations will be issued in date order the 
complete prepayment request was received by the Servicing Office.
    (d) Special loans and grants available to nonprofit organizations 
and public agencies. Loans and grants are available to nonprofit 
organizations and public agencies to purchase and assist in the purchase 
of prepaying projects and to pay first year operating expenses. Loans to 
nonprofit organizations and public agencies may not exceed 102 percent 
of the fair market value of the project. Grants for costs related to 
purchasing a project may not exceed $10,000.
    (1) Loans to nonprofit organizations and public agencies. Loans to 
nonprofit organizations or public agencies will be approved in 
accordance with subpart E of part 1944 of this chapter for the following 
purposes:
    (i) A loan sufficient to enable the nonprofit organization or public 
agency to purchase a project at the fair market value;
    (ii) With proper justification, first year operating expenses not to 
exceed 2 percent of the project's appraised fair market value if current 
operating funds are not sufficient.
    (2) Special advances to nonprofit organizations or public agencies 
to cover costs related to purchasing a project. A grant may be made to a 
nonprofit organization or public agency to cover any direct costs, other 
than the purchase price, incurred by the organization or agency in 
purchasing and assuming responsibility for a project and related 
facilities. To be eligible for grant funds, the organization or agency 
must be able to obtain an accepted purchase offer for a project offered 
for sale by a borrower under Sec. 1965.216 of this subpart.
    (i) Grant purposes. Eligible purposes of the grant include:
    (A) Direct costs to the organization or agency that are based on 
written estimates for legal fees for purchasing the project, 
architectural fees, and/or other expenses as described in Sec. 1944.222 
of subpart E of part 1944 of this chapter and as authorized by the State 
Director. Legal fees for organizing the entity are not an eligible cost;
    (B) Fees, for technical assistance received from a nonprofit 
organization, with housing and/or community development experience, to 
assist the organization or agency in the packaging of the loan docket 
and project as well as legal, technical, and professional fees incurred. 
Legal fees for organizing the entity are not an eligible cost. The 
Agency will allow payments to eligible organizations packaging 
applications without discrimination because of race, color, religion, 
sex, national origin, age, familial status, or handicap if such an 
organization has authority to contract. The packaging organization may 
not represent or be associated with anyone else, other than the 
purchasing nonprofit organization or public agency, who may benefit in 
any way in the proposed transaction.
    (ii) Administrative requirements. The following policies and 
regulations apply to grants made under this section:

[[Page 464]]

    (A) The policies and regulations contained in subpart Q of part 1940 
of this chapter apply to grantees under this subpart.
    (B) The grantee will retain records for three years from the date 
Standard Form (SF)-269A, ``Financial Status Report,'' is submitted. The 
records will be accessible to Agency; and other Federal officials in 
accordance with 7 CFR part 3015.
    (C) Annual audits will be required if the grantee has received more 
than $25,000 of Federal assistance in the year in which the grant funds 
were received. The audits will be due 13 months after the end of the 
fiscal year in which funds were received.
    (1) States, State agencies, or units of general local government 
will complete an audit in accordance with 7 CFR parts 3015, 3016 and 
3019; and OMB Circular A-128.
    (2) Nonprofit organizations will complete an audit in accordance 
with 7 CFR part 3015 and OMB Circular A-133.
    (iii) Obtaining payment for costs. To obtain advance funds or 
reimbursement of costs, the nonprofit organization or public agency 
must:
    (A) Submit to the appropriate Servicing Office SF-270, ``Request for 
Advance or Reimbursement,'' for an amount not to exceed $10,000;
    (B) Submit a copy of the accepted purchase offer or option to 
purchase and assume responsibility for a prepaying project and related 
facilities;
    (C) As soon as possible after obtaining an accepted purchase offer 
or option, submit a complete transfer and loan package (if applicable), 
as described in Sec. 1965.65 of subpart B of part 1965 of this chapter 
for transfers and subpart E of part 1944 of this chapter for loans to 
purchase the project;
    (D) If less than $10,000 is advanced or reimbursed at the time of 
submittal of the grant application package and the applicant expects 
that further advances or reimbursements may be needed, additional funds 
may be requested so long as the total advanced or reimbursed does not 
exceed $10,000. SF-270 will be used to request additional advances or 
requests for reimbursement. If advance funds are requested, the amount 
requested may not exceed the amount the grantee expects to use during 
the 30 days following receipt of the advance. The final draw advance or 
request for reimbursement shall not be later than the closing date of 
the transfer and loan and shall be submitted on SF-270;
    (E) Fully document all requests for advances with line item 
estimates on SF-270. Requests for reimbursement shall be documented with 
itemized bills or receipts for each item listed on SF-270;
    (F) Include SF-269A with the grant application if the entire amount 
of the grant is being requested at that time. If the grant will be 
advanced or reimbursed in more than one draw, SF-269A will be submitted 
with the final draw;
    (G) Include a signed statement for all grant applications which 
states, ``Neither the organization nor any of its employees are 
associated with or represent anyone in this transaction other than the 
applicant.''
    (iv) Processing grants. The following actions will be taken by FmHA 
or its successor agency under Public Law 103-354 when a grant 
application is received:
    (A) The FmHA or its successor agency under Public Law 103-354 
Approval Official will review each grant application package for the 
amount authorized. The FmHA or its successor agency under Public Law 
103-354 Approval Official will execute and distribute Form FmHA or its 
successor agency under Public Law 103-354 1944-51, ``Multiple Family 
Housing Obligation Fund Analysis,'' in accordance with the Forms Manual 
Insert;
    (B) The Servicing Official will be responsible for reviewing the 
eligibility of costs estimated to be incurred or submitted for 
reimbursement;
    (C) A grant agreement, prepared in substantially the same format as 
exhibit F of this subpart and authorized by grant resolution, will be 
dated and executed by the applicant on the date of grant closing. The 
executed agreement will be filed in the casefile.
    (D) A grant resolution authorizing the appropriate officers of the 
applicant to execute the grant agreement will be adopted by the 
applicant's board of directors or other form of governing body. A 
certified copy is to be submitted to FmHA or its successor

[[Page 465]]

agency under Public Law 103-354 for the file.
    (e) Servicing Office actions when a transfer and subsequent loan is 
authorized. When notified by the State Office that the National Office 
has authorized the transfer and subsequent loan, the Servicing Office 
will:
    (1) Submit the assumption to the State Office for approval in 
accordance with Sec. 1965.65 of subpart B of this chapter.
    (2) Transfer any RA associated with the project to the transferee in 
accordance with paragraph XV B 1 of exhibit E of subpart C of part 1930 
of this chapter unless debt forgiveness RA is used to replace current 
project RA.
    (3) Notify tenants that prepayment of the loan will not be taking 
place and to whom the ownership of the housing is being transferred. The 
notification should state that any rent increases resulting from the 
transfer and loan will be processed in accordance with Sec. 1965.204 (b) 
of this subpart.
    (4) Transfer all existing loans in the project on new rates and 
terms and consolidate and reamortize, if necessary, to maintain project 
feasibility and reduce rental subsidy payments.
    (5) Ensure that all delinquent accounts are brought current, cost 
items paid in full, project accounts brought current and transferred 
with the project, and all taxes and liens paid or prorated at closing as 
applicable. Deferred maintenance identified in previous inspections must 
be acceptably completed before the transferor may retain any equity.
    (6) Insert the restrictive-use provisions contained in exhibit A-2 
of this subpart in the deed, security instruments, loan agreement/
resolution, assumption agreement, and/or reamortization agreement, as 
appropriate.
    (f) Rental subsidies. No transfer will be approved unless there is 
sufficient RA available for every tenant who would experience rent 
overburden after the transfer, assuming that all units vacated will 
continue to be filled by very low or low-income tenants. Sufficient debt 
forgiveness RA (DFRA), must be authorized for obligation in accordance 
with paragraph V C of exhibit E of subpart C of part 1930 of this 
chapter, when authorization to process the loan is given. The National 
Office will advise the State Office whether RA will be transferred with 
the project or if RA will be suspended and transferred to another 
project within the State when authorization to process the transfer is 
given. If the latter is chosen, all RA needs at the project will be met 
with DFRA.
[58 FR 38931, July 21, 1993, as amended at 61 FR 39852, July 31, 1996]



Sec. 1965.218  Accepting prepayment when nonprofit organizations do not apply to purchase or funds are not available.

    Borrowers not subject to restrictive-use provisions or prohibitions 
on prepayment may prepay without restrictions within 120 days of meeting 
either of the following requirements.
    (a) No offer to purchase.
    (1) At least 180 days have passed since the offer to sell to a local 
nonprofit organization or public agency began and the advertisement 
continued for the full 180 days;
    (2) The project has been offered to regional and national 
organizations for at least a 60-day period of the 180 days;
    (3) Documentation is provided showing that all organizations whose 
names were provided by the District or State Office were contacted in 
accordance with Sec. 1965.216 (b) of this subpart and offered the 
housing for purchase;
    (4) No qualified nonprofit organization has made a bona fide offer 
to purchase the property for the appraised fair market value. Note: (An 
offer will be considered to be bona fide if there is a written offer to 
purchase the project at fair market value, even if the offer is 
contingent on FmHA or its successor agency under Public Law 103-354 
funding when no funding is available.); and
    (5) Funds have been available for the purpose of carrying out a 
transfer/sale during this period.
    (b) Funds are not available. A borrower may be allowed to prepay 
even if an eligible nonprofit organization or public agency has offered 
to purchase the project if the following lack of funding exists. All 
funds for funding nonprofit organizations and public agencies for the 
purpose of purchasing any project in the country must have

[[Page 466]]

been exhausted for a period of 15 months. This determination is not 
related to the length of time the particular project has been on the 
waiting list. The National Office will periodically advise State Offices 
of the status of the waiting list and the availability of funds.



Sec. 1965.219  FmHA or its successor agency under Public Law 103-354 processing of prepayment.

    When a prepayment is accepted in accordance with Sec. 1965.218 of 
this subpart, the Servicing Office will process the prepayment in 
accordance with the applicable provisions of Sec. 1965.215 (e)(1), (2), 
(3), (4), and (8) of this subpart.



Secs. 1965.220-1965.221  [Reserved]



Sec. 1965.222  Violations of restrictive-use provisions.

    Should the Servicing Office receive a written complaint or become 
otherwise aware of a violation of the prepayment restrictive-use 
provisions set out in exhibit A-3 or A-4 of this subpart or the 
Restrictive-Use Agreements set out in exhibits G-1 thru 4 of this 
subpart by the owner of a previously FmHA or its successor agency under 
Public Law 103-354-financed project, the following actions will be 
taken:
    (a) The complainants will be informed that they may pursue 
enforcement through the courts.
    (b) The Servicing Office or other designated office will conduct a 
preliminary evaluation of the complaint. This evaluation may necessitate 
the gathering of additional information. Should the preliminary 
evaluation indicate the complaint is not valid, the complainant will be 
so informed. Should the preliminary evaluation indicate the complaint is 
or may be valid, then the complaint, all facts gathered, an evaluation 
report, and Servicing Office recommendation will be forwarded to the 
State Office or other designated office for review and action.
    (c) If the State Office or other designated office determines that a 
violation of the restrictive-use provisions has likely occurred, the 
Administrator will be notified. The State Office or other designated 
office will ask the OGC to provide advice in such cases and, if 
appropriate, refer the case to the Department of Justice or other 
appropriate agency for enforcement. A copy of any complaint requesting 
enforcement of the restrictive-use provisions submitted to the 
Department of Justice or other appropriate agency should also be 
forwarded to the Administrator.



Sec. 1965.223  Relationship with acceleration of accounts, bankruptcy, foreclosure, or inventory properties.

    (a) Acceleration of accounts. Accelerations of accounts will be 
prepared in accordance with FmHA or its successor agency under Public 
Law 103-354 Guide Letters 1955-A-1 or 1955-A-2 (available in any FmHA or 
its successor agency under Public Law 103-354 office). Any FmHA or its 
successor agency under Public Law 103-354 loan made after December 21, 
1979, prepaid in response to an acceleration of the account will be 
required to have the appropriate restrictive-use language inserted in 
the deed of release or satisfaction, as appropriate upon the advice of 
OGC. Any FmHA or its successor agency under Public Law 103-354 loan made 
on or before December 21, 1979, with payment-in-full made in response to 
an acceleration of the account, will be required to have the appropriate 
restrictive-use language inserted on the instrument recorded in the real 
estate records, as appropriate upon the advice of OGC, only if the 
payment occurs within 1 year after the borrower had initiated a request 
to prepay the loan(s). The restrictions used will be those contained in 
exhibit A-3 of this subpart for loans subject to restrictive-use 
provisions or prohibited from prepaying. The restrictive-use period will 
extend for the remaining term of the accelerated loan or length of the 
existing restrictive-use period, whichever is applicable.
    (b) Foreclosure. If a project is sold out of the program at a 
foreclosure sale, the restrictive-use provisions will be retained and 
added to the deed in accordance with exhibit A-3 or A-4 of this subpart 
and paragraph (a) of this section.
    (c) Inventory property. Restrictive-use provisions will be retained 
for projects taken into or sold out of FmHA or its successor agency 
under Public Law 103-

[[Page 467]]

354 inventory in accordance with exhibits A-1 through A-4 of this 
subpart and paragraph (a) of this section, unless a determination is 
made in accordance with Sec. 1965.215 and exhibit E of this subpart that 
the restrictions may be released or that the property is determined non-
program property. Tenants will receive all appropriate notifications as 
they would for prepaying projects not being accelerated.
    (d) Bankruptcy. Bankruptcy proceedings will have no effect on 
contractual requirement for restrictive-use.



Sec. 1965.224  Prepayment of loans caused by advance payments on the account.

    If the loan on a project, in which the last loan to build or acquire 
new units was obligated prior to December 15, 1989, reaches or falls 
below six remaining payments due to borrower voluntary advance payments 
or mandatory extra payments required by FmHA or its successor agency 
under Public Law 103-354 regulation or law, the borrower will be 
notified that the final payment on the account cannot be accepted unless 
a prepayment request is made. FmHA or its successor agency under Public 
Law 103-354 will inform the borrower that, by law, prepayment 
regulations must be followed for all loans requesting prepayment 
subsequent to enactment of the law. The borrower will be required to 
submit all applicable information required by Sec. 1965.205 of this 
subpart and complete all applicable actions required by this subpart 
before a final payment can be accepted.



Secs. 1965.225-1965.248  [Reserved]



Sec. 1965.249  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirements of this subpart not required by the authorizing statute if 
the Administrator finds that application of such requirement would 
adversely affect the interest of the Government, adversely affect the 
accomplishment of the purposes of the RRH or LH programs, or result in 
undue hardship on the tenants by applying the requirements. The 
Administrator may exercise the authority at the request of the State 
Director. The State Director will submit the request supported by data 
that demonstrates the adverse impact, citing the particular requirement 
involved and recommending proper alternative course(s) of action, and 
outlining how the adverse impact could be mitigated. Exception to any 
requirement may also be initiated by the Assistant Administrator for 
Housing.



Sec. 1965.250  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 0575-0155. Public reporting burden 
for this collection of information is estimated to vary from 5 minutes 
to 5 hours per response, with an average of 1.3 hours per response, 
including time for reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. Send comments regarding this 
burden estimate or any other aspect of this collection, including 
suggestions for reducing this burden, to Department of Agriculture, 
Clearance Officer, OIRM, room 404-W, Washington, DC 20250; and to the 
Office of Management and Budget, Paperwork Reduction Project (OMB 
control number 0575-0155), Washington, DC 20503.

                          Exhibits to Subpart E

Exhibit A-1--Required Clauses for Active Borrowers With Projects Subject 
  to Restrictive-Use Provisions as a Result of Specific Loan Making or 
                         Loan Servicing Actions

    The following Multi-Family Housing projects are subject to 
restrictive-use provisions as set forth in their loan documents or 
security instruments:
    (a) All loans approved between December 21, 1979, and December 15, 
1989;
    (b) Subsequent loans not made to build or acquire new units approved 
on or after December 15, 1989;
    (c) Any loans approved prior to December 21, 1979, and subsequently 
made subject to restrictive-use provisions due to a servicing action 
(e.g., transfer, reamortization, consolidation) as described in subpart 
B of part 1965 of this chapter, or an incentive to deter prepayment of 
the loan as described in this subpart.

[[Page 468]]

    All loans or servicing actions meeting the above criteria with 
prepayment incentives obligated or approved after the effective date of 
this regulation, will be subject to the following restriction. The 
restriction will be inserted in the deed, conveyance instrument, loan 
agreement/resolution, assumption agreement, interest credit agreement, 
or reamortization agreement, as appropriate. The restrictions are 
applicable for a term of 20 years from the date on which the last loan 
was closed or made subject to such restrictions as a result of a 
servicing action or incentive to not prepay.
    ``The borrower and any successors in interest agree to use the 
housing for the purpose of housing people eligible for occupancy as 
provided in section 514 or section 515 of title V of the Housing Act of 
1949, as amended, and FmHA or its successor agency under Public Law 103-
354 regulations then extant during this 20 year period beginning (the 
date the last loan on the project is obligated, or date the project was 
last made subject to the prepayment restrictive-use provisions as a 
result of servicing actions or incentive to not prepay the loan, 
authorized under this subpart or other subparts). Until (date), no 
eligible person occupying the housing shall be required to vacate, or 
any eligible person wishing to occupy shall be denied occupancy without 
cause. The borrower will be released from these obligations before that 
date only when the Government determines that there is no longer a need 
for such housing, or that such other financial assistance provided the 
residents of such housing will no longer be provided due to no fault, 
action or lack of action on the part of the borrower. A tenant or 
individual wishing to occupy the housing may seek enforcement of this 
provision, as well as the Government.''

 Exhibit A-2--Required Clauses for Projects Made Subject to Restrictive-
Use Provisions When a Loan is Transferred to a Nonprofit Organization or 
                    Public Agency to Avert Prepayment

    Multi-Family Housing projects made subject to restrictive-use 
provisions because of a transfer and subsequent loan to a nonprofit 
organization or public agency in order to avert prepayment of the loan 
as described in this subpart are subject to restrictions which are set 
forth in the loan instruments or security agreements. Loans meeting the 
preceding conditions with prepayment incentives obligated after the 
effective date of this regulation will be required to have the following 
restriction inserted in the deed, conveyance instrument, loan 
resolution, and assumption agreement, as applicable:
    ``The borrower and any successors in interest agree to use the 
housing for the purpose of housing very low- and low-income people 
eligible for occupancy as provided in Farmers Home Administration or its 
successor agency under Public Law 103-354 regulations then extant during 
the remaining useful life of the project. A tenant or person wishing to 
occupy the housing may seek enforcement of this provision as well as the 
Government. Throughout the remaining useful life of this project, no 
eligible person occupying or wishing to occupy the housing shall be 
required to vacate or be denied occupancy without cause. Rents, other 
charges, and conditions of occupancy will be set to meet these 
conditions. The borrower will be released during such period from these 
obligations only when the Government determines that there is no longer 
a need for such housing, or that such other financial assistance 
provided to the residents of such housing will no longer be provided due 
to no fault, action or lack of action on the part of the borrower.''
    The restrictions are intended to protect only very low- and low-
income individuals and families for the remaining useful life of the 
project, unless the Government subsidy is removed without cause or it is 
determined there is no longer a need for the housing. These restrictions 
will not be superceded by new restrictions imposed by subsequent 
transfers. Eligible moderate-income tenants living at the project at the 
time of prepayment will not be required to move as a result of the 
restrictions. Moderate-income applicants for the housing will continue 
to retain priority over ineligible applicants for the housing.

Exhibit A-3--Required Clauses for Prepaid Projects Which Were Subject to 
           Restrictive-Use Provisions Prior to the Prepayment

    The required clauses contained in this exhibit pertain to the 
following multi-family projects, unless an exception to the restrictive-
use provisions have been granted in accordance with this subpart:
    (a) Any loan on the project obligated between December 21, 1979, and 
December 15, 1989, or subsequent loan not made to build or acquire new 
units approved on or after December 15, 1989;
    (b) Any loan made subject to restrictive-use provisions as a result 
of a transfer, consolidation, or reamortization as set forth in this 
subpart;
    (c) Any loan made subject to restricitive-use provisions as a result 
of accepting an incentive to not prepay as set forth in this subpart;
    (d) Any loan previously subject to restrictive-use provisions being 
accelerated.
    The preceding projects may only be prepaid if the title to the real 
property is made

[[Page 469]]

subject to the following restrictive-use provisions and incorporated in 
the security releases. The borrower will also be required to execute the 
Restrictive-Use Agreement found at exhibit G-1 to this subpart.
    ``The owner and any successors in interest agree that the housing 
located on this property will be used only as authorized under section 
514 or 515 of title V of the Housing Act of 1949, as amended, and 7 CFR 
part 1965, subpart E, or other regulations then extant until (insert 
date shown on existing restrictive-use provisions). A tenant or 
applicant for occupancy may seek enforcement of this provision as well 
as the Government. During the restricted period, no eligible person 
occupying or wishing to occupy the housing shall be required to vacate 
or be denied occupancy without cause. Rents, other charges, and 
conditions of occupying will be set so that the effect will not differ 
from what would have been, had the project remained in the FmHA or its 
successor agency under Public Law 103-354 program. The owner agrees to 
keep a notice posted at the project, and in a visible place available 
for tenant inspection, for the remainder of the restrictive-use period, 
stating that the project is to be used in accordance with the Housing 
Act, and that management practices and rental rates will be consistent 
with those necessary to maintain the project for (insert ``low- and 
moderate-income'' or ``very low- and low-income'' as shown on existing 
restrictive-use provisions) tenants for the remainder of the 
restrictive-use period.''
    The provisions provide protections to the same categories of tenants 
who were protected while the loan(s) were in effect, to the same extent 
that the tenants were protected prior to the prepayment and for the 
length of time remaining under the restrictions prior to the prepayment.

Exhibit A-4--Required Clauses for Prepaid Projects Which Became Subject 
         to Restrictive-Use Provisions at the Time of Prepayment

    Multi-Family Housing projects which were not subject to restrictive-
use provisions prior to prepayment may, generally, only be prepaid if 
the title to the real property is made subject to one of the following 
restrictive-use provisions and the provisions are filed with the 
security releases. The restrictive-use provisions apply to all loans 
made prior to December 21, 1979, that were not subsequently made subject 
to restrictive-use provisions as a result of servicing actions after 
December 21, 1979. The restrictions will also be used for sales of 
projects at foreclosure for projects not previously subject to 
restrictive-use provisions. The conditions for which restrictive-use 
provisions are not required are set forth in Sec. 1965.215 of this 
subpart.
    (A) 20-year Restrictive-Use Provisions. These provisions are used 
when the owner agrees to restrictive-use provisions for a minimum of a 
20-year period, and agrees to offer to sell the assisted housing and 
related facilities to a qualified nonprofit organization or public 
agency in accordance with Farmers Home Administration or its successor 
agency under Public Law 103-354 (FmHA or its successor agency under 
Public Law 103-354) regulation upon termination of the 20-year period. 
The period is calculated from the date on which the last loan for the 
project was obligated or applicable servicing action taken. The borrower 
will also be required to execute the Restrictive-Use Agreement found at 
exhibit G-2 to this subpart.
    ``The owner and any successors in interest agree to use the housing 
as required in 7 CFR part 1965, subpart E or other regulations then 
extant during this 20-year period beginning (date of the last loan or 
servicing action) for the purpose of housing low- and moderate-income 
people eligible for occupancy. A tenant or applicant for housing may 
seek enforcement of this provision, as well as the Government. Prior to 
(date period ends) no eligible person occupying or wishing to occupy the 
housing shall be required to vacate or be denied occupancy without 
cause. Rents, other charges, and conditions of occupancy will be 
established to meet these conditions such that the effect will not 
differ from what would have been, had the project remained in the FmHA 
or its successor agency under Public Law 103-354 program. The owner also 
agrees to keep a notice posted as the project for the remainder of the 
restrictive-use period, in a visible place available for tenant 
inspection, stating that the project is to be used in accordance with 
the Housing Act, and that management practices and rental rates will be 
consistent with those necessary to maintain the project for the 
protected population for the remainder of the restrictive-use period. At 
the expiration of this period ending (date), the housing and related 
facilities will be offered for sale to a qualified nonprofit 
organization or public agency, as determined by FmHA or its successor 
agency under Public Law 103-354.''
    (B) Loans Over 20 Years Old. These provisions are used when all 
loans were obligated and applicable servicing actions took place for the 
project over 20 years prior to the prepayment, and the owner enters into 
an agreement to immediately attempt to offer the project for sale to a 
nonprofit organization or public agency in accordance with Sec. 1965.216 
of this subpart. The borrower will also be required to execute the 
Restrictive-Use Agreement found at exhibit G-3 of this subpart.

[[Page 470]]

    ``The owners and any successors in interest agree to immediately 
offer to sell the housing and related facilities to a qualified 
nonprofit organization or public agency, as determined by Farmers Home 
Administration or its successor agency under Public Law 103-354.''
    (C) Current Tenants Restrictive-Use Provisions. These provisions are 
used when the owner enters into an agreement that no current tenants 
will be displaced due to a change in the use of the housing or an 
increase in rental or other charges, as a result of the prepayment, for 
as long as the current tenants wish to remain at the project. The 
provisions may only be used if it is determined by FmHA or its successor 
agency under Public Law 103-354 that the conditions specified in this 
subpart, addressing the effect of prepayment on minorities, handicapped 
individuals, and families with children in the project and market area, 
can be met, allowing an exception from the requirement to offer the 
project to sale to a nonprofit organization or public body. The borrower 
will also be required to execute the Restrictive-Use Agreement found at 
exhibit G-4 to this subpart.
    ``The owner and any successors in interest agree to use the housing 
for the purpose of housing eligible low- and moderate-income people 
occupying the project at the time the prepayment was accepted, as 
provided in 7 CFR part 1965, subpart E, and other applicable regulations 
then extant. No eligible person currently occupying the housing shall be 
required to vacate prior to the end of the remaining useful life of the 
project without cause. Rents, other charges, and conditions of occupancy 
will be established to meet these conditions. Existing tenants are 
protected to ensure that none experience new or increased rent 
overburden until each voluntarily moves from the project. The owner also 
agrees to keep a notice posted at the project in a place available for 
tenant inspection, for the remaining useful life of the project or until 
the last existing tenant vacates, stating that the project is to be used 
in accordance with the Housing Act, and that management practices and 
rental rates for current tenants as of the date of the prepayment will 
be consistent with those necessary to maintain the project for low- and 
moderate-income tenants. A tenant may seek enforcement of this provision 
as well as the Government.''

               Exhibit B--Report on Prepayment [Reserved]

        Exhibit C--Checklist for Reporting Prepayment [Reserved]

 Exhibit D--Methodology for Determining Prepayment Incentives [Reserved]

      Exhibit D-1--Worksheet for Incentive Calculations [Reserved]

Exhibit E--Administration Guidance for Making Prepayment Determinations 
                               [Reserved]

    Exhibit F--Prepayment and Displacement Prevention Grant Agreement

    This agreement dated ______________

________________, 19____, between ______________

which is organized and operating under
________________________________________________
________________________________________________

________________ herein call ``Grantee,''

(Authorizing Statute)

and the United States of America acting through the Farmers Home 
Administration or its successor agency under Public Law 103-354, 
Department of Agriculture, herein called ``Grantor,'' Witnesseth:

                                Whereas:

    Grantee has determined to undertake a project of acquisition of a 
multi-family housing project financed by the Grantor to house rural 
residents and has duly authorized the undertaking of such a project.
    Grantee wishes to obtain grant funds to assist in the costs of 
acquisition of such project.
    Grantor has agreed to grant the Grantee a sum not to exceed 
$__________________ subject to the terms and conditions established by 
the Grantor. Provided, however, that the proportionate share of any 
grant funds actually advanced and not needed for grant purposes shall be 
returned immediately to the Grantor. The Grantor may terminate the grant 
in whole, or in part, at any time it is determined that the Grantee has 
failed to comply with the conditions of the grant.
    Now, therefore, In consideration of said grant by Grantor to 
Grantee, to be made pursuant to section 502 of the Housing Act of 1949 
to cover any direct costs (other than the purchase price) incurred by 
the organization

[[Page 471]]

or agency in purchasing and assuming responsibility for the housing and 
related facilities involved, as defined by applicable Farmers Home 
Administration or its successor agency under Public Law 103-354 (FmHA or 
its successor agency under Public Law 103-354) instructions.
    Grantee agrees that grantee will: A. Attempt to acquire said project 
in accordance with FmHA or its successor agency under Public Law 103-354 
regulations.
    B. If acquired, either directly or through contract, manage, operate 
and maintain the project continuously in an efficient and economic 
manner.
    C. Make services of said project available within its capacity to 
all eligible rural residents without discrimination because of race, 
color, religion, sex, age, handicap, marital or familial status, or 
national origin. For more specific requirements see 7 CFR part 15, 
subparts A and B.
    D. Provide Grantor with such periodic reports as it may require and 
permit periodic inspections of its operations by a representative of the 
Grantor.
    E. To execute Forms FmHA or its successor agency under Public Law 
103-354 400-1, ``Equal Opportunity Agreement,'' and FmHA or its 
successor agency under Public Law 103-354 400-4, ``Assurance 
Agreement,'' and to execute any other agreements required by Grantor 
which Grantee is legally authorized to execute. If any such form has 
been executed by Grantee as a result of a loan or transfer being made to 
Grantee by Grantor contemporaneously with the making of this grant, 
another form of the same type need not be executed in connection with 
this grant.
    F. Upon any default under its representations or agreements set 
forth in this instrument, Grantee, at the option and demand of Grantor, 
will repay to Grantor forthwith the original principal amount of the 
grant stated hereinabove, with interest at the rate of 5 percentum per 
annum from the date of the default. Default by the Grantee will 
constitute termination of the grant, thereby causing cancellation of 
Federal assistance under the grant. The provisions of this Grant 
Agreement may be enforced by Grantor, at its option and without regard 
to prior waivers by it of previous defaults of Grantee, by judicial 
proceedings to require specific performance of the terms of this Grant 
Agreement or by such other proceedings in law or equity, in either 
Federal or State courts, as may be deemed necessary by Grantor to assure 
compliance with the provisions of this Grant Agreement and the laws and 
regulations under which this grant is made. For further provisions 
regarding enforcement see 7 CFR 3016.43.
    G. Return immediately to Grantor, as required by the regulations of 
Grantor, any grant funds actually advanced and not needed by Grantee for 
approved purposes.
    H. Provide Financial Management Systems, as more specifically 
provided in 7 CFR 3016.20, which will include:
    1. Accurate, current and complete disclosure of the financial 
results of each grant. Financial reporting will be on an accrual basis.
    2. Records which identify adequately the source and application of 
funds for grant-supported activities. Those records shall contain 
information pertaining to grant awards and authorizations, obligations, 
unobligated balances, assets, liabilities, outlays, and income.
    3. Effective control over and accountability for all funds. Grantee 
shall adequately safeguard all such funds and shall assure that they are 
used solely for authorized purposes.
    4. accounting records supported by source documentation.
    I. Retain financial records, supporting documents, statistical 
records, and all other records pertinent to the grant for a period of at 
least 3 years after grant closing except that the records shall be 
retained beyond the 3-year period if audit findings have not been 
resolved. Microfilm copies may be substituted in lieu of original 
records. The Grantor and the Comptroller General of the United States, 
or any of their duly authorized representatives, shall have access to 
any books, documents, papers, and records of the Grantee's government 
which are pertinent to the specific grant program for the purpose of 
making audits, examinations, excerpts, and transcripts.
    J. Provide an audit report pursuant to 7 CFR part 3016 prepared in 
sufficient detail to allow the Grantor to determine that funds have been 
used in compliance with the proposal, any applicable laws and 
regulations and this Agreement.
    K. Agree to account for and to return to Grantor interest earned on 
grant funds pending that disbursements for program purposes when the 
Grantee is a unit of local government. States and agencies or 
instrumentalities of states shall not be held accountable for interest 
earned on grant funds pending their disbursement.
    L. Except as specifically provided in this agreement, comply with 
the applicable provisions of USDA's general grant regulations set out in 
7 CFR part 3016.
    M. Comply with the requirements of 7 CFR part 3017, subpart F, 
relating to drug-free workplace requirements and 7 CFR part 3018 
relating to restrictions on lobbying.
    Grantor agrees that it: A. Will make available to Grantee for the 
purpose of this Agreement not to exceed

[[Page 472]]

$____________________________ which it will advance to Grantee in 
accordance with the actual needs of Grantee as determined by Grantor.
    B. Will assist grantee with such assistance as Grantor deems 
appropriate in acquiring the project.
    C. At its sole discretion and at any time may give any consent, 
deferment, subordination, release, satisfaction, or termination of any 
or all of Grantee's grant obligations, with or without available 
consideration, upon such terms and conditions as Grantor may determine 
to be (1) advisable to further the purpose of the grant or to protect 
Grantor's financial interest therein and (2) consistent with both the 
statutory purposes of the grant and the limitations of the statutory 
authority under which it is made.
    Termination of This Agreement: This Agreement may be terminated for 
cause in the event of default on the part of the Grantee as provided in 
paragraph F of this exhibit or for convenience of the Grantor and 
Grantee prior to the date of completion of the grant purpose. 
Termination for convenience will occur when both the Grantee and Grantor 
agree that the continuation of the grant will not produce beneficial 
results commensurate with the further expenditure of funds.
    In Witness Whereof Grantee on the date first above written has 
caused these presence to be executed by its duly authorized 
____________________ and attested and its corporated seal affixed by its 
duly authorized


 _______________________________________________________________________

Attest:_________________________________________________________________
 By_____________________________________________________________________
 (Title)________________________________________________________________

 By_____________________________________________________________________
 (Title)________________________________________________________________


United States of America Farmers Home Administration or its successor 
agency under Public Law 103-354.

 By_____________________________________________________________________
 (Title)________________________________________________________________

                 Exhibit G-1--Restrictive-Use Agreement

(To be used with exhibit A-3 to this subpart)
    (Name of Borrower), herein referred to as owner, and any successors 
in interest agree that the (Name of Project), herein referred to as 
housing, will be used only as authorized under section 514 or 515 of 
title V of the Housing Act of 1949, as amended, and 7 Code of Federal 
Regulations (CFR) part 1965, subpart E, or other Farmers Home 
Administration or its successor agency under Public Law 103-354 (FmHA or 
its successor agency under Public Law 103-354) regulations then in 
existence until (Date shown on existing restrictive-use provisions) for 
the purpose of housing low- and moderate-income people eligible for 
occupancy. A tenant or applicant for housing may seek enforcement of 
this provision, as well as the United States. During the restrictive 
period, no eligible person occupying or wishing to occupy the housing 
shall be required to vacate or be denied occupancy without cause. Rents, 
other charges, and conditions of occupancy will be set so that the 
effect will not differ from what would have been had the project 
remained in the FmHA or its successor agency under Public Law 103-354 
program. The owner also agrees to keep a notice posted at the project 
for the remainder of the restrictive-use period, in a visible place 
available for tenant inspection, stating that the project is to be used 
in accordance with the Housing Act, and that management practices and 
rental rates will be consistent with those necessary to maintain the 
project for the protected population for the remainder of the 
restrictive-use period.
    Furthermore, the owner agrees to be bound by the applicable 
provisions of 7 CFR part 1930, subpart C, specific to tenant rights and 
relations for the duration of the restrictive-use period. The owner 
agrees to be responsible for ensuring that rental procedures, 
verification and certification of income and/or employment, lease 
agreements, rent or occupancy charges, and termination and eviction 
remain consistent with the provisions set forth in 7 CFR part 1930, 
subpart C, and to adhere to applicable local, State, and Federal laws. 
The owner agrees to obtain FmHA or its successor agency under Public Law 
103-354 concurrence with any changes to the preceding rental procedures 
that may deviate from those approved at the time of the prepayment, 
prior to implementing the changes. Any changes proposed must be 
consistent with the objectives of the program and the regulations. 
Documentation, including annual income recertifications, shall be 
maintained to evidence compliance in the event there is a future 
complaint or audit. The owner must be able to document that acceptable 
waiting lists were maintained, units were rented to appropriate tenants, 
and rents were established at appropriate levels. The owner agrees to 
make the documentation available for Government inspection upon request. 
The owner and any successors in interest agree to provide the following 
signed and dated certification to the applicable FmHA or its successor 
agency under Public Law 103-354 Servicing Office or other designated 
office within 30 days of the beginning of each calendar year until (Date 
restrictive-use period ends):
    (Name of Owner) certifies that (Name of Project) is being operated 
in compliance with the restrictive-use provisions contained in 
(Applicable release document) and the Restrictive-Use Agreement which 
sets forth certain requirements for operation of the

[[Page 473]]

project for the benefit of low- and moderate-income people in 
conformance with applicable FmHA or its successor agency under Public 
Law 103-354 regulations. (Name of Owner) understands that failure to 
operate the project in conformance with the restrictive-use provisions 
may cause a tenant or the United States to seek enforcement of the 
provisions.
 Date:__________________________________________________________________
 Owner:_________________________________________________________________
 By:____________________________________________________________________
 (Title)________________________________________________________________

                 Exhibit G-2--Restrictive-Use Agreement

(To be used with paragraph (A) to exhibit A-4 to this subpart)

    (Name of Borrower), herein referred to as owner, and any successors 
in interest agree to use the (Name of Project), herein referred to as 
housing, as required in 7 Code of Federal Regulations (CFR) part 1965, 
subpart E, or other Farmers Home Administration or its successor agency 
under Public Law 103-354 (FmHA or its successor agency under Public Law 
103-354) regulations then in existence during the 20-year period 
beginning (date of the last loan or servicing action) for the purpose of 
housing low- and moderate-income people eligible for occupancy. A tenant 
or applicant for housing may seek enforcement of this provision, as well 
as the United States. Prior to (date period ends) to eligible person 
occupying or wishing to occupy the housing shall be required to vacate 
or be denied occupancy without cause. Rents, other charges, and 
conditions or occupancy will be established to meet these conditions 
such that the effect will not differ from what would have been, had the 
project remained in the FmHA or its successor agency under Public Law 
103-354 program. The owner also agrees to keep a notice posted at the 
project for the remainder of the restrictive-use period, in a visible 
place available for tenant inspection, stating that the project is to be 
used in accordance with the Housing Act, and that management practices 
and rental rates will be consistent with those necessary to maintain the 
project for the protected population for the remainder of the 
restrictive-use period. At the expiration of this period ending (date) 
the housing and related facilities will be offered for sale to a 
qualified nonprofit organization or public agency, as determined by FmHA 
or its successor agency under Public Law 103-354.
    Furthermore, the owner agrees to be bound by the applicable 
provisions of 7 CFR part 1930, subpart C, specific to tenant rights and 
relations for the duration of the restrictive-use period. The owner 
agrees to be responsible for ensuring that rental procedures, 
verification and certification of income and/or employment, lease 
agreements, rent or occupancy charges, and termination and eviction 
remain consistent with the provisions set forth in 7 CFR part 1930, 
subpart C, and to adhere to applicable local, State, and Federal laws. 
The owner agrees to obtain FmHA or its successor agency under Public Law 
103-354 concurrence with any changes to the preceding rental procedures 
that may deviate from those approved at the time of the prepayment, 
prior to implementing the changes. Any changes proposed must be 
consistent with the objectives of the program and the regulations. 
Documentation, including annual income recertification, shall be 
maintained to evidence compliance in the event there is a future 
complaint or audit. The owner must be able to document that acceptable 
waiting lists were maintained, units were rented to appropriate tenants, 
and rents were established at appropriate levels. The owner agrees to 
make the documentation available for Government inspection upon request. 
The owner and any successors in interest agree to provide the following 
signed and dated certification to the applicable FmHA or its successor 
agency under Public Law 103-354 Servicing Office or other designated 
office within 30 days of the beginning of each calendar year until (date 
restrictive-use period ends):
    (Name of Owner) certifies that (Name of Project) is being operated 
in compliance with the restrictive-use provisions contained in 
(Applicable release document) and the Restrictive-Use Agreement which 
sets forth certain requirements for operation of the project for the 
benefit of low- and moderate-income people in conformance with 
applicable FmHA or its successor agency under Public Law 103-354 
regulations. (Name of Owner) understands that failure to operate the 
project in conformance with the restrictive-use provisions may cause a 
tenant or the United States to seek enforcement of the provisions.


 Date:__________________________________________________________________
 Owner:_________________________________________________________________
 By:____________________________________________________________________
 (Title)________________________________________________________________

                 Exhibit G-3--Restrictive-Use Agreement

(To be used with paragraph (B) to exhibit A-4 to this subpart)

    (Name of Borrower), herein referred to as owner, and any successors 
in interest agree to immediately attempt to sell the (Name of Project), 
herein referred to as housing and related facilities to a qualified 
nonprofit organization or public agency, as determined by Farmers Home 
Administration or its successor agency under Public Law 103-354 (FmHA or 
its successor agency under Public

[[Page 474]]

Law 103-354) in accordance with the provisions of 7 Code of Federal 
Regulations (CFR) part 1965, subpart E. The owner agrees to use the 
housing as required in 7 CFR part 1965, subpart E, or other regulations 
then in existence during the sales period for the purpose of housing 
low- and moderate-income people eligible for occupancy. A tenant or 
applicant for housing may seek enforcement of this provision, as well as 
the United States. Prior to a sale to a nonprofit organization or public 
agency, no eligible person occupying or wishing to occupy the housing 
shall be required to vacate or be denied occupancy without cause. Rents, 
other charges, and conditions of occupancy will be established to meet 
these conditions such that the effect will not differ from what would 
have been, had the project remained in the FmHA or its successor agency 
under Public Law 103-354 program. The owner also agrees to keep a notice 
posted at the project for the remainder of the sales period, in a 
visible place available for tenant inspection, stating that the project 
is to be used in accordance with the Housing Act, and that management 
practices and rental rates will be consistent with those necessary to 
maintain the project for the protected population for the remainder of 
the sales period.
    Furthermore, the owner agrees to be bound by the applicable 
provisions of 7 CFR part 1930 C, specific to tenant rights and relations 
for the duration of the sales period. The owner agrees to be responsible 
for ensuring that rental procedures, verification and certification of 
income and/or employment, lease agreements, rent or occupancy charges, 
and termination and eviction remain consistent with the provisions set 
forth in 7 CFR part 1930, subpart C, and to adhere to applicable local, 
State, and Federal laws. The owner agrees to obtain FmHA or its 
successor agency under Public Law 103-354 concurrence with any changes 
to the preceding rental procedures that may deviate from those approved 
at the time of the prepayment, prior to implementing the changes. Any 
changes proposed must be consistent with the objectives of the program 
and the regulations. Documentation, including annual income 
recertifications, shall be maintained to evidence compliance in the 
event there is a future complaint or audit. The owner must be able to 
document that acceptable waiting lists were maintained, units were 
rented to appropriate tenants, and rents were established at appropriate 
levels. The owner agrees to make the documentation available for 
Government inspection upon request. The owner and any successors in 
interest agree to provide the following signed and dated certification 
to the applicable FmHA or its successor agency under Public Law 103-354 
Servicing Office or other designated office within 30 days of the 
beginning of each calendar year until a sale to nonprofit organization 
or public agency takes place:
    (Name of Owner) certifies that (Name of Project) is being operated 
in compliance with the restrictive-use provisions contained in 
(Applicable release document) and the Restrictive-Use Agreement which 
sets forth certain requirements for operation of the project for the 
benefit of low- and moderate-income people in conformance with 
applicable FmHA or its successor agency under Public Law 103-354 
regulations. (Name of Owner) understands that failure to operate the 
project in conformance with the restrictive-use provisions may cause a 
tenant or the United States to seek enforcement of the provisions.


 Date:__________________________________________________________________
 Owner:_________________________________________________________________
 By:____________________________________________________________________
 (Title)________________________________________________________________

                 Exhibit G-4--Restrictive-Use Agreement

(To be used with paragraph (C) to exhibit A-4 to this subpart)
    (Name of Borrower), herein referred to as owner, and any successors 
in interest agree to use the (Name of Project), herein referred to as 
housing, for the purpose of housing low- and moderate-income people 
occupying the project at the time the prepayment was accepted, as 
required 7 Code of Federal Regulations (CFR) part 1965, subpart E, and 
other applicable Farmers Home Administration or its successor agency 
under Public Law 103-354 (FmHA or its successor agency under Public Law 
103-354) regulations then in existence. No eligible person occupying the 
housing shall be required to vacate prior to the end of the remaining 
useful life of the project without cause. Rents, other charges, and 
conditions of occupancy will be established to meet these conditions for 
these tenants such that the effect will not differ from what would have 
been, had the project remained in the FmHA or its successor agency under 
Public Law 103-354 program. Existing tenants are protected to ensure 
that none experience new or increased rent overburden as a result of 
owner actions until each voluntarily moves from the project. The owner 
also agrees to keep a notice posted at the project in a visible place 
available for tenant inspection, for the remaining useful life of the 
project or until the last existing tenant voluntarily vacates, stating 
that the project is to be used in accordance with the Housing Act, and 
that management practices and rental rates will be consistent with those 
necessary to maintain the project for low- and moderate-income tenants. 
A tenant may seek enforcement of this provision, as well as the United 
States.

[[Page 475]]

    Furthermore, the owner agrees to be bound by the applicable 
provisions of 7 CFR part 1930, subpart C, specific to tenant rights and 
relations for the remaining useful life of the project or until the last 
existing tenant voluntarily vacates. The owner agrees to be responsible 
for ensuring that rental procedures, verification and certification of 
income and/or employment, least agreements, rent or occupancy charges, 
and termination and eviction remain consistent with the provisions set 
forth in 7 CFR part 1930, subpart C, and to adhere to applicable local, 
State, and Federal laws. The owner agrees to obtain FmHA or its 
successor agency under Public Law 103-354 concurrence with any changes 
to the preceding rental procedures that may deviate from those approved 
at the time of the prepayment, prior to implementing the changes. Any 
changes proposed must be consistent with the objectives of the program 
and the regulations. Documentation, including annual income 
recertifications, shall be maintained to evidence compliance in the 
event there is a future complaint or audit. The owner must be able to 
document that rents were established at appropriate levels. The owner 
agrees to make the documentation available for Government inspection 
upon request. The owner and any successors in interest agree to provide 
the following signed and dated certification to the applicable FmHA or 
its successor agency under Public Law 103-354 Servicing Office or other 
designated office within 30 days of the beginning of each calendar year 
until the last existing tenant voluntarily vacates:
    (Name of Owner) certifies that (Name of Project) is being operated 
in compliance with the restrictive-use provisions contained in 
(Applicable release document) and the Restrictive-Use Agreement which 
sets forth certain requirements for operation of the project for the 
benefit of low- and moderate-income people in conformance with 
applicable FmHA or its successor agency under Public Law 103-354 
regulations. (Name of Owner) understands that failure to operate the 
project in conformance with the restrictive-use provisions may cause a 
tenant or the United States to seek enforcement of the provisions.


 Date:__________________________________________________________________
 Owner:_________________________________________________________________
 By:____________________________________________________________________
 (Title)________________________________________________________________



PART 1980--GENERAL--Table of Contents




                           Subpart A--General

Sec.
1980.1  Purpose.
1980.2--1980.5  [Reserved]
1980.6  Definitions and abbreviations.
1980.7--1980.10  [Reserved]
1980.11  Full faith and credit.
1980.12  [Reserved]
1980.13  Eligible lenders.
1980.14--1980.19  [Reserved]
1980.20  Loan guarantee limits.
1980.21  Guarantee fee.
1980.22  Charges and fees by lender.
1980.23  Prohibition of the guaranteeing of tax-exempt transactions.
1980.24--1980.39  [Reserved]
1980.40  Environmental requirements.
1980.41  Equal opportunity and nondiscrimination requirements.
1980.42  Flood or mudslide hazard area precautions.
1980.43  Clean Air Act and Water Pollution Control Act requirements.
1980.44  National Historic Preservation Act of 1966.
1980.45  Other Federal, State and local requirements.
1980.46  Right to Financial Privacy Act of 1978.
1980.47  Time frame for processing applications for loan guarantees.
1980.48  Seismic safety of new building construction.
1980.49--1980.59  [Reserved]
1980.60  Conditions precedent to issuance of the Loan Note Guarantee or 
          Contract of Guarantee.
1980.61  Issuance of Lender's Agreement, Loan Note Guarantee, Contract 
          of Guarantee and Assignment Guarantee Agreement.
1980.62  Lender's sale or assignment of guaranteed portion of loan.
1980.63  Defaults by borrower.
1980.64  Liquidation.
1980.65  Protective advances.
1980.66  Additional loans or advances.
1980.67  Bankruptcy.
1980.68  Lender's request to terminate Loan Note Guarantee or Contract 
          of Guarantee.
1980.69--1980.79  [Reserved]
1980.80  Appeals.
1980.81  Access to records of lenders.
1980.82  State supplements to this regulation.
1980.83  FmHA or its successor agency under Public Law 103-354 forms.
1980.84  Replacement of guaranteed loan or line of credit documents.
1980.85  Exception authority.
1980.86--1980.99  [Reserved]
1980.100  OMB control number.

                         Appendices to Subpart A

Appendix A--Loan note guarantee
Appendix B--Lender's Agreement
Appendix C--Assignment Guarantee Agreement
Appendix D--Contract of Guarantee (line of Credit)

[[Page 476]]

Appendix E--Agreement for Participation in Farm Credit Programs 
          Guaranteed Loan Programs of the United States Government
Appendix F--Conditional Commitment (Farmer Programs)
Appendix G--Farmer Programs Application
Appendix H--Interest Rate Buydown Agreement
Appendix I--Request Interest Assistance/Interest Rate Buydown/Subsidy 
          payment to Guaranteed Loan Lender
Appendix J--Interest Assistance Agreement (Farmer Programs)
Appendix K--Modification of New Contract Relating to Farm Credit 
          Programs Guaranteed Loan/Line of Credit
Appendix L--Modification of Existing Contract Relating to Farm Credit 
          Programs Guaranteed Loan/Line of Credit

                     Subpart B--Farmer Program Loans

1980.101  Introduction.
1980.102--1980.105  [Reserved]
1980.106  Abbreviations and definitions.
1980.107  Full faith and credit.
1980.108  General provisions.
1980.109  Promissory notes, line of credit agreements, security 
          instruments, and financing statements.
1980.110  Loan subsidy rates, claims, and payments (for EM actual loss 
          loans only).
1980.111--1980.112  [Reserved]
1980.113  Receiving and processing applications.
1980.114  Evaluation and assessment of applications.
1980.115  Eligibility review.
1980.116  Review of requirements.
1980.117  Conditions precedent to issuance of the Loan Note Guarantee or 
          Contract of Guarantee.
1980.118  Issuance of Lender's Agreement, Loan Note Guarantee, Contract 
          of Guarantee, and Assignment Guarantee Agreement.
1980.119  Lender's sale or assignment of Guaranteed loan.
1980.120--1980.121  [Reserved]
1980.122  Substitution of lenders.
1980.123  Transfer and assumption of Farmer Program loans.
1980.124  Consolidation, rescheduling, reamortizing and deferral.
1980.125  Debt write down.
1980.126  Mediation.
1980.127--1980.128  [Reserved]
1980.129  Planning and performing development.
1980.130  Loan servicing.
1980.131  Appraisal review.
1980.132--1980.135  [Reserved]
1980.136  Protective advances.
1980.137--1980.138  [Reserved]
1980.139  Termination of Loan Note Guarantee or Contract of Guarantee.
1980.140--1980.143  [Reserved]
1980.144  Bankruptcy.
1980.145  Defaults by borrower.
1980.146  Liquidation.
1980.147--1980.173  [Reserved]
1980.174  Percentage of guarantee.
1980.175  Operating loans.
1980.176--1980.179  [Reserved]
1980.180  Farm Ownership loans.
1980.181--1980.184  [Reserved]
1980.185  Soil and Water loans.
1980.186--1980.189  [Reserved]
1980.190  Certified Lender Program--Operating loans.
1980.191  Borrower Training program.
1980.192--1980.199  [Reserved]
1980.200  OMB control number.

                          Exhibits to Subpart B

Exhibit A--Approved Lender Program--Farm Ownership, Soil and Water and 
          Operating Loans
Exhibit B--[Reserved]
Exhibit C--Application Processing for Guaranteed Farmer Program Loans
Exhibit D--Interest Assistance Program
Exhibit E--Demonstration Project for Purchase of Certain Farm Credit 
          System Acquired Farm Land
Exhibit F--(Prepare One for Each Loan/Line of Credit to be Written Down) 
          Shared Appreciation Agreement
Exhibit G--1990 Farm Operating Loans Authorized by the ``Disaster 
          Assistance Act of 1989''

                          Subpart C [Reserved]

                     Subpart D--Rural Housing Loans

1980.301  Introduction.
1980.302  Definitions and abbreviations.
1980.303-1980.307  [Reserved]
1980.308  Full faith and credit.
1980.309  Lender participation in guaranteed RH loans.
1980.310  Loan purposes.
1980.311  Loan limitations and special provisions.
1980.312  Rural area designation.
1980.313  Site and building requirements.
1980.314  Loans on leasehold interests.
1980.315  Escrow accounts for exterior development.
1980.316  Environmental requirements.
1980.317  Equal opportunity and nondiscrimination requirements in use, 
          occupancy, rental, or sale of housing.
1980.318  Flood or mudslide hazard area precautions.
1980.319  Other Federal, State, and local requirements.
1980.320  Interest rate.
1980.321  Terms of loan repayment.
1980.322  Loan guarantee limits.

[[Page 477]]

1980.323  Guarantee fee.
1980.324  Charges and fees by Lender.
1980.325  Transactions which will not be guaranteed.
1980.326-1980.329  [Reserved]
1980.330  Applicant equity requirements.
1980.331  Collateral.
1980.332  [Reserved]
1980.333  Promissory notes and security instruments.
1980.334  Appraisal of property serving as collateral.
1980.335-1980.339  [Reserved]
1980.340  Acquisition, construction, and development.
1980.341  Inspections of construction and compliance reviews.
1980.342-1980.344  [Reserved]
1980.345  Applicant eligibility requirements for a guaranteed loan.
1980.346  Other eligibility criteria.
1980.347  Annual income.
1980.348  Adjusted annual income.
1980.349-1980.350  [Reserved]
1980.351  Requests for reservation of funds.
1980.352  [Reserved]
1980.353  Filing and processing applications.
1980.354  [Reserved]
1980.355  Review of requirements.
1980.356-1980.359  [Reserved]
1980.360  Conditions precedent to issuance of the loan note guarantee.
1980.361  Issuance of loan note guarantee.
1980.362  [Reserved]
1980.363  Review of loan closing.
1980.364-1980.365  [Reserved]
1980.366  Transfer and assumption.
1980.367  Unauthorized sale or transfer of the property.
1980.368-1980.369  [Reserved]
1980.370  Loan servicing.
1980.371  Defaults by the borrower.
1980.372  Protective advances.
1980.373  [Reserved]
1980.374  Liquidation.
1980.375  Reinstatement of the borrower's account.
1980.376  Loss payments.
1980.377  Future recovery.
1980.378-1980.389  [Reserved]
1980.390  Interest assistance.
1980.391  Equity sharing.
1980.392  Mortgage Credit Certificates (MCCs) and Funded Buydown 
          Accounts.
1980.393-1980.396  [Reserved]
1980.397  Exception authority.
1980.398  Unauthorized assistance and other deficiencies.
1980.399  Appeals.
1980.400  [Reserved]

             Subpart E--Business and Industrial Loan Program

1980.401  Introduction.
1980.402  Definitions.
1980.403  Citizenship of borrowers.
1980.404  [Reserved]
1980.405  Rural area determinations.
1980.406--1980.410  [Reserved]
1980.411  Loan purposes.
1980.412  Ineligible loan purposes.
1980.413  Transactions which will not be guaranteed.
1980.414  Fees and charges by lender and others.
1980.415--1980.418  [Reserved]
1980.419  Eligible lenders.
1980.420  Loan guarantee limits.
1980.421--1980.422  [Reserved]
1980.423  Interest rates.
1980.424  Term of loan repayment.
1980.425  Availability of credit from other sources.
1980.426--1980.431  [Reserved]
1980.432  Environmental requirements.
1980.433  Flood or mudslide hazard area precautions.
1980.434  Equal opportunity and nondiscrimination requirements.
1980.435--1980.440  [Reserved]
1980.441  Borrower equity requirements.
1980.442  Feasibility studies.
1980.443  Collateral, personal and corporate guarantees, and other 
          requirements.
1980.444  Appraisal of property serving as collateral.
1980.445  Periodic financial statements and audits.
1980.446--1980.450  [Reserved]
1980.451  Filing and processing applications.
1980.452  FmHA or its successor agency under Public Law 103-354 
          evaluation of application.
1980.453  Review of requirements.
1980.454  Conditions precedent to issuance of the Loan Note Guarantee.
1980.455--1980.460  [Reserved]
1980.461  Issuance of Lender's Agreement, Loan Note Guarantee and 
          Assignment Guarantee Agreement.
1980.462--1980.468  [Reserved]
1980.469  Loan servicing.
1980.470  Defaults by borrower.
1980.471  Liquidation.
1980.472  Protective advances.
1980.473  Additional loans or advances.
1980.474  [Reserved]
1980.475  Bankruptcy.
1980.476  Transfer and assumptions.
1980.477--1980.480  [Reserved]
1980.481  Insured loans.
1980.482--1980.487  [Reserved]
1980.488  Guaranteed industrial development bond issues.
1980.489  [Reserved]
1980.490  Business and industry buydown loans.
1980.491--1980.494  [Reserved]
1980.495  FmHA or its successor agency under Public Law 103-354 forms 
          and guides.
1980.496  Exception authority.
1980.497  General administrative.

[[Page 478]]

1980.498  Business and Industry Disaster Loans.
1980.499  [Reserved]
1980.500  OMB control number.

                         Appendices to Subpart E

Appendix A--Form FmHA 449-1, Application for Loan and Guarantee
Appendix B--Certificate of Incumbency and Signature
Appendix C--Guidelines for Loan Guarantees for Alcohol Fuel Production 
          Facilities
Appendix D--Alcohol Production Facilities Planning, Performing, 
          Development and Project Control
Appendix E--Environmental Assessment Guidelines
Appendix F--Conditional Commitment for Guarantee
Appendix G  [Reserved]
Appendix H--Suggested Format for the Opinion of the Lender's Legal 
          Counsel
Appendix I--Instructions for Loan Guarantees for Drought and Disaster 
          Relief
Appendix J  [Reserved]
Appendix K--Regulations for Loan Guarantees for Disaster Assistance for 
          Rural Business Enterprises

                          Exhibit to Subpart E

Exhibit G--[Note]

                         Subparts F-H [Reserved]

             Subpart I--Community Programs Guaranteed Loans

1980.801  Introduction.
1980.802  Definitions.
1980.803--1980.804  [Reserved]
1980.805  Rural area determinations.
1980.806  Availability of credit from other sources.
1980.807--1980.810  [Reserved]
1980.811  Legal authority and responsibility.
1980.812  Priorities.
1980.813  Eligible loan purposes.
1980.814  Ineligible loan purposes.
1980.815  Transactions which will not be guaranteed.
1980.816  Facilities for public use.
1980.817  Fees and charges by lender.
1980.818  Eligible lenders.
1980.819  Loan guarantee limits.
1980.820--1980.822  [Reserved]
1980.823  Interest rates.
1980.824  Terms of loan repayment.
1980.825--1980.831  [Reserved]
1980.832  Environmental requirements.
1980.833  Flood or mudslide hazard area precautions.
1980.834  Equal opportunity and nondiscrimination requirements.
1980.835--1980.841  [Reserved]
1980.842  Economic feasibility requirements.
1980.843  Security.
1980.844  Appraisal reports.
1980.845--1980.850  [Reserved]
1980.851  Processing applications.
1980.852  FmHA or its successor agency under Public Law 103-354 
          evaluation of application.
1980.853  Loan approval and obligating funds.
1980.854  Projects requiring National Office review.
1980.855  Review of requirements.
1980.856  Conditions precedent to issuance of the Loan Note Guarantee 
          (Form FmHA or its successor agency under Public Law 103-354 
          449-34).
1980.857  Issuance of lender's agreement, loan note guarantee, contract 
          of guarantee, and assignment guarantee agreement.
1980.858--1980.868  [Reserved]
1980.869  Design and construction.
1980.870  Loan servicing.
1980.871  Loan classification.
1980.872  Defaults by borrower.
1980.873  Liquidation.
1980.874  Protective advances.
1980.875  Additional loans or advances.
1980.876  Bankruptcy.
1980.877  Transfer and assumptions.
1980.878  Mergers.
1980.879  Disposition of acquired property.
1980.880  State Director's additional authorizations and guidance.
1980.881  Appeals.
1980.882--1980.899  [Reserved]
1980.900  OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.



                           Subpart A--General

    Source: 48 FR 30947, July 6, 1983, unless otherwise noted



Sec. 1980.1  Purpose.

    This subpart contains the general regulations and prescribed forms 
which are applicable to the Farmers Home Administration or its successor 
agency under Public Law 103-354 (FmHA or its successor agency under 
Public Law 103-354) guaranteed loan programs authorized in part 1980, 
except for subpart D, Rural Housing Program Loans. Additional 
regulations for these programs are found in the various subparts of part 
1980. These additional regulations apply to lenders, holders, borrowers, 
and other parties involved in making, guaranteeing, insuring (if 
applicable),

[[Page 479]]

holding, servicing or liquidating such loans.
[48 FR 30947, July 6, 1983, as amended at 54 FR 12874, Mar. 29, 1989]



Secs. 1980.2--1980.5  [Reserved]



Sec. 1980.6  Definitions and abbreviations.

    (a) General definitions. The following general definitions are 
applicable to the terms used in this part. Additional definitions may be 
found in the subparts relating to the particular type of loan involved.
    Assignment Guarantee Agreement (Form FmHA or its successor agency 
under Public Law 103-354 449-36). The signed agreement among FmHA or its 
successor agency under Public Law 103-354, the lender, and the holder, 
setting forth the terms and conditions of an assignment of a guaranteed 
portion of a loan or any part thereof.
    Conditional Commitment (Farmer Programs) (Form FmHA or its successor 
agency under Public Law 103-354 1980-15). FmHA or its successor agency 
under Public Law 103-354's advice to the lender that the material it has 
submitted is approved subject to the completion of all conditions and 
requirements set forth in ``Conditional Commitment (Farmer Programs).''
    Conditional Commitment for Guarantee (Form FmHA or its successor 
agency under Public Law 103-354 449-14). FmHA or its successor agency 
under Public Law 103-354's advice to the lender that the material it has 
submitted is approved subject to the conditions and requirements set 
forth in ``Conditional Commitment for Guarantee.''
    Conditional Commitment for Contract of Guarantee (Line of Credit) 
(Form FmHA or its successor agency under Public Law 103-354 1980.15). 
FmHA or its successor agency under Public Law 103-354's advice to the 
lender that the material it has submitted is approved subject to the 
completion of all conditions and requirements set forth in ``Conditional 
Commitment for Contract of Guarantee.''
    Contract of Guarantee (Line of Credit) (Form FmHA or its successor 
agency under Public Law 103-354 1980-27). The signed commitment issued 
by FmHA or its successor agency under Public Law 103-354 setting forth 
(specifically or by reference) the terms and conditions of the 
guaranteed line of credit.
    Finance Office. The office which maintains the FmHA or its successor 
agency under Public Law 103-354 financial records. It is located at 1520 
Market Street St. Louis, Missouri 63103.
    FmHA or its successor agency under Public Law 103-354. The United 
States of America, acting through the Farmers Home Administration or its 
successor agency under Public Law 103-354, an agency of the United 
States Department of Agriculture. References to the National Office, 
Finance Office, State Office, County Office, State Director, District 
Director, County Supervisor, or other FmHA or its successor agency under 
Public Law 103-354 offices or official should be read as prefaced by 
``FmHA or its successor agency under Public Law 103-354.''
    Guaranteed line of credit. Loan advances made and serviced by a 
lender subject to a maximum amount agreed to by the lender and FmHA or 
its successor agency under Public Law 103-354 which is specified in Form 
FmHA or its successor agency under Public Law 103-354 1980-27, 
``Contract of Guarantee (Line of Credit),'' and for which FmHA or its 
successor agency under Public Law 103-354 has entered into a Form FmHA 
or its successor agency under Public Law 103-354 1980-38, ``Agreement 
for Participation in Farmer Programs Guaranteed Loan Programs of the 
United States Government.''
    Guaranteed loan. A loan made and serviced by a lender for which FmHA 
or its successor agency has entered into a Form FmHA 449-35 or Form FmHA 
1980-38, ``Lender's Agreement,'' and for which FmHA or its successor 
agency has issued a Form FmHA 449-34, ``Loan Note Guarantee.''
    Hazard insurance. Includes fire, windstorm, lightning, hail, 
explosion, riot, civil commotion, aircraft, vehicles, smoke, builder's 
risk, public liability, property damage, flood or mudslide, workers 
compensation, or any similar insurance that is available and needed to 
protect the security, or that is required by law.
    Holder. The person or organization other than the lender who holds 
all or a part of the guaranteed portion of the loan with no servicing 
responsibilities.

[[Page 480]]

Holders are prohibited from obtaining any part(s) of the guaranteed 
portion of the loan with proceeds from any obligation the interest on 
which is excludable from income under section 103 of the Internal 
Revenue Code of 1954, as amended (IRC). When the lender assigns a 
part(s) of the guaranteed loan to an assignee, the assignee becomes a 
holder when Form FmHA or its successor agency under Public Law 103-354 
449-36, ``Assignment Guarantee Agreement,'' is used.
    Insured loans. A loan directly made and serviced by FmHA or its 
successor agency under Public Law 103-354 as lender with funds from the 
Rural Development Insurance Fund, Rural Housing Insurance Fund, or 
Agricultural Credit Insurance Fund.
    Joint financing. Occurs when two or more lenders (or any combination 
of such lenders) makes separate loans to supply the funds required by 
one applicant. For example, such joint financing may consist of FmHA or 
its successor agency under Public Law 103-354 financial assistance with 
the Economic Development Administration (EDA), Department of Housing and 
Urban Development (HUD), Small Business Administration (SBA), other 
Federal and State agencies, and private and quasi-public financial 
institutions.
    Lender. The person or organization making and servicing the loan or 
advancing and servicing the line of credit which is guaranteed under the 
provisions of the appropriate subpart. The lender is also the party 
requesting a guarantee.
    Lender's Agreement (Forms FmHA or its successor agency under Public 
Law 103-354 449-35 or 1980-38). The signed agreement between FmHA or its 
successor agency under Public Law 103-354 and the lender setting forth 
the lender's loan responsibilities when the Loan Note Guarantee or 
Contract of Guarantee is issued. Form FmHA or its successor agency under 
Public Law 103-354 1980-38 is used for Farmer Programs loans only and 
will be referred to as ``Lender's Agreement'' even though its full title 
is ``Agreement for Participation in Farmer Programs Guaranteed Loan 
Programs of the United States Government.''
    Line of credit agreement. An evidence of debt in those instances in 
which a lender extends a line of credit to a borrower.
    Loan Note Guarantee (Form FmHA or its successor agency under Public 
Law 103-354 449-34). The signed commitment issued by FmHA or its 
successor agency under Public Law 103-354 setting forth the terms and 
conditions of the guarantee.
    Market value. The amount for which property would sell for its 
highest and best use at voluntary sale.

    Note: An evidence of debt. In those instances where FmHA or its 
successor agency under Public Law 103-354 makes an insured loan or 
guarantees a bond issue, ``note'' shall also be construed to include 
``Bond'' or other evidence of indebtedness where appropriate.

    Principals of borrowers. Includes owners, officers, directors, 
entities and others directly involved in the operation and management of 
a business.
    Transfer and assumption. The conveyance by a debtor to an assuming 
party of the assets, collateral, and liabilities of the loan in return 
for the assuming party's binding promise to pay the debt outstanding. In 
relation to transfer and assumption cases, where appropriate, 
``liquidation'' and ``loan'' shall be construed to mean ``transfer and 
assumption,'' ``promissory note'' shall be construed to mean 
``assumption agreement,'' and ``borrower'' shall be construed to mean 
``assuming party'' or ``transferee.''
    (b) Abbreviations. The following abbreviations are applicable:
    ASCS-- Agricultural Stabilization and Conservation Service.
    CLP-- Certified Lender Program.
    CP-- Community Programs.
    EDA-- Economic Development Administration.
    EM-- Emergency Loans.
    EPA-- Environmental Protection Agency.
    EIS-- Environmental Impact Statement.
    FO-- Farm Ownership.
    FmHA or its successor agency under Public Law 103-354-- Farmers Home 
Administration or its successor agency under Public Law 103-354.
    FDAA-- Federal Disaster Assistance Administration.

[[Page 481]]

    FIA-- Federal Insurance Administration.
    FMI-- Forms Manual Insert.
    OGC-- Office of the General Counsel.
    OL-- Operating loans.
    OL-Y-- Operating Loans-Youth.
    RL-- Recreation loans.
    SBA-- Small Business Administration.
    SBIC-- Small Business Investment Company.
    SW-- Soil and Water.
    USDA-- United States Department of Agriculture.
[48 FR 30947, July 6, 1983, as amended at 50 FR 39883, Sept. 30, 1985; 
51 FR 6707, Feb. 25, 1986; 54 FR 4, Jan. 3, 1989, and 54 FR 26946, June 
27, 1989; 54 FR 42481, 42482, Oct. 17, 1989; 55 FR 11134, Mar. 27, 1990; 
55 FR 19245, May 9, 1990; 58 FR 34306, June 24, 1993; 58 FR 48291, Sept. 
15, 1993; 61 FR 67632, 67633, Dec. 23, 1996]



Secs. 1980.7--1980.10  [Reserved]



Sec. 1980.11  Full faith and credit.

    The Loan Note Guarantee and Contract of Guarantee constitute 
obligations supported by the full faith and credit of the United States 
and are incontestable except for fraud or misrepresentation of which the 
lender or holder has actual knowledge at the time it becomes such lender 
or holder or which lender or holder participates in or condones. 
Generally, any Loan Note Guarantee, Contract of Guarantee or Assignment 
Guarantee Agreement attached to or relating to a note which provides for 
payment of interest on interest is void. In the case of Farm Credit 
Programs loans, however, a Loan Note Guarantee, Contract of Guarantee or 
Assignment Guarantee Agreement attached to a note that provides for the 
capitalization of interest is not void. The guarantee and right to 
require purchase will be directly enforceable by holder notwithstanding 
any fraud or misrepresentation by the lender or any unenforceability of 
the Loan Note Guarantee by the lender. The Loan Note Guarantee or 
Contract of Guarantee will be unenforceable by the lender to the extent 
any loss is occasioned by violation of usury laws, negligent servicing 
or failure to obtain the required security regardless of the time at 
which the Agency acquires knowledge of the foregoing. Any losses 
occasioned will be unenforceable by the lender to the extent that loan 
funds are used for purposes other than those specifically approved by 
the Agency in its Form FmHA 1980-15 (available in any Agency office). 
Negligent servicing is defined as the failure to perform those services 
which a reasonably prudent lender would perform in servicing its own 
portfolio of loans that are not guaranteed. The term includes not only 
the concept of a failure to act but also not acting in a timely manner 
or acting in a manner contrary to the manner in which a reasonably 
prudent lender would act up to the time of loan maturity or until a 
final loss is paid. The Loan Note Guarantee or Assignment Guarantee 
Agreement in the hands of a holder shall not cover interest accruing 90 
days after the holder has demanded repurchase by the lender, nor shall 
the Loan Note Guarantee or Assignment Guarantee Agreement in the hands 
of a holder cover interest accruing 90 days after the lender or the 
Agency has requested the holder to surrender the evidence of debt for 
repurchase.
[60 FR 53255, Oct. 13, 1995]



Sec. 1980.12  [Reserved]



Sec. 1980.13  Eligible lenders.

    (a) Local lenders. Local lenders may participate by using the 
various sources of capital and segments of the money market to meet the 
necessary financing requirement for guaranteed loan programs. Except in 
paragraphs (a)(1) and (2) this section, the Agency or its successor 
agency under Public Law 103-354 will require that a local lender be 
involved for each project. A local lender is a lender in or near a 
community where the project is or will be located who routinely provides 
loan services to such community. Although the project may involve other 
lenders, investors, or packagers, the local lender will be the lead 
lender and the lender for purposes of these regulations responsible for 
servicing and liquidation (if necessary) of the loan. The lender may use 
agents, correspondents, branches, financial experts, or other 
institutions or persons to provide expertise to assist in carrying out 
its responsibilities. The Agency or its successor agency under Public 
Law 103-354

[[Page 482]]

will use the lender as the point of contact for the administration of 
the program. The Agency or its successor agency under Public Law 103-354 
may also permit a lender to be the lender for the loan without being 
local if:
    (1) The lender normally makes loans in the region or geographic 
location in which the applicant's project being financed is located; or
    (2) The lender has specific expertise in loans for the proposed 
project and provides evidence of such expertise to the satisfaction of 
the Agency or its successor agency under Public Law 103-354.
    (b) An eligible lender is: Any Federal or State chartered bank, Farm 
Credit Bank, other Farm Credit System institution with direct lending 
authority, Bank for Cooperatives, Savings and Loan Association, Building 
and Loan Association, or mortgage company that is part of a bank-holding 
company. These entities must be subject to credit examination and 
supervision by either an agency of the United States or a State. 
Eligible lenders may also include credit unions that are subject to 
credit examination and supervision by either the National Credit Union 
Administration or a State agency or an insurance company that is 
regulated by a State or National insurance regulatory agency. For Farm 
Credit Programs loans, an eligible lender will include any lending 
organization regulated by, and in good standing with, a State or Federal 
government body. Only those lenders listed in this paragraph are 
eligible to make and service guaranteed loans, and such lenders must be 
in good standing with their licensing authority and have met licensing, 
loan making, loan servicing, and other requirements of the State in 
which the collateral will be located and the loan making and loan 
servicing office requirements in paragraph (b)(3) of this section. A 
lender must have the capability to adequately service the loan for which 
a guarantee is requested.
    (1) Participation. Lenders who are not eligible lenders are not 
barred from participating in loans made by eligible lenders.
    (2) Lender notification. Each lender will inform the Agency or its 
successor agency under Public Law 103-354 whether it qualifies for 
eligibility under this section and which agency or authority, if any, 
supervises such lender. This information will be furnished to FmHA or 
its successor agency under Public Law 103-354 with such proofs as FmHA 
or its successor agency under Public Law 103-354 may require.
    (3) Lender location. Each lender must maintain an office (either its 
main or branch office or that of an agent) near enough to the 
collateral's location so it can properly and efficiently discharge its 
loanmaking and loan servicing responsibilities.
    (4) Conflict of interest. The Agency or its successor agency under 
Public Law 103-354 shall determine whether such ownership or business 
dealings are sufficient to likely result in a conflict of interest. All 
lenders will, for each proposed loan, inform the Agency or its successor 
agency under Public Law 103-354 in writing and furnish such additional 
evidence as the Agency or its successor agency under Public Law 103-354 
requested as to whether and the extent that:
    (i) For those loans covered by Form FmHA or its successor agency 
under Public Law 103-354 449-35, the lender or its principal officers 
(including immediate family) or the borrower or its principals or 
officers (including immediate family) hold any stock or other evidence 
of ownership in the other; or
    (ii) For Farm Credit Programs loans covered by Form FmHA or its 
successor agency under Public Law 103-354 1980-38, the lender or its 
officers, directors, principal stockholders or other principal owners or 
the borrower or its officers, directors, stockholders or other owners 
have any business dealings with, or hold any stock or other evidence of 
ownership in, the other.
    (5) Debarment. See subpart M of part 1940 (available in any Agency 
or its successor agency under Public Law 103-354 office).
    (c) Substitution of lenders. With written concurrence of the Agency 
or its successor agency under Public Law 103-354, another eligible 
lender may be substituted for a lender who holds an outstanding 
Conditional Commitment provided the borrower, loan purposes,

[[Page 483]]

scope of project and loan terms remain unchanged.
[48 FR 30947, July 6, 1983, as amended at 50 FR 39884, Sept. 30, 1985; 
54 FR 14334, Apr. 11, 1989; 58 FR 34307, June 24, 1993; 60 FR 53255, 
Oct. 13, 1995; 61 FR 67633, Dec. 23, 1996]



Secs. 1980.14--1980.19  [Reserved]



Sec. 1980.20  Loan guarantee limits.

    (a) Lenders and applicants will propose the percentage of guarantee. 
The Agency will set the percentage of guarantee. The maximum percentage 
of guarantee will be ninety percent. Also, except as modified for Farm 
Credit Programs guaranteed loans (see subpart B of this part), the 
maximum loss covered by Form FmHA 449-34 or Form FmHA 1980-27 (both 
available in any Agency office) can never exceed the lesser of: The Farm 
Service Agency loan guarantee limit is 90 percent unless otherwise 
stated in subpart B of this part.
    (1) The percentage of guarantee of principal and interest 
indebtedness as evidenced by said note(s) or by assumption agreement(s), 
any loan subsidy due, and the percentage of guarantee of principal and 
interest indebtedness on secured protective advances for protection and 
preservation of collateral made with the Agency or its successor agency 
under Public Law 103-354's authorization; or
    (2) The percentage of guarantee of the principal advanced to or 
assumed by the borrower under said note(s) or assumption agreement(s) 
and any interest due (including any loan subsidy) thereon.
    (b) The Agency or its successor agency under Public Law 103-354 will 
determine the percentage of guarantee after considering all credit 
factors involved, including but not limited to:
    (1) Applicant's management. The applicant's management, and when 
appropriate, equity capital, history of operation, marketing plan, raw 
material requirements, and availability of necessary supporting 
utilities and services.
    (2) Collateral. Collateral for the loan.
    (3) Financial condition. Financial condition of applicant or 
applicant's principals if appropriate.
    (4) Lender's exposure. The lender's exposure before and after the 
loan.
    (5) Trends and conditions. Current trends and economic conditions.
[54 FR 1548, Jan. 13, 1989, as amended at 54 FR 42482, Oct. 17, 1989; 55 
FR 137, Jan. 3, 1990; 58 FR 34307, June 24, 1993; 60 FR 53255, Oct. 13, 
1995; 61 FR 67633, Dec. 23, 1996; 62 FR 9357, Mar. 3, 1997]



Sec. 1980.21  Guarantee fee.

    (a) Initial fee. The fee will be the applicable rate multiplied by 
the principal loan amount or the Line of Credit ceiling amount 
multiplied by the percent of guarantee, paid one time only at the time 
the Loan Note Guarantee or Contract of Guarantee is issued. No guarantee 
fee will be charged when financing is provided by a State Beginning 
Farmer program as described in Sec. 1980.108 (e) of subpart B of this 
part.
    (1) The fee will be paid to FmHA or its successor agency under 
Public Law 103-354 by the lender and is nonreturnable. The lender may 
pass on the fee to the borrower.
    (2) Guarantee fee rates are specified in exhibit K of FmHA or its 
successor agency under Public Law 103-354 Instruction 440.1 (available 
in any FmHA or its successor agency under Public Law 103-354 Office).
    (b) Substitution fee. In the event FmHA or its successor agency 
under Public Law 103-354 agrees to issue a Loan Note Guarantee in 
substitution for a Form FmHA or its successor agency under Public Law 
103-354 449-17, ``Contract of Guarantee,'' issued under previous 
regulations (see Sec. 1980.61(b)(2)) the lender will pay to FmHA or its 
successor agency under Public Law 103-354 at the time the substitution 
is made nonrefundable, one-time fee at the applicable rate multiplied by 
the current principal loan balance multiplied by the percent of 
guarantee. Guarantee fee rates are specified in exhibit K of the 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).
[56 FR 11503, Mar. 19, 1991, as amended at 58 FR 48291, Sept. 15, 1993]

[[Page 484]]



Sec. 1980.22  Charges and fees by lender.

    (a) Routine charges and fees. (1) Guarantee fees for Downpayment FO 
loan applicants. When a guaranteed loan is made in conjunction with the 
Downpayment FO Loan program for beginning farmers or ranchers referenced 
in Sec. 1943.14 of subpart A of part 1943 of this chapter, the lender 
may charge a loan origination and servicing fee for an amount not to 
exceed 1 percent of the loan amount for the life of the loan.
    (2) All Other Program Guarantees. Under all programs except the 
Downpayment FO Loan program for beginning farmers or ranchers, the 
lender may establish the charges and fees for the loan, provided they 
are the same as those charged other applicants for similar types of 
transactions. ``Similar types of transactions'' means those transactions 
involving the same type of loan requested for which a non-guaranteed 
loan applicant would be assessed charges and fees.
    (b) Late payment charges. Late payment charges will not be covered 
by the Loan Note Guarantee or Contract of Guarantee. Such charges may 
not be added to the principal and interest due under any guaranteed 
note. Late payment charges may be made only if:
    (1) Routine. They are routinely made by the lender in all types of 
loan transactions.
    (2) Payments received. Payment has not been received within the 
customary time frame allowed by the lender. The term ``payment 
received'' means that the payment in cash or by check, money order, or 
similar medium has been received by the lender at its main office, 
branch office, or other designated place of payment.
    (3) Calculating charges. The lender agrees with the applicant in 
writing that the rate or method of calculating the late payment charges 
will not be changed to increase charges while the Loan Note Guarantee or 
Contract of Guarantee is in effect.
[48 FR 30947, July 6, 1983, as amended at 50 FR 39884, Sept. 30, 1985; 
58 FR 48291, Sept. 15, 1993]



Sec. 1980.23  Prohibition of the guaranteeing of tax-exempt transactions.

    (a) FmHA or its successor agency under Public Law 103-354 will not 
guarantee any loan or line of credit made with the proceeds of any 
obligation the interest on which is excludable from income under section 
103 of the Internal Revenue Code of 1954, as amended (IRC). Funds 
generated through the issuance of tax-exempt obligations may not be used 
to purchase the guaranteed portion of any FmHA or its successor agency 
under Public Law 103-354 guaranteed loan or line of credit nor may an 
FmHA or its successor agency under Public Law 103-354 guaranteed loan or 
line of credit serve as collateral for a tax-exempt issue.
    (b) The only time FmHA or its successor agency under Public Law 103-
354 may guarantee a loan or line of credit for a project which involves 
tax-exempt financing is when the guaranteed loan funds are (1) used to 
finance a part of the project which is separate and distinct from the 
part of the project which is financed by the tax-exempt issue, and (2) 
the guaranteed loan or line of credit has at least a parity security 
position with the tax-exempt obligation.
[50 FR 39884, Sept. 30, 1985]



Secs. 1980.24--1980.39  [Reserved]



Sec. 1980.40  Environmental requirements.

    The need for an Environmental Impact Statement (EIS) will be 
determined by the FmHA or its successor agency under Public Law 103-354 
approval official. The determination will be based upon FmHA or its 
successor agency under Public Law 103-354's completion of the 
appropriate environmental review and Form FmHA or its successor agency 
under Public Law 103-354 1940-20, ``Request for Environmental 
Information,'' when required as set forth in subpart G of part 1940 of 
this chapter and other agency comments or other information available. 
If an EIS is necessary, applicants and lenders will be required to 
provide essential data for use in its preparation. FmHA or its successor 
agency under Public Law 103-354 State Directors will coordinate 
preparation and processing of any required EIS. If joint financing for 
the proposal is involved, the lead agency will be responsible for 
preparation of the EIS. In all cases, FmHA or its successor agency under 
Public Law

[[Page 485]]

103-354 is responsible for assuring that the requirements of section 
102(2)(c) of the National Environmental Policy Act of 1969 (NEPA), and 
subpart G of part 1940 of this chapter are met.
[54 FR 42482, Oct. 17, 1989]



Sec. 1980.41  Equal opportunity and nondiscrimination requirements.

    (a) Equal Credit Opportunity Act. In accordance with title V of 
Public Law 93-495, the Equal Credit Opportunity Act, with respect to any 
aspect of a credit transaction, neither the lender 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, 
sex, marital status or physical/mental handicap providing the applicant 
can execute a legal contract or because all or part of the applicant's 
income derives from any public assistance program or because the 
applicant in good faith, exercised any rights under the Consumer 
Protection Act. The lender will comply with the requirements of this Act 
as set forth in the Federal Reserve Board's Regulation implementing this 
Act (see 12 CFR part 202). Such compliance will be accomplished prior to 
loan closing.
    (b) Forms and requirements. In accordance with Executive Order 
11246, the following equal opportunity and nondiscrimination forms and 
requirements are applicable to certain cases involving construction as 
indicated. The borrower is responsible for seeing that the requirements 
of paragraphs (b)(1) through (5) of this section are met.
    (1) Compliance reports. No prospective contractor or subcontractor 
will be eligible for a contract or subcontract financed with a 
guaranteed loan until he has filed all of the compliance reports 
required of him under any previous contracts.
    (2) Equal Opportunity agreement. Before loan closing, each borrower 
whose loan involves a construction contract of more than $10,000 must 
execute Form FmHA or its successor agency under Public Law 103-354 400-
1, ``Equal Opportunity Agreement.''
    (3) Contract or subcontract in excess of $10,000. If the contract or 
a subcontract exceeds $10,000.
    (i) The contractor or subcontractor must submit Form FmHA or its 
successor agency under Public Law 103-354 400-6, ``Compliance 
Statement,'' before or as a part of the bid or negotiation.
    (ii) An Equal Opportunity Clause must be part of each contract and 
subcontract. This clause is incorporated in Form FmHA or its successor 
agency under Public Law 103-354 424-6, ``Construction Contract,'' which 
may serve as a guide.
    (iii) With notification of the contract award, the contractor must 
receive:
    (A) Form FmHA or its successor agency under Public Law 103-354 400-
3, ``Notice to Contractors and Applicants,'' signed by the County 
Supervisor with an attached Equal Employment Opportunity Poster. Posters 
in Spanish must be provided and displayed where a significant portion of 
the population is Spanish speaking.
    (B) Form AD-425, ``Contractor's Affirmative Action Plan for Equal 
Employment Opportunity Under Executive Order 11246 and Executive Order 
11375,'' if the contractor or subcontractor is subject to the 
requirements of paragraph (b)(5) of this section.
    (4) One hundred or more employees and contract or subcontract 
exceeds $10,000. If the contractor or subcontractor has 100 or more 
employees and the contract or subcontract is for more than $10,000.
    (i) In addition to meeting the requirements of paragraph (b)(3) of 
this section, each such contractor or subcontractor must file Standard 
Form 100, ``Equal Employment Opportunity Employer Information Report 
EEO-1,'' with the Joint Reporting Committee within 30 days of the 
contract or subcontract award unless this report has already been 
submitted within the last 12 months.
    (ii) An annual report must be filed on or before March 31, as long 
as the contractor or subcontractor holds a contract equal to $10,000 or 
more which is financed with a guaranteed loan.

Failure to file timely, complete and accurate reports constitutes 
noncompliance with the Equal Opportunity Clause. Report forms are 
distributed by the Joint Reporting Committee and any questions on this 
form should be addressed by the contractor or subcontractor to the Joint 
Reporting

[[Page 486]]

Committee, 1800 G Street, NW., Washington, DC 20006.
    (5) Fifty or more employees and contract or subcontract exceeds 
$50,000. If the contract or subcontract is more than $50,000 and the 
contractor or subcontractor has 50 or more employees, in addition to the 
requirements of paragraph (b)(3) of this section, each such contractor 
or subcontractor must be informed that he must develop a written 
affirmative action compliance program for each of his establishments and 
put it on file in each of his personnel offices within 120 days of the 
commencement of the contract or subcontract. Form AD-425 provides 
guidelines for the contractor or subcontractor in developing such a 
program.
    (6) Compliance reviews. Compliance reviews must be made during 
construction inspections to determine whether the required posters are 
displayed, the facilities are not segregated, and there is no evidence 
of discrimination in employment. Findings of the borrower or lender 
(when inspections are made), will be shown on Form FmHA or its successor 
agency under Public Law 103-354 424-12, ``Inspection Report.'' If there 
is any evidence of non-compliance, the borrower or lender will be made 
to achieve voluntary compliance. If the effort fails, the Compliance 
Review Officer will report all the facts in writing to the 
Administrator, ATTN: Equal Opportunity Officer.
    (7) Employee complaints. Any employee of or applicant for employment 
with such contractors or subcontactors may file a written complaint of 
discrimination with FmHA or its successor agency under Public Law 103-
354.
    (i) A written complaint of alleged discrimination must be signed by 
the complainant and should include the following information:
    (A) The name and address (including telephone number, if any) of the 
complainant.
    (B) The name and address of the person committing the alleged 
discrimination.
    (C) A description of the acts considered to be discriminatory.
    (D) Any other pertinent information that will assist in the 
investigation and resolution of the complaint.
    (ii) Such complaint must be filed not later than 180 days from the 
date of the alleged discrimination, unless the time for filing is 
extended by FmHA or its successor agency under Public Law 103-354 for 
good cause shown by the complainant.
[48 FR 30947, July 6, 1983, as amended at 49 FR 28039, July 10, 1984; 50 
FR 39884, Sept. 30, 1985; 51 FR 6707, Feb. 25, 1986; 52 FR 6500, Mar. 4, 
1987; 56 FR 11504, Mar. 19, 1991; 61 FR 67633, Dec. 23, 1996]



Sec. 1980.42  Flood or mudslide hazard area precautions.

    (a) Project location. Projects located in special flood or mudslide 
hazard areas, as designated by the Federal Insurance Administration 
(FIA) of the Department of Housing and Urban Development may be financed 
under this subpart only:
    (1) If the community, as a result of such designation by FIA as a 
special flood or mudslide prone area, has an approved flood plain area 
management plan.
    (2) If the project location and construction plans and 
specifications for new buildings or improvements to existing buildings 
comply with an approved flood plain area management plan in paragraph 
(a)(1) of this section.
    (3) The requirements of Subpart G of Part 1940 of this chapter have 
been met.
    (b) Flood insurance. If project is located in a special flood or 
mudslide hazard area and if flood insurance is available it will be 
purchased by the borrower prior to loan closing. (See Part 1806, Subpart 
B of this chapter.) (FmHA or its successor agency under Public Law 103-
354 Instruction 426.2.)
[48 FR 30947, July 6, 1983, as amended at 49 FR 3764, Jan. 30, 1984]



Sec. 1980.43  Clean Air Act and Water Pollution Control Act requirements.

    (a) Conditions. As a condition for FmHA or its successor agency 
under Public Law 103-354's making or guaranteeing a loan in excess of 
$100,000 and unless otherwise exempted, an applicant for a loan will:
    (1) Comply with all the requirements of section 114 of the Clean Air 
Act (42 U.S.C., 1857 C-9) and section 308 of the Federal Water Pollution 
Control Act

[[Page 487]]

(33 U.S.C. 1318) relating to inspection, monitoring, entry, reports, and 
information, as well as all other requirements specified in section 114 
of the Clean Air Act and section 308 of the Federal Water Pollution 
Control Act and all regulations and guidelines issued thereunder after 
the award of the contract. (Such regulations and guidelines can be found 
at 40 CFR 15.4 and 40 FR 17126, April 16, 1975.)
    (2) Notify the FmHA or its successor agency under Public Law 103-354 
of the receipt of any communication from the EPA indicating that a 
facility to be utilized in the carrying out of the FmHA or its successor 
agency under Public Law 103-354 program loan purposes is under 
consideration to be listed on the EPA List of Violating Facilities. 
(Prompt notification is required prior to the making of the loan.)
    (3) Certify that any facility to be utilized in the performance of 
any nonexempt contract or subcontract is not listed on the EPA List of 
Violating Facilities pursuant to 40 CFR 15.20 as of the date of contract 
award.
    (4) Include, or cause to be included, the criteria and requirements 
contained in this section in every nonexempt subcontract and will take 
such action as the Government may direct as a means of enforcing such 
provisions.
    (5) Secure the service of a contractor who agrees to comply with the 
provisions in paragraph (a) of this section.
    (b) Solicitation. Lender will cause to be included in all 
solicitation and contract provisions the stipulations contained in 
paragraph (a) of this section, provided the loan amount is $100,000 or 
more and not otherwise exempted.
    (c) Facility. The term ``facility'', as used in this section only, 
means any building, plant, installation, structure, mine, vessel or 
other floating craft, location, or site of operations, owned, leased, or 
supervised by a grantee, cooperator, contractor, or subcontractor, to be 
utilized in the performance of a grant, agreement, contract, subgrant, 
or subcontract. Where a location or site of operations contains or 
includes more than one building, plant, installation, or structure, the 
entire location shall be deemed to be a facility except where the 
Director, Office of Federal Activities, EPA, determines that independent 
facilities are located in one geographical area.
    (d) Exemptions--(1) Transactions $100,000 and under. Any contracts, 
subcontracts, loans, and subloans not exceeding $100,000 are exempt.
    (2) Contracts and subcontracts for indefinite quantities. With 
respect to contracts and subcontracts for indefinite quantities 
(including but not limited to time and material contracts, requirements 
contracts, and basic ordering agreements), this section shall be 
applicable unless the applicant or borrower has reason to believe that 
the amount to be ordered in any year under such contract will not exceed 
$100,000.
    (3) Authority of the Administrator. When the Administrator of the 
FmHA or its successor agency under Public Law 103-354 determines that 
the paramount interest of the United States so requires, he may exempt 
any individual loan, contract or subcontract for a period of 1 year, and 
by rule or regulation any class of loans or contracts following 
consultation with EPA. In the case of an individual exemption, the 
Administrator shall notify the Director, Office of Federal Activities, 
EPA, as soon before or after granting the exemption as practicable. The 
justification for such an exemption or any renewal thereof shall fully 
describe the purpose of the loan or contract and shall indicate the 
manner in which the paramount interest of the United States requires 
that the exemption be made.
    (4) Facilities located outside the United States. This section shall 
not apply to the use of facilities outside the United States. The term 
``United States'' as used herein includes the several States, the 
District of Columbia, the Commonwealth of Puerto Rico, the Virgin 
Islands, Guam, American Samoa, and the Trust Territories of the Pacific 
Islands.



Sec. 1980.44  National Historic Preservation Act of 1966.

    As a condition for FmHA or its successor agency under Public Law 
103-354 making or guaranteeing a loan, the applicant will provide a 
written statement to FmHA or its successor agency under Public Law 103-
354 of the effect,

[[Page 488]]

if any, the project will have on any district, site, or building, 
structure, or object that has been included in the National Register of 
Historic Places as maintained by the Department of Interior in 
accordance with the National Historic Act includes the protection, 
rehabilitation, restoration, and reconstruction of districts, sites, 
buildings, structures, and objects significant in American history, 
architecture, archeology and culture. (See Part 1901 Subpart F of this 
chapter.)



Sec. 1980.45  Other Federal, State and local requirements.

    In addition to the specific requirements of this subpart, proposals 
for facilities financed in whole or in part with an FmHA or its 
successor agency under Public Law 103-354 loan or guarantee will be 
coordinated with all appropriate Federal, State and local agencies in 
accordance with the following:
    (a) Compliance with special laws and regulations. Applicants and/or 
lenders will be required to comply with any Federal, State or local 
laws, regulatory commission rules, ordinances, and regulations which are 
presently in existence or may be later adopted which affect the project 
including, but not limited to:
    (1) Organization and authority to design, construct, develop, 
operate, and/or maintain the proposed facilities;
    (2) Borrowing money, giving security therefor, and raising revenues 
for the repayment thereof;
    (3) Land use zoning;
    (4) Health, safety, and sanitation standards;
    (5) Protection of the environment and consumer affairs.
    (b) In compliance. The applicant and/or lender will be in compliance 
with this section effective with the date of issuance of the Loan Note 
Guarantee.



Sec. 1980.46  Right to Financial Privacy Act of 1978.

    (a) When the applicant is either an individual or partnership of 
five or fewer members and applies for financial assistance from a lender 
which applies to FmHA or its successor agency under Public Law 103-354 
for a guarantee, the following actions must be taken:
    (1) Except for Farmer Programs loans, within 3 days of the receipt 
of a pre-application or complete application from a lender for a 
guarantee for a loan, FmHA or its successor agency under Public Law 103-
354 will forward Form FmHA or its successor agency under Public Law 103-
354 410-7, ``Notification to Applicant on Use of Financial Information 
From Financial Institution,'' to those applicants desiring loan 
assistance. If notification is made upon receipt of a pre-application, 
notification will not be made upon receipt of an application for the 
same applicant. For Farmer Programs loans, this notification is included 
in Form FmHA or its successor agency under Public Law 103-354 1980-25, 
``Farmer Programs Application,'' and therefore, Form FmHA or its 
successor agency under Public Law 103-354 410-7 need not be sent to the 
loan applicant.
    (2) Except for Farmer Programs loans, notification must also be 
given to the lender and other financial institutions to which FmHA or 
its successor agency under Public Law 103-354 makes a direct request for 
financial records. For Farmer Programs loans, this notification is 
included in Form FmHA or its successor agency under Public Law 103-354 
1980-25, and therefore, Form FmHA or its successor agency under Public 
Law 103-354 410-7 need not be sent to the lender. The notification to 
the lender and other financial institutions will read as follows:

    I certify that the United States Department of Agriculture, acting 
through the Farmers Home Administration or its successor agency under 
Public Law 103-354, has complied with the applicable provisions of Title 
XI, Pub. L. 95-630, in seeking financial information regarding

 _______________________________________________________________________

(applicant)


 _______________________________________________________________________

Date


 _______________________________________________________________________

County Supervisor



    (b) Under no circumstances may financial information obtained under 
this Subpart be disseminated to any other department or

[[Page 489]]

agency of the Federal Government (other than the Office of the Inspector 
General (OIG) or the Office of Equal Opportunity (OEO)) without express 
approval of OGC.
[48 FR 30947, July 6, 1983, as amended at 52 FR 6500, Mar. 4, 1987; 58 
FR 34307, June 24, 1993; 61 FR 67633, Dec. 23, 1996]



Sec. 1980.47  Time frame for processing applications for loan guarantees.

    All guaranteed loan applications must be approved or disapproved, 
and the lender notified in writing, not later than 60 days after receipt 
of a completed application, except as noted in paragraph (d) of this 
section.
    (a) If an application is not complete, the lender will be notified, 
in writing, not later than 20 days after receipt of the application by 
FmHA or its successor agency under Public Law 103-354, of the reason(s) 
the application is incomplete.
    (b) When an application is disapproved, the written notification to 
the lender will state the reasons(s) for disapproval.
    (c) When an application is disapproved and subsequent action, as the 
result of an appeal, reverses or revises the initial decision, FmHA or 
its successor agency under Public Law 103-354 will notify the lender of 
such action within 15 days after the reversal/revision decision is made.
    (d) Applications for Community Programs guaranteed loans that would 
otherwise be disapproved due to the lack of guarantee authority to make 
the loans will be placed in a pending status. The applications will 
remain in a pending status until guarantee authority becomes available. 
Within 60 days after guaranteed authority becomes available, FmHA or its 
successor agency under Public Law 103-354 will notify the applicants of 
the approval or disapproval of the loan.
[51 FR 6710, Feb. 25, 1986, as amended at 57 FR 6068, Feb. 20, 1992; 61 
FR 67633, Dec. 23, 1996]



Sec. 1980.48  Seismic safety of new building construction.

    (a) The guaranteed loan programs are subject to the provisions of 
Executive Order 12699 which requires each Federal agency assisting in 
the financing, through Federal grants or loans, or guaranteeing the 
financing, through loan or mortgage insurance programs, of newly 
constructed buildings to assure appropriate consideration of seismic 
safety.
    (b) All new buildings shall be designed and constructed in 
accordance with the seismic provisions of one of the following model 
building codes or the latest edition of that code providing an 
equivalent level of safety to that contained in the latest edition of 
the National Earthquake Hazard Reduction Program's (NEHRP) Recommended 
Provisions for the Development of Seismic Regulations for New Building 
(NEHRP Provisions):
    (1) 1991 International Conference of Building Officials (ICBO) 
Uniform Building Code;
    (2) 1993 Building Officials and Code Administrators International, 
Inc. (BOCA) National Building Code; or
    (3) 1992 Amendments to the Southern Building Code Congress 
International (SBCCI) Standard Building Code.
    (c) The date, signature, and seal of a registered architect or 
engineer and the identification and date of the model building code on 
the plans and specifications will be evidence of compliance with the 
seismic requirements of the appropriate building code.
[61 FR 65157, Dec. 11, 1996]



Secs. 1980.49--1980.59  [Reserved]



Sec. 1980.60  Conditions precedent to issuance of the Loan Note Guarantee or Contract of Guarantee.

    (a) Lender certification. For Farmer Programs loans, Form FmHA or 
its successor agency under Public Law 103-354 449-34 or Form FmHA or its 
successor agency under Public Law 103-354 1980-27 will not be issued 
until the lender certifies to the applicable conditions below by 
executing Form FmHA or its successor agency under Public Law 103-354 
1980-22, ``Lender Certification.'' For all other loans, Form FmHA or its 
successor agency under Public Law 103-354 449-34 will not be issued 
until the lender certifies that:
    (1) No major changes have been made in the lender's loan or line of 
credit conditions and requirements since the issuance of the Conditional 
Commitment for Guarantee or Conditional

[[Page 490]]

Commitment for Contract of Guarantee except those approved in the 
interim by FmHA or its successor agency under Public Law 103-354 in 
writing.
    (2) All planned property acquisition has been completed and all 
development has been substantially completed in accordance with plans 
and specifications. All costs have not exceeded the amounts approved by 
the lender and the Agency.
    (3) Required hazard, flood, or prevention insurance, worker's 
compensation and personal life insurance when required is in effect.
    (4) Truth in lending requirements have been met.
    (5) All equal employment opportunity and nondiscrimination 
requirements have been or will be met at the appropriate time.
    (6) The loan or line of credit has been properly closed, and the 
required security instruments have been obtained, or will be obtained on 
any after acquired property that cannot be covered initially under State 
law.
    (7) The borrower has marketable title to the collateral then owned 
by borrower, subject to the instrument securing the loan or line of 
credit to be guaranteed and subject to any other exceptions approved in 
writing by FmHA or its successor agency under Public Law 103-354.
    (8) When required, the entire amount of loan for working capital has 
been disbursed except in cases where the State Director has approved 
disbursement over an extended time.
    (9) When required personal, joint operation (for Farmer Program 
loans only), partnership, or corporate guarantees have been obtained. 
Copies of the guarantees will be provided to FmHA or its successor 
agency under Public Law 103-354.
    (10) All other requirements of the Conditional Commitment for 
Guarantee or Conditional Commitment for Contract of Guarantee have been 
met.
    (11) Lien priorities are consistent with requirements of the 
Conditional Commitment for Guarantee or Conditional Commitment for 
Contract of Guarantee.
    (12) The loan proceeds have been disbursed for purposes and in 
amounts consistent with the Conditional Commitment for Guarantee and as 
specified on Form FmHA or its successor agency under Public Law 103-354 
449-1, ``Application for Loan and Guarantee,'' or Form FmHA or its 
successor agency under Public Law 103-354 1980-10, ``Application for 
Loan and Guarantee'' (Community Programs). In line of credit cases if 
any advances have occurred, advances have been disbursed for purposes 
and in amounts consistent with the Conditional Commitment for Contract 
of Guarantee and Line of Credit Agreements. A copy of a detailed loan 
settlement statement of the lender will be attached to support this 
certification.
    (13) Equity requirements have been met. A reconciliation of the 
borrower's net worth from the latest financial statement to the date of 
loan closing will be provided with this certification.
    (14) There has been no adverse change(s) in the borrower's financial 
condition nor any other adverse change in the borrower during the period 
of time from FmHA or its successor agency under Public Law 103-354's 
issuance of the Conditional Commitment for Guarantee to issuance of the 
Loan Note Guarantee or from the time of FmHA or its successor agency 
under Public Law 103-354's issuance of the Conditional Commitment for 
Contract of Guarantee to the issuance of the Contract of Guarantee. The 
lender's certification must address all adverse changes of the borrower 
and be supported by financial statements of the borrower and its 
guarantors not more than 60 days old at time of certification. For 
purposes of this paragraph, the term ``borrower'' includes additionally 
any parent, affiliate, or subsidiary of the borrower.
    (b) Inspections. The lender will notify FmHA or its successor agency 
under Public Law 103-354 of any scheduled field inspections during 
construction and after issuance of the Loan Note Guarantee or Contract 
of Guarantee. FmHA or its successor agency under Public Law 103-354 may 
attend such field inspections. Any inspections or review conducted by 
FmHA or its successor agency under Public Law 103-354, including those 
with the lender, are for the benefit of FmHA or its successor agency 
under Public Law 103-354

[[Page 491]]

only and not for other parties of interest. FmHA or its successor agency 
under Public Law 103-354 inspections do not relieve any parties of 
interest of their responsibilities to conduct necessary inspections, nor 
can these parties rely on FmHA or its successor agency under Public Law 
103-354's inspections in any manner whatsoever.
    (c) Execution of form. The lender has executed and delivered to FmHA 
or its successor agency under Public Law 103-354 Form FmHA or its 
successor agency under Public Law 103-354 449-35 or Form FmHA or its 
successor agency under Public Law 103-354 1980-38.
    (d) Plans for marketing. The lender advises FmHA or its successor 
agency under Public Law 103-354 of its plans to sell or assign any part 
of the loan as provided in Form FmHA or its successor agency under 
Public Law 103-354 449-35.
    (e) Additional requirements. See also appropriate subpart for 
additional requirements.
[48 FR 30947, July 6, 1983, as amended at 49 FR 28039, July 10, 1984; 50 
FR 39885, Sept. 30, 1985; 51 FR 6710, Feb. 25, 1986; 55 FR 11134, Mar. 
27, 1990; 58 FR 34307, June 24, 1993; 61 FR 67633, Dec. 23, 1996]



Sec. 1980.61  Issuance of Lender's Agreement, Loan Note Guarantee, Contract of Guarantee and Assignment Guarantee Agreement.

    (a) Lender's Agreement. If FmHA or its successor agency under Public 
Law 103-354 finds that all requirements have been met:
    (1) Except for Farmer Programs loans, the lender and FmHA or its 
successor agency under Public Law 103-354 will execute Form FmHA or its 
successor agency under Public Law 103-354 449-35. The original will be 
delivered to FmHA or its successor agency under Public Law 103-354 and a 
signed duplicate original will be retained by the lender. There will be 
a Form FmHA or its successor agency under Public Law 103-354 449-35 
executed for all loans and lines of credit guaranteed by FmHA or its 
successor agency under Public Law 103-354.
    (2) For Farmer Programs loans, a new lender's agreement (Form FmHA 
or its successor agency under Public Law 103-354 1980-38) does not need 
to be executed for each loan.
    (i) Eligible lenders (non-CLP or non-ALP) must execute the most 
current version of Form FmHA or its successor agency under Public Law 
103-354 1980-38. The original will be kept in the County Office 
operational file for that lender.
    (ii) ALP lenders must have executed an ALP lender's agreement 
(attachments 1 or 2 of exhibit A of subpart B of this part). The 
original will be kept in the State Office with a copy in the County 
Office operational file.
    (iii) CLP lenders must have executed the most current version of 
Form FmHA or its successor agency under Public Law 103-354 1980-38. The 
original will be kept in the State Office with a copy in the County 
Office operational file.
    (iv) Outstanding guarantees will be governed by the provisions of 
the lender's agreement in effect at the time the guarantee was issued; 
therefore, all expired lender's agreements must be retained in the State 
and/or County Office operational file.
    (3) In all cases, the lender's agreement will be executed no later 
than the time the Loan Note Guarantee or Contract of Guarantee is 
signed.
    (b) Loan Note Guarantee. (1) Upon receipt of the Form FmHA or its 
successor agency under Public Law 103-354 449-35 or Form FmHA or its 
successor agency under Public Law 103-354 1980-38, and after all 
requirements have been met, FmHA or its successor agency under Public 
Law 103-354 will execute Form FmHA or its successor agency under Public 
Law 103-354 449-34. All original(s) will be provided to the lender and 
attached to the note(s). A conformed copy with copies of notes attached 
will be retained by FmHA or its successor agency under Public Law 103-
354.
    (2) In the event a lender has made a loan guaranteed by FmHA or its 
successor agency under Public Law 103-354 under previous regulations and 
has obtained a Form FmHA or its successor agency under Public Law 103-
354 449-17, ``Contract of Guarantee,'' the lender

[[Page 492]]

may request the State Director to substitute a Loan Note Guarantee 
governed in all respects by these regulations for the previously issued 
Contract of Guarantee. The State Director will review the lender's 
written request for substitution of guarantees and may authorize the 
issuance of the new Loan Note Guarantee in exchange for the Contract of 
Guarantee. The lender will:
    (i) Prepare and submit to FmHA or its successor agency under Public 
Law 103-354 a written request for such substituted guarantee.
    (ii) Certify to FmHA or its successor agency under Public Law 103-
354 that there is no adverse change in the borrower's financial 
situation, the collateral and terms of the loan remain the same as under 
the original guarantee, and the loan is in good standing.
    (iii) Pay the required guarantee fee.
    (iv) Certify to FmHA or its successor agency under Public Law 103-
354 the outstanding principal amount of the loan.
    (v) Execute Form FmHA or its successor agency under Public Law 103-
354 449-35.
    (3) If a lender has selected the multi-note system as provided in 
paragraph III A 2 of Form FmHA 449-35, or Sec. 1980.119 of subpart B of 
this part, a Loan Note Guarantee will be prepared and attached to each 
note the borrower issues. All the notes will be listed on Form FmHA or 
its successor agency under Public Law 103-354 449-34.
    (4) If the lender requests a series of new notes to replace 
previously issued guaranteed notes as provided in paragraph III A (b) of 
Forms FmHA 449-35 or Sec. 1980.119 of subpart B of this part, the County 
Supervisor may reissue the new Loan Note Guarantee in exchange for the 
original Loan Note Guarantee.
    (c) Contract of Guarantee cases. Upon receipt of the Form FmHA or 
its successor agency under Public Law 103-354 1980-38 and after all 
requirements have been met, FmHA or its successor agency under Public 
Law 103-354 will execute Form FmHA or its successor agency under Public 
Law 103-354 1980-27. An original will be provided to the lender and 
attached to the line of credit agreement. A conformed copy with a copy 
of the line of credit agreement will be retained by FmHA or its 
successor agency under Public Law 103-354.
    (d) Assignment Guarantee Agreement. In the event the lender assigns 
the guaranteed portion of the loan to a holder(s) in accordance with the 
provision of the applicable subpart, the lender, holder, and FmHA or its 
successor agency under Public Law 103-354 will execute Form FmHA or its 
successor agency under Public Law 103-354 449-36. The original of the 
agreement(s) will be provided to the holder with conformed copy(s) to 
the lender and FmHA or its successor agency under Public Law 103-354. If 
the lender desires to assign a part(s) of the guaranteed loan to a 
holder(s), an Assignment Guarantee Agreement will be executed for each 
assigned portion. Attached to the Assignment Agreement will be a copy of 
the borrower's note(s) and a copy of the Loan Note Guarantee. Line of 
credit agreements evidencing advances made under lines of credit will 
not be sold or assigned except as provided in paragraph I.C.4. of Form 
FmHA or its successor agency under Public Law 103-354 1980-38 and 
Sec. 1980.119 of subpart B of this part.
    (e) Refusal to execute contract. If FmHA or its successor agency 
under Public Law 103-354 determines that it cannot execute the Loan Note 
Guarantee or Contract of Guarantee because all requirements have not 
been met, it will promptly inform the lender on Form FmHA or its 
successor agency under Public Law 103-354 449-13, ``Denial Letter,'' of 
the reasons, and give the lender a reasonable period within which to 
satisfy FmHA or its successor agency under Public Law 103-354 
objections. If the lender is unable to satisfy FmHA or its successor 
agency under Public Law 103-354 objections, then the lender will be 
informed of the appeal rights as set out in Sec. 1980.80 of this 
subpart. If the lender writes FmHA or its successor agency under Public 
Law 103-354 within the period allowed requesting additional time to 
satisfy the objections, FmHA or its successor agency under Public Law 
103-354 may, in writing, grant such additional time as it considers 
necessary and reasonable under the circumstances. If the lender 
satisfies the objections with the time allowed and otherwise complies 
with

[[Page 493]]

these regulations, the guarantee will be issued.
    (f) Cancellation of obligations. If the conditions for the loan or 
line of credit are rejected or cannot be met after completion of any 
appeal, FmHA or its successor agency under Public Law 103-354 will 
prepare and submit to the Finance Office, Form FmHA or its successor 
agency under Public Law 103-354 1940-10, ``Cancellation of U.S. Treasury 
Check and/or Obligation.''
    (g) Payment of guarantee fee. The lender will prepare and deliver a 
Form FmHA or its successor agency under Public Law 103-354 1980-19, 
``Guaranteed Loan Closing Report,'' for each loan or line of credit to 
be guaranteed and deliver the guarantee fee to the FmHA or its successor 
agency under Public Law 103-354 representative who concurrently delivers 
the Loan Note Guarantee(s) or Contract of Guarantee.
    (h) Authorized FmHA or its successor agency under Public Law 103-354 
representatives to execute forms. State Directors, District Directors, 
State Program Loan Chiefs, and County Supervisors are authorized to 
execute the Lender's Agreement (Form FmHA or its successor agency under 
Public Law 103-354 449-35 or Form FmHA or its successor agency under 
Public Law 103-354 1980-38), the Loan Note Guarantee, the Contract of 
Guarantee, and/or the Assignment Guarantee Agreement.
[48 FR 30947, July 6, 1983, as amended at 50 FR 39885, Sept. 30, 1985; 
51 FR 6710, Feb. 25, 1986; 51 FR 29905, Aug. 21, 1986; 52 FR 6500, Mar. 
4, 1987; 58 FR 34308, June 24, 1993; 61 FR 67633, Dec. 23, 1996]



Sec. 1980.62  Lender's sale or assignment of guaranteed portion of loan.

    Any sale or assignment by the lender of the guaranteed portion of 
the loan must be accomplished in accordance with the conditions in 
paragraph III of Form FmHA or its successor agency under Public Law 103-
354 449-35 or Sec. 1980.119 of subpart B of this part. Only guaranteed 
portions of loans not in payment default as set forth in the terms of 
the debt instruments may be sold. Should the lender know at the time the 
loan application is being prepared that it plans to sell or assign any 
part of the guaranteed portion of the loan as provided in Form FmHA or 
its successor agency under Public Law 103-354 449-35 or Sec. 1980.119 of 
subpart B of this part, the lender will provide this information with 
the application of FmHA or its successor agency under Public Law 103-
354. Line of Credit agreements evidencing advances made under lines of 
credit will not be sold or assigned except as provided in paragraph 
I.C.4. of Form FmHA or its successor agency under Public Law 103-354 
1980-38 and Sec. 1980.119 of subpart B of this part.
[58 FR 34308, June 24, 1993]



Sec. 1980.63  Defaults by borrower.

    (a) Refer to paragraph X of Form FmHA or its successor agency under 
Public Law 103-354 449-35 or I.D.6. of Form FmHA or its successor agency 
under Public Law 103-354 1980-38.
    (b) FmHA or its successor agency under Public Law 103-354 may be 
required to purchase the guaranteed portion of a loan(s) from holder(s) 
in the event of default or servicing problems. The County Supervisor 
will coordinate any requests from holder(s) located in close proximity 
to the local lender. If several holders are located outside the area, 
the State Director will handle the transaction and notify the County 
Supervisor. The County Supervisor will prepare a Form FmHA or its 
successor agency under Public Law 103-354 1980-37, ``FmHA or its 
successor agency under Public Law 103-354 Purchase of a Guaranteed Loan 
Portion,'' for each holder(s) and follow the instructions on the reverse 
of the form.
[52 FR 6501, Mar. 4, 1987, as amended at 58 FR 34308, June 24, 1993; 61 
FR 67633, Dec. 23, 1996]



Sec. 1980.64  Liquidation.

    (a) Reference. Refer to paragraph XI of Form FmHA or its successor 
agency under Public Law 103-354 449-35 or paragraph I.D.6. of Form FmHA 
or its successor agency under Public Law 103-354 1980-38.
    (b) Lender's option. If a lender has made a loan or line of credit 
guaranteed by FmHA or its successor agency under Public Law 103-354 
under previous regulations and the lender concludes that liquidation of 
the guaranteed loan or line of credit is necessary because of one or 
more defaults or

[[Page 494]]

third party actions that the borrower cannot or will not cure, the 
lender has the option of liquidate the loan under the provisions of this 
subpart, or under the provisions of previous regulations. The lender 
will notify the State Director in writing within 10 days after its 
decision to liquidate if it desires to proceed under this subpart.
    (c) Settlement option. If a lender acquires title to property either 
through voluntary conveyance or foreclosure proceeding, FmHA or its 
successor agency under Public Law 103-354 may elect to permit the lender 
the option to calculate the final loss settlement using the net proceeds 
received at the time of ultimate disposition of such property. The 
lender must submit its written request for this option to FmHA or its 
successor agency under Public Law 103-354, and FmHA or its successor 
agency under Public Law 103-354 must agree, prior to the lender 
submitting any request for estimated loss payment.
[48 FR 30947, July 6, 1983, as amended at 50 FR 39886, Sept. 30, 1985; 
58 FR 34308, June 24, 1993]



Sec. 1980.65  Protection advances.

    Refer to paragraph XII of Form FmHA or its successor agency under 
Public Law 103-354 449-35, or for Farmer Programs Loans, Sec. 1980.136 
of subpart B of this part.
[58 FR 34308, June 24, 1993]



Sec. 1980.66  Additional loans or advances.

    Refer to paragraph XIII of Form FmHA or its successor agency under 
Public Law 103-354 449-35, or paragraph I.D.6.(b) of Form FmHA or its 
successor agency under Public Law 103-354 1980-38.
[58 FR 34308, June 24, 1993]



Sec. 1980.67  Bankruptcy.

    (a) Reference. Refer to subparts B, C, or F of this part. Form FmHA 
or its successor agency under Public Law 103-354 449-30, ``Loan Note 
Guarantee Report of Loss,'' will be used for calculations of all 
estimated and final loss determinations. Payments will be made in 
accordance with applicable FmHA or its successor agency under Public Law 
103-354 regulations.
    (b) Lender's option. If a lender has made a loan or line of credit 
guaranteed by FmHA or its successor agency under Public Law 103-354 
under previous regulations, and the borrower has filed for protection 
under a reorganization bankruptcy, the lender has the option of 
requesting an estimated loss payment under the provisions of this part.
[54 FR 1549, Jan. 13, 1989, as amended at 61 FR 67633, Dec. 23, 1996]



Sec. 1980.68  Lender's request to terminate Loan Note Guarantee or Contract of Guarantee.

    If the Loan Note Guarantee has not automatically terminated the 
lender may request FmHA or its successor agency under Public Law 103-354 
to terminate the Loan Note Guarantee(s) or Contract(s) of Guarantee, for 
any reason, provided the lender holds all the guaranteed portions of the 
loan. (See paragraph 12 of Form FmHA or its successor agency under 
Public Law 103-354 449-34, or paragraph 6 of Form FmHA or its successor 
agency under Public Law 103-354 1980-27.) The lender will provide the 
County Supervisor with a written notice that the loan(s) or line(s) of 
credit is (or are) paid in full and/or termination of the Loan Note 
Guarantee(s) or Contract(s) of Guarantee, enclosing the original Form(s) 
FmHA or its successor agency under Public Law 103-354 449-34 or Form 
FmHA or its successor agency under Public Law 103-354 1980-27 for 
cancellation. Within 30 days, the County Supervisor will forward a 
memorandum to the Finance Office through the State Director. The 
memorandum will indicate that: ``the loan(s) or line(s) of credit is (or 
are) paid in full,'' and/or ``the Loan Note Guarantee or Contract of 
Guarantee has been cancelled at the request of the lender.''
[53 FR 26413, July 12, 1988. Redesignated at 54 FR 1549, Jan. 13, 1989, 
as amended at 61 FR 67633, Dec. 23, 1996]



Secs. 1980.69--1980.79  [Reserved]



Sec. 1980.80  Appeals.

    Only the borrower, lender and/or holder can appeal an FmHA or its 
successor agency under Public Law 103-354 decision. The borrower must 
jointly

[[Page 495]]

execute in the written request by either party for review of an alleged 
adverse decision made by FmHA or its successor agency under Public Law 
103-354 and both must participate in the appeal. In cases where FmHA or 
its successor agency under Public Law 103-354 has denied or reduced the 
amount of final loss payment to the lender, the adverse decision may be 
appealed by the lender only. A decision by a lender adverse to the 
borrower is not a decision by FmHA or its successor agency under Public 
Law 103-354, whether or not concurred in by FmHA or its successor agency 
under Public Law 103-354. Appeals will be handled in accordance with 
directions set out in subpart B of part 1900 of this chapter.
[53 FR 26413, July 12, 1988]



Sec. 1980.81  Access to records of lenders.

    Upon request by FmHA or its successor agency under Public Law 103-
354 the lender will permit representatives of FmHA or its successor 
agency under Public Law 103-354 (or other agencies of the U.S. 
Department of Agriculture authorized by that Department) to inspect and 
make copies of any of the records of the Lender pertaining to FmHA or 
its successor agency under Public Law 103-354 guaranteed loans. Such 
inspection and copying may be made during regular office hours of the 
lender, or any other time the lender and FmHA or its successor agency 
under Public Law 103-354 finds convenient.



Sec. 1980.82  State supplements to this regulation.

    FmHA or its successor agency under Public Law 103-354 State 
Directors may supplement this regulation subject to National Office 
review to the extent necessary to properly implement the program in 
their States.



Sec. 1980.83  FmHA or its successor agency under Public Law 103-354 Forms.

    (a) FmHA or its successor agency under Public Law 103-354 forms 
incorporated in this subpart. Forms FmHA or its successor agency under 
Public Law 103-354 449-34, FmHA or its successor agency under Public Law 
103-354 449-35 and FmHA or its successor agency under Public Law 103-354 
449-36 are incorporated in this subpart, made a part hereof, and appear 
as appendices A, B, and C in the Federal Register. Forms FmHA or its 
successor agency under Public Law 103-354 1980-27, FmHA or its successor 
agency under Public Law 103-354 1980-38, FmHA or its successor agency 
under Public Law 103-354 1980-15, FmHA or its successor agency under 
Public Law 103-354 1980-25, FmHA or its successor agency under Public 
Law 103-354 1980-24, ``Request for Interest Assistance/Interest Rate 
Buydown/Subsidy Payment to Guaranteed Loan Lender,'' and FmHA or its 
successor agency under Public Law 103-354 1980-64, ``Interest Assistance 
Agreement (Farmer Programs),'' are incorporated in this subpart and are 
made a part hereof and appear as appendices D, E, F, G, H, I, and J of 7 
CFR part 1980, subpart A. Copies of the forms may be obtained from any 
FmHA or its successor agency under Public Law 103-354 office.
    (b) [Reserved]
[48 FR 30947, July 6, 1983, as amended at 50 FR 39886, Sept. 30, 1985; 
51 FR 6711, Feb. 25, 1986; 51 FR 29905, Aug. 21, 1986; 52 FR 6501, Mar. 
4, 1987; 52 FR 22290, June 11, 1987; 54 FR 4, Jan. 3, 1989; 54 FR 42483, 
Oct. 17, 1989; 56 FR 8260, Feb. 28, 1991; 57 FR 6068, Feb. 20, 1992; 58 
FR 34308, June 24, 1993; 60 FR 53256, Oct. 13, 1995]



Sec. 1980.84  Replacement of guaranteed loan or line of credit documents.

    (a) [Reserved]
    (b) Requirements. When a Loan Note Guarantee, Contract of Guarantee, 
or Assignment Guarantee Agreement is lost, stolen, destroyed, mutilated, 
or defaced while in the custody of the lender or holder, the lender will 
coordinate the activities of the party who seeks the replacement 
documents and will submit the required documents to the Agency for 
processing. The requirements for replacement are as follows:
    (1) A certificate of loss properly notarized which includes:
    (i) Legal name and present address of the owner, who is requesting 
the replacement forms.
    (ii) Legal name and address of lender of record.
    (iii) Capacity of person certifying.
    (iv) Full identification of the Loan Note Guarantee, Contract of 
Guarantee or Assignment Guarantee Agreement

[[Page 496]]

including the name of the borrower, FmHA or its successor agency under 
Public Law 103-354 case number, date of the Loan Note Guarantee, 
Assignment Guarantee Agreement, or Contract of Guarantee, face amount of 
the evidence of debt purchased, date of evidence of debt, present 
balance of the loan or line of credit, percentage of guarantee and if 
Assignment Guarantee Agreement, the original named holder and the 
percentage of the guaranteed portion of the loan assigned to that 
holder. Any existing parts of the document to be replaced should be 
attached to the certificate.
    (v) A full statement of circumstances of the loss, theft, or 
destruction of the Loan Note Guarantee, Contract of Guarantee or 
Assignment Guarantee Agreement.
    (vi) The holder shall present evidence demonstrating current 
ownership of the Loan Note Guarantee and note or Assignment Guarantee 
Agreement. If the present holder is not the same as the original holder, 
a copy of the endorsement of each successive holder in the chain of 
transfer from the initial holder to present holder must be included. If 
copies of the endorsement cannot be obtained, best available records of 
transfer must be presented to FmHA or its successor agency under Public 
Law 103-354 (e.g., order confirmation, canceled checks, etc.).
    (2) An indemnity bond acceptable to FmHA or its successor agency 
under Public Law 103-354 shall accompany the request for replacement 
except when the holder is the United States, a Federal Reserve Bank, a 
Federal Government Corporation, a State or Territory, or the District of 
Columbia. The bond may be with or without surety. The bond shall be with 
surety except when the outstanding principal balance and accrued 
interest due the present holder is less than $1,000,000 verified by the 
lender in writing in a letter of certification of balance due. The 
surety shall be a qualified surety company holding a certificate of 
authority from the Secretary of the Treasury and listed in Treasury 
Department Circular 580.
    (3) All indemnity bonds must be issued and/or payable to the United 
States of America acting through the Farmers Home Administration or its 
successor agency under Public Law 103-354. The bond shall be in an 
amount not less than the unpaid principal and interest. The bond shall 
save FmHA or its successor agency under Public Law 103-354 harmless 
against any claim or demand which might arise or against any damage, 
loss, costs, or expenses which might be sustained or incurred by reasons 
of the loss or replacement of the instruments.
    (4) In those cases where the guaranteed loan was closed under the 
provisions of paragraph III(A)(2) of Form FmHA or its successor agency 
under Public Law 103-354 449-35 or Sec. 1980.119 of subpart B of this 
part, known as the ``Multi-Note System,'' FmHA or its successor agency 
under Public Law 103-354 will not attempt to or participate in the 
obtaining of replacement notes from the borrower. It will be the 
responsibility of the holder to bear costs of note replacement if the 
borrower agrees to issue a replacement instrument. Should such note be 
replaced, the terms of the note cannot be changed. (See paragraph 
III(A)(2)(b) of Form FmHA or its successor agency under Public Law 103-
354 449-35 or Sec. 1980.119 of subpart B of this part for general 
conditions for reissued notes.) If the evidence of debt has been lost, 
stolen, destroyed, mutilated or defaced, such evidence of debt must be 
replaced before FmHA or its successor agency under Public Law 103-354 
will replace any instruments.

                             Administrative

    A. State Directors will review all documents when presented by the 
lender to assure all requirements are met.
    B. The State Director will contact the Regional OGC for assistance 
before new guarantee instruments are issued.
    C. If the decision is to reissue Loan Note Guarantee(s), Contract of 
Guarantee(s), or Assignment Guarantee Agreement(s) the following 
procedure will be followed:
    (1) Multi-note system. A new Form FmHA or its successor agency under 
Public Law 103-354 449-34 will be prepared using the original face 
amounts and amounts guaranteed (not outstanding loan balance). At the 
top of the form type ``This Loan Note Guarantee is issued to replace the 
original dated ____________ which was (insert ``lost, stolen, destroyed, 
defaced or mutilated.'') Only execute an original for the Holder. Copies 
may be conformed for the lender and FmHA or its

[[Page 497]]

successor agency under Public Law 103-354 file.
    If borrower notes are needed they must be obtained by the holder 
from the borrower. The indemnity bond must be kept in safekeeping.
    (2) Assignment Guarantee Agreement system. A new Form FmHA or its 
successor agency under Public Law 103-354 449-36 will be prepared using 
the original amounts except the current principal amount of the loan 
outstanding should be inserted at item 1 on the face of the document. At 
the top of the form type ``This Assignment Guarantee Agreement is issued 
to replace the original dated ____________ which was lost, stolen, 
destroyed, defaced or mutilated.'' Only execute an original for the 
Holder. Copies may be conformed for the lender and FmHA or its successor 
agency under Public Law 103-354. If a surety bond is isued, it must be 
kept in safekeeping.
    (3) The lender must execute the replacement forms prior to FmHA or 
its successor agency under Public Law 103-354 execution of the same.
    (4) Certificates of Incumbency may be provided.
[48 FR 30947, July 6, 1983, as amended at 50 FR 39886, Sept. 30, 1985; 
51 FR 6707, Feb. 25, 1986; 58 FR 34308, June 24, 1993; 60 FR 53256, Oct. 
13, 1995]



Sec. 1980.85  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, or opinion of the 
Comptroller General, provided the Administrator determines that 
application of the requirement or provision would adversely affect the 
Government's interest. Requests for exception, must be in writing by the 
State Director and submitted through the appropriate Assistant 
Administrator. Requests must be supported with documentation to explain 
the adverse effect on the Government's interest, propose alternative 
courses of action, and show how the adverse effect will be eliminated or 
minimized if the exception is granted. In addition, any request for an 
exception to Sec. 1980.13(b) of this subpart must document that the 
lender involved has furnished acceptable evidence of regulation and 
supervision.
[54 FR 1549, Jan. 13, 1989]



Secs. 1980.86--1980.99  [Reserved]



Sec. 1980.100  OMB control number.

    The reporting requirements contained in this subpart have been 
approved by the Office of Management and Budget (OMB) and have been 
assigned OMB control number 0575-0024. Public reporting burden for this 
collection of information is estimated to vary from 15 minutes to 28 
hours per response, with an average of 2.08 hours per response, 
including time for reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. Send comments regarding this 
burden estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden, to the Department of 
Agriculture, Clearance Officer, OIRM, Ag Box 7630, Washington, D.C. 
20250; and to the Office of Management and Budget, Paperwork Reduction 
Project (OMB #0575-0024), Washington, DC 20503.
[60 FR 53256, Oct. 13, 1995]

                         Appendices to Subpart A

                     Appendix A--Loan Note Guarantee

USDA
Form FmHA 449-34
(Rev. 10-95)

 Type of Loan___________________________________________________________

Applicable 7 C.F.R. part 1980

 subpart________________________________________________________________
 State__________________________________________________________________
 County_________________________________________________________________
 Date of Note___________________________________________________________
 Borrower_______________________________________________________________
 Government Loan Identification Number__________________________________
 Lender_________________________________________________________________
 Lender's IRS ID Tax Number_____________________________________________
 Lender's Address_______________________________________________________
 Principal Amount of Loan_______________________________________________


The guaranteed portion of the loan is $______ which is ______ (______ %)

percent of loan principal. The principal amount of loan is evidenced by 
______ note(s) (includes bonds as appropriate) described below. The 
guaranteed portion of each note is indicated below. This instrument is 
attached to note

______ in the face amount of $______
and is number ______ of ______.


[[Page 498]]



                                                                        
                                                 Percent                
                                                 of total      Amount   
    Lender's identifying No.      Face amount      face      guaranteed 
                                                  amount                
                                                                        
                                 $________       ________  $________    
                                ----------------------------------------
  Total........................  $________            100  $________    
                                                                        
                                                                        

    In consideration of the making of the subject loan by the above 
named Lender, the United States of America, acting through the Farm 
Service Agency, Rural Business-Cooperative Service, Rural Utilities 
Service, or Rural Housing Service (herein called ``Government''), 
pursuant to the Consolidated Farm and Rural Development Act (7 U.S.C. 
1921 et seq.), the Emergency Livestock Credit Act of 1974 (7 U.S.C. note 
preceding 1961 Pub. L. 93-357 as amended), the Emergency Agricultural 
Credit Adjustment Act of 1978 (7 U.S.C. note preceding 1921, Pub. L. 95-
334), or Title V of the Housing Act of 1949 (42 U.S.C. 1471 et seq.) 
does hereby agree that in accordance with and subject to the conditions 
and requirements herein, it will pay to:
    A. Any Holder 100 percent of any loss sustained by such Holder on 
the guaranteed portion and on interest due (including any loan subsidy) 
on such portion and any capitalized interest on such portion resulting 
from the restructuring of a Guaranteed Farm Credit Program loans but not 
exceeding statutory loan limits.
    B. The Lender the lesser of 1. or 2. below:
    1. Any loss sustained by such Lender on the guaranteed portion 
including:
    a. principal and interest indebtedness as evidenced by said note(s) 
or by assumption agreement(s), and
    b. Any loan subsidy due and owing, and
    c. Principal and interest indebtedness on secured protective 
advances for protection and preservation of collateral made with 
Government's authorization, including but not limited to, advances for 
taxes, annual assessments, any ground rents, and hazard or flood 
insurance premiums affecting the collateral, or
    d. and, Capitalized interest on such portion resulting from the 
restructuring of a Guaranteed Farm Credit Programs Loans and not 
exceeding statutory loan limits, or
    2. The guaranteed principal advanced to or assumed by the Borrower 
under said note(s) or assumption agreement(s) and any interest due 
(including any loan subsidy) thereon and any capitalized interest 
resulting from the restructuring of a Guaranteed Farm Credit Programs 
loans and not exceeding statutory loan limits.
    If Government conducts the liquidation of the loan, loss occasioned 
to a Lender by accruing interest (including any loan subsidy) after the 
date Government accepts responsibility for liquidation will not be 
covered by this Loan Note Guarantee. If Lender conducts the liquidation 
of the loan accruing interest (including any loan subsidy) shall be 
covered by this Loan Note Guarantee to date of final settlement when the 
lender conducts the liquidation expeditiously in accordance with the 
liquidation plan approved by Government.

                          Definition of Holder

    The Holder is the person or organization other than the Lender who 
holds all or part of the guaranteed portion of the loan with no 
servicing responsibilities. Holders are prohibited from obtaining any 
part(s) of the Guaranteed portion of the loan with proceeds from any 
obligation, the interest on which is excludable from income, under 
Section 103 of the Internal Revenue Code of 1954, as amended (IRC). When 
the Lender assigns a part(s) of the guaranteed loan to an assignee, the 
assignee becomes a Holder only when Form FmHA 449-36, ``Assignment 
Guarantee Agreement,'' is used.

                          Definition of Lender

    The Lender is the person or organization making and servicing the 
loan which is guaranteed under the provisions of the applicable subpart 
of 7 C.F.R. part 1980. The Lender is also the party requesting a loan 
guarantee.

                         Conditions of Guarantee

                            1. Loan Servicing

    Lender will be responsible for servicing the entire loan, and Lender 
will remain mortgagee and/or secured party of record not withstanding 
the fact that another party may hold a portion of the loan. When 
multiple notes are used to evidence a loan, Lender will structure 
repayments as provided in the loan agreement. In the case of Farm 
Ownership, Soil and Water, or Operating Loans, the Lender agrees that if 
liquidation of the account becomes imminent, the Lender will consider 
the Borrower for an Interest Rate Buydown under Exhibit C of subpart B 
of 7 C.F.R., part 1980, and request a determination of the Borrower's 
eligibility by Government. The Lender may not initiate foreclosure 
action on the loan until 60 days after a determination has been made 
with respect to the eligibility of the Borrower to participate in the 
Interest Rate Buydown Program.

                              2. Priorities

    The entire loan will be secured by the same security with equal lien 
priority for the guaranteed and unguaranteed portions of the loan. The 
unguaranteed portion of the loan will not be paid first nor given any 
preference or priority over the guaranteed portion.

[[Page 499]]

                        3. Full Faith and Credit

    The Loan Note Guarantee constitutes an obligation supported by the 
full faith and credit of the United States and is incontestable except 
for fraud or misrepresentation of which Lender or any Holder has actual 
knowledge at the time it became such Lender or Holder or which Lender or 
any Holder participates in or condones. If the note to which this is 
attached or relates provides for the payment of interest on interest, 
then this Loan Note Guarantee is void. However, in the case of the Farm 
Credit Programs loans, the capitalization of interest when restructuring 
loans will not void this Loan Note Guarantee. In addition, the Loan Note 
Guarantee will be unenforceable by Lender to the extent any loss is 
occasioned by the violation of usury laws, negligent servicing, or 
failure to obtain the required security regardless of the time at which 
Government acquires knowledge of the foregoing. Any losses occasioned 
will be unenforceable to the extent that loan funds are used for 
purposes other than those specifically approved by Government in its 
Conditional Commitment for Guarantee. Negligent servicing is defined as 
the failure to perform those services which a reasonably prudent lender 
would perform in servicing its own portfolio of loans that are not 
guaranteed. The term includes not only the concept of a failure to act 
but also not acting in a timely manner or acting in a manner contrary to 
the manner in which a reasonably prudent lender would act up to the time 
of loan maturity or until a final loss is paid.

                        4. Rights and Liabilities

    The guarantee and right to require purchase will be directly 
enforceable by Holder notwithstanding any fraud or misrepresentation by 
Lender or any unenforceability of this Loan Note Guarantee by Lender. 
Nothing contained herein will constitute any waiver by Government of any 
rights it possesses against the Lender. Lender will be liable for and 
will promptly pay to Government any payment made by Government to Holder 
which if such Lender had held the guaranteed portion of the loan, 
Government would not be required to make.

                               5. Payments

    Lender will receive all payments of principal, or interest, and any 
loan subsidy on account of the entire loan and will promptly remit to 
Holder(s) its pro rata share thereof determined according to its 
respective interest in the loan, less only Lender's servicing fee.

                         6. Protective Advances

    Protective advances made by Lender pursuant to the regulations will 
be guaranteed against a percentage of loss to the same extent as 
provided in this Loan Note Guarantee notwithstanding the guaranteed 
portion of the loan that is held by another.

                         7. Repurchase by Lender

    The Lender has the option to repurchase the unpaid guaranteed 
portion of the loan from the Holder(s) within 30 days of written demand 
by the Holder(s) when: (a) the borrower is in default not less than 60 
days on principal or interest due on the loan or (b) the Lender has 
failed to remit to the Holder(s) its pro rata share of any payment made 
by the borrower or any loan subsidy within 30 days of its receipt 
thereof. The repurchase by the Lender will be for an amount equal to the 
unpaid guaranteed portion of principal and accrued interest (including 
any loan subsidy) less the Lender's servicing fee. The Loan Note 
Guarantee will not cover the note interest to the Holder on the 
guaranteed loan(s) accruing after 90 days from the date of the demand 
letter to the Lender requesting the repurchase. Holder(s) will 
concurrently send a copy of demand to Government. The Lender will accept 
an assignment without recourse from the Holder(s) upon repurchase. The 
Lender is encouraged to repurchase the loan to facilitate the accounting 
for funds, resolve the problem, and to permit the borrower to cure the 
default, where reasonable. The Lender will notify the Holder(s) and 
Government of its decision.

                         8. Government Purchase

    If Lender does not repurchase as provided by paragraph 7 hereof, 
Government will purchase from Holder the unpaid principal balance of the 
guaranteed portion together with accrued interest (including any loan 
subsidy) to date of repurchase less Lender's servicing fee, within 
thirty (30) days after written demand to Government from Holder. The 
Loan Note Guarantee will not cover the note interest to the Holder on 
the guaranteed loan(s) accruing after 90 days from the date of the 
original demand letter of the Holder to the Lender requesting the 
repurchase. Such demand will include a copy of the written demand made 
upon the Lender. The Holder(s) or its duly authorized agent will also 
include evidence of its right to require payment from Government. Such 
evidence will consist of either the original of the Loan Note Guarantee 
properly endorsed to Government or the original of the Assignment 
Guarantee Agreement properly assigned to Government without recourse 
including all rights, title, and interest in the loan. Government will 
be subrogated to all rights of Holder(s). The Holder(s) will include in 
its demand the amount due including unpaid principal, unpaid interest 
(including any loan subsidy) to date of demand and interest (including 
any loan subsidy) subsequently

[[Page 500]]

accruing from date of demand to proposed payment date. Unless otherwise 
agreed to by Government, such proposed payment will not be later than 30 
days from the date of demand.
    The Government will promptly notify the Lender of its receipt of the 
Holder(s)'s demand for payment. The Lender will promptly provide the 
Government with the information necessary for Government determination 
of the appropriate amount due the Holder(s). Any discrepancy between the 
amount claimed by the Holder(s) and the information submitted by the 
Lender must be resolved before payment will be approved. Government will 
notify both parties who must resolve the conflict before payment by 
Government will be approved. Such conflict will suspend the running of 
the 30 day payment requirement. Upon receipt of the appropriate 
information. Government will review the demand and submit it to the 
State Director for verification. After reviewing the demand the State 
Director will transmit the request to the Government Finance Office for 
issuance of the appropriate check. Upon issuance, the Finance Office 
will notify the office servicing the borrower and State Director and 
remit the check(s) to the Holder(s).

                         9. Lender's Obligations

    Lender consents to the purchase by Government and agrees to furnish 
on request by Government a current statement certified by an appropriate 
authorized officer of the Lender of the unpaid principal and interest 
then owed by Borrowers on the loan and the amount including any loan 
subsidy then owed to any Holder(s). Lender agrees that any purchase by 
Government does not change, alter or modify any of the Lender's 
obligations to Government arising from said loan or guarantee nor does 
it waive any of Government's rights against Lender, and that Government 
will have the right to set-off against Lender all rights inuring to 
Government as the Holder of this instrument against Government's 
obligation to Lender under the Loan Note Guarantee.

                 10. Repurchase by Lender for Servicing

    If, in the opinion of the Lender, repurchase of the guaranteed 
portion of the loan is necessary to adequately service the loan, the 
Holder will sell the portion of the loan to the Lender for an amount 
equal to the unpaid principal and interest (including any loan subsidy) 
on such portion less Lender's servicing fee. The Loan Note Guarantee 
will not cover the note interest to the Holder on the guaranteed loans 
accruing after 90 days from the date of the demand letter of the Lender 
or Government to the Holder(s) requesting the Holder(s) to tender their 
guaranteed portion(s).
    a. The Lender will not repurchase from the Holder(s) for arbitrage 
purposes or other purposes to further its own financial gain.
    b. Any repurchase will only be made after the Lender obtains 
Government written approval.
    c. If the Lender does not repurchase the portion from the Holder(s), 
Government at its option may purchase such guaranteed portions for 
servicing purposes.

                   11. Custody of Unguaranteed Portion

    The Lender may retain, or sell the unguaranteed portion of the loan 
only through participation. Participation, as used in this instrument, 
means the sale of an interest in the loan wherein the Lender retains the 
note, collateral securing the note, and all responsibility for loan 
servicing and liquidation.

                      12. When Guarantee Terminates

    This Loan Note Guarantee will terminate automatically (a) upon full 
payment of the guaranteed loan; or (b) upon full payment of any loss 
obligation hereunder; or (c) upon written notice from the Lender to 
Government that the guarantee will terminate 30 days after the date of 
notice, provided the Lender holds all of the guaranteed portion and the 
Loan Note Guarantee(s) are returned to be cancelled by Government.

                             13. Settlement

    The amount due under this instrument will be determined and paid as 
provided in the applicable subpart of 7 CFR part 1980 in effect on the 
date of this instrument.

                            14. Loan Subsidy

    * In addition to the interest rate of the note attached hereto, 
Government will pay a loan subsidy of ______ percent per year. Payments 
will be made annually.

                       15. Interest Capitalization

    In the case of Farm Credit Programs loans, the Lender/Holder(s) may 
capitalize interest only when the note is restructured. When delinquent 
interest is so treated as principal, the new principal amount may exceed 
the principal amount of the loan listed herein, but may not exceed 
statutory loan limits. The new principal amount and new guaranteed 
portion will be identified at restructuring in an addendum to this Loan 
Note Guarantee. Such capitalized interest will be covered by this loan 
Note Guarantee. References to ``principal and interest'' and ``principal 
advanced'' herein, therefore, shall include any capitalized interest on 
the guaranteed portion of the loan resulting from the restructuring of a 
Guaranteed Farm Credit Programs loans and not exceeding statutory loan 
limits.


[[Page 501]]



                               Position 5

                               16. Notices

    All notices will be initiated through the
 Government_____________________________________________________________
for ________ (State) with mailing address at the day of this instrument:

 _______________________________________________________________________
________________________________________________________________________

* If not applicable delete paragraph prior to execution of this 
instrument.

UNITED STATES OF AMERICA
 _______________________________________________________________________
(insert applicable agency)
 By_____________________________________________________________________
 Title__________________________________________________________________
 (Date)_________________________________________________________________
 Assumption Agreement by________________________________________________

dated ________, 19____

 Assumption Agreement by________________________________________________

dated ________, 19____
[60 FR 53256, Oct. 13, 1995]

                     Appendix B--Lender's Agreement

USDA-FmHA or its successor agency under Public Law 103-354    Position 5

Form FmHA or its successor agency under Public Law 103-354 449-35
(Rev. 12-89)
FORM APPROVED
OMB No. 0575-0024

 Type of Loan:__________________________________________________________
 FmHA or its successor agency under Public Law 103-354 Loan Ident. No.__

Applicable 7 CFR

 Part 1980 Subpart______________________________________________________

__________________________(Lender) of
________________ has made a loan(s) to
____________________(Borrower)
____________________ in the principal

 amount of $____________________________________________________________
 as evidenced by________________________________________________________

note(s) (include Bond as appropriate)

 described as follows:__________________________________________________
 _______________________________________________________________________
________________________________________________________________________
________________________________________________________________________

The United States of America, acting through Farmers Home Administration 
or its successor agency under Public Law 103-354 (FmHA or its successor 
agency under Public Law 103-354) has entered into a ``Loan Note 
Guarantee'' (Form FmHA or its successor agency under Public Law 103-354 
449-34) or has issued a ``Conditional Commitment for Guarantee'' (Form 
FmHA or its successor agency under Public Law 103-354 449-14) to enter 
into a Loan Note Guarantee with the Lender applicable to such loan to 
participate in a percentage of any loss on the loan not to 
exceed________% of the amount of the principal advance and any interest 
(including any loan subsidy) thereon. The terms of the Loan Note 
Guarantee are controlling. In order to facilitate the marketability of 
the guaranteed portion of the loan and as a condition for obtaining a 
guarantee of the loan(s), the Lender enters into this agreement.

THE PARTIES AGREE:
    I. The maximum loss covered under the Loan Note Guarantee will not 
exceed ____________ percent of the principal and accrued interest 
including any loan subsidy on the above indebtedness.
    II. Full Faith and Credit. The Loan Note Guarantee constitutes an 
obligation supported by the full faith and credit of the United States 
and is incontestable except for fraud or misrepresentation of which the 
Lender has actual knowledge at the time it became such Lender or which 
Lender participates in or condones. Any note which provides for the 
payment of interest on interest shall not be guaranteed. Any Loan Note 
Guarantee or Assignment Guarantee Agreement attached to or relating to a 
note which provides for payment of interest on interest is void.
    The Loan Note Guarantee will be unenforceable by the Lender to the 
extent any loss is occasioned by violation of usury laws, negligent 
servicing, or failure to obtain the required security regardless of the 
time at which FmHA or its successor agency under Public Law 103-354 
acquires knowledge of the foregoing. Any losses will be unenforceable by 
the Lender to the extent that loan funds are used for purposes other 
than those specifically approved by FmHA or its successor agency under 
Public Law 103-354 in its Conditional Commitment for Guarantee. 
Negligent servicing is defined as the failure to perform those services 
which a reasonably prudent Lender would perform in servicing its own 
portfolio of loans that are not guaranteed. The term includes not only 
the concept of a failure to act but also not acting in a timely manner 
or acting in a manner contrary to the manner in which a reasonably 
prudent Lender would act up to the time of loan maturity or until a 
final loss is paid.

________________

    Public reporting burden for this collection of information is 
estimated to average 1\1/2\ hours per response, including the time for 
reviewing instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the collection 
of information. Send comments regarding this burden estimate or any 
other aspect of this collection of information, including suggestions 
for reducing this burden,

[[Page 502]]

to Department of Agriculture, Clearance Officer, OIRM, Room 404-W, 
Washington, D.C. 20250; and to the Office of Management and Budget, 
Paperwork Reduction Project (OMB No. 0575-0024), Washington, D.C. 20503.
    III. Lender's Sale or Assignment of Guarantee Loan.

    A. The Lender may retain all of the guaranteed loan. The Lender is 
not permitted to sell or participate in any amount of the guaranteed or 
unguaranteed portion(s) of the loan(s) to the applicant or Borrower or 
members of their immediate families, their officers, directors, 
stockholders, other owners, or any parent, subsidiary or affiliate. If 
the Lender desires to market all or part of the guaranteed portion of 
the loan at or subsequent to loan closing, such loan must not be in 
default as set forth in the terms of the notes. The Lender may proceed 
under the following options:
    1. Assignment. Assign all or part of the guaranteed portion of the 
loan to one or more Holders by using Form FmHA or its successor agency 
under Public Law 103-354 449-36, ``Assignment Guarantee Agreement.'' 
Holder(s), upon written notice to Lender and FmHA or its successor 
agency under Public Law 103-354, may reassign the unpaid guaranteed 
portion of the loan sold thereunder. Upon such notification the assignee 
shall suceed to all rights and obligations of the Holder(s) thereunder. 
If this option is selected, the Lender may not at a later date cause to 
be issued any additional notes.
    2. Multi-Note System. When this option is selected by the Lender, 
upon disposition the Holder will receive one of the Borrower's executed 
notes and Form FmHA or its successor agency under Public Law 103-354 
449-34, ``Loan Note Guarantee,'' attached to the Borrower's note. 
However, all rights under the security instruments (including personal 
and/or corporate guarantees for B&I, FP only) will remain with the 
Lender and in all cases insure to its and the Government's benefit 
notwithstanding any contrary provisions of state law.
    a. At Loan Closing. Provide for no more than 10 notes, unless the 
Borrower and FmHA or its successor agency under Public Law 103-354 agree 
otherwise, for the guaranteed portion and one note for the unguaranteed 
portion. When this option is selected, FmHA or its successor agency 
under Public Law 103-354 will provide the Lender with a Form FmHA or its 
successor agency under Public Law 103-354 449-34, for each of the notes.
    b. After Loan Closing:
    (1) Upon written approval by FmHA or its successor agency under 
Public Law 103-354, the Lender may cause to be issued a series of new 
notes, not to exceed the total provided in 2.a. above, as replacement 
for previously issued guaranteed note(s) provided:
    (a) The Borrower agrees and executes the new notes.
    (b) The interest rate does not exceed the interest rate in effect 
when the loan was closed.
    (c) The maturity of the loan is not changed.
    (d) FmHA or its successor agency under Public Law 103-354 will not 
bear any expenses that may be incurred in reference to such reissue of 
notes.
    (e) There is adequate collateral securing the note(s).
    (f) No intervening liens have arisen or have been perfected and the 
secured lien priority remains the same.
    (2) FmHA or its successor agency under Public Law 103-354 will issue 
the appropriate Loan Note Guarantees to be attached to each of the notes 
then extant in exchange for the original Loan Note Guarantee which will 
be cancelled by FmHA or its successor agency under Public Law 103-354.
    3. Participations.
    a. The Lender may obtain participation in its loan under its normal 
operating procedures. Participation means a sale of an interest in the 
loan wherein the Lender retains the note, collateral securing the note, 
and all responsibility for loan servicing and liquidation.
    b. The Lender is required to hold in its own portfolio or retain a 
minimum of 10% of Farmer Program loans and 5% for Community Programs and 
Business and Industry Program loans of the total guaranteed loan(s) 
amount. The amount required to be retained must be of the unguaranteed 
portion of the loan and cannot be participated to another. The Lender 
may sell the remaining amount of the unguaranteed portion of the loan, 
except for Farmer Program loans, only through participation. However, 
the Lender will always retain the responsibility for loan servicing and 
liquidation.
    B. When a guaranteed portion of a loan is sold by the Lender to a 
Holder(s), the Holder(s) shall thereupon succeed to all rights of Lender 
under the Loan Note Guarantee to the extent of the portion of the loan 
purchased. Lender will remain bound to all the obligations under the 
Loan Note Guarantee, and this agreement, and the FmHA or its successor 
agency under Public Law 103-354 program regulations found in the 
applicable subpart of title 7 CFR part 1980, and to future FmHA or its 
successor agency under Public Law 103-354 program regulations not 
inconsistent with the express provisions hereof.
    C. The Holder(s) upon written notice to the Lender may resell the 
unpaid guaranteed portion of the loan sold under provision III A.

    IV. The Lender agrees loan funds will be used for the purposes 
authorized in the applicable subpart of title 7 CFR part 1980 and in

[[Page 503]]

accordance with the terms of Form FmHA or its successor agency under 
Public Law 103-354 449-14.
    V. The Lender certifies that none of its officers or directors, 
stockholders or other owners (except stockholders in a Farm Credit Bank 
or other Farm Credit System Institution will direct lending authority 
that have normal stockshare requirements for participation) has a 
substantial financial interest in the Borrower. The Lender certifies 
that neither the Borrower nor its officers or directors, stockholders or 
other owners has a substantial financial interest in the Lender. If the 
Borrower is a member of the board of directors or an officer of a Farm 
Credit Bank or other Farm Credit System Institution with direct lending 
authority, the Lender certifies that an FCS institution on the next 
highest level will independently process the loan request and will act 
as the Lender's agent in servicing the account.
    VI. The Lender certifies that it has no knowledge of any material 
adverse change, financial or otherwise, in the Borrower, Borrower's 
business, or any parent, subsidiaries, or affiliates since it requested 
a Loan Note Guarantee.
    VII. The Lender certifies that a loan agreement and/or loan 
instruments concurred in by FmHA or its successor agency under Public 
Law 103-354 has been or will be signed with the Borrower.
    VIII. Lender certifies that it has paid the required guarantee fee.
    IX. Servicing.
    A. The Lender will service the entire loan and will remain mortgagee 
and/or secured part of record, notwithstanding the fact that another may 
hold a portion of the loan. The entire loan will be secured by the same 
security with equal lien priority for the guaranteed and unguaranteed 
portions of the loan. Lender may charge Holder a servicing fee. The 
unguaranteed portion of a loan will not be paid first nor given any 
preference or priority over the guaranteed portion of the loan.
    B. Disposition of the guaranteed portion of a loan may be made prior 
to full disbursement, completion of construction and acquisitions only 
with the prior written approval of FmHA or its successor agency under 
Public Law 103-354. Subsequent to full disbursement, completion of 
construction, and acquisition, the guaranteed portion of the loan may be 
disposed of as provided herein.
    It is the Lender's responsibility to see that all construction is 
properly planned before any work proceeds; that any required permits, 
licenses or authorizations are obtained from the appropriate regulatory 
agencies; that the Borrower has obtained contracts through acceptable 
procurement procedures; that periodic inspections during construction 
are made and that FmHA or its successor agency under Public Law 103-
354's concurrence on the overall development schedule is obtained.
    C. Lender's servicing responsibilities include, but are not limited 
to:
    1. Obtaining compliance with the covenants and provisions in the 
note, loan agreement, security instruments, and any supplemental 
agreements and notifying in writing FmHA or its successor agency under 
Public Law 103-354 and the Borrower of any violations. None of the 
aforesaid instruments will be altered without FmHA or its successor 
agency under Public Law 103-354's prior written concurrence. The Lender 
must service the loan in a reasonable and prudent manner.
    2. Receiving all payments on principal and interest (including any 
loan subsidy) on the loan as they fall due and promptly remitting and 
accounting to any Holder(s) of their pro rata share thereof determined 
according to their respective interests in the loan, less only Lender's 
servicing fee. The loan may be reamortized, renewed, rescheduled or (for 
Farm Ownership, Soil and Water, and Operating loans only) written down 
only with agreement of the Lender and Holder(s) of the guaranteed 
portion of the loan and only with FmHA or its successor agency under 
Public Law 103-354's written concurrence.
    3. Inspecting the collateral as often as necessary to properly 
service the loan.
    4. Assuring that adequate insurance is maintained. This includes 
hazard insurance obtained and maintained with a loss payable clause in 
favor of the Lender as the mortgagee or secured party and Fidelity Bond 
coverage for Community Program Loans if required.
    5. Assuring that: taxes, assessment or ground rents against or 
affecting collateral are paid; the loan and collateral are protected in 
foreclosure, bankruptcy, receivership, insolvency, condemnation, or 
other litigation, insurance loss payments, condemnation awards, or 
similar proceeds are applied on debts in accordance with lien priorities 
on which the guarantee was based, or to rebuilding or otherwise 
acquiring needed replacement collateral with the written approval of 
FmHA or its successor agency under Public Law 103-354; proceeds from the 
sale or other disposition of collateral are applied in accordance with 
the lien priorities on which the guarantee is based, except that 
proceeds from the disposition of collateral, such as machinery, 
equipment, furniture or fixtures, may be used to acquire property of 
similar nature in value up to $________ without written concurrence of 
FmHA or its successor agency under Public Law 103-354; the Borrower 
complies with all laws and ordinances applicable to the loan, the 
collateral and/or operating of the farm, business or industry.
    6. Assuring that if personal or corporate guarantees are part of the 
collateral, current

[[Page 504]]

financial statements from such loan guarantors will be obtained and 
copies provided to FmHA or its successor agency under Public Law 103-354 
at such time and frequency as required by the loan agreement or 
Conditional Commitment for Guarantee. In the case of guarantees secured 
by collateral, assuring the security is properly maintained.
    7. Obtaining the lien coverage and lien priorities specified by the 
Lender and agreed to by FmHA or its successor agency under Public Law 
103-354, properly recording or filing lien or notice instruments to 
obtain or maintain such lien priorities during the existence of the 
guarantee by FmHA or its successor agency under Public Law 103-354.
    8. Assuring that the Borrower obtains marketable title to the 
collateral.
    9. Assuring that the Borrower (any party liable) is not released 
from liability for all or any part of the loan, except in accordance 
with FmHA or its successor agency under Public Law 103-354 regulations.
    10. Providing FmHA or its successor agency under Public Law 103-354 
Finance Office with loan status reports semiannually as of June 30 and 
December 31 on Form FmHA or its successor agency under Public Law 103-
354 1980-41, ``Guaranteed Loan Status Report.'' For Farm Ownership, Soil 
and Water, and Operating loans, Form FmHA or its successor agency under 
Public Law 103-354 1980-41 will only be submitted annually as of 
December 31.
    11. Obtaining from the Borrower periodic financial statements under 
the following schedule:
Lender is responsible for analyzing the financial statements, taking any 
servicing actions and providing copies of statements and record of 
actions to the FmHA or its successor agency under Public Law 103-354 
office immediately responsible for the loan.
    12. Monitoring the use of loan funds to assure they will not be used 
for any purpose that will contribute to excessive erosion of highly 
erodible land or to the conversion of wetlands to produce an 
agricultural commodity, as further explained in 7 CFR Part 1940, Subpart 
G, Exhibit M.
    D. If a Farm Ownership, Soil and Water or Operating loan is involved 
the Lender shall participate in any farm credit mediation program of a 
state in accordance with the rules of that system and 7 CFR Part 1980, 
Subpart B, Sec. 1980.126.

    X. Default.
    A. The Lender will notify FmHA or its successor agency under Public 
Law 103-354 when a Borrower is thirty (30) days (90 days for guaranteed 
rural housing loan) past due on a payment or if the Borrower has not met 
its responsibilities of providing the required financial statements to 
the Lender or is otherwise in default. The Lender will notify FmHA or 
its successor agency under Public Law 103-354 of the status of a 
Borrower's default on Form FmHA or its successor agency under Public Law 
103-354 1980-44, ``Guaranteed Loan Borrower Default Status.'' A meeting 
will be arranged by the Lender with the Borrower and FmHA or its 
successor agency under Public Law 103-354 to resolve the problem. 
Actions taken by the Lender with written concurrence of FmHA or its 
successor agency under Public Law 103-354 will include but are not 
limited to the following or any combination thereof:
    1. Deferment of principal payments (subject to rights of any 
Holder(s)).
    2. An additional temporary loan by the Lender to bring the account 
current.
    3. Reamortization of or rescheduling the payments on the loan 
(subject to rights of any Holder(s)).
    4. Transfer and assumption of the loan in accordance with the 
applicable subpart of Title 7 CFR Part 1980.
    5. Reorganization.
    6. Liquidation.
    7. Subsequent loan guarantees.
    8. Changes in interest rates with FmHA or its successor agency under 
Public Law 103-354's Lender's, and the Holder'(s) approval; provided, 
such interest rate is adjusted proportionally between the guaranteed and 
unguaranteed portion of the loan and the type of rate remains the same.
    9. Principal and interest write down in accordance with 7 CFR Part 
1980, Subpart B, Sec. 1980.125.
    B. The Lender will negotiate in good faith in an attempt to resolve 
any problem to permit the Borrower to cure a default, where reasonable. 
In the case of Farm Ownership, Soil and Water, or Operating loans, the 
Lender agrees that if liquidation of the account becomes imminent, the 
Lender will consider the Borrower for an Interest Rate Buydown under 
Exhibit C of Subpart B of 7 CFR, Part 1980, and request a determination 
of the Borrower's eligibility by FmHA or its successor agency under 
Public Law 103-354. The Lender may not initiate foreclosure action on 
the loan until 60 days after a determination has been made with respect 
to the eligibility of the Borrower to participate in the Interest Rate 
Buydown Program.
    C. The Lender has the option to repurchase the unpaid guaranteed 
portion of the loan from the Holder(s) within 30 days of written demand 
by the Holder(s) when: (a) the Borrower is in default not less than 60 
days in payment of principal or interest due on the loan or (b) the 
Lender has failed to remit to the Holder(s) its pro rata share of any 
payment made by the Borrower or any loan subsidy within 30 days of its 
receipt thereof. The repurchase by the Lender will be for an amount 
equal to the unpaid guaranteed portion of the principal and accrued 
interest less the Lender's servicing fee. The loan note

[[Page 505]]

guarantee will not cover the note interest to the Holder on the 
guaranteed loan(s) accruing after 90 days from the date of the demand 
letter to the Lender requesting the repurchase. Holder(s) will 
concurrently send a copy of demand to FmHA or its successor agency under 
Public Law 103-354. The Lender will accept an assignment without 
recourse from the Holder(s) upon repurchase. The Lender is encouraged to 
repurchase the loan to facilitate the accounting for funds, resolve the 
problem, and to permit the borrower to cure the default, where 
reasonable. The Lender will notify the Holder(s) and FmHA or its 
successor agency under Public Law 103-354 of its decision.
    D. If Lender does not repurchase as provided by paragraph C, FmHA or 
its successor agency under Public Law 103-354 will purchase from 
Holder(s) the unpaid principal balance of the guaranteed portion herein 
together with accrued interest (including any loan subsidy) to date of 
repurchase, within 30 days after written demand to FmHA or its successor 
agency under Public Law 103-354 from the Holder(s). The loan note 
guarantee will not cover the note interest to the Holder on the 
guaranteed loan(s) accruing after 90 days from the date of original 
demand letter of the Holder(s) to the Lender requesting the repurchase. 
Such demand will include a copy of the written demand made upon the 
Lender.
    The Holder(s) or its duly authorized agent will also include 
evidence of its right to require payment from FmHA or its successor 
agency under Public Law 103-354. Such evidence will consist of either 
the originals of the Loan Note Guarantee and note properly endorsed to 
FmHA or its successor agency under Public Law 103-354 or the original of 
the Assignment Guarantee Agreement properly assigned to FmHA or its 
successor agency under Public Law 103-354 without recourse including all 
rights, title, and interest in the loan. FmHA or its successor agency 
under Public Law 103-354 will be subrogated to all rights of Holder(s). 
The Holder(s) will include in its demand the amount due including unpaid 
principal, unpaid interest (including any loan subsidy) to date of 
demand and interest subsequently accruing from date of demand to 
proposed payment date. Unless otherwise agreed to by FmHA or its 
successor agency under Public Law 103-354, such proposed payment will 
not be later than 30 days from the date of the demand.
    The FmHA or its successor agency under Public Law 103-354 office 
serving the Borrower will promptly notify the Lender of the Holder(s) 
demand for payment. The Lender will promptly provide the FmHA or its 
successor agency under Public Law 103-354 office servicing the Borrower 
with the information necessary for FmHA or its successor agency under 
Public Law 103-354's determination of the appropriate amount due the 
Holder(s). Any discrepancy between the amount claimed by the Holder(s) 
and the information submitted by the Lender must be resolved before 
payment will be approved. FmHA or its successor agency under Public Law 
103-354 will notify both parties who must resolve the conflict before 
payment by FmHA or its successor agency under Public Law 103-354 will be 
approved. Such a conflict will suspend the running of the 30 day payment 
requirement. Upon receipt of the appropriate information, the FmHA or 
its successor agency under Public Law 103-354 office servicing the 
Borrower will review the demand and submit it to the State Director for 
verification. After reviewing the demand, the State Director will 
transmit the request to the FmHA or its successor agency under Public 
Law 103-354 Finance Office for issuance of the appropriate check. Upon 
issuance, the Finance Office will notify the office serving the Borrower 
and State Director and remit the check(s) to the Holder(s).
    E. Lender consents to the purchase by FmHA or its successor agency 
under Public Law 103-354 and agrees to furnish on request by FmHA or its 
successor agency under Public Law 103-354 a current statement certified 
by an appropriate authorized officer of the Lender of the unpaid 
principal and interest then owed by the Borrower on the loan and the 
amount due the Holder(s). Lender agrees that any purchase by FmHA or its 
successor agency under Public Law 103-354 does not change, alter or 
modify any of the Lender's obligations to FmHA or its successor agency 
under Public Law 103-354 arising from said loan or guarantee, nor does 
such purchase waive any of the FmHA or its successor agency under Public 
Law 103-354's rights against Lender, and FmHA or its successor agency 
under Public Law 103-354 will have the right to set-off against Lender 
all rights inuring to FmHA or its successor agency under Public Law 103-
354 from the Holder against FmHA or its successor agency under Public 
Law 103-354's obligation to Lender under the Loan Note Guarantee. To the 
extent FmHA or its successor agency under Public Law 103-354 holds a 
portion of a loan, loan subsidy will not be paid the Lender.
    F. Servicing fees assessed by the Lender to a Holder are collectible 
only from payment installments received by the Lender from the Borrower. 
When FmHA or its successor agency under Public Law 103-354 repurchases 
from a Holder, FmHA or its successor agency under Public Law 103-354 
will pay the Holder only the amounts due the Holder, FmHA or its 
successor agency under Public Law 103-354 will not reimburse the Lender 
for servicing fees assessed to a Holder and not collected from payments 
received from the Borrower. No servicing fee shall be charged FmHA or 
its successor agency under Public Law 103-354 and no such fee is 
collectible

[[Page 506]]

from FmHA or its successor agency under Public Law 103-354.
    G. Lender may also repurchase the guaranteed portion of the loan 
consistent with paragraph 10 of the Loan Note Guarantee.

    XI. Liquidation. If the Lender concludes that liquidation of a 
guaranteed loan account is necessary because of one or more defaults or 
third party actions that the Borrower cannot or will not cure or 
eliminate within a reasonable period of time, a meeting will be arranged 
by the Lender with FmHA or its successor agency under Public Law 103-
354. When FmHA or its successor agency under Public Law 103-354 concurs 
with the Lender's conclusion or at any time concludes independently that 
liquidation is necessary, it will notify the Lender and the matter will 
be handled as follows:
    The Lender will liquidate the loan unless FmHA or its successor 
agency under Public Law 103-354, at its option, decides to carry out 
liquidation.
    When the decision to liquidate is made, the Lender may proceed to 
purchase from Holder(s) the guaranteed portion of the loan. The 
Holder(s) will be paid according to the provisions in the Loan Note 
Guarantee or the Assignment Guarantee Agreement.
    If the Lender does not purchase the guaranteed portion of the loan, 
FmHA or its successor agency under Public Law 103-354 will be notified 
immediately in writing. FmHA or its successor agency under Public Law 
103-354 will then purchase the guaranteed portion of the loan from the 
Holder(s). If FmHA or its successor agency under Public Law 103-354 
holds any of the guaranteed portion, FmHA or its successor agency under 
Public Law 103-354 will be paid first its pro rata share of the proceeds 
from liquidation of the collateral.
    A. Lender's proposed method of liquidation. Within 30 days after the 
decision to liquidate, the Lender will advise FmHA or its successor 
agency under Public Law 103-354 in writing of its proposed detailed 
method of liquidation called a liquidation plan and will provide FmHA or 
its successor agency under Public Law 103-354 with:
    1. Such proof as FmHA or its successor agency under Public Law 103-
354 requires to establish the Lender's ownership of the guaranteed loan 
promissory note(s) and related security instruments.
    2. Information lists concerning the Borrower's assets including real 
and personal property, fixtures, claims, contracts, inventory (including 
perishables), accounts receivable, personal and corporate guarantees, 
and other existing and contingent assets, advice to whether or not each 
item is serving as collateral for the guaranteed loan.
    3. A proposed method of making the maximum collection possible on 
the indebtedness.
    4. If the outstanding principal B&I or CP loan balance including 
accrued interest is less than $200,000, the Lender will obtain an 
estimate of the market and potential liquidated value of the collateral. 
On B&I or CP loan balances in excess of $200,000, and all other loans 
regardless of the outstanding principal balance, the Lender will obtain 
an independent appraisal report on all collateral securing the loan, 
which will reflect the current market value and potential liquidation 
value. The appraisal report is for the purpose of permitting the Lender 
and FmHA or its successor agency under Public Law 103-354 to determine 
the appropriate liquidation actions. Any independent appraiser's fee 
will be shared equally by FmHA or its successor agency under Public Law 
103-354 and the Lender.
    B. FmHA or its successor agency under Public Law 103-354's response 
to Lender liquidation plan. FmHA or its successor agency under Public 
Law 103-354 will inform the Lender in writing whether it concurs in the 
Lender's liquidation plan within 30 days after receipt of such 
notification from the Lender. If FmHA or its successor agency under 
Public Law 103-354 needs additional time to respond to the liquidation 
plan, it will advise the Lender of a definite time for such response. 
Should FmHA or its successor agency under Public Law 103-354 and the 
Lender not agree on the Lender's liquidation plan, negotiations will 
take place between FmHA or its successor agency under Public Law 103-354 
and the Lender to resolve the disagreement. The Lender will ordinarily 
conduct the liquidation; however, should FmHA or its successor agency 
under Public Law 103-354 opt to conduct the liquidation, FmHA or its 
successor agency under Public Law 103-354 will proceed as follows:
    1. The Lender will transfer to FmHA or its successor agency under 
Public Law 103-354 all rights and interest necessary to allow FmHA or 
its successor agency under Public Law 103-354 to liquidate the loan. In 
this event, the Lender will not be paid for any loss until after the 
collateral is liquidated and the final loss is determined by FmHA or its 
successor agency under Public Law 103-354.
    2. FmHA or its successor agency under Public Law 103-354 will 
attempt to obtain the maximum amount of proceeds from liquidation.
    3. Options available to FmHA or its successor agency under Public 
Law 103-354 include any one or combination of the usual commercial 
methods of liquidation.
    C. Acceleration. The Lender or FmHA or its successor agency under 
Public Law 103-354, if it liquidates, will proceed as expeditiously as 
possible when acceleration of the indebtedness is necessary including 
giving any notices and taking any other legal actions required by the 
security instruments. A copy of the accelertion notice or other 
acceleration document will be sent to FmHA or its

[[Page 507]]

successor agency under Public Law 103-354 or the Lender, as the case may 
be.
    D. Liquidation: Accounting and Reports. When the Lender conducts the 
liquidation, it will account for funds during the period of liquidation 
and will provide FmHA or its successor agency under Public Law 103-354 
with periodic reports on the progress of liquidation, disposition of 
collateral, resulting costs and additional procedures necessary for 
successful completion of liquidation. The Lender will transmit to FmHA 
or its successor agency under Public Law 103-354 any payments received 
from the Borrower and/or pro rata share of liquidation or other 
proceeds, etc. when FmHA or its successor agency under Public Law 103-
354 is the holder of a portion of the guaranteed loan using Form FmHA or 
its successor agency under Public Law 103-354 1980-43. ``Lender's 
Guaranteed Loan Payment to FmHA or its successor agency under Public Law 
103-354.'' When FmHA or its successor agency under Public Law 103-354 
liquidates, the Lender will be provided with similar reports on request.
    E. Determination of Loss and Payment. In all liquidation cases, 
final settlement will be made with the Lender after the collateral is 
liquidated. FmHA or its successor agency under Public Law 103-354 will 
have the right to recover losses paid under the guarantee from any party 
liable.
    1. Form FmHA or its successor agency under Public Law 103-354 449-
30, ``Loan Note Guarantee Report of Loss,'' will be used for 
calculations of all estimated and final loss determinations. Estimated 
loss payments may be approved by FmHA or its successor agency under 
Public Law 103-354 after the Lender has submitted a liquidation plan 
approved by FmHA or its successor agency under Public Law 103-354. 
Payments will be made in accordance with applicable FmHA or its 
successor agency under Public Law 103-354 regulations.
    2. When the Lender is conducting the liquidation, and owns any of 
the guaranteed portion of the loan, it may request a tentative loss 
estimate by submitting to FmHA or its successor agency under Public Law 
103-354 an estimate of loss that will occur in connection with 
liquidation of the loan. FmHA or its successor agency under Public Law 
103-354 will agree to pay an estimated loss settlement to the Lender 
provided the Lender applies such amount due to the outstanding principal 
balance owed on the guaranteed debt. Such estimate will be prepared and 
submitted by the Lender on Form FmHA or its successor agency under 
Public Law 103-354 449-30, using the basic formula as provided on the 
report except that the appraisal value will be used in lieu of the 
amount received from the sale of collateral. For Farm Ownership, Soil 
and Water, and Operating loans only, if it appears the liquidation 
period will exceed 90 days, the Lender will file an estimated loss 
claim. Once this claim is approved by FmHA or its successor agency under 
Public Law 103-354, the Lender will discontinue interest accrual on the 
defaulted loan and the loss claim will be promptly processed in 
accordance with the applicable FmHA or its successor agency under Public 
Law 103-354 regulations.
    After the Report of Loss estimate has been approved by FmHA or its 
successor agency under Public Law 103-354, and within 30 days 
thereafter, FmHA or its successor agency under Public Law 103-354 will 
send the original Report of Loss estimate to FmHA or its successor 
agency under Public Law 103-354 Finance Office for issuance of a 
Treasury check in payment of the estimated amount due the Lender.
    After liquidation has been completed, a final loss report will be 
submitted on Form FmHA or its successor agency under Public Law 103-354 
449-30 by the Lender to FmHA or its successor agency under Public Law 
103-354.
    3. After the Lender has completed liquidation, FmHA or its successor 
agency under Public Law 103-354 upon receipt of the final accounting and 
report of loss, may audit and will determine the actual loss. If FmHA or 
its successor agency under Public Law 103-354 has any questions 
regarding the amounts set forth in the final Report of Loss, it will 
investigate the matter. The Lender will make its records available to 
and otherwise assist FmHA or its successor agency under Public Law 103-
354 in making the investigation. If FmHA or its successor agency under 
Public Law 103-354 finds any discrepancies, it will contact the Lender 
and arrange for the necessary corrections to be made as soon as 
possible. When FmHA or its successor agency under Public Law 103-354 
finds the final Report of Loss to be proper in all respects, it will be 
tentatively approved in the space provided on the form for that purpose.
    4. When the Lender conducted liquidation and after the final Report 
of Loss has been tentatively approved:
    a. If the loss is greater than the estimated loss payment, FmHA or 
its successor agency under Public Law 103-354 will send the original of 
the final Report of Loss to the Finance Office for issuance of a 
Treasury check in payment of the additional amount owed by FmHA or its 
successor agency under Public Law 103-354 to the Lender.
    b. If the loss is less than the estimated loss, the Lender will 
reimburse FmHA or its successor agency under Public Law 103-354 for the 
overpayment plus interest at the note rate from date of payment.
    5. If FmHA or its successor agency under Public Law 103-354 has 
conducted liquidation, it will provide an accounting and Report of Loss 
to the Lender and will pay the Lender in accordance with the Loan Note 
Guarantee.

[[Page 508]]

    6. In those instances where the Lender has made authorized 
protective advances, it may claim recovery for the guaranteed portion of 
any loss of monies advanced as protective advances and interest 
resulting from such protective advances as provided above, and such 
payment will be made by FmHA or its successor agency under Public Law 
103-354 when the final Report of Loss is approved.
    F. Maximum amount of interest loss payment. Notwithstanding any 
other provisions of this agreement, the amount payable by FmHA or its 
successor agency under Public Law 103-354 to the Lender cannot exceed 
the limits set forth in the Loan Note Guarantee. If FmHA or its 
successor agency under Public Law 103-354 conducts the liquidation, loss 
occasioned by accruing interest (including any loan subsidy) will be 
covered by the guarantee only to the date FmHA or its successor agency 
under Public Law 103-354 accepts this responsibility. Loss occasioned by 
accruing interest (including subsidy) will be covered to the extent of 
the guarantee to the date of final settlement when the liquidation is 
conducted by the Lender provided it proceeds expeditiously with the 
liquidation plan approved by FmHA or its successor agency under Public 
Law 103-354, except for Farm Ownership, Soil and Water, and Operating 
loans only, when the Lender files an estimated loss claim. For Farm 
Ownership, Soil and Water and Operating loans, only, when the Lender 
files an estimated loss claim, the Lender will discontinue interest 
accrual on the defaulted loan when the estimated loss claim is approved 
by FmHA or its successor agency under Public Law 103-354. The balance of 
accrued interest (including any loan subsidy) payable to the Lender, if 
any, will be calculated on the final Report of Loss form.
    G. Application of FmHA or its successor agency under Public Law 103-
354 loss payment. The estimated loss payment shall be applied as of the 
date of such payment. The total amount of the loss payment remitted by 
FmHA or its successor agency under Public Law 103-354 will be applied by 
the Lender on the guaranteed portion of the loan debt. However, such 
application does not release the Borrower from liability. At time of 
final loss settlement the Lender will notify the Borrower that the loss 
payment has been so applied. In all cases a final Form FmHA or its 
successor agency under Public Law 103-354 449-30 prepared and submitted 
by the Lender must be processed by FmHA or its successor agency under 
Public Law 103-354 in order to close out the files at the FmHA or its 
successor agency under Public Law 103-354 Finance Office.
    H. Income from collateral. Any net rental or other income that has 
been received by the Lender from the collateral will be applied on the 
guaranteed loan debt.
    I. Liquidation costs. Certain reasonable liquidation costs will be 
allowed during the liquidation process. The liquidation costs will be 
submitted as a part of the liquidation plan. Such costs will be deducted 
from gross proceeds from the disposition of collateral unless the costs 
have been previously determined by the lender (with FmHA or its 
successor agency under Public Law 103-354 written concurrence) to be 
protective advances. If changed circumstances after submission of the 
liquidation plan require a revision of liquidation costs, the Lender 
will procure FmHA or its successor agency under Public Law 103-354's 
written concurrence prior to proceeding with the proposed changes. No 
in-house expenses of the Lender will be allowed. In-house expenses 
include, but are not limited to, employees' salaries, staff lawyers, 
travel and overhead.
    J. Foreclosure. The parties owning the guaranteed portion and 
unguaranteed portions of the loan will join the institute foreclosure 
action or, in lieu of foreclosure, to take a deed of conveyance to such 
parties. When the conveyance is received and liquidated, net proceeds 
will be applied to the guaranteed loan debt.
    K. Payment. Such loss will be paid by FmHA or its successor agency 
under Public Law 103-354 within 60 days after the review of the 
accounting of the collateral.

    XII. Protective Advances.
    Protective advances must constitute an indebtedness of the Borrower 
to the Lender and be secured by the security instrument(s). FmHA or its 
successor agency under Public Law 103-354 written authorization is 
required on all protective advances in excess of $500. Protective 
advances include but are not limited to advances made for taxes annual 
assessments, ground rent hazard or flood insurance premiums affecting 
the collateral, and other expenses necessary to preserve or protect the 
security. Attorney fees are not a protective advance.

    XIII. Additional Loans or Advances.
    The Lender will not make additional expenditures or new loans 
without first obtaining the written approval of FmHA or its successor 
agency under Public Law 103-354 even though such expenditures or loans 
will not be guaranteed.

    XIV. Future Recovery.
    After a loan has been liquidated and a final loss has been paid by 
FmHA or its successor agency under Public Law 103-354, any future funds 
which may be recovered by the Lender will be pro-rated between FmHA or 
its successor agency under Public Law 103-354 and the Lender. FmHA or 
its successor agency under Public Law 103-354 will be paid such amount 
recovered in proportion to the percentage it guaranteed for the loan and 
the

[[Page 509]]

Lender will retain such amounts in proportion to the percentage of the 
unguaranteed portion of the loan.

    XV. Transfer and Assumption Cases.
    Refer to the applicable subpart of title 7 of CFR part 1980.
    If a loss should occur upon consummation of a complete transfer and 
assumption for less than the full amount of the debt and the transferor-
debtor (including personal guarantees) is released from personal 
liability, the Lender, if it holds the guaranteed portion, may file an 
estimated Report of Loss on Form FmHA or its successor agency under 
Public Law 103-354 449-30, ``Loan Note Guarantee Report of Loss,'' to 
recover its pro rata share of the actual loss at that time. In 
completing Form FmHA or its successor agency under Public Law 103-354 
449-30, the amount of the debt assumed will be entered on line 24 as Net 
Collateral (Recovery). Approved protective advances and accrued interest 
thereon made during the arrangement of a transfer and assumption, if not 
assumed by the Transfer, will be entered on Form FmHA or its successor 
agency under Public Law 103-354 449-30, line 13 and 14.

    XVI. Bankruptcy.
    A. The Lender is responsible for protecting the guaranteed loan debt 
and all collateral securing the loan in bankruptcy proceedings. When the 
loan is involved in a reorganization bankruptcy proceeding under 
Chapters 9, 11, 12 or 13 of the Bankruptcy Code, payment of loss claims 
may be made as provided in this paragraph XVI. For a Chapter 7 
bankruptcy or liquidation plan in a Chapter 11 bankruptcy, only 
paragraphs XVI B3 and B6 are applicable.
    B. Loss Payments.
    1. Estimated Loss Payments.
    a. If a borrower has filed for protection under a reorganization 
bankruptcy, the Lender will request a tentative estimated loss payment 
of accrued interest and principal written off. This request can only be 
made after the bankruptcy plan is confirmed by the court. Only one 
estimated loss payment is allowed during the reorganization bankruptcy. 
All subsequent claims during reorganization will be considered revisions 
to the initial estimated loss. A revised estimated loss payment may be 
processed by FmHA or its successor agency under Public Law 103-354, at 
its option, in accordance with any court approved changes in the 
reorganization plan. At the time the performance under the confirmed 
reorganization plan has been completed, the Lender is responsible for 
providing FmHA or its successor agency under Public Law 103-354 with the 
documentation necessary to review and adjust the estimated loss claim to 
(a) reflect the actual principal and interest reduction on any part of 
the guaranteed debt determined to be unsecured and (b) to reimburse the 
Lender for any court ordered interest rate reduction during the term of 
the reorganization plan.
    b. The Lender will use Form FmHA or its successor agency under 
Public Law 103-354 449-30, ``Loan Note Guarantee Report of Loss,'' to 
request an estimated loss payment and to review estimated loss payments 
during the course of the reorganization plan. The estimated loss claim 
as well as any revisions to this claim will be accompanied by applicable 
legal documentation to support the claim.
    c. Upon completion of the rorganization plan, the Lender will 
complete Form FmHA or its successor agency under Public Law 103-354 1980 
44, ``Guaranteed Loan Borrower Default Status,'' and forward this form 
to the Finance Office.
    2. Interest Loss Payments.
    a. Interest loss payments sustained during the period of the 
reorganization plan will be processed in accordance with paragraph XVI 
B1.
    b. Interest loss payments sustained after the reorganization plan is 
completed will be processed annually when the Lender sustains a loss as 
a result of a permanent interest rate reduction which extends beyond the 
period of the reorganization plan.
    c. Form FmHA or its successor agency under Public Law 103-354 449-30 
will be completed to compensate the Lender for the difference in 
interest rates specified on the Loan Note Guarantee or Interest Rate 
Buydown Agreement and the rate of interest specified by the bankruptcy 
court.
    3. Final Loss Payments.
    a. Final Loss Payments will be processed when the loan is 
liquidated.
    b. If the loan is paid in full without an additional loss, the 
Finance Office will close out the estimated loss account at the time 
notification of payment in full is received.
    4. Payment Application. The Lender must apply estimated loss 
payments first to the unsecured principal of the guaranteed portion of 
the debt and then to the unsecured interest of the guaranteed portion of 
the debt. In the event the bankruptcy court attempts to direct the 
payments to be applied in a different manner, the Lender will 
immediately notify the FmHA or its successor agency under Public Law 
103-354 servicing office.
    5. Overpayments. Upon completion of the reorganization plan, the 
Lender will provide FmHA or its successor agency under Public Law 103-
354 with the documentation necessary to determine whether the estimated 
loss paid equals the actual loss sustained. If the actual loss 
sustained, as a result of the reorganization, is greater than the 
estimated loss payment, the Lender will submit a revised estimated loss 
in order to obtain payment of the additional amount owed by FmHA or its 
successor agency under Public

[[Page 510]]

Law 103-354 to the Lender. If the actual loss payment is less than the 
estimated loss, the Lender will reimburse FmHA or its successor agency 
under Public Law 103-354 for the overpayment plus interest at the note 
rate from the date of the payment of the estimated loss.
    6. Protective Advances. If approved protective advances were made 
prior to the borrower having filed bankruptcy, as a result of prior 
liquidation action, these protective advances and accrued interest will 
be entered on Form FmHA or its successor agency under Public Law 103-354 
449-30.

    XVII. Debt Write-down.
    For Farm Ownership, Soil and Water, and Operating loans only, refer 
to title 7 of CFR part 1980, subpart B, Sec. 1980.125. The maximum 
amount of loss payment associated with a loan/line of credit agreement 
which has been written down will not exceed the percent of the guarantee 
multiplied by the difference between the outstanding principal and 
interest balance of the loan/line of credit before the write-down and 
the outstanding balance of the loan/line of credit after the write-down. 
The Lender will use Form FmHA or its successor agency under Public Law 
103-354 449-30. ``Loan Note Guarantee Report of Loss,'' to request an 
estimated loss payment to receive is pro-rata share of any loss 
sustained.

    XVIII. Other Requirements.
    This agreement is subject to all the requirements of the applicable 
subpart of Title 7 CFR Part 1980, and any future amendments of these 
regulations not inconsistent with this agreement. Interested parties may 
agree to abide by future FmHA or its successor agency under Public Law 
103-354 regulations not inconsistent with this agreement.

    XIX. Execution of Agreements.
    If this agreement is executed prior to the execution of the Loan 
Note Guarantee, this agreement does not impose any obligation upon FmHA 
or its successor agency under Public Law 103-354 with respect to the 
execution of such contract. FmHA or its successor agency under Public 
Law 103-354 in no way warrants that such a contract has been or will be 
executed.
    XX. Notices.
    All notices and actions will be

 initiated through FmHA or its successor agency under Public Law 103-354 
for_____________________________________________________________________

(State) with mailing address at

 the date of this instrument____________________________________________

    XXI. The Lender will ensure that the borrower complies with the 
measures identified in the Government's environmental impact analysis 
for this facility for the purpose of avoiding or reducing the adverse 
environmental impacts of the facility's construction or operation.
Dated this ______ day of ______. 19____

      LENDER:

ATTEST: ____________ (SEAL)

 By_____________________________________________________________________
 Title__________________________________________________________________

UNITED STATES OF AMERICA
Farmers Home Administration or its successor agency under Public Law 
103-354


 By_____________________________________________________________________
 Title__________________________________________________________________
[55 FR 11134, Mar. 27, 1990]

[[Page 511]]

               Appendix C--Assignment Guarantee Agreement

                               Position 5

USDA
Form FmHA 449-36
(Rev. 10-95)

 Type of Loan___________________________________________________________

Government Loan Identification

 Number_________________________________________________________________
 Applicable 7 CFR part 1980 subpart_____________________________________

________ of ________

 (Lender) has made a loan to____________________________________________

in the principal amount of $______________ as evidenced by a note(s) 
dated____________.
The United States of America, acting through the Farm Service Agency, 
Rural Business-Cooperative Service, Rural Utilities Service, or Rural 
Housing Service (herein called ``Government'') entered into a Loan Note 
Guarantee (Form FmHA 449-34) with the Lender applicable to such loan to 
guarantee the loan not to exceed ______% of the amount of the principal 
advanced and any interest (including any loan subsidy) due thereon and 
any capitalized interest, resulting from the restructuring of a 
Guaranteed Farm Credit Programs loan and not exceeding statutory loan 
limits, as provided therein.

______________ of ______________
(Holder) desires to purchase from Lender ______% of the guaranteed 
portion of such loan. Copies of Borrower's note(s) and the Loan Note 
Guarantee are attached hereto as a part hereof.

NOW, THEREFORE, THE PARTIES AGREE:
    1. The principal amount of the loan now outstanding is $______. 
Lender hereby assigns to Holder ______% of the guaranteed portion of the 
loan representing $______ of such loan now outstanding in accordance 
with all of the terms and conditions hereinafter set forth. The Lender 
and Government certify to the Holder that the Lender has paid and 
Government has received the Guarantee Fee in exchange for the issuance 
of the Loan Note Guarantee.
    2. Loan Servicing. The Lender will be responsible for servicing the 
entire loan and will remain mortgagee and/or secured party of record. 
The entire loan will be secured by the same security with equal lien 
priority for the guaranteed and unguaranteed portions of the loan. The 
Lender will receive all payments on account of principal of, or interest 
(including any loan subsidy and any capitalized interest, resulting from 
the restructuring of a Guaranteed Farm Credit Programs loans and not 
exceeding statutory loan limits) on, the entire loan and shall promptly 
remit to the Holder its pro rata share thereof determined according to 
their respective interests in the loan, less only the Lender's servicing 
fee.
    3. Servicing Fee. Holder agrees that Lender will retain a servicing 
fee of ______ percent per annum of the unpaid balance of the guaranteed 
portion of the loan assigned hereunder.

    4. Purchase by Holder. The guaranteed portion purchased by the 
Holder will always be a portion of the loan which is guaranteed. The 
Holder will hereby succeed to all rights of the Lender under the Loan 
Note Guarantee to the extent of the assigned portion of the loan. The 
Lender, however, will remain bound by all obligations under the Loan 
Note Guarantee and the program regulations found in the applicable 
subpart of 7 CFR part 1980 now in effect and future regulations not 
inconsistent with the provisions hereof.

    5. Full Faith and Credit. The Loan Note Guarantee constitutes an 
obligation supported by the full faith and credit of the United States 
and is incontestable except for fraud or misrepresentation of which the 
Holder has actual knowledge at the time of this assignment, or which it 
participates in or condones. Any Assignment Guarantee Agreement attached 
to or relating to a note which provides for capitalization of interest 
is void. Except in the case of Farm Credit Program loans, a note which 
provides for the payment of interest on interest as a result of 
restructuring the loan and not exceeding statutory loan limits, and any 
Assignment Guarantee Agreement attached to or related to such note is 
not void.

    6. Rights and Liabilities. The guarantee and right to require 
purchase will be directly enforceable by Holder not withstanding any 
fraud or misrepresentations by Lender or any unenforceability of the 
Loan Note Guarantee by Lender. Nothing contained herein shall constitute 
any waiver by Government of any rights its possesses against the Lender, 
and the Lender agrees that Lender will be liable and will promptly 
reimburse Government for any payment made by Government to Holder which, 
if such Lender had held the guaranteed portion of the loan, Government 
would not be required to make. The Holder(s) upon written notice to the 
Lender may resell the unpaid balance of the guaranteed portion of the 
loan assigned hereunder. An endorsement may be added to the Form FmHA 
449-36 to effectuate the transfer.

    7. Repurchase by the Lender (Defaults). The Lender has the option to 
repurchase the unpaid guaranteed portion of the loan from the Holder(s) 
within 30 days of written demand by the Holder(s) when: (a) the borrower 
is in default not less than 60 days on principal or interest due on the 
loan or (b) the Lender has failed to remit to the Holder(s) its pro rata 
share of any payment made by the borrower or any loan subsidy within 30 
days of its receipt thereof. The repurchase by

[[Page 512]]

the Lender will be for an amount equal to the unpaid guaranteed portion 
of principal and accrued interest (including any loan subsidy), less the 
Lender's servicing fee. The loan note guarantee will not cover the note 
interest to the Holder on the guaranteed loan(s) accruing after 90 days 
from the date of the demand letter to the lender requesting the 
repurchase. Holder(s) will concurrently send a copy of demand to 
Government. The Lender will accept an assignment without recourse from 
the Holder(s) upon repurchase. The Lender in encouraged to repurchase 
the loan to facilitate the accounting for funds, resolve the problem, 
and to permit the borrower to cure the default, where reasonable. The 
Lender will notify the Holder(s) and Government of its decision.
    8. Purchase by Government. If Lender does not repurchase as provided 
by paragraph 7, Government will purchase from Holder the unpaid 
principal balance of the guaranteed portion together with accrued 
interest (including any loan subsidy) to date of repurchase, less 
Lender's servicing fee, within 30 days after written demand to 
Government from the Holder. The Loan Note Guarantee will not cover the 
note interest to the Holder on the guaranteed loans accruing after 90 
days from the date of the original demand letter of the holder to the 
lender requesting the repurchase. Such demand will include a copy of the 
written demand made upon the Lender. The Holder(s) or its duly 
authorized agent will also include evidence of its right to require 
payment from Government. Such evidence will consist of each the original 
of the Loan Note Guarantee properly endorsed to Government or the 
original of the Assignment Guarantee Agreement properly assigned to 
Government without recourse including all rights, title, and interest in 
the loan. Government will be subrogated to all rights of Holder(s). The 
Holder will include in its demand the amount due including unpaid 
principal, unpaid interest (including any loan subsidy) to date of 
demand and interest (including any loan subsidy) subsequently accruing 
from date of demand to proposed payment date. Unless otherwise agreed to 
by Government, such proposed payment will not be later than 30 days from 
the date of demand.
    The Government will promptly notify the Lender of its receipt of the 
Holder(s)'s demand for payment. The Lender will promptly provide the 
Government with the information necessary for Government's determination 
of the appropriate amount due the Holder(s). Any discrepancy between the 
amount claimed by the Holder(s) and the information submitted by the 
Lender must be resolved before payment will be approved. Government will 
notify both parties who must resolve the conflict before payment will be 
approved. Such a conflict will suspend the running of the 30 day payment 
requirement. Upon receipt of the appropriate information. Government 
will review the demand and submit it to the State Director for 
verification. After reviewing the demand the State Director will 
transmit the request to the Government Finance Office of issuance of the 
appropriate check. Upon issuance, the Finance Office will notify the 
office servicing the borrower and the State Director and remit the 
check(s) to the Holder(s).
    9. Lender's Obligations. Lender consents to the purchase by 
Government and agrees to furnish on request by Government a current 
statement certified by an appropriate authorized officer of the Lender 
of the unpaid principal and interest then owned by Borrowers on the loan 
and the amount then owed to any Holder(s). Lender agrees that any 
purchase by Government does not change, alter or modify any of the 
Lender's obligations to Government arising from said loan or guarantee 
nor does it waive any of Government's right against Lender, and that 
Government shall have the right to set-off against Lender all rights 
inuring to Government as the Holder of this instrument against 
Government's obligation to Lender under the Loan Note Guarantee.
    10. Repurchase by Lender for Servicing. If, in the opinion of the 
Lender, repurchase of the assigned portion of the loan is necessary to 
adequately service the loan, the Holder will sell the assigned portion 
of the loan to the Lender for an amount equal to the unpaid principal 
and interest (including any loan subsidy) on such portion less Lender's 
servicing fee. The loan note guarantee will not cover the note interest 
to the Holder on the guaranteed loans accruing after 90 days from the 
date of the demand letter of the lender or Government to the Holder(s) 
requesting the Holder(s) to tender their, guaranteed portion(s).
    a. The Lender will not repurchase from the Holder(s) for arbitrage 
purpose or other purposes to further its own financial gain.
    b. Any repurchase will only be made after the Lender obtains 
Government written approval.
    c. If the Lender does not repurchase the portion from the Holder(s), 
Government at its option may purchase such guaranteed portions for 
servicing purposes.
    11. Foreclosure. The parties owning the guaranteed portions and 
unguaranteed portion of the loan will join to institute foreclosure 
action, or in lieu of foreclosure, take a deed of conveyance to such 
parties.
    12. Reassignment. Holder upon written notice to Lender and 
Government may reassign the unpaid guaranteed portion of the loan sold 
hereunder. Upon such notification, the assignee will succeed to all 
rights and obligations of the Holder hereunder.
    13. Interest Capitalization. In the case of Farm Credit Programs 
loans, the Lender may capitalize interest only when the note is

[[Page 513]]

restructured. When delinquent interest is so treated as principal, the 
new principal amount may exceed the line of credit listed herein, buy 
may not exceed statutory loan limits. The new principal amount and new 
guaranteed portion will be identified at restructuring in an addendum to 
this agreement. Such capitalized interest will be covered by this 
Assignment Guarantee Agreement. References to principal and interest 
herein, therefore, shall include any capitalized interest on the 
guaranteed portion of the loan resulting from the restructuring of a 
Farm Credit Programs loans and not exceeding statutory loan limits.
    14. Notices. All notices and actions will be initiated through the 
Government ________for ________ (state) with mailing address at the date 
of this assignment: ________

 _______________________________________________________________________

Dated this ______ day ______, 19____.

LENDER:
ADDRESS:
ATTEST:
________(SEAL)

 By_____________________________________________________________________
 Title__________________________________________________________________

HOLDER:
ADDRESS:
ATTEST:
________(SEAL)

 By_____________________________________________________________________
 Title__________________________________________________________________

UNITED STATES OF AMERICA

 _______________________________________________________________________

(insert applicable agency)

 ADDRESS________________________________________________________________
 _______________________________________________________________________
By______________________________________________________________________
 Title__________________________________________________________________
[60 FR 53258, Oct. 13, 1995]

           Appendix D--Contract of Guarantee (Line of Credit)

USDA-FSA
Form FmHA 1980-27
(Rev. 10-95)

 Type of Loan___________________________________________________________

    {time}  OL

 Case No._______________________________________________________________
 State__________________________________________________________________
 County_________________________________________________________________
 Lender_________________________________________________________________
 Lender's Address_______________________________________________________
 Borrower's Name and Address____________________________________________
 Lender's IRS Tax No.___________________________________________________
 Date of Line of Credit Agreement/Note__________________________________

Line of Credit Ceiling

 $______________________________________________________________________

    The guaranteed portion of this line of credit is ______% of the 
principal balance owed at any one time on advances made within an 
approved line of credit by the above-named Lender to the above-named 
Borrower.
    In consideration of making advance(s) by the Lender within the line 
of credit ceiling pursuant to the Line of Credit Agreement, the United 
States of America acting through the Farm Service Agency (herein called 
``Government''), pursuant to the Consolidated Farm and Rural Development 
Act (7 U.S.C. 1921 et seq.), agrees that in accordance with and subject 
to the conditions and requirements in this agreement, it will pay to the 
Lender who holds the line of agreement(s) (and note(s), if any exist) 
for said advance(s) (or assumption agreement) covered by this contract 
the lesser of 1, or 2, below:
    1. Any loss sustained by such Lender on the guaranteed portion 
including:
    a. Principal and interest indebtedness as evidenced by said line of 
credit agreement(s) (and note(s), if any exist) or by assumption 
agreement(s), and any capitalized interest on such portion resulting 
from the restructuring of an Operating loan and not exceeding statutory 
loan limits, and
    b. Principal and interest indebtedness on secured protective 
advances for protection and preservation of collateral made with 
Government's authorization, including but not limited to, advances for 
delinquent taxes, annual assessments, any ground rents, and hazard or 
flood insurance premiums affecting the collateral; or
    2. The guaranteed principal advances to or assumed by the Borrower 
under said line of credit agreement(s) (and note(s), if any exist) or 
assumption agreement(s), and any interest due thereon, including any 
capitalized interest on such portion resulting from the restructuring of 
an Operating loan and not exceeding statutory loan limits. If an 
Operating Loan Line of Credit is involved, advances under the line of 
credit must be made within three years (five for Certified Lenders) from 
the date of this Contract. Advances made after that date will be covered 
by this Contract. If Government conducts the liquidation of the line of 
credit, loss occasioned to a Lender by accruing interest after the date 
Government accepts responsibility for liquidation will not be covered by 
this Contract of Guarantee. If Lender conducts the liquidation of the 
line of credit, accruing interest shall be covered by this Contract of 
Guarantee to date of final settlement when the Lender conducts the 
liquidation expeditiously in accordance with the liquidation plan 
approved by Government.

[[Page 514]]

                         Conditions of Guarantee

                       1. Line of Credit Servicing

    Lender will be responsible for serving the entire line of credit, 
and Lender will remain mortgagee and/or secured party of record. The 
Lender agrees that, if liquidation of the account becomes imminent, the 
Lender, will consider the Borrower of an Operating Loan Line of Credit 
for an Interest Rate Buydown under Exhibit C of subpart B of 7 C.F.R., 
part 1980, and request a determination of the Borrower's eligibility by 
Government. The Lender may not initiate foreclosure action on the line 
of credit until 60 days after a determination has been made with respect 
to the eligibility of the Borrower to participate in the Interest Rate 
Buydown Program.

                              2. Priorities

    The entire line of credit will be secured by the same security with 
equal lien priority for the guaranteed and unguaranteed portions of the 
line of credit. The unguaranteed portion of the line of credit will not 
be paid first nor given any preference or priority over the guaranteed 
portion.

                        3. Full Faith and Credit

    The Contract of Guarantee constitutes an obligation supported by the 
full faith and credit of the United States and is incontestable except 
for fraud or misrepresentation of which Lender has actual knowledge at 
the time it became such Lender or which Lender participates in or 
condones. If the line of credit agreement or note to which this Contract 
of Guarantee is attached provides for the payment of interest on 
interest, this Contract of Guarantee is void. However, in the case of 
Farm Credit Programs loans, the capitalization of interest when 
restructuring loans will not void this Contract of Guarantee.

                               Position 2

    In addition, the Contract of Guarantee will be unenforceable by the 
Lender to the extent any loss is occasioned by the violation of usury 
laws, negligent servicing, or failure to obtain the required security 
regardless of the time at which Government acquires knowledge of the 
foregoing. Any losses occasioned will be unenforceable to the extent 
that loan funds are used for purposes other than those specifically 
approved by Government in its Conditional Commitment for Guarantee. 
Negligent servicing is defined as the failure to perform those services 
which a reasonably prudent lender would perform in servicing its own 
portfolio of loans that are not guaranteed. The term includes not only 
the concept of a failure to act but also not acting in a timely manner 
or acting in a manner contrary to the manner in which a reasonably 
prudent lender would act up to the time of loan maturity or until a 
final loss is paid.

                         4. Protective Advances

    Protective advances made by Lender pursuant to the regulations will 
be guaranteed against a percentage of loss to the extent as provided in 
this Contract of Guarantee.

                   5. Custody of Unguaranteed Portion

    The Lender may retain or sell the unguaranteed portion of the line 
of credit only through participation. Participation, as used in this 
instrument, means the sale of an interest in the line of credit in which 
the Lender retains the line of credit agreement (and note if one exists) 
collateral securing the line of credit and all responsibility for 
servicing and liquidation of the line of credit.

                      6. When Guarantee Terminates

    This Contract of Guarantee will terminate automatically (a) upon 
full payment of the guaranteed line of credit occurring after the 
advance period has expired; or (b) upon full payment of any loss 
obligation under this Contract, or (c) upon written notice from the 
Lender to Government that the guarantee will terminate 30 days after the 
date of notice, provided the Contract is returned to Government to be 
cancelled.

                              7. Settlement

    The amount due under this instrument will be determined and paid as 
provided in the applicable subpart of 7 C.F.R. part 1980 in effect on 
the date of this instrument.

                       8. Interest Capitalization

    In the case of Operating loans, the Lender may capitalize interest 
only when the note is restructured. When delinquent interest is so 
treated as principal, the new principal amount may exceed the line of 
credit listed herein, but may not exceed statutory loan limits. The new 
principal amount and new guaranteed portion will be identified at 
restructuring in an addendum to this Contract of Guarantee. Such 
capitalized interest will be covered by this Contract of Guarantee. 
References to principal and interest herein, therefore, shall include 
any capitalized interest on the guaranteed portion of the loan resulting 
from the restructuring of an Operating loan and not exceeding statutory 
loan limits.

                               9. Notices

    All notices and actions will be initiated through the County 
Supervisor for ______ (County) ________ (State) with mailing address at 
the date of this instrument:

 _______________________________________________________________________
________________________________________________________________________


[[Page 515]]

________________________________________________________________________
UNITED STATES OF AMERICA
FARM SERVICE AGENCY

 By_____________________________________________________________________
 _______________________________________________________________________
Title___________________________________________________________________
 (Date)_________________________________________________________________
 Assumption Agreement by________________________________________________
 dated ________, 19_____________________________________________________
 Assumption Agreement by________________________________________________

dated ________, 19____
[60 FR 53259, Oct. 13, 1995]

    Appendix E--Agreement for Participation in Farm Credit Programs 
        Guaranteed Loan Programs of the United States Government

USDA-FSA
Form FmHA 1980-38
(Rev. 6-95)
    The purpose of this Agreement is to establish the Lender as an 
approved participant in the Farm Credit Programs Guaranteed Loan 
Programs of the Farm Service Agency (FSA), U.S. Department of 
Agriculture (herein called ``Government''). This Agreement provides the 
terms and conditions for originating and servicing such loans, including 
lines of credit.

Participating Lender (``Lender''):

 _______________________________________________________________________
________________________________________________________________________

Tax Identification Number:

 _______________________________________________________________________

Business Address:

 _______________________________________________________________________
________________________________________________________________________

Telephone Number:

 _______________________________________________________________________

    Complete the appropriate section indicating participation/non-
participation in the Certified Lender Program.
    Participating in the Certified Lender Program (``CLP'')
Offices Affected by Agreement
All {time}   As listed below {time} 

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

States Affected by Agreement

 _______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

    Not participating in the Certified Lender Program
Offices Affected by Agreement
All {time}   As listed below {time} 

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

States Affected by Agreement

 _______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

    Read this Agreement in its entirety and sign in the space on thelast 
page. Your signature indicates consent with this Agreement.

                               Position 2

                      Part I--General Requirements

            A. Duties and Responsibilities of the Government

    1. Payment on Claims. Government agrees to make payment on its 
claims in accordance with the terms of the guarantee and Agency 
regulations in 7 CFR 1980, subparts A and B. The maximum loss payment 
may not exceed the amount determined in the guarantee, including the 
percentage of principal and any accrued interest. The guarantee is 
supported by the full faith and credit of the United States and is 
incontestable except under the circumstances of fraud or 
misrepresentation of which the Lender has actual knowledge at the 
execution of the guarantee or which the Lender participates in or 
condones. (See 7 CFR 1980.107.)
    2. Personnel Available for Consultation. The Government shall make 
personnel available for consultation on interpretations of Agency 
regulations and guidelines. The Lender may consult with Agency personnel 
regarding unusual underwriting, loan closing, and loan liquidation 
questions.

                 B. General Requirements for the Lender

    1. Eligibility to Participate. The Lender must meet the requirements 
set forth in 7 CFR 1980.13 and be approved by Government to be a 
participant in the Farm Credit Programs Guaranteed Loan Programs.
    2. Knowledge of Program Requirements. The Lender is required to 
obtain and keep itself informed of all program regulations and 
guidelines, including all amendments and revisions. The Lender must 
establish and maintain adequate and written internal policies for loan 
origination and servicing to meet these requirements. These policies 
will be subject to review upon the request by Government.
    3. Notification. The Lender shall immediately notify Government in 
writing if the Lender:
     Becomes insolvent;

[[Page 516]]

     Has filed for any type of bankruptcy protection, has been 
forced into involuntary bankruptcy, or has requested an assignment for 
the benefit of creditors;
     Has taken any action to cease operations, or to discontinue 
servicing or liquidating any or all of its portfolio guaranteed by 
Government;
     Has changed its name, location, address, tax identification 
number, or corporate structure;
     Has been debarred, suspended, or sanctioned in connection 
with its participation in any Federal guaranteed program; or
     Has been debarred, suspended, or sanctioned by any Federal 
or State licensing or certification authority.
    4. Employee Qualifications. The Lender shall maintain a staff that 
is well trained and experienced in origination and loan servicing 
functions, as necessary, to ensure the capability of performing all the 
acts within its authority.
    5. Conflict of Interest. The Lender certifies that its officers or 
directors, principal stockholders (except stockholders in a Farm Credit 
Bank or other Farm Credit System (FCS) institutions with direct lending 
authority that have normal stock/share requirements for participating), 
or other principal owners do not have, or will not have, a substantial 
financial interest in, or business dealings with, any guaranteed loan 
borrower. The Lender also certifies that neither any borrower nor its 
officers or directors, stockholders, or other owners have a substantial 
financial interest in the Lender. If the borrower is a member of the 
Board of Directors of a Farm Credit Bank or other FCS institution with 
direct lending authority, the Lender certifies that an FCS institution 
on the next highest level with independently process the loan request 
and will act as the Lender's agent with servicing the account.
    6. Facilities. The Lender shall operate its facilities and branch 
offices in a prudent and businesslike manner.
    7. Reporting Requirements. The Lender recognizes that Government, as 
guarantor, has a vital interest in ensuring that all acts performed by 
the Lender regarding the subject loans are performed in compliance with 
this Agreement and Agency regulations. Information on the status of 
guaranteed loans is necessary for this purpose, as well as to satisfy 
budget and accounting reporting required by the Department of the 
Treasury and the Office of Management and Budget. The Lender agrees to 
provide Government with all the data required under Agency regulations 
and any additional information necessary for Government to monitor the 
health of its guaranteed loan portfolio, and to satisfy external 
reporting requirements.
    The Lender also agrees to provide to Government, as requested by the 
Government or as required by regulation, copies of audited financial 
statements, reports on internal controls, copies of compliance audits, 
and such other information that may be required for Government to 
properly monitor the Lender's performance.

                      C. Underwriting Requirements

    1. Responsibility. The Lender is responsible for originating, 
servicing, and collecting all guaranteed Farm Credit Programs loans in 
accordance with Government regulations.
    2. Origination Process.
    a. General Eligibility. The Lender shall make a preliminary 
determination whether loan applicants meet the general eligibility 
requirements of the Farm Credit Programs Guaranteed Loan Programs. The 
Government will make the final determination.
    b. Delinquency on Federal Debt. The Lender shall determine whether 
the loan applicant is delinquent on any Federal debt. The Lender shall 
use credit reports and any other credit history to make this 
determination. If the loan applicant is delinquent on a federal debt, 
processing of the application may only continue in accordance with 
Government regulations.
    c. Appraisals of Collateral. The Lender shall ensure that the value 
of any collateral property or property to be purchased is determined by 
a qualified appraiser, including a State licensed or certified appraiser 
when required by law or regulation.
    d. Change in Borrower's Condition. Before the Government issues a 
loan guarantee, the Lender will certify that there has been no adverse 
change(s) in the borrower's condition, financial or otherwise, during 
the time period from issuance of a Conditional Commitment to issuance of 
the guarantee of the loan. This certification by the Lender must address 
all adverse changes and be supported by financial statements of the 
borrower and its guarantors which are not more than 90 days old at the 
time of certification. For use in this provision alone, the term 
``Borrower'' includes any member, joint operator, partner or 
stockholder. (See 7 CFR 1980.117.)
    e. Limitation on Guarantee. Any note requiring the payment of 
interest on interest will not be guaranteed. Default charges, late 
charges of any kind, and/or interest accrued on interest charges will 
not be covered by the guarantee.
    3. Loan Closing.
    a. Lender's Fee. The Lender will submit the required guarantee fee 
with the Guaranteed Loan Closing Report.
    b. Lender's Use of Funds. The Lender agrees funds for the particular 
loan or line of credit will be used only for the purposes authorized in 
7 CFR 1980, subparts A and B as set forth in Form FmHA 1980-15.
    c. Loan Closing. All loans guaranteed by the Government shall be 
closed by attorneys, escrow companies, escrow departments of

[[Page 517]]

lending institutions, or other person(s) or entities skilled and 
experienced in conducting loan closings. The Lender shall:
     Ensure that documents, including the mortgage and any 
security agreements, chattel mortgages or equivalent documents relating 
to it have been properly signed, are valid and contain terms enforceable 
by the Lender;
     Ensure that all security with appropriate lien priorities 
is obtained in accordance with Form FmHA 1980-15, and Government 
regulations;
     Ensure that all closing documents required to be recorded 
are recorded accurately, in the appropriate offices, and in a timely and 
accurate manner;
     Ensure that security interests are perfected in collateral 
according to applicable regulatory requirements and procedures;
     Ensure that all required hazard insurance is obtained in 
accordance with Government regulations;
     Collect all fees and costs due and payable by the borrower 
in the course of the loan transaction and disburse payment directly to 
the parties for services rendered; and
     Ensure that all loan proceeds are used as authorized.
    The entire loan will be secured equally with the same security and 
the same lien priority for both the guaranteed and unguaranteed portions 
of the loan, under the assurance that the unguaranteed portion of the 
loan will not be paid first nor given any preference or priority over 
the guaranteed portion of the loan.
    4. Lender's Sale or Assignment of Guaranteed Loan.
    The Lender may retain all of any guaranteed loan. The Lender is not 
permitted to sell or participate any amount of the guaranteed or 
unguaranteed portion(s) of loan(s) to the applicant or borrower or 
members of their immediate families, their officers, directors, 
stockholders, other owners, or any parent, subsidiary, or affiliate. The 
Lender may market all or part of the guaranteed portion of the loan at 
or after loan closing only if the loan is not in default as set forth in 
the terms of the note. A line of credit may only be marketed by 
participation. Refer to 7 CFR 1980.119 for further guidelines.

                        D. Servicing Requirements

    1. Responsibilities. The Lender will service the entire loan as 
mortgagee and/or secured party of record in a reasonable and prudent 
manner, notwithstanding the fact that another (Holder) may hold a 
portion of the loan. The Lender will obtain compliance with the 
covenants and provisions in the note, security instruments, and any 
other agreements, and notify Government and the borrower of any 
violations. Specific responsibilities are described in 7 CFR 1980.130.
    2. Negligent Servicing. The guarantee cannot be enforced by the 
Lender to the extent a loss results from a violation of usury laws or 
negligent servicing regardless of when Government discovers such 
violation or negligence. Negligent servicing is defined as the failure 
to perform services which a reasonably prudent lender would perform in 
servicing its own portfolio of loans that are not guaranteed. The term 
includes both a failure to act and also not acting in a timely manner to 
include actions taken up to the time of loan maturity or until a final 
loss is paid. (See 7 CFR 1980.11.)
    3. Payments. Payments from the borrower shall be processed upon 
receipt according to 7 CFR 1980.119, and may include escrow premiums for 
hazard insurance and real estate taxes. The Lender shall promptly 
disburse to any Holder(s) their pro rata share thereof which has been 
determined according to their respective interests in the loan, less 
only the Lender's servicing fee.
    4. Collateral.
    a. Insurance. The Lender shall ensure that adequate insurance is 
maintained in accordance with Agency regulations, including the 
maintenance of hazard insurance containing a loss payable clause in 
favor of the Lender as the mortgagee or secured party.
    b. Escrow Accounts. The Lender may establish separate escrow 
accounts. All escrow accounts must meet applicable Federal and State 
laws and regulations, and must be fully insured by the FDIC.
    c. Inspection. The Lender shall inspect the collateral as often as 
necessary to properly service the loan and ensure the collateral is 
being properly maintained.
    d. Taxes. The Lender shall ensure that taxes, assessments, or ground 
rents against or affecting collateral are paid.
    5. Delinquent Accounts.
    a. The Lender will notify Government using Form FmHA 1980-44, 
``Guaranteed Loan Borrower Default Status,'' when a borrower is 30 days 
past due on a payment or if the borrower has not provided the required 
financial statements to the Lender or is otherwise in default. The 
Lender will continue to submit Form FmHA 1980-44 every 60 days until the 
default is resolved, and will notify the Agency when the default is 
resolved. A meeting will be arranged by the Lender with the borrower and 
Government to resolve the problem. Actions taken by the Lender, with 
written concurrence of Government, may include but are not limited to, 
any curative actions contained in subpart B or 7 CFR part 1980 or 
liquidation.
    b. The loan may be reamortized, rescheduled, or written down only 
with the agreement of any Holder(s) of the guaranteed portion of the 
loan, and only with Government's written agreement.
    c. The Lender will negotiate in good faith to resolve any problem in 
order to allow the

[[Page 518]]

borrower to cure default, where reasonable. The Lender agrees that if 
liquidation of the account becomes imminent, the Lender will consider 
the borrower for Interest Assistance under Exhibit D of subpart B of 7 
CFR part 1980, and request a determination of the borrower's eligibility 
by Government. The Lender may not initiate foreclosure action on the 
loan until 60 days after eligibility of the borrower to participate in 
the Interest Assistance Program has been established.
    d. Debt Writedown. (Refer to 7 CFR Part 1980 subpart B, 1980.125.) 
The maximum amount of loss payment associated with a loan/line of credit 
agreement which has been written down will not exceed the percent of the 
guarantee multiplied by the difference between the outstanding principal 
and interest balance of the loan before the writedown and the 
outstanding balance of the loan after the writedown. The Lender will use 
Form FmHA 449-30, ``Loan Note Guarantee Report of Loss,'' to request an 
estimated loss payment to receive its pro rate share of any loss 
sustained. Interest will be paid to the date of the check on all debt 
writedown claims.
    e. The Lender must participate in any mediation program of any State 
in accordance with the rules of that system and 7 CFR Part 1980 subpart 
B, 1980.126.
    f. When the borrower has not made payment of principal or interest 
due on the loan for 60 days or more or the Lender has failed to give the 
Holder(s) its pro rata share of any payment made by the borrower within 
30 days of receipt of the payment, the Holder may request the lender to 
repurchase the unpaid guaranteed portion of the guaranteed loan. If the 
Lender chooses not to repurchase, Government will purchase the unpaid 
principal balance. Upon Government's repurchase, the lender will 
liquidate the account or reimburse Government the amount of the 
repurchase within 180 days of Government's repurchase. See 7 CFR 
1980.119 for further guidance on repurchasing loans from Holder(s).
    6. Default/Liquidation.
    a. Protective Advances. Protective advances must constitute a debt 
of the borrower to the Lender and be secured by the security 
instrument(s). Government written authorization is required on all 
protective advances in excess of $3,000 made by a CLP Lender. For non-
CLP Lenders, the amount is $500. Refer to 7 CFR 1980.136.
    b. Additional Loan or Advances. Except as provided for in each 
Borrower's loan agreement, the Lender will not make additional 
expenditures or new loans without first obtaining the written approval 
of Government even though such expenditures or loans will not be 
guaranteed.
    c. Future Recovery. After a loan has been liquidated and a final 
loss has been paid by Government, any future funds which may be 
recovered by the Lender will be pro-rated between Government and the 
Lender. Government will be paid the amount recovered in proportion to 
the percentage it guaranteed for the loan.
    d. Transfer and Assumption Cases. Refer to 7 CFR 1980.123. If a loss 
occurs upon the completion of a transfer and assumption for less than 
the full amount of the debt and transferor debtor (including Guarantors) 
is released from personal liability, the Lender, if it holds the 
guaranteed portion, may file an estimated Report of Loss on Form FmHA 
449-30, ``Loan Note Guarantee Report of Loss,'' to recover its pro rata 
share of the actual loss at that time. In completing Form FmHA 449-30, 
the amount of the debt assumed will be entered as Net Collateral 
(Recovery). Approved protective advances and accrued interest thereon 
made during the arrangement of transfer and assumption, if not assumed 
by the transferee, will be entered in the appropriate space on Form FmHA 
449-30.
    e. Bankruptcy. The Lender is responsible for protecting the 
guaranteed loan debt and all collateral securing the loan in bankruptcy 
proceedings. Loss payments on bankruptcy cases will be processed 
according to the terms described in 7 CFR 1980.144.
    f. Liquidation. If the Lender concludes that liquidation of a 
guaranteed loan account is necessary due to default or third party 
actions which the borrower cannot or will not cure or eliminate within a 
reasonable period of time, a meeting will be arranged by the Lender with 
Government. All liquidations must receive prior concurrence by the 
appropriate Government official. Refer to 7 CFR 1980.146 for specific 
guidance on the procedures for liquidation.
    7. Servicer.
    If the Lender contracts for servicing of guaranteed Farm Credit 
Programs loans, the Lender is not relieved of responsibility for proper 
servicing of the loans.

                E. Agency Reviews of Lender's Operations

    The Government shall have the right to conduct reviews, including 
on-site reviews, of the Lender's operations and the operations of any 
agent of the Lender, for the purpose of verifying compliance with this 
Agreement and Government regulations and guidelines. These reviews may 
include, but are not limited to: audits of case files; interviews with 
owners, managers, and staff; audits of collateral; and inspections of 
the Lender's and/or its agents underwriting, servicing, and liquidation 
guidelines. The Lender and/or its agents shall provide access to all 
pertinent information to allow the Government, or any party authorized 
by the Government, to conduct such reviews.

                       F. Conformance to Standards

    1. Standards. The Lender shall conform to the standards outlined in 
this Agreement

[[Page 519]]

and Government regulations for participation in Farm Credit Programs 
Guaranteed Loan Programs. CLP Lenders must maintain compliance with the 
criteria set forth in 7 CFR 1980.190. The Government shall determine 
Lender adherence to the standards based on:
     Adequacy in meeting requirements for origination, 
servicing, and liquidation of loans and lines of credit, including 
protection of collateral;
     Satisfaction of the reporting requirements of the 
Government;
     Success in operating in a sound and prudent businesslike 
manner;
     Portfolio performance compared to overall performance of 
the Farm Credit Program Guaranteed Loan Programs; and
     Results of on-site reviews of the underwriting and/or 
servicing performed by the Lender.
    2. Determination of Non-Conformance. The Government shall carefully 
consider the circumstances and available facts in determining whether 
there is a pattern of Lender non-conformance with applicable standards. 
The Government shall determine the propriety of any decision made by the 
Lender based on the facts available at the time the specific action was 
taken. It is understood by the Government and intended by this Agreement 
that the Lender has the authority to exercise reasonable judgment in 
performing acts within its authority. However, the Government reserves 
the right to question any act performed or conclusion drawn that is 
inconsistent with this Agreement or Government regulations.
    3. Government Action. If the Lender is determined to be in non-
conformance with any Federal law, State law, Agency regulation or 
guideline, or the terms of this Agreement, the Government reserves the 
right to take action in accordance with its laws and regulations.
    4. Lender Right of Appeal. The Government shall provide the Lender 
an opportunity to appeal, in accordance with Agency regulations at 7 CFR 
Part 1980, subpart A, adverse actions taken by the Government.

 Part II--List of Agency Regulations and Guidelines and Designation of 
                Lender Authority To Perform Certain Acts

                      A. List of Agency Regulations

    The following is a list of Government regulations which, along with 
any future amendments consistent with this Agreement, contain the 
information necessary for the Lender to be in compliance with Government 
requirements.

1. 7 CFR 1980 subpart A--General
2. 7 CFR 1980 subpart B--Farm Credit Program Loans

                  B. Authority To Perform Certain Acts

    Lenders participating in the CLP may be granted special authority to 
certify compliance with certain statutory or regulatory requirements. 7 
CFR 1980.190 describes authorities and responsibilities for CLP Lenders.

                   Part III--Duration and Modification

                       A. Duration and Termination

    1. Duration of Agreement. For CLP Lenders, this Agreement is valid 
for five years unless terminated by the Lender or Government as 
described below or revoked according to 7 CFR 1980.190. For non-CLP 
Lenders, this Agreement will be valid indefinitely unless terminated by 
the Lender or the Government as described below.
    2. Modification of Agreement. This Agreement may be modified or 
extended only in writing and by consent of all parties.
    3. Termination by the Government. This Agreement may be terminated 
by the Government in accordance with Government regulations.
    4. Termination by the Lender. This Agreement may be terminated by 
the Lender by providing 30 days written notice to the Government.
    5. Effect of Termination on Responsibilities and Liabilities. 
Responsibilities or liabilities that existed before the termination of 
the Agreement with regard to outstanding guarantees will continue to 
exist after termination unless the Government expressly releases the 
Lender from such responsibilities or liabilities in writing. The Lender 
shall remain obligated to service and liquidate the guaranteed loans 
remaining in the portfolio unless and until the Government or the Lender 
transfers the loans. These requirements concerning loan management by 
the Lender and rights of the Government under this Agreement shall 
remain in effect whether the Agreement is terminated by the Lender or 
the Government.

                           B. Entire Agreement

    This Agreement, Parts I through IV inclusive, and any regulations or 
guidelines incorporated by reference, shall constitute the entire 
Agreement. There are no other agreements, written or oral, regarding the 
terms in this Agreement which are or shall be binding on the parties.

                          Part IV--Endorsement

    The undersigned certifies that they have read and understand the 
requirements in this Agreement, and in 7 CFR part 1980, subparts A and 
B, and agree to the participation requirements and other provisions of 
this Agreement.

    Notice. Requests for Guarantee and any notices or actions are 
expected to be initiated through the following County Offices:


[[Page 520]]


 _______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

    Lender: Complete this block of Section IV.


 XXI. LENDER____________________________________________________________

    (Name)

 _______________________________________________________________________

    (IRS I.D. Tax No.)

 By_____________________________________________________________________

    (Signature)

 _______________________________________________________________________

(Name Typed or Printed)

 Title__________________________________________________________________
 Date___________________________________________________________________
 ATTEST_________________________________________________________________

    This block of Section IV will be completed by the Government.

The effective date of this Agreement

 is_____________________________________________________________________

The expiration date of this Agreement

 is_____________________________________________________________________

UNITED STATES OF AMERICA
Farm Service Agency

 By_____________________________________________________________________

(Signature)


 Title__________________________________________________________________
 _______________________________________________________________________

(Name Typed or Printed)

 Date___________________________________________________________________
[60 FR 53260, Oct. 13, 1995]

[[Page 521]]

                         Appendix F to Subpart A
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[58 FR 65874, Dec. 17, 1993]

[[Page 537]]

        Appendix H to Subpart A--Interest Rate Buydown Agreement

USDA-FmHA or its successor agency under Public Law 103-354
Form FmHA or its successor agency under Public Law 103-354 1980-58
(Rev. 1-89)
{time}  Loan Note Guarantee
{time}  Contract of Guarantee
Type of Loan ________
7 CFR Part 1980
Subpart B
FORM APPROVED
OMB NO. 0575-0079

 State__________________________________________________________________
 County_________________________________________________________________
 Date of Note___________________________________________________________
 Borrower_______________________________________________________________
 FmHA or its successor agency under Public Law 103-354 Loan ID No.______
 Lender_________________________________________________________________
 Lender's IRS ID Tax No.________________________________________________
 Lender's Address_______________________________________________________
 Principal Amount of Loan/Line of Credit Ceiling________________________

    The principal amount of loan or line of credit is evidenced by 
________ note(s) or line of credit agreement(s) described below. This 
instrument is attached to note or line of credit agreement dated 
________ in the face amount of $ ________ and is number ________ of 
________.
    Copies of the lender's Loan Note Guarantee, or Contract of Guarantee 
for a line(s) of credit, and any Assignment Guarantee Agreement, if 
applicable (Loan Note Guarantee cases only) are attached to this 
Agreement as a part of it.

----------------------------------------------------------------------------------------------------------------
                                                       Interest Rate (If                                        
                                                      variable calculate                          FmHA or its   
                                     Note/Line of     in accordance with                       successor agency 
        Lender's Note No.          Credit Agreement   Part 1980, Subpart   Lender Write Down   under Public Law 
                                                         B Exhibit D,                          103-354 Interest 
                                                        Paragraph IV I)                          Rate Buydown   
----------------------------------------------------------------------------------------------------------------
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------

    This agreement is effective beginning ________ and expires on 
________.
    In consideration of the subject lender's write down of interest rate 
on the above borrower's account by ________ percentage points, the 
United States of America, acting through the Farmers Home Administration 
or its successor agency under Public Law 103-354 of the United States 
Department of Agriculture (called FmHA or its successor agency under 
Public Law 103-354) pursuant to the Consolidated Farm and Rural 
Development Act (7 U.S.C. 1921 et seq.) agrees that in accordance with 
and subject to the conditions and requirements in this agreement it will 
reimburse the lender for ______ percentage points of the write down. The 
full amount of the interest rate buydown made by FmHA or its successor 
agency under Public Law 103-354 to the lender will be passed on to the 
borrower.
    Public reporting burden for this collection of information is 
estimated to average 5 minutes per response, including the time for 
reviewing instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the collection 
of information. Send comments regarding this burden estimate or any 
other aspect of this collection of information, including suggestions 
for reducing this burden to, Department of Agriculture, Clearance 
Officer, OIRM, Room 404-W, Washington, D.C. 20250; and to the Office of 
Management and Budget, Paperwork Reduction Project (OMB No. 0575-0075), 
Washington, D.C. 20503.

                   CONDITIONS OF INTEREST RATE BUYDOWN

    1. Buydown Rates
    The buydown rate set forth in this agreement will remain constant 
during the term of this agreement. If a 95 percent guarantee has been 
issued to the lender by FmHA or its successor agency under Public Law 
103-354 under Exhibit E to 7 CFR Part 1980, Subpart B, the percentage of 
this interest rate reduction made by the lender will be permanent.
    2. Interest Rate Buydown Payments
    FmHA or its successor agency under Public Law 103-354's payments 
made in connection with the interest rate buydown will be calculated 
using 360 or 365 day year method on a declining balance. The lender will 
indicate on Form FmHA or its successor agency under Public Law 103-354 
1980-19, ``Guaranteed Loan Closing Report,'' the preferred method, which 
may not change once established.
    3. Annual Rate Buydown Claims and Payments
    The intial Interest Rate Buydown claim will be prepared by the 
lender using form FmHA or its successor agency under Public Law 103-354 
1980-24, ``Request Interest Rate Buydown/Subsidy Payment to Guaranteed 
Loan Lender,'' on or about a date 12 months from the date of this 
agreement, unless it is the first or last claim which may be submitted 
in accordance with the first and last due date on the borrower's 
promissory note. Subsequent claims will be filed by the lender on or 
about a date 12 months thereafter but no later than the anniversary date 
of filing of

[[Page 538]]

the initial interest rate buydown claim. Upon full payment of the note 
or line of credit agreement the lender will immediately prepare Form 
FmHA or its successor agency under Public Law 103-354 1980-24 and mail a 
copy to the FmHA or its successor agency under Public Law 103-354 
serving office.
    4. When Interest Rate Buydown Payments Cease
    For Loan Note Guarantee cases, when FmHA or its successor agency 
under Public Law 103-354 purchases a portion of a loan, interest buydown 
payments on that portion will cease. Interest rate buydown payments will 
cease upon termination of the Loan Note Guarantee or Contract of 
Guarantee, upon reaching the expiration date set forth in this agreement 
or upon cancellation by the Government. Interest buydown payments shall 
cease upon the assumption/transfer of the loan if the transferee was not 
liable for the debt at the time the buydown was granted. The lender 
shall complete Form FmHA or its successor agency under Public Law 103-
354 1980-24, ``Request Interest Rate Buydown/Subsidy Payment to 
Guaranteed Loan Lender,'' to request payment for the buydown/subsidy 
through the date of the transfer or assumption of the guaranteed loan.
    5. Cash Flow
    The lender certifies that the interest rate reduction to the 
borrower results in a reduced, equally amortized payment schedule for 
the term of this agreement so that the borrower's operation projects a 
positive cash flow on all income and expenses including debt service for 
the term of this agreement. A typical plan of operation must show that a 
positive cash flow can be expected during the initial 24 month buydown 
period. For those loans/lines of credit with terms less than 24 months, 
then the operation must show a positive cash flow for the term of the 
loan/line of credit. In cases where the term of the loan or line of 
credit agreement exceeds the term of this agreement, the lender 
certifies that the borrower is projected to have a positive cash flow on 
all income and expenses including debt service after this agreement 
expires. Cash flow and positive cash flow are defined in exhibit D or 
exhibit E to subpart B of 7 CFR 1980, as applicable, and must be 
calculated in accordance with Sec. 1980.113(d)(8) of subpart B of part 
1980.
    6. Cancellation of Interest
    Lender certifies that the amount of interest written down on subject 
borrower's account will be permanently canceled as it becomes due and no 
attempt will be made to collect that portion of the debt.
    7. Repurchase of loans presently guaranteed by FmHA or its successor 
agency under Public Law 103-354 eligible for interest rate buydown. 
(Loan Note Guarantee Cases Only). See also item 10 of Form FmHA or its 
successor agency under Public Law 103-354 449-36.
    In the case of converting a guaranteed loan without an interest rate 
buydown to one with such a buydown, the lender must obtain the holder's 
consent in writing. If the holder does not consent to the interest rate 
reduction proposed by the lender, the lender must repurchase the unpaid 
portion of the loan from any holder(s) before the interest rate buydown 
can be granted. Any repurchase will only be made after the lender 
obtains FmHA or its successor agency under Public Law 103-354's written 
approval. In the event the lender assigns the guaranteed portion of the 
loan to a holder(s) the Assignment Guarantee Agreement (Form FmHA or its 
successor agency under Public Law 103-354 449-36) will be amended as 
provided in 7 CFR, Part 1980, Subpart B, Exhibit D, paragraph VI B2 or 
Exhibit E, paragraph VI B2, as applicable, to reflect the reduced 
interest rate.
    8. Regulatory Changes
    This Agreement is subject to the present regulations of the FmHA or 
its successor agency under Public Law 103-354 and its future regulations 
not inconsistent with any provisions of this agreement.
    9. Cancellation
    The Interest Rate Buydown Agreement is incontestable except for 
fraud or misrepresentation of which the lender has actual knowledge at 
the time this Agreement is executed or for which the lender participates 
in or condones.
    10. Excessive Interest Rate Buydown
    The Government may amend or cancel this agreement and collect from 
the lender any amount of reduction granted as a result of incomplete or 
inaccurate information, computation errors, or other circumstances which 
resulted in interest rate buydown payments that the lender was not 
entitled to receive.
    11. Access to Lender's Files
    Lender agrees to allow FmHA or its successor agency under Public Law 
103-354 access to audit findings by the lender's supervising agency when 
examining interest rate buydown claims.
Lender

 By_____________________________________________________________________
 Title__________________________________________________________________


United States of America, Farmers Home Administration or its successor 
agency under Public Law 103-354

 Attest:________________________________________________________________

    [SEAL]
 Address:_______________________________________________________________
 _______________________________________________________________________
By______________________________________________________________________
 Title__________________________________________________________________

Acknowledged:

 Borrower_______________________________________________________________

[[Page 539]]

 Attest:________________________________________________________________

    [SEAL]
[54 FR 1557, Jan. 13, 1989]

[[Page 540]]

[GRAPHIC] [TIFF OMITTED] TC14SE91.016


[[Page 541]]



                            FUNCTION OF FORM

    Completed by lender to request periodic interest rate buydown 
payments or interest assistance payments for Farmer Program Loans or 
subsidy payments for EM Actual Loss Loans. This form is also used to 
continue or adjust interest assistance on the account.

                           PROCEDURE REFERENCE

    FmHA or its successor agency under Public Law 103-354 Instruction 
1980-B

                               PREPARED BY

    Lender in consultation with the FmHA or its successor agency under 
Public Law 103-354

                         ADDITIONAL INFORMATION

    If this form is being completed to establish a continuation of 
interest assistance after a year with zero percent interest assistance, 
items 1 through 16 should be completed as usual; item 17 will be 0.00; 
item 18 as usual; item 19 as 3 (no check issued); and items 21 through 
33 as usual.

                              DISTRIBUTION

    Original to Finance Office; Copy to Servicing Office; and Copy to 
Lender.

                      INSTRUCTIONS FOR PREPARATION

    Item 1. Enter the Borrower's Case Number. Show the state and county 
code and the borrower's Social Security or Internal Revenue Service Tax 
Identification Number.
Example: 2 9 0 3 7 0 9 8 7 6 5 4 3 2 8
    Item 2. Enter Borrower's Name (Last Name First)--abbreviate when 
necessary.
Example: T H O M P S O N R O B E R T L
    Item 3. Enter the Lender's Internal Revenue Service Tax 
Identification Number.
Example: 0 7 6 5 4 3 2 4 5 6
    Item 4. Enter Lender's Name--abbreviate when necessary.
Example: F I R S T N A T I O N A L B A N K
    Item 5. Enter the FmHA or its successor agency under Public Law 103-
354 assigned branch number.
Example: 0 3
    Item 6. Enter FmHA or its successor agency under Public Law 103-354 
assigned loan number.
Example: 0 2
    Item 7. Enter the original loan amount.
Example: $ 5 6 0 0 0. 0 0
    Item 8. Enter the beginning date of the current buydown, interest 
assistance or subsidy period.
Example: The loan/buydown/interest assistance/subsidy closing date is 
05-04-88; initial request beginning date is 05-04-88; subsequent 
requests will begin with the ending date submitted on the previous 
request for payment.
    Item 9. Enter the ending date of the current buydown, interest 
assistance, or subsidy period. The ending date on this request equals 
the beginning date on the next request.

    NOTE: Interest rate buydown and interest assistance claims may only 
be submitted for a 12 month period unless it is the first or last claim.

    Subsidy payments on EM Actual Loss Loans may be submitted for a 6 or 
12 month period only.
    If the Contract of Guarantee or Loan Note Guarantee is or becomes 
void or unenforceable, or terminates, or a transfer and assumption 
occurs, the subsidy/buydown/interest assistance should be claimed up to 
that date. In the case of assumptions to eligible transferees, the 
beginning date on the transferred loan is the assumption date; and the 
inital claim may be at anytime with future claims at 12-month intervals, 
except as described above.
    Item 10. Enter the principal balance of the loan at the beginning of 
the subsidy period. If this is the first claim on a new loan, this 
amount will match the amount advanced on Form FmHA or its successor 
agency under Public Law 103-354 1980-19, Loan Closing Report. If this 
loan was a buydown or interest assistance on an existing loan, this 
amount will match the loan amount on Form FmHA or its successor agency 
under Public Law 103-354 1980-19. For subsequent claims the principal 
balance must equal the ending principal balance on the previous claim.

   ALL INTEREST CALCULATIONS ON THIS FORM ARE BASED ON THE BORROWER'S 
                        EFFECTIVE INTEREST RATE.

    Item 11. Enter the borrower's accrued interest at the beginning of 
the subsidy period. This accrued interest must equal the ending accrued 
interest shown on the previous claim.
    Item 12. Enter the amount of principal disbursed during the current 
subsidy period. This amount does not include protective advances. If 
zero, enter 0.00.
    Item 13. Enter the total amount of interest payments recevied from 
the borrower during the current claim period. If zero, enter 0.00.
    Item 14. Enter the total amount of principal payments received from 
the borrower during the current claim period. If zero, enter 0.00.
    Item 15. Enter the accrued interest balance at the end of the 
current claim period. If zero, enter 0.00. (This amount is the beginning 
accrued interest balance on the next claim.)
    Item 16. Enter the principal balance at the end of the current claim 
period. If zero, enter

[[Page 542]]

0.00. (This amount is the beginning principal balance on the next 
claim.)
    Item 17. Enter the amount of interest rate buydown/interest 
assistance/subsidy payable.

                       BUYDOWN PAYMENT CALCULATION

(Item 13+15-11) x Buydown Rate Paid by FmHA or its successor agency 
under Public Law 103-354Borrower's Effective Rate

                   EM ACTUAL LOSS SUBSIDY CALCULATION

(Item 13+15-11) x Loan Subsidy RateInterest Rate on Note or 
Assumption Agreement

                 INTEREST ASSISTANCE PAYMENT CALCULATION

(Item 13+15-11) x Interest Assistance RateBorrower's Effective 
Rate

    Item 18. Enter the applicable code to identify if this is the final 
payment.
    Item 19. Completed by FmHA or its successor agency under Public Law 
103-354 servicing office or Finance Office.
1=System Generated Check
2=Manual Check (Finance Office Only)
3=No Check Issued
    Item 20. Completed by Finance Office Only. The Finance Office will 
enter the check issue date for manual checks only (item 19 equals 2).

 ITEMS 21 THROUGH 26 ARE COMPLETED ONLY IF THE BORROWER IS AN INTEREST 
                          ASSISTANCE BORROWER.

    Item 21. Enter the beginning date of the next interest assistance 
period.
    Item 22. Enter the ending date of the next interest assistance 
period.
    Item 23. Enter the percent of assistance requested for the next 
period. IF THIS PERCENT IS GREATER THAN THE PERCENT ON THE MASTER 
INTEREST ASSISTANCE AGREEMENT, FUNDS MUST BE OBLIGATED PRIOR TO SIGNING 
THIS FORM. If the borrower will need zero percent next year, enter 
00.0000.
    Item 24. Enter the applicable code.
1=Yes
2=No

IF CODE 1 (YES) IS ENTERED, THE ASSISTANCE FUNDS FOR THE REMAINING LIFE 
    OF THE AGREEMENT ARE DEOBLIGATED; THEREFORE, THERE ARE NO FUTURE 
                                PAYMENTS.

    Item 25. Enter the effective date of the interest assistance 
termination. Complete only if item 24 equals 1.
    Item 26. Enter the reason for termination code. Complete only if 
item 25 is complete.
01--Borrower is no longer eligible for interest assistance.
02--Loan is paid in full.
    Item 27. THIS FORM WILL BE RETURNED IF IT IS NOT SIGNED. Enter the 
authorized lender's signature.
    Item 28. Enter the title of the person authorized to sign this form.
    Item 29. Enter the date signed by the lender's representative.
    Item 30. Enter the percent of interest assistance approved. TO BE 
COMPLETED BY FmHA or its successor agency under Public Law 103-354 
SERVICING OFFICE ONLY. This amount may not exceed the Maximum Rate of 
Interest Assistance which was obligated and is stated on the Interest 
Assistance Agreement.
    Item 31. Enter the authorized FmHA or its successor agency under 
Public Law 103-354 representative signature for approval.
    Item 32. Enter the title of the authorized FmHA or its successor 
agency under Public Law 103-354 representative.
    Item 33. Enter the date signed by FmHA or its successor agency under 
Public Law 103-354 representative.
[56 FR 8261, Feb. 28, 1991]

[[Page 543]]

[GRAPHIC] [TIFF OMITTED] TC14SE91.017



[[Page 544]]

                    Conditions of Interest Assistance

                            1. Interest Rates

    The lender may charge a fixed or variable interest rate which is 
specified in this agreement during the term of the Interest Assistance 
Agreement. The type of rate must be the same as the type of rate in the 
underlying note or line of credit agreement.
    The interest rate that the lender will charge will be clearly 
indicated in the Request for Interest Assistance. If a variable rate 
will be charged, the base rate, basis points and adjustment interval not 
only will be clearly set forth in the Request for Interest Assistance, 
but also will comply with Sec. 1980.175(e) of 7 CFR part 1980, subpart 
B. If the lender uses a variable rate note or line of credit agreement, 
the rate may only be changed once each year. During the term of the 
Interest Assistance Agreement, variable interest rates may not be 
increased by more than a total of 3 percent above the effective note 
rate of interest at the time this agreement is entered into. This cap on 
interest increases will be clearly spelled out in the note/line of 
credit agreement or in an allonge attached to the note/line of credit 
agreement or other legally effective amendment of the interest rate; 
however, no new note or line of credit agreement may be issued. The date 
of interest rate adjustment shall coincide with the annual payment date 
on loans/lines of credit with annual payments. On other loans/lines of 
credit the annual review date will be clearly set out in the note/line 
of credit agreement and has been set out on this agreement as the ending 
date of the initial period of Interest Assistance.

                     2. Interest Assistance Payments

    FmHA or its successor agency under Public Law 103-354 payments made 
in connection with Interest Assistance will be calculated using a 360 or 
365 day year method on a declining balance. The lender will indicate on 
Form FmHA or its successor agency under Public Law 103-354 1980-19. 
``Guaranteed Loan Closing Report,'' the preferred method, which may not 
change once established.

            3. Annual Interest Assistance Claims and Payments

    The initial Interest Assistance claim will be prepared by the lender 
using Form FmHA or its successor agency under Public Law 103-354 1980-
24. ``Request Interest Assistance/Interest Rate Buydown/Subsidy Payment 
to Guaranteed Loan Lender,'' within 60 days after the ending date of the 
initial period specified in this agreement. Subsequent claims will be 
filed by the lender on or after the same date each year thereafter but 
no later than 60 days after the anniversary of the ending date of the 
initial Interest Assistance claim. Upon full payment of the note or line 
of credit agreement the lender will immediately prepare Form FmHA or its 
successor agency under Public Law 103-354 1980-24 and mail a copy to the 
FmHA or its successor agency under Public Law 103-354 servicing office.

      4. Request for Adjustment/Continuation of Interest Assistance

    For all loans which extend beyond the ending date of the initial 
review period, the lender will analyze the borrower's need for continued 
Interest Assistance in accordance with the methodology defined in 
Exhibit D to supart B of 7 CFR, part 1980. The lender will then submit 
the Request for Continuation/Adjustment of Interest of Assistance by 
completing the applicable section of Form FmHA or its successor agency 
under Public Law 103-354 1980-24. The request for payment of the claim 
from the previous period will not be processed until the analysis of the 
borrower's need and request for Continuation/Adjustment has been made by 
the lender.

               5. When Interest Assistance Payments Cease

    For Loan Note Guarantee cases, when FmHA or its successor agency 
under Public Law 103-354 purchases a portion of a loan, Interest 
Assistance payments on that portion will cease. Interest Assistance 
payments will cease upon termination of the Loan Note Guarantee or 
Contract of Guarantee, upon reaching the expiration date set forth in 
this agreement or upon cancellation by the Government. Interest 
Assistance payments shall cease upon the assumption/transfer of the loan 
if the transferee was not liable for the debt at the time the assistance 
was granted. The lender shall complete Form FmHA or its successor agency 
under Public Law 103-354 1980-24, ``Request Interest Assistance/Interest 
Rate Buydown/Subsidy Payment to Guaranteed Loan Lender,'' to request 
payment for the Interest Assistance through the date of the transfer or 
assumption of the guaranteed loan.

                              6. Cash Flow

    A cash flow budget of operation must show that a positive cash flow 
can be expected during the initial 24-month period of assistance. For 
those loans/lines of credit with terms less than 24 months, the 
operation must show a positive cash flow for the term of the loan/line 
of credit. Cash flow budget and positive cash flow are defined in 
exhibit D to supart B of 7 CFR, part 1980, as applicable, and must be 
calculated in accordance with 1980.113(d)(8) of subpart B of part 1980.

[[Page 545]]

                       7. Cancellation of Interest

    Lender certifies that the amount of interest reduction on the 
subject borrower's account will be permanently cancelled as it becomes 
due and no attempt will be made to collect that portion of the debt 
which will be paid by FmHA or its successor agency under Public Law 103-
354.

                          8. Regulatory Changes

    This agreement is subject to the present regulations of the FmHA or 
its successor agency under Public Law 103-354 and its future regulations 
not inconsistent with any provisions of this agreement.

                             9. Cancellation

    The Interest Assistance Agreement is incontestable except for fraud 
or misrepresentation of which the lender has actual knowledge at the 
time this agreement is executed or for which the lender participates in 
or condones.

                    10. Excessive Interest Assistance

    The Government may amend or cancel this agreement and collect from 
the lender any amount of reduction granted as a result of incomplete or 
inaccurate information, computation errors, or other circumstances which 
resulted in Interest Assistance payments that the lender was not 
entitled to receive.

                      11. Access to Lender's Files

    Upon request by FmHA or its successor agency under Public Law 103-
354, the lender will permit representatives of FmHA or its successor 
agency under Public Law 103-354 (or other agencies of the U.S. 
Department of Agriculture authorized by that Department) to inspect and 
make copies of any of the records of the lender pertaining to FmHA or 
its successor agency under Public Law 103-354 guaranteed loans. Such 
inspection and copying may be made during regular office hours of the 
lender, or any other time the lender and FmHA or its successor agency 
under Public Law 103-354 find convenient.
    To the extent permitted by law and the supervisory agency, the 
lender agrees to allow FmHA or its successor agency under Public Law 
103-354 access to audit findings by the lender's supervising agency when 
examining Interest Assistance claims.
ATTEST: ____________(SEAL)
Address:

 _______________________________________________________________________
________________________________________________________________________

ATTEST: ____________(SEAL)
LENDER:
By

 _______________________________________________________________________

Title

 _______________________________________________________________________

          UNITED STATES OF AMERICA FARMERS HOME ADMINISTRATION

By

 _______________________________________________________________________

Title

 _______________________________________________________________________

ACKNOWLEDGED
Borrower

 _______________________________________________________________________
[56 FR 8263, Feb. 28, 1991]

    Appendix K--Modification of New Contract Relating to Farm Credit 
                 Programs Guaranteed Loan/Line of Credit

                 United States Department of Agriculture

Modification of New Contract Relating to Farm Credit Programs Guaranteed 
                           Loan/Line of Credit

    The Lender's Agreement or Agreement For Participation in Farmer 
Programs Guaranteed Loan Programs of the United States Government 
executed with the Lender dated ______ and the attached Loan Note 
Guarantee or Contract of Guarantee (Line of Credit) executed with the 
Lender dated ______ relating to the loan to ______ in the amount of 
______ is hereby modified to reflect a new principal amount of ______ as 
a result of the capitalization of interest at the restructuring of the 
Farm Credit Programs Loan. This amount does not exceed statutory limits. 
The new guaranteed portion of the loan is ______.

UNITED STATES OF AMERICA
CONSOLIDATED FARM SERVICE AGENCY

 Date___________________________________________________________________
 By_____________________________________________________________________
 Title__________________________________________________________________
[60 FR 53263, Oct. 13, 1995]

 Appendix L--Modification of Existing Contract Relating to Farm Credit 
                 Programs Guaranteed Loan/Line of Credit

                 United States Department of Agriculture

   Modification of Existing Contract Relating to Farm Credit Programs 
                     Guaranteed Loan/Line of Credit

    The Lender's Agreement or Agreement For Participation in Farmer 
Programs Guaranteed Loan Programs of the United States

[[Page 546]]

Government executed with the Lender dated ______ and the attached Loan 
Note Guarantee or Contract of Guarantee (Line of Credit) executed with 
the Lender dated ______ relating to the loan to ______ in the amount of 
______ is hereby modified to permit the capitalization of interest when 
restructuring the Farm Credit Programs loan PROVIDED that the new 
principal amount of ______ does not exceed statutory limits. Such 
capitalized interest on the guaranteed portion of the loan will be 
covered by the FSA guarantee and will not void the contract when the 
capitalized interest result from restructuring. The new guaranteed 
portion of the loan is ______.

UNITED STATES OF AMERICA
FARM SERVICE AGENCY
 Date___________________________________________________________________
 By_____________________________________________________________________
 Title__________________________________________________________________
[60 FR 53263, Oct. 13, 1995]



                     Subpart B--Farmer Program Loans

    Source: 54 FR 1558, Jan. 13, 1989, unless otherwise noted.



Sec. 1980.101  Introduction.

    (a) Policy. This subpart, supplemented by subpart A of this part, 
contains regulations for making the following Farm Credit Programs loans 
guaranteed by the (Agency): Operating (OL) (both loans and lines of 
credit), Farm Ownership (FO), and Soil and Water (SW) loans. It also 
contains regulations concerning the servicing of these loans as well as 
the servicing of Emergency (EM) and Recreation (RL) loans, which are no 
longer guaranteed by Agency. It is the policy of Agency to guarantee 
loans made to qualified applicants without regard to race, color, 
religion, sex, national origin, martial status, age or physical/mental 
handicap, providing the applicant can execute a legal contract. These 
regulations apply to lenders, holders, borrowers, Agency personnel, and 
other parties involved in making, guaranteeing, holding, servicing, or 
liquidating such loans. Any processing or servicing activity conducted 
pursuant to this subpart involving authorized assistance to Agency 
employees, members of their families, known close relatives, or business 
or close personal associates, is subject to the provisions of subpart D 
of part 1900 of this chapter. Applicants for this assistance are 
required to identify any known relationship or association with an 
Agency employee. Exhibit A provides policies and procedures for the 
Approved Lender Program. Sec. 1980.190 of this subpart contains the 
policies and procedures for the Certified Lender Program (CLP) for 
Guaranteed OL loans. Any modifications contained in Exhibit A of this 
subpart or Sec. 1980.190 of this subpart will prevail over other 
provisions of this subpart. Exhibit C provides an Application Processing 
guide for lenders packaging applications under this subpart. Exhibit D 
provides policies and procedures for an Interest Assistance Program 
applicable for Guaranteed OL loans including lines of credit, Guaranteed 
FO loans and Guaranteed SW loans. Exhibit E provides policies and 
procedures for an Interest Rate Reduction Program for a demonstration 
project to purchase Farm Credit System family-size inventory farms. 
Exhibit F provides the procedures for the recapturing of shared 
appreciation when a lender requests a writedown on the debt. Exhibit G 
contains the policies and procedures modifying the Guaranteed OL loan 
regulations (Loan Note Guarantees Only), as described in Sec. 1980.175 
of this subpart, which implements the provisions of Public Law 101-82, 
the Disaster Assistance Act of 1989.
    (b) Program administration. Farm Credit Programs are administered by 
the Agency Administrator through a State Director, who serves each State 
through District Directors and County Supervisors. The County Supervisor 
is the focal point for the program and is the local contact person for 
processing and servicing activities, even though this subpart refers in 
various places to the duties and responsibilities of other Agency 
employees.
    (c) Administrative provisions. Within this subpart there are 
administrative provisions which, for the benefit of the State Directors, 
District Directors, and County Supervisors, set out the internal duties 
and responsibilities of FmHA or its successor agency under Public Law 
103-354 personnel and outline the procedures to be followed in carrying 
out the requirements of the

[[Page 547]]

program. These provisions are identified as ``ADMINISTRATIVE'' and 
correspond to the sections of this subpart which they follow.
    (1)-(2) [Reserved]
    (d) References. Sections 1980.101--1980.174 pertain to the FO, EM, 
OL, RL, and SW loan programs. The requirements set forth in Subpart A of 
Part 1980 of this chapter which are not in conflict with the provisions 
set forth in this subpart must be met.
    (e) Type of guarantee--(1) Loan Note Guarantee. Lenders desiring to 
sell the guaranteed portion of fixed amount and term loans will use the 
method contained in Subpart A of this part. In accordance with that 
method, loans may be made by a lender and guaranteed by issuance of Form 
FmHA 449-34, ``Loan Note Guarantee.''
    (2) Contract of Guarantee (Operating Loans--Line of Credit only). 
Lenders desiring a guarantee on a ``line of credit'' will use the method 
contained in subpart A of this part. Line of credit loans are guaranteed 
in accordance with Form FmHA 1980-27, ``Contract of Guarantee (Line of 
Credit).'' Line of credit notes and agreements may not be sold by the 
originating lender, but the originating lender may use participating 
lenders in accordance with Sec. 1980.119. Any amount advanced by the 
lender in excess of the line of credit ceiling set forth in the contract 
is not guaranteed by the Agency.
[54 FR 1558, Jan. 13, 1989, as amended at 54 FR 2086, Jan. 19, 1989; 54 
FR 48229, Nov. 22, 1989; 56 FR 8264, Feb. 28, 1991; 58 FR 34329, June 
24, 1993; 61 FR 35932, July 9, 1996]



Secs. 1980.102--1980.105  [Reserved]



Sec. 1980.106  Abbreviations and definitions.

    (a) Abbreviations. See Sec. 1980.6 of subpart A of this part.
    (b) Definitions. The following definitions are applicable to the 
terms used in this subpart. Additional definitions may be found in 
Sec. 1980.6 of subpart A of this part.
    Agency. Farm Service Agency, its county and State committees and 
their personnel, and any successor agency.
    Applicant. For guaranteed Farm Credit Programs loans, the lender 
will be considered the applicant. The party applying to the lender for a 
loan will be considered the loan applicant.
    Approval official. An Agency field official who has been delegated 
loan and grant approval authorities within applicable loan programs, 
subject to the dollar limitations contained in tables available in any 
Agency office.
    Aquaculture. The husbandry of aquatic organisms in a controlled or 
selected environment. An aquatic organism is any fish (as defined in 
this section), amphibian, reptile, or aquatic plant. An aquaculture 
operation is considered to be a farm only if it is conducted on the 
grounds which the applicant owns, leases, or has an exclusive right to 
use. An exclusive right to use must be evidenced by a permit issued to 
the applicant and the permit must specifically identify the waters 
available to be used by the applicant only.
    Beginning farmer or rancher. A beginning farmer or rancher is an 
individual or entity who:
    (1) Meets the loan eligibility requirements for OL, FO or SW loan 
assistance, as applicable, in accordance with Secs. 1980.175(b), 
1980.180(b) or 1980.185(b) of this subpart.
    (2) Has not operated a farm or ranch, or who has operated a farm or 
ranch for not more than 10 years. This requirement applies to all 
members of an entity.
    (3) Will materially and substantially participate in the operation 
of the farm or ranch.
    (i) In the case of a loan made to an individual, individually or 
with the immediate family, material and substantial participation 
requires that the individual provide substantial day-to-day labor and 
management of the farm or ranch, consistent with the practices in the 
county or State where the farm is located.
    (ii) In the case of a loan made to an entity, all members must 
materially and substantially participate in the operation of the farm or 
ranch. Material and substantial participation requires that the 
individual provide some amount of the management, or labor and 
management necessary for day-to-day activities, such that if the 
individual did not provide these inputs, operation of the farm or ranch 
would be seriously impaired.

[[Page 548]]

    (4) Agrees to participate in any loan assessment, borrower training, 
and financial management programs required by FmHA or its successor 
agency under Public Law 103-354 regulations.
    (5) Except for OL loans, does not own real farm or ranch property or 
who, directly or through interests in family farm entities owns real 
farm or ranch property, the aggregate acreage of which does not exceed 
25 percent of the average farm or ranch acreage of the farms or ranches 
in the county where the property is located. If the farm is located in 
more than one county, the average farm acreage of the county where the 
loan applicant's residence is located will be used in the calculation. 
If the loan applicant's residence is not located on the farm or if the 
loan applicant is an entity, the average farm acreage of the county 
where the major portion of the farm is located will be used. The average 
county farm or ranch acreage will be determined from the most recent 
Census of Agriculture developed by the U.S. Department of Commerce, 
Bureau of the Census. State Directors will publish State supplements 
containing the average farm or ranch acreage by county.
    (6) Demonstrates that the available resources of the loan applicant 
and spouse (if any) are not sufficient to enable the applicant to enter 
or continue farming or ranching on a viable scale.
    (7) In the case of an entity:
    (i) All the members are related by blood or marriage.
    (ii) All the stockholders in a corporation are qualified beginning 
farmers or ranchers.
    Borrower. An individual or entity which has outstanding obligations 
to the FmHA or its successor agency under Public Law 103-354 under any 
Farmer Programs loan(s), without regard to whether the loan has been 
accelerated. A borrower includes all parties liable for the FmHA or its 
successor agency under Public Law 103-354 debt, including collection-
only borrowers, except for debtors whose total loans and accounts have 
been voluntarily or involuntarily foreclosed or liquidated, or who have 
been discharged of all FmHA or its successor agency under Public Law 
103-354 debt.
    Cooperative. An entity which has farming as its purpose and whose 
members have agreed to share the profits of the farming enterprise. The 
entity must be recognized as a farm cooperative by the laws of the 
State(s) in which the entity will operate a farm(s).
    Corporation. For the purpose of this subpart, a private domestic 
corporation recognized as a corporation by the laws of the State(s) in 
which the entity will operate a farm(s).
    Cosigner. A party who joins in the execution of a promissory note to 
assure its repayment. The cosigner becomes jointly and severally liable 
to comply with the terms of the note. In the case of an entity loan 
applicant, the cosigner cannot be a member, partner, joint operator, or 
stockholder of the entity.
    Family farm. A farm which:
    (1) Produces agricutlural commodities for sale in sufficient 
quantities so that it is recognized in the community as a farm rather 
than a rural residence.
    (2) Provides enough agricultural income by itself, including rented 
land, or together with any other dependable income to enable the 
borrower to:
    (i) Pay necessary family living and operating expenses.
    (ii) Maintain essential chattel and real property.
    (iii) Pay debts.
    (3) Is managed by:
    (i) The borrower when a loan is made to an individual.
    (ii) The members, stockholders, partners, or joint operators 
responsible for operating the farm when a loan is made to a cooperative, 
corporation, partnership, or joint operation.
    (4) Has a substantial amount of the labor requirements for the farm 
and nonfarm enterprise provided by:
    (i) The borrower and the borrower's immediate family for a loan made 
to an individual.
    (ii) The members, stockholders, partners, or joint operators 
responsible for operating the farm, along with the families of these 
individuals, for a loan made to a cooperative, corporation, partnership, 
or joint operation.
    (5) May use a reasonable amount of full-time hired labor and 
seasonal labor during peak load periods.

[[Page 549]]

    Farm. A tract or tracts of land, improvements, and other 
appurtenances considered to be farm property which is used or will be 
used in the production of crops, livestock, and/or aquacultural products 
for sale in sufficient quantities so that the property is recognized as 
a farm rather than a rural residence. It may also include a residence 
which, although physically separate from the farm acreage, is ordinarily 
treated as part of the farm in the local community.
    Financially viable operation. A financially viable operation is one 
which, with FmHA or its successor agency under Public Law 103-354 
assistance, is projected to improve its financial condition over a 
period of time to the point that the operator can obtain commercial 
credit without further FmHA or its successor agency under Public Law 
103-354 direct or guaranteed assistance. Such an operation must generate 
sufficient income to: Meet annual operating expenses and debt payments 
as they become due, meet basic family living expenses to the extent they 
are not met by dependable nonfarm income, provide for replacement of 
capital items, and provides for long-term financial growth. A borrower 
that will meet the FmHA or its successor agency under Public Law 103-354 
classification of ``Commercial,'' as defined in FmHA or its successor 
agency under Public Law 103-354 Instruction 2006-W (available in any 
FmHA or its successor agency under Public Law 103-354 office), will be 
considered to be financially viable.
    Fish. Any aquatic, gilled animal commonly known as ``fish'' as well 
as mollusks, or crustaceans (or other invertebrates) produced under 
controlled conditions (that is, feeding, tending, harvesting and such 
other activities as are necessary to properly raise and market the 
products) in ponds, lakes, streams, or similar holding areas.
    Fixture. Generally an item attached to a building or other structure 
or to land in such a way that it cannot be removed without defacing or 
dismantling the structure, or substantially damaging the structure 
itself.
    Joint Operation. Individuals that have agreed to operate a farm or 
farms together as a business unit. The real and personal property is 
owned separately or jointly by the individuals. For example, husband and 
wife who apply for a loan together will be considered a joint operation.
    Majority interest. Any individual or a combination of individuals 
owning more than a 50 percent interest in a cooperative, corporation, 
joint operation, or partnership.
    Market value. The amount which an informed and willing buyer would 
pay an informed and willing but not forced seller in a completely 
voluntary sale.
    Mortgage. Any form of security interest or lien upon any rights or 
interest in real property of any kind. In Louisiana and Puerto Rico the 
term ``mortgage'' also refers to any security interest in chattel 
property.
    Nonfarm enterprise. Any nonfarm business enterprise, including 
recreation, which is closely associated with the farm operation and 
located on or adjacent to the farm and provides income to supplement 
farm income. This may include, but is not limited to, such enterprises 
as raising earthworms, exotic birds, tropical fish, dogs, and horses for 
nonfarm purposes, welding shops, roadside stands, boarding horses and 
riding stables.
    Partnership. Any entity consisting of individuals who have agreed to 
operate a farm. The entity must be recognized as a partnership by laws 
of the State(s) in which the entity will operate a farm and must be 
authorized to own both real estate and personal property and to incur 
debts in its own name.
    Positive cash flow. The ability of a borrower's operation to pay all 
projected farm operating, interest, and family living expenses, 
including taxes and delinquent tax payments, from combined farm and 
nonfarm income for a typical year, by a ratio of 1.1 times all annual 
scheduled term debt and capital lease payments. This ratio is called the 
Term Debt and Capital Lease Coverage Ratio. In addition, the operation 
must be able to pay carryover debt and unfinanced capital asset 
purchases. This is determined by the Capital Replacement and Term Debt 
Repayment Margin, which must be equal to or greater than the planned 
capital asset purchases not financed. If no unfinanced capital asset 
purchases are

[[Page 550]]

planned, the margin must be equal to or greater than zero. Production 
records and prices used in the preparation of a positive cash flow will 
be in accordance with Sec. 1980.113 of this subpart. The Term Debt and 
Capital Lease Coverage Ratio and the Capital Replacement and Term Debt 
Repayment Margin are calculated in the following manner:
    (1) Add projected net farm operating income, projected annual 
nonfarm income, projected capital depreciation/amortization expenses, 
scheduled annual interest on term debt, and scheduled annual interest on 
capital leases.
    (i) Net farm operating income is the gross income generated by a 
farming operation annually, minus all yearly operating expenses 
(including withdrawals from entities for living expenses), operating 
loan interest, interest on term debt and capital lease payments, and 
depreciation/amortization expenses. Exclude Income and Social Security 
Taxes, Carryover Debt and Delinquent Interest.
    (ii) Depreciation/amortization expenses are an annual allocation of 
the cost or other basic value of tangible capital assets, less salvage 
value, over the estimated life of the unit (which may be a group of 
assets), in a systematic and rational manner.
    (iii) Capital leases are agreements under which the lessee 
effectively acquires ownership of the asset being leased. A lease is a 
capital lease if it meets any one of the following criteria:
    (A) The lease transfers ownership of the property to the lessee at 
the end of the lease term.
    (B) The lessee has the right to purchase the property for 
significantly less than its market value at the end of the lease.
    (C) The term of the lease is at least 75 percent of the estimated 
economic life of the leased property.
    (D) The present value of the minimum lease payments equals or 
exceeds 90 percent of the fair market value of the leased property.
    (2) Subtract from this sum projected annual Income and Social 
Security tax payments, including any delinquent taxes, and family living 
expenses. The difference is the Balance Available for Term Debt 
Repayment.
    (i) Family living expenses are any withdrawals from income to 
provide for needs of family members.
    (ii) Family members are considered to be the immediate members of 
the family residing in the same household with the individual borrower, 
or, in the case of a cooperative, corporation, partnership, or joint 
operation, with the operator(s).
    (3) Divide the Balance Available for Term Debt Repayment by the sum 
of the annual scheduled principal and interest payments on term debt, 
plus the annual scheduled principal and interest payments on capital 
leases, excluding delinquent installments. The quotient is the Term Debt 
and Capital Lease Coverage Ratio.
    (4) Add the Balance Available for Term Debt Repayment to any cash 
carryover from the preceding year.
    (5) Subtract from this sum the amount of the Total Annual Scheduled 
Term Debt and Capital Lease Payments, and any debt carried over from the 
previous year. The difference is the Capital Replacement and Term Debt 
Repayment Margin, which must be equal to or greater than any planned 
capital asset purchases not financed.
    (6) Example:
    (i) Items A through P of this example correspond to the figures 
found on Form FmHA or its successor agency under Public Law 103-354 
1980-25.
    (ii) Term Debt and Capital Lease Coverage Ratio:

                                                                        
                                                                        
                                                                        
(A) Typical Year Gross Farm Operating                                   
 Income (Exclude Cash Carryover)........        $162,000                
(B) Typical Year Total Operating                                        
 Expenses -(Include Withdrawals from                                    
 Entities for -Living Expenses,                                         
 Depreciation, and Interest on Operating                                
 Debt, Term Debt, and Capital Lease                                     
 Payments. Exclude Income and Social                                    
 Security Taxes, Carryover Debt and                                     
 Delinquent Interest)...................         125,000                
(C) Net Farm Operating Income (A-B).....  ..............         $37,000

[[Page 551]]

                                                                        
(D) Nonfarm Income......................               0                
(E) Depreciation/Amortization expenses..           6,000                
(F) Annual Term Debt Interest...........          10,000                
(G) Annual Capital Lease Interest.......               0                
(H) Income and Social Security Taxes....           2,000                
(I) Living Expenses.....................          23,000                
(J) Balance Available for Term Debt                                     
 Repayment (C+D+E+F+G-H-I)..............  ..............          28,000
(K) Annual Scheduled Term Debt and                                      
 Capital Lease Payments (Principal and                                  
 Interest, exclude Delinquent                                           
 Installments)..........................  ..............          17,000
(L) Term Debt and Capital Lease Coverage                                
 Ratio (Line Item J divided by Block K;                                 
 must be at least 1.10).................  ..............      1.65 times
(M) Cash Carryover from Previous Year...           1,000                
(N) Carryover Debt from Previous Year                                   
 (Include Principal and Interest on                                     
 Carryover Operating Debt, Term Debt,                                   
 and Capital Lease Debt)................           2,000                
(O) Capital Replacement and -Term Debt                                  
 Repayment Margin (Add J and M, and                                     
 subtract K and N)......................  ..............          10,000
(P) Portion of Planned Capital Asset                                    
 Purchases -Not Financed (Must be less                                  
 than or equal to -Capital Replacement                                  
 and Term Debt Repayment -Margin (O))...  ..............           5,000
                                                                        

    Recreation enterprise. An outdoor enterprise which generates income 
and supplements or supplants farm or ranch income.
    Related by blood or marriage. As used in this Subpart, individuals 
who are connected to one another as husband, wife, parent, child, 
brother, or sister.
    Security. Property of any kind subject to a real or personal 
property lien. Any reference to ``collateral'' or ``security property'' 
shall be considered a reference to the term ``security.''
    State Beginning Farmer program. Any program that is carried out by 
or under contract to a State and designed to assist persons in obtaining 
the financial assistance necessary to establish and/or maintain viable 
farming or ranching operations.
    State or United States. The United States itself, each of the 
several States, the Commonwealth of Puerto Rico, the Virgin Islands of 
the United States, Guam, American Samoa, and the Commonwealth of the 
Northern Mariana Islands.
    Subsequent loans. Any loans processed by the Finance Office after it 
processes an initial loan for a borrower.
    Veteran. One who has been honorably discharged, including clemency 
discharges, or release from the active forces of the U.S. Army, Navy, 
Air Force, Marine Corps, or Coast Guard, and who served during a period 
of war, as defined in 38 U.S.C. 101(12).
[54 FR 1558, Jan. 13, 1989, as amended at 58 FR 34329, June 24, 1993; 58 
FR 48296, Sept. 15, 1993; 58 FR 65886, Dec. 17, 1993; 61 FR 35932, July 
9, 1996; 62 FR 9357, Mar. 3, 1997; 62 FR 28619, May 27, 1997]



Sec. 1980.107  Full faith and credit.

    See Sec. 1980.11 of subpart A of this part.



Sec. 1980.108  General provisions.

    (a) Security, personal and corporate guarantees, and other 
requirements. See Secs. 1980.175(h), 1980.180(f) and 1980.185(f) of this 
subpart for specific security requirements for the type of loan or line 
of credit being considered.
    (1) Security. (i) The lender is responsible for seeing that security 
is obtained and maintained to protect the interests of the lender and 
the Agency.
    (ii) All security must secure the entire loan/line of credit. The 
lender may not take separate security to secure only that portion of the 
loan/line of credit not covered by the guarantee. The lender may not 
require compensating balances or certificates of deposit as a means of 
eliminating the lender's exposure on the unguaranteed portion of the 
loan/line of credit. However, compensating balances or certificates of 
deposit as used in the ordinary course of business are not prohibited.

[[Page 552]]

    (iii) When the Agency and a guaranteed lender are involved in 
separate loans to the same borrower, separate collateral must be clearly 
identified for both the the Agency's loan and the lender's loan. 
Different lien positions on real estate are considered separate 
collateral. The Agency may subordinate an interest in property which 
secures an Agency insured loan only in the following circumstances:
    (A) To permit a guaranteed lender to advance funds and perfect a 
security interest in crops, feeder livestock, or livestock products 
(milk, eggs, wool, etc.).
    (B) When the lender requesting the guarantee needs the subordination 
of the Agency's real estate lien to maintain its lien position when 
servicing or restructuring.
    (C) When the lender requesting the guarantee is refinancing the debt 
of another lender and the Agency's lien position on real estate security 
will not be adversely affected.
    (iv) When the lender is involved in both a guaranteed loan and an 
unguaranteed loan to the same borrower, the following will apply:
    (A) Loans secured by chattels. When there will be like collateral 
for each loan, the guaranteed loan(s) must be adequately secured by:
    (1) A lien on separate collateral that is clearly identifiable; or
    (2) A lien of higher priority if the same collateral is used to 
secure both loans. When the same collateral secures both loans, the 
lender must agree in writing that scheduled installments on the 
guaranteed loan will be paid first.
    (B) Loans secured by real estate. When the same collateral is used 
to secure both loans, the guaranteed loan must be secured by a lien on 
separate collateral that is clearly identifiable. Different lien 
positions on real estate are considered separate and identifiable 
collateral. The lender must agree, in writing, that scheduled payments 
on the guaranteed loan will be paid first. In the event of liquidation 
of real estate security, proceeds will be applied in order of lien 
priority.
    (2) Personal and corporate guarantees. (i) Guarantees of parent, 
subsidiary, or affiliated companies may be required. Guarantees will be 
required in an amount which reasonably assures repayment of the loan or 
line of credit and provides sufficient security. If a review of all 
credit factors indicates the need for additional security, the lender or 
the Agency may require additional personal and corporate guarantees. The 
lender or the Agency also may require that such guarantees be secured.
    (ii) The lender may ask FmHA or its successor agency under Public 
Law 103-354 to make an exception to the requirement for personal or 
entity guarantees if the proposed guarantors cannot provide such 
guarantees due to other existing contractual obligations or legal 
restrictions. Applicants will give the lender written evidence of any 
such obligations or restrictions. FmHA or its successor agency under 
Public Law 103-354's concurrence is required before an exception is 
made.
    (iii) Guarantors of applicants will:
    (A) In the case of personal guarantees, provide current financial 
statements (not over 90 days old at time of filing) signed by the 
guarantors, and disclosing community or homestead property.
    (B) In the case of corporate guarantees, provide current financial 
statements (not over 90 days old at time of filing) certified by an 
officer of the corporation.
    (3) Other requirements. (i) The lender must ascertain that there are 
no claims or liens of laborers, materialmen, contractors, 
subcontractors, suppliers of machinery and equipment, or other parties 
against the security of the borrower, and that no suits are pending or 
threatened that would adversely affect the borrower's interest in the 
collateral when the security instruments are filed when final loan 
disbursement is made.
    (ii) Applicants must either:
    (1) Obtain at least the CAT level of crop insurance coverage, if 
available, for each crop of economic significance, as defined by the 
Federal Crop Insurance Corporation, or,
    (2) Waive eligibility for emergency crop loss assistance in 
connection with the uninsured crop. FSA EM loss loan assistance is not 
considered emergency crop loss assistance for purposes of this waiver.

[[Page 553]]

    (iii) The lender will encourage any borrower who grows crops to 
obtain and maintain Federal Crop Insurance Corporation (FCIC) crop 
insurance or multi-peril crop insurance, if it is available.
    (iv) When the lender believes it is necessary, life insurance will 
be required for the individual borrower or all members of the entity 
borrower and will be assigned or pledged to the lender. This life 
insurance may be decreasing term insurance. A schedule of life insurance 
available will be included as part of the application.
    (v) Worker's Compensation Insurance will be obtained as required by 
State law.
    (vi) The requirements found in Exhibit M to Subpart G of Part 1940 
of this chapter will be met.
    (b) Preference. When it appears that available funds will be 
inadequate to meet the needs of all applicants, the following preference 
will apply;
    (1) An application on hand from a veteran as defined in 
Sec. 1980.106(b) of this subpart will be given preference by the lender 
over an application from a nonveteran on file at the same time.
    (2) An application on hand from an FmHA or its successor agency 
under Public Law 103-354 direct loan borrower will be given preference 
over one from an applicant who does not have an FmHA or its successor 
agency under Public Law 103-354 direct loan.
    (3) An application for a loan for land purchase from an applicant 
who has a dependent family; or is an owner of livestock and farm 
implements necessary to successfully carry on a farming operation; or is 
able to make downpayments will be given preference over one from an 
applicant who does not meet any of these criteria.
    (4) Priority will be given to otherwise qualified applicants 
requesting assistance for soil and water conservation and protection 
purposes denoted in Sec. 1980.185 (c)(1) of this subpart, who use loan 
funds to build conservation structures or establish conservation 
practices on highly erodible land to comply with part 12 of this title 
(see attachment 1 of exhibit M of subpart G of part 1940 of this chapter 
which is available in any FmHA or its successor agency under Public Law 
103-354 office).
    (c) Determining whether credit is available. The lender will certify 
on the appropriate forms that the applicant is unable to obtain the 
requested loans/lines of credit without the guarantee from the 
Government. Property and interests in property owned and income received 
by an individual applicant, a cooperative and its members as 
individuals, a corporation and its stockholders as individuals, a joint 
operation and the joint operators as individuals, and a partnership and 
its members as individuals will be considered and used by an applicant 
in obtaining credit without a guarantee.
    (d) Relationship between FmHA or its successor agency under Public 
Law 103-354 loans, direct and guaranteed. A guaranteed FO or OL loan may 
be made to an direct borrower with the same type of loan provided: (1) 
Borrowers indebted to FmHA or its successor agency under Public Law 103-
354 and/or an FmHA or its successor agency under Public Law 103-354 
guaranteed lender for EE loans, may be considered for FO or SW 
guaranteed loans, or OL guaranteed loans/lines of credit, provided the 
total outstanding principal indebtedness for EE, FO, RL, SW, or OL 
guaranteed or direct loans/lines of credit to FmHA or its successor 
agency under Public Law 103-354 and/or an FmHA or its successor agency 
under Public Law 103-354 guaranteed lender would not exceed $650,000.
    (2) The outstanding combined direct and guaranteed FO or OL 
principal balance owned by the loan applicant or owed by anyone who will 
sign the note as cosigner may not exceed the authorized guaranteed loan 
limit for that type of loan.
    (3) Chattel and/or real estate security must be separate and 
identifiable from the security pledged to FmHA or its successor agency 
under Public Law 103-354 for an direct loan. Different lien positions on 
real estate are considered separate and identifiable collateral.
    (e) Relationship between FmHA or its successor agency under Public 
Law 103-354 and a State Beginning Farmer program. FmHA or its successor 
agency under Public Law 103-354 can provide an eligible beginning farmer 
with a

[[Page 554]]

guarantee of the financing provided by the State program. State 
Directors are delegated authority to execute a Memorandum of 
Understanding (MOU) with any State expressing an interest in 
coordinating financial assistance to beginning farmers and ranchers. The 
MOU must be executed within 60 days of the State notifying the State 
Director in writing of such interest, and will be developed in 
accordance with FmHA or its successor agency under Public Law 103-354 
Guide Letter 1943-A-1 (available in any FmHA or its successor agency 
under Public Law 103-354 office). Under the MOU, FmHA or its successor 
agency under Public Law 103-354 will agree to provide qualified 
beginning farmers or ranchers with a guarantee of any FO or OL financing 
provided by the State program. This agreement will be subject to 
applicable law, loan approval requirements, and the availability of 
funds. FmHA or its successor agency under Public Law 103-354 will not 
charge a fee to obtain or retain a guarantee in connection with any 
joint funding under the MOU. If any changes are made to the MOU, the 
Regional Office of the General Counsel (OGC) will be consulted prior to 
signing the MOU. States will send copies of signed MOUs to the 
attention: Director, Farmer Programs Loan Making Division, National 
Office.

                             Administrative

    The County Supervisor will determine whether the lender is requiring 
adequate security. If necessary, the assistance of the District Director 
or Farmer Programs Staff will be obtained.
[54 FR 1558, Jan. 13, 1989, as amended at 57 FR 18681, Apr. 30, 1992; 58 
FR 15074, Mar. 19, 1993; 58 FR 48282, 48296, Sept. 15, 1993; 61 FR 
35932, July 9, 1996; 62 FR 9357, Mar. 3, 1997]



Sec. 1980.109  Promissory notes, line of credit agreements, security instruments, and financing statements.

    (a) Promissory notes, line of credit agreements, mortgages, and 
security agreements. The lender will use its own promissory notes, line 
of credit agreements, real estate mortgages (including deeds of trust 
and similar instruments), and security agreements (including chattel 
mortgages in Louisiana and Puerto Rico), provided such forms do not 
contain any provisions that are in conflict or are inconsistent with the 
provisions of this subpart or Subpart A of this part.
    (1) Repayment Schedules--In order for notes to be acceptable, the 
principal and interest repayment schedules will be clearly shown in the 
note(s). Use of a note with a ``payment on demand'' feature is not 
permissible unless it is modified by a supplemental agreement in the 
form of an allonge to the note or other legally effective amendment 
which waives the demand feature and sets forth the repayment schedule.
    (2) Signatures--Except in those unusual circumstances where an 
exemption is obtained in accordance with Sec. 1980.108 of this subpart 
the promissory note will be signed as follows:
    (i) Individuals. Only one person will sign the note as a borrower. 
If a cosigner is needed, the cosigner will also sign the note.
    (ii) Partnerships or joint operations. The note will be executed by 
the partner or joint operator authorized to sign for the entity, and all 
partners in the partnership or joint operators in the joint operation, 
as individuals.
    (iii) Corporations or cooperatives. The promissory note(s) or Line 
of Credit Agreement will be executed so as to evidence liability of the 
entity as well as individual liability of all member(s) or 
stockholder(s) in the entity.
    (b) Financing statements. Commercial financing statement forms that 
comply with state laws and regulations may be used. If the financing 
statement does not already contain the following provisions, they must 
be inserted to meet Agency requirements:
    (1) Covering the ``proceeds and products'' of the collateral 
described, and
    (2) Stating that ``disposition of the collateral is not authorized 
hereby.''
[54 FR 1558, Jan. 13, 1989, as amended at 58 FR 48297, Sept. 15, 1993; 
61 FR 35932, July 9, 1996]



Sec. 1980.110  Loan subsidy rates, claims, and payments (for EM actual loss loans only).

    Loan subsides are payments made by the Agency to lenders to induce 
them to service and collect guaranteed EM loans.

[[Page 555]]

    (a) Subsidy rates. The Agency will establish subsidy rates 
periodically. Thus, the subsidy rate may vary from time to time. 
However, the subsidy rate set forth in the Loan Note Guarantee will 
remain constant during the life of the loan guarantee. The subsidy rate 
will be a rate equal to the difference, if any, between the interest 
rate charged to the borrower and any higher annual rate prevailing in 
the private market for similar loans as determined by the Secretary of 
Agriculture. The lender may contact the local County Supervisor 
servicing the area to obtain the current subsidy rate. (See FmHA 
Instruction 440.1, exhibit B, a copy of which is available in any the 
Agency Office.)
    (b) Annual subsidy claims and payments. The initial subsidy claim 
will be prepared by the lender using Form FmHA 1980-24, ``Request 
Interest Assistance/Interest Rate Buydown/Subsidy Payment to Guaranteed 
Loan Lender,'' on or about 12 months from the date of the note. The 
original will be mailed by the lender to the County Supervisor. 
Subsequent subsidy claims will be filed by the lender on or about 12 
months thereafter, but no later than the anniversary date of the filing 
of the initial subsidy claim. Upon full payment of a note, assumption or 
transfer, the Agency purchase of a guaranteed loan, or a substitution of 
lender, the lender will immediately prepare Form FmHA 1980-24 and mail 
the original to the County Supervisor.
    (c) When subsidy payments cease. When the Agency purchases a 
guaranteed portion of a loan, subsidy payments on that portion will 
cease. Loan subsidy payments will also cease when the Loan Note 
Guarantee terminates.
[54 FR 1558, Jan. 13, 1989, as amended at 55 FR 2366, Jan. 24, 1990; 56 
FR 8264, Feb. 28, 1991; 61 FR 35932, July 9, 1996]



Secs. 1980.111--1980.112  [Reserved]



Sec. 1980.113  Receiving and processing applications.

    The County Supervisor will provide assistance in connection with 
loan/line of credit application processes. The degree of this assistance 
will be determined by the lender's experience with Agency guaranteed 
processing, the lender's farm lending experience, and the complexity of 
the proposal. The lender should contact the local Agency office serving 
the area where the farming operation is conducted for guidance and 
assistance in preparing the application and for obtaining the guarantee. 
The County Supervisor will provide copies of all applicable Agency forms 
and regulations.
    (a) Complete application. For lenders who are submitting 
applications under the CLP, see Sec. 1980.190 of this subpart. ALP and 
CLP lenders and all lenders submitting applications for guarantees of 
$50,000 or less will only be required to submit Form FmHA 1980-25, 
``Farmer Programs Application,'' with the applicable attachments and 
sections completed. When this information is submitted, these lenders 
are certifying that all information required by this section is 
maintained in their loan file. A complete application from non-CLP 
lenders will consist of:
    (1) Form FmHA 1980-25. The lender shall complete all applicable 
items and provide supporting documentation where requested.
    (2) Verification of non-farm income, if any. The lender may use Form 
FmHA 1910-5, ``Request For Verification of Employment,'' or any other 
documentation.
    (3) Credit bureau report, where available, and other pertinent 
information concerning an applicant's credit history obtained by the 
lender.
    (4) A copy of any lease, contract or agreement entered into by the 
applicant which may be pertinent to the consideration of the 
application, or when a written lease is not obtainable, a statement 
setting forth the terms and conditions of the agreement will be included 
in the loan docket.
    (5) Verification of all debts of $1,000 or more. The lender may use 
Form FmHA 440-32, ``Request for Statement of Debts and Collateral,'' or 
any other documentation.
    (6) Proposed loan agreement or line of credit agreements between the 
applicant and lender. Loan agreements or line of credit agreements will 
address at least the following:
    (i) Improved management or production practices to be implemented.

[[Page 556]]

    (ii) Requirements for accounting, recordkeeping, and financial 
reporting.
    (iii) Limitations on the purchase or sale of capital assets.
    (iv) Prohibitions against incurring additional debt or cosigning for 
the liabilities of others.
    (v) Limits on family living expenses.
    (vi) Insurance requirements and collateral inspections.
    (vii) Purposes for which loan or line of credit funds can be used.
    (viii) Interest rates and terms; how and when the rate may 
fluctuate; term of loan; and conditions related to the repayment, 
renewal, etc., of loans with balloon payments.
    (ix) Credit ceiling, special limitations, and conditions precedent 
to annual readvancement or continuation of loans or lines of credit.
    (x) Limitations on salaries paid to entity members, hired labor, or 
consultants. Limitations on withdrawals in the case of joint operations 
and partnerships.
    (7) Financial and production history to support the cash flow 
projections. This history shall include 5 years of farm and non-farm 
income and expenses, 5 years of crop and livestock production history, 
and 5 years of balance sheets. If 5 years of records are not available, 
the lender must document the reason. The case file will be documented in 
sufficient detail to adequately reflect the overall condition of the 
operation. The projected income and expenses are to be based on the loan 
applicant/borrower's proven record of production and financial 
management.
    (i) Lenders will use the following sources of price information to 
develop operation forecast projections:
    (A) Futures market price less the recognized basis points for the 
area, documented by date, location, time and degree of use.
    (B) Government loan rates, i.e., FSA (formerly ASCS) target prices.
    (C) Published current market prices.
    (D) The negotiated price in any forward contract.
    (E) Prices developed by the State land grant university for the time 
of crop sale.
    (F) For specialty crops, the average of three previous years' 
prices, only if the above data is not available.
    (ii) Lenders will use the following guidelines for estimating yields 
when developing operating plans. These are to be used only as 
guidelines. Deviations from historical performance may be acceptable if 
specific to the changes in the operation, adequately justified, and 
acceptable to the Agency approval official.
    (A) For existing farmers, actual production/yields for the past 5 
years will be utilized.
    (B) For those farmers with less than a 5-year production or yield 
history, the applicant's available production history will be utilized.
    (C) For those farmers whose actual history is insufficient to 
provide an accurate estimate, consider the use of FSA Farm Programs 
actual records for specific farms, county averages, State averages, 
university data, or any other reliable sources of information that are 
acceptable to the lender, applicant, and the Agency.
    (D) When an accurate projection cannot be made because the 
applicant's production history has been affected by disasters declared 
by the President or designated by the Secretary of Agriculture, the 
following applies:
    (1) County average yields will be used for disaster years in 
developing an historical base yield. If the applicant's disaster years 
are less than the county average yields, county average yields will be 
used for those years. If county average yields are not available, State 
average yields will be used. Once the yield base has been established, 
plus or minus adjustments may be made to reflect production trends or 
changes that will impact expected yields during the projected farm 
budget period. Adjustments can be made providing there is factual 
evidence to demonstrate that the yield used in the farm plan is the most 
reliable.
    (2) To calculate a historical average yield to be used in developing 
a projected plan of operation, the applicant may exclude the crop year 
with the lowest actual or County average yield, providing the 
applicant's yields were affected by disasters during at least 2 of the 
past 5 years immediately preceding the planned year.

[[Page 557]]

    (iii) When the loan applicant has or will have a farm plan developed 
in conjunction with a proposed or existing FmHA or its successor agency 
under Public Law 103-354 insured loan, there must be consistency in the 
data between the two plans.
    (8) Appraisals. The need for an appraisal is determined by the type 
of security, and whether it is primary or additional security. Primary 
security is defined as the minimum amount of collateral needed to fully 
secure a proposed loan on a dollar for dollar basis. Additional security 
is defined as collateral in excess of that needed to fully secure the 
loan. A lender's statement of value on Form FmHA or its successor agency 
under Public Law 103-354 1980-25 is sufficient for additional security.
    (i) Chattel Appraisals. An appraisal of primary chattel security is 
required on initial and subsequent loans if the latest appraisal is no 
longer current. A current appraisal is defined as not more than 12 
months old on the date of loan approval. An appraisal is not normally 
required for loans or lines of credit for annual production purposes 
that are secured by crops or livestock, except when a loan note/line of 
credit guarantee is requested late in the current production year and 
actual yields can be reasonably estimated.
    (A) Chattel appraisal techniques. The appraised value of chattel 
property will be based first on public sales of the same, or similar, 
property in the market area. In the absence of public sales, reputable 
publications reflecting market values may be used.
    (B) Chattel appraisal reports. Appraisal reports may be on Form FmHA 
or its successor agency under Public Law 103-354 440-21, ``Appraisal of 
Chattel Property,'' or on any other appraisal forms containing at least 
the same information.
    (C) Appraiser qualifications. The appraiser must be able to 
demonstrate to the FmHA or its successor agency under Public Law 103-354 
official's satisfaction that they posses sufficient experience and/or 
training to establish market (not retail) values.
    (ii) Real estate appraisals. A real estate appraisal is required 
when real estate will be primary security. If the real estate has been 
appraised within one year of obligation of guarantee authority, FmHA or 
its successor agency under Public Law 103-354 officials may accept the 
existing appraisal if the appraisal was properly completed, and there 
have been no significant changes in the market or on the subject real 
estate.
    (A) Appraisal reports and appraiser qualifications. Real estate 
appraisal reports must be completed in accordance with the Uniform 
Standards of Professional Appraisal Practice (USPAP). The appraisal may 
be completed in a narrative format, or by using any form that meets 
USPAP standards. The appraisal report must disclose the appraiser's 
basis for adjustments to the comparable sales properties. Appraisals 
must be completed by qualified appraisers as described in paragraph 
(a)(8)(ii)(B) of this section.
    (B) Transactions requiring state certified general appraiser. On 
loan transactions greater than $100,000, which includes principal plus 
accrued interest through the closing date, the appraisal must be 
completed by a state certified general appraiser. However, the lender 
has the option of using either a state certified general or state 
licensed appraiser on loan transactions of $100,000 or less. A loan 
transaction is defined as any loan approval or servicing action.
    (9) The lender's plan for servicing the loan/line of credit and any 
plan for providing management assistance to the borrower, including the 
steps necessary to see that the requirements of the loan agreement are 
met.
    (10) Form AD-1026, ``Highly Erodible Land Conservation (HELC) and 
Wetland Conservation (WC) Certification,'' as specified in exhibit M to 
subpart G of part 1940 of this chapter.
    (11) Cooperative, corporation, partnership, or joint operation 
applicants. If the applicant is a cooperative, corporation, partnership, 
or joint operation, the following additional information will be 
obtained and included in the loan docket:
    (i) A complete list of members, stockholders, partners, or joint 
operators showing the address, citizenship, principal occupation, and 
the number of shares and percentage of ownership or of stock held in the 
cooperative or

[[Page 558]]

corporation, by each, or the percentage of interest held in the 
partnership or joint operation, by each.
    (ii) A current, personal balance sheet from all members of a 
cooperative, joint operators of a joint operation, partners of a 
partnership, or stockholders of a corporation. To be current, the 
balance sheet must be no more than 90 days old on the date that the 
application is completed.
    (iii) A current balance sheet of the cooperative, corporation, 
partnership, or joint operation.
    (iv) A copy of the cooperative's or corporation's charter, or any 
partnership or joint operation agreement, any articles of incorporation 
any bylaws, any certificate or evidence of current registration (good 
standing), and a resolution(s) adopted by the Board of Directors or 
members of stockholders authorizing specified officers of the 
cooperative, corporation, partnership, or joint operation to apply for 
and obtain the desired loan and execute required debt, security, and 
other instruments and agreements.
    (12) A concise narrative summary of the following items:
    (i) The agricultural and nonagricultural enterprises comprising the 
operation, including any proposed to be added or dropped.
    (ii) The real estate used in the operation including significant 
planned and existing improvements, significant conservation practices in 
effect, adequacy of facilities, external factors of negative or positive 
impact.
    (iii) Chattel property, including the adequacy of machinery, 
equipment, and foundation livestock to carry out the existing or 
proposed operation.
    (iv) The farm business organization and key personnel. For example, 
the legal business structure, roles, functions and backgrounds of key 
individuals, the accounting and record keeping system, and agreements 
for transferring or dissolving the business.
    (v) Goals. The short-term and long-term business goals of the 
operation.
    (vi) Historical financial data.
    (vii) Planned changes. Changes to overcome negative trends or other 
aspects of the operation. Consider such items as improved production 
techniques or management practices.
    (b) Subsequent Loans. Lenders applying for a subsequent OL loan 
within the same operating cycle may complete an abbreviated Form FmHA 
1980-25 if the conditions listed in paragraphs (b)(1) and (2) of this 
section can be met. See Form FmHA 1980-25 for the appropriate parts to 
be completed.
    (1) There has been no material change in the borrower's financial 
position since the previous OL guarantee was issued.
    (2) The scope of the borrower's operation has not changed and the 
proposed loan will not alter the scope of the operation, e.g., no new 
enterprises will be added, and the size of the operation will not 
significantly increase.
    (c) Market Placement applications. This paragraph explains the 
requirements for market placement applications for lenders that have 
expressed interest in financing or refinancing specific direct loan 
applicants described under Sec. 1910.4 (c), as well as for 
``commercial'' or ``standard'' borrowers defined under Sec. 1951.252. If 
more than one lender is interested in providing financing, the direct 
loan applicant or borrower will rank the lenders in order of preference, 
and the Agency will present the market placement applications in that 
order. A market placement application should be ready for immediate 
acceptance by the lender and approval by the Agency, subject to the 
terms and conditions of the Request for Obligation of Funds and 
Conditional Commitment. The items needed for a market placement 
application are to be packaged by the Agency and consist of the 
following:
    (1) Form FmHA 1980-25 will be prepared using estimated interest 
rates and terms. All other items required, with the exception of the 
loan or line of credit agreement, for a complete application under this 
section will be attached. The lender will submit the loan or line of 
credit agreement prior to the Agency's issuance of the Conditional 
Commitment.
    (2) Form FmHA 1940-3, ``Request for Obligation of Funds--Guaranteed 
Loans.''
[58 FR 34329, June 24, 1993, as amended at 58 FR 68721, Dec. 29, 1993; 
61 FR 35932, July 9, 1996]

[[Page 559]]



Sec. 1980.114  Evaluation and assessment of applications.

    (a)-(b) [Reserved]
    (c) Agency analysis of complete application. In addition to other 
applicable requirements under this part, an application for a guarantee 
must meet the following conditions:
    (1) The proposed loan or line of credit is for authorized purposes, 
and the amounts of borrowed capital are appropriate to successfully 
carry on the agricultural operation.
    (2) The operation's capital position is adequate taking its 
strengths and weaknesses into consideration.
    (3) The applicant has adequate repayment ability and has a 
reasonable chance of securing non-guaranteed commercial credit for the 
operation in the future. Developing an acceptable farm plan is the 
responsibility of the lender and its borrower.
    (4) Security is adequate, values are reasonable, and loan terms are 
consistent with the useful life of the security and Agency regulations.
    (5) The projected budget is reasonable in light of the applicant's 
stated goals.
    (d) [Reserved]
    (e) Indication of acceptability. If the Agency's evaluation 
indicates that the guarantee may be approved, the Agency will consider 
the guarantee request for eligibility.

                        Administrative [Reserved]

[54 FR 1558, Jan. 13, 1989, as amended at 58 FR 34331, June 24, 1993; 58 
FR 48297, Sept. 15, 1993; 58 FR 68721, Dec. 29, 1993; 61 FR 35933, July 
9, 1996]



Sec. 1980.115  Eligibility review.

    The Agency will review loan applications to determine whether the 
loan applicants meet eligibility requirements and meet the definition of 
``beginning farmer or rancher,'' as defined in Sec. 1980.106 of this 
subpart. See Sec. 1980.176(k) for Agency actions relative to special OL 
assistance to beginning farmers or ranchers. Applications do not need to 
be complete before they are reviewed by the Agency; however, all 
information relating to the eligibility must be received.
[58 FR 34331, June 24, 1993, as amended at 58 FR 44748, Aug. 25, 1993; 
58 FR 68722, Dec. 29, 1993; 58 FR 69201, Dec. 30, 1993; 61 FR 35933, 
July 9, 1996]



Sec. 1980.116  Review of requirements.

    The lender, after reviewing approval conditions and security 
requirements as set forth in Form FmHA or its successor agency under 
Public Law 103-354 1980-15, will complete and execute the ``Acceptance 
or Rejection of Conditions'' and return a copy to the County Supervisor. 
If the conditions cannot be met, the lender and loan applicant may 
propose alternatives to the County Supervisor. These alternatives will 
be considered and the lender will be advised of FmHA or its successor 
agency under Public Law 103-354's decision to accept or reject the 
alternatives. If accepted, Form FmHA or its successor agency under 
Public Law 103-354 1980-15 will be so revised. If rejected, the County 
Supervisor will notify the loan application and the lender in writing 
within 10 calendar days of FmHA or its successor agency under Public Law 
103-354's decision of all the specific reasons for the decision, and 
advise them of their opportunity for appeal as set out in subpart B of 
part 1900 of this chapter, and in accordance with Sec. 1980.80 of 
subpart A of this part.
[58 FR 34332, June 24, 1993, as amended at 58 FR 44748, Aug. 25, 1993; 
58 FR 68722, Dec. 29, 1993]



Sec. 1980.117  Conditions precedent to issuance of the Loan Note Guarantee or Contract of Guarantee.

    (a) Lender certification. Prior to issuing Form FmHA or its 
successor agency under Public Law 103-354 449-34 or Form FmHA or its 
successor agency under Public Law 103-354 1980-27, the lender must 
certify to the conditions in Sec. 1980.60 of subpart A of this part. 
This will be done by the execution of Form FmHA or its successor agency 
under Public Law 103-354 1980-22, ``Lender Certification.''
    (b) Inspections. The lender will notify FmHA or its successor agency 
under Public Law 103-354 of any scheduled

[[Page 560]]

field inspections during construction and after issuance of the Loan 
Note Guarantee or Contract of Guarantee. FmHA or its successor agency 
under Public Law 103-354 may attend such field inspections. Any 
inspections or review conducted by FmHA or its successor agency under 
Public Law 103-354, including those with the lender, are for the benefit 
of FmHA or its successor agency under Public Law 103-354 only and not 
for other parties of interest. FmHA or its successor agency under Public 
Law 103-354 inspections do not relieve any parties of interest of their 
responsibilities to conduct necessary inspections, nor can these parties 
rely on FmHA or its successor agency under Public Law 103-354's 
inspections in any manner.
    (c) Execution of form. The lender has executed and delivered to FmHA 
or its successor agency under Public Law 103-354 Form FmHA or its 
successor agency under Public Law 103-354 1980-38, ``Agreement for 
Participation in Farmer Programs Guaranteed Loan Programs of the United 
States Government.'' See Sec. 1980.61 of subpart A of this part for 
proper execution of this form. Form FmHA or its successor agency under 
Public Law 103-354 1980-38 will be signed only once and will govern all 
loans/lines of credit guaranteed while the agreement is in effect.
    (d) Plans for marketing. The lender advises FmHA or its successor 
agency under Public Law 103-354 of its plans to sell or assign any part 
of the loan as provided in Form FmHA or its successor agency under 
Public Law 103-354 1980-38.

                             Administrative

    The County Supervisor will:
    A. Consult with the lender and loan applicant concerning any changes 
made to the initially issued or revised Form FmHA or its successor 
agency under Public Law 103-354 1980-15. A copy of Form FmHA or its 
successor agency under Public Law 103-354 1980-15 and any amendments 
will be included in the file.
    B. Review the loan agreement between the borrower and lender which 
provides for the periodic submission of financial statements to the 
County Supervisor. An annual analysis report of the farming operation 
will be required. In line of credit cases, the County Supervisor will 
review with the non-CLP lenders, the requirement that the lender is to 
submit a current financial statement and cash flow prepared in 
accordance with Sec. 1980.113 of this subpart for prior approval of 
advances made in the second and third years of a line of credit.
    C. Review plans for inspection on construction projects.
    D. Review basic credit requirements of all loans/lines of credit.
    E. Review cost overruns, if any, and how they will be met.
[54 FR 1558, Jan. 13, 1989, as amended at 58 FR 34332, June 24, 1993; 58 
FR 44748, Aug. 25, 1993]



Sec. 1980.118  Issuance of Lender's Agreement, Loan Note Guarantee, Contract of Guarantee, and Assignment Guarantee Agreement.

    (a) See Sec. 1980.61 of subpart A of this part.
    (b) A guaranteed portion of the loan may not be sold by the lender 
until the loan has been fully disbursed to the borrower. The guaranteed 
portion of a line of credit will never be sold or assigned by the lender 
except as provided in part III of Form FmHA or its successor agency 
under Public Law 103-354 1980-38.
    (c) Each Loan Note Guarantee issued will contain the statement 
``This Loan Note Guarantee is issued under the Lender's Agreement dated 
________.'' The date will be the same date entered in Part IV of Form 
FmHA or its successor agency under Public Law 103-354 1980-38.
    (d) Each Contract of Guarantee issued will contain the statement 
``This Contract of Guarantee is issued under Lender's Agreement dated 
________.'' The date will be the same date entered in Part IV of Form 
FmHA or its successor agency under Public Law 103-354 1980-38.

                             Administrative

    A. Section 1980.61(a). For non-CLP lenders, the original Form FmHA 
or its successor agency under Public Law 103-354 1980-38 will be kept in 
the County Office. For CLP lenders, the original Form FmHA or its 
successor agency under Public Law 103-354 1980-38 will be kept in the 
State Office, with copies distributed to the appropriate County Office.
    B. Section 1980.61(b)(1). Copy(ies) of the Loan Note Guarantee(s) or 
Contract of Guarantee(s) will be kept in the County Office. Additional 
copy(ies) may be retained by the State Office.

[[Page 561]]

    C. Section 1980.61(b)(3). For reporting purposes where multi-notes 
are issued, the loan will be counted as one loan regardless of the 
number of notes issued.
[54 FR 1558, Jan. 13, 1989, as amended at 58 FR 34332, June 24, 1993; 58 
FR 40190, July 27, 1993]



Sec. 1980.119  Lender's sale or assignment of Guaranteed loan.

    The lender may retain all of any guaranteed loan. The lender is not 
permitted to sell or participate any amount of the guaranteed or 
unguaranteed portion(s) of loan(s) to the loan applicant or borrower or 
members of their immediate families, their officers, directors, 
stockholders, other owners, or any parent, subsidiary or affiliate. The 
lender may market all or part of the guaranteed portion of the loan at 
or after loan closing only if the loan is not in default as set forth in 
the terms of the note. A line of credit may only be marketed by 
participation. The lender may proceed as follows:
    (a) Disposition. Prior to full disbursement, completion of 
construction, and acquisitions, disposition of the guaranteed portion of 
a loan may be made only with a prior written approval of FmHA or its 
successor agency under Public Law 103-354. Subsequent to full 
disbursement, completion of construction, and acquisitions, the 
guaranteed portion of the loan may be disposed of as provided for in 
this section.
    (b) Assignment. The lender may assign all or part of the guaranteed 
portion of any loan to one or more holders by using Form FmHA or its 
successor agency under Public Law 103-354 449-36, ``Assignment Guarantee 
Agreement.'' As specified on this form, holder(s), upon written notice 
to the lender and FmHA or its successor agency under Public Law 103-354, 
may reassign the unpaid guaranteed portion of the loan. On assignment 
notification, the assignee is responsible for all rights and obligations 
of the holder(s) as set forth on Form FmHA or its successor agency under 
Public Law 103-354 449-36.
    (c) Multi-note System. The holder receives from the lender the 
borrower's Form FmHA or its successor agency under Public Law 103-354 
449-34 and the attached executed note(s). The lender retains all rights 
under the security instruments (including personal and/or corporate 
guarantees) for the protection of the lender and the United states 
notwithstanding any contrary provisions under State law.
    (1) At loan closing. The lender will provide for no more than 10 
notes, unless the borrower and FmHA or its successor agency under Public 
Law 103-354 agree otherwise, for the guaranteed portion and one note for 
the unguaranteed portion. FmHA or its successor agency under Public Law 
103-354 will provide the lender with Form FmHA or its successor agency 
under Public Law 103-354 449-34 for each of the notes.
    (2) After loan closing. Upon written approval by FmHA or its 
successor agency under Public Law 103-354, the lender may issue a series 
of new notes replacing previously issued guaranteed note(s), not to 
exceed the amount specified in paragraph (c)(1) of this section. FmHA or 
its successor agency under Public Law 103-354 will then provide the 
lender with a new Loan Note Guarantee to be attached to the new notes in 
exchange for the original Loan Note Guarantee which will be cancelled by 
FmHA or its successor agency under Public Law 103-354. The following 
conditions must be met:
    (i) The borrower agrees and executes the new notes.
    (ii) The interest rate does not exceed the interest rate in effect 
when the loan was closed.
    (iii) The maturity of the loan is not changed.
    (iv) FmHA or its successor agency under Public Law 103-354 will not 
bear any expenses that may be incurred in reference to such re-issuance 
of notes.
    (v) There is adequate collateral securing the note(s).
    (vi) The secured lien priority remains the same.
    (d) Retention of unguaranteed portion of loan. Lenders must retain 
at least 10 percent of the loan from the unguaranteed portion, except 
that when the loan guarantee exceeds 90 percent, the lender must retain 
the total unguaranteed portion of the loan.
    (e) Rights and obligations. Upon the lender's sale of the guaranteed 
portion of the loan, the holder will assume all rights of the Loan Note 
Guarantee pertaining only to the portion of the loan

[[Page 562]]

purchased. Lenders will remain bound to all obligations indicated in the 
Loan Note Guarantee, Form FmHA or its successor agency under Public Law 
103-354 1980-38, and the FmHA or its successor agency under Public Law 
103-354 regulations.
    (f) Resale by Holder. Upon written notice to the lender, the 
holder(s) may resell the unpaid guaranteed portion of the loan.
    (g) Lender Repurchase. The lender has the option to repurchase the 
unpaid guaranteed portion of the loan from the holder(s) within 30 days 
of written demand by the holder(s) when: The borrower has not made 
payment of principal or interest due on the loan for 60 days or more; or 
the lender has failed to give the holder(s) its pro rata share of any 
payment made by the borrower within 30 days of receipt of payment. The 
repurchase by the lender will be for an amount equal to the unpaid 
guaranteed portion of the principal and accrued interest, less the 
lender's servicing fee. The Loan Note Guarantee will not cover the note 
interest to the holder on the guaranteed loan(s) accruing after 90 days 
from the date of the demand letter to the lender requesting the 
repurchase. The lender will accept an assignment without recourse from 
the holder(s) upon repurchase. The lender is encouraged to repurchase 
the loan in order to facilitate the accounting for funds, resolve the 
problem, and to permit the borrower to cure the default, where 
reasonable. The lender will notify the holder(s) and FmHA or its 
successor agency under Public Law 103-354 of its decision.
    (h) FmHA or its successor agency under Public Law 103-354 
Repurchase. If the lender does not repurchase as provided by paragraph 
(g) of this section, FmHA or its successor agency under Public Law 103-
354 will purchase, from the holder(s), the unpaid principal balance of 
the guaranteed portion together with accrued interest to the date of 
repurchase, within 30 days after written demand to FmHA or its successor 
agency under Public Law 103-354, from the holder(s). Upon FmHA or its 
successor agency under Public Law 103-354's repurchase, the lender will 
liquidate the account or reimburse FmHA or its successor agency under 
Public Law 103-354 the amount of the repurchase within 180 days of FmHA 
or its successor agency under Public Law 103-354's repurchase. The Loan 
Note Guarantee will not cover the note interest to the holder on the 
guaranteed loan(s) accruing after 90 days from the date of the demand 
letter to the lender requesting the repurchase. Such demand will include 
a copy of the written demand made upon the lender.
    (1) The holder(s), or its duly authorized agent, will also include 
evidence of its right to require payment from FmHA or its successor 
agency under Public Law 103-354. Such evidence will consist of either 
the originals of the Loan Note Guarantee and note properly endorsed to 
FmHA or its successor agency under Public Law 103-354 or the original of 
the Assignment Guarantee Agreement which has been properly assigned to 
FmHA or its successor agency under Public Law 103-354 without recourse 
including all rights, title, and interest in the loan. FmHA or its 
successor agency under Public Law 103-354 will retain all rights of the 
holder(s). In its demand, the holder will specify the amount due 
including unpaid principal, unpaid interest to the date of demand, and 
interest which has accrued from the date of demand to the proposed 
payment date. FmHA or its successor agency under Public Law 103-354 will 
verify the amount of the unpaid principal and interest with the lender. 
Unless otherwise agreed to by FmHA or its successor agency under Public 
Law 103-354, such proposed payment will ordinarily be within 30 days 
from the date of the demand to FmHA or its successor agency under Public 
Law 103-354.
    (2) FmHA or its successor agency under Public Law 103-354 will 
promptly notify the lender of the holder(s) demand for payment. The 
lender will promptly provide FmHA or its successor agency under Public 
Law 103-354 a current statement which has been certified by an 
appropriate authorized officer of the lender, of the unpaid principal 
and interest then owed by the borrower on the loan, and the amount due 
the holder(s).
    (3) Any discrepancy between the amount claimed by the holder(s) and

[[Page 563]]

the information submitted by the lender must be resolved by the lender 
and the holder(s) before payment will be approved by FmHA or its 
successor agency under Public Law 103-354. FmHA or its successor agency 
under Public Law 103-354 will not participate in resolution of any such 
discrepancy. Such a conflict will suspend the 30-day payment 
requirement. Upon receipt of the appropriate information, FmHA or its 
successor agency under Public Law 103-354 will review the demand and 
submit it to the State Director for verification. After reviewing the 
demand, the State Director will transmit the request to the FmHA or its 
successor agency under Public Law 103-354 Finance Office for issuance of 
the appropriate check. Upon issuance, the Finance Office will notify the 
State Director and the check(s) will then be sent to the holder(s).
    (4) The lender further agrees that any purchase by FmHA or its 
successor agency under Public Law 103-354 does not change, alter, or 
modify any of the lender's obligations to FmHA or its successor agency 
under Public Law 103-354 specified in the loan or guarantee, nor does 
the purchase waive any of FmHA or its successor agency under Public Law 
103-354's rights against the lender. FmHA or its successor agency under 
Public Law 103-354 will have the right to set-off all lender's rights 
which have been passed along to FmHA or its successor agency under 
Public Law 103-354 from the holder against FmHA or its successor agency 
under Public Law 103-354's obligation to the lender under the Loan Note 
Guarantee.
    (5) Servicing fees assessed by the lender to a holder can only be 
collected from payment installments received by the lender from the 
borrower. When FmHA or its successor agency under Public Law 103-354 
repurchases from a holder, FmHA or its successor agency under Public Law 
103-354 will pay the holder only the amounts due to the holder. FmHA or 
its successor agency under Public Law 103-354 will not reimburse the 
lender for any servicing fees which have been assessed to the holder and 
not collected from the borrower. No service fee shall be charged to FmHA 
or its successor agency under Public Law 103-354, and no such fee can be 
collectible from FmHA or its successor agency under Public Law 103-354.
    (6) The lender may also repurchase the guaranteed portion of the 
loan consistent with paragraph 10 of the Loan Note Guarantee.
[58 FR 34332, June 24, 1993, as amended at 62 FR 9357, Mar. 3, 1997]



Secs. 1980.120-1980.121  [Reserved]



Sec. 1980.122  Substitution of lenders.

    With prior written approval of the FmHA or its successor agency 
under Public Law 103-354 State Director, a new eligible lender may be 
substituted for the original provided the new lender agrees in writing 
to assume all servicing and other responsibilities of the original 
lender and acquires the unguaranteed portion of the loan. Such 
substitution may be made without the holder's consent but not without 
notice to holder(s) by the substituted lender. The new lender will 
execute Form FmHA or its successor agency under Public Law 103-354 1980-
38 at the same time of the substitution. After approval of the lender, 
Form FmHA or its successor agency under Public Law 103-354 1980-42, 
``Notice of Substitution of Lender,'' will be completed by the FmHA or 
its successor agency under Public Law 103-354 servicing representative 
and mailed to the Finance Office. Form FmHA or its successor agency 
under Public Law 103-354 1980-24, must be completed by the original 
lender to claim any buydown/subsidy due the lender from the date of the 
last subsidy period through the date of the substitution of lenders. 
Once the substitution is consummated, FmHA or its successor agency under 
Public Law 103-354 cannot process any request for buydown/subsidy from 
the original lender.
[54 FR 1558, Jan. 13, 1989, as amended at 55 FR 2366, Jan. 24, 1990; 56 
FR 8265, Feb. 28, 1991; 58 FR 34334, June 24, 1993]



Sec. 1980.123  Transfer and assumption of Farmer Program loans.

    (a) All transfers and assumptions must be approved in writing by 
FmHA or its successor agency under Public Law 103-354. Such transfers 
and assumptions must be to an eligible applicant. EM actual loss loans 
may only be

[[Page 564]]

transferred to a co-obligor. All transfers and assumptions must meet the 
requirements of exhibit M of subpart G of part 1940 of this chapter.
    (b) The transferee will submit Form FmHA or its successor agency 
under Public Law 103-354 1980-25 and other needed information to the 
lender for evaluation.
    (c) In accordance with the Food Security Act of 1985 (Pub. L. 99-
198), after December 23, 1985, if an individual transferee or any 
member, stockholder, partner, or joint operator of an entity transferee 
is convicted under Federal or State law of planting, cultivating, 
growing, producing, harvesting or storing a controlled substance (see 21 
CFR part 1308, which is exhibit C to subpart A of part 1941 of this 
chapter and is available in any FmHA or its successor agency under 
Public Law 103-354 office, for the definition of ``controlled 
substance'') prior to the approval of the transfer and assumption in any 
crop year, the individual or entity shall be ineligible for a transfer 
and assumption for the crop year in which the individual or member, 
stockholder, partner, or joint operator of the entity was convicted and 
the four succeeding years. Applicants will attest on Form FmHA or its 
successor agency under Public Law 103-354 1980-25 that as individuals or 
that its members, if an entity, have not been convicted of such crime 
after December 23, 1985.
    (d) When a transfer and assumption occurs and the transferee has an 
outstanding insured or guaranteed FO, SW or RL loan, the borrower's 
total unpaid principal insured and guaranteed indebtedness for these 
loans may not exceed the lesser of $300,000 or the market value of the 
farm or other security. When the transferee is indebted for an OL loan/
line of credit, the transferee's total insured and guaranteed OL 
principal balance may not exceed $400,000 at the time of the transfer 
and assumption.
    (e) Available transfer and assumption options to eligible applicants 
include transferring the total indebtedness to another borrower on the 
same terms, or on different terms not to exceed those terms for which an 
initial loan/line of credit can be made.
    (f) In any transfer and assumption case, the transferor, including 
any guarantor(s), may be released from liability by the lender with FmHA 
or its successor agency under Public Law 103-354 written concurrence 
only when the value of the collateral being transferred is at least 
equal to the amount of the loan or the line of credit ceiling for 
Contracts of Guarantee. If the transfer is for less than this:
    (1) FmHA or its successor agency under Public Law 103-354 must 
determine that the transferor has no reasonable debt-paying ability 
considering assets and income at the time of the transfer.
    (2) FmHA or its successor agency under Public Law 103-354 County 
Committee must certify that the transferor has cooperated in good faith, 
used due diligence to maintain the collateral against loss, and has 
otherwise fulfilled all of the regulations of this subpart to the best 
of the transferor's ability.
    (g) Any proceeds received from the sale of security before a 
transfer and assumption will be credited to the transferor's guaranteed 
loan debt in inverse order of maturity before the transfer and 
assumption transaction is closed.
    (h) The lender is responsible for getting an appraisal of the fair 
market value of all the collateral securing the loan/line of credit. 
Subject to the approval of the transferor and transferee, an appraisal 
can be made by either independent fee appraisers or qualified appraisers 
on the lender's staff. Appraisers must meet the qualifications outlined 
in Sec. 1980.113(a)(8)(ii) of this subpart. The appraisal report fee and 
other related costs will be paid by the transferor and the transferee, 
as they agree.
    (i) The market value of the security being acquired by the 
transferee, plus any additional security the transferee proposes to 
give, must be adequate to secure the balance of the total guaranteed 
loan/line of credit ceiling for Contracts of Guarantee, plus any prior 
liens.
    (j) If any cash downpayment is made, it may be paid directly to the 
transferor as payment for the transferor's equity in the project 
provided:

[[Page 565]]

    (1) The lender recommends and FmHA or its successor agency under 
Public Law 103-354 approves the cash downpayment be released to the 
transferor.
    (2) Any downpayment that is made by the transferee to the transferor 
does not suspend the transferee's obligation to continue to make the 
guaranteed loan/line of credit payments as they come due under the terms 
of the assumption.
    (3) The transferor agrees not to take any actions against the 
transferee in connection with such transfer in the future without first 
obtaining the approval of FmHA or its successor agency under Public Law 
103-354 and the lender.
    (4) The lender determines that the transferee has the ability to 
repay the guaranteed debt assumed and any other indebtedness.
    (k) The lender will issue a statement to FmHA or its successor 
agency under Public Law 103-354 that the debt can be properly 
transferred and the conveyance instruments must be filed, registered, or 
recorded, as appropriate, and must be legally sufficient.
    (l) FmHA or its successor agency under Public Law 103-354 will not 
guarantee any additional loans to provide equity funds for a transfer 
and assumption.
    (m) The assumption will be made on the lender's form of assumption 
agreement.
    (n) The assumption agreement must contain the FmHA or its successor 
agency under Public Law 103-354 case number of the transferor and 
transferee.
    (o) The assumption agreement may change loan terms and/or interest 
rates only if a new Loan Note Guarantee or Contract of Guarantee will be 
executed.
    (p) In the case of a transfer and assumption at the same rates and 
terms the lender must give any holder(s) notice of the transfer and 
notice that future payments will be made under a different name and case 
number. It is the lender's responsibility to see that the transfer and 
assumption is noted on all originals of the Loan Note Guarantee or 
Contract of Guarantee. The lender must provide FmHA or its successor 
agency under Public Law 103-354 with a copy of the transfer and 
assumption agreement.
    (q) Before allowing a transfer and assumption at different rates and 
terms, the lender must consult with any holder(s). If the holder(s) 
consents in writing to the change in rates and terms, the lender must 
provide FmHA or its successor agency under Public Law 103-354 with 
documentation of the holders concurrence and a copy of the transfer and 
assumption agreement and must note the transfer and assumption on all 
originals of the Loan Note Guarantee or Contract of Guarantee.

                             Administrative

    A. Loan approval officials may consent:
    1. To all transfer and assumption cases.
    2. To the release of the transferor and guarantor(s) from liability 
on the loan or line of credit agreement. The approval official will 
notify the lender and the appropriate parties of the decision in 
writing.
    3. To any changes in the loan or line of credit terms and/or 
interest rates provided the holder(s), if any, and lender agree.
    B. The Loan Note Guarantee or Contract of Guarantee will be endorsed 
in the space provided on the form.
    C. A copy of the Assumption Agreement will be retained in the County 
Office file. The County Supervisor will notify the Finance Office of all 
approved transfer and assumption cases so that Finance Office records 
may be adjusted accordingly. This will be accomplished by sending 
completed Forms FmHA or its successor agency under Public Law 103-354 
1980-7, ``Notification of Transfer and Assumption of a Guaranteed 
Loan,'' FmHA or its successor agency under Public Law 103-354 1980-51, 
``Add, Change, or Delete Guaranteed Loan Record,'' to the Finance 
Office.
[54 FR 1558, Jan. 13, 1989, as amended at 58 FR 34334, June 24, 1993]



Sec. 1980.124  Consolidation, rescheduling, reamortizing and deferral.

    (a) General requirements. All borrowers are expected to repay their 
loans according to the planned repayment schedule. However, 
circumstances may arise which will not permit borrowers to pay as 
scheduled. When rescheduling, reamortization, or deferral will assist in 
the orderly collection of a loan, such action may be taken upon prior 
concurrence given by FmHA or its successor agency under Public Law 103-
354 provided:

[[Page 566]]

    (1) The borrower meets the eligibility requirements under 
Secs. 1980.175(b), 1980.176, 1980.180(b), and 1980.185(b) of this 
subpart for FO, SW, and OL loans/lines of credit, as applicable, and the 
lender's security position would not be adversely affected. For FO, SW 
loans and OL loans/lines of credit refer to this subpart for these 
requirements. For EM loans refer to subpart D of part 1945 of this 
chapter for eligibility and security requirements. For RL loans refer to 
SW eligibility and security requirements as set out in this subpart.
    (2) The action will ensure that the borrower will be able to 
continue the farming or ranching operation.
    (3) Any delinquency is due to circumstances beyond the borrower's 
control. Circumstances beyond the borrower's control are limited to one 
of the following:
    (i) A reduction in income has occurred which is not due to 
inadequate or poor financial management decisions, such as untimely 
marketing practices which might occur when a borrower has forward 
contracted and the price continues to increase.
    (ii) Unforseen, but essential, farm expenses and/or, in the case of 
individual borrowers and the partners, joint operators, stockholders and 
members who operate the farm, essential family living expenses.
    (iii) A natural disaster, such as a drought or flood, regardless of 
whether the area has been declared a disaster area.
    (4) The borrower has acted in good faith demonstrating sincerity and 
honesty in meeting agreements with, and promises made to the lender and 
the Agency. This means cooperating in servicing the account and 
maintaining the security, and satisfactorily completing the Borrower 
Training program if required.
    (5) The lender determines that a positive cash flow cannot be 
developed with the existing repayment schedule, but can be developed 
with revised repayment terms;
    (6) Any holder agrees in writing to the rescheduling, reamortization 
or deferral. The holder must understand that it will not receive any 
payments from the lender or from the Agency during any deferral period.
    (7) The lender may capitalize the outstanding interest when 
restructuring the loan. The restructuring proposal will be reviewed by 
the appropriate agency loan approval official in accordance with loan 
approval authorities based on the total outstanding principal and 
interest at the time of the proposal. Approval of servicing actions on 
guaranteed loans will be based on the new principal and guaranteed 
amounts and the authorities set forth in exhibit C of FmHA Instruction 
1901-A (available in any Agency office). Approved capitalized interest 
will be treated as part of the principal and interest indebtedness in 
calculating the maximum loss amount under Sec. 1980.20.
    (8) Only interest that has accrued at the rate indicated on the 
borrower's original promissory notes may be capitalized. Late payment 
fees or default interest penalties that have accrued due to the 
borrower's failure to make payments as agreed may not be capitalized.
    (9) A credit report is obtained by the lender.
    (b) Consolidation and rescheduling. (1) The term ``consolidate'' 
means to combine the outstanding principal and interest balances of two 
or more EM loans made for operating (Subtitle B) purposes or two or more 
OL Loans. An existing OL line of credit loan may only be consolidated 
with a new OL line of credit loan if the terms (to make advances as well 
as final maturity date) of the new OL line of credit are within the 
terms of the existing OL line of credit agreement.
    (2) The term ``rescheduling'' means to rewrite the rates and/or 
terms of a single note or line of credit agreement which acknowledges 
indebtedness for a loan made for operating purposes (EM loan or OL loan/
line of credit).
    (3) EM loans made for operating loan purposes may be consolidated 
only with other EM loans made for operating loan purposes, including EM 
loans for annual operating purposes and EM major adjustment loans for 
operating (Subtitle B) purposes. OL Loan Note Guarantee loans may be 
consolidated only with other OL Loan Note Guarantee loans.
    (4) An EM loan made for operating loan purposes or an OL loan/line 
of

[[Page 567]]

credit may be rescheduled when it is in the best interest of the 
borrower and the lender to do so.
    (5) EM loans for actual losses, EM major adjustment loans for real 
estate purposes, OL loans secured by real estate, OL Contract of 
Guarantee lines of credit with unlike terms and OL loans/lines of credit 
with an outstanding Interest Rate Buydown Agreement, Interest Assistance 
Agreement, or Shared Appreciation Agreement will not be consolidated.
    (6) There is no limit on the number of times a consolidation or 
rescheduling action may take place.
    (7) Unless a note or line of credit agreement being rescheduled is 
consolidated with one or more notes or lines of credit agreements at the 
time of the rescheduling, no new note or line of credit agreement will 
be taken when a loan/line of credit is rescheduled. Instead, the 
existing note or line of credit agreement will be modified by attaching 
an ``allonge'' or other legally effective amendment, evidencing the 
revised repayment schedule and any interest rate change. When a note or 
line of credit agreement being rescheduled is also being consolidated 
with one or more other notes or lines of credit agreement, then a new 
note evidencing the consolidated indebtedness will be taken.
    (8) The interest rate for a consolidated or rescheduled EM loan for 
operating purposes will be the current rate established by the Secretary 
of Agriculture for similar type loans in effect at the time of action. 
This information is available from any Agency or its successor agency 
under Public Law 103-354 office (See Agency or its successor agency 
under Public Law 103-354 Instruction 440.1, exhibit B).
    (9) The interest rate for a consolidated OL loan or rescheduled OL 
loan/line of credit will be the negotiated rate agreed upon by the 
lender and the borrower subject to the limitations set out in 
Sec. 1980.175(e) of this subpart. If the rescheduled OL loan/line of 
credit has an outstanding interest rate buydown agreement in effect at 
the time of rescheduling, the interest rate will remain the same during 
the balance of the buydown agreement period. If the rescheduled OL loan/
line of credit has an outstanding Interest Assistance Agreement, the 
interest rate will not exceed the rate of the original Interest 
Assistance Agreement.
    (10) A rescheduled note or the new note which exists after a 
consolidation of two or more loans must be repaid over a period not to 
exceed fifteen (15) years from the date of the action, unless the note 
evidences a loan made solely for recreation and/or nonfarm enterprise 
purposes, in which case it must be repaid over a period not to exceed 
seven (7) years from the date of the action. A rescheduled OL line of 
credit agreement must be repaid over a period not to exceed seven (7) 
years from the date of the action; however, a new OL line of credit 
agreement that exists after consolidating an existing line of credit 
with a new line of credit cannot exceed the terms (to make advances as 
well as final maturity date) of the existing line of credit agreement. 
Balloon payments are prohibited, however, the loan can be rescheduled in 
unequal amortized installments, provided the current year and any 
typical year plan demonstrate that these installments will be used only 
in those cases where a new enterprise is being established, developing a 
farm, or during recovery from economic reverses. The consolidation will 
be reported to the Finance Office with Form FmHA or its successor agency 
under Public Law 103-354 1980-19, ``Guaranteed Loan Closing Report,'' 
along with a memorandum identifying which loans are being consolidated.
    (11) When a consolidation occurs, a new Form FmHA or its successor 
agency under Public Law 103-354 449-34 will be executed.
    (12) When a consolidation occurs, the new note or line of credit 
agreement will describe the notes or line of credit agreements being 
consolidated and will state that the indebtedness evidenced by such 
notes or line of credit agreements is not satisfied. The original notes 
or line of credit agreements will be retained for identification 
purposes.
    (c) Reamortization. The term ``reamortize'' means to rearrange the 
rates and/or terms of a loan(s) made for real estate purposes, i.e., FO, 
SW, RL, EM actual loss loans having basic security consisting of real 
estate, and EM major

[[Page 568]]

adjustment loans made for real estate (Subtitle A) purposes. Scheduled 
payments may be rearranged over the remaining term of the original 
repayment period established for the loan or assumption agreement (new 
terms), or be rearranged over a period not to exceed the maximum 
statutory period which is set at 40 years from the date of the original 
note.
    (1) No new note will be taken when a loan is reamortized. Instead, 
the existing note will be modified by attaching an ``allonge'' or other 
legally effective amendment, evidencing the revised repayment schedule 
and any interest rate change.
    (2) The interest rate for a reamortized EM actual loss loan will be 
at the same rate as the original loan.
    (3) The interest rate for a reamortized EM major adjustment loan for 
real estate purposes will be the current market rate in effect for 
similar type loans at the time of reamortization as established by the 
Secretary of Agriculture. This information is available from any Agency 
or its successor agency under Public Law 103-354 office. (See Agency or 
its successor agency under Public Law 103-354 Instruction 440.1, exhibit 
B).
    (4) The interest rate for a reamortized FO or SW loan will be the 
negotiated rate agreed upon by the lender and the borrower at the time 
of the action subject to the limitations set out in Secs. 1980.180 and 
1980.185 of this subpart, as applicable. The interest rate limitation 
set out in these sections will also apply when RL loans are reamortized. 
If the reamortized FO or SW loan still has an outstanding interest rate 
buydown agreement in effect at the time of reamortization, the interest 
rate will remain the same during the balance of the buydown agreement 
period. If the reamortized FO or SW loan has an outstanding Interest 
Assistance Agreement, the interest rate will not exceed the rate of the 
original Interest Assistance Agreement.
    (d) Deferral. The term ``defer'' means to postpone the payment of 
principal and/or interest on an FO, SW, RL, OL or EM loan or OL line of 
credit. Principal may be deferred in whole or in part. Interest may be 
deferred only in part. A partial payment of interest will be required 
during the deferment period.
    (1) Payments may be deferred for no more than five years, but in no 
case will the deferral period extend beyond the final due date of the 
note.
    (2) The lender must determine, and the Agency or its successor 
agency under Public Law 103-354 must concur, that scheduled payments 
cannot be made for reasons beyond the borrower's control as defined in 
paragraphs (a)(3)(i) and (ii) of this section and must also determine 
that there are reasonable prospects that the borrower will be able to 
resume full payments at the end of the deferral period.
    (e) Principal limit. As a result of the capitalization of interest, 
a rescheduled/reamortized note or line of credit agreement may increase 
the amount of principal which the borrower is required to pay above what 
would have been payable had the rescheduling, reamortization, or 
consolidation not occurred. However, in no case will such principal 
amount exceed the statutory loan limits set out in this subpart.
    (f) Lien priority. Additional security instruments will be required 
if needed to maintain lien priority or to protect the interests of the 
lender and the Agency.
[54 FR 1558, Jan. 13, 1989, as amended at 55 FR 23887, June 13, 1990; 56 
FR 8265, Feb. 28, 1991; 58 FR 48297, Sept. 15, 1993; 58 FR 69201, Dec. 
30, 1993; 60 FR 53264, Oct. 13, 1995]



Sec. 1980.125  Debt write down.

    (a) General requirements. In addition to the authorities available 
in Sec. 1980.124 of this subpart to consolidate, reschedule, reamortize 
and defer a guaranteed loan/line of credit, whether or not that loan/
line of credit agreement is delinquent, and the authority available in 
exhibit D concerning an Interest Assistance, a lender may only write 
down a delinquent guaranteed loan/line of credit agreement in amounts 
sufficient to permit the borrower to develop a feasible plan of 
operation. Such action may be taken with the written approval of the 
Agency provided:
    (1) The borrower cannot demonstrate a positive cash flow projection 
on all income and expenses, including debt service, after consideration 
is given to servicing the loan or line of credit

[[Page 569]]

agreement using the authorities provided in Sec. 1980.124 of this 
subpart. If a positive cash flow projection can be achieved using these 
authorities, then the loan or line of credit agreement will be 
consolidated, rescheduled, reamortized and/or deferred, and no write 
down will take place. If a positive cash flow cannot be achieved and the 
lender contemplates an interest rate reduction in connection with the 
write down, the borrower may be considered for an Interest Assistance 
under exhibit D of this subpart. If the proposed interest rate reduction 
results in a positive cash flow, the interest rate reduction and the 
write down may be approved, providing the remaining requirements in this 
paragraph can be met.
    (2) The loan or line of credit agreement, if written down, will 
result in a net recovery to the lender, during the term of the loan or 
line of credit agreement as written down, that would be more than or 
equal to the net recovery to the lender from the borrower through 
bankruptcy or from an involuntary liquidation or foreclosure of the 
security for the loan or line of credit. The calculations to be used in 
making this determination are found in paragraph (b) of this section.
    (3) The requirements found in Sec. 1980.124(a)(2) through (a)(5) of 
this subpart are met.
    (4) After being asked by the lender, other creditors of the borrower 
may agree to voluntarily adjust their debts as outlined in subpart A of 
part 1903 of this chapter. If other major creditors of the borrower, 
other than those that are fully collateralized, agree to participate in 
developing a restructuring plan or agree to participate in a State's 
farm mediation program, then the write down may be approved, providing 
the remaining requirements in this paragraph can be met. Failure of such 
creditors to agree to participate will not preclude use of a write down 
if the lender, with the Agency's or its successor agency under Public 
Law 103-354's concurrence, determines that a write down results in the 
least cost to the lender.
    (5) If the borrower owns real estate which secures the loan, the 
borrower must sign a shared appreciation agreement, as further specified 
in paragraph (c) of this section, covering the amount written down.
    (6) Any holder must agree to the write down in writing. If the 
holder does not agree to this action, the leader must repurchase the 
unpaid portion of the loan from the holder before the write down may be 
approved.
    (7) If a line of credit is written down, no further advances may be 
made under that agreement and the principal amount remaining after the 
write down fixes the principal amount covered by the guarantee.
    (8) The lender will obtain Agency or its successor agency under 
Public Law 103-354 approval of the proposed write down by submitting to 
the County Supervisor the following:
    (i) A cash flow statement indicating the borrower can pay all 
necessary expenses and service all debt after the write down.
    (ii) A current appraisal of the property securing the loan.
    (iii) An estimate of lender's cost relating to an involuntary 
liquidation or bankruptcy including disposal of any property taken into 
inventory.
    (iv) A proposed estimated loss claim.
    (v) A current balance sheet for the borrower.
    (9) If the borrower has both a line of credit and a loan, the lender 
will write down the line of credit before consideration will be given to 
a write down of the loan.
    (b) Value determination. The lender must determine the recovery 
value of the security and the value of the written down loan or line of 
credit agreement in order to determine the net recovery from a 
bankruptcy or an involuntary liquidation of the loan or line of credit. 
These determinations will be done as follows:
    (1) The recovery value of the security will be based on the amount 
of the current appraised value of the security less the estimated costs 
associated with liquidation and disposition of the loan/line of credit 
security.
    (i) The current appraised value will be determined by an independent 
appraiser selected by the lender and approved by the Agency. The 
appraisal fee will be shared equally by the lender and the Agency.

[[Page 570]]

    (ii) Any lease income estimated to be generated while the property 
is in the lender's inventory will be calculated to offset any of the 
estimated cost items listed in paragraph (iii) below.
    (iii) The estimated costs associated with liquidation and 
disposition include the following:
    (A) The payment of prior liens;
    (B) Taxes and assessments, depreciation, management costs, yearly 
percentage decrease or increase in the value of the property, and lost 
interest income, each calculated for the lender's average holding 
period, in the State in which the property is located, for the type of 
property involved;
    (C) Resale expenses, such as repairs, commissions, and advertising; 
and
    (D) Other reasonable and necessary administrative costs and 
expenses, including attorney's fees, that customarily are incurred in 
such liquidation and disposition.
    (2) The value of the written down loan/line of credit agreement will 
be based on the present value of payments that the borrower would make 
to the lender if the loan/line of credit terms were modified using any 
combination of the authorities provided in Secs. 1980.124 and 1980.125 
of this subpart or an Interest Assistance as provided in exhibit D of 
this subpart.
    (3) The loan may be written down with the Agency's approval if the 
calculations specified in paragraphs (b)(1) and (2) of this section show 
that the net recovery to the lender, during the term of the loan or line 
of credit agreement as written down, would be more than or equal to the 
net recovery to the lender from the borrower through bankruptcy or from 
an involuntary liquidation or foreclosure of the security.
    (c) Shared Appreciation Agreement. If the loan/line of credit 
agreement is to be written down in accordance with this section and 
there is real estate which is security for the loan/line of credit 
agreement, then the borrower must enter into an agreement that provides 
for recapture of a portion of any appreciation in the value of the real 
estate securing the remaining loan/line of credit after write down. This 
agreement is exhibit F to this subpart and is entitled ``Shared 
Appreciation Agreement.'' The lender will provide a copy of the shared 
appreciation agreement to the Agency.
    (1) The shared appreciation agreement will have a term not to exceed 
10 years from the date of the shared appreciation agreement and provide 
for the recapture of appreciation on real estate based on the difference 
between the appraised market value of the real estate at the time the 
loan/line of credit agreement is written down and at the time of 
recapture.
    (2) The shared appreciation agreement will provide that the amount 
recaptured will be 75 percent of the appreciated value of the real 
estate if the events described in paragraph (c)(3) of this section occur 
within 4 years of the write down, and 50 percent of such value if the 
recapture occurs during the remainder of the term of the agreement.
    (3) Recapture of the appreciated value of the real estate will occur 
either at the end of the term of the shared appreciation agreement or at 
the time the real estate is conveyed, the loan/line of credit agreement 
is repaid, or the borrower ceases farming, whichever occurs earlier. 
Transfer of title to the borrower's spouse on the borrower's death will 
not be treated as a conveyance for the purpose of recapture.
    (4) Any amount recaptured will be shared on a pro-rata basis between 
the lender and FmHA as provided in Form FmHA 1980-38.
    (5) In no case will the amount recaptured exceed the amount of debt 
written down.
    (d) Additional requirements. (1) The lender will use an addendum to 
the existing note or line of credit agreement which reflects the write 
down of the debt and the existence of any shared appreciation agreement.
    (2) If the interest rate is changed, the interest rate will be the 
negotiated rate agreed upon by the lender and the borrower, subject to 
the provisions of Sec. 1980.124 (b) (8) and (9) and (c) (2), (3), and 
(4) of this subpart, depending on the type of loan involved.
    (3) The lender must attach the original of exhibit F of this subpart 
to the promissory note or line of credit agreement which evidences a 
loan/line of credit agreement that is written down

[[Page 571]]

and to the Loan Note Guarantee or Contract of Guarantee. If a holder is 
involved, a copy of exhibit F will be attached to the original Form FmHA 
449-36, ``Assignment Guarantee Agreement,'' along with a copy of the 
note and Loan Note Guarantee. A copy of exhibit F will be kept in the 
County Office and attached to the appropriate Loan Note Guarantee or 
Contract of Guarantee.
    (4) As provided by paragraph I.D.3. of Form FmHA 1980-38, the lender 
will remit to the holder the holder's pro-rata share of any estimated 
loss claim payments made by the Agency after the writedown.
    (5) Additional security instruments will be required if needed to 
maintain lien priority or to protect the interests of the lender and the 
Agency. In addition, if exhibit F is executed, the lender is responsible 
for making sure that the security instruments also assure future 
collection of any appreciation in the real property covered by exhibit 
F.
    (6) The maximum amount of loss payment associated with a loan/line 
of credit agreement which has been written down will not exceed the 
percentage of the guarantee multiplied by the difference between the 
outstanding principal and interest balance of the loan/line of credit 
before the write down and the outstanding balance of the loan/line of 
credit after the write down. The lender will complete Form FmHA 449-30, 
``Loan Note Guarantee Report of Loss,'' to receive its pro-rata share of 
any loss sustained.
    (7) During the period of time in which the shared appreciation 
agreement is in effect, a note or line of credit agreement which has 
been written down cannot be consolidated.
[54 FR 1558, Jan. 13, 1989, as amended at 56 FR 8265, Feb. 28, 1991; 58 
FR 34334, June 24, 1993; 60 FR 53264, Oct. 13, 1995; 61 FR 35933, July 
9, 1996]



Sec. 1980.126  Mediation.

    Various States have mediation programs, which are designed to assist 
farm borrowers and their creditors in resolving financial disputes 
through the process of mediation. Where a State has such a farm credit 
mediation program, the lender shall participate in accordance with the 
rules of that system. The lender must not agree to any proposals 
concerning the rewriting of the terms of the guaranteed loan which do 
not comply with the provisions of Subpart A of this Part and this 
Subpart, especially Secs. 1980.124 and 1980.125. Any agreements reached 
as a result of such mediation must have prior concurrence by the State 
Director or designee. FmHA or its successor agency under Public Law 103-
354 is not bound by any agreements developed in mediation or findings of 
the mediator unless the Agency agrees to them in writing.
[54 FR 1558, Jan. 13, 1989, as amended at 61 FR 35933, July 9, 1996]



Secs. 1980.127--1980.128  [Reserved]



Sec. 1980.129  Planning and performing development.

    The lender is responsible for seeing that any buildings or other 
improvements or major land development to be paid for with loan funds 
are properly completed within a reasonable period of time. The lender is 
responsible for perfecting the required lien in the security, which 
includes ensuring that the security property is free of any mechanic's, 
materialmen's, or other liens which would affect lien priority. All 
major construction, major repairs, and major land development must be 
performed by qualified parties under conditions considered standard and 
prudent by commercial lenders and their financial regulators. Form FmHA 
449-11, ``Certificate of Acquisition or Construction,'' must be 
completed and submitted to the Agency. In connection with construction, 
the lender is responsible for:
    (a) Making sure there is compliance with applicable laws, 
ordinances, codes and regulations, including the Agency regulations, 
which affect all phases of construction. The lender may inspect the site 
and any construction or development work at any stage whenever the 
lender considers it necessary.
    (b) Seeing that the plans, specifications, and estimates are 
adequate.
    (c) Making sure of the rights to an adequate water supply of 
sufficient quantity and quality.
    (d) Identifying whether the construction or development will be 
performed by contract or other method.

[[Page 572]]

    (e) Checking to see that any necessary bonds covering contractors 
are in proper form.
    (f) Seeing that all equal opportunity and nondiscrimination 
requirements are met. (See Sec. 1980.41 of Subpart A of this part.)
    (g) Limiting periodic or partial payments for construction or 
development to a reasonable percentage of the actual value of work and 
material in place. The lender will make final payment only after seeing 
that the final inspection has been made.
    (h) Ascertaining that after planned development is completed, the 
requirements of Sec. 1980.108(a)(3)(i) of this Subpart are met.
[54 FR 1558, Jan. 13, 1989, as amended at 61 FR 35934, July 9, 1996]



Sec. 1980.130  Loan servicing.

    The lender will service the entire loan as mortgagee and/or secured 
party of record in a reasonable and prudent manner, notwithstanding the 
fact that a holder may hold a portion of the loan. The lender will 
obtain compliance with the covenants and provisions in the note, 
security instruments, and any other agreements, and notify FmHA or its 
successor agency under Public Law 103-354 of any violations. Specific 
requirements include:
    (a) Assuring that the borrower complies with all laws and ordinances 
which are applicable to the loan, the collateral, and/or operation of 
the farm.
    (b) Obtaining the lien coverage and lien priorities specified by the 
lender and agreed to by FmHA or its successor agency under Public Law 
103-354 and properly recording or filing lien or notice instruments in 
order to obtain and maintain such lien priorities during the existence 
of the guarantee by FmHA or its successor agency under Public Law 103-
354. In no case will FmHA or its successor agency under Public Law 103-
354 pay a loss claim on the portion of a loss which results from a 
lender's failure to obtain a perfected security interest in the loan 
collateral.
    (c) Obtaining assignments on all USDA crop and livestock program 
payments when required.
    (d) Assuring that the borrower obtains marketable title to the 
collateral.
    (e) Assuring that the borrower and any party liable for the loan is 
not released from liability for all or any part of the loan, except in 
accordance with FmHA or its successor agency under Public Law 103-354 
regulations.
    (f) Providing the FmHA or its successor agency under Public Law 103-
354 County Office with loan status reports on Form FmHA or its successor 
agency under Public Law 103-354 1980-41, ``Guaranteed Loan Status 
Report.'' The non-CLP lender must submit these reports annually as of 
December 31. The CLP lender must submit these reports as of March 31 and 
September 30 each year.
    (g) Obtaining financial statements from each borrower and guarantor 
at least annually. The lender is responsible for preparing an analysis 
of the farming operation, taking any servicing actions if required, and 
providing copies of the statements and a record of action to the FmHA or 
its successor agency under Public Law 103-354 office at least annually.
    (h) Monitoring the use of loan funds to assure they will not be used 
for any unauthorized purpose, including any purposes that will 
contribute to excessive erosion of highly erodible land or to the 
conversion of wetlands either to produce an agricultural commodity or to 
make the production of an agricultural commodity possible, as further 
explained in exhibit M of subpart G of part 1940 of this chapter
    (i) Assuring that the borrower has not converted loan security. If 
so, FmHA or its successor agency under Public Law 103-354 and the lender 
will determine whether the potential recovery will be cost effective. If 
it is determined that the recovery will be cost effective, the lender 
must pursue the conversion.
    (j) Assuring that the loan and collateral are protected in 
foreclosure, bankruptcy, receivership, insolvency, condemnation, or 
other litigation.
    (k) Assuring that proceeds from the sale or other disposition of 
collateral are accounted for and applied in accordance with the lien 
priorities on which the guarantee is based. Except

[[Page 573]]

as provided in Sec. 1980.190(c) of this section, a lender may allow 
proceeds from the disposition of collateral, such as machinery, 
equipment, furniture, or fixtures to be used to acquire replacement 
collateral of similar nature and value only with written agreement from 
FmHA or its successor agency under Public Law 103-354.
    (l) Assuring that insurance loss payments, condemnation awards, or 
similar proceeds are applied to debts in accordance with lien priorities 
on which the guarantee was based, or to rebuilding or acquiring needed 
replacement collateral with the written approval of FmHA or its 
successor agency under Public Law 103-354.
    (m) Seeing that all construction is properly planned before any work 
proceeds; that any required permits, licenses or authorizations are 
obtained from the appropriate regulatory agencies; that the borrower has 
obtained contracts through acceptable procurement procedures; that 
periodic inspections during construction are made; and that FmHA or its 
successor agency under Public Law 103-354 agrees to the overall 
development schedule.
[58 FR 34334, June 24, 1993, as amended at 61 FR 35934, July 9, 1996]



Sec. 1980.131  Appraisal review.

    The State Director or designee(s) will:
    (a) Provide for the framework of the real estate appraisal review 
and monitoring function and the documentation thereof;
    (b) Perform appraisal reviews in accordance with the requirements of 
Standard 3 of the USPAP and perform at least one appraisal review per 
fiscal year for either each appraiser, or each lending institution that 
prepares, or uses, a real estate appraisal for the guaranteed program in 
a given fiscal year; and
    (c) Provide appraisal training and guidance to assist State and 
field office personnel in making guaranteed approval decisions and serve 
as a resource to approval and underwriting officials performing 
administrative appraisal reviews, as needed.
[58 FR 34335, June 24, 1993]



Secs. 1980.132--1980.135  [Reserved]



Sec. 1980.136  Protective advances.

    Protective advances are advances made by a lender when the borrower 
is in liquidation or close to being liquidated to protect or preserve 
the collateral itself from loss or deterioration. Protective advances 
include advances made for property taxes, annual assessments, ground 
rent, hazard or flood insurance premiums affecting the collateral, and 
other expenses necessary to preserve or protect the security. Attorney 
fees are not a protective advance.
    (a) The Agency's written authorization is required on all protective 
advances in excess of $3,000 made by a CLP lender. For non-CLP lenders, 
the amount is $500.
    (b) Protective advance requests requiring Agency approval must be 
accompanied by a repayment plan showing adequate repayment ability for 
the advance and all other debts. If a feasible repayment plan cannot be 
developed, a liquidation plan will be submitted with the protective 
advance request.
    (c) The County Supervisor is authorized to approve protective 
advances up to $10,000 and will consult with the lender on future 
servicing of the account. The State Director is authorized to approve 
protective advances in excess of $10,000. Such protective advances must 
be approved in writing by the County Supervisor or State Director.
    (d) Protective advances must constitute a debt of the borrower to 
the lender and be secured by the security instruments.
    (e) It is not intended that protective advances be made in lieu of 
additional loans.
[58 FR 34335, June 24, 1993, as amended at 61 FR 35934, July 9, 1996]



Secs. 1980.137--1980.138  [Reserved]



Sec. 1980.139  Termination of Loan Note Guarantee or Contract of Guarantee.

    See paragraph 12 of Form FmHA or its successor agency under Public 
Law 103-354 449-34, or paragraph 6 of Form

[[Page 574]]

FmHA or its successor agency under Public Law 103-354 1980-27.
[58 FR 34335, June 24, 1993]



Secs. 1980.140--1980.143  [Reserved]



Sec. 1980.144  Bankruptcy.

    (a) General. In bankruptcies, there are two separate proceedings: 
liquidation and reorganization under the bankruptcy court's protection. 
It is the lender's responsibility to protect the guaranteed loan debt 
and all collateral securing the loan in bankruptcy proceedings (refer to 
Sec. 1980.130 of this subpart). These responsibilities include, but are 
not limited to:
    (1) The lender will file a proof of claim where necessary and all 
the necessary papers and pleadings concerning the case.
    (2) The lender will attend and where necessary participate in 
meetings of the creditors and all court proceedings.
    (3) The lender, whose collateral is subject to being used by the 
bankruptcy estate, will immediately seek adequate protection of the 
collateral, including petitioning for a super priority. Adequate 
protection of the collateral, depending on interpretation, may take 
several forms. In a bankruptcy, the trustee is authorized to sell, lease 
or use the collateral if the borrower's business is in operation. The 
only collateral the trustee cannot utilize is cash collateral unless the 
secured creditor grants permission or the bankruptcy court authorizes 
the use of such after giving a proper hearing and notice.
    (i) Cash collateral means cash, negotiable instruments, documents of 
title, securities, deposit accounts, or other cash equivalents, such as 
accounts receivable.
    (ii) Concerning machinery, equipment and real estate, adequate 
protection can be interpreted differently under reorganization. The 
bankruptcy trustee could dispose of certain collateral and grant to the 
secured party a replacement lien on some other collateral which may or 
may not have the same value. For example, the lender may hold a first 
lien on a good saleable piece of real estate and could find replacement 
of this particular parcel of property with a second or possibly a third 
lien on another parcel of land that the lender may find undesirable for 
adequate protection. There are no guarantees to the lender when the 
borrower is in reorganization that the collateral will be protected to 
the lender's satisfaction. The lender should be fully aware of what is 
taking place with the collateral and resist any adverse changes that may 
be made in the collateral securing the FmHA or its successor agency 
under Public Law 103-354 guaranteed loan.
    (4) When permitted by the Bankruptcy Code, the lender will request a 
modification of any plan of reorganization whenever it appears that 
additional recoveries are likely. In Chapters 11, 12, and 13 bankruptcy 
cases, the lender will monitor the plans to determine whether the 
borrower is fulfilling the requirements of the plan and take appropriate 
action to obtain dismissal of the case if the borrower fails to comply 
with the requirements of the plan. A dismissal of the plan by the 
bankruptcy court would restore the original outstanding indebtedness at 
the time the reorganization plan was approved.
    (5) FmHA or its successor agency under Public Law 103-354 will be 
kept adequately and regularly informed in writing on all aspects of the 
proceedings.
    (b) Reorganization bankruptcy cases. (1) In Chapters 11, 12, or 13 
reorganization, if an independent appraisal of collateral is necessary 
in FmHA or its successor agency under Public Law 103-354's opinion, FmHA 
or its successor agency under Public Law 103-354 and the lender will 
share the appraisal fee equally.
    (2) Lender expenses, in Chapters 11, 12, or 13 reorganization cases, 
are not deducted from the proceeds of the collateral because a 
reorganization is not a liquidation. All expenses incurred by the lender 
(including attorney's fees), while the borrower is in reorganization, 
are considered normal expenses of servicing the account, and therefore 
are the responsibility of the lender and are not deductible from the 
proceeds of the collateral or covered under the FmHA or its successor 
agency under Public Law 103-354 guarantee.
    (c) Liquidation bankruptcy cases. (1) Reasonable and customary 
liquidation

[[Page 575]]

expenses may be deducted from the proceeds of the collateral in 
liquidation bankruptcy cases provided the lender is doing the actual 
liquidation of the collateral and presents adequate written 
justification for each expense and secures FmHA or its successor agency 
under Public Law 103-354's written concurrence prior to incurring the 
expense.
    (2) If a trustee is appointed by the bankruptcy court to sell the 
collateral under a conversion of a reorganization plan to a liquidation 
plan or Chapter 7, the trustee rather than the lender, in this instance, 
is responsible for liquidating the collateral. Normally, any expenses 
incurred by the lender during this period are not considered liquidation 
expenses and cannot be deducted from collateral proceeds. The lender is 
not engaged in the actual liquidation but is performing in a manner 
considered to be normal servicing of the loan under the circumstances.
    (3) If the property is abandoned by the trustee and the lender is 
actually engaged in actual liquidation, reasonable liquidation expenses 
would be recoverable from liquidation proceeds with prior written 
concurrence for each expense from FmHA or its successor agency under 
Public Law 103-354 before the expense is incurred.
    (d) Loss payments. (1) Estimated loss payments. If a borrower has 
filed for protection under a reorganization bankruptcy, the lender will 
request a tentative estimated loss payment of accrued interest and 
principal written off. This request can only be made after the 
bankruptcy plan is confirmed by the court. The lender will be entitled 
to accrued interest up to the date the confirmed plan becomes effective. 
Only one estimated loss payment is allowed during the reorganization 
bankruptcy. All subsequent claims during reorganization will be 
considered revisions to the initial estimated loss. A revised estimated 
loss payment may be processed by FmHA or its successor agency under 
Public Law 103-354 at its option in accordance with any court-approved 
changes in the reorganization plan. At the time the performance under 
the confirmed reorganization plan has been completed, the lender is 
responsible for providing FmHA or its successor agency under Public Law 
103-354 with documentation necessary to review and adjust if necessary 
the estimated loss claim to reflect actual principal and interest 
reduction on any part of the guaranteed debt determined to be unsecured. 
The lender will use Form FmHA or its successor agency under Public Law 
103-354 449-30 to request an estimated loss payment and to revise an 
estimated loss payment during the course of the reorganization plan. The 
estimated loss claim and any revisions of the claim will be accompanied 
by supporting legal documentation. Form FmHA or its successor agency 
under Public Law 103-354 1980-44 will be submitted by the lender to the 
County Office at the beginning of and upon completion of the 
reorganization plan.
    (2) Interest loss payments. (i) Interest loss payments for any 
court-ordered interest rate reduction sustained during the period of the 
reorganization plan will be processed in accordance with paragraph 
(d)(1) of this section. Interest loss claims will be filed on the 
anniversary date of the first payment under the confirmed plan and will 
include interest accrual to that date.
    (ii) Interest loss payments sustained after the reorganization plan 
is completed will be processed annually when the lender sustains a loss 
as a result of a permanent interest rate reduction extending beyond the 
period of the reorganization plan.
    (iii) Form FmHA or its successor agency under Public Law 103-354 
449-30 will be completed to compensate the lender for the difference in 
interest rates specified on the Guaranteed Contract and the rate of 
interest specified by the bankruptcy court.
    (3) Final loss payment. (i) Final loss payments will be processed 
when the loan is liquidated.
    (ii) If the loan is paid in full without an additional loss, the 
Finance Office will close out the estimated loss account at the time 
notification of payment in full is received.
    (4) Payment application. The lender must apply estimated loss 
payments first to the unsecured principal of the guaranteed portion of 
the debt and then to the unsecured interest of the guaranteed portion of 
the debt. If a

[[Page 576]]

court attempts to direct payments to be applied otherwise, the lender 
will notify the FmHA or its successor agency under Public Law 103-354 
servicing office immediately.
    (5) Overpayments. Upon completion of the reorganization plan, the 
lender will provide FmHA or its successor agency under Public Law 103-
354 with the documentation necessary to determine whether the estimated 
loss paid equals the actual loss sustained. As a result of the 
reorganization, if the actual loss sustained is greater than the 
estimated loss payment, the lender will submit a revised estimated loss 
form in order to obtain payment of the additional amount owed by FmHA or 
its successor agency under Public Law 103-354. If the actual loss 
payment is less than the estimated loss, the lender will reimburse FmHA 
or its successor agency under Public Law 103-354 for the overpayment 
plus interest at the note rate from the date of the payment of the 
estimated loss.
    (6) Protective advances. Authorized protective advances may be 
included with the estimated loss payment associated with the 
reorganization bankruptcy, provided they were incurred in connection 
with liquidation of the account prior to the borrower filing bankruptcy. 
Protective advances during a bankruptcy reorganization are not 
authorized. As a result of a liquidation action, if approved protective 
advances were made prior to the borrower having filed bankruptcy, the 
protective advances and accrued interest will be entered on Form FmHA or 
its successor agency under Public Law 103-354 449-30.
    (7) Legal fees. Legal fees of any kind incurred to defend the bank's 
claim during the bankruptcy proceedings are not covered by the 
guarantee. Also, proceeds received from the sale of collateral during 
bankruptcy cannot be used to pay legal fees.

                             Administrative

    A. The lender is responsible for advising FmHA or its successor 
agency under Public Law 103-354 of the completion of the reorganization 
plan. The lender is also responsible for advising FmHA or its successor 
agency under Public Law 103-354 if the borrower does not comply with the 
plan and servicing action the lender will take to protect the interest 
of the lender and FmHA or its successor agency under Public Law 103-354. 
However, the FmHA or its successor agency under Public Law 103-354 
servicing office will monitor the lender's files to ensure timely 
notification of servicing actions.
    B. When an estimated loss claim is paid during the operation of the 
reorganization plan, and the borrower repays the loan in full without an 
additional loss sustained by the lender, a Final Report of Loss is not 
necessary. The Finance Office will close out the estimated loss account 
as a Final Loss at the time notification of payment in full is received.
    C. If the bankruptcy court attempts to direct that loss payments 
will be applied to the account other than the unsecured principal first 
and then to unsecured accrued interest, the lender is responsible for 
notifying the FmHA or its successor agency under Public Law 103-354 
servicing office immediately. The FmHA or its successor agency under 
Public Law 103-354 servicing office will then obtain advice from OGC on 
what actions FmHA or its successor agency under Public Law 103-354 
should take.
    D. Accrued interest owed to the lender should be supported by 
documentation as to how the accrued interest amount was calculated by 
the lender. A copy of the promissory note and ledger should also be 
attached. As part of the review of the final loss claim, FmHA or its 
successor agency under Public Law 103-354 should be assured that the 
lender has not accrued interest on the principal and interest amount of 
the loan that was paid by the estimated loss payment. The approval 
official is responsible for verifying the accuracy of the interest 
calculations on the final report of loss before submission to the 
Finance Office.
    E. Repurchase of Notes--In cases where a default on the guaranteed 
note does not exist, the State Director may approve the repurchase of 
the unpaid guaranteed portion of the loan(s) from any holder(s) to 
reduce interest accrual during a Chapter 7 proceeding, or after a 
Chapter 11 proceeding becomes a liquidation proceeding. (Refer to 
Sec. 1980.119 of this subpart).
    F. All loss claims must be approved by the State Director. The 
County Supervisor will accept Form 449-30 from the lender, review the 
form for accuracy, and forward the form to the State Director for 
approval. The State Director will submit Form FmHA or its successor 
agency under Public Law 103-354 449-30 to the Finance Office.
[54 FR 1558, Jan. 13, 1989, as amended at 58 FR 34335, June 24, 1993]



Sec. 1980.145  Defaults by borrower.

    (a) See paragraph I.D.6. of Form FmHA or its successor agency under 
Public Law 103-354 1980-38.

[[Page 577]]

    (b) The lender will prepare current financial information including 
a cash flow and will schedule a meeting with the County Supervisor and 
the borrower to discuss possible solutions including Interest Assistance 
to resolve the borrower's financial problems.
    (c) A record of the meeting will be prepared by the lender, which 
will at least include a list of the individuals who attend, and a 
summary of the problem and proposed solutions. The original will be 
retained in the lender's loan file and a copy will be submitted to the 
County Supervisor and the borrower.
    (d) If the lender and the borrower's proposed action is either 
denied or partially denied, the County Supervisor will notify the lender 
and the borrower in writing within 10 days of FmHA or its successor 
agency under Public Law 103-354's decision of all the reasons for the 
decision and advise them of their opportunity to jointly appeal the 
decision as set out in subpart B of part 1900 of this chapter.

                             Administrative

    A. The County Supervisor will review and distribute Form FmHA or its 
successor agency under Public Law 103-354 1980-44 in accordance with the 
preparation instructions in the FMI upon receipt of the lender's default 
notification in accordance with paragraph I.D.5. of Form FmHA or its 
successor agency under Public Law 103-354 1980-38. The County Supervisor 
will coordinate and process any request for FmHA or its successor agency 
under Public Law 103-354 to purchase (as outlined in Sec. 1980.119 of 
this subpart) when the holder(s) is located in close proximity to the 
local lender. If any holder is located outside the area, the State 
Director will designate an employee to handle the repurchase 
arrangements. If the employee is not the County Supervisor, the County 
Supervisor will be notified of the transaction.
    B. The County Supervisor will verify the amounts due the holder(s), 
and transmit the holder's demand for payment by memorandum to the State 
Director. Copies of evidence of the holder's ownership will be included. 
Any original evidence of ownership will be retained in the County 
Office. A proposed payment date will be established in order to 
calculate the interest due the holder(s).
    C. In the event of default or servicing problems, the County 
Supervisor will use Form FmHA or its successor agency under Public Law 
103-354 1980-37, ``FmHA or its successor agency under Public Law 103-354 
purchase of a Guaranteed Loan Portion,'' to request a check to pay the 
guaranteed portion of a loan(s) to the holder(s) when necessary. The 
Finance Office will forward the check within 10 days after receipt of 
the request.
    D. Any evidence of ownership retained in the County Office will be 
considered in any future report of loss calculations. A record of any 
purchase will be maintained in the loan file.
[54 FR 1558, Jan. 13, 1989, as amended at 58 FR 34336, June 24, 1993]



Sec. 1980.146  Liquidation.

    If the lender concludes that liquidation of a guaranteed loan 
account is necessary due to default or third party actions which the 
borrower cannot or will not cure or eliminate within a reasonable period 
of time, a meeting will be arranged by the lender with FmHA or its 
successor agency under Public Law 103-354. All liquidations must receive 
prior concurrence by the County Supervisor. The District Director or 
State Office will be consulted on complex cases for advice. When FmHA or 
its successor agency under Public Law 103-354 concurs with the lender's 
conclusion or at any time concludes independently that liquidation is 
necessary, it will notify the lender and the matter will be handled as 
follows:
    (a) The lender will liquidate the loan unless FmHA or its successor 
agency under Public Law 103-354, at its option, decides to carry out the 
liquidation. FmHA or its successor agency under Public Law 103-354 will 
exercise the option to liquidate only when there is reason to believe 
the lender's liquidating plan is not likely to provide a reasonably 
adequate recovery. If FmHA or its successor agency under Public Law 103-
354 liquidates, all of the requirements for liquidating an FmHA or its 
successor agency under Public Law 103-354 insured loan will be followed 
(see subpart A of part 1955, subpart A of part 1962 and subpart A of 
part 1965 of this chapter). When FmHA or its successor agency under 
Public Law 103-354 exercises the option to liquidate, the State Director 
or designee will be the approval official. When such a decision is made, 
the approval official will submit Form FmHA or its successor agency 
under Public Law 103-354 1980-45, ``Notice of Liquidation 
Responsibility,'' to the Finance Office.

[[Page 578]]

    (b) When the decision to liquidate is made, the lender may proceed 
to purchase the guaranteed portion of the loan from the holder(s). The 
holder(s) will be paid according to the provisions in the Loan Note 
Guarantee or the Assignment Guarantee Agreement.
    (c) If the lender does not purchase the guaranteed portion of the 
loan, FmHA or its successor agency under Public Law 103-354 will be 
notified immediately in writing. FmHA or its successor agency under 
Public Law 103-354 will then purchase the guaranteed portion of the loan 
from the holder(s). If FmHA or its successor agency under Public Law 
103-354 holds any of the guaranteed portion, FmHA or its successor 
agency under Public Law 103-354 will be paid its pro rata share of the 
proceeds from liquidation of the collateral first.
    (d) The liquidation and loss claim will be handled as follows:
    (1) Lender's proposed method of liquidation. The lender may use any 
method of liquidation customary to the farm lending industry so long as 
the method will result in the maximum collection possible on the debt. 
Within 30 days following the decision to liquidate, the lender will 
advise FmHA or its successor agency under Public Law 103-354 in writing 
of its proposed detailed method of liquidation. This is called a 
liquidation plan and will provide FmHA or its successor agency under 
Public Law 103-354 with the following:
    (i) Proof of the lender's ownership of the guaranteed loan 
promissory note(s), line of credit agreement(s) and related security 
instruments.
    (ii) a list of borrower's assets including real and personal 
property, fixtures, claims, inventory (including perishables), accounts 
receivable, personal and corporate guarantees, and other existing and 
contingent assets, together with notice of which items are serving as 
collateral for the guaranteed loan.
    (iii) A proposed method of maximizing the collection of debts. The 
lender should also specify how to collect any remaining loan balances of 
the guaranteed loan(s). After all loan collateral has been liquidated, 
possibilities for judgements will be determined.
    (iv) The lender will obtain an independent appraisal report on all 
collateral securing the loan which will reflect the current market value 
and potential liquidation value. The appraisal report is to allow the 
lender and FmHA or its successor agency under Public Law 103-354 to 
determine the appropriate liquidation actions. Any independent 
appraiser's fee will be shared equally by FmHA or its successor agency 
under Public Law 103-354 and the lender. Both the lender and FmHA or its 
successor agency under Public Law 103-354 recover this cost from the 
first collateral sales proceeds received, each taking half of the 
proceeds until the cost of the appraisal is recovered. The funds that 
are collected as recovery of an appraisal fee will be forwarded to the 
Finance Office along with Form FmHA or its successor agency under Public 
Law 103-354 1980-40, ``Reverse of Report of Liquidation Expense.''
    (v) An estimate of time necessary to complete the liquidation. When 
the lender is conducting a liquidation that the lender estimates will 
take longer than 90 days and owns any of the guaranteed portion of the 
loan, the lender will request a tentative loss estimate by submitting to 
FmHA or its successor agency under Public Law 103-354 an estimate of the 
loss claim that will occur upon liquidation of the loan. The estimated 
loss claim will be submitted with the liquidation plan.
    (vi) In cases where the lender becomes aware that the borrower has 
converted loan security, FmHA or its successor agency under Public Law 
103-354 and the lender will determine whether the potential recovery 
will be cost effective. The lender must address in the liquidation plan 
whether the recovery will be pursued.
    (2) FmHA or its successor agency under Public Law 103-354's response 
to lender's liquidation plan. The County Supervisor will have approval 
authority for the lender's liquidation plan. FmHA or its successor 
agency under Public Law 103-354 will inform the lender in writing 
whether it concurs with the lender's liquidation plan within 30 days 
upon receipt of such plan from the lender. If FmHA or its successor 
agency under Public Law 103-354 needs additional time to respond to the 
liquidation plan,

[[Page 579]]

it will inform the lender of an alternate deadline for the response. 
Should FmHA or its successor agency under Public Law 103-354 and the 
lender not agree on the lender's liquidation plan, negotiation will take 
place between FmHA or its successor agency under Public Law 103-354 and 
the lender to resolve any disagreement. Should FmHA or its successor 
agency under Public Law 103-354 opt to conduct the liquidation, FmHA or 
its successor agency under Public Law 103-354 will proceed as follows:
    (i) The lender will transfer to FmHA or its successor agency under 
Public Law 103-354 all rights and interests necessary to allow FmHA or 
its successor agency under Public Law 103-354 to liquidate the loan. In 
this event, the lender will not be paid for any loss until after the 
collateral is liquidated and the final loss is determined by FmHA or its 
successor agency under Public Law 103-354.
    (ii) FmHA or its successor agency under Public Law 103-354 attempt 
to obtain the maximum amount of proceeds from the liquidation.
    (iii) FmHA or its successor agency under Public Law 103-354 may 
choose one or any combination of the usual commercial methods of 
liquidation.
    (3) Acceleration. The lender or FmHA or its successor agency under 
Public Law 103-354, if it liquidates, will proceed as expeditiously as 
possible when acceleration of the debt is necessary, including giving 
any notices and taking any other required legal action. A copy of the 
acceleration notice or other acceleration document will be sent to FmHA 
or its successor agency under Public Law 103-354 or the lender, as the 
case may be.
    (4) Liquidation--accounting and reports. When the lender conducts 
the liquidation, it will account for funds during the period of 
liquidation and will provide FmHA or its successor agency under Public 
Law 103-354 with periodic reports on the progress of liquidation, 
disposition of collateral, final costs, and any additional procedures 
necessary for successful completion of liquidation. The County 
Supervisor will accept or reject the accounting reports as submitted by 
the lender. When FmHA or its successor agency under Public Law 103-354 
is the holder of a portion of the guaranteed loan, the lender will 
transmit to FmHA or its successor agency under Public Law 103-354 any 
payment received from the borrower, including the pro rata share of 
liquidation or other proceeds, using Form FmHA or its successor agency 
under Public Law 103-354 1980-43, ``Lender's Guaranteed Loan Payment.'' 
When FmHA or its successor agency under Public Law 103-354 liquidates, 
the lender will be provided with similar reports (with copies to the 
District and State FmHA or its successor agency under Public Law 103-354 
offices).
    (e) Form FmHA or its successor agency under Public Law 103-354 449-
30 will be used to calculate the estimated and final loss. The State 
Director has approval authority for all loss claims. If approved, the 
State Director will submit Form FmHA or its successor agency under 
Public Law 103-354 449-30 to the Finance Office, with copies to the 
District and County Office. The Finance Office will forward loss payment 
checks within 10 days of receipt of the request to the County Supervisor 
for delivery to the lender.
    (1) Estimated loss payments. Estimated loss payments may be approved 
by FmHA or its successor agency under Public Law 103-354 only after the 
lender has received FmHA or its successor agency under Public Law 103-
354's approval of the liquidation plan, debt writedown plan, or a 
reorganization plan which has been approved by the bankruptcy court. 
FmHA or its successor agency under Public Law 103-354ted loss, provided 
the lender applies the payment to the outstanding principal balance owed 
on the guaranteed debt. The lender will discontinue interest accrual on 
the defaulted loan at the time the estimated loss claim is approved by 
FmHA or its successor agency under Public Law 103-354. The estimate will 
be prepared and submitted by the lender on Form FmHA or its successor 
agency under Public Law 103-354 449-30, using the appraisal value as 
opposed to the amount received from the sale of the collateral. 
Estimated loss payments will be inserted under ``Amount Due Lender'' on 
Form FmHA or its successor agency under Public Law 103-354 449-30. The 
Director, Finance Office,

[[Page 580]]

will forward loss payment checks within 30 days of receipt of the 
request.
    (2) Final loss payments. In all liquidation cases, final settlement 
will be made with the lender after the collateral is liquidated. FmHA or 
its successor agency under Public Law 103-354 will have the right to 
recover any losses it paid under the Guarantee from the borrower or any 
other liable party.
    (i) After the lender has completed liquidation, FmHA or its 
successor agency under Public Law 103-354 may audit the account and will 
determine the actual loss upon receipt of the final accounting and 
Report of Loss. If FmHA or its successor agency under Public Law 103-354 
has any questions regarding the amount set forth in the final Report of 
Loss, it will investigate the matter. The lender will make its records 
available to and otherwise assist FmHA or its successor agency under 
Public Law 103-354 in making the investigation. If FmHA or its successor 
agency under Public Law 103-354 finds any discrepancies, it will contact 
the lender and arrange for the necessary corrections to be made as soon 
as possible. When FmHA or its successor agency under Public Law 103-354 
finds the final Report of Loss to be proper in all respects, the loss 
claim will be tentatively approved in the space provided on the form for 
that purpose. If a lender's final loss claim is either denied or 
reduced, the County Supervisor will notify the lender in writing within 
10 days of FmHA or its successor agency under Public Law 103-354's 
decision, of all the reasons for the decision, and advise the lender of 
its opportunity for an appeal as set out in Sec. 1980.80 of subpart A of 
this part and subpart B of part 1900 of this chapter.
    (ii) In those instances where the lender has made authorized 
protective advances, it may claim recovery for the guaranteed portion of 
any loss monies advanced as protective advances, including any accrued 
interest resulting from the protective advances. Payment will be made by 
FmHA or its successor agency under Public Law 103-354 when the final 
Report of Loss is approved.
    (iii) Final loss payments will be made within 30 days after review 
of the accounting of the collateral.
    (iv) When the lender has conducted liquidation and after the final 
Report of Loss has been tentatively approved:
    (A) If the loss is greater than the estimated loss, the Agency will 
pay the additional amount owed to the lender.
    (B) If the loss is less than the estimated loss, the lender will 
reimburse the Agency for the overpayment plus interest at the note rate 
from the date of overpayment.
    (3) Future Recovery. The lender will remit any future recoveries to 
the Agency in proportion to the percentage of guarantee in accordance 
with the Lender's Agreement until the account is paid in full or 
otherwise satisfied. A lender may, with Agency concurrence, release a 
borrower or cosigner from liability when adequate compensation is 
received or it is mutually agreed that there is very little probability 
of future recovery from the borrower or cosigner.
    (4) Maximum amount of interest payment. Notwithstanding any other 
provisions of this subpart, the amount payable by the Agency to the 
lender cannot exceed the limits set forth in the Loan Note Guarantee. If 
the Agency conducts the liquidation, any loss which occurred by accrued 
interest will be covered by the guarantee only to the date the Agency 
accepts responsibility for the liquidation. Any loss occasioned by 
accrued interest will be covered to the extent of the guarantee to the 
date of final settlement when the liquidation is conducted by the 
lender, provided it proceeds expeditiously with the liquidation plan 
approved by the Agency, except when an estimated loss claim is filed. If 
a lender files an estimated loss claim, the lender will discontinue 
interest accrual on the defaulted loan when the estimated loss claim is 
approved by the Agency. The balance of any accrued interest payable to 
the lender will be calculated on the final Report of Loss form.
    (5) Application of the Agency loss payment. The estimated loss 
payment shall be applied as of the date of such payment. The total 
amount of the loss payment drafted by the Agency will be applied by the 
lender on the guaranteed portion of loan debt. However, such application 
does not release the borrower from liability. Such amounts

[[Page 581]]

are only to compensate the lender for the loss. In all cases, a final 
Form FmHA 449-30 prepared and submitted by the lender must be processed 
by the Agency in order to close out files.
    (6) Income from collateral. Any net rental or other income that has 
been received by the lender from the collateral will be applied on the 
guaranteed loan debt.
    (7) Liquidation costs. Certain reasonable liquidation costs will be 
allowed during the liquidation process. Reasonable is defined as the 
prevailing rate charged in the area for like services. These liquidation 
costs will be submitted as part of the liquidation plan. Such costs will 
be deducted from gross proceeds from the disposition of collateral, 
unless the costs have been previously determined by the Agency to be 
protective advances. Therefore, if liquidation never occurs or if 
liquidation is conducted by someone other than the lender (a bankruptcy 
trustee, for example), there can be no allowable liquidation costs. If 
circumstances have changed after submission of the liquidation plan 
which require a revision of liquidation costs, the lender will obtain 
the Agency's written concurrence prior to proceeding with any proposed 
changes. No in-house expenses of the lender will be allowed. In-house 
expenses include, but are not limited to: employee's salaries, staff 
lawyers, travel, and overhead.
    (8) Foreclosure. The lender is responsible for determining who the 
necessary parties are to any foreclosure action or who should be named 
on a deed of conveyance taken in lieu of foreclosure. When the 
conveyance is received and the property is liquidated, the net proceeds 
will be applied to the guaranteed loan debt. If the Agency has 
repurchased the guaranteed portion of the loan from the holder, the 
lender must obtain the Agency's concurrence to any foreclosure action to 
be taken by the lender; however, the Agency will not be considered to be 
a necessary party to the action or otherwise required to join in.
[58 FR 34336, June 24, 1993, as amended at 61 FR 43149, Aug. 21, 1996]



Secs. 1980.147--1980.173  [Reserved]



Sec. 1980.174  Percentage of guarantee.

    (a) The maximum percentage of guarantee is 90 percent, except in the 
following situations when lenders will be provided a 95 percent 
guarantee:
    (1) When the sole loan purpose of a guaranteed OL or FO loan is to 
refinance a direct FSA farm credit program loan.
    (2) When the purpose of an FO loan guarantee is to participate in 
the down payment loan program.
    (3) When a guaranteed OL is made to a farmer or rancher who is 
participating in the down payment loan program. The guaranteed OL must 
be made during the period that a borrower has a direct FO loan 
outstanding for acquiring a farm or ranch.
    (4) When a guaranteed OL or FO loan is requested for multiple 
purposes and only a portion of the loan is used to refinance a direct 
FSA farm credit program loan, in which case a weighted percentage of 
guarantee is provided.
    (b) Guarantees issued to CLP lenders are never at a guarantee rate 
of less than 80 percent.
[62 FR 9358, Mar. 3, 1997, as amended at 62 FR 28619, May 27, 1997]



Sec. 1980.175  Operating loans.

    (a) Objectives. The basic objective of the guaranteed OL loan 
program is to provide credit for family farmers and ranchers to conduct 
operations when credit is not available without a guarantee. This 
assistance provides family farm operators an opportunity to make 
efficient use of their land, labor and other resources, to improve their 
living conditions and to improve their overall economic situation.
    (b) The applicant, and anyone who will execute the promissory note, 
has not caused the Agency a loss by receiving debt forgiveness on all or 
a portion of any direct or guranteed loan made under the authority of 
the Consolidated Farm and Rural Development Act (CONACT) by debt write-
down, write-off, compromise under the provisions of section 331 of the 
CONACT, adjustment, reduction, charge-off or discharge in bankruptcy or 
through any payment of a guaranteed loss claim

[[Page 582]]

under the same circumstances. Notwithstanding the restrictive provisions 
of this paragraph, applicants who received a write-down under section 
353 of the CONACT may receive direct and guaranteed OL loans to pay 
annual farm and ranch operating expenses, which includes family 
subsistence if the applicant meets all other eligibility requirements. 
Further, the applicant, and anyone who will execute the promissory note, 
cannot be delinquent on any federal debt. The restriction will not apply 
if the Federal delinquency is cured on or before the loan closing date.
    (1) An individual must:
    (i) Be a citizen of the United States (See Sec. 1980.106(b) of this 
subpart for the definition of ``United States'') or an alien lawfully 
admitted to the United States for permanent residence under the 
Immigration and Nationality Act. Aliens must provide INS Forms I-151 or 
I-551, ``Alien Registration Receipt Card.'' Indefinite parolees are not 
eligible. If the authenticity of the information shown on the alien's 
identification document is questioned, the County Supervisor may request 
the Immigration and Naturalization Service (INS) to verify the 
information appearing on the alien's identification card by completing 
INS Form G-641, ``Application for Verification of Information from 
Immigration and Naturalization Records,'' obtainable from the nearest 
INS district. (See Exhibit B of Subpart A of Part 1944 of this chapter.) 
Mail the completed form to INS. The payment of a service fee by Agency 
to INS is waived by inserting in the upper right hand corner of INS Form 
G-641, the following: ``INTERAGENCY LAW ENFORCEMENT REQUEST.''
    (ii) Possess the legal capacity to incur the obligations of the 
loan.
    (iii) Have sufficient applicable educational and/or on the job 
training or farming experience in managing and operating a farm or ranch 
(within 1 of the last 5 years) which indicates the managerial ability 
necessary to assure reasonable prospects of success in the proposed plan 
of operation.
    (iv) Have the character (emphasizing credit history, past record of 
debt repayment and reliability), and industry to carry out the proposed 
operation. Past record of debt repayment will not be cause for a 
determination that the applicant is not eligible if an honest attempt 
has been made to meet the obligation.
    (v) Honestly try to carry out the conditions and terms of the loan.
    (vi) Be unable to obtain sufficient credit without a guarantee to 
finance actual needs at reasonable rates and terms, taking into 
consideration prevailing private and cooperative rates and terms in the 
community in or near which the applicant resides for loans for similar 
purposes and periods of time.
    (vii) Be an owner-operator or tenant-operator of not larger than a 
family farm after the loan is closed.
    (2) A cooperative, corporation, partnership or joint operation must:
    (i) Be unable to obtain sufficient credit without a guarantee to 
finance actual needs at reasonable rates and terms, taking into account 
prevailing private and cooperative rates and terms in or near the 
community for loans for similar purposes and periods of time. This 
applies to the entity and all of its members, stockholders, partners, or 
joint operators, as individuals.
    (ii) Be controlled by farmers or ranchers engaged primarily and 
directly in farming or ranching in the United States after the loan is 
made.
    (iii) Consist of members, stockholders, partners or joint operators 
who are individuals and not a cooperative(s), corporation(s), 
partnership(s), or joint operation(s).
    (iv) If the members, stockholders, partners, or joint operators 
holding a majority interest are related by marriage or blood:
    (A) They must be citizens of the United States (see Sec. 1980.106(b) 
of this subpart for the definition of ``United States'') or an alien 
lawfully admitted to the United States for permanent residence under the 
Immigration and Nationality Act. Aliens must provide INS Forms I-151 or 
I-551, ``Alien Registration Receipt Card.'' Indefinite parolees are not 
eligible. If the authenticity of the information shown on the alien's 
identification document is questioned, the County Supervisor may request 
INS to verify the information appearing on the alien's identification 
card by

[[Page 583]]

completing INS Form G-641, ``Application for Verification of Information 
from Immigration and Naturalization Records,'' obtainable from the 
nearest INS district (see exhibit B of subpart A of part 1944 of this 
chapter). Mail the completed form to INS. The payment of a service fee 
by FmHA or its successor agency under Public Law 103-354 to INS is 
waived by inserting in the upper right hand corner of INS Form G-641, 
the following: ``INTERAGENCY LAW ENFORCEMENT REQUEST.''
    (B) They must have sufficient educational or on the job training or 
farming experience in managing and operating a farm or ranch (within 1 
of the last 5 years) which indicates the managerial ability necessary to 
assure reasonable prospects of success in the proposed plan of 
operation.
    (C) They and the entity itself must have the character (emphasizing 
credit history, past record of debt repayment and reliability), and 
industry to carry out the proposed operation. Past record of debt 
repayment will not be cause for a determination that the applicant is 
not eligible if an honest attempt has been made to meet the obligation.
    (D) They and the entity itself will honestly try to carry out the 
conditions and terms of the loan.
    (E) At least one member, stockholder, partner or joint operator must 
operate the family farm.
    (F) The entity must operate the farm and be authorized to own or 
operate a farm in the State(s) in which the farm is located.
    (v) If the members, stockholders, partners or joint operators 
holding a majority interest are not related by marriage or blood:
    (A) The requirements of paragraphs (b)(2)(iv) (A) through (D) must 
be met.
    (B) They and the entity itself must operate the family farm.
    (C) The entity must operate the farm and be authorized to do so in 
the State(s) in which the farm is located.
    (vi) If each member's, partner's, stockholder's or joint operator's 
ownership interest does not exceed the family farm definition limits, 
their collective interests can exceed the family farm definition limits 
only if: all of the members of the entity are related by blood or 
marriage, all of the members are or will be operators of the entity, and 
the majority interest holders of the entity meet the requirements of 
paragraphs (b)(2)(iv) (A) through (D) and (F) of this section.
    (3) [Reserved]
    (4) The loan applicant must agree to meet the training requirements 
of Sec. 1980.191 of this subpart unless a waiver is granted as set forth 
in that section. In the case of a cooperative, corporation, partnership, 
or joint operation, any individual member, stockholder, partner, or 
joint operator holding a majority interest in the operation or who is 
operating the farm must agree to complete the training or qualify for 
the waiver on behalf of the entity. However, if one entity member is 
solely responsible for financial or production management, then only 
that entity member will be required to complete the training in that 
area for the entity or qualify for a partial waiver. If the financial 
and production functions of the farming operation are shared, the 
knowledge and skills of the individual(s) with the responsibility of 
production and/or financial management of the operation will be 
considered in the aggregate for granting a waiver or requiring that 
training be completed. If a waiver is not granted, these individuals 
will be required to complete the training in accordance with their 
responsibilities. If the loan applicant has previously been required to 
obtain training, the loan applicant must be enrolled in and attending, 
or have satisfactorily completed, the training required. Borrowers 
applying for restructuring of guaranteed loans will not be required to 
complete training; however, if training has been required as part of a 
previous loan making action, the borrower must be enrolled and 
attending, or have satisfactorily completed, the training required.
    (c) Loan purposes--(1) Loan note guarantee. Loan funds may only be 
used for the following purposes:
    (i) Payment of costs associated with reorganizing a farm or ranch to 
improve its profitability.
    (ii) Purchase of livestock, including poultry, and farm or ranch 
equipment, including quotas and bases, and cooperative stock for credit, 
production, processing or marketing purposes.

[[Page 584]]

    (iii) Payment of annual farm or ranch operating expenses, examples 
of which include feed, seed, fertilizer, pesticides, farm or ranch 
supplies, cash rent, family subsistence, and other farm and ranch needs.
    (iv) Payment of costs associated with land and water development for 
conservation or use purposes.
    (v) Refinancing indebtedness incurred for any authorized OL loan 
purpose, when the lender and loan applicant can demonstrate the need to 
refinance.
    (vi) Payment of loan closing costs.
    (vii) Payment of costs associated with complying with Federal or 
State-approved standards under the Occupational Safety and Health Act of 
1970 (29 U.S.C. 655 and 29 U.S.C. 667). This purpose is limited to 
applicants who demonstrate that compliance with the standards will cause 
them substantial economic injury.
    (viii) Payment of training costs required or recommended by the 
approval official.
    (2) Contract of guarantee--line of credit. Lines of credit may be 
advanced for the following purposes:
    (i) Payment of annual operating expenses, family subsistence, and 
purchase of feeder animals.
    (ii) Payment of current annual operating debts advanced by other 
creditors or the lender. Under no circumstances can carry-over operating 
debts be refinanced.
    (d) Loan limitations. (1) No guaranteed OL loan shall be made to any 
applicant after the 15th year that an applicant, or any individual 
signing the promissory note, received direct or guaranteed OL loans. 
Transition rule: If a borrower was indebted for a direct or guaranteed 
OL loan on October 28, 1992, and had any combination of direct or 
guaranteed OL loans closed in 10 or more prior calendar years, 
eligibility to receive new guaranteed OL loans is extended for 5 
additional years from October 28, 1992, and the years need not run 
consecutively. However, in the case of a line of credit, each year in 
which an advance is made after October 28, 1992, counts toward the 5 
additional years.
    (2) Real estate improvements and repairs can be made only when the 
loan applicant owns the property, or the loan applicant has a lease that 
either ensures use of the improvement or repair over its useful life or 
provides fair compensation for the unused economic life.
    (3) The total outstanding direct and guaranteed OL principal balance 
owed by the loan applicant or owed by anyone who will sign the note/line 
of credit agreement as a cosigner may not exceed a total of $400,000 at 
loan closing. The amount of principal outstanding at any time on a 
guaranteed line of credit also must never exceed the ceiling set out on 
the Contract of Guarantee.
    (4) Loans may not be made for: (i) The purchase of real estate, or 
(ii) Making principal payments on real estate.
    (5) Guaranteed lines of credit will not be used for capital 
expenditures.
    (6) Loans also may not be made for any purpose that will contribute 
to excessive erosion or highly erodible land or to the conversion of 
wetlands to produce an agricultural commodity, as further explained in 
exhibit M to subpart G of part 1940 of this chapter. A decision by FmHA 
or its successor agency under Public Law 103-354 to reject an 
application for this reason is appealable. However, an appeal 
questioning either the presence of a wetland, converted wetland, or 
highly erodible land must be filed directly with the USDA agency making 
the determination in accordance with its appeal procedures.
    (7) Multiple Guarantees. More than one Loan Note Guarantee or 
Contract of Guarantee may be executed with the same or different lenders 
to a borrower so long as each loan/line of credit is secured with 
separate collateral that is clearly identified. This requirement does 
not preclude cross-collateralization of loans/lines of credit with other 
guaranteed loans/lines of credit to obtain additional collateral 
provided that the loans/lines of credit are held by the same lender. 
Total loans or line of credit ceilings must not exceed $400,000 at any 
time.
    (e) Interest rates. (1) The interest rate for the entire loan may be 
a fixed or variable rate as agreed upon by the borrower and the lender. 
The guaranteed portion of the loan may carry an

[[Page 585]]

interest rate lower than the rate on the nonguaranteed portion. Lines of 
credit may also have fixed or variable rates but the rate must be the 
same on the guaranteed and nonguaranteed portions.
    (2) The lender may charge a rate on both the guaranteed and 
nonguaranteed loan portion, not to exceed the rate the lender charges 
its average farm customer. Average farm customers are those conventional 
borrowers who are required to pledge their crops, livestock and other 
chattel and real estate security for the loan. This does not include 
those high risk farmers with limited security and management ability 
that are generally charged a higher interest rate by conventional 
agricultural lenders. Also, this does not include those low risk farm 
customers who obtain financing on a secured or unsecured basis who have 
as collateral items such as saving accounts, time deposits, certificates 
of deposit, stocks and bonds, and life insurance which they are able to 
pledge for the loan. At the request of FmHA or its successor agency 
under Public Law 103-354 the lender will provide evidence of the rate 
charged the average farm customers. Such evidence may consist of average 
yield data, or documented administrative differential rate schedule 
formulas used by the lender.
    (3) Except for Farm Credit System member institutions, if a variable 
rate is used, it must be tied to a rate specifically agreed to by the 
lender and borrower. Such agreement on interest rate must be documented 
in the borrower/lender's loan agreement. The interest rate on loans made 
by a Farm Credit System member institution will be a fixed or variable 
rate based on their administrative and borrowing costs. Variable rates 
may change according to the normal practices of the lender for its 
average farm customers, but frequency of change must be set forth in the 
loan/line of credit intstrument.
    (4) The lender, borrower and holder (if any) may collectively effect 
a temporary reduction in the interest rate when processing an Interest 
Rate Buydown under exhibit E of this subpart. The reduced rate of 
interest must be a fixed rate for the term of the buydown. The lender is 
responsible for the legal documentation of interest rate changes by an 
``allonge'' attached to the promissory note(s) or line of credit 
agreement or other legally effective amendment of the interest rate; 
however, no new note(s) or line of credit agreement(s) may be issued. If 
the amendment is attached to a variable rate note or line of credit 
agreement, the fixed rate of interest charged during the buydown period 
will be calculated not to exceed the average variable rate charged the 
lender's average farm customer over the past 90 days.
    (5) Interest will be charged only on the actual amount of funds 
loaned and for the actual time the loan is outstanding. Interest on 
protective advances made by the lender to protect the security may be 
charged at the rate specified in the security instruments.
    (6) The lender and borrower may collectively effect a temporary 
reduction in the interest rate when processing an Interest Assistance 
under exhibit D of this subpart. The lender may charge a fixed or 
variable interest rate during the term of the Interest Assistance 
Agreement. The type of rate must be the same as the type of rate in the 
underlying note or line of credit agreement. If the lender uses a 
variable rate, the rate may only be changed once each year. During the 
term of the Interest Assistance Agreement, variable interest rates may 
not be increased by more than a total of 3 percent above the effective 
note rate of interest at the time this agreement is entered into. This 
cap on interest increases will be clearly spelled out in the note/line 
of credit agreement or in an allonge attached to the note/line of credit 
agreement or other legally effective amendment of the interest rate; 
however, no new note or line of credit agreement may be issued. The date 
of interest rate adjustment shall coincide with the annual payment date 
on loans/lines of credit with annual payments. On other loans/lines of 
credit, the annual review dates will be clearly set out in the note/line 
of credit agreement.
    (f) Terms. (1) The final maturity date for each loan/line of credit 
cannot exceed 7 years from the date of the promissory note/line of 
credit agreement.

[[Page 586]]

    (2) Except for lines of credit made under the CLP program, all 
advances on a line of credit must be made within 3 years from the date 
of the Contract of Guarantee. For lines of credit made under the CLP 
program, all advances must be made within 5 years from the date of the 
Contract of Guarantee.
    (3) Ordinarily, loan funds used to pay annual operating expenses or 
bills incurred for such purposes for the crop year being financed will 
be scheduled for payment when the income from the year's operation is to 
be received. Under certain circumstances these payments may be scheduled 
over longer periods. Circumstances which warrant an extended repayment 
schedule are factors such as establishing a new enterprise, developing a 
farm, or during recovery from disaster or economic reverses. Crops only 
are not sufficient security when repayment is scheduled over the longer 
period.
    (4) Advances for purposes other then those for annual operating 
expenses will be scheduled for payment over the minimum period necessary 
considering the applicant's ability to pay and the useful life of the 
security, but not in excess of seven years.
    (5) When conditions warrant, installments scheduled in accordance 
with paragraph (f)(4) of this section may include equal, unequal, or 
balloon installments. In each case warranting balloon installments there 
must be adequate collateral for the loan/line of credit at the time the 
balloon installment becomes due. In no case will annual crops and/or 
machinery be used as the sole collateral securing a loan with a balloon 
installment. Circumstances which warrant balloon payments are factors 
such as establishing a new enterprise, developing a farm, or during 
recovery from a disaster or economic reverses. The amount ballooned 
should not exceed that which the borrower could reasonably expect to pay 
during a maximum additional 15-year period except for NFE loans, which 
will be a maximum additional 7 years. The applicant must be advised 
before the loan is closed that the lender will review each case at the 
end of the initial loan term to determine if such rescheduling is 
warranted. (See Sec. 1980.124 of this subpart.)
    (g) Security. Ordinarily, the security must be adequate in the 
opinion of the lender and FmHA or its successor agency under Public Law 
103-354 to assure repayment of the loan/line of credit. If the security 
alone is inadequate, then the applicant's repayment ability will also be 
considered by the lender and FmHA or its successor agency under Public 
Law 103-354 (provided the FmHA or its successor agency under Public Law 
103-354 approval official's opinion is based on the evaluation set forth 
in Sec. 1980.114 of this subpart) in determining whether the loan/line 
of credit should be made. However, when a loan is made for refinancing 
purposes. the amount refinanced may not exceed the value of the 
security. The loan/line of credit must be secured by a first lien on all 
property or products acquired or produced with loan funds and by any 
additional security needed. Any loans made for refinancing when the debt 
refinanced is secured by real estate or chattels will be secured by a 
first lien on the property securing the debt which is being refinanced 
or when the debt refinanced is secured by real estate by a junior lien 
which is no lower than the lien presently held on the property securing 
the debt being refinanced, and by any additional security needed. 
Additional security may consist of the best lien obtainable on chattels, 
real estate or other property.
    (h) Special security requirements. (1) Operating loans shall not be 
guaranteed where multiple entities own the chattel unless all entities 
guarantee and pledge security for the loan and no entity may transfer 
ownership or security value to another entity without the lender and 
FmHA or its successor agency under Public Law 103-354 concurrence.
    (2) When guaranteed OL loans are made to eligible entities that 
consist of members, stockholders, partners or joint operators who are 
presently indebted for a guaranteed OL loan(s) as individual(s) or when 
guaranteed OL loans are made to eligible individuals, who are members, 
stockholders, partners or joint operators of an entity which is 
presently indebted for a guaranteed OL loans(s), security must consist, 
of chattel and/or real estate security that is separate and identifiable

[[Page 587]]

from the security pledged to FmHA or its successor agency under Public 
Law 103-354 for any other farmer program direct or guaranteed loans. 
Different lien positions on real estate are considered separate and 
identifiable collateral.
    (i) Insurance. Insurance for property, public liability, and crops 
should be obtained before or at the time of loan closing.
    (1) Chattel property. Borrowers should be encouraged to carry 
insurance on chattel property, including growing crops, which serves as 
security for a loan and on other chattel or real property, in order to 
protect themselves against losses resulting from hazards existing in an 
area. It is especially desirable that insurance be obtained by 
applicants who receive large loans and have considerable chattel 
property including feed, supplies, and inventory centrally stored over 
an extended period. Such insurance may be required by the loan approval 
official in individual cases.
    (2) Real estate. If essential insurable buildings are located on the 
property, or improvements are to be made to existing buildings, the 
applicant, when required, will provide adequate property insurance 
coverage at the time of the loan closing or as of the date materials are 
delivered to the property, whichever is appropriate.
    Real property insurance will not be required when a real estate 
appraisal report shows that both the present market value of the land 
(after deducting the value of buildings) and the owner's equity in the 
land exceed the amount of the debt, including the debts for the loan 
being made. However, the applicant will be encouraged to carry 
insurance. If insurance claims for loss or damage to buildings to be 
replaced or repaired with loan funds are outstanding at the time the 
guarantee is approved, the applicant will be required to agree in 
writing that when settlement of these is made, the proceeds will be used 
to replace or repair buildings, to apply to debts secured by prior 
liens, or to apply to the guaranteed OL loan/line of credit being made.
    (3) Public liability and property damage. Borrowers, should be 
advised of the possibilities of incurring liability and encouraged to 
obtain public liability and property damage insurance, including 
insurance on a customer's property in the custody of the borrower.
    (j) Other considerations. (1) Applicants will be advised by the 
lender that they are expected to comply with any applicable special laws 
and regulations.
    (2) Applicants receiving loans for nonfarm enterprises will be 
advised of the possibility of incurring liability and encouraged to 
obtain public liability and property damage insurance.
[54 FR 1558, Jan. 13, 1989, as amended at 56 FR 8265, Feb. 28, 1991; 58 
FR 34338, June 24, 1993; 58 FR 48282, Sept. 15, 1993; 58 FR 48297, Sept. 
15, 1993; 58 FR 69201, Dec. 30, 1993; 61 FR 35934, July 9, 1996; 62 FR 
9358, Mar. 3, 1997; 62 FR 28619, May 27, 1997]



Secs. 1980.176--1980.179  [Reserved]



Sec. 1980.180  Farm Ownership loans.

    (a) Objectives. The basic objectives of the Farmers Home 
Administration or its successor agency under Public Law 103-354 (FmHA or 
its successor agency under Public Law 103-354) in guaranteeing farm 
ownership (FO) loans are to assist eligible applicants who cannot get 
credit without a guarantee to become owner-operators of family farms.
    (b) Farm ownership loan eligibility requirements. The farm ownership 
loan eligibility requirements are the same as the operating loan 
eligibility requirements as defined in Sec. 1980.175(b) of this subpart 
except as follows:
    (1) Section 1980.175(b)(1)(vii) does not apply. Instead an 
individual must be the owner-operator of not larger than a family farm 
after the loan is closed.
    (2) Section 1980.175(b)(2)(iv)(F) does not apply. Instead a 
cooperative, corporation, partnership or joint operation must own and 
operate the farm and be authorized to do so in the State(s) in which the 
farm is located.
    (c) Loans are authorized only to:
    (1) Acquire or enlarge a farm or ranch. Examples of items that the 
Agency may authorize the use of FO funds for include, but are not 
limited to, providing down payments, purchasing easements or the loan 
applicant's portion of land being subdivided, and participating in 
special FO loan programs of this subpart. In the case of a contract 
purchase, purchase contracts

[[Page 588]]

must properly obligate the buyer and seller to fulfill the terms of the 
contract, provide the buyer with possession, control and beneficial use 
of the property, and entitle the buyer to marketable title upon 
fulfillment of the contract terms. The deed must be held in trust by a 
bonded agent until transferred to the buyer. Upon buyer's default, 
seller must give the lender written notice of the default and a 
reasonable opportunity to cure the default. Any sums advanced by the 
lender must be repaid by the borrower.
    (2) Make capital improvements provided the loan applicant owns the 
farm, 0r has either a lease to ensure use of the improvement over its 
useful life or that compensation will be received for any remaining 
economic life. Examples of items that the Agency may authorize the use 
of FO funds for include, but are not limited to, the construction, 
purchase, and improvement of farm dwellings, service buildings and 
facilities that can be made fixtures to the real estate.
    (3) Promote soil and water conservation and protection. Examples 
include the correction of well-defined, hazardous environmental 
conditions, and the construction or installation of tiles, terraces and 
waterways.
    (4) Pay closing costs, including but not limited to purchasing stock 
in a cooperative, and appraisal and survey fees.
    (5) Refinancing indebtedness incurred for authorized FO or OL loan 
purposes, provided the lender and loan applicant demonstrate the need to 
refinance the debt.
    (d) Loan limitations. A guaranteed FO loan will not be approved if:
    (1) The total outstanding insured or guaranteed FO, Soil and Water 
(SW) or Recreation (RL) loan principal balance owed by the applicant or 
by anyone who will sign the note as a cosigner will exceed the lesser of 
$300,000 or the market value of the farm or other security.
    (2) The noncontiguous character of a farm containing two or more 
tracts is such that an efficient farming operation and nonfarm 
enterprise cannot be conducted due to the distance between tracts or due 
to inadequate rights-of-way or public roads between tracts.
    (3) The loan purpose will contribute to excessive erosion of highly 
erodible land or to the conversion of wetlands to produce an 
agricultural commodity, as further explained in exhibit M to subpart G 
of part 1940 of this chapter.
    A decision by FmHA or its successor agency under Public Law 103-354 
to reject an application for this reason is appealable. However, an 
appeal questioning either the presence of a wetland, converted wetland, 
or highly erodible land on a particular property must be filed directly 
with the USDA agency making the determination in accordance with its 
appeal procedures.
    (e) Rates and terms. Each loan will be scheduled for repayment over 
a period not to exceed 40 years from the date of the note or such 
shorter period as may be necessary to assure that the loan will be 
adequately secured, taking into account the probable depreciation of the 
security.
    (1) Interest rates. The interest rate requirements are the same as 
set forth for operating loans in Sec. 1980.75(e) of this subpart.
    (2) Installments on loans may be deferred in accordance with 
Sec. 1980.124(d) of this subpart.
    (3) At the request of FmHA or its successor agency under Public Law 
103-354, the lender will provide evidence of the rate charged the 
average farm customer. Such evidence may consist of average yield data, 
or documented administrative differential rate schedule formulas used by 
the lender.
    (f) Security. (1) Each guaranteed FO loan will be secured by real 
estate only or by a combination of real estate and chattels or other 
security.
    (2) When obtaining real estate security the following will apply:
    (i) A mortgage will be taken on the entire farm owned or to be owned 
by the applicant, including land in which the applicant owns an 
undivided interest, except a portion of the farm will be excluded when:
    (A) The applicant's title to that part of the farm is defective, and 
cannot be cleared at a reasonable cost provided:
    (1) The lender determines the applicant's interest is of such nature 
that it is not mortgageable;

[[Page 589]]

    (2) To include the land would complicate loan servicing or 
liquidation; and
    (3) Any land on which title is defective will not be included in the 
appraisal of the farm whether or not it is described on the mortgage.
    (4) State law prohibits taking a lien on homestead property, except 
for a purchase money interest in such property. In that case, the State 
Director will issue a State supplement exempting taking a lien on 
homestead property, where a purchase money interest is involved.
    (B) The present lienholder on that part of the farm will not permit 
a junior lien or State law will not recognize or permit a lien when the 
security is not included in the appraisal report.
    (C) Soundness of the loan will not be affected if there is defective 
title or part of the farm is not included as security for the loan.
    (ii) When the farm alone will not provide enough security, other 
real estate owned by the applicant may also be taken as security.
    (iii) Loans may be secured by a junior lien on real estate provided:
    (A) Prior lien instruments do not contain provisions for future 
advances (except for taxes, insurance, other costs needed to protect the 
security, or reasonable foreclosure costs), cancellation, summary 
forfeiture, or other clauses that may jeopardize the Government's or the 
lender's interest or the applicant's ability to pay the guaranteed FO 
loan unless any such undesirable provisions are limited, modified, 
waived or subordinated insofar as the Government and the lender are 
concerned.
    (B) Agreements are obtained from prior lienholders to give notice of 
foreclosure to the lender whenever State law or other arrangements do 
not require such a notice.
    (iv) Any loan of $10,000 or less may be secured by the best lien 
obtainable without title clearance or legal services normally required, 
provided the lender believes from a search of the county records that 
the applicant can give a mortgage on the farm. This exception to title 
clearance will not apply when land is to be purchased.
    (3) Loans may be secured by chattels subject to the following 
conditions:
    (i) There is not enough real estate security for the loan and the 
best lien obtainable on the farm has been taken.
    (ii) Taking a lien on chattels will not prevent the borrower from 
obtaining operating credit from other sources or the FmHA or its 
successor agency under Public Law 103-354.
    (iii) Junior liens on chattels may be taken when there is enough 
equity in the property. However, when practical, a first lien on 
selected chattel items should be obtained.
    (iv) A first lien will be taken on equipment or fixtures bought with 
loan funds whenever such property cannot be included in the real estate 
lien and this additional security is needed to secure the loan.
    (v) The lender is responsible for obtaining the lien on chattel 
security and keeping it effective as notice to third parties.
    (4) Other items or property may be taken as additional security when 
needed. These include:
    (i) Items such as land, buildings, fixtures, fences, water, water 
stock and facilities, other improvements, easements, rights-of-way, and 
other appurtenances that are considered part of the farm and usually 
pass with the farm in a change of ownership. If any of these do not pass 
with a change of ownership, the lender will identify such items and 
include them in an appropriate security instrument or assignment.
    (ii) Other property that cannot be converted to cash without 
jeopardizing the borrower's farm operation such as the cash value of 
insurance policies, stock, memberships or stock in associations or water 
stocks. Any such property must have security value and be transferable.
    (5) For the State of Hawaii--FO loans on leasehold interests on real 
property. The term owner-operator as used in this subpart shall include 
in the State of Hawaii the lessee-operator of real property in any case 
in which the County Supervisor determines that such real property cannot 
be acquired in fee simple by the lessee-operator. The leasehold must 
provide adequate security for the loan. A leasehold is the

[[Page 590]]

right to use property for a specific period of time under conditions 
provided in a lease agreement. The determination of value will be made 
by an appraisal of the present market value of the leasehold by an 
approved appraiser of the lender. The terms and conditions of the lease 
must be such as to allow the lessee-operator to have a reasonable 
probability of accomplishing the objectives and repayment of the loan. 
The FmHA or its successor agency under Public Law 103-354 Hawaii State 
Office will issue a State supplement for this subpart addressing 
leasehold interest and providing the requirements (including forms) for 
obtaining the required security. The amendment to the State supplement 
and forms, and any revisions to them, must have prior National Office 
approval before being issued.
    (g) Special requirements. (1) The lender is responsible for making a 
preliminary determination as to whether a loan can be made on the farm. 
This determination will be based on a personal inspection of the farm 
and an evaluation of such factors as productivity of the land; location, 
conditions, and adequacy of the buildings; approximate value of the 
farm; roads, schools, markets, or other community facilities; and tax 
rates and adequacy of the water supply. A decision also will be made on 
the suitability of the farm for a nonfarm enterprise facility or 
specialized farm operation, and development needed to make it a suitable 
farm.
    (2) Buildings adequate for the planned operation of the farm, 
including any nonfarm enterprise, must be available for the applicant's 
use after the loan is made. The necessary buildings ordinarily will be 
located on the applicant's farm. Exceptions to this requirement are 
when:
    (i) The applicant already owns an adequate, decent, safe, and 
sanitary dwelling, suitable for the family's needs, and is located close 
enough to the farm so the farm may be operated successfully. A real 
estate lien will be taken on such dwelling.
    (ii) The applicant has a long-term lease on acceptable rented 
buildings that are adjacent to or near the farm, or the applicant 
occupies suitable buildings which the applicant will eventually inherit 
or be permitted to purchase from a relative.
    (iii) The farm does not have an adequate dwelling and the applicant 
owns a suitable mobile home which will be used as the applicant's home. 
A mobile home will not be considered to add value to the farm but FO 
guaranteed loan funds may be used to finance anchoring the home.
    (3) Development needed to make the farm and any nonfarm enterprise 
ready for a successful operation will be planned during loan processing. 
The plans should provide for completing the development at the earliest 
practicable date. The applicant should obtain the recommendations of 
representatives of the Forest Service, Soil Conservation Service, State 
Agricultural Extension Service, and State Planning and Development 
Agency or local planning groups to be included in the development plan 
and in the operating plan. In planning such development with the 
applicant, the lender will encourage the applicant to use any cost-
sharing assistance that may be available through any sources such as the 
ASCS programs.
    (4) Insurance on buildings and other property, and insurance 
available in flood and mudslide hazard areas, will be obtained as 
required by the lender. Applicants receiving loans for nonfarm 
enterprises will be advised by the lender of the possibility of 
incurring liability and will be encouraged to obtain public liability 
and property damage insurance. Chattel security should be insured 
against losses caused by hazards customarily insured against in the area 
if the loss of such security would jeopardize the interests of the 
lender and the Government.
    (5) When loan soundness depends on income from other sources in 
addition to income from owned land, it will be necessary for the lender 
to determine that:
    (i) There is reasonable assurance that any rented land which the 
applicant depends on will be available; and/or
    (ii) Any off-farm employment the applicant depends on is likely to 
continue.

[[Page 591]]

    (6) Nonfarm enterprises will be analyzed by the lender to determine 
soundness.
    (7) Other assets not used directly in the farming operation will be 
handled as follows:
    (i) A guaranteed FO loan may be made when essential real estate is 
owned, either in whole or as an undivided interest, that will not be 
part of the farm provided:
    (A) The real estate furnishes employment or income which is 
essential to the applicant's success.
    (B) Sale of the property will not eliminate the need for FmHA or its 
successor agency under Public Law 103-354 guaranteed credit.
    (C) Retention of the real estate will not cause the operation to be 
larger than a family farm.
    (ii) An applicant will dispose of nonessential real estate or an 
undivided interest in real estate no later than loan closing. If this is 
not feasible, the applicant must agree in writing to dispose of the 
property as soon after closing as possible. Under no circumstances may 
the property be held for more than three years after closing.
    (iii) The applicant must agree to use the proceeds from the sale of 
other real estate to:
    (A) Pay costs and taxes connected with the sale;
    (B) Reduce the FmHA or its successor agency under Public Law 103-354 
guaranteed debt or any prior lien;
    (C) Make essential capital purchases; or
    (D) Pay essential farm and home expenses.
    (iv) Real estate or an interest in real estate which is retained 
after loan closing, but which is not part of the farm will not be 
included in:
    (A) The appraisal report.
    (B) The security instrument for the loan.
    (C) The total debt against the security.
    (8) When life estates are involved, loans may be made:
    (i) To both the life estate holder and the remainderman, provided:
    (A) Both have a legal right to occupy and operate the farm; and
    (B) Both are eligible for the loan; and
    (C) Both parties sign the note and mortgage.
    (ii) To the remainderman only, provided:
    (A) The remainderman has a legal right to occupy and operate the 
farm; and
    (B) The lien instrument is signed by the remainderman, life estate 
holder, and any other party having any interest in the security.
    (iii) To the life estate holder only, provided:
    (A) There is no legal restriction placed on a life estate holder who 
occupies and operates a farm; and
    (B) The lien instrument is signed by the life estate holder, 
remainderman, and any other party having any interest in the security.
    (9) A loan will not be approved if a lien junior to the lender's 
lien securing the guaranteed loan is likely to be taken simultaneously 
with or immediately subsequent to the loan closing to secure any debt 
the borrower may have at the time of loan closing or any debt that may 
be incurred in connection with the guaranteed loan such as for a portion 
of the purchase price of the farm or money borrowed from others for 
payments on debts against the farm, unless the total debt against the 
security would be within its market value.
    (10) When guaranteed FO loans are made to eligible entities that 
consist of members, stockholders, partners or joint operators who are 
presently indebted for a guaranteed FO loan(s) as individual(s) or when 
guaranteed FO loans are made to eligible individuals, who are members, 
stockholders, partners or joint operators of an entity which is 
presently indebted for a guaranteed FO loan(s), security must consist of 
chattel and/or real estate security that is separate and identifiable 
from the security pledged to FmHA or its successor agency under Public 
Law 103-354 for any other farmer program insured or guaranteed loans. 
Different lien positions on real estate are considered separate and 
identifiable collateral.
[54 FR 1558, Jan. 13, 1989, as amended at 58 FR 48299, Sept. 15, 1993; 
62 FR 9358, Mar. 3, 1997; 62 FR 28619, May 27, 1997]

[[Page 592]]



Secs. 1980.181--1980.184  [Reserved]



Sec. 1980.185  Soil and Water loans.

    (a) Objectives. The basic objectives of the guaranteed SW loan 
program are to encourage and facilitate the improvement, protection, and 
proper use of farmland by providing financing for soil conservation; 
water development, conservation, and use; forestation; drainage of 
farmland; establishment and improvement of permanent pasture; pollution 
abatement and control; and other related measures consistent with all 
Federal, State, and local environmental quality standards. Achieving 
these objectives should help farmers to make needed land-use adjustments 
and should lessen the impact of adverse weather conditions on farming 
operations.
    (b) Soil and Water loan eligibility requirements. In accordance with 
the Food Security Act of 1985 (Pub. L. 99-198) after December 23, 1985, 
if an individual or any member, stockholder, partner, or joint operator 
of an entity is convicted under Federal or State law of planting, 
cultivating, growing, producing, harvesting or storing a controlled 
substance (see 21 CFR part 1308, which is exhibit C of subpart A of part 
1941 of this chapter and is available in any FmHA or its successor 
agency under Public Law 103-354 office, for the definition of 
``controlled substance'') prior to the issuance of the Loan Note 
Guarantee in any crop year, the individual or entity shall be ineligible 
for a loan guarantee for the crop year in which the individual or 
member, stockholder, partner, or joint operator of the entity was 
convicted and the four succeeding crop years. Applicants will attest on 
Form FmHA or its successor agency under Public Law 103-354 1980-25, that 
as individuals or that its members, if an entity, have not been 
convicted of such crime after December 23, 1985. In addition, the 
following requirements must be met:
    (1) An individual must:
    (i) Be a citizen of the United States (see Sec. 1980.106(b) of this 
subpart for the definition of ``United States'') or an alien lawfully 
admitted to the United States for permanent residence under the 
Immigration and Nationality Act. Aliens must provide INS Forms I-151 or 
I-551, ``Alien Registration Receipt Card.'' Indefinite parolees are not 
eligible. If the authenticity of the information shown on the alien's 
identification document is questioned, the County Supervisor may request 
the INS to verify the information appearing on the alien's 
identification card by completing INS Form G-641, ``Application for 
Verification of Information from Immigration and Naturalization 
Records,'' obtainable from the nearest INS district (see exhibit B of 
subpart A of part 1944 of this chapter). Mail the completed form to INS. 
The payment of a service fee by FmHA or its successor agency under 
Public Law 103-354 to INS is waived by inserting in the upper right hand 
corner of INS Form G-641, the following: ``INTERAGENCY LAW ENFORCEMENT 
REQUEST.'' There is no U.S. citizenship restriction on loans made for 
waste pollution abatement and control facilities under 
Sec. 1980.185(c)(2) of this subpart.
    (ii) Possess the legal capacity to incur the obligations of the 
loan.
    (iii) Have sufficient applicable educational and/or on the job 
training or farming experience in managing and operating a farm or ranch 
(1 year's complete production and marketing cycle within the last 5 
years), which indicates the managerial ability necessary to assure 
reasonable prospects of success in the proposed plan of operation. There 
is no education or experience restriction on loans made for waste 
pollution abatement and control facilities under Sec. 1980.185(c)(2) of 
this subpart.
    (iv) Have the character (emphasizing credit history, past record of 
debt repayment and reliability) and industry to carry out the proposed 
operation. Past record of debt repayment will not be cause for a 
determination that the applicant is not eligible if an honest attempt 
has been made to meet the obligation.
    (v) Honestly try to carry out the conditions and terms of the loan.
    (vi) Be unable to obtain sufficient credit without a guarantee to 
finance actual needs at reasonable rates and terms, taking into 
consideration prevailing private and cooperative rates and terms in the 
community in or near which the applicant resides for loans

[[Page 593]]

for similar purposes and periods of time.
    (vii) Be the owner or operator of not larger than a family farm 
after the loan is made, when loan funds are used for soil and water 
conservation and protection purposes as defined in paragraphs (c)(1)(i) 
through (c)(1)(v) of this section. There is no farm size restriction on 
loans made for waste pollution abatement and control facilities under 
Sec. 1980.185(c)(2) of this subpart.
    (viii) If a tenant, have a satisfactory written lease for a 
sufficient period of time and under terms that will enable the operator 
to obtain reasonable returns on the improvements to be made with the 
guaranteed loan. In addition, the lease or separate agreement should 
provide for compensating the tenant for any remaining value of the 
improvements upon termination of the lease.
    (2) A cooperative, corporation, partnership or joint operation must:
    (i) Along with all of its members, stockholders, partners, or joint 
operators have the character (emphasizing credit history, past record of 
debt repayment and reliability) and industry to carry out the proposed 
operation. Past record of debt repayment will not be cause for a 
determination that the applicant is not eligible if an honest attempt 
has been made to meet the obligation.
    (ii) Along with all of its members, stockholders, partners, or joint 
operators, honestly try to carry out the conditions and terms of the 
loan.
    (iii) Consist of members, stockholders, partners or joint operators 
holding a majority interest who are citizens of the United States (see 
Sec. 1980.106(b) of this subpart for the definition of ``United 
States''), or an alien lawfully admitted to the United States for 
permanent residence under the Immigration and Nationality Act. Aliens 
must provide INS Forms I-151 or I-551. Indefinite parolees are not 
eligible. If the authenticity of the information shown on the alien's 
identification document is questioned, the County Supervisor may request 
the INS to verify the information appearing on the alien's 
identification card by completing INS Form G-641, obtainable from the 
nearest INS district (see exhibit B of subpart A of part 1944 of this 
chapter). Mail the completed form to INS. The payment of a service fee 
by FmHA or its successor agency under Public Law 103-354 to INS is 
waived by inserting in the upper right hand corner of INS Form G-641, 
the following: ``INTERAGENCY LAW ENFORCEMENT REQUEST.'' There is no U.S. 
citizenship restriction on loans made for waste pollution abatement and 
control facilities under Sec. 1980.185(c)(2) of this subpart.
    (iv) Have sufficient applicable educational and/or on the job 
training or farming experience in managing and operating a farm or ranch 
(1 year's complete production and marketing cycle within the last 5 
years), which indicates the managerial ability necessary to assure 
reasonable prospects of success in the proposed plan of operation. There 
is no education or experience restriction on loans made for waste 
pollution abatement and control facilities under Sec. 1980.185(c)(2) of 
this subpart.
    (v) Be authorized to own and/or operate a farm in the State(s) in 
which the farm is located.
    (vi) Be unable to obtain sufficient credit without a guarantee, 
either as an entity or as individual members, stockholders, partners, or 
joint operators, to finance actual needs at reasonable rates and terms, 
taking into account prevailing private and cooperative rates and terms 
in or near the community for loans for similar purposes and periods of 
time.
    (vii) Be controlled by individuals engaged primarily and directly in 
farming or ranching in the United States after the loan is made.
    (viii) Be the owner or operator of not larger than a family farm 
after the loan is made, when loan funds are used for soil and water 
conservation and protection purposes as defined in paragraphs (c)(1)(i) 
through (c)(1)(v) of this section. There is no farm size restriction on 
loans made for waste pollution abatement and control facilities under 
Sec. 1980.185(c)(2) of this subpart.
    (ix) If a tenant, have a satisfactory written lease for a sufficient 
period of time and under terms that will enable the applicant to obtain 
reasonable returns on the improvements made with

[[Page 594]]

the loan. In addition, the lease or separate agreement should provide 
for compensating the tenant for any remaining value of the improvements 
upon termination of the lease.
    (x) Consist of members, stockholders, partners or joint operators 
who are individuals and not corporation(s), partnership(s), 
cooperative(s), or joint operations.
    (xi) When loan funds will be used for soil and water conservation 
and protection purposes (paragraphs (c)(1)(i) through (c)(1)(v) of this 
section), and the members, stockholders, partners, or joint operators 
holding a majority interest are related by blood or marriage, the 
requirements of Sec. 1980.175(b)(2) (v) and (vii) of this subpart will 
apply.
    (xii) When loan funds will be used for soil and water conservation 
and protection purposes, and the members, stockholders, partners, or 
joint operators holding a majority interest are not related by blood or 
marriage, the requirements of Sec. 1980.175(b)(2)(vi) of this subpart 
will apply.
    (c) Loan purposes. Loan purposes must be consistent with all 
Federal, State, and local environmental quality standards and funds may 
be used to:
    (1) Pay the costs for construction, materials, supplies, equipment, 
and services related to soil and water conservation and protection 
purposes, such as:
    (i) Installation of conservation structures, including terraces, sod 
waterways, permanently vegetated stream borders and filter strips, 
windbreaks (tree or grass), shelterbelts, and living snow fences.
    (ii) Establishment of forest cover for sustained yield timber 
management, erosion control, or shelterbelt purposes.
    (iii) Establishment or improvement of permanent pasture.
    (iv) The conversion to and maintenance of sustainable agriculture 
production systems, as described by Department technical guides and 
handbooks.
    (v) Payment of costs to build conservation structures or establish 
conservation practices on highly erodible land to comply with a 
conservation plan in accordance with part 12 of this title (see 
attachment 1 of exhibit M of subpart G of part 1940 of this chapter 
available in any FmHA or its successor agency under Public Law 103-354 
office).
    (vi) Other purposes consistent with plans for soil and water 
conservation, integrated farm management, water quality protection and 
enhancement, and wildlife habitat improvement.
    (vii) The following items/purposes related to conservation and 
protection purposes and water quality are authorized:
    (A) Sodding, subsoiling, land leveling, liming, and fencing.
    (B) Fertilizer and seed used in connection with a solid conservation 
practice or to establish or improve permanent vegetation.
    (C) Gasoline, oil, and equipment rental or hire connected with 
establishing or completing the development.
    (D) Reasonable expenses incidental to obtaining, planning, closing, 
and making the loan, such as fees for legal, engineering or other 
technical services, hazard insurance premiums, and loan fees authorized 
in Sec. 1980.22 of subpart A of this part, which are required to be paid 
by the borrower and which cannot be paid from other funds. Loan funds 
may also be used to pay the borrower's share of Social Security taxes 
for labor hired by the borrower in connection with making any planned 
improvements.
    (E) Purchase or repair of special-purpose equipment such as 
terracing, land leveling, and ditching equipment, provided:
    (1) Such equipment is needed and will facilitate the completion or 
maintenance of the planned improvement, and
    (2) The cost of the equipment plus the other costs related to the 
improvement will not be more than if performed by a contractor or by 
another method.
    (F) Acquire a source of water to be used on land the applicant owns, 
will acquire, or operates including:
    (1) The purchase of water stock or membership in an incorporated 
water user association.
    (2) The acquisition of a water right through appropriation, 
agreement, permit, or decree.

[[Page 595]]

    (3) The acquisition of water supply or right, and the land on which 
it is presently being used, when the water supply or right cannot be 
purchased without the land, provided:
    (i) The value of the land without the water supply or right is only 
an incidental part of the total price; and
    (ii) The water supply and right will be transferred to, and used 
more effectively on, other land owned or operated by the applicant.
    (G) Purchase land or an interest therein for sites or rights-of-way 
and easements upon which a water or drainage facility will be located.
    (H) Pay that part of the cost of facilities, improvements, and 
``practices'' which will be paid for in connection with participation in 
programs administered by agencies such as the ASCS or the Soil 
Conservation Service (SCS) only when such costs cannot be covered by 
purchase orders or assignments to material suppliers or contractors. If 
loan funds are advanced and the portion of the payment for which the 
funds were advanced is likely to exceed $1,000, the applicant will 
assign the payment to the lender.
    (I) Provide water supply facilities for dwellings and farm 
buildings, including such facilities as wells, pumps, farmstead 
distribution systems, and home plumbing.
    (J) Pay costs of land and water development, use, and conservation 
essential to the applicant's farm, subject to the following:
    (1) Such a loan may be made on land with defective title owned by 
the applicant (see paragraph (f) of this section) or on land in which 
the applicant owns an undivided interest providing:
    (i) The amount of funds used on such land is limited to $25,000,
    (ii) There is adequate security for the loan, and
    (iii) The tract is not included in the appraisal report.
    (2) Such a loan may be made on land leased by the applicant 
providing:
    (i) The terms of the lease are such that there is reasonable 
assurance the applicant will have use of the improvement over its useful 
life.
    (ii) A written lease provides for payment to the tenant or assignee 
for any remaining value of the improvement if the lease is terminated.
    (iii) There is adequate security for the loan.
    (K) Purchase any stock in a cooperative lending agency that is 
necessary to obtain the loan.
    (2) Pay the costs of meeting Federal, State, or local requirements 
for agricultural, animal, or poultry waste pollution abatement and 
control facilities, including construction, modification, or relocation 
of the farm or farm structures if necessary to comply with such 
pollution abatement requirements.
    (d) Loan limitations. A guaranteed SW loan will not be approved if:
    (1) The loan being made exceeds the lesser of the value of the farm 
or other security for such loan or $50,000.
    (2) The total outstanding insured or guaranteed SW, FO or RL loan 
principal balance owed by the applicant or owed by anyone who will sign 
the note as a cosigner will exceed the lesser of $300,000 or the market 
value of the farm or other security.
    (3) The noncontiguous character of a farm containing two or more 
tracts is such that an efficient farming operation and nonfarm 
enterprise cannot be conducted due to the distance between tracts or due 
to inadequate rights-of-way or public roads between tracts.
    (4) The loan purpose will contribute to excessive erosion of highly 
erodible land or to the conversion of wetlands to produce an 
agricultural commodity, as further explained in exhibit M to subpart G 
of part 1940 of this chapter. A decision by FmHA or its successor agency 
under Public Law 103-354 to reject an application for this reason is 
appealable. However, an appeal questioning either the presence of a 
wetland, converted wetland, or highly erodible land on a particular 
property must be filed directly with the USDA agency making the 
determination in accordance with its appeal procedures.
    (e) Rates and terms. Each loan will be scheduled for repayment over 
a period not to exceed 40 years from the date of the note or such 
shorter period as may be necessary to assure that the loan will be 
adequately secured, taking into account the probable depreciation of the 
security.

[[Page 596]]

    (1) The interest rates requirements are the same as set forth for 
operating loans in Sec. 1980.175(e) of this subpart.
    (2) Installments may be deferred in accordance with Sec. 1980.124(d) 
of this subpart.
    (f) Security. (1) Each guaranteed SW loan will be secured by real 
estate, chattels, other security, leaseholds, or a combination of these.
    (2) When obtaining real estate security, the following will apply:
    (i) A mortgage will be taken on the entire farm to be improved which 
is owned by the applicant, including land in which the applicant owns an 
undivided interest, except a portion of the farm will be excluded when:
    (A) The applicant's title to that part of the farm is defective, and 
cannot be cured at a reasonable cost, provided:
    (1) The lender determines the applicant's interest is of such nature 
that it is not mortgageable; and
    (2) To include the land would complicate loan servicing or 
liquidation; and
    (3) Any land on which title is defective will not be included in the 
appraisal of the farm whether or not it is described on the mortgage.
    (4) State law prohibits taking a lien on homestead property, except 
for a purchase money interest in such property. The State Director will 
issue a State supplement exempting taking a lien on homestead property 
where purchase money interest is involved.
    (B) The present lienholder on that part of the farm will not permit 
a junior lien or State law will not recognize or permit a lien provided 
the part excluded from the security is not included in the appraisal 
report.
    (C) Soundness of the loan will not be affected if there is defective 
title or part of the farm is not included as security.
    (ii) When the farm alone will not provide enough security, other 
real estate owned by the applicant may also be taken as security.
    (iii) Loans may be secured by a junior lien on real estate provided:
    (A) Prior lien instruments do not contain provisions for future 
advances (except for taxes, insurance, other costs needed to protect the 
security, or reasonable foreclosure costs), cancellation, summary 
forfeiture, or other clauses that may jeopardize the Government's or the 
lender's interest or the applicant's ability to pay the guaranteed loan 
unless any such undesirable provisions are limited, modified, waived or 
subordinated insofar as the Government and the lender are concerned.
    (B) Agreements are obtained from prior lienholders to give notice of 
foreclosure to the lender whenever State law or other arrangements do 
not require such a notice.
    (iv) Any loan of $10,000 or less may be secured by the best lien 
obtainable without title clearance or legal services normally required, 
provided the lender believes from a search of the county records that 
the applicant can give a mortgage on the farm. This exception to title 
clearance will not apply when land is to be purchased.
    (3) Loans may be secured by chattels subject to the following 
conditions:
    (i) Real estate security is inadequate to secure the loan or is not 
available at all.
    (ii) Taking a lien on chattels will not prevent the borrower from 
obtaining operating credit from other sources or the FmHA or its 
successor agency under Public Law 103-354.
    (iii) Junior liens on chattels may be taken when there is enough 
equity in the property. However, when practical, a first lien on 
selected chattel items should be obtained.
    (iv) A first lien will be taken on equipment or fixtures bought with 
loan funds whenever such property cannot be included in the real estate 
lien and this additional security is needed to secure the loan.
    (v) When a loan is made only for the purchase of shares of water 
stock, such stock will be pledged or assigned as security for the loan. 
No other security need be required if the stock represents the right to 
receive water and is transferable separately from the land, provided:
    (A) There is a market for the stock.
    (B) The purchase price is no greater than the price at which stock 
in the water company is normally sold.
    (vi) If secured by chattels only, the loan cannot be over $100,000 
and must be scheduled for repayment within 20

[[Page 597]]

years or the useful life of the security, whichever is less.
    (vii) The lender is responsible for obtaining the lien on chattel 
security and keeping it effective as notice to third parties.
    (4) Other items or property may be taken as additional security when 
needed. These include:
    (i) Items such as land, buildings, fixtures, fences, water, water 
stock and facilities, other improvements, easements, rights-of-way, and 
other appurtenances that are considered part of the farm and usually 
pass with the farm in a change of ownership. If any of these do not pass 
with a change of ownership, the lender will properly identify such items 
and include them in an appropriate security instrument or assignment.
    (ii) Other property that cannot be converted to cash without 
jeopardizing the borrower's farm operation such as the cash value of 
insurance policies, stock, memberships or stock in associations, or 
water stocks. Any such property must have security value and be 
transferable.
    (5) A loan may be secured by a mortgage on the leasehold if it has 
negotiable value and is able to be mortgaged, subject to the following:
    (i) The unexpired term of the lease should extend beyond the 
repayment period of the loan for a period sufficient to ensure that the 
objectives of the loan will be achieved. It the loan repayment period is 
equal to or greater than the period covered by the lease, the borrower 
must provide other security to secure the loan or the lessor must agree 
in writing to compensate the borrower for any unexhausted value of the 
improvements when the lease expires or is terminated.
    (ii) The lessor must have good and marketable title to the real 
estate, which may be subject to a prior lien, or the lessor must have 
signed a contract to purchase the real estate. The contract to sell and 
the lien instruments must not contain covenants, such as short 
redemption periods or rights to cancel, which may jeopardize the 
lender's security. Any provisions which may jeopardize the lender's 
security must be limited, modified, waived or subordinated in favor of 
the lender.
    (iii) With respect to achieving the purpose of the loan, obtaining 
adequate security, and being able to service the loan and enforce its 
rights, the lender, as holder of a mortgage upon a lease or leasehold 
interest, must be in a position substantially as good as if it held a 
second mortgage on the real estate. Besides the lessor's consent to the 
mortgage on the leasehold interest, the lender should consider whether 
or not:
    (A) There is reasonable security of tenure. The borrower's interest 
should not be subject to summary forfeiture or cancellation.
    (B) The right to foreclose the mortgage and sell without restriction 
would adversely affect the saleability or market value of the security.
    (C) The lender has a right to bid at a foreclosure sale or to accept 
voluntary conveyance in lieu of foreclosure.
    (D) The lender has the right, after acquiring the leasehold through 
foreclosure or voluntary conveyance in lieu of foreclosure, or in event 
of abandonment by the borrower, to occupy the property or sublet it, and 
to sell it for cash or credit.
    (E) The borrower has the right, in the event of default or inability 
to continue with the lease and the loan, to transfer the leasehold, 
subject to the mortgage, to an eligible transferee who will assume the 
guaranteed SW debt.
    (F) Advance notice will be given to the lender of the lessor's 
intention to cancel, terminate or foreclose upon the lease. Such advance 
notice should be long enough to permit the lender to ascertain the 
amount of delinquencies, the total amount of the lessor's and any other 
prior interest, the market value of the leasehold interest and, if 
litigation is involved, permit appropriate action by the lender to be 
taken.
    (G) There are express provisions covering the question of the 
lender's obligation to pay unpaid rental or other charges accrued at the 
time it acquires possession of the property or title to the leasehold, 
and those which become due during the lender's occupancy or ownership, 
pending further servicing or liquidation.
    (H) There are any necessary provisions to assure fair compensation 
to the lessee for any part of the premises taken by condemnation.

[[Page 598]]

    (I) Any other provisions are necessary to obtain an interest which 
can be mortgaged.
    (iv) The following language or similar language which is legally 
adequate will be inserted on the lien instrument:

    All Borrower's right, title, and interest in and to the leasehold 
estate for a term of ____ years beginning on __________, 19____, created 
and established by a certain Lease dated ____________, 19____, executed 
by __________ as lessor(s), recorded on __________, 19____, in Book 
________, page ____ of the __________ Records of said County and State, 
and any renewals and extensions thereof, and all Borrower's right, 
title, and interest in and to said Lease, covering the following real 
estate: (To be inserted just before the legal description.)


This additional covenant will be inserted in the mortgage:

    Borrower will pay when due all rents and all other charges required 
by said Lease, will comply with all other requirements of said Lease, 
and will not surrender or relinquish without the lender's written 
consent, any of the Borrower's right, title or interest in or to said 
leasehold estate or under said Lease while this instrument remains in 
effect.

    (g) Special requirements. (1) When possible, recommendations for 
land development will be obtained from the Forest Service, State 
Agricultural Extension Service, and the Soil Conservation Service and 
included in the development plan and in the operating plans. In planning 
such development with the applicant, the lender will encourage the 
applicant to use any cost-sharing assistance that may be available 
through any source such as the ASCS programs.
    (2) Applicants are responsible for obtaining all the technical 
assistance required in connection with a guaranteed SW loan, such as 
that needed to plan, construct, or establish the improvement or facility 
to be financed.
    (3) Evidence or documentation of the following should be obtained 
when loan funds are to be used for irrigation purposes:
    (i) The land to be irrigated is suitable for irrigation.
    (ii) The applicant has a right to use water for irrigation.
    (iii) The water is suitable to use for irrigation and is available 
in sufficient quantities to irrigate a specified amount of land.
    (iv) If irrigation specialists have prepared any feasibility 
studies, copies of these studies should be submitted to the lender.
    (4) Insurance on building and other property, and insurance 
available in flood and mudslide hazard areas, will be obtained as 
required by the lender. Chattel security should be insured against 
losses caused by hazards customarily insured against in the area if the 
loss of such security would jeopardize the interests of the lender and 
the Government.
    (5) When life estates are involved, loans may be made:
    (i) To both the life estate holder and the remainderman, provided:
    (A) Both have a legal right to occupy and operate the farm; and
    (B) Both are eligible for the loan; and
    (C) Both parties sign the note and mortgage.
    (ii) To the remainderman only, provided:
    (A) The remainderman has a legal right to occupy and operate the 
farm; and
    (B) The lien instrument is signed by the remainderman, life estate 
holder, and any other party having any interest in the security.
    (iii) To the life estate holder only, provided:
    (A) There is no legal restriction placed on a life estate holder who 
occupies and operates a farm; and
    (B) The lien instrument is signed by the life estate holder, 
remainderman, and any other party having any interest in the security.
    (6) A loan will not be approved if a lien junior to the lender's 
lien securing the guaranteed loan is likely to be taken simultaneously 
with or immediately subsequent to the loan closing to secure any debt 
the borrower may have at the time of loan closing or any debt that may 
be incured in connection with the guaranteed loan, unless the total debt 
against the security would be within its market value.
    (7) When guarantees SW loans are made to eligible entities that 
consist of members, stockholders, partners or joint operators who are 
presently indebted for a guaranteed SW loan(s) are

[[Page 599]]

made to eligible individual(s), or when guaranteed SW loans are made to 
eligible individuals, who are members, stockholders, partners or joint 
operators of an entity which is presently indebted for a guaranteed SW 
loan(s), security must consist of chattel and/or real estate security 
that is separate and identifiable from the security pledged to FmHA or 
its successor agency under Public Law 103-354 for any other farmer 
program insured or guaranteed loans. Different lien positions on real 
estate are considered separate and indentifiable collateral.
[54 FR 1558, Jan. 13, 1989, as amended at 58 FR 15075, Mar. 19, 1993; 58 
FR 34338, June 24, 1993; 58 FR 48299, Sept. 15, 1993]



Secs. 1980.186--1980.189  [Reserved]



Sec. 1980.190  Certified Lender Program--Operating loans.

    (a) General. This section provides policies and procedures for the 
Certified Lender Program (CLP) for guaranteed Operating Loans (OL) 
described in Sec. 1980.175 of this subpart. The objectives are to 
minimize the time required for certified lenders to obtain responses to 
requests for guarantees, permit maximum use of forms normally used by 
the lender, permit lenders to certify compliance rather than providing 
verifications, and give additional flexibility to those lenders with a 
proven ability to process and service Farmers Home Administration or its 
successor agency under Public Law 103-354 (FmHA or its successor agency 
under Public Law 103-354) guaranteed loans. FmHA or its successor agency 
under Public Law 103-354 will make the final determination on 
eligibility, loan purposes and repayment terms. Form FmHA or its 
successor agency under Public Law 103-354 1980-38 will serve as the 
``Lender's Agreement'' for guarantees issued by FmHA or its successor 
agency under Public Law 103-354 under this section.
    (1) Authority. The authorizations contained in this section provide:
    (i) Methods for initial approval period, subsequent approval 
period(s) and revocation of CLP status;
    (ii) Methods a CLP lender will use to process, service and conclude 
guaranteed OLs;
    (iii) Methods FmHA or its successor agency under Public Law 103-354 
will use to consider a CLP lender's request for guarantee and monitor 
guaranteed OL loan activities.
    (2) Policy. The purpose of the CLP program is to enable not larger 
than family farm owners and/or operators to establish or continue a 
credit relationship with a commercial agricultural lender in situations 
where the lender could not otherwise extend credit.
    (3) List of lenders. The County Supervisor will maintain a current 
list of lenders who express a desire to participate in the guaranteed 
program. This list will be made available to farmers upon request.
    (b) Lender approval, subsequent approval period(s), monitoring and 
revocation of CLP status. Lenders who meet the required and other 
criteria may be granted CLP status for a period not to exceed 5 years by 
the State Director for the State in which the lender is authorized to do 
business. All initial and any subsequent approvals of the CLP status 
will be in the form of an agreement signed by the State Director and the 
lending institution. The agreement will be Form FmHA or its successor 
agency under Public Law 103-354 1980-38. The agreement will not apply to 
branches or suboffices of the lender unless specifically named in the 
agreement. The CLP status of any lender may be revoked by the FmHA or 
its successor agency under Public Law 103-354 State Director as outlined 
in paragraph (b)(3) of this section. State Directors will keep their 
respective FmHA or its successor agency under Public Law 103-354 County 
and District Offices fully informed, by use of State supplements, of the 
names and addresses of all lending institutions, branches or suboffices 
that hold CLP status. The name of each CLP lender's designated person or 
agricultural loan officer who will process and service guaranteed loans 
for the CLP lender will be included.
    (1) Lender approval. Any lender who desires to apply for CLP status 
must also be an ``Eligible Lender'' as defined in Sec. 1980.13(b) of 
subpart A of this part. Lenders who meet this requirement and desire CLP 
status will prepare a written request to the State Director

[[Page 600]]

for the State in which they desire to have CLP status. The written 
request will address each item of the required criteria outlined in 
paragraphs (b)(1) (i) through (viii) of this section and may be 
accompanied by any supporting evidence or other information the lender 
believes will be helpful to the State Director in making a decision on 
the application for CLP status. Any FmHA or its successor agency under 
Public Law 103-354 County, District or State Office may provide a lender 
who desires to apply for CLP status a complete copy of Subparts A and B 
of this part, and will assist in completion of the request. The State 
Director will make any necessary investigation or inquiry to determine 
accuracy of information and notify the lender within 15 days of receipt 
of a request that the request is approved, denied, or requires 
additional information. Other than as noted in this paragraph, before a 
State Director approves a lender for CLP status, the lender must:
    (i) Provide evidence of being an ``Eligible Lender'' as defined in 
subpart A of this part.
    (ii) Provide information to show that loan losses--net of recovery--
do not exceed the CLP Loss Rate. The CLP Loss Rate will be periodically 
established by the Administrator, FmHA or its successor agency under 
Public Law 103-354, and published in exhibits B to FmHA or its successor 
agency under Public Law 103-354 Instruction 440.1. This Instruction is 
available in any FmHA or its successor agency under Public Law 103-354 
office. The CLP Loss Rate equals the amount of guaranteed OL, FO, and SW 
total loss claims paid on loans made in the past 7 years divided by the 
total loan amount of the OL, FO, and SW loans guaranteed in the past 7 
years.
    (iii) Have the capacity to process and service FmHA or its successor 
agency under Public Law 103-354 guaranteed OL loans/lines of credit.
    (iv) Designate a person(s) who will process and service FmHA or its 
successor agency under Public Law 103-354 guaranteed OL loans/lines of 
credit. The lender must certify that this person(s) has attended FmHA or 
its successor agency under Public Law 103-354 loan processing and 
servicing training sessions within the previous 12 months, or that the 
person(s) will attend such training prior to the lender's submission of 
the first guarantee request under the CLP program. The lender must also 
agree to send the designated person(s) to future FmHA or its successor 
agency under Public Law 103-354 training sessions at least annually.
    (v) Agree to use forms acceptable to FmHA or its successor agency 
under Public Law 103-354 for processing, analyzing, securing and 
servicing FmHA or its successor agency under Public Law 103-354 
guaranteed loans/lines of credit. Copies of financial statements, cash 
flow plans, budgets, loan agreements, analysis sheets, collateral 
control sheets, security and other forms to be used must be submitted 
for FmHA or its successor agency under Public Law 103-354 acceptability 
with request for CLP status. See Sec. 1980.109 and Sec. 1980.113 of this 
subpart for required forms.
    (vi) Agree to abide by all applicable conditions of Form FmHA or its 
successor agency under Public Law 103-354 1980-22 for all loan 
guarantees.
    (vii) Have closed a minimum of 10 FmHA or its successor agency under 
Public Law 103-354 guaranteed loans or lines of credit and closed 5 FmHA 
or its successor agency under Public Law 103-354 guaranteed loans or 
lines of credit (not including readvances on lines of credit) within the 
past 2 years.
    (viii) Have an acceptable financial strength rating as reported by a 
lender rating service selected by the Administrator, FmHA or its 
successor agency under Public Law 103-354.
    (2) Sebsequent approval period(s). Renewal of Form FmHA or its 
successor agency under Public Law 103-354 1980-38 is not automatic.
    (i) Lender Responsibilities--A lender must submit a written request 
for renewal of Form FmHA or its successor agency under Public Law 103-
354 1980-38. The request must be submitted to FmHA or its successor 
agency under Public Law 103-354 at least 60 days prior to the expiration 
of the existing Form FmHA or its successor agency under Public Law 103-
354 1980-38. The request must contain at least the following:
    (A) A formal request for a new 5-year designation as a CLP Lender.

[[Page 601]]

    (B) A brief summary of the lender's CLP lending activity. The 
summary must include the dollar amount and number of FmHA or its 
successor agency under Public Law 103-354 guaranteed Farmer Programs 
loans in the lender's portfolio and the number and dollar amount of all 
FmHA or its successor agency under Public Law 103-354 guaranteed Farmer 
Programs loans the lender processed as a CLP lender.
    (C) Information to indicate that FmHA or its successor agency under 
Public Law 103-354 guaranteed Farmer Programs net loan losses 
(reflecting any future recovery) do not exceed the CLP loss rate.
    (D) A current update of the data required in paragraph (b)(1) of 
this section and any proposed changes in the designated person(s) for 
processing guaranteed loans, forms used, or operating methods used in 
FmHA or its successor agency under Public Law 103-354 guaranteed Farmer 
Programs loan processing and servicing.
    (ii) FmHA or its successor agency under Public Law 103-354 
Responsibilities:
    (A) Upon receipt of a lender's renewal request, the State Director 
will complete a review of the information submitted by the lender. The 
State Director will also review the lender's CLP performance and consult 
with appropriate District and County Office personnel.
    (B) FmHA or its successor agency under Public Law 103-354 must 
notify a lender of any additional information needed to process a CLP 
renewal request within 14 days of receipt of the request.
    (C) The State Director will determine whether the lender continues 
to meet the CLP criteria set forth in this section, and whether a new 
Form FmHA or its successor agency under Public Law 103-354 1980-38 can 
be executed.
    (D) The State Director will notify the lender in writing of 
approval, or conditions the lender must meet for approval, or reasons 
for denial of the request for renewed CLP status. Lenders will be 
advised of their appeal or review rights as set out in subpart B of part 
1900 of this chapter and in accordance with Sec. 1980.80 of subpart A of 
this part.
    (E) FmHA or its successor agency under Public Law 103-354 must 
notify the lender of the approval or denial of the renewal request at 
least 30 days after receiving a completed request for renewal.
    (3) FmHA or its successor agency under Public Law 103-354 monitoring 
and revocation of CLP status. CLP status will lapse upon expiration of 
any 5-year period unless the lender obtains a new agreement under this 
section.
    (i) The State Director will designate certified lenders in 
accordance with the terms and conditions of this section and Form FmHA 
or its successor agency under Public Law 103-354 1980-38, and is 
responsible for managing the CLP program within the State and the 
following:
    (A) Establishing an operational file for each CLP lender in the 
State Office. The file will include Form FmHA or its successor agency 
under Public Law 103-354 1980-38 and all information related to the 
lender's CLP activities.
    (B) Providing all County Offices named in Part IV of Form FmHA or 
its successor agency under Public Law 103-354 1980-38 with a copy of the 
agreement and complete application material approved in connection with 
CLP status.
    (C) Monitoring CLP lenders' loan making and servicing activities to 
determine compliance with the CLP agreement and subparts A and B of this 
part pertaining to guaranteed OL loans/lines of credit. This includes 
assuring that lender files are reviewed in accordance with this section.
    (D) Conducting a review of each CLP lender's performance at least 
annually.
    (E) Assuring that effective training sessions are conducted for CLP 
lender personnel at least annually.
    (F) Taking appropriate action against a lender when justified, 
including revocation of CLP status for the reasons specified in 
paragraph (b)(3)(iv) of this section, and initiation of Suspension or 
Debarment action in accordance with subpart M of part 1940 of this 
chapter. The lender must be notified, in writing, of any such actions 
taken.
    (ii) The District Director will assist the State Director in 
monitoring CLP performance, and will monitor County

[[Page 602]]

Office administration of the CLP program.
    (iii) The County Office will normally be the primary contact point 
for CLP activities. The County Supervisor is responsible for:
    (A) Establishing an operational file for each CLP lender in the 
office jurisdiction, which will include a copy of the Form FmHA or its 
successor agency under Public Law 103-354 1980-38, the forms accepted in 
conjunction with CLP designation, documentation of the results of 
reviews of the lender's loans, and any other information relative to the 
lender's CLP activity in that Country Office.
    (B) Processing CLP requests for guarantees.
    (C) Reviewing CLP lender loan files in accordance with paragraph 
(d)(3) of this section, unless the State Director delegates this 
responsibility to another official.
    (D) Advising the State Director of CLP lender performance at least 
annually, and immediately upon discovery of deficiencies in file 
reviews.
    (iv) The State Director may revoke the lender's CLP status at any 
time for due cause. Cause for revocation of CLP status is limited to any 
of the following:
    (A) The lender's FmHA or its successor agency under Public Law 103-
354 guaranteed farm loan loss rate exceeds the CLP loss rate.
    (B) Failure to maintain ``required criteria'' as approved in the 
application for CLP status.
    (C) Changes in ownership.
    (D) Failure to properly process and/or service FmHA or its successor 
agency under Public Law 103-354 guaranteed Farmer Programs loans.
    (E) Violation of the terms of the Form FmHA or its successor agency 
under Public Law 103-354 1980-38.
    (F) Failure to correct cited deficiencies in loan documents within 
30 days of notification by FmHA or its successor agency under Public Law 
103-354 of the deficiencies.
    (G) Knowingly submitting false information to FmHA or its successor 
agency under Public Law 103-354 when requesting a guarantee, or basing a 
guarantee request on information known to be false.
    (H) Failure to submit status reports (as required by Form FmHA or 
its successor agency under Public Law 103-354 1980-38 and this section) 
in a timely manner.
    (v) A lender which has lost CLP status may continue to submit loan 
guarantee requests, but only as a non-CLP lender. When CLP status is 
revoked, FmHA or its successor agency under Public Law 103-354 will work 
with the lender, when possible, to help it regain CLP status. When Form 
FmHA or its successor agency under Public Law 103-354 1980-38 is 
terminated under paragraph (b)(3)(iv)(G) of this section (knowingly 
submitting false information), National Office concurrence must be 
obtained prior to returning the lender to CLP status.
    (c) CLP lender responsibilities to process, service and liquidate 
Guaranteed OL loans/lines of credit. (1) Processing. Before accepting an 
application for a guaranteed loan or line of credit, the CLP lender will 
review subparts A and B of this part. The lender must abide by 
limitations on loan purposes, loan limitations, interest rates, and 
terms set forth for OL loans/lines of credit in Sec. 1980.175 of this 
subpart. All requests for guaranteed loans or lines of credit will be 
processed under subparts A and B of this part except as modified by this 
section.
    (i) If the lender concludes that an application will be considered, 
a written statement of basis for the conclusion will be placed in the 
applicant's file maintained by the lender addressing each of the loan 
eligibility requirements in Sec. 1980.175(b) of this subpart.
    (ii) The CLP lender will only be required to submit Form FmHA or its 
successor agency under Public Law 103-354 1980-25 with the applicable 
attachments and sections completed. The CLP lender is certifying that 
all information required by Sec. 1980.113 of this subpart is maintained 
in its loan file.
    (iii) CLP lenders will process all guaranteed OL loans/lines of 
credit as a ``complete application'' by obtaining and completing all 
required items described in Sec. 1980.113 of this subpart.
    (iv) CLP lenders are responsible for meeting the lender's 
requirements contained in Exhibit M to subpart G of part 1940 of this 
chapter.

[[Page 603]]

    (v) A guaranteed OL loan/line of credit loan will not be closed by a 
CLP lender prior to receipt of Form FmHA or its successor agency under 
Public Law 103-354 1980-15 and the determination that all conditions, 
including the execution of Form FmHA or its successor agency under 
Public Law 103-354 1980-22, can be met.
    (vi) The CLP lender will be responsible for fully securing the OL 
loan or line of credit under Sec. 1980.175(g) of this subpart.
    (vii) CLP lenders may consult with the FmHA or its successor agency 
under Public Law 103-354 County Supervisor at any time during the 
processing and will make all material relating to any guarantee 
application available to FmHA or its successor agency under Public Law 
103-354 for review upon request.
    (2) Servicing. CLP lenders will be fully responsible for servicing, 
protecting, and accounting for the collateral for all loans/lines of 
credit guaranteed. A CLP lender may allow proceeds from the disposition 
of collateral, such as machinery, equipment, furniture, or fixtures to 
be used to acquire replacement collateral of a similar nature and value 
without written agreement from FmHA or its successor agency under Public 
Law 103-354.
    (3) Liquidation of loans/lines of credit. Any liquidation of 
guaranteed OL loans/lines of credit will be completed by the lender. 
Loss claims will be submitted in accordance with the CLP agreement on 
Form FmHA or its successor agency under Public Law 103-354 449-30. The 
Report of Loss will be accompanied by supporting information to outline 
disposition of all security and proceeds pledged to secure the loan/line 
of credit.
    (d) FmHA or its successor agency under Public Law 103-354 
responsibilities--(1) Evaluation. (i) FmHA or its successor agency under 
Public Law 103-354 will complete the evaluation described in 
Sec. 1980.114 of this subpart in any case where the approval official 
determines an independent analysis is needed before approval or denial 
of a request for guarantee.
    (ii) The FmHA or its successor agency under Public Law 103-354 
County Supervisor will complete the environmental review required by 
subpart G of part 1940 of this chapter and will review each request for 
a guarantee, and immediately contact the CLP lender within five working 
days if the information is not clear or is inadequate for County 
Committee review.
    (iii) FmHA or its successor agency under Public Law 103-354 may, on 
a case by case basis, request additional information from the CLP lender 
or review the CLP lender's loan file if needed to determine whether the 
applicant is eligible, the loan/line of credit is for authorized 
purposes, there is reasonable assurance of repayment ability, and 
sufficient collateral and equity is available. Requests for additional 
information shall only be made in situation when, because of the unique 
characteristic of the loan request, an eligibility or approval decision 
cannot be made.
    (2) Notification. FmHA or its successor agency under Public Law 103-
354 will make the final determinations on the eligibility of applicants 
for a guaranteed OL loan/line of credit, and the purposes and terms of 
such loan/lines of credit. The CLP lender will be notified of FmHA or 
its successor agency under Public Law 103-354's eligibility and approval 
decision within 14 calendar days of receipt of a completed application.
    (3) Monitoring. FmHA or its successor agency under Public Law 103-
354 will monitor each CLF lender's guaranteed loan/line of credit files 
to assure that the lender is complying with requirements of this 
subpart. The FmHA or its successor agency under Public Law 103-354 
official who conducts these reviews will document the review in the FmHA 
or its successor agency under Public Law 103-354 County Office file. Any 
discrepancies noted and not resolved will be discussed with the lender 
and confirmed in writing with a copy to the State Director through the 
District Director. State Directors may establish additional reviews and 
reporting systems as necessary to insure the guaranteed program complies 
with subparts A and B of this part. Semi-annually, FmHA or its successor 
agency under Public Law 103-354 will conduct a review of each lender's 
loan files. A minimum of 20 percent of each CLP lender's

[[Page 604]]

outstanding guaranteed Farmer Programs loans will be reviewed annually. 
The lender will be reminded of the lender's responsibilities in 
servicing the loan as required in Form FmHA or its successor agency 
under Public Law 103-354 1980-38 when deficiencies are noted. Any 
deficiencies will be discussed with the lender and the discussion will 
be confirmed in writing with a copy to the State Director through the 
District Director. Loans will be selected for review according to the 
following priority:
    (i) The most recent loans closed by the lender and not yet reviewed.
    (ii) Delinquent loans or loans which the lender or FmHA or its 
successor agency under Public Law 103-354 has identified as high risk.
    (iii) Loans in which the funds were used to refinance the lender's 
own debt.
    (iv) Other loans.
    (e) Percent of guarantee. All guarantees issued under the CLP 
program will be no less than 80 percent but not more than that allowed 
under applicable program regulations.
    (f) Relationship with Approved Lender Program (outlined in exhibit A 
of this subpart).
    (1) All existing ALP agreements will continue to be followed until 
they expire, are revoked, or are replaced by Form FmHA or its successor 
agency under Public Law 103-354 1980-38.
    (2) All existing loans will continue to be serviced as provided in 
the Lender's Agreement under which the loan was approved.
    (3) ALP lenders will continue to be governed by the servicing and 
reporting requirements in the existing ALP agreements.
    (4) ALP lenders may, at any time, apply for CLP status. If CLP 
status is approved, the lender's ALP designation will be considered 
expired for OL loans/lines of credit, and the lender will be so notified 
in writing by FmHA or its successor agency under Public Law 103-354.
    (5) Lenders may apply for both an OL loan/line of credit under the 
CLP program, and an FO or SW loan under the ALP program using the same 
application.
    (g) Reporting requirements. The CLP lender will be responsible for 
providing FmHA or its successor agency under Public Law 103-354 with the 
following information on the loan and borrower:
    (1) A year end balance sheet for each borrower.
    (2) Form FmHA or its successor agency under Public Law 103-354 1980-
41 as of March 31 and September 30 each year.
    (3) For lines of credit, a certification stating that a projected 
cash flow has been developed and is feasible, that the borrower is in 
compliance with the provisions of the line of credit agreement, and the 
previous year income and expenses have been accounted for.
[58 FR 34339, June 24, 1993, as amended at 62 FR 28619, May 27, 1997]



Sec. 1980.191  Borrower Training program.

    (a) Introduction. (1) Supervised credit includes helping borrowers 
to develop the skills necessary for successful, efficient production and 
financial management of a farm business. An effective, formal training 
program provides a solid foundation on which borrowers can build the 
skills which will enable them to become efficient, financially sound 
producers who can obtain commercial financing. The goal of this training 
is for borrowers to develop and improve the financial and production 
management skills necessary to successfully operate a farm, build equity 
in the farm business, and graduate from FmHA or its successor agency 
under Public Law 103-354 programs to commercial sources of credit.
    (2) The authorities contained in this section require borrowers with 
Farmer Programs loans from lenders guaranteed by FmHA or its successor 
agency under Public Law 103-354 to obtain training in production and 
financial management concepts. Unless waived, this training will be an 
eligibility requirement for all Farmer Programs direct and guaranteed 
loans.
    (3) The training will be carried out by public and/or private sector 
providers of farm management and credit counseling services (including, 
but not limited to, community colleges, the Extension Service, State 
Departments of Agriculture, farm management firms, lenders, and similar 
qualified organizations).

[[Page 605]]

    (4) State Directors will enter into agreements with one or more 
qualified providers in each State to conduct the training.
    (b) Processing--(1) County Committee review. The determination of an 
applicant/borrower's need for enhanced training in production and 
financial management concepts will be made by the County Committee. To 
make this determination, the Committee will review the case file (in the 
case of borrowers) and the complete application package for the 
assistance requested. A decision that the applicant/borrower needs such 
training cannot be used as a basis for rejecting the request for 
assistance. 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 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 for production and/or 
financial management. This training must be completed within 2 years 
after Form FmHA or its successor agency under Public Law 103-354 1924-23 
is signed if a waiver is not granted. The Committee's decision as to the 
requirement of training will be documented on Form FmHA or its successor 
agency under Public Law 103-354 440-2. When production training is 
required, a borrower must complete course work covering production 
management in crop or livestock enterprises which constitute twenty 
percent of the cash farm income for the coming production cycle, as 
determined by the County Committee. Borrowers who are adding a new 
enterprise must agree to complete any required production training in 
that enterprise unless a waiver is granted by the County Committee. The 
areas of production training will be specified on Form FmHA or its 
successor agency under Public Law 103-354 440-2. Borrowers must also 
complete financial management training unless a waiver has been granted 
by the County Committee. In the case of loan applicants, the training 
requirement will be considered after the County Committee has determined 
that the applicant meets all eligibility criteria for the type of 
assistance requested. Eligibility determinations and borrower training 
determinations should be made during the same Committee meeting. If the 
Committee determines the applicant is ineligible for assistance, the 
training requirement will not be considered.
    (2) Waivers. Lenders may request a waiver from the training 
requirement on behalf of the loan applicant by submitting Form FmHA or 
its successor agency under Public Law 103-354 1980-83, ``Request for 
Waiver of Borrower Training Requirements for Guaranteed Loan 
Applicants,'' or a written request which includes evidence that the loan 
applicant meets at least one of the waiver conditions listed in 
paragraphs (b)(2)(i) and (b)(2)(ii) of this section. The request should 
be submitted as part of a complete application for the assistance 
requested. However, lenders do not need to provide this information for 
loan applicants who have previously received a waiver or who have 
previously satisfied the training requirements. The loan applicant/
borrower must meet all training requirements for both production and 
financial management if no waiver is granted. If the loan applicant/
borrower receives a waiver for production training, the requirements for 
financial management training must still be met. Conversely, if the loan 
applicant/borrower receives a waiver for financial management training, 
the requirements for production training must still be met. In the case 
of entity applicants, only those entity members holding a majority 
interest in the entity or operating the farm must meet the waiver 
conditions for the entity to qualify for a

[[Page 606]]

waiver. 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 for production and/or 
financial management. The County Committee may waive the financial and/
or production training requirements under the following conditions:
    (i) The loan applicant has successfully completed an equivalent 
training program. To meet this requirement, the loan applicant must 
submit via the lender evidence of completion of a program similar to a 
course approved under this section. The submission must include a 
description of the content and subjects covered in the program completed 
by the applicant or entity members. The submission must also include 
evidence of completion, such as a grade report, certificate of 
completion, or written certification by the course instructor. The 
program must have covered all subject areas in paragraph (d)(3)(iii) of 
this section, including the appropriate production management courses. 
If applicable, CLP lenders will certify that loan applicants have 
completed a program similar to a course approved under this section and 
will assemble the necessary documentation. However, CLP lenders will not 
be required to submit the documentation to FmHA or its successor agency 
under Public Law 103-354 with the request for assistance. The County 
Committee will review the documentation submitted by the lender for 
assistance to determine whether the training completed satisfies the 
training requirements of this section; or
    (ii) The loan applicant has demonstrated adequate knowledge and 
ability in the subject areas covered under this training program by 
performing the tasks described under paragraph (d)(3)(i) of this section 
and the guaranteed lender has recommended a waiver. To recommend a 
waiver, the lender must prepare a brief narrative describing the loan 
applicant's past production and/or financial management performance 
specifically related to satisfaction of the course objectives. The 
County Committee will review the loan narrative and other available 
information to determine if the loan applicant has demonstrated adequate 
knowledge and ability in the subject areas covered by the training 
program.
    (3) Notifying lenders and loan applicants of the County Committee's 
decision regarding training. The lender and loan applicant will be 
informed of the County Committee's decision as follows:
    (i) Loan applicants receiving a waiver from the training and the 
lender requesting the guarantee will be notified in the letter of 
eligibility required under Sec. 1980.115 of this subpart.
    (ii) Loan applicants required to complete the training and their 
lenders will be notified in the letter of eligibility. The requirement 
will also be specified in Form FmHA or its successor agency under Public 
Law 103-354 1980-15. The notification will include the name(s) of the 
approved vendor(s) in the loan applicant's area and the specific 
production courses required. The notification will also include a 
description of the scoring system to be used to determine if the loan 
applicant has successfully met the training requirements. The decision 
to require training is not appealable. However, the decision is 
reviewable.
    (4) Notification of loan applicants determined ineligible for 
assistance. In the letter informing them of the County Committee's 
decision, applicants determined ineligible for assistance due to lack of 
management training and experience will be notified, for their 
information, of training programs approved under this section. If the 
ineligible applicant chooses to enroll in a training program, 
eligibility for future assistance will not be automatic upon completion 
of the course. Loan applicants who complete an approved course and later 
apply for a new loan must still

[[Page 607]]

demonstrate that they possess sufficient training and experience to 
assure reasonable prospects of success and meet other eligibility 
requirements for the assistance requested.
    (5) Contacting vendor and payment. Upon receiving the notification 
of the training requirement, the loan applicant is responsible for 
selecting and contacting a vendor(s), and making all arrangements to 
begin the training. The lender may recommend an approved vendor. FmHA or 
its successor agency under Public Law 103-354 is not a party to any 
agreements between the loan applicant and the vendor. Training fees must 
be included in the plan of operation as a farm operating expense. 
Payment of training fees is an authorized use of operating loan funds.
    (6) Training agreement. Before the lender closes the loan, the loan 
applicant must sign Form FmHA or its successor agency under Public Law 
103-354 1924-23. The lender will return the signed agreement to FmHA or 
its successor agency under Public Law 103-354 along with the other 
closing documents associated with the guaranteed loan. The agreement 
will be placed in position 2 of the case file.
    (7) Automated tracking system. A training code for each borrower 
must be entered into the automated tracking system at the time the loan 
is obligated. This code is necessary in all cases, even if the County 
Committee granted the borrower a waiver from the requirements of the 
Borrower Training program.
    (8) County Office Monitoring. FmHA or its successor agency under 
Public Law 103-354 personnel will monitor borrower progress in the 
training program based on periodic progress reports from the lender. If 
an unsatisfactory progress report is received, FmHA or its successor 
agency under Public Law 103-354 will schedule a meeting with the lender. 
The meeting will be documented in the running case record and will 
include the topics discussed and agreements reached. Copies of this 
documentation will be provided to the lender and the borrower.
    (c) Vendor's evaluation of borrower progress. (1) All required 
training must be completed within 2 years after the borrower signs Form 
FmHA or its successor agency under Public Law 103-354 1924-23. The 
County Supervisor may grant a 1-year written extension to the agreement, 
upon recommendation by the lender, in cases where the borrower 
demonstrates he/she was unable to complete the training due to 
circumstances beyond his/her control, such as poor health, or 
discontinuance of the necessary approved courses. Refusal to grant a 1-
year extension is not an appealable decision.
    (2) The vendor will provide the lender and FmHA or its successor 
agency under Public Law 103-354 with periodic progress reports. The 
frequency of these reports will be determined by the State Director. 
These reports are not intended to reflect a grade or score, but to 
indicate whether the borrower is attending sessions and honestly 
endeavoring to complete the training program. Upon completion of the 
training, the vendor will provide the lender and FmHA or its successor 
agency under Public Law 103-354 with an evaluation which shall 
specifically address the borrower's improvement toward meeting the goals 
outlined in this section. The instructor will also assign the borrower a 
recommended score according to the following criteria:

                                  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.

    (i) Borrowers receiving a score of 1 will have met the requirements 
of the agreement. The accounts of these borrowers will be serviced in 
accordance with existing regulations.
    (ii) Borrowers receiving a score of 2 will have met the requirements 
of the agreement. However, since these borrowers do not adequately 
understand the course material, the lender and the County Supervisor 
will develop a plan outlining the additional supervision

[[Page 608]]

the borrower will require to accomplish the objectives of FmHA or its 
successor agency under Public Law 103-354 assistance.
    (iii) Borrowers receiving a score of 3 will not have met the 
requirements of the agreement for training. Failure to complete the 
training as agreed will cause the borrower to be ineligible for future 
FmHA or its successor agency under Public Law 103-354 benefits including 
future direct and guaranteed loans, Primary Loan Servicing of direct 
Farmer Programs loans, Interest Assistance renewals, and restructuring 
of guaranteed loans.
    (d) Selection and approval of organizations and courses--(1) 
Identification of potential vendors. Prior to the initial approval of 
vendors and prior to renewal of approved vendor's training agreements, 
the State Director or designee shall solicit applications from all 
interested organizations, keeping in mind its cultural diversity 
responsibilities. The State Director shall contact the Chief Executive 
Officer of the State and appropriate officials from the State Department 
of Agriculture, the State Extension Service, community colleges, and 
other private or nonprofit organizations which may be interested in 
conducting this training.
    (2) Application. The vendor must submit the following items prior to 
consideration for approval:
    (i) A sample of the course materials and a description of the 
method(s) of training to be used.
    (ii) Specific training objectives for each section of the course. 
These objectives should relate to the general objectives outlined in 
paragraph (d)(3)(i) of this section.
    (iii) A detailed course agenda specifying the topics to be covered, 
the time to be devoted to each topic, and the number of sessions to be 
attended.
    (iv) A list of instructors and their qualifications, and the 
criteria by which additional instructors will be selected.
    (v) The proposed locations where the training will take place. The 
sites should be within a reasonable commuting distance for borrowers to 
be served by the vendor.
    (vi) Cost per participant and/or cost per organization, i.e. cost 
for husband/wife joint operation; father/son partnership; or multiple 
members of a corporation.
    (vii) Minimum and/or maximum class size.
    (viii) A description of the organization's experience in developing 
and administering training to farmers.
    (ix) A description of the monitoring and/or quality control methods 
the organization intends to use.
    (x) A description of the policy on allowing FmHA or its successor 
agency under Public Law 103-354 employees to attend the course for 
monitoring purposes, i.e., the number of employees authorized to attend; 
the cost (if any); and the number of classes each employee can attend.
    (xi) A description of how the needs of borrowers with physical and/
or mental handicaps or learning disabilities will be met.
    (xii) A plan of how the needs of borrowers for whom English is not 
their primary language will be met.
    (3) State Office review and recommendation. Upon receipt of the 
application packages from the potential vendors, the State Director will 
review the material to assure the vendor's proposal meets the following 
minimum criteria for accomplishment of educational objectives, 
instructor qualifications, curriculum content, and vendor qualification:
    (i) Educational objectives. Upon completion of the course, the 
borrower shall be able to:
    (A) Describe the specific goals of the business, describe what 
changes are required to attain the business goals, and outline how these 
changes will occur using present and projected enterprise budgets.
    (B) Maintain and utilize a financial management information system 
which includes financial and production records, a household budget, a 
statement of financial condition, and an accrual adjusted income 
statement. The borrower shall also be able to use this system when 
making financial and production decisions.
    (C) Understand and utilize an income statement. Specifically, the 
borrower must understand the structure and

[[Page 609]]

major components of an income statement and its role in analyzing the 
performance of a business, be familiar with the cash and accrual methods 
of determining net farm income, and understand the relationship between 
a balance sheet and an income statement.
    (D) Understand and utilize a balance sheet. Specifically, the 
borrower must understand the major components of a balance sheet and its 
role in analyzing the business, be familiar with the categories of 
assets and liabilities and be able to provide examples of entries under 
each, and be familiar with the cost and market methods of valuing assets 
and liabilities and the advantages of each method.
    (E) Understand and utilize a cash flow budget. Specifically, the 
applicant must be able to explain and justify estimates for production 
and expenses, and analyze the cash flow to identify potential problems.
    (F) Using production records and other production information, be 
able to identify problems, evaluate alternatives, and make needed 
corrections to current production practices to achieve greater 
efficiency and profitability.
    (ii) Instructor qualifications. Instructor qualifications will be 
reviewed to assure sufficient knowledge of the material and sufficient 
experience in adult education. The instructors must have a bachelor's 
degree or comparable experience in the subject area which they will 
teach and a minimum of three years experience in conducting training 
courses or teaching. Also, the instructors must successfully complete 
any instructor training which may be associated with the FmHA or its 
successor agency under Public Law 103-354 approved course.
    (iii) Curriculum. The curriculum shall be reviewed to assure that 
the following subject matter is sufficiently addressed. A single vendor 
is not required to provide all the courses necessary to cover the entire 
curriculum; however, to the extent practicable, all topics must be 
available for all FmHA or its successor agency under Public Law 103-354 
districts. The State Director shall identify the specific crop or 
livestock enterprises for which training must be available in a given 
area or district, and any additional subject matter to be covered for 
each.
    (A) Business Planning. The course(s) shall cover the general areas 
of goal setting, risk management, and planning. Goal setting will 
include identification of personal and family goals, business goals, and 
short- and long-term goals. Risk management concepts will include the 
sources, magnitude and frequency of risk, risk tolerance, risk taking 
ability of the business, and strategies for managing risk such as use of 
credit, marketing, production practices, and insurance. Finally, the 
course(s) will guide the borrower through the formulation of a long term 
business plan for the farm and presentation of this plan to a lender.
    (B) Financial Management Systems. The course(s) shall cover all 
aspects of farm accounting, specifically: instruction in financial 
record keeping, preparation of a household budget, development and 
analysis of accrual adjusted income statements, balance sheets, and cash 
flow budgets. The course(s) shall focus on integrating these elements 
into a financial management system which enables the borrower to make 
business decisions based on his/her analysis of financial information.
    (C) Crop Production. The course(s) shall focus on improving the 
profitability of the borrower's crop enterprises. Specifically, the 
course shall address keeping and analyzing production records, 
identifying problems in current production practices, identifying 
sources of production information and assistance, and using production 
information to analyze alternatives and identify the most profitable 
solution.
    (D) Livestock Production. The course(s) shall focus on improving the 
profitability of the borrower's livestock enterprises. Specifically, the 
course shall address keeping and analyzing production records, 
identifying problems in current production practices, identifying 
sources of production information and assistance, and using production 
information to analyze alternatives and identify the most profitable 
solution.
    (iv) Vendor. The proposed vendor of the training must have 
demonstrated a

[[Page 610]]

minimum of 3 years experience in conducting training courses of similar 
scope or teaching in the proposed subject matter.
    (4) Approval. After review of the applications, the State Director 
shall determine which vendors should be recommended for final approval. 
Complete application packages from the selected vendors should be 
submitted to the National Office for concurrence prior to final 
approval. Applications from accredited colleges (including community 
colleges) or universities, however, do not require National Office 
concurrence prior to final approval. If all of the instructors have not 
been selected at the time of request for approval of the vendor, the 
vendor may be approved with the condition that instructors will meet the 
criteria set out in paragraph (d)(3)(ii) of this section. After 
approval, the State Director and the vendor(s) will sign Form FmHA or 
its successor agency under Public Law 103-354 1924-24, ``Agreement to 
Conduct Production and Financial Management Training for Farmers Home 
Administration or its successor agency under Public Law 103-354 
Borrowers.'' This agreement will be valid for three years, unless 
revoked in writing, giving 30 days notice by the State Director or the 
vendor. The State Director may revoke the agreement if the vendor does 
not comply with the responsibilities listed in the agreement. Such 
revocation is nonappealable. The State Director will issue a State 
supplement to this subpart listing the approved vendor(s), the contact 
person for the vendor, the terms of the vendor agreements, and the 
subject matter in which each vendor is approved to conduct training.
    (5) Renewals. Renewal of agreements to conduct training will not be 
automatic. The vendor must request renewal in writing, provide updates 
to any changes in curricula, and provide information which indicates the 
training provided by the vendor is effective. Such information may 
include course evaluations, test scores, or statistics on the 
improvement of borrowers who have completed the course. The State 
Director must obtain National Office concurrence in any decisions to 
deny renewal of a vendor's agreement. A decision to deny renewal of a 
vendor's agreement is nonappealable.
    (e) Vendor monitoring. Borrowers will complete course and instructor 
evaluations provided by the instructor when the borrowers complete the 
course.
[58 FR 69201, Dec. 30, 1993, as amended at 60 FR 53264, Oct. 13, 1995]



Secs. 1980.192--1980.199  [Reserved]



Sec. 1980.200  OMB control number.

    The reporting requirements contained in this subpart have been 
approved by the Office of Management and Budget (OMB) and have been 
assigned OMB control number 0575-0079. Public reporting burden for this 
collection of information is estimated to vary from 15 minutes to 4 
hours per response, with an average of 1.32 hours per response, 
including time for reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. Send comments regarding this 
burden estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden, to the Department of 
Agriculture, Clearance Officer, OIRM, Ag Box 7630, Washington, D.C. 
20250; and to the Office of Management and Budget, Paperwork Reduction 
Project (OMB #0575-0079), Washington, DC 20503.
[60 FR 53264, Oct. 13, 1995]

                          Exhibits to Subpart B

 Exhibit A--Approved Lender Program--Farm Ownership, Soil and Water and 
                             Operating Loans

    I. General: This Exhibit provides policies and procedures to 
establish an Approved Lender Program (ALP) for Guaranteed Operating 
Loans (OL) described in Sec. 1980.175, Farm Ownership (FO) Loans 
described in Sec. 1980.180 and Soil and Water (SW) loans described in 
Sec. 1980.185 of this subpart. The objectives are to minimize time 
required by approved lenders in obtaining response to request for a 
guarantee, eliminate the requirement of having Form FmHA or its 
successor agency under Public Law 103-354 449-35, ``Lender's 
Agreement,'' or Form FmHA or its successor agency under Public Law 103-
354 1980-38, ``Agreement for Participation in Farmer Programs Guaranteed 
Loan Programs of the United States Government,'' executed for

[[Page 611]]

each loan or line of credit guaranteed by Farmers Home Administration or 
its successor agency under Public Law 103-354 (FmHA or its successor 
agency under Public Law 103-354), permit maximum use of forms normally 
used by the lender, require lender to provide FmHA or its successor 
agency under Public Law 103-354 a credit analysis and reduce the 
workload responsibilities of FmHA or its successor agency under Public 
Law 103-354. FmHA or its successor agency under Public Law 103-354 will 
make the final determination on eligibility, loan purposes and repayment 
terms. The ALP agreements, attachments 1 and 2, will serve as the 
``Lender's Agreement'' for guarantees issued by FmHA or its successor 
agency under Public Law 103-354 under this exhibit. Attachment 1 is the 
Lender's Agreement to be executed in relation to regular term loans. 
Attachment 2 is the Lender's Agreement that is to be executed in 
relation to lines of credit. The lender, in its application, should 
indicate the type(s) of advances to be made.
    A. Authority. The authorizations contained in this Exhibit provide: 
(1) Methods for initial approval period, subsequent approval period(s) 
and revocation of ALP status; (2) Methods an ALP lender will use to 
process, service and conclude guaranteed OL, SW, and FO loans; (3) 
Methods FmHA or its successor agency under Public Law 103-354 will use 
to consider an ALP lender's request for guarantee and monitor guaranteed 
OL, SW, and FO loan activities.
    B. Policy. The purpose of an ALP is to expand the guaranteed OL, SW, 
and FO programs, supplement present insured loan authority, and make 
credit available to not larger than family farm owners and/or operators 
who are presently in a ``credit availability gap.'' The ``credit 
availability gap'' farmers are those who slightly exceed FmHA or its 
successor agency under Public Law 103-354's insured loan eligibility 
criteria but who face a degree of financial stress which renders them 
unable to fully qualify for adequate credit based upon standards 
required by the commercial agricultural lender.
    C. List of Lenders. The County Supervisor will maintain a current 
list of approved lenders and other lenders who express a desire to 
participate in the guaranteed program. This list will be made available 
to farmers upon request.
    II. Lender Approval, Subsequent Approval Period(s) and Revocation of 
ALP Status. Lenders who meet the required and other criteria may be 
granted ALP status for a period not to exceed 2 years by the State 
Director for the State in which the lender is authorized to do business. 
All initial and any subsequent approvals of ALP status will be in the 
form of an agreement signed by the State Director and the lending 
institution. The agreement will be attachment 1 and/or attachment 2 of 
the exhibit. The agreement will not apply to branches or subofficies of 
the lender unless specifically named in the Agreement. In cases 
involving the Farm Credit System (FCS), the State Director shall give 
ALP status, within the State Director's area of jurisdiction, to any FCS 
member institution provided such members do not have loan losses 
exceeding 6 percent per year for each of the three previous years or 18 
percent of the institution's average loan portfolio computed for the 
three previous years. FCS member institutions having an acceptable loan 
loss percentage as specified above are exempt from complying with 
requirements of paragraph II A (1)(a) through (d) and (2). The Farm 
Credit Administration (FCA) will notify the FmHA or its successor agency 
under Public Law 103-354 Administrator in writing annually or sooner of 
any FCS member institution that has loan losses exceeding the acceptable 
percentage specified above.
    To obtain ALP status, an FCS member institution with an acceptable 
loan loss percentage need only execute the agreement (Attachment 1 and/
or Attachment 2 of this Exhibit) and satisfy the State Director that it 
is using acceptable forms as provided in paragraph II A (1)(e). Even if 
an FCS member institution is not identified by FCA as having an 
acceptable loan loss percentage, that institution may still request the 
State Director to consider it for ALP status under paragraphs II A (1) 
and (2). When FCS member institutions reorganize into one association, 
the reorganized association must be considered for ALP status as an 
initial applicant with unacceptable loan losses. Except for those FCS 
member institutions identified by FCA as having an acceptable loan loss 
percentage, ALP status will expire at the end of any approved 2-year 
period unless the lender applies for a new agreement which can be 
approved by the appropriate State Director. The ALP status of any lender 
may be revoked by the FmHA or its successor agency under Public Law 103-
354 State Director as outlined in paragraph C. State Directors will keep 
their respective FmHA or its successor agency under Public Law 103-354 
County and District Offices fully informed, by use of State supplements, 
of the names and addresses of all lending institutions, branches or 
suboffices that hold ALP status. The name of each ALP lender's 
designated person or agricultural loan officer who will process and 
service guaranteed loans for the ALP lender will be included.
    A. Lender Approval. Any lender who desires to apply for ALP status 
must also be an ``Eligible Lender'' as defined in Sec. 1980.13(b) of 
subpart A of this part. Except for FCS member institutions having an 
acceptable loan loss percentage as specified in the introductory text to 
paragraph II, lenders who meet this requirement and desire ALP status 
will

[[Page 612]]

prepare a written request to the State Director for the State in which 
they desire to have ALP status. The written request will address each 
item of ``required criteria'' and ``optional criteria,'' contained in 
paragraphs II A (1) and (2) and may be accompanied by any supporting 
evidence or other information the applicant lender believes will be 
helpful to the State Director in making a decision on the application 
for ALP status. Any FmHA or its successor agency under Public Law 103-
354 County, District or State Office may provide a lender who desires to 
apply for ALP status, a complete copy of subparts A and B of this part, 
including a copy of this exhibit, and will assist in completion of the 
request. The State Director will make any necessary investigation or 
inquiry to determine accuracy of information and notify the applicant 
lender within 15 days of receipt of a request that the request is 
approved, denied, or requires additional information. The application 
material will be retained by the State Director for all approved lenders 
and periodic checks will be made by FmHA or its successor agency under 
Public Law 103-354 personnel to insure the lender's performance is as 
outlined in the application.
    (1) Required Criteria. Other than as noted in paragraph II A above, 
before a State Director approves a lender, including an FCS member 
institution that is not identified by FCA as having an acceptable annual 
percentage of loan losses, for ALP status, the requirements listed in 
paragraphs II A (1) (a) through (f) must be met. However, upon the 
request of a lender asking for ALP status, the State Director may exempt 
that lender from complying with the requirement of paragraph II A (1)(b) 
provided the lender complies with all the other requirements listed in 
paragraph II A (1) if the State Director is satisfied that the lender--
without regard to the requirement for which the exemption is being 
requested--is an acceptable agricultural lender with the ability to 
adequately make and service agricultural loans.
    (a) Provide evidence of being an ``Eligible Lender'' as defined in 
Subpart A of this part.
    (b) Provide information to show that agricultural loan losses--net 
of recovery--do not exceed the following:
    (i) For FCS member institutions, either 6 percent per year of the 
institution's total loan portfolio for each of the three previous years 
or 18 percent of the institution's average loan portfolio computed for 
the three previous years; or
    (ii) For all other lenders, either 1\1/2\ percent per year of the 
lender's total agricultural loan portfolio computed for the three 
previous years or 4\1/2\ percent of the lender's average agricultural 
loan portfolio computed for the three previous years.
    (c) Have the capacity to process and service FmHA or its successor 
agency under Public Law 103-354 guaranteed FO and SW loans and OL loans/
lines of credit.
    (d) Designate a person(s) who will process and service FmHA or its 
successor agency under Public Law 103-354 guaranteed OL loans/lines of 
credit and SW and FO loans and agree for the person(s) to attend 
training sessions provided by FmHA or its successor agency under Public 
Law 103-354.
    (e) Agree to use forms acceptable to FmHA or its successor agency 
under Public Law 103-354 for processing, analyzing, securing and 
servicing FmHA or its successor agency under Public Law 103-354 
guaranteed loans/lines of credit. Copies of financial statements, cash 
flow plans, budgets, loan agreements, analysis sheets, recordkeeping 
methods, collateral control sheets, security and other forms to be used 
must be submitted for FmHA or its successor agency under Public Law 103-
354 acceptability with request for ALP status. See Sec. 1980.109 and 
Sec. 1980.113 of this subpart for required forms.
    (f) Agree to abide by all applicable conditions of Sec. 1980.60 of 
Subpart A of this part for all loan guarantees.
    (2) Optional Criteria. Exceptions to the following criteria may be 
made at the discretion of the State Director.
    (a) Have experience and familiarity with FmHA or its successor 
agency under Public Law 103-354 insured and guaranteed loan programs. 
State length of time and types of loans/lines of credit.
    (b) Establish that at least $2.5 million or 50 percent (whichever is 
less) of total loan portfolio is in agricultural loans.
    (c) Provide a resume of designated person who will process and 
service guaranteed FmHA or its successor agency under Public Law 103-354 
loans/lines of credit. Minimum of 30 college hours in agricultural 
science, training in Agriculture Economics and/or at least two (2) years 
experience in making and servicing agricultural type loans for 
production and for real estate purposes is required. If the designated 
person also performs appraisal duties a qualification statement will be 
included.
    (d) Provide a copy of its most recent Report of Condition and Income 
(Call Report) and description of current level of agricultural and other 
leading activities.
    (e) Demonstrate a potential capacity for guaranteed OL loan/line of 
credit and guaranteed FO and SW loan activity in trade area. Must have 
ability to process and service at least 10 guaranteed OL loans/lines of 
credit and/or SW and/or FO loans, subject to availability of funds, per 
fiscal year (October 1-September 30).
    (f) Provide comments on experience or ability to comply with 
regulatory requirements, e.g., Environmental Assessments, Equal 
Opportunity, Flood and Mudslide, Clean Air, etc. (See Secs. 1980.40 
through 1980.46 of Subpart A of this part.)

[[Page 613]]

    (g) Agree to submit requests for guaranteed OL loans/lines of credit 
and/or SW and/or FO loans to county official(s) in service areas after 
application is complete to coincide with scheduled meetings of the local 
FmHA or its successor agency under Public Law 103-354 County Committee.
    (h) Provide any other supplemental information the lender desires to 
submit.
    B. Subsequent Approval Period(s). Except for those FCS member 
institutions that have acceptable loan losses as specified in the 
introductory text of paragraph II, a new 2-year period of ALP status is 
not automatic. Lenders who desire to continue in ALP status are required 
to submit a request for subsequent approved periods at least 60 days 
prior to the expiration of any existing approved period. At least 30 
days prior to the expiration of any approved ALP period, the State 
Director will complete a review of the ALP criteria, the lender's past 
performance, consult appropriate FmHA or its successor agency under 
Public Law 103-354 county and district personnel, and, if requested by 
the lender, determine if a new 2-year period of ALP status can be 
approved. The lender's request will be in writing to the State Director 
and contain, as a minimum, the following:
    (1) A brief summary of activity as an ALP lender including number 
and dollar amount of guaranteed OL loan/lines of credit, SW loans, and/
or FO loans extant, number and dollar amount processed during tenure as 
ALP, number and dollar amount now under consideration, potential 
guaranteed OL, SW, and/or FO lending activity and recap of any loss 
settlements.
    (2) A current update of data required in paragraphs IIA(1) (a) and 
(b) and IIA(2)(d) of this exhibit and any proposed changes in 
agricultrual loan officer(s), forms used, or operating methods used in 
guaranteed OL loan/line of credit, SW loan, and/or FO loan processing 
and servicing.
    (3) Request for a new 2-year period of ALP status.
    The State Director will promptly review the request, make any 
inquiry needed to arrive at a decision; and notify the ALP lender of 
approved ALP status for two years, or required conditions for approval, 
or denial with reasons. An ALP lender who has not participated in the 
guaranteed program during the previous 2 year approved period must 
submit a request as outlined in paragraph II A of this exhibit.
    C. Revocation of ALP Status. Except for those FCS member 
institutions that have acceptable loan losses as specified in the 
introductory text of paragraph II, ALP status will lapse upon expiration 
of any 2-year period unless the lender obtains a new agreement under 
paragraph II B.
    The State Director will revoke ALP status of any approved lender who 
fails to maintain ``required criteria'' as approved in the application 
for ALP status and may revoke status for failure to meet any ``optional 
criteria'' as agreed. Status shall also be revoked if the lender 
violates the terms of the ALP agreement, or fails to properly service 
any guaranteed loan or line of credit, or to protect adequately the 
interests of the lender and the Government. Furthermore, status, at the 
option of the State Director, may also be revoked if an FCS member 
institution that previously had acceptable loan losses as specified in 
the introductory text of paragraph II above is no longer identified by 
FCA as having acceptable losses.
    State Directors will provide all County Office named in paragraph 
XVIII of the ALP agreement (Attachment 1 and/or Attachment 2 of this 
exhibit) with a copy of the agreement and complete application material 
approved in connection with ALP status. State Directors will monitor ALP 
lenders' loan making and security servicing activities, with the 
assistance of the District Director and periodic reports from the County 
Supervisor, to determine compliance with the ALP Agreement and subparts 
A and B of this part pertaining to guaranteed OL, SW and FO loans. 
County Supervisors will use their copy of the ALP Agreement to duplicate 
and place in the County Office file for each loan guaranteed. In the 
event the State Director determines an ALP lender is not adequately 
fulfilling all obligations of the agreement, the lender will be 
contacted and notified of any discrepancies. A maximum of 30 days will 
be provided to correct any deficiencies. If corrections are not made 
within 30 days, the lender's ALP status may be revoked in writing by the 
State Director. The revocation will be in the form of a letter, sent by 
certified mail, and state reasons for the action. Any outstanding 
guaranteed loan(s) or line(s) of credit shall continue to be serviced by 
a lender whose ALP status has expired or been revoked. The lender cannot 
submit requests for any new guarantees pursuant to this exhibit, but may 
submit requests under the regular method outlined in this subpart for 
consideration.
    III. ALP Lender Responsibilities to Process, Service and Liquidate 
Guaranteed OL, SW and FO Loans.
    A. Processing. Before accepting an application for a guaranteed loan 
or line of credit, the ALP lender will review subparts A and B of this 
part. If the lender concludes that an application will be considered, a 
written statement of basis for the conclusion will be placed in the 
applicant's file maintained by the lender addressing each of the loan 
eligibility requirements in Secs. 1980.175(b), 1980.180(b) or 
1980.185(b) of this subpart. The lender must abide by limitations on 
loan purposes, loan limitations, interest rates, and terms set forth for 
OL loans/lines of credit and FO and SW loans in Secs. 1980.175,

[[Page 614]]

1980.180 and 1980.185 of this subpart. All requests for guaranteed loans 
or lines of credit will be processed under subparts A and B of this part 
except as modified by this exhibit. The ALP lender will, for each 
application for a guaranteed loan or line of credit, obtain a Form FmHA 
1980-25, ``Farmer Programs Application,'' signed by the loan applicant. 
ALP lenders will process all guaranteed OL loans/lines of credit or SW 
or FO loans as a ``complete application'' by obtaining and completing 
all required items described in Sec. 1980.113 of this subpart. ALP 
lenders are responsible for meeting the lender's requirements contained 
in exhibit M to subpart G of part 1940 of this chapter. An ALP lender 
will only be required to submit Form FmHA 1980-25 and information on 
crops, livestock and financial condition on forms previously approved 
for use under paragraph II A of this exhibit and, with any supportive 
information attached, to for making application for a guarantee. A 
guaranteed OL loan/line of credit or SW or FO loan will not be closed by 
an ALP lender prior to receipt of Form FmHA 1980-15, ``Conditional 
Commitment (Farmer Programs),'' and the determination that all 
conditions, including the certification required by Sec. 1980.60 of 
subpart A of this part can be met. The ALP lender will be responsible 
for fully securing the OL loan or line of credit under Sec. 1980.175(g), 
FO loan under Sec. 1980.180(f) or SW loan under Sec. 1980.185(f) of this 
subpart. ALP lenders may consult with the County Supervisor at any time 
during the processing and will make all material relating to any 
guarantee application available to the Agency for review upon request. 
The relationship between ALP and CLP is described in Sec. 1980.190(f) of 
this subpart.
    B. Servicing. ALP lenders will be fully responsible for servicing 
and protecting the collateral for all loans/lines of credit guaranteed.
    C. Liquidation of Loans/Lines of Credit. Any liquidation of 
guaranteed OL loans/lines of credit, SW loans or FO loans will be 
completed by the lender. Loss claims will be submitted in accordance 
with the ALP agreement on Form FmHA 449-30, ``Loan Note Guarantee Report 
of Loss.'' The Report of Loss will be accompanied by supporting 
information to outline disposition of all security and proceeds pledged 
to secure the loan/line of credit.
    IV. Agency Actions. The Agency will complete the evaluation 
described in Sec. 1980.114 in any case where the approval official 
determines an independent analysis is needed before approval or denial 
of a request for guarantee. The Agency may request additional 
information, review the lender's ``complete application'' file or make 
an independent evaluation of the application, if needed, to determine 
whether the applicant is eligible, the loan or line of credit is for 
authorized purposes, there is reasonable assurance of repayment ability, 
and sufficient collateral and equity is available. The Agency will make 
the final determinations on the eligibility of applicants for a 
guaranteed OL loan or line of credit, an SW loan, or FO loan, and the 
purposes and terms of such loans or lines of credit.
    A-B [Reserved]
    Each approved lender who currently has an Approved Lender Agreement 
executed prior to January 6, 1988, will be required to execute a new 
Approved Lender Agreement. If liquidation of the account becomes 
imminent, the Lender will consider the borrower for Interest Assistance 
and request a determination of the borrower's eligibility by the Agency. 
The lender may not initiate foreclosure action on the loan until 60 days 
after a determination has been made on the borrower's eligibility to 
participate in the Interest Assistance Program.

Attachment 1--Farmers Home Administration or its successor agency under 
            Public Law 103-354 Approved Lender Program (ALP)

 Lender's Agreement (Loan Note Guarantee Only) for Guaranteed Operating 
Loans (OL) and Guaranteed Farm Ownership Loans (FO) Guaranteed Soil and 
                            Water Loans (SW)

 _______________________________________________________________________
(Lender) of_____________________________________________________________
 _______________________________________________________________________
is designated as an Approved Lender for the purpose of processing and 
requesting Loan Note Guarantee(s) authorized by exhibit A to 7 CFR part 
1980, subpart B. This does not apply to loan types other than those 
specifically named in this agreement. The agreement applies to the 
following offices of the Lender:
 _______________________________________________________________________
    The United States of America, acting through the Farmers Home 
Administration or its successor agency under Public Law 103-354 (FmHA or 
its successor agency under Public Law 103-354), agrees to enter into 
Loan Note Guarantees with the Lender as may be issued pursuant to the 
regulations for operating, soil and water, and/or farm ownership loans 
and to participate in a percentage of any loss on any such operating, 
soil and water and/or farm ownership loan not to exceed the amount 
established in the particular loan note guarantee as the percentage of 
the amount of the principal and any accrued interest. The terms of any 
Loan Note Guarantee are controlling. As a condition for obtaining a 
guarantee of the loan(s), the Lender enters into this Agreement.

                           THE PARTIES AGREE:

    I. The maximum loss covered under the Loan Note Guarantee will not 
exceed the

[[Page 615]]

amount established in the particular loan guarantee as to percentage of 
the principal and accrued interest on any operating, soil and water and/
or farm ownership loan guaranteed.
    II. Lender's Sale or Assignment of Guaranteed Loan.
    A. The Lender may retain all of any guaranteed loan. The Lender is 
not permitted to sell or participate any amount of the guaranteed or 
unguaranteed portion(s) of loan(s) to the applicant or Borrower or 
members of their immediate families, their officers, directors, 
stockholders, other owners, or any parent, subsidiary or affiliate. If 
the Lender desires to market all or part of the guaranteed portion of 
loan at or subsequent to loan closing, such loan must not be in default 
as set forth in the terms of the notes. The Lender may proceed under the 
following options:
    1. Assignment. Assign all or part of the guaranteed portion of any 
loan to one or more Holders by using Form FmHA or its successor agency 
under Public Law 103-354 449-36, ``Assignment Guarantee Agreement.'' 
Holder(s), upon written notice to Lender and FmHA or its successor 
agency under Public Law 103-354, may reassign the unpaid guaranteed 
portion of the loan sold under Form FmHA or its successor agency under 
Public Law 103-354 449-36. Upon such notification the assignee shall 
succeed to all rights and obligations of the Holder(s) under Form FmHA 
or its successor agency under Public Law 103-354 449-36.
    2. Multinote System. When this option is selected by the Lender, 
upon disposition the Holder will receive one of the Borrower's executed 
notes and Form FmHA or its successor agency under Public Law 103-354 
449-34, ``Loan Note Guarantee,'' attached to the Borrower's note. 
However, all rights under the security instruments (including personal 
and/or corporate guarantees) will remain with the Lender and in all 
cases insure to its and the Government's benefit not withstanding any 
contrary provisions of State law.
    a. At Loan Closing: Provide for no more than 10 notes, unless the 
borrower and FmHA or its successor agency under Public Law 103-354 agree 
otherwise, for the guaranteed portion and one note for the unguaranteed 
portion. When this option is selected, FmHA or its successor agency 
under Public Law 103-354 will provide the lender with a Form FmHA or its 
successor agency under Public Law 103-354 449-34, for each of the notes.
    b. After Loan Closing: (1) Upon written approval by FmHA or its 
successor agency under Public Law 103-354, the Lender may cause to be 
issued a series of new notes, not to exceed the total provided in 2.a. 
above, as replacement for previously issued guaranteed note(s) provided:
    (a) The Borrower agrees and executes the new notes.
    (b) The interest rate does not succeed the interest rate in effect 
when the loan was closed.
    (c) The maturity of the loan is not changed.
    (d) FmHA or its successor agency under Public Law 103-354 will not 
bear any expenses that may be incurred in reference to such re-issue of 
notes.
    (e) There is adequate collateral securing the note(s).
    (f) No intervening liens have arisen or have been perfected and the 
secured lien priority remains the same.
    (2) FmHA or its successor agency under Public Law 103-354 will issue 
the appropriate Loan Note Guarantees to be attached to each of the notes 
then exchanged for the original Loan Note Guarantee which will be 
cancelled by FmHA or its successor agency under Public Law 103-354.
    3. Participations. a. The lender is required to hold in its own 
portfolio or retain a minimum of 10 percent of the total guaranteed 
loan(s) amount. The amount required to be retained must be of the 
unguaranteed portion of the loan and cannot be participated to another 
lender.
    b. The lender may obtain participation of only the unguaranteed 
portion of its loan in excess of the 10 percent minimum under its normal 
operating procedures. Participation means a sale of an interest in the 
loan in which the Lender retains the note, collateral securing the note, 
and all responsibility for loan servicing and liquidation. Participation 
with a lender by any entity does not make that entity a holder or a 
lender.
    B. When a guaranteed portion of a loan is sold by the Lender to a 
Holder(s), the Holder(s) shall upon the sale succeed to all rights of 
Lender under the Loan Note Guarantee to the extent of the portion of the 
loan purchased. Lenders will remain bound to all the obligations under 
the Loan Note Guarantee, and this agreement, and the FmHA or its 
successor agency under Public Law 103-354 program regulations found in 
title 7 CFR, part 1980, subparts A and B, and to future FmHA or its 
successor agency under Public Law 103-354 program regulations not 
inconsistent with the express provisions of this Agreement.
    III. The Lender agrees loan funds will be used for the purposes 
authorized in 7 CFR part 1980, subparts A and B as set forth in Form 
FmHA or its successor agency under Public Law 103-354 449-14, 
``Conditional Commitment for Guarantee,'' for the particular loan.
    IV. The Lender certifies that none of its officers or directors, 
stockholders (except stockholders in a Farm Credit Bank or other Farm 
Credit System institutions with direct lending authority that have 
normal

[[Page 616]]

stockshare requirements for participating) or other owners has, or will 
have, a substantial financial interest in any guaranteed loan Borrower. 
The lender certifies that neither any guaranteed loan Borrower nor its 
officers or directors, stockholders or other owners have a substantial 
financial interest in the Lender. If the borrower is a member of the 
board of directors of a Farm Credit Bank or other Farm Credit System 
institution with direct lending authority the lender certifies that an 
FCS institution on the next highest level will independently process the 
loan request and will act as the Lender's agent in servicing the 
account.
    V. The Lender will certify to FmHA or its successor agency under 
Public Law 103-354, prior to the issuance of a Loan Note Guarantee for 
each loan, that there has been no adverse change(s) in the Borrower's 
condition during the period of time from FmHA or its successor agency 
under Public Law 103-354's issuance of the Conditional Commitment for 
Guarantee to issuance of the Loan Note Guarantee. The Lender's 
certification must address all adverse changes and be supported by 
financial statements of the Borrower and its guarantors not more than 90 
days old at the time of certification. As used in this paragraph only, 
the term ``Borrower'' includes any parent, affiliate, or subsidiary of 
the Borrower.
    VI. Lender will submit the required guarantee fee with a Guaranteed 
Loan Closing Report at the time a Loan Note Guarantee is issued.
    VII. Servicing. A. The Lender will service the entire loan and will 
remain mortgagee and/or secured party of record, notwithstanding the 
fact that another may hold a portion of the loan. The entire loan will 
be secured by the same security with equal lien priority for the 
guaranteed and unguaranteed portion of the loan. Lender may charge 
Holder a servicing fee. The unguaranteed portion of a loan will not be 
paid first nor given any preference or priority over the guaranteed 
portion of the loan. The Lender shall perform those services which a 
reasonable prudent lender would perform in servicing its own portfolio 
of loans that are guaranteed.
    B. Disposition of the guaranteed portion of a loan may be made prior 
to full disbursement, completion of construction and acquisitions only 
with the prior written approval of FmHA or its successor agency under 
Public Law 103-354. Subsequent to full disbursement, completion of 
construction, and acquisition, the guaranteed portion of the loan may be 
disposed of as provided in this Agreement.
    It is the Lender's responsibility to see that all construction is 
properly planned before any work proceeds; that any required permits, 
licenses or authorizations are obtained from the appropriate regulatory 
agencies; that the Borrower has obtained contracts through acceptable 
procurement procedures; that periodic inspections during construction 
are made and the FmHA or its successor agency under Public Law 103-354's 
concurrence on the overall development schedule is obtained.
    C. Lender's servicing responsibilities include, but are not limited 
to: 1. Obtaining compliance with the covenants and provisions in the 
note, loan agreement, security instruments, and any supplemental 
agreements and notifying in writing FmHA or its successor agency under 
Public Law 103-354 and the Borrower on any violations.
    2. Receiving all payments on principal and interest on the loan as 
they fall due and promptly remitting and accounting to any Holder(s) of 
their pro rata share thereof determined according to their respective 
interests in the loan, less only Lender's servicing fee. The loan may be 
reamortized, rescheduled or written down only with agreement of the 
Lender and Holder(s) of the guaranteed portion of the loan and only with 
FmHA or its successor agency under Public Law 103-354's written 
concurrence.
    3. Inspecting the collateral as often as necessary to properly 
service the loan.
    4. Assuring that adequate insurance is maintained. This includes 
hazard insurance obtained and maintained with a loss payable clause in 
favor of the Lender as the mortgagor or secured party.
    5. Assuring that:
    a. taxes, assessment or ground rents against or affecting collateral 
are paid;
    b. the loan and collateral are protected in foreclosure, bankruptcy, 
receivership, insolvency, condemnation, or other litigation;
    c. Insurance loss payments, condemnation awards, or similar proceeds 
are applied on debts in accordance with lien priorities on which the 
guarantee was based, or to rebuilding or otherwise acquiring needed 
replacement collateral with the written approval of FmHA or its 
successor agency under Public Law 103-354;
    d. Proceeds from the sale or other disposition of collateral are 
applied in accordance with the lien priorities on which the guarantee is 
based, except that proceeds from the disposition of collateral, such as 
machinery, equipment, furniture or fixtures, may be used to acquire 
property of similar nature without written concurrence of FmHA or its 
successor agency under Public Law 103-354;
    e. The Borrower complies with all laws and ordinances applicable to 
the loan, the collateral and/or operation of the farm.
    6. Assuring that if personal or corporate guarantees are part of the 
collateral, financial statements from such loan guarantors will be 
obtained which are not over 90 days old. In the case of guarantees 
secured by collateral, assuring the security is properly maintained.

[[Page 617]]

    7. Obtaining the lien coverage and lien priorities specified by the 
Lender and agreed to by FmHA or its successor agency under Public Law 
103-354, properly recording or filing lien or notice instruments to 
obtain or maintain such lien priorities during the existence of the 
guarantee by FmHA or its successor agency under Public Law 103-354.
    8. Assuring that the Borrower obtains marketable title to the 
collateral.
    9. Assuring that the Borrower (as defined in 7 CFR part 1980, 
subpart B, Sec. 1980.106(b)) is not released from liability for all or 
any part of the loan, except in accordance with FmHA or its successor 
agency under Public Law 103-354 regulations.
    10. Providing the FmHA or its successor agency under Public Law 103-
354 Office with loan status reports annually as of December 31 on Form 
FmHA or its successor agency under Public Law 103-354 1980-41, 
``Guaranteed Loan Status Report.''
    11. Obtaining financial statements from each chattel loan secured 
borrower at least annually. Lender is responsible for analyzing the 
financial statements, taking any servicing actions and providing copies 
of statements and record of action to the FmHA or its successor agency 
under Public Law 103-354 office upon request.
    12. Monitoring the use of loan funds to assure they will not be used 
for any purpose that will contribute to excessive erosion of highly 
erodible land or to the conversion of wetlands to produce an 
agricultural commodity, as further explained in 7 CFR part 1980, subpart 
G, exhibit M.
    D. The lender shall participate in any farm credit mediation program 
of a state in accordance with the rules of that system and 7 CFR part 
1980, subpart B, Sec. 1980.126.
    VIII. Default by Borrower.
    A. The Lender will notify FmHA or its successor agency under Public 
Law 103-354 when a Borrower is thirty (30) days past due on a payment or 
if the Borrower has not met its responsibilities of providing the 
required financial statements to the Lender or is otherwise in default. 
The Lender will notify FmHA or its successor agency under Public Law 
103-354 of the status of a Borrower's default on Form FmHA or its 
successor agency under Public Law 103-354 1980-44, ``Guaranteed Loan 
Borrower Default Status.'' A meeting will be arranged by the Lender with 
the Borrower and FmHA or its successor agency under Public Law 103-354 
to resolve the problem. Actions taken by the Lender with written 
concurrence of FmHA or its successor agency under Public Law 103-354 may 
include but are not limited to the following or any combination of the 
following:
    1. Deferment of principal payments (subject to rights of any 
Holder(s)).
    2. An additional temporary loan by the lender to bring the account 
current.
    3. Reamortization or rescheduling of the payments on the loan 
(subject to rights of any Holder(s)).
    4. Transfer and assumption of the loan.
    5. Reorganization.
    6. Liquidation.
    7. Changes in fixed interest rates with FmHA or its successor agency 
under Public Law 103-354's, Lender's, and the Holder'(s) written 
approval; provided, such interest rate is adjusted proportionally 
between the guaranteed and unguaranteed portion of the loan.
    8. Principal and interest writedown in accordance with 7 CFR part 
1980, subpart B, Sec. 1980.125.
    B. The Lender will negotiate in good faith in an attempt to resolve 
any problem to permit the Borrower to cure a default, where reasonable. 
The Lender agrees that if liquidation of the account becomes imminent, 
the Lender will consider the Borrower for an Interest Rate Buydown under 
exhibit D of subpart B of 7 CFR, part 1980, and request a determination 
of the Borrower's eligibility by FmHA or its successor agency under 
Public Law 103-354. The Lender may not initiate foreclosure action on 
the loan until 60 days after a determination has been made with respect 
to the eligibility of the Borrower to participate in the Interest Rate 
Buydown Program.
    C. The Lender has the option to repurchase the unpaid guaranteed 
portion of the loan from the Holder(s) within 30 days of written demand 
by the Holder(s) when: (a) the Borrower is in default not less than 60 
days in payment of principal or interest due on the loan or (b) the 
Lender has failed to remit to the Holder(s) its pro rata share of any 
payment made by the borrower within 30 days of its receipt of the 
payment. The repurchase by the Lender will be for an amount equal to the 
unpaid guaranteed portion of the principal and accrued interest less the 
Lender's servicing fee. The Loan Note Guarantee will not cover the note 
interest to the Holder on the guaranteed loan(s) accruing after 90 days 
from the date of the demand letter to the Lender requesting the 
repurchase. The Lender will accept an assignment without recourse from 
the Holder(s) upon repurchase. The Lender is encouraged to repurchase 
the loan to facilitate the accounting for funds, resolve the problem, 
and to permit the borrower to cure the default, where reasonable. The 
Lender will notify the Holder(s) and FmHA or its successor agency under 
Public Law 103-354 of its decision.
    D. If Lender does not repurchase as provided by Paragraph C, FmHA or 
its successor agency under Public Law 103-354 will purchase from 
Holder(s) the unpaid principal balance of the guaranteed portion 
together with accrued interest to date of repurchase, within 30 days 
after written demand to FmHA or its successor agency under Public

[[Page 618]]

Law 103-354 from the Holder(s). The Loan Note Guarantee will not cover 
the note interest to the Holder on the guaranteed loan(s) accruing after 
90 days from the date of original demand letter of the Holder(s) to the 
Lender requesting the repurchase. Such demand will include a copy of the 
written demand made upon the Lender.
    The Holder(s) or its duly authorized agent will also include 
evidence of its right to require payment from FmHA or its successor 
agency under Public Law 103-354. Such evidence will consist of either 
the originals of the Loan Note Guarantee and note properly endorsed to 
FmHA or its successor agency under Public Law 103-354 or the original of 
the Assignment Guarantee Agreement properly assigned to FmHA or its 
successor agency under Public Law 103-354 without recourse including all 
rights, title, and interest in the loan. FmHA or its successor agency 
under Public Law 103-354 will be subrogated to all rights of Holder(s). 
The Holder(s) will include in its demand the amount due including unpaid 
principal, unpaid interest to date of demand and interest subsequently 
accruing from date of demand to proposed payment date. FmHA or its 
successor agency under Public Law 103-354 will verify the amount of 
unpaid principal and interest with the Lender. Unless otherwise agreed 
to by FmHA or its successor agency under Public Law 103-354, such 
proposed payment will not ordinarily be later than 30 days from the date 
of the demand to FmHA or its successor agency under Public Law 103-354.
    FmHA or its successor agency under Public Law 103-354 will promptly 
notify the Lender of the Holder(s)'s demand for payment. The Lender will 
promptly provide the FmHA or its successor agency under Public Law 103-
354 with the information necessary for FmHA or its successor agency 
under Public Law 103-354's determination of the appropriate amount due 
the Holder(s). Any discrepancy between the amount claimed by the 
Holder(s) and the information submitted by the Lender must be resolved 
before payment will be approved. FmHA or its successor agency under 
Public Law 103-354 will notify both parties who must resolve the 
conflict before payment by FmHA or its successor agency under Public Law 
103-354 will be approved. Such a conflict will suspend the running of 
the 30 day payment requirement. Upon receipt of the appropriate 
information, FmHA or its successor agency under Public Law 103-354 will 
review the demand and submit it to the State Director for verification. 
After reviewing the demand, the State Director will transmit the request 
to the FmHA or its successor agency under Public Law 103-354 Finance 
Office for issuance of the appropriate check. Upon issuance, the Finance 
Office will notify the State Director and remit the check(s) to the 
Holder(s).
    E. Lender consents to the purchase by FmHA or its successor agency 
under Public Law 103-354 and agrees to furnish on request by FmHA or its 
successor agency under Public Law 103-354 a current statement certified 
by an appropriate authorized officer of the Lender of the unpaid 
principal and interest then owed by the Borrower on the loan and the 
amount due the Holder(s). Lender agrees that any purchase by FmHA or its 
successor agency under Public Law 103-354 does not change, alter or 
modify any of the Lender's obligations to FmHA or its successor agency 
under Public Law 103-354 arising from said loan or guarantee, nor does 
such purchase waive any of FmHA or its successor agency under Public Law 
103-354's rights against Lender, and FmHA or its successor agency under 
Public Law 103-354 will have the right to set-off against Lender all 
rights inuring to FmHA or its successor agency under Public Law 103-354 
from the Holder against FmHA or its successor agency under Public Law 
103-354's obligation to Lender under the Loan Note Guarantee.
    F. Servicing fees assessed by the Lender to a Holder are collectible 
only from payment installments received by the Lender from the Borrower. 
When FmHA or its successor agency under Public Law 103-354 repurchases 
from a Holder, FmHA or its successor agency under Public Law 103-354 
will pay the Holder only the amounts due the Holder. FmHA or its 
successor agency under Public Law 103-354 will not reimburse the Lender 
for servicing fees assessed to a Holder and not collected from payments 
received from the Borrowers. No service fee shall be charged FmHA or its 
successor agency under Public Law 103-354 and no such fee is collectible 
from FmHA or its successor agency under Public Law 103-354.
    G. Lender may also repurchase the guaranteed portion of the loan 
consistent with Paragraph 10 of the Loan Note Guarantee.
    IX. Liquidation. If the Lender concludes the liquidation of a 
guaranteed Loan account is necessary because of one or more defaults or 
third party actions that the Borrower cannot or will not cure or 
eliminate within a reasonable period of time, a meeting will be arranged 
by the Lender with FmHA or its successor agency under Public Law 103-
354. When FmHA or its successor agency under Public Law 103-354 concurs 
with the Lender's conclusion or at any time concludes independently the 
liquidation is necessary, it will notify the Lender and the matter will 
be handled as follows:
    The Lender will liquidate the loan unless FmHA or its successor 
agency under Public Law 103-354, at its option, decides to carry out 
liquidation.
    When the decision to liquidate is made, the Lender may proceed to 
purchase from Holder(s) the guaranteed portion of the loan. The

[[Page 619]]

Holder(s) will be paid according to the provisions in the Loan Note 
Guarantee or the Assignment Guarantee Agreement.
    If the Lender does not purchase the guaranteed portion of the loan, 
FmHA or its successor agency under Public Law 103-354 will be notified 
immediately in writing. FmHA or its successor agency under Public Law 
103-354 will then purchase the guaranteed portion of the loan from the 
Holder(s). If FmHA or its successor agency under Public Law 103-354 
holds any of the guaranteed portion, FmHA or its successor agency under 
Public Law 103-354 will be paid first its pro rata share of the proceeds 
from liquidation of the collateral.
    A. Lender's proposed method of liquidation. Within 30 days after the 
decision to liquidate, the Lender will advise FmHA or its successor 
agency under Public Law 103-354 in writing of its proposed detailed 
method of liquidation called a liquidation plan and will provide FmHA or 
its successor agency under Public Law 103-354 with:
    1. Such proof as FmHA or its successor agency under Public Law 103-
354 requires to establish the Lender's ownership of the guaranteed loan 
promissory note(s) and related security instruments.
    2. Information lists concerning the Borrower's assets including real 
and personal property, fixtures, claims, contracts, inventory (including 
perishables), accounts receivable, personal and corporate guarantees, 
and other existing and contingent assets, advice as to whether or not 
each item is serving as collateral for the guaranteed loan.
    3. A proposed method of making the maximum collection possible on 
the indebtedness.
    4. The Lender will obtain an independent appraisal report on all 
collateral securing the loan, which will reflect the current market 
value and potential liquidation value. The appraisal report is for the 
purpose of permitting the Lender and FmHA or its successor agency under 
Public Law 103-354 to determine the appropriate liquidation actions. Any 
independent appraiser's fee will be shared equally by FmHA or its 
successor agency under Public Law 103-354 and the Lender.
    B. FmHA or its successor agency under Public Law 103-354's response 
to Lender's liquidation plan. FmHA or its successor agency under Public 
Law 103-354 will inform the Lender in writing whether it concurs in the 
Lender's liquidation plan within 30 days after receipt of such plan from 
the Lender. If FmHA or its successor agency under Public Law 103-354 
needs additional time to respond to the liquidation plan, it will advise 
the Lender of a definite time for such response. Should FmHA or its 
successor agency under Public Law 103-354 and the Lender not agree on 
the Lender's liquidation plan, negotiation will take place between FmHA 
or its successor agency under Public Law 103-354 and the Lender to 
resolve the disagreement. The Lender will ordinarily conduct the 
liquidation; however, should FmHA or its successor agency under Public 
Law 103-354 opt to conduct the liquidation, FmHA or its successor agency 
under Public Law 103-354 will proceed as follows:
    1. The Lender will transfer to FmHA or its successor agency under 
Public Law 103-354 all rights and interests necessary to allow FmHA or 
its successor agency under Public Law 103-354 to liquidate the loan. In 
this event, the Lender will not be paid for any loss until after the 
collateral is liquidated and the final loss is determined by FmHA or its 
successor agency under Public Law 103-354.
    2. FmHA or its successor agency under Public Law 103-354 will 
attempt to obtain the maximum amount of proceeds from liquidation.
    3. Options available to FmHA or its successor agency under Public 
Law 103-354 include any one or combination of the usual commercial 
methods of liquidation.
    C. Acceleration. The Lender or FmHA or its successor agency under 
Public Law 103-354, if it liquidates, will proceed as expeditiously as 
possible when acceleration of the indebtedness is necessary including 
giving any notices and taking any other required legal action. A copy of 
the acceleration notice or other acceleration document will be sent to 
FmHA or its successor agency under Public Law 103-354 or the Lender, as 
the case may be.
    D. Liquidation: Accounting and Reports. When the Lender conducts the 
liquidation, it will account for funds during the period of liquidation 
and will provide FmHA or its successor agency under Public Law 103-354 
with periodic reports on the progress of liquidation, disposition of 
collateral, resulting costs and additional procedures necessary for 
successful completion of liquidation. The Lender will transmit to FmHA 
or its successor agency under Public Law 103-354 any payment received 
from the Borrower and/or pro rata share of liquidation or other 
proceeds, when FmHA or its successor agency under Public Law 103-354 is 
the holder of a portion of the guaranteed loan using Form FmHA or its 
successor agency under Public Law 103-354 1980-43, ``Lender's Guaranteed 
Loan Payment.'' When FmHA or its successor agency under Public Law 103-
354 liquidates, the Lender will be provided with similar reports on 
request.
    E. Determination of Loss and Payment. In all liquidation cases, 
final settlement will be made with the Lender after the collateral is 
liquidated. FmHA or its successor agency under Public Law 103-354 will 
have the right to recover losses if paid under the guarantee from any 
party liable.
    1. Form FmHA or its successor agency under Public Law 103-354 449-
30, ``Loan Note

[[Page 620]]

Guarantee Report of Loss,'' will be used for calculation of all 
estimated and final loss determinations. Estimated loss payments may be 
approved by FmHA or its successor agency under Public Law 103-354 after 
the Lender has submitted a liquidation plan approved by FmHA or its 
successor agency under Public Law 103-354. Payment will be made in 
accordance with 7 CFR 1980, subpart B.
    2. When the Lender is conducting the liquidation and owns any of the 
guaranteed portion of the loan, and it is anticipated liquidation will 
take longer than 90 days it will request a tentative loss estimate by 
submitting to FmHA or its successor agency under Public Law 103-354 an 
estimate of the loss that will occur in connection with liquidation of 
the loan. FmHA or its successor agency under Public Law 103-354 will 
agree to pay an estimated loss on the outstanding principal balance owed 
on the guaranteed debt (See G. below). The Lender will discontinue 
interest accrual on the defaulted loan when the estimated loss claim is 
approved by FmHA or its successor agency under Public Law 103-354. Such 
estimate will be prepared and submitted by the Lender on Form FmHA or 
its successor agency under Public Law 103-354 449-30, using the basic 
formula as provided on the report except that the appraisal value will 
be used in lieu of the amount received from the sale of collateral.
    After the Report of Loss estimate has been approved by FmHA or its 
successor agency under Public Law 103-354, FmHA or its successor agency 
under Public Law 103-354 will send the original Report of Loss estimate 
to the FmHA or its successor agency under Public Law 103-354 Finance 
Office for issuance of a Treasury check in payment of the estimated 
amount due the Lender.
    After liquidation has been completed, a final loss report will be 
submitted on Form FmHA or its successor agency under Public Law 103-354 
449-30 by the Lender to FmHA or its successor agency under Public Law 
103-354.
    3. After the Lender has completed liquidation, FmHA or its successor 
agency under Public Law 103-354 upon receipt of the final accounting and 
Report of Loss, may audit and will determine the actual loss. If FmHA or 
its successor agency under Public Law 103-354 has any questions 
regarding the amounts set forth in the final Report of Loss, it will 
investigate the matter. The Lender will make its records available to 
and otherwise assist FmHA or its successor agency under Public Law 103-
354 in making the investigation. If FmHA or its successor agency under 
Public Law 103-354 finds any discrepancies, it will contact the Lender 
and arrange for the necessary corrections to be made as soon as 
possible. When FmHA or its successor agency under Public Law 103-354 
finds the final Report of Loss to be proper in all respects, it will be 
tentatively approved in the space provided on the form for that purpose.
    4. When the Lender has conducted liquidation and after the final 
Report of Loss has been tentatively approved:
    a. If the loss is greater than the estimated loss payment, FmHA or 
its successor agency under Public Law 103-354 will send the original of 
the final Report of Loss to the Finance Office for issuance of a 
Treasury check in payment of the additional amount owed by FmHA or its 
successor agency under Public Law 103-354 to the Lender.
    b. If the loss is less than the estimated loss, the Lender will 
reimburse FmHA or its successor agency under Public Law 103-354 for the 
overpayment plus interest at the note rate from date of overpayment.
    5. If FmHA or its successor agency under Public Law 103-354 has 
conducted liquidation, it will provide an accounting and Report of Loss 
to the Lender and will pay the Lender in accordance with the Loan Note 
Guarantee.
    6. In those instances where the Lender has made authorized 
protective advances, it may claim recovery for the guaranteed portion of 
any loss of monies advanced as protective advances and interest 
resulting from such protective advances as provided above, and such 
payment will be made by FmHA or its successor agency under Public Law 
103-354 when the final Report of Loss is approved.
    F. Maximum amount of interest loss payment. Notwithstanding any 
other provisions of this agreement, the amount payable by FmHA or its 
successor agency under Public Law 103-354 to the Lender cannot exceed 
the limits set forth in the Loan Note Guarantee. If FmHA or its 
successor agency under Public Law 103-354 conducts the liquidation, loss 
occasioned by accruing interest will be covered by the guarantee only to 
the date FmHA or its successor agency under Public Law 103-354 accepts 
the responsibility for liquidation. Loss occasioned by accruing interest 
will be covered to the extent of the guarantee to the date of final 
settlement when the liquidation is conducted by the Lender provided it 
proceeds expeditiously with the liquidation plan approved by FmHA or its 
successor agency under Public Law 103-354 except when an estimated loss 
claim is filed. When a Lender files an estimated loss claim, the Lender 
will discontinue interest accrual on the defaulted loan when the 
estimated loss claim is approved by FmHA or its successor agency under 
Public Law 103-354. The balance of accrued interest payable to the 
Lender, if any, will be calculated on the final Report of Loss form.
    G. Application of FmHA or its successor agency under Public Law 103-
354 loss payment. The estimated loss payment shall be applied as of the 
date of such payment. The total amount of the loss payment remitted by 
FmHA or its successor agency under Public Law 103-354

[[Page 621]]

will be applied by the Lender on the guaranteed portion of the loan 
debt. However, such application does not release the Borrower from 
liability. Such amounts are only to compensate the Lender for the loss. 
(See XII below.) In all cases a final Form FmHA or its successor agency 
under Public Law 103-354 449-30 prepared and submitted by the Lender 
must be processed by FmHA or its successor agency under Public Law 103-
354 in order to close out the files.
    H. Income from collateral. Any net rental or other income that has 
been received by the Lender from the collateral will be applied on the 
guaranteed loan debt.
    I. Liquidation costs. Certain reasonable liquidation costs will be 
allowed during the liquidation process. These liquidation costs will be 
submitted as part of the liquidation plan. Such costs will be deducted 
from gross proceeds from the disposition of collateral unless the costs 
have been previously determined by the Lender (with FmHA or its 
successor agency under Public Law 103-354 written concurrence) to be 
protective advances. If circumstances have changed after submission of 
the liquidation plan which require a revision of liquidation costs, the 
Lender will procure FmHA or its successor agency under Public Law 103-
354's written concurrence prior to proceeding with the proposed changes. 
No in-house expenses of the Lender will be allowed. In-house expenses 
include, but are not limited to, employee's salaries, staff lawyers, 
travel and overhead.
    J. Payment. Final loss payments will be made within 30 days after 
the review of the accounting of the collateral.
    X. Protective Advances. Protective advances must constitute an 
indebtedness of the Borrower to the Lender and be secured by the 
security instrument(s). FmHA or its successor agency under Public Law 
103-354 written authorization is required on all protective advances in 
excess of $3,000. Protective advances include advances made for property 
taxes, annual assessments, ground rent, hazard or flood insurance 
premiums affecting the collateral, and other expenses necessary to 
preserve or protect the security. Attorney fees are not a protective 
advance.
    XI. Additional Loans or Advances. Except as provided for in each 
borrower's loan agreement which was specifically approved by FmHA or its 
successor agency under Public Law 103-354 for that specific borrower, 
the Lender will not make additional expenditures or new loans without 
first obtaining the written approval of FmHA or its successor agency 
under Public Law 103-354 even though such expenditures or loans will not 
be guaranteed.
    XII. Future Recovery. After a loan has been liquidated and a final 
loss has been paid by FmHA or its successor agency under Public Law 103-
354, any future funds which may be recovered by the Lender, will be pro-
rated between FmHA or its successor agency under Public Law 103-354 and 
the Lender. FmHA or its successor agency under Public Law 103-354 will 
be paid such amount recovered in proportion to the percentage it 
guaranteed for the loan and the Lender will retain such amount in 
proportion to the percentage of the unguaranteed portion of the loan.
    XIII. Transfer and Assumption Cases. Refer to 7 CFR part 1980, 
subpart B.
    If a loss will occur upon consummation of a complete transfer and 
assumption for less than the full amount of the debt and the transferor 
debtor (including personal guarantees) is released from personal 
liability, the Lender, if it holds the guaranteed portion, may file an 
estimated Report of Loss on Form FmHA or its successor agency under 
Public Law 103-354 449-30, ``Loan Note Guarantee Report of Loss,'' to 
recover its pro rata share of the actual loss at that time. In 
completing Form FmHA or its successor agency under Public Law 103-354 
449-30, the amount of the debt assumed will be entered on line 24 as Net 
Collateral (Recovery). Approved protective advances and accrued interest 
thereon made during the arrangement of a transfer and assumption, if not 
assumed by the Transferee, will be entered on Form FmHA or its successor 
agency under Public Law 103-354 449-30, lines 13 and 14.
    XIV. Bankruptcy.
    A. The Lender is responsible for protecting the guaranteed loan debt 
and all collateral securing the loan in bankruptcy proceedings. When the 
loan is involved in a reorganization bankruptcy proceeding under 
Chapters 11, 12 or 13 of the Bankruptcy Code, payment of loss claims may 
be made as provided in paragraph XIV. For a Chapter 7 bankruptcy or a 
liquidation plan in a Chapter 11 bankruptcy, only paragraphs XIV B 3 and 
B 6 are applicable.
    B. Loss Payments.
    1. Estimated Loss Payments.
    a. If a borrower has filed for protection under a reorganization 
bankruptcy, the Lender will request a tentative estimated loss payment 
of accrued interest and principal written off. This request can only be 
made after the bankruptcy plan is confirmed by the court. Only one 
estimated loss payment is allowed during the reorganization bankruptcy. 
All subsequent claims during reorganization will be considered revisions 
to the initial estimated loss. A revised estimated loss payment may be 
processed by FmHA or its successor agency under Public Law 103-354 at 
its option in accordance with any court approved changes in the 
reorganization plan. At the time the performance under the confirmed 
reorganization plan has been completed, the Lender is responsible for 
providing FmHA or its successor agency under Public Law 103-354 with the 
documentation necessary to review and adjust

[[Page 622]]

the estimated loss claim to (a) reflect the actual principal and 
interest reduction on any part of the guaranteed debt determined to be 
unsecured and (b) to reimburse the Lender for any court ordered interest 
rate reduction during the term of the reorganization plan.
    b. The Lender will use Form FmHA or its successor agency under 
Public Law 103-354 449-30, ``Loan Note Guarantee Report of Loss,'' to 
request an estimated loss payment and to revise estimated loss payments 
during the course of the reorganization plan. The estimated loss claim 
as well as any revisions to this claim will be accompanied by applicable 
legal documentation to support the claim.
    c. Upon completion of the reorganization plan, the lender will 
complete Form FmHA or its successor agency under Public Law 103-354 
1980-44, ``Guaranteed Loan Borrower Default Status,'' and forward this 
form to the Finance office.
    2. Interest Loss Payments.
    a. Interest loss payments sustained during the period of the 
reorganization plan will be processed in accordance with paragraph XIV B 
1.
    b. Interest loss payments sustained after the reorganization plan is 
completed will be processed annually when the lender sustains a loss as 
a result of a permanent interest rate reduction which extends beyond the 
period of the reorganization plan.
    c. Form FmHA or its successor agency under Public Law 103-354 449-30 
will be completed to compensate the lender for the difference in 
interest rates specified on the Loan Note Guarantee or Interest Rate 
Buydown Agreement and the rate of interest specified by the bankruptcy 
court.
    3. Final Loss Payments.
    a. Final loss payments will be processed when the loan is 
liquidated.
    b. If the loan is paid in full without an additional loss, the 
Finance Office will close out the estimated loss account at the time 
notification of payment in full is received.
    4. Payment Application. The Lender must apply estimated loss 
payments first to the unsecured principal of the guaranteed portion of 
the debt and then to the unsecured interest of the guaranteed portion of 
the debt. In the event the bankruptcy court attempts to direct the 
payment to be applied in a different manner, the Lender will immediately 
notify the FmHA or its successor agency under Public Law 103-354 
servicing office.
    5. Overpayments. Upon completion of the reorganization plan, the 
Lender will provide FmHA or its successor agency under Public Law 103-
354 with the documentation necessary to determine whether the estimated 
loss paid equals the actual loss sustained. If the actual loss 
sustained, as a result of the reorganization, is greater than the 
estimated loss payment, the Lender will submit a revised estimated loss 
in order to obtain payment of the additional amount owed by FmHA or its 
successor agency under Public Law 103-354 to the Lender. If the actual 
loss payment is less than the estimated loss, the Lender will reimburse 
FmHA or its successor agency under Public Law 103-354 for the 
overpayment plus interest at the note rate from the date of the payment 
of the estimated loss.
    6. Protective Advances. If approved protective advances were made 
prior to the borrower having filed bankruptcy, as a result of prior 
liquidationn action, these protective advances and accrued interest will 
be entered on Form FmHA or its successor agency under Public Law 103-354 
449-30.
    XV. Debt write down. Refer to title 7 of CFR part 1980, subpart B, 
Sec. 198.125. The maximum amount of loss payment associated with a loan/
line of credit agreement which has been written down will not exceed the 
percent of the guarantee multiplied by the difference between the 
outstanding principal and interest balance of the loan/line of credit 
before the write-down and the outstanding balance of the loan/line of 
credit after the write-down. The lender will use Form FmHA or its 
successor agency under Public Law 103-354 449-30, ``Loan Note Guarantee 
Report of Loss,'' to request an estimated loss payment to receive its 
pro-rata share of any loss sustained.
    XVI. Other Requirements. This agreement is subject to all the 
provisions of 7 CFR part 1980, subparts A and B, and any future 
amendments of these regulations not inconsistent with this agreement.
    XVII. Execution of Agreements. This agreement is executed prior to 
the execution of any Loan Note Guarantee under 7 CFR part 1980, subpart 
A and B and does not impose any obligation upon FmHA or its successor 
agency under Public Law 103-354 with respect to execution of any such 
contract. FmHA or its successor agency under Public Law 103-354 in no 
way warrants that such a contract has been or will be executed. Each 
request for a Loan Note Guarantee under exhibit A of 7 CFR part 1980. 
Subpart B will be considered by FmHA or its successor agency under 
Public Law 103-354 on a case-by-case basis.
    XVIII. Notices. All requests for Loan Note Guarantee and any notices 
or action will be initiated through the following FmHA or its successor 
agency under Public Law 103-354 County Offices
 _______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
    XIX. Termination of Agreement. Except for FCS Member institutions 
that have acceptable loan losses as specified in the introductory text 
of paragraph II of exhibit A, 7 CFR

[[Page 623]]

part 1980, subpart B, this agreement will terminate as to the Lender's 
submission of request for Loan Note Guarantee(s) under exhibit A, 7 CFR 
part 1980, subpart B two (2) years from the date set forth in paragraph 
XX unless otherwise earlier revoked by FmHA or its successor agency 
under Public Law 103-354. This agreement will remain in force as to any 
Loan Note Guarantee(s) issued pursuant to exhibit A, 7 CFR part 1980, 
subpart B and remaining extant at time of expiration or revocation until 
those loan note guarantees still extant are concluded.
    XX. This Agreement is dated ________.
 Lender_________________________________________________________________
    (Name)
 _______________________________________________________________________
    (IRS) I.D. Tax No.)
 BY_____________________________________________________________________
 Title__________________________________________________________________
 Attest:________________________________________________________________
      (SEAL)

United States of America, Farmers Home Administration or its successor 
agency under Public Law 103-354.
 By_____________________________________________________________________
 Title__________________________________________________________________

Attachment 2--Farmers Home Administration or its successor agency under 
            Public Law 103-354 Approved Lender Program (ALP)

 Lender's Agreement for Operating Line of Credit Guarantee (Contract of 
                            Guarantee Cases)

 --(Lender) of ____ is designated as an Approved Lender for the purpose 
of processing and requesting Contract(s) of Guarantee authorized by 
exhibit A to 7 CFR part 1980, subpart B. This agreement does not apply 
to lines of credit types other than those specifically named in this 
agreement. The agreement applies to the following officers of the 
Lender:_________________________________________________________________
 _______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
    The United States of America, acting through Farmers Home 
Administration or its successor agency under Public Law 103-354 (FmHA or 
its successor agency under Public Law 103-354), agrees to enter into 
Contract of Guarantees with the Lender for Operating loan lines of 
credit and to participate in a percentage of any loss on any such 
operating loan line of credit advance(s) not to exceed the amount 
established in the particular contract of guarantee as to percentage of 
the amount of the principal and any accrued interest. The terms of any 
Contract of Guarantee are controlling. As a condition for obtaining a 
guarantee of the line of credit advance(s) the Lender enters into this 
agreement.
THE PARTIES AGREE:
    I. The maximum loss covered under the Contract of Guarantee will not 
exceed the amount established in the particular line of credit guarantee 
as to percentage of the principal and accrued interest on any Operating 
Loan line of credit advances made within the line of credit ceiling and 
the terms and conditions of the Contract of Guarantee.
    II. Lender's Sale of Guarantee Line of Credit by Participation.
    A. The Lender may obtain participation in its line of credit under 
its normal operating procedures. The lender is required to hold in its 
own portfolio or retain a minimum of 10 percent of the total guaranteed 
line(s) credit amount. The amount required to be retained must be of the 
unguaranteed portion of the line of credit and cannot be participated to 
another Lender. The Lender may obtain participation of only the 
unguaranteed portion of its line of credit in excess of the 10 percent 
minimum under its normal operations procedure. Participation means a 
sale of an interest in the line of credit in which the Lender retains 
the line of credit agreement (and note, if one exists), collateral 
securing the line of credit, and all responsibility for servicing and 
liquidation of the line of credit. Participation with a lender by any 
entity does not make that entity a lender.
    B. The Lender may retain or sell any amount of the unguaranteed 
portion(s) of the line(s) of credit as provided in this section only 
through participation. However, the Lender cannot participate any amount 
of the line(s) of credit to the applicant or borrower or members or 
their immediate families, their officers, directors, stockholders, other 
owners, or any parent, subsidiary or affiliate. If the Lender desires to 
sell all or part of the guaranteed portion of the line(s) of credit 
through participation at or subsequent to execution of the line of 
credit agreement(s), such line(s) of credit must not be in default as 
set forth in the terms of the Line of Credit agreement(s) (and note(s), 
if any exist). The Lender will retain the responsibility for servicing 
and liquidation of the line(s) of credit. Participation with a lender by 
an entity does not make the entity a holder.
    III. The Lender agrees funds advanced under the line(s) of credit 
will be used for the purposes authorized in subpart B of title 7 CFR 
part 1980 as set forth in Form FmHA or its successor agency under Public 
Law 103-354 1980-15, ``Conditional Commitment for Contract Guarantee 
(Line of Credit),'' for the particular line of credit.
    IV. The Lender certifies that none of its officers or directors, 
stockholders (except stockholders in a Farm Credit Bank or other Farm 
Credit System institutions with direct lending authority that have 
normal stockshare requirements for participating)

[[Page 624]]

or the other owners have or will have a substantial financial interest 
in any guaranteed line of credit Borrower. The Lender certifies that 
neither any guaranteed line of credit Borrower nor its officers or 
directors, stockholders or other owners have a substantial financial 
interest in the Lender. If the borrower is a member of the board of 
directors of a Farm Credit Bank or other Farm Credit System institution 
with direct lending authority, the Lender certifies that a FCS 
institution on the next highest level will independently process the 
loan request and will act as the Lender's agent in servicing the 
account.
    V. The Lender will certify to FmHA or its successor agency under 
Public Law 103-354, prior to the issuance of a contract of guarantee for 
each line of credit agreement, that there has been no adverse change(s) 
in the Borrower's financial condition, nor any other adverse change in 
the Borrower's condition during the period of time from FmHA or its 
successor agency under Public Law 103-354's issuance of the Conditional 
Commitment for Contract of Guarantee to issuance of the Contract of 
Guarantee. The Lender's certification must address all adverse changes 
and be supported by financial statements of the Borrower and its 
guarantors not more than 90 days old at the time of certification. As 
used in this paragraph only, the term ``Borrower'' includes any parent, 
affiliate, or subsidiary of the Borrower.
    VI. The Lender will submit the required guarantee fee with a 
Guaranteed Loan Closing Report at the time a Contract of Guarantee is 
issued.
    VII. Servicing.
    A. The lender will service the entire line of credit and will remain 
mortgagee and/or secured party of record. The entire line of credit will 
be secured by the same security with equal lien priority for the 
guaranteed and unguaranteed portions of a line of credit. The 
unguaranteed portion of a line of credit will not be paid first nor 
given any preference or priority over the guaranteed portion of the line 
of credit. The Lender shall perform those services which a reasonable 
prudent lender would perform in servicing its own portfolio of lines of 
credit or loans that are not guaranteed.
    B. It is the Lender's responsibility to see that all construction is 
properly planned before any work proceeds; that any required permits, 
licenses or authorizations are obtained from the appropriate regulatory 
agencies; that the borrower has obtained contracts through acceptable 
procurement procedures; that periodic inspections during construction 
are made and that FmHA or its successor agency under Public Law 103-
354's concurrence on the overall development schedule is obtained.
    C. Lender's servicing responsibilities include, but are not limited 
to:
    1. Obtaining compliance with the covenants and provisions in the 
line of credit agreement (and note, if one exists), security 
instruments, and any supplemental agreements and notifying both FmHA or 
its successor agency under Public Law 103-354 and the Borrower in 
writing of any violations.
    2. Receiving all payments on principal and interest on the line of 
credit advances as they fall due. The line of credit may be reamortized, 
rescheduled, or written down only with FmHA or its successor agency 
under Public Law 103-354's written concurrence.
    3. Inspecting the collateral as often as necessary to properly 
service the line of credit.
    4. Assuring that adequate insurance is maintained. This includes 
hazard insurance obtained and maintained with a loss payable clause in 
favor of the Lender as the mortgagee or secured party.
    5. Assuring that:
    (a) Taxes, assessments or ground rents against or affecting 
collateral are paid;
    (b) The line of credit and collateral are protected in foreclosure, 
bankruptcy, receivership, insolvency, condemnation, or other litigation;
    (c) Insurance loss payments, condemnation awards, or similar 
proceeds are applied on debts in accordance with lien priorities on 
which the guarantee was based, or to rebuilding or otherwise acquiring 
needed replacement collateral with the written approval of FmHA or its 
successor agency under Public Law 103-354;
    (d) Proceeds from the sale or other disposition of collateral are 
applied in accordance with the lien priorities on which the guarantee is 
based, except that proceeds from the disposition of collateral, such as 
machinery, equipment, furniture or fixtures, may be used to acquire 
property of similar nature which will serve as collateral without 
written concurrence of FmHA or its successor agency under Public Law 
103-354;
    (e) The Borrower complies with all laws and ordinances applicable to 
the line of credit, the collateral and/or operation of the farm.
    6. Assuring that if personal or corporate guarantees are part of the 
collateral, financial statements from such guarantors will be obtained 
which are not over 90 days old. In the case of guarantees secured by 
collateral, assuring the security is properly maintained.
    7. Obtaining the lien coverage and lien priorities specified by the 
Lender and agreed to by FmHA or its successor agency under Public Law 
103-354, properly recording or filing lien or notice instruments to 
obtain or maintain such lien priorities during the existence of the 
guarantee by FmHA or its successor agency under Public Law 103-354.
    8. Assuring that the Borrower obtains marketable title to the 
collateral.
    9. Assuring that the Borrower (as defined in 7 CFR part 1980, 
subpart A, section

[[Page 625]]

1980.106(b)(4)) is not released from liability for all or any part of 
the line of credit except in accordance with FmHA or its successor 
agency under Public Law 103-354 regulations.
    10. Providing the FmHA or its successor agency under Public Law 103-
354 Finance Office with loan status reports annually as of December 31 
on Form FmHA or its successor agency under Public Law 103-354 1980-41, 
``Guaranteed Loan Status Report.''
    11. Obtaining financial statements from each chattel loan secured 
Borrower at least annually. Lender is responsible for analyzing the 
financial statements, taking any servicing actions needed, and providing 
copies of statements and record of actions to the County Supervisor.
    12. Monitoring the use of loan funds to assure they will not be used 
for any purpose that will contribute to excessive erosion of highly 
erodible land or to the conversion of wetlands to produce an 
agricultural commodity, as further explained in 7 CFR part 1940, subpart 
G, exhibit M.
    D. The lender shall participate in any farm credit mediation program 
of a State in accordance with the rules of that system and 7 CFR part 
1980, subpart B, Sec. 1980.126.
    VIII. Default by Borrower.
    A. The Lender will notify FmHA or its successor agency under Public 
Law 103-354 when a Borrower is thirty (30) days past due on a payment 
and is unlikely to bring its account current within sixty (60) days, or 
if the Borrower has not met its responsibilities of providing the 
required financial statements to the Lender or is otherwise in default. 
The Lender will notify FmHA or its successor agency under Public Law 
103-354 of the status of a Borrower's default on Form FmHA or its 
successor agency under Public Law 103-354 1980-44, ``Guaranteed Loan 
Borrower Default Status.'' A meeting will be arranged by the Lender with 
the Borrower and FmHA or its successor agency under Public Law 103-354 
to resolve the problem. Actions taken by the Lender with concurrence of 
FmHA or its successor agency under Public Law 103-354 may include but 
are not limited to any curative actions contained in subpart B of part 
1980 or liquidation.
    B. The Lender will negotiate in good faith in an attempt to resolve 
any problem and to permit the Borrower to cure a default, where 
reasonable.
The Lender agrees that, if liquidation of the account becomes imminent, 
the Lender will consider the Borrower for an Interest Rate Buydown under 
exhibit D of subpart B of 7 CFR, part 1980, and request a determination 
of the Borrower's eligibility by FmHA or its successor agency under 
Public Law 103-354. The Lender may not initiate foreclosure action on 
the loan until 60 days after a determination has been made with respect 
to the eligibility of the Borrower to participate in the Interest Rate 
Buydown Program.
    IX. Liquidation.
    If the Lender concludes that liquidation of a guaranteed line of 
credit account is necessary because of one or more defaults or third 
party actions that the Borrower cannot or will not cure or eliminate 
within a reasonable period of time, a meeting will be arranged by the 
Lender with FmHA or its successor agency under Public Law 103-354. When 
FmHA or its successor agency under Public Law 103-354 concurs with the 
Lender's conclusion or at any time concludes independently that 
liquidation is necessary, it will notify the Lender and the matter will 
be handled as follows:
    The Lender will liquidate the line of credit unless FmHA or its 
successor agency under Public Law 103-354, at its option, decides to 
carry out liquidation.
    A. Lender's proposed plan of liquidation. Within 30 days after the 
decision to liquidate is made, the Lender will advise FmHA or its 
successor agency under Public Law 103-354 of its proposed plan of 
liquidation and will provide FmHA or its successor agency under Public 
Law 103-354 with:
    1. Such proof as FmHA or its successor agency under Public Law 103-
354 requires to establish the Lender's ownership of the guaranteed line 
of credit agreements and related security instruments.
    2. Information lists concerning the Borrower's assets including real 
and personal property, fixtures, claims, contracts, inventory (including 
perishables), accounts receivable, personal and corporate guarantees, 
and other existing and contingent assets, advice as to whether or not 
each item is serving as collateral for the guaranteed line of credit.
    3. A proposed method of making the maximum collection possible on 
the indebtedness.
    4. The Lender will obtain an independent appraisal report on all 
collateral securing the line of credit which will reflect the current 
market value and potential liquidation value. The appraisal report is 
for the purpose of permitting the Lender and FmHA or its successor 
agency under Public Law 103-354 to determine the appropriate liquidation 
action. Any independent appraiser's fee will be shared equally by FmHA 
or its successor agency under Public Law 103-354 and the Lender.
    B. FmHA or its successor agency under Public Law 103-354's response 
to Lender's liquidation plan. FmHA or its successor agency under Public 
Law 103-354 will inform the Lender in writing whether it concurs in the 
Lender's liquidation plan within 30 days after receipt of such plan from 
the Lender. If FmHA or its successor agency under Public Law 103-354 
needs additional time to respond to the liquidation plan, it will advise 
the Lender of a definite time for such response. Should FmHA or its 
successor agency under Public Law 103-354 and the Lender not agree on 
the Lender's liquidation plan, negotiation will

[[Page 626]]

take place between FmHA or its successor agency under Public Law 103-354 
and the Lender to resolve the liquidation; however, should FmHA or its 
successor agency under Public Law 103-354 opt to conduct the 
liquidation, FmHA or its successor agency under Public Law 103-354 will 
proceed as follows:
    1. The Lender will transfer to FmHA or its successor agency under 
Public Law 103-354 all its rights and interests necessary to allow FmHA 
or its successor agency under Public Law 103-354 to liquidate the line 
of credit. In this event, the Lender will not be paid for any loss until 
after the collateral is liquidated and the final loss is determined by 
FmHA or its successor agency under Public Law 103-354.
    2. FmHA or its successor agency under Public Law 103-354 will 
attempt to obtain the maximum amount of proceeds from liquidation.
    3. Options available to FmHA or its successor agency under Public 
Law 103-354 include any one or combination of the usual commercial 
methods of liquidation.
    C. Acceleration. The Lender or FmHA or its successor agency under 
Public Law 103-354, if it liquidates, will proceed as expeditiously as 
possible when acceleration of the indebtedness is necessary including 
giving any notices and taking any other required legal action. A copy of 
the acceleration notice or other acceleration document will be sent to 
FmHA or its successor agency under Public Law 103-354 or the Lender, as 
the case may be.
    D. Liquidation: Accounting and Reports. When the Lender conducts the 
liquidation, it will account for funds during the period of liquidation 
and will provide FmHA or its successor agency under Public Law 103-354 
with periodic reports on the progress of liquidation, disposition of 
collateral, resulting costs, and additional procedures necessary for 
successful completion of liquidation. When FmHA or its successor agency 
under Public Law 103-354 liquidates, the Lender will be provided with 
similar reports on request.
    E. Determination of Loss and Payment. In all liquidation cases, 
final settlement will be made with the Lender after the collateral is 
liquidated. FmHA or its successor agency under Public Law 103-354 will 
have the right to recover losses if paid under the guarantee from any 
party liable.
    1. Form FmHA or its successor agency under Public Law 103-354 449-
30, ``Loan Note Guarantee Report of Loss,'' will be used for calculation 
of all estimated and final loss determinations. Estimated loss payments 
may be approved by FmHA or its successor agency under Public Law 103-354 
after the Lender has submitted a liquidation plan approved by FmHA or 
its successor agency under Public Law 103-354. Payment will be made in 
accordance with 7 CFR part 1980, subpart B.
    2. When the Lender is conducting the liquidation, and it is 
anticipated liquidation will take longer than 90 days it will request a 
tentative loss estimate by submitting to FmHA or its successor agency 
under Public Law 103-354 an estimate of the loss that will occur in 
connection with liquidation of the line of credit. FmHA or its successor 
agency under Public Law 103-354 will agree to pay an estimated loss 
settlement to the Lender provided the Lender applies such amount due to 
the outstanding principal balance owed on the guarantee debt (See G. 
below). The Lender will discontinue interest accrual on the defaulted 
loan when the estimated loss claim is approved by FmHA or its successor 
agency under Public Law 103-354. Such estimate will be prepared and 
submitted by the Lender on Form FmHA or its successor agency under 
Public Law 103-354 449-30, using the basic formula as provided on the 
report except that the appraisal value will be used in lieu of the 
amount received from the sale of collateral.
    After the Report of Loss estimate has been approved by FmHA or its 
successor agency under Public Law 103-354, FmHA or its successor agency 
under Public Law 103-354 will send the original Report of Loss estimate 
to FmHA or its successor agency under Public Law 103-354 Finance Office 
for issuance of a Treasury check in payment of the estimated amount due 
the Lender.
    After liquidation has been completed, a final loss report will be 
submitted on Form FmHA or its successor agency under Public Law 103-354 
449-30 by the Lender to FmHA or its successor agency under Public Law 
103-354.
    3. After the Lender has completed liquidation, FmHA or its successor 
agency under Public Law 103-354 upon receipt of the final accounting and 
report of loss, may audit and will determine the actual loss. If FmHA or 
its successor agency under Public Law 103-354 has any questions 
regarding the amounts set forth in the final Report of Loss, it will 
investigate the matter. The Lender will make its records available to 
and otherwise assist FmHA or its successor agency under Public Law 103-
354 in making the investigation. If FmHA or its successor agency under 
Public Law 103-354 finds any discrepancies, it will contact the Lender 
and arrange for the necessary corrections to be made as soon as 
possible. When FmHA or its successor agency under Public Law 103-354 
finds the final Report of Loss to be proper in all respects, it will be 
tentatively approved in the space provided on the form for that purpose.
    4. When the Lender has conducted liquidation and after the final 
Report of Loss has been tentatively approved:
    (a) If the loss is greater than the estimated loss payment, FmHA or 
its successor agency

[[Page 627]]

under Public Law 103-354 will send the original of the final Report of 
Loss to the Finance Office for issuance of a Treasury check in payment 
of the additional amount owed by FmHA or its successor agency under 
Public Law 103-354 to the Lender.
    (b) If the loss is less than the estimated loss, the Lender will 
reimburse FmHA or its successor agency under Public Law 103-354 for the 
overpayment plus interest at the note rate from date of overpayment.
    5. If FmHA or its successor agency under Public Law 103-354 has 
conducted liquidation, it will provide an accounting and Report of Loss 
to the Lender and will pay the Lender in accordance with the Contract of 
Guarantee.
    6. In those instances where the Lender has made authorized 
protective advances, it may claim recovery for the guaranteed portion of 
any loss monies advanced as protective advances and interest resulting 
from such protective advances as provided above, and such payment will 
be made by FmHA or its successor agency under Public Law 103-354 when 
the final Report of Loss is approved.
    F. Maximum amount of interest loss payment. Notwithstanding any 
other provisions of the agreement, the amount payable by FmHA or its 
successor agency under Public Law 103-354 to the Lender cannot exceed 
the limits set forth in the Contract of Guarantee. If FmHA or its 
successor agency under Public Law 103-354 conducts the liquidation, loss 
occasioned by accruing interest will be covered by the guarantee only to 
the date FmHA or its successor agency under Public Law 103-354 accepts 
the responsibility for liquidation. Loss occasioned by accruing interest 
will be covered to the extent of the guarantee to the date of final 
settlement when the liquidation is conducted by the Lender provided it 
proceeds expeditiously with the liquidation plan approved by FmHA or its 
successor agency under Public Law 103-354, except when an estimated loss 
claim is filed. When a Lender files an estimated loss claim, the Lender 
will discontinue interest accrual on the defaulted loan when the 
estimated loss claim is approved by FmHA or its successor agency under 
Public Law 103-354. The balance of accrued interest payable to the 
Lender, if any, will be calculated on the final Report of Loss form.
    G. Application of FmHA or its successor agency under Public Law 103-
354 loss payment. The estimated loss payment shall be applied as of the 
date of such payment. The total amount of the loss payment remitted by 
FmHA or its successor agency under Public Law 103-354 will be applied by 
the Lender on the guaranteed portion of the debt. However, such 
application does not release the Borrower from liability. Such amounts 
are only to compensate the Lender for the loss. (See XII below.) In all 
cases a final Form FmHA or its successor agency under Public Law 103-354 
440-30 prepared and submitted by the Lender must be processed by FmHA or 
its successor agency under Public Law 103-354 in order to close out the 
files.
    H. Income from collateral. Any net rental or other income that has 
been received by the Lender from the collateral will be applied on the 
guaranteed debt.
    I. Liquidation costs. Certain reasonable liquidation costs will be 
allowed during the liquidation process. These liquidation costs will be 
submitted as a part of the liquidation plan. Such costs will be deducted 
from gross proceeds from the disposition of collateral unless the costs 
have been previously determined by the Lender (with FmHA or its 
successor agency under Public Law 103-354 written concurrence) to be 
protective advances. If circumstances have changed after submission of 
the liquidation plan which require a revision of liquidation costs, the 
Lender will procure FmHA or its successor agency under Public Law 103-
354's written concurrence prior to proceeding with the proposed changes. 
No in-house expenses of the Lender will be allowed. In-house expenses 
include, but are not limited to, employees' salaries, staff lawyers, 
travel and overhead.
    J. Payment. Loss settlements will be paid by FmHA or its successor 
agency under Public Law 103-354 within 30 days after the review of the 
accounting of the collateral.
    X. Protective Advances. Protective advances must constitute an 
indebtedness of the Borrower to the Lender and be secured by the 
security instrument(s). FmHA or its successor agency under Public Law 
103-354 written authorization is required on all protective advances in 
excess of $3,000. Protective advances include advances made for property 
taxes, annual assessments, ground rent, hazard or flood insurance 
premiums affecting the collateral, and other expenses necessary to 
preserve or protect the security. Attorney fees are not a protective 
advance.
    XI. Additional Loans or Advances. Except as provided for in each 
Borrower's loan agreement which was specifically approved by FmHA or its 
successor agency under Public Law 103-354 for that specific borrower, 
the Lender will not make additional expenditures or new lines of credit 
or loans to any borrower which has financial assistance guaranteed by 
FmHA or its successor agency under Public Law 103-354 without first 
obtaining the written approval of FmHA or its successor agency under 
Public Law 103-354 even though such expenditures or lines of credit or 
loans will not be guaranteed.
    XII. Future Recovery. After a line of credit has been liquidated and 
a final loss has been paid by FmHA or its successor agency under Public 
Law 103-354, any future funds which may be recovered by the Lender will 
be prorated between FmHA or its successor agency under Public Law 103-
354 and the Lender. FmHA or its successor agency under Public

[[Page 628]]

Law 103-354 will be paid such amount recovered in proportion to the 
percentage it guaranteed for the line of credit and the Lender will 
retain such amount in proportion to the percentage of the unguaranteed 
portion of the line of credit.
    XIII. Transfer and Assumption Cases. Refer to 7 CFR part 1980, 
subpart B. If a loss should occur upon consummation of a complete 
transfer and assumption for less than the full amount of the debt and 
the transferor-debtor (including personal guarantees) is released from 
personal liability, the Lender, if it holds the guaranteed portion, may 
file and estimated Report of Loss on Form FmHA or its successor agency 
under Public Law 103-354 449-30, ``Loan Note Guarantee Report of Loss,'' 
to recover its pro rata share of the actual loss at that time. In 
completing Form FmHA or its successor agency under Public Law 103-354 
449-30, the amount of the debt assumed will be entered on line 24 as Net 
Collateral (Recovery). Approved protective advances and accrued interest 
thereon made during the arrangement of a transfer and assumption, it not 
assumed by the Transferee, will be entered on Form FmHA or its successor 
agency under Public Law 103-354 449-30, line 13 and 14.
    XIV. Bankruptcy.
    A. The Lender is responsible for protecting the guaranteed loan debt 
and all collateral securing the loan in bankruptcy proceedings. When the 
loan is involved in a reorganization bankruptcy proceeding under 
Chapters 11, 12 or 13 of the Bankruptcy Code, payment of loss claims may 
be made as provided in this paragraph XIV. For a Chapter 7 bankruptcy or 
a liquidation plan in a Chapter 11 bankruptcy, only paragraphs XIV B3 
and B6 are applicable.
    B. Loss Payments.
    1. Estimated Loss Payments.
    a. If a borrower has filed for protection under a reorganization 
bankruptcy, the Lender will request a tentative estimated loss payment 
of accrued interest and principal written off. This request can only be 
made after the bankruptcy plan is confirmed by the court. Only one 
estimated loss payment is allowed during the reorganization bankruptcy. 
All subsequent claims during reorganization will be considered revisions 
to the initial estimated loss. A revised estimated loss payment may be 
processed by FmHA or its successor agency under Public Law 103-354 at 
its option in accordance with any court approved changes in the 
reorganization plan. At the time the performance under the confirmed 
reorganization plan has been completed, the Lender is responsible for 
providing FmHA or its successor agency under Public Law 103-354 with the 
documentation necessary to review and adjust the estimated loss claim to 
(a) reflect the actual principal and interest reduction on any part of 
the guaranteed debt determined to be unsecured and (b) to reimburse the 
Lender for any court ordered interest rate reduction during the term of 
the reorganization plan.
    b. The Lender will use Form FmHA or its successor agency under 
Public Law 103-354 449-30, ``Loan Note Guarantee Report of Loss,'' to 
request an estimated loss payment and to revise estimated loss payments 
during the course of the reorganization plan. The estimated loss claim 
as well as any revisions to this claim will be accompanied by applicable 
legal documentation to support the claim.
    c. Upon completion of the reorganization plan, the lender will 
complete Form FmHA or its successor agency under Public Law 103-354 
1980-44, ``Guaranteed Loan Borrower Default Status,'' and forward this 
form to the Finance office.
    2. Interest Loss Payments.
    a. Interest loss payments sustained during the period of the 
reorganization plan will be processed in accordance with paragraph XIV B 
1.
    b. Interest loss payments sustained after the reorganization plan is 
completed will be processed annually when the lender sustains a loss as 
a result of a permanent interest rate reduction which extends beyond the 
period of the reorganization plan.
    c. Form FmHA or its successor agency under Public Law 103-354 449-30 
will be completed to compensate the lender for the difference in 
interest rates specified on the Contract of Guarantee or Interest Rate 
Buydown Agreement and the rate of interest specified by the bankruptcy 
court.
    3. Final Loss Payments.
    a. Final loss payments will be processed when the loan is 
liquidated.
    b. If the loan is paid in full without an additional loss, the 
Finance Office will close out the estimated loss account at the time 
notification of payment in full is received.
    4. Payment Application. The Lender must apply estimated loss 
payments first to the unsecured principal of the guaranteed portion of 
the debt and then to the unsecured interest of the guaranteed portion of 
the debt. In the event the bankruptcy court attempts to direct the 
payment to be applied in a different manner, the Lender will immediately 
notify the FmHA or its successor agency under Public Law 103-354 
servicing office.
    5. Overpayments. Upon completion of the reorganization plan, the 
Lender will provide FmHA or its successor agency under Public Law 103-
354 with the documentation necessary to determine whether the estimated 
loss paid equals the actual loss sustained. If the actual loss 
sustained, as a result of the reorganization, is greater than the 
estimated loss payment, the Lender will submit a revised estimated loss 
in order to obtain payment of the additional amount owed by FmHA or its 
successor agency under Public

[[Page 629]]

Law 103-354 to the Lender. If the actual loss payment is less than the 
estimated loss, the Lender will reimburse FmHA or its successor agency 
under Public Law 103-354 for the overpayment plus interest at the note 
rate from the date of the payment of the estimated loss.
    6. Protective Advances. If approved protective advances were made 
prior to the borrower having filed bankruptcy, as a result of prior 
liquidation action, these protective advances and accrued interest will 
be entered on Form FmHA or its successor agency under Public Law 103-354 
449-30.
    XV. Debt write down. Refer to title 7 of CFR part 1980, subpart B, 
Sec. 1980.125. The maximum amount of loss payment associated with a 
loan/line of credit agreement which has been written down will not 
exceed the percent of the guarantee multiplied by the difference between 
the outstanding principal and interest balance of the loan/line of 
credit before the write-down and the outstanding balance of the loan/
line of credit after the write-down. The lender will use Form FmHA or 
its successor agency under Public Law 103-354 449-30, ``Loan Note 
Guarantee Report of Loss,'' to request an estimated loss payment to 
receive its pro-rata share of any loss sustained.
    XVI. Other Requirements. This agreement is subject to all the 
provisions of 7 CFR part 1980, subparts A and B, and any future 
amendments of these regulations not inconsistent with this agreement.
    XVII. Execution of Agreements. This agreement is executed prior to 
the execution of any Contract of Guarantee(s) under 7 CFR part 1980, 
subparts A and B and does not impose any obligation upon FmHA or its 
successor agency under Public Law 103-354 with respect to execution of 
any such contract. FmHA or its successor agency under Public Law 103-354 
in no way warrants that such a contract has been or will be executed. 
Each request for a Contract Guarantee under exhibit A of 7 CFR part 
1980, subpart B will be considered by FmHA or its successor agency under 
Public Law 103-354 on a case-by-case basis.
    XVIII. Notice. All requests for Contract of Guarantee(s) and any 
notices or actions will be initiated through the following FmHA or its 
successor agency under Public Law 103-354 County Offices
 _______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
    XIX. Termination of Agreement. Except for FCS member institutions 
that have acceptable loan losses as specified in the introductory text 
of paragraph II of exhibit A, 7 CFR part 1980, subpart B, this agreement 
will terminate as to the Lender's submission of requests for Contracts 
of Guarantee(s) under exhibit A, 7 CFR part 1980, subpart B two (2) 
years from the date set forth in paragraph XX unless earlier revoked by 
FmHA or its successor agency under Public Law 103-354. This agreement 
will remain in force as to any Contract of Guarantee(s) issued pursuant 
to exhibit A, 7 CFR part 1980, subpart B and remaining extant at time of 
expiration or revocation until those Contracts of Guarantees still 
extant are concluded.
    XX. This Agreement is dated ________________.
 Lender:________________________________________________________________
      (Name)
 _______________________________________________________________________
      (IRS I.D. Tax No)
 By_____________________________________________________________________
 Title__________________________________________________________________
ATTEST: ____________________ (Seal)
UNITED STATES OF AMERICA, Farmers Home Administration or its successor 
agency under Public Law 103-354.
By
 _______________________________________________________________________
Title
 _______________________________________________________________________

                              Attachment 3

    TO: County Supervisor, FmHA or its successor agency under Public Law 
103-354
 _______________________________________________________________________
________________________________________________________________________
SUBJECT: Request for Loan Note Guarantee under Approved Lender Agreement 
          Applicable to Loan Note Guarantee Cases (Attachment 1). 
          Principal Amount of Loan $________
AND/OR
    Request for Line of Credit Guarantee under Approved Lender Agreement 
Applicable to Contract of Guarantee Cases (Attachment 2). Line of Credit 
Ceiling $________.
Principal Amount of Initial Advance $________.
Lender Agreement Dated ________.
Lender IRS I.D. No. ________.
    Request is made for issuance of a guarantee(s) in the following 
case.
 Applicant's Name_______________________________________________________
 Address________________________________________________________________
Social Security or IRS Tax No.________ County________ State________
Percent Guarantee Requested________%
Interest rate to borrower________% If variable, state method determined 
          and frequency of adjustment
 _______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Specific amounts and purposes of loan/line of credit are as follows:
 _______________________________________________________________________
________________________________________________________________________
Proposed repayment terms:_______________________________________________
 _______________________________________________________________________
________________________________________________________________________
Proposed closing date if request is approved:
 _______________________________________________________________________
Special or unique conditions or problems:

[[Page 630]]

 _______________________________________________________________________
________________________________________________________________________
Applicant's Financial Condition:
 New Worth $____________________________________________________________

                                                                        
------------------------------------------------------------------------
                                                                 Amount 
                                           Assets      Debt    due in 12
                                           value                 months 
------------------------------------------------------------------------
Current \1\............................  .........  .........  .........
Intermediate \2\.......................  .........  .........  .........
Long Term \3\..........................  .........  .........  .........
      Totals...........................  .........  .........  .........
------------------------------------------------------------------------
\1\ Current: Cash savings, marketable bonds, receivables, 60 day sales  
  of goods available within 60 days.                                    
\2\ Intermediate: Machinery, livestock, retirement accounts, cash value 
  life insurance, securities household goods, receivable 60 days to 1   
  year.                                                                 
\3\ Long term: Real estate, contracts and notes receivable amount beyond
  current year.                                                         

    Ratio Calculation from Financial Information and Operating Plans:
Total Assets of $________ divided by Total Liabilities ________ = Net 
          Capital Ratio ________
Annual Cash Operating Expenses $________ divided by Gross Income 
          $________ = Operating Ratio ________

Net Income $________ divided by Total Assets $________ = Profit to 
          Assets ________

Debt Repayment $________ divided by Gross Income $________ = Debt 
          Repayment ________
Security Proposed:

                                                                        
------------------------------------------------------------------------
                                     Prior liens (if                    
     Item             Value               any)            Equity value  
------------------------------------------------------------------------
                                                                        
                                                                        
                                                                        
                                                                        
              ----------------------------------------------------------
Totals                                                                  
------------------------------------------------------------------------

    Briefly list any special conditions and narrate security accounting, 
reporting limitations and supervision etc., contained in proposed loan/
line of credit agreement. See 7 CFR part 1980, subpart B, 
Sec. 1980.113(d)(7)
 _______________________________________________________________________
________________________________________________________________________
    The applicant's total farming operation is as follows: (Include 
total acres owned and/or leased broken down to use and indicate 
irrigated, double crop, etc., if any. Includes totals of all livestock 
owned and/or tended and describe operation purchasing, marketing, 
breeding details. Use attachments if necessary.)
 _______________________________________________________________________
________________________________________________________________________
    The undersigned certifies that:
    1. The information contained in this request is correct and that a 
complete application containing all required items described in 
Sec. 1980.113(d) of part 1980, subpart B are on file and may be examined 
by FmHA or its successor agency under Public Law 103-354 at any time 
during regular business hours prior to or after FmHA or its successor 
agency under Public Law 103-354 responds to this request for a loan note 
guarantee or contract of guarantee.
    2. Before a Loan Note Guarantee or Contract of Guarantee is issued 
by FmHA or its successor agency under Public Law 103-354, the lender 
will certify to conditions in Sec. 1980.60 of 7 CFR part 1980, Subpart 
A.
    3. The lender will provide a Guarantee Loan Closing Report on Form 
FmHA or its successor agency under Public Law 103-354 1980-19 and a 
check for the amount of the guarantee fee at the time the Loan Note 
Guarantee or Contract of Guarantee is issued.
    4. This proposed loan/line of credit is considered sound, will be 
fully secured and is within the borrower's repayment ability.
    5. All applicable requirements have been or will be met.
    6. The loan or advance under the line of credit cannot be made 
without an FmHA or its successor agency under Public Law 103-354 
guarantee.
 _______________________________________________________________________
(Name of Lender)
 By_____________________________________________________________________
 Title__________________________________________________________________
 _______________________________________________________________________
(Lender's IRS I.D. Tax No.)
 Date___________________________________________________________________
[54 FR 1582, Jan. 13, 1989, as amended at 54 FR 37093, Sept. 7, 1989; 54 
FR 47967, Nov. 20, 1989; 56 FR 8265, Feb. 28, 1991; 58 FR 34341, June 
24, 1993; 58 FR 48300, Sept. 15, 1993; 61 FR 35934, July 9, 1996]

                          Exhibit B--[Reserved]

               Exhibit C of Subpart B--Application Processing for Guaranteed Farmer Program Loans               
----------------------------------------------------------------------------------------------------------------
FmHA or its successor agency under Public Law 103-                                                              
                   354 Form No.                                 Title                       Requirement         
----------------------------------------------------------------------------------------------------------------
Exhibit D Attachment 1............................  Request for Interest           1980-B, Exhibit D.           
                                                     Assistance.                                                
Exhibit D Attachment 2............................  Interest Assistance Worksheet/ 1980-B, Exhibit D.           
                                                     Needs Test.                                                
                                                    Commercial Credit Report.....  1980-B, Sec.  1980.113(a)(3).
                                                    Evidence Required of Entity,   1980-B, Sec.                 
                                                     Applicants Organization.       1980.113(a)(11).            
1910-5 (optional).................................  Request for Verification of    1980-B, Sec.  1980.113(a)(2).
                                                     Employment.                                                

[[Page 631]]

                                                                                                                
440-13 (optional).................................  Report of Lien Search........  Optional at this point in    
                                                                                    processing, may be used to  
                                                                                    supplement Credit Report.   
440-32 (optional).................................  Request for Statement of       1980-B, Sec.  1980.113(a)(5).
                                                     Debts and Collateral.                                      
1940-22 (required)................................  Environmental Checklist for    1980-A, Sec.  1980.40. See   
                                                     Categorical Exclusions.        also Secs.  1980.42,        
                                                                                    1980.43, 1980.44.           
                                                    Leases and/or Contracts        1980-B, Sec.  1980.113(a)(4).
                                                     (Evidence of Ownership).                                   
1980-25 (required form)...........................  Farmer Programs Application    1980-B, Sec.  1980.113(a)(1).
                                                     and the following                                          
                                                     attachments:                                               
431-2.............................................     Farm and Home Plan, or      1980-B, Sec.  1980.113(a)(7).
                                                        Projected Plan of                                       
                                                        Operation and Cash Flow                                 
                                                        Statement, substantiated                                
                                                        by readily available                                    
                                                        production and financial                                
                                                        history.                                                
                                                       Applicable drawings and     .............................
                                                        specifications.                                         
1922-1............................................  Appraisal Report--Farm Tract   Appraisal/Appraiser          
                                                     or any form meeting USPAP.     requirements are outlined in
                                                                                    FmHA or its successor agency
                                                                                    under Public Law 103-354    
                                                                                    1980-B, Sec.                
                                                                                    1980.113(a)(8).             
440-21............................................  Appraisal of Chattel Property      Do.                      
                                                    Loan Agreement...............  1980-B, Sec.  1980.113(a)(6) 
                                                                                    paragraph VII of Form FmHA  
                                                                                    or its successor agency     
                                                                                    under Public Law 103-354 449-
                                                                                    35, ``Lender's Agreement''  
                                                                                    or paragraph VII of Form    
                                                                                    FmHA or its successor agency
                                                                                    under Public Law 103-354    
                                                                                    1980-38, ``Lenders Agreement
                                                                                    (Line of Credit)''.         
                                                    Lender plan for servicing the  1980-B, Sec.  1980.113(a)(9).
                                                     loan and providing                                         
                                                     management assistance to the                               
                                                     borrower.                                                  
1980-24...........................................  Request Interest Assistance/   1980-B: Sec.  1980.110(b);   
                                                     Interest Rate Buydown/         Exhibit D, Exhibit E.       
                                                     Subsidy Payment to                                         
                                                     Guaranteed Loan Lender.                                    
1940-3............................................  Request for Obligation of      1980-A: Sec.  1980.83(b);    
                                                     Funds--Guaranteed Loans.       1980-B: Sec.  1980.115      
                                                                                    Administrative A.1., Exhibit
                                                                                    D, Exhibit E.               
----------------------------------------------------------------------------------------------------------------

[58 FR 44753, Aug. 25, 1993]

                 Exhibit D--Interest Assistance Program

                               I. General

    This exhibit contains the policies and procedures pertaining to an 
Interest Assistance Program for guaranteed Operating (OL) loans and 
lines of credit described in Sec. 1980.175 of this subpart, guaranteed 
farm ownership (FO) loans described in Sec. 1980.180 of this subpart and 
guaranteed soil and water loans described in Sec. 1980.185 of this 
subpart. Subparts A and B of this part are applicable to this exhibit 
except as modified by exhibits A and E of this subpart and this exhibit. 
Authority to enter into the Guaranteed Loan Assistance Agreement is 
provided for in this exhibit and expires September 30, 1995.

                            II. Introduction

    The authorities contained in this exhibit provide lenders with a 
tool to enable them to provide credit to operations of not larger than 
family farms who are temporarily unable to project a positive cash flow 
as defined in paragraph III D of this exhibit without a reduction in the 
interest rate.
    This exhibit also requires a lender who has a guaranteed loan/line 
of credit which is not already involved in the Interest Assistance 
Program or the earlier Interest Rate Buydown Program to agree that if 
liquidation of the account becomes imminent, the lender will consider 
the borrower for Interest Assistance under this exhibit and request a 
determination of the borrower's eligibility by the Farmers Home 
Administration or its successor agency under Public Law 103-354 (FmHA or 
its successor agency under Public Law 103-354). The lender may not 
initiate

[[Page 632]]

foreclosure action on the loan until 60 days after a determination has 
been made with respect to the eligibility of the borrower to participate 
in this program.
    FmHA or its successor agency under Public Law 103-354 will enter 
into an agreement with lenders who participate in this program. The 
lender will reduce the interest rate paid by the borrower on a loan/line 
of credit. FmHA or its successor agency under Public Law 103-354 will 
make annual interest assistance payments to the lender equal to the 
amount of interest reduction on the loan. Agreements made with a lender 
under this exhibit will in no case provide for payments that exceed the 
Maximum Rate of Interest Assistance Available (MRIAA) at the time of 
approval. The MRIAA is defined in this exhibit and will be published 
periodically in FmHA or its successor agency under Public Law 103-354 
Instruction 440.1, which is available in any FmHA or its successor 
agency under Public Law 103-354 office.

                            III. Definitions

    A. Projected Average Balance (PAB)--The average amount of principal 
projected to be outstanding on a loan during a particular plan period. 
For purposes of the exhibit this amount will be calculated as follows:
    1. For fully advanced loans with annual payments use the principal 
balance of loan at the beginning of the plan/review period.
    2. For lines of credit and other loans that will not be fully 
advanced on the effective date of the annual Interest Assistance claims 
period or loans where payments are scheduled to be made on other than an 
annual basis, the average balance will be computed from the proposed 
debt repayment schedule or monthly cash flow budget. The ending 
principal balance on the loan/line of credit for each month of the plan 
will be totaled and divided by twelve.
    B. Cash Flow Budget--A projection listing all anticipated cash 
inflows (including all farm income, nonfarm income and all loan 
advances) and all expenses to be incurred by the borrower during the 
period of the budget (including all farm and nonfarm debt service and 
other expenses). Production records and prices used in the preparation 
of a cash flow will be calculated in accordance with Sec. 1980.113 of 
this subpart. A cash flow budget may be completed either for the entire 
review period (12 months, 24 months, or the life of the loan, as 
appropriate) or it may be prepared with a breakdown of cash inflows and 
outflows for each month of the review period. The latter type is 
referred to as a ``monthly cash flow budget.'' A monthly cash flow 
budget, which includes the expected outstanding operating credit balance 
for the end of each month, must be completed for all lines of credit and 
loans made for annual operating purposes.
    C. Interest Assistance Agreement (Farmer Programs) (Form FmHA or its 
successor agency under Public Law 103-354 1980-64). The signed agreement 
between FmHA or its successor agency under Public Law 103-354 and the 
lender setting forth the terms and conditions of the Interest 
Assistance. The agreement will be executed by FmHA or its successor 
agency under Public Law 103-354 and the lender. The borrower will 
acknowledge the agreement by signing it.
    D. Positive cash flow. The ability of a borrower's operation to pay 
all projected farm operating, interest, and family living expenses, 
including taxes and delinquent tax payments, from combined farm and 
nonfarm income for a typical year, by a ratio of 1.1 times all annual 
scheduled term debt and capital lease payments. This ratio is called the 
Term Debt and Capital Lease Coverage Ratio. In addition, the operation 
must be able to pay carryover debt and unfinanced capital asset 
purchases. This is determined by the Capital Replacement and Term Debt 
Repayment Margin, which must be equal to or greater than the planned 
capital asset purchases not financed. If no unfinanced capital asset 
purchases are planned, the margin must be equal to or greater than zero. 
Production records and prices used in the preparation of a positive cash 
flow will be in accordance with Sec. 1980.113 of this subpart. The Term 
Debt and Capital Lease Coverage Ratio and the Capital Replacement and 
Term Debt Repayment Margin are calculated in the following manner:
    1. Add projected net farm operating income, projected annual nonfarm 
income, projected capital depreciation/amortization expenses, scheduled 
annual interest on term debt, and scheduled annual interest on capital 
leases.
    a. Net farm operating income is the gross income generated by a 
farming operation annually, minus all yearly operating expenses 
(including withdrawals from entities for living expenses), operating 
loan interest, interest on term debt and capital lease payments, and 
depreciation/amortization expenses. Exclude Income and Social Security 
Taxes, Carryover Debt and Delinquent Interest.
    b. Depreciation/amortization expenses are an annual allocation of 
the cost or other basic value of tangible capital assets, less salvage 
value, over the estimated life of the unit (which may be a group of 
assets), in a systematic and rational manner.
    c. Capital leases are agreements under which the lessee effectively 
acquires ownership of the asset being leased. A lease is a capital lease 
if it meets any one of the following criteria:
    (1) The lease transfers ownership of the property to the lessee at 
the end of the lease term.

[[Page 633]]

    (2) The lessee has the right to purchase the property for 
significantly less than its market value at the end of the lease.
    (3) The term of the lease is at least 75 percent of the estimated 
economic life of the leased property.
    (4) The present value of the minimum lease payments equals or 
exceeds 90 percent of the fair market value of the leased property.
    2. Subtract from this sum projected annual Income and Social 
Security tax payments, including any delinquent taxes, and family living 
expenses. The difference is the Balance Available for Term Debt 
Repayment.
    a. Family living expenses are any withdrawals from income to provide 
for needs of family members.
    b. Family members are considered to be the immediate members of the 
family residing in the same household with the individual borrower, or, 
in the case of a cooperative, corporation, partnership, or joint 
operation, with the operator(s).
    3. Divide the Balance Available for Term Debt Repayment by the sum 
of the annual scheduled principal and interest payments on term debt, 
plus the annual scheduled principal and interest payments on capital 
leases, excluding delinquent installments. The quotient is the Term Debt 
and Capital Lease Coverage Ratio.
    4. Add the Balance Available for Term Debt Repayment to any cash 
carryover from the preceding year.
    5. Subtract from this sum the amount of the Total Annual Scheduled 
Term Debt and Capital Lease Payments, and any debt carried over from the 
previous year. The difference is the Capital Replacement and Term Debt 
Repayment Margin, which must be equal to or greater than any planned 
capital asset purchases not financed.
    6. Example:
               Term Debt and Capital Lease Coverage Ratio

                                                                        
                                                                        
                                                                        
a. Typical Year Gross Farm Operating                                    
 Income (Exclude Cash Carryover)........        $162,000                
b. Typical Year Total Operating Expenses                                
 (Include Withdrawals from Entities for                                 
 Living Expenses, Depreciation, and                                     
 Interest on Operating Debt, Term Debt,                                 
 and Capital Lease Payments. Exclude                                    
 Income and Social Security Taxes,                                      
 Carryover Debt and Delinquent Interest)         125,000                
c. Net Farm Operating Income (a-b)......  ..............         $37,000
d. Nonfarm Income.......................               0                
e. Depreciation/Amortization expenses...           6,000                
f. Annual Term Debt Interest............          10,000                
g. Annual Capital Lease Interest........               0                
h. Income and Social Security Taxes.....           2,000                
i. Living Expenses......................          23,000                
j. Balance Available for Term Debt                                      
 Repayment (c+d+e+f+g-h-i)..............  ..............          28,000
k. Annual Scheduled Term Debt and                                       
 Capital Lease Payments (Principal and                                  
 Interest, exclude Delinquent                                           
 Installments)..........................  ..............          17,000
l. Term Debt and Capital Lease Coverage                                 
 Ratio (Line Item j divided by --Block                                  
 k; must be at least 1.10)..............  ..............      1.65 times
m. Cash Carryover from Previous Year....           1,000                
n. Carryover Debt from Previous Year                                    
 (Include Principal and Interest on                                     
 Carryover Operating Debt, Term Debt,                                   
 and Capital Lease Debt)................           2,000                
o. Capital Replacement and Term Debt                                    
 Repayment Margin (Add j and m, and                                     
 subtract k and n)......................  ..............          10,000
p. Portion of Planned Capital Asset                                     
 Purchases Not Financed (Must be less                                   
 than or equal to Capital Replacement                                   
 and Term Debt Repayment Margin (o))....  ..............           5,000
                                                                        
                                                                        

    E. Maximum Rate of Interest Assistance Available (MRIAA)-- The 
maximum percentage level of subsidy which FmHA or its successor agency 
under Public Law 103-354 may

[[Page 634]]

grant at any given time, but which cannot ever exceed 4 percent. This 
percentage level will be periodically established by the Administrator, 
within statutory limits, and will be published in an Exhibit to FmHA or 
its successor agency under Public Law 103-354 Instruction 440.1, which 
is available in any FmHA or its successor agency under Public Law 103-
354 office.
    F. Pro Forma Income and Expense Statement-- A projected income and 
expense statement listing, on a typical 12-month basis, all anticipated 
cash flows, including all farm and nonfarm income and all expenses 
(including debt service) to be incurred by the borrower during such 
period. Production levels and prices used in the preparation of a cash 
flow will be calculated in accordance with Sec. 1980.113 of this 
subpart.

                         IV. General Provisions

    The typical term of scheduled loan/line of credit repayment will not 
be reduced solely for the purpose of maximizing eligibility for Interest 
Assistance.
    A. To be eligible for Interest Assistance, a loan/line of credit 
must be scheduled over the maximum terms typically used by lenders for 
similar type loans. At a minimum, loans will be scheduled for repayment 
over the terms listed below or the life of the security, whichever is 
less, as explained below:
    1. FO loans and SW loans secured by real estate--20 years from the 
effective date of the proposed Interest Assistance Agreement (except 
that for existing guaranteed loans the term will not exceed 40 years 
from the date of the original note covered by the guarantee).
    2. OL loans/lines of credit for the purpose of providing annual 
operating and living expenses will be scheduled for repayment when the 
income is scheduled to be received from the sale of the crops, 
livestock, and livestock products which will serve as security for the 
loan. In no case will the repayment term exceed 7 years.
    3. OL loans for purposes other than annual operating and living 
expenses (i.e., equipment, livestock, refinancing of existing chattel or 
carryover debt, real estate development) and SW loans secured by chattel 
property--7 years from the effective date of the proposed Interest 
Assistance Agreement.
    B. The lender must document that a positive cash flow projection is 
not possible without reducing the interest rate on the borrower's 
loan(s)/line(s) of credit. The documentation must show that a positive 
cash flow projection is not possible with the debt restructured over the 
term of repayment cited above.
    C. The lender must determine whether the borrower owns any 
significant assets which do not contribute directly to essential family 
living or farm operating expense. The lender must determine the market 
value of these assets. The lender will then prepare a new cash flow 
budget based on the assumption that value of these assets will be used 
for debt reduction. If a positive cash flow can then be achieved, the 
borrower is not eligible for Interest Assistance. All Interest 
Assistance calculations will be made based on the cash flow budget which 
assumes that the assets will be sold.
    D. In order for a borrower's loan to be eligible for Interest 
Assistance, a realistic plan of operation must show that a positive cash 
flow as defined in paragraph III D of this exhibit can be expected 
during the initial 24-month Interest Assistance period. For those loans 
with terms less than 24 months, the operation must show a positive cash 
flow for the term of the loan/line of credit.
    E. If significant changes in the borrower's cash flow budget are 
anticipated after the initial 24 months with either expenses, income or 
debt repayment, then a typical plan(s) must show that the loan is 
expected to have a positive cash flow during all years of the loan/line 
of credit.
    F. If a positive cash flow cannot be achieved, the lender may ask 
other creditors to voluntarily adjust their debts as outlined in subpart 
A of part 1903 of this chapter. If other creditors adjust their debts 
and a positive cash flow can be achieved with Interest Assistance, then 
Interest Assistance may be approved.
    G. If a positive cash flow cannot be achieved, even with other 
creditors voluntarily adjusting their debts and with the Interest 
Assistance, the Interest Assistance request will not be approved.
    H. The term of the Interest Assistance Agreement entered into under 
this exhibit shall not exceed the outstanding term of the loan/line of 
credit, as limited in paragraph IV A of this exhibit or 10 years, 
whichever is less.
    I. The lender may charge a fixed or variable interest rate during 
the term of the Interest Assistance Agreement. The type of rate must be 
the same as the type of rate in the underlying note or line of credit 
agreement. The interest rate that the lender will charge will be clearly 
indicated in the Request for Interest Assistance. If a variable rate 
will be charged, the base rate, basis points and adjustment interval not 
only will be clearly set forth in the Request for Interest Assistance 
but also will comply with Sec. 1980.175(e) of this subpart. If the 
lender uses a variable rate, the rate may be changed only once each 
year. During the term of the Interest Assistance Agreement, variable 
interest rates may not be increased by more than a total of 3 percent 
above the effective note rate of interest at the time this agreement is 
entered into. This cap on interest increases will be clearly spelled out 
in the note/line of credit agreement or in an allonge attached to the 
note/line of credit

[[Page 635]]

agreement or other legally effective amendment of the interest rate; 
however, no new note or line of credit agreement may be issued. The date 
of interest rate adjustment shall coincide with the annual payment date 
on loans/lines of credit with annual payments. On other loans/lines of 
credit, the annual review date will be clearly set out in the note/line 
of credit agreement.
    J. If the loan applicant has previously been required to obtain 
training in accordance with Sec. 1980.191 of this subpart, the loan 
applicant must be enrolled in and attending, or have satisfactorily 
completed, the training required.

                   V. Requests for Interior Assistance

    A. Applications for guaranteed loans(s)/line(s) of credit shall be 
processed in accordance with Sec. 1980.113 of this subpart and with this 
section.
    B. To apply for Interest Assistance in conjunction with a request 
for guarantee, the lender will complete Form FmHA or its successor 
agency under Public Law 103-354 1980-25, ``Farmer Programs 
Application.'' Additionally, such application must include a copy of 
Attachment 2 to this exhibit completed by the lender. A proposed debt 
repayment schedule which shows principal and interest payments for the 
proposed loan, in each year of the loan, will also be submitted with the 
application.
    C. To request Interest Assistance on an existing guaranteed loan, 
the lender shall submit to FmHA or its successor agency under Public Law 
103-354 the following:
    1. Form FmHA or its successor agency under Public Law 103-354 1980-
25.
    2. Attachment 2 to this exhibit.
    3. Proposed debt repayment schedule which shows scheduled principal 
and interest payments for the subject loan, in each of the remaining 
years of the loan.
    4. Cash flow budgets, pro forma income and expense statements, and 
supporting justification to document that the request meets the 
requirements outlined in paragraph IV of this exhibit.
    5. Verification of non-farm income. The lender may use Form FmHA or 
its successor agency under Public Law 103-354 1910-5, ``Request for 
Verification of Employment,'' or other similar documentation.
    6. Verification of all debts of $1,000 or more. The lender may use 
Form FmHA or its successor agency under Public Law 103-354 440-32, 
``Request for State of Debts and Collateral,'' or any other 
documentation.
    7. Documentation of the borrower's and lender's compliance with the 
requirements of exhibit M to subpart G of part 1940 of this chapter, if 
the affected loan/line of credit is not already subjected to this 
provision.
    D. Requests for Interest Assistance on Contracts of Guarantee (Lines 
of Credit) or Loan Note Guarantees for annual operating purposes must be 
accompanied by a projected monthly cash flow budget.

VI. FmHA or its successor agency under Public Law 103-354 Evaluation of 
                              Applications

    Applications will be evaluated in accordance with Sec. 1980.114 of 
this subpart. Additionally, the authorized approval official will 
determine whether or not all applicable provisions of this exhibit have 
been met. The approval official will check that:
    A. Each item input on Attachment 2 is realistic for the area and 
type of operation and consistent with information provided in the 
request for guarantee and supporting documentation.
    B. All mathematical computations are accurate.
    C. The ``Needs Test'' was properly applied.
    D. The loan/line of credit and applicant/borrower are eligible to 
receive interest assistance.
    E. Nonessential assets were identified and that the computations 
were based on the assumption that these assets will be sold and the 
proceeds utilized to reduce debt.
    Using Attachment 2 of this exhibit (including any necessary 
corrections), the approval official will determine the level of subsidy 
to be approved.

        VII. Denial or Decrease of Interest Assistance Requested

    If applicant is found ineligible for the loan guarantee or the 
guarantee cannot be approved for other reasons, the approval official 
will notify the lender and applicant in accordance with Sec. 1980.114 or 
Sec. 1980.115 of this subpart, respectively.
    If the request for guarantee can be approved or has previously been 
approved and the request for interest assistance is denied or approved 
at a level less than that requested, the lender will be notified in 
accordance with paragraph XII of this exhibit.

                  VIII. Approval of Interest Assistance

    If the approval official determines that Interest Assistance can be 
approved in accordance with paragraph IV of this exhibit, the approval 
official will:
    A. Prepare Form FmHA or its successor agency under Public Law 103-
354 1940-3, ``Request for Obligation of Funds--Guaranteed Loans.'' This 
form will be used to obligate interest assistance and loan funds for new 
loans and Interest Assistance funds only for those existing loans which 
are presently guaranteed without Interest Assistance.
    B. Execute Form FmHA or its successor agency under Public Law 103-
354 1940-3 and distribute copies in accordance with the Forms Manual 
Insert (FMI).
    C. Verify that the obligation of funds has been completed on 
Automated Discrepancy

[[Page 636]]

Processing System. A hard copy of this verification will be made and 
placed in the County Office case file.
    D. For requests which include requesting funds in order to issue a 
guarantee on the loan/line of credit, prepare Form FmHA or its successor 
agency under Public Law 103-354 1980-15, ``Conditional Commitment 
(Farmer Programs).'' In no case will Form FmHA or its successor agency 
under Public Law 103-354 1980-15 be executed prior to verification of 
the obligation of both loan/line of credit and Interest Assistance 
funds.
    E. The approval official will complete the following statement and 
insert it on the conditional commitment:

``The subject guranteed loan has been approved for participation in the 
Interest Assistance program. Interest Assistance during the first annual 
operating plan period will be ______ percent per annum of average 
outstanding principal. The Maximum Rate of Interest Assistance Available 
(MRIAA) under this commitment is ______ percent per annum of average 
outstanding principal balance. Interest Assistance is available under 
this commitment for a period not to exceed ______ years. Availability of 
Interest Assistance is subject to the loan being closed in accordance 
with the conditions of this commitment and with FmHA or its successor 
agency under Public Law 103-354 regulations. Interest Assistance 
availability is also subject to the execution of Form FmHA or its 
successor agency under Public Law 103-354 1980-64, ``Interest Assistance 
Agreement,'' and compliance with the conditions of that agreement. 
Conditions include the requirement that the rate of Interest Assistance 
be adjusted annually based on an analysis of the borrower's need for 
Interest Assistance, which the lender is required to perform and obtain 
FmHA or its successor agency under Public Law 103-354 concurrence 
with.''

    F. For requests for Interest Assistance on existing guaranteed 
loans, the approval official will notify the lender, in writing, that 
the request has been approved. The letter will include the statement in 
paragraph VIII E of this exhibit and any special conditions.

                     IX. Interest Assistance Closing

    A. The lender will prepare, and deliver to FmHA or its successor 
agency under Public Law 103-354, a Form FmHA or its successor agency 
under Public Law 103-354 1980-19, ``Guaranteed Loan Closing Report,'' 
for each initial and existing guaranteed loan/line of credit which has 
been granted Interest Assistance under this exhibit.
    B. The guarantee will be closed in accordance with Sec. 1980.61 of 
subpart A of this part and Sec. 1980.118 of this subpart.
    1. If FmHA or its successor agency under Public Law 103-354 finds 
that all requirements have been met, the lender and FmHA or its 
successor agency under Public Law 103-354 will execute Form FmHA or its 
successor agency under Public Law 103-354 1980-64, ``Interest Assistance 
Agreement.'' The borrower will acknowledge the agreement with its 
signature.
    2. An original Form FmHA or its successor agency under Public Law 
103-354 1980-64 will be prepared for each note or line of credit 
agreement executed. All originals of Form FmHA or its successor agency 
under Public Law 103-354 1980-64 will be provided to the lender and 
attached to the note(s) with the original Loan Note Guarantee or 
Contract of Guarantee.

            X. Annual Interest Assistance Claims and Payments

    The Interest Assistance claim will be prepared by the lender using 
Form FmHA or its successor agency under Public Law 103-354 1980-24, 
``Request for Interest Assistance/Interest Rate Buydown/Subsidy Payment 
to Guaranteed Loan Lender.''
    A. The first claim will be submitted to FmHA or its successor agency 
under Public Law 103-354 within 60 days after date of the initial annual 
payment/review date which is stated on this agreement. The claim will 
cover the entire period between the effective date of the agreement and 
the annual review/payment date.
    B. Subsequent claims will cover the period between annual payment/
review dates and will be prepared by the lender and submitted within 60 
days following the annual payment review date.
    C. Upon full payment of the note or line of credit, the lender will 
immediately prepare Form FmHA or its successor agency under Public Law 
103-354 1980-24 and submit it to the FmHA or its successor agency under 
Public Law 103-354 servicing office.
    D. Interest Assistance payments shall cease upon the assumption/
transfer of the loan if the transferee was not liable for the debt on 
the effective date of the Interest Assistance Agreement. The lender 
shall complete Form FmHA or its successor agency under Public Law 103-
354 1980-24 to request payment through the date of the transfer or 
assumption.
    E. All claims for Interest Assistance other than final claims must 
be accompanied by an analysis of the applicant's continued need for 
assistance, during the period following the one for which the claim is 
made, as outlined in paragraph XI of this exhibit.
    F. All claims will be submitted to the FmHA or its successor agency 
under Public Law 103-354 servicing office with documentation to support 
the assistance claim. The documentation will include:
    1. A detailed statement of activity including all disbursements and 
payments applied to the loan/line of credit account.

[[Page 637]]

    2. Detailed calculations of interest charged, actual daily principal 
balances during the claim period and average principal balance for the 
claim period.
    G. The authorized FmHA or its successor agency under Public Law 103-
354 loan servicing official will review the information on Form FmHA or 
its successor agency under Public Law 103-354 1980-24 and the supporting 
documentation. If the request is correct, the loan servicing official 
will approve and process the request. If the information on Form FmHA or 
its successor agency under Public Law 103-354 1980-24 and the supporting 
documentation is not complete and/or correct, the loan servicing 
official will notify the lender in writing of the actions needed to 
correct the request. The notification letter will be in accordance with 
paragraph XII of this exhibit.
    H. If the lender of the loan/line of credit is changed through a 
substitution of lender, a claim for the first lender's Interest 
Assistance, through the effective date of the substitution, will be 
submitted by the first lender and processed at the time the substitution 
takes place.
    I. Interest Assistance claims shall be submitted concurrently with 
the submission of final loss claims and any estimated loss claims which 
cause interest to cease to accrue.

  XI. Annual Request for Continuation/Adjustment of Interest Assistance

    A. For all Interest Assistance Agreements that exceed one year, the 
lender will perform an annual analysis of the applicant's farming 
operation and need for continued Interest Assistance. This analysis will 
include the following:
    1. A summary of the operation's actual financial performance in the 
previous year, including a detailed income and expense statement.
    2. A narrative description of the causes of any major differences 
between the previous year's cash flow budget and actual performance.
    3. A current balance sheet.
    4. A copy of attachment 2 to this exhibit which has been completed 
based on the planned year's cash flow budget.
    5. A cash flow budget for the year being planned. A monthly cash 
flow budget is required for all lines of credit and operating loans made 
for annual operating purposes. All other loans may include either annual 
or monthly cash flow budget.
    The documentation listed above will be provided to FmHA or its 
successor agency under Public Law 103-354 concurrently with the lender's 
submission of Form FmHA or its successor agency under Public Law 103-354 
1980-24. Parts I and II of Form FmHA or its successor agency under 
Public Law 103-354 1980-24 must be completed by the lender. This 
information will be provided to FmHA or its successor agency under 
Public Law 103-354 within 60 days after the annual payment/review date 
specified on the Interest Assistance Agreement.
    B. The request for continuation/adjustment of Interest Assistance 
will be checked and evaluated by the authorized FmHA or its successor 
agency under Public Law 103-354 approval official in accordance with 
paragraph VI of this exhibit.
    1. If the approval official's evaluation substantiates the requested 
level of Interest Assistance and it is equal to or less than the MRIAA 
stated on the Interest Assistance Agreement, the approval official will 
approve the request.
    2. If the evaluation indicates that the borrower needs a higher 
level of Interest Assistance than the MRIAA provided for in the original 
Interest Assistance Agreement, and the current MRIAA is less than or 
equal to the MRIAA provided for in the original Interest Assistance 
Agreement, then the FmHA or its successor agency under Public Law 103-
354 approval official will deny the continuation of Interest Assistance. 
Interest Assistance will be reduced to zero during that annual review 
period. The lender will be notified in accordance with paragraph XII of 
this exhibit.
    3. If the evaluation indicates that the borrower needs a higher 
level of Interest Assistance than the MRIAA provided for in the original 
Interest Assistance Agreement, and the current MRIAA is higher than the 
MRIAA provided for in the original Interest Assistance Agreement, and 
the need does not exceed the current MRIAA, the FmHA or its successor 
agency under Public Law 103-354 approval official shall request 
additional subsidy funds using Form FmHA or its successor agency under 
Public Law 103-354 1940-3.
    a. If funds are available, the approval official will approve 
Interest Assistance at the level requested for the planned year only. 
For subsequent years the higher level of Interest Assistance will be 
subject to the availability of funds and the borrower's continued need.
    b. If additional funds are not available, the request for Interest 
Assistance will be denied and the rate of Interest Assistance will be 
reduced to zero for that period. The lender will be notified in 
accordance with paragraph XII of this exhibit.
    4. If the amount of Interest Assistance approved is less than that 
requested, the lender will be notified in accordance with paragraph XII 
of this exhibit.
    5. The approval official will complete the appropriate portion of 
FmHA or its successor agency under Public Law 103-354 Form 1980-24 to 
reflect the amount of Interest Assistance which has been approved for 
the year. This should be completed even if this year's

[[Page 638]]

assistance level will be zero percent so that adjustments in the 
obligation records can be made. The original will be returned to the 
lender for attachment to the original Interest Assistance Agreement.

                   XII. Notification of Adverse Action

    The lender will be notified in writing of all FmHA or its successor 
agency under Public Law 103-354 decisions in which request for Interest 
Assistance, a request for continuation/adjustment of Interest Assistance 
or a lender's claim for Interest Assistance are denied or approved a 
level less than requested.
    The notification letter will provide specific reasons for the 
decision and appeals will be handled in accordance with Sec. 1980.80 of 
this subpart. In addition, if the reason for the reduction/denial is 
that the rate of Interest Assistance requested exceeds the maximum 
amount allowed under this exhibit, then exhibit C of subpart B of part 
1900 of this chapter will be sent to the lender.

    XIII. Servicing of Loans/Lines of Credit Covered by an Interest 
                          Assistance Agreement

    A. Loans/lines of credit covered by Interest Assistance Agreements 
cannot be consolidated.
    B. Transfers will be processed in accordance with Sec. 1980.123 of 
this subpart. The loan/line of credit will be transferred with the 
Interest Assistance Agreement only in cases where the transferee was 
liable for the debt at the time the Interest Assistance was granted. 
UNDER NO OTHER CIRCUMSTANCES WILL THE INTEREST ASSISTANCE BE 
TRANSFERRED. If Interest Assistance is necessary for the transferee to 
achieve a positive cash flow, the lender may request a new Interest 
Assistance Agreement which may be approved if Interest Assistance funds 
are available and the applicant is eligible. The request for the 
obligation of these funds will be processed using Form FmHA or its 
successor agency under Public Law 103-354 1940-3. If Interest Assistance 
is necessary for a positive cash flow and funds are not available, the 
request for assumption of the FmHA or its successor agency under Public 
Law 103-354 guaranteed debt will be denied.
    C. When consideration is given to using a debt writedown to service 
a delinquent account, the subsidy level will be recalculated prior to 
any writedown. If a feasible plan can be obtained using a level of 
Interest Assistance less than or equal to the original MRIAA for this 
loan, then the Interest Assistance level will be adjusted and no 
writedown will be approved. If a feasible plan cannot be achieved using 
maximum Interest Assistance, all further calculations for determining 
debt writedown eligibility and amounts to be written down will be based 
on the borrower receiving the maximum Interest Assistance available.
    D. In the event of reamortization, rescheduling or deferral of loans 
with Interest Assistance, Interest Assistance will remain available for 
that loan under the terms of the existing Interest Assistance Agreement. 
If additional Interest Assistance is needed to produce a positive cash 
flow throughout the life of the rescheduled/reamortized loan and funds 
are not available for the additional Interest Assistance, then the 
rescheduling/reamortization will not be approved by the agency. In no 
case, will the subsidy be extended more than ten years from the initial 
effective date of the original Interest Assistance Agreement.
    E. In a reorganization bankruptcy (chapter 11, 12 or 13) the court 
may order a temporary or permanent reduction in the interest rate that a 
lender may charge on a loan/line of credit. In cases where the interest 
on a loan/line of credit covered by an Interest Assistance Agreement is 
reduced by court order, the Interest Assistance Agreement will be 
terminated effective on the date of the court ordered interest 
reduction. The lender will file a Form FmHA or its successor agency 
under Public Law 103-354 1980-24 to collect interest assistance due 
through the effective date of the court ordered interest reduction. 
Interest loss payments will be processed in accordance with 
Sec. 1980.144 of this subpart. Guaranteed loans which have had their 
interest reduced by bankruptcy court order are not eligible to 
subsequently receive Interest Assistance under this exhibit.
    F. For Loan Note Guarantees held by holders, Agency purchase of the 
guaranteed portion of the loan will stop Interest Assistance payments on 
that portion. Interest Assistance payments will cease upon termination 
of the Loan Note Guarantee or Contract of Guarantee by expiration of the 
document or cancellation by the Government.
    G. A lender will notify the Agency when a borrower who is not 
receiving maximum Interest Assistance is 30 days past due on a payment 
and is unable to bring the account current within 30 days. The lender 
will request that the Agency make a determination as to the borrower's 
eligibility for Interest Assistance. The lender will submit a plan of 
operation for the farm projecting the repayment ability of the borrower 
with and without Interest Assistance. Upon receipt of the agency's 
determination, the lender may request Interest Assistance. If the lender 
declines Interest Assistance, the lender will notify the Agency in 
writing within 30 days.

           XIV. Cancellation of Interest Assistance Agreement

    Form FmHA or its successor agency under Public Law 103-354 1980-64 
is incontestable except for fraud or misrepresentation, of which the 
lender and borrower have actual

[[Page 639]]

knowledge at the time that the Interest Assistance Agreement is 
executed, or which the lender/borrower participates in or condones.

               XV. Mid-Year Adjustment of Assistance Level

    After the initial or annual request for interest assistance is 
processed, no adjustments in the level of subsidy can be made until the 
next annual payment/review date.

                   XVI. Excessive Interest Assistance

    Upon written notice to the lender, borrower and any holder, the 
Government may amend or cancel the Interest Assistance Agreement and 
collect from the lender any amount of Interest Assistance granted which 
resulted from incomplete or inaccurate information (of which the lender 
was aware), an error in computation, or any other reason which resulted 
in payment that the lender was not entitled to receive.

                     XVII. List of Eligible Lenders

    The County Supervisor will maintain a current list of lenders in the 
area that participate in the guaranteed farm loan program and other 
lenders who express a desire to participate in the guaranteed farm 
program. This list will be made available to farmers upon request.

 XVIII. Relationship of Interest Assistance Program With Interest Rate 
                             Buydown Program

    A. The Interest Assistance Program replaces the Interest Rate 
Buydown (IRBD) Program which was previously described in this exhibit, 
effective February 28, 1991.
    B. A guaranteed loan will not be covered by both an Interest Rate 
Buydown Agreement and an Interest Assistance Agreement simultaneously.
    C. Loans covered by IRBD Agreements will continue to be serviced, 
and requests for payments will be made and paid, in accordance with the 
terms of the ``Interest Rate Buydown Agreement,'' Form FmHA or its 
successor agency under Public Law 103-354 1980-58.
    D. Existing IRBD Agreements will expire on the date scheduled on 
Form FmHA or its successor agency under Public Law 103-354 1980-58. 
Extensions of these agreements are prohibited.
    E. If a request for Interest Assistance is made on an existing 
guaranteed loan which has previously been covered by an IRBD Agreement, 
the time that Form FmHA or its successor agency under Public Law 103-354 
1980-58 was in effect (rounded to the next full year) will be deducted 
from the 10 years to determine the maximum term that Interest Assistance 
can be granted. Example: If the borrower has a 20-year guaranteed FO 
loan with 15 years remaining on the term and the borrower had previously 
received 3 years of IRBD, the maximum term of Interest Assistance is 7 
years.
    F. A lender may cancel its IRBD Agreement by notifying FmHA or its 
successor agency under Public Law 103-354. Such notification shall be 
made by executing Form FmHA or its successor agency under Public Law 
103-354 1980-24 and indicating that they wish the IRBD Agreement 
terminated. When the lender entered into the IRBD Agreement, the lender 
modified the borrower's interest rate to a final rate for the term of 
the original IRBD Agreement. Therefore, even if a lender cancels the 
IRBD Agreement the effective rate to the borrower will continue as 
indicated in the allonge or line of credit agreement. If the lender 
subsequently requests Interest Assistance on this loan, the existing 
note rate used in calculating the need for Interest Assistance will be 
the rate which is specified in the IRBD allonge. This rate will also be 
used in calculating any loss claims payment which may be made on these 
loans/lines of credit.
    G. Since 1987, IRBD program lenders have been required to agree that 
they will consider the IRBD program prior to the liquidation of 
guaranteed loans. This requirement has been included in Sec. 1980.115 of 
this subpart and in various lenders agreements and conditional 
commitments. In all documents references to the IRBD program are now 
defined as meaning the Interest Assistance Program.

              Attachment 1--Request for Interest Assistance

Borrower/Applicant Name ____________.
Borrower/Applicant Social Security/Tax ID number ____________.
I. Type of Request
    A. Request for Interest Assistance in conjunction with a request for 
guarantee.
    1. Loan amount/line of credit ceiling ____________.
    2. The interest rate charged the lender's average farm customer, 
____________%. (Specify fixed or variable. If variable rates are used, 
the average farm customer's variable rate for the past 90 days shall be 
inserted.)
    3. The proposed note interest rate to the subject borrower prior to 
Interest Assistance is ____________% (may not exceed A.2). If variable, 
describe conditions for adjustment (i.e., base rate, basis points, and 
adjustment interval).
 _______________________________________________________________________
    B. Request for Interest Assistance on an existing guaranteed loan. 
Original Loan/Line of Credit closing date ____________. Current 
principal balance ____________. Unpaid interest ____________. Has the 
Loan/Line of Credit been fully advanced ____________. Final due date of 
loan ____________. Current note rate (before Interest Assistance) 
____________. If

[[Page 640]]

variable, describe conditions for adjustment (a base rate, basis points, 
and adjustment interval)
 _______________________________________________________________________
    II. Level of Interest Assistance requested for initial year, (cannot 
exceed MRIAA and must be in increments of .25%) ____________%.
    III. Has this loan been previously covered by an Interest Rate 
Buydown (IRBD) or Interest Assistance Agreement? Yes/No ____________, If 
yes, how long was Agreement effective (rounded up to next full year) 
____________ years. Requested term of the Interest Assistance agreement 
(cannot exceed term of the loan or 10 years including previous IRBD 
time, whichever is less) ____________ years.
    IV. In connection with the subject request the lender certifies 
that:
    A. The amount of interest resulting from the percentage of interest 
which FmHA or its successor agency under Public Law 103-354 agrees to 
pay will be permanently cancelled as it becomes due and that no attempt 
will be made to collect that portion of the debt from the borrower.
    B. The lender's reduction in interest charged to the borrower will 
result in a reduced payment schedule for the borrower and a projected 
positive cash flow (as defined in paragraph III D of this exhibit D to 7 
CFR part 1980, subpart B) throughout the term of the Interest Assistance 
Agreement.
    C. The borrower's cash flow projections and/or typical plan of 
operation have been prepared in accordance with 7 CFR part 1980, subpart 
B, Sec. 1980.113(d)(8), and are attached to this document. For lines of 
credit and operating loans for annual operating purposes, a monthly cash 
flow budget (as defined in paragraph III B of exhibit D to 7 CFR part 
1980, subpart B) has been prepared and is attached.
    D. A copy of Attachment 2 to this exhibit, ``Interest Assistance 
Worksheet/Needs Test,'' has been completed and attached.

    Warning: Section 1001 of title 18, United States Code provides: 
``Whoever, in any matter within the jurisdiction of any department or 
agency of the United States knowingly and willfully falsifies, conceals 
or covers up . . . a material fact, or makes any false, fictitious or 
fraudulent statements or representations, or makes or uses any false 
writing or document knowing the same to contain any false, fictitious or 
fraudulent statement or entry, shall be fined not more than $10,000 or 
imprisoned not more than 5 years, or both.''
 _______________________________________________________________________
(Name of Lender)
By
 _______________________________________________________________________
Title
 _______________________________________________________________________
________________________________________________________________________
Lender's IRS ID No.
Date ____________.

         Attachment 2--Interest Assistance Worksheet/Needs Test

Effective Dates of Review
  Period __________ to __________.
Applicant/Borrower
  Name ________________.
Social Security/Tax Payer ID
  Number ______________.

    The Needs Test below will be used to calculate the needed level of 
interest assistance subsidy. The level of Interest Assistance will be 
either zero or four percent. Requests for new or continuing Interest 
Assistance must meet all requirements of this exhibit and subpart.


Determine if borrower needs Interest Assistance:
    When either the TDCLC Ratio is 1.10,
    Or Margin after Cash Asset Purchases is 0,
    Then calculate repayment with a 4% subsidy.
After calculating repayment with a 4% subsidy:
    If TDCLC Ratio is 1.10,
    And Margin after Cash Asset Purchases is 0,
    Then Interest Assistance will be granted at 4%.

    If the above test is not met (TDCLC Ratio is 1.10 or Margin after 
Cash Asset Purchases is 0), then Interest Assistance will not be 
granted. For a request on a new loan, the guarantee will not be issued 
or for a continuation request, the assistance level will be zero.
    For existing loans, enter the FmHA or its successor agency under 
Public Law 103-354 loan number (i.e., 44-51) and/or for requests in 
conjunction with a request for guarantee, enter the request number from 
Part 6 of the Form FmHA or its successor agency under Public Law 103-354 
1980-25:

    ______________________________
Level of Interest
Assistance requested:
(0 or 4 percent)
    ______________________________
 _______________________________________________________________________
  Preparer's Signature
 _______________________________________________________________________
  Title
 _______________________________________________________________________
  Date

          Attachment 3--Interest Assistance Information Letter

                 United States Department of Agriculture

  Farmers Home Administration or its successor agency under Public Law 
                                 103-354

    (Location)


[[Page 641]]


    Dear __________
    The Farmers Home Administration or its successor agency under Public 
Law 103-354 (FmHA or its successor agency under Public Law 103-354) has 
authority to make payments to lenders to reduce eligible borrower 
interest rates on guaranteed farm loans. The Interest Assistance Program 
provides lenders with a tool to enable them to provide credit to family 
farm operators who are unable to project a positive cash flow on all 
income and expenses, including debt service, without a reduction in the 
interest rate.
    Lenders that participate in this program enter into an agreement 
with FmHA or its successor agency under Public Law 103-354 to reduce the 
interest rate paid by the borrower on a loan guaranteed by FmHA or its 
successor agency under Public Law 103-354. In return, FmHA or its 
successor agency under Public Law 103-354 will make annual payments to 
the lender in the amount of the reduction in interest. Payments made to 
a lender under this authority are currently limited to ____ percent of 
the outstanding principal per annum. This limit is subject to periodic 
changes.
    Borrowers with guaranteed Farm Operating (OL), Farm Ownership (FO), 
and Soil and Water (SW) loans may be included in this program.
    If you would like additional information regarding the Interest 
Assistance Program for guaranteed loans and how to apply, you should 
contact this office.
    I will be glad to discuss this program in detail with you.
    Sincerely,
 _______________________________________________________________________
County Supervisor
[56 FR 8266, Feb. 28, 1991, as amended at 58 FR 34342, June 24, 1993; 58 
FR 65886, 65887, Dec. 17, 1993; 58 FR 69204, Dec. 30, 1993; 60 FR 53264, 
Oct. 13, 1995]

  Exhibit E--Demonstration Project for Purchase of Certain Farm Credit 
                        System Acquired Farmland

                               I. General.

    This Exhibit contains the policies and procedures pertaining to a 
Demonstration Project for purchase of certain Farm Credit System 
acquired farmland (FCS Demonstration Project) for guaranteed Farm 
Ownership (FO) loans described in Sec. 1980.180 of this subpart. 
Subparts A and B of this part are applicable to this exhibit except as 
modified by exhibit A of this subpart and this exhibit. Authority to 
enter into the FCS Demonstration Project expires January 6, 1992. 
Attachment 1 is the Farm Credit Bank Agreement to be executed by the 
Administrator of the Farmers Home Administration or its successor agency 
under Public Law 103-354 (FmHA or its successor agency under Public Law 
103-354) and the President of each Farm Credit Bank of those Districts 
which are certified to participate in the ``Demonstration Project for 
the Purchase of Farm Credit System Land.'' When a District is certified 
by the Farm Credit System Assistance Board (FCSAB), the President of the 
District will sign the Agreement and forward it to the FmHA or its 
successor agency under Public Law 103-354 Administrator for signature. 
The original Agreement will be retained by FmHA or its successor agency 
under Public Law 103-354 with a conformed copy to the District and the 
FCSAB.

                            II. Introduction.

    This Exhibit contains a means by which the Farm Credit System (FCS) 
can make available for sale certain acquired lands to eligible FO 
applicants, as provided by Sec. 351(h) of the Consolidated Farm and 
Rural Development Act. Each FCS District President and FmHA or its 
successor agency under Public Law 103-354 State Director, who will be 
involved in the Demonstration Project will provide ample notice of the 
project as outlined in Attachment 1 of this exhibit. Only those 
properties owned by FCS member institutions certified to issue preferred 
stock under Sec. 6.27 of the Farm Credit Act of 1971 may be purchased 
under this exhibit. The Farm Credit Administration (FCA) will provide 
the Farmers Home Administration or its successor agency under Public Law 
103-354 (FmHA or its successor agency under Public Law 103-354) with a 
list of these certified FCS member institutions, as further explained in 
Memorandum of Understanding between FmHA or its successor agency under 
Public Law 103-354 and FCA found in FmHA or its successor agency under 
Public Law 103-354 Instruction 2000-MM (available in any FmHA or its 
successor agency under Public Law 103-354 office). FmHA or its successor 
agency under Public Law 103-354 may issue certificates of eligibility to 
eligible borrowers to reduce the interest rate paid by such borrowers on 
FmHA or its successor agency under Public Law 103-354 guaranteed loans 
obtained from eligible Farmer Program lenders to purchase properties 
owned by the Farm Credit System. The sale of land by the Farm Credit 
System under this program is limited to an aggregate land value not to 
exceed $250,000,000 at fair market value each fiscal year.
    Lenders that participate in this FCS Demonstration Project may enter 
into an agreement with FmHA or its successor agency under Public Law 
103-354 to reduce the interest rate paid on a loan. In return, FmHA or 
its successor agency under Public Law 103-354 will make annual interest 
rate buydown payments to the lender in the amount of 4

[[Page 642]]

percentage points. Those lenders who permanently reduce the interest 
rate charged on the guaranteed loan by at least 1 full percentage point 
will receive a 95 percent guarantee. The reduction of interest by FmHA 
or its successor agency under Public Law 103-354 will be in effect for a 
term equal to the outstanding term of such loan, or 5 years, whichever 
is less.

                            III. Definitions.

    A. Cash Flow--A projection listing on a typical 24-month basis, of 
all anticipated cash inflows (including all farm and non-farm income) 
and all expenses to be incurred by the borrower during such period 
(including all farm and non-farm debt service and other expenses). 
Production records and prices used in the preparation of a cash flow 
will be calculated in accordance with Section 1980.113(d)(8) of this 
subpart.
    B. Certificate of Eligibility--The County Committee will certify on 
Form FmHA or its successor agency under Public Law 103-354 440-2, 
``County Committee Certification or Recommendation'' the following:
    (1) That the borrower is eligible for a guaranteed FO loan.
    (2) The farm is eligible for the program in accordance with 
Sec. 1980.106(b) of this subpart.
    (3) The borrower is eligible for an interest rate reduction.
    C. Interest Rate Buydown Agreement--(Form FmHA or its successor 
agency under Public Law 103-354 1980-58) The signed agreement between 
FmHA or its successor agency under Public Law 103-354, the lender, and 
the borrower, setting forth the terms and conditions of the interest 
rate reduction.
    D. Personal Funds-- Any funds listed on a borrower's financial 
statement or obtained through a loan, whether or not secured by other 
property.
    E. Positive Cash Flow--A cash flow projection, as defined in 
Sec. 1980.106(b) of this subpart, except that the Term Debt and Capital 
Lease Coverage Ratio must be at least 1.0 times.

                       IV. Program Administration.

    County Supervisors are authorized to approve Interest Rate Buydown 
Agreements for the FCS Demonstration Project providing the following 
requirements are met by the applicant, FCS and the lender.
    A. Applications from individuals who are seeking to purchase FCS 
acquired farmlands with a guaranteed FO loan shall be processed in 
accordance with Sec. 1980.113 of this subpart and this exhibit. In 
addition, the lender will submit attachment 2 of exhibit D with the 
application. The lender must demonstrate that a positive cash flow 
projection is not possible without reducing the interest rate on the FO 
loan.
    B. Prospective borrowers who seek to purchase FCS acquired farmlands 
and who do not have a lender involved in that purchase will submit an 
application to FmHA or its successor agency under Public Law 103-354. 
The County Committee will review the application, which will also 
include a description of the property, and render a decision as to the 
eligibility of the prospective borrower and farm. If the County 
Committee determines the prospective borrower is eligible and that the 
farm meets the requirements of Sec. 1980.106(b) of this subpart, then 
the County Supervisor will determine if the request is feasible. If the 
request is rejected by either the County Committee or the County 
Supervisor, the prospective borrower and the lender will be advised of 
the opportunity for an appeal as set out in subpart B of part 1900 of 
this chapter.
    C. Prospective borrower must provide a down payment equal to at 
least 15 percent of the land purchase price using personal funds, as 
defined in paragraph III D of this exhibit.
    D. Prospective borrowers must meet the applicable requirements of 
subpart G of part 1940 of this chapter, including providing Form SCS-
CPA-026, ``Highly Erodible Land and Wetland Conservation 
Determination,'' and Form AD-1026, ``Highly Erodible Land Conservation 
(HELC) and Wetland Conservation (WC) Certification,'' as required by 
exhibit M to subpart G of part 1940 of this chapter.
    E. The FCS must price suitable farmland (family farm size as 
determined by the County Committee) to eligible prospective borrowers at 
fair market value.
    F. FmHA or its successor agency under Public Law 103-354 will pay 
the lender an interest rate reduction of 4 percentage points.
    G. The loan will be guaranteed at 90 percent in connection with a 4 
percentage point interest rate reduction.
    H. A lender who permanently reduces the interest rate currently 
charged on the loan by at least 1 full percentage point will receive a 
95 percent guarantee.
    I. The terms of the reduction will not exceed the outstanding term 
of such loan, or 5 years, whichever is less.
    J. In order for the prospective borrower to qualify for a loan and 
an interest rate reduction, a typical plan of operation must show that a 
positive cash flow can be expected during the reduction period and after 
the Interest Rate Buydown Agreement expires.
    K. The Interest Rate Buydown Agreement will be attached to the 
promissory note(s). The promissory note(s) cannot exceed the interest 
rate the lender charges the average farm customer, prior to any write 
down by the lender, as outlined in Sec. 1980.175(e)(2) of this subpart. 
The lender may only charge a fixed rate of interest during the term of 
the buydown agreement. The lender is responsible for the legal 
documentation of interest

[[Page 643]]

rate changes by an ``allonge'' attached to the promissory note(s) or 
other legally effective amendment of the interest rate; however, no new 
notes may be issued. If the lender elects to use a variable rate note, 
the fixed rate of interest charged during the reduction period will be 
calculated not to exceed the average variable rate charged the lender's 
average farm customer (as defined in Sec. 1980.175(e)(2)) of this 
subpart over the past 90 days. The promissory note(s) and any 
attachments to these agreements, must schedule repayment in accordance 
with the terms for the loan set forth in Section 1980.180(e) and (f) of 
this subpart.

       V. Approval of Loan Guarantees and Interest Rate Reduction.

    Authority to approve loan guarantees and Interest Rate Buydown 
Agreements expires January 6, 1991. If the FmHA or its successor agency 
under Public Law 103-354 approval official determines the reduction will 
be in accordance with paragraph VI of this Exhibit, in addition to the 
determinations required in Sec. 1980.115, Administrative paragraphs A 
and B, of this subpart the approval official will:
    A. Prepare Form FmHA or its successor agency under Public Law 103-
354 1940-3, ``Request for Obligation of Funds--Guaranteed Loans.'' The 
request for obligation of funds must include the amount of the loan and 
its respective buydown.
    B. Execute Form FmHA or its successor agency under Public Law 103-
354 1940-3 and distribute copies in accordance with the FMI. The Finance 
Office will enter the obligation of funds on their records for the 
interest rate reduction and notify the approval official by forwarding 
the original and one copy of Form FmHA or its successor agency under 
Public Law 103-354 440-57, ``Acknowledgement of Obligated Funds/Check 
Request.''

                  VI. Interest Rate Reduction Closing.

    A. The lender will prepare and deliver a Form FmHA or its successor 
agency under Public Law 103-354 1980-19, ``Guaranteed Loan Closing 
Report,'' for each guaranteed loan in which the interest rate is reduced 
under this exhibit.
    B. See Sec. 1980.61(b)(1), Sec. 1980.118(c) and Administrative 
paragraph B of this subpart.
    1. If FmHA or its successor agency under Public Law 103-354 finds 
that all requirements have been met, the lender, FmHA or its successor 
agency under Public Law 103-354 and the borrower will execute Form FmHA 
or its successor agency under Public Law 103-354 1980-58, ``Interest 
Rate Buydown Agreement.'' In NO CASE will Form FmHA or its successor 
agency under Public Law 103-354 1980-58 be executed prior to the 
determination of availability of funds for the loan and interest 
reduction as evidenced on Form FmHA or its successor agency under Public 
Law 103-354 440-57.
    2. An original Form FmHA or its successor agency under Public Law 
103-354 1980-58 will be prepared for each note executed. All originals 
of Form FmHA or its successor agency under Public Law 103-354 1980-58 
will be provided to the lender and attached to the note(s) with the 
original Loan Note Guarantee. In the event the lender assigns the 
guaranteed portion of the loan to holder(s), a copy of Form FmHA or its 
successor agency under Public Law 103-354 1980-58 will be attached to 
the original Form FmHA or its successor agency under Public Law 103-354 
449-36, ``Assignment Guarantee Agreement,'' along with a copy of the 
borrower's note(s) with ``allonge'' and Loan Note Guarantee. Form FmHA 
or its successor agency under Public Law 103-354 449-36 will be revised 
to reflect the note amounts. At the top of the face of the document 
type: ``This Assignment Guarantee Agreement is subject to an 
attachment(s) to the promissory note dated______ and Form FmHA or its 
successor agency under Public Law 103-354 1980-58, ``Interest Rate 
Buydown Agreement,'' which reduces the interest rate on the promissory 
note to an effective interest rate of ____%. This reduction is ______ 
(insert ``temporary'' if there is no 95 percent guarantee involved or 
``permanent'' if a 95 percent guarantee is involved.)'' This revision 
will be initialed and dated by the lender, holder, and FmHA or its 
successor agency under Public Law 103-354. Copy(ies) of the Interest 
Rate Buydown Agreement will be kept in the County Office, and attached 
to the appropriate Loan Note Guarantee. Additional copies may be 
retained by the State Office. Copies of all issued Interest Rate Buydown 
Agreements will be kept in the file. Copies may be retained by the State 
Office. Copies of all issued Interest Rate Buydown Agreements will be 
kept in the file.
    3. Repurchase of guaranteed loans having interest rate reduction 
under this FCS Demonstration Project. See item number 10 of Form FmHA or 
its successor agency under Public Law 103-354 449-36 and item number 6 
of Form FmHA or its successor agency under Public Law 103-354 1980-58. 
When FmHA or its successor agency under Public Law 103-354 purchases a 
portion of the guaranteed loan, buydown payments on that portion shall 
cease, but the interest rate reduction shall remain in effect. The 
lender shall complete Form FmHA or its successor agency under Public Law 
103-354 1980-24, ``Request Interest Assistance/Interest Rate Buydown/
Subsidy Payment to Guaranteed Loan Lender,'' to request payment for the 
buydown/subsidy through the date of the FmHA or its successor agency 
under Public Law 103-354 purchase.

[[Page 644]]

            VII. Interest Rate Reduction Claims and Payments.

    Claims and payments will be processed in accordance with paragraphs 
2 and 3 of Form FMHA 1980-58.

                    VIII. Term of Buydown Agreement.

    The term of a buydown agreement entered into under this Exhibit 
shall not exceed 5 years or the outstanding term of the loan involving 
the interest rate reduction, whichever is less.

              IX. Cancellation of Interest Rate Reduction.

    Form FmHA or its successor agency under Public Law 103-354 1980-58 
is incontestable, except for fraud or misrepresentation, of which the 
lender has actual knowledge at the time the Interest Rate Buydown 
Agreement is executed, or for which the lender participates in or 
condones. In the event that the buydown agreement is to be cancelled 
prior to the expiration of the buydown period, the field office should 
submit Form FmHA or its successor agency under Public Law 103-354 1980-
51, ``Add, Change, or Delete Guaranteed Loan Record,'' with item numbers 
1, 2, 3, 4, 12, and 13 completed, to the Finance Office.

                  X. Excessive Interest Rate Reduction.

    Upon written notice to the lender, borrower and any holder(s), the 
Government may amend or cancel the Interest Rate Buydown Agreement and 
collect from the lender any amount of reduction granted which resulted 
from incomplete or inaccurate information (of which the lender was 
aware), an error in computation, or any other reason which resulted in 
payment that the lender was not entitled to receive.

 XI. Transfer and Assumption of Loans Involving Interest Rate Reduction.

    Transfers will be processed under this exhibit. The lender shall 
complete Form FmHA or its successor agency under Public Law 103-354 
1980-24, ``Request Interest Assistance/Interest Rate Buydown/Subsidy 
Payment to Guaranteed Loan Lender,'' to request payment for the buydown/
subsidy through the date of the transfer or assumption of the guaranteed 
loan under the transferor's case number. If the reduction is necessary 
for the transferee to achieve a positive cash flow, the lender must make 
application for an initial reduction under this exhibit.

  XII. Review by FmHA or its successor agency under Public Law 103-354 
                               Employees.

    The lender will submit Form FmHA or its successor agency under 
Public Law 103-354 1980-24 annually along with detailed calculations and 
a statement of activity of the borrower's account to support forward to 
the Finance Office for payment. FmHA or its successor agency under 
Public Law 103-354 may review audit reports by the lender's supervising 
agency when reduction claims are involved.

Attachment 1--Farmers Home Administration or its successor agency under 
Public Law 103-354 Demonstration Project for the Purchase of Farm Credit 
                               System Land

                       Farm Credit Bank Agreement

    I. General: This agreement provides the guidelines for the 
implementation of the Demonstration Project for the Purchase of Certain 
Farm Credit System Acquired Land (FCS Demonstration Project) between 
Farmers Home Administration or its successor agency under Public Law 
103-354 (FmHA or its successor agency under Public Law 103-354) and the 
Farm Credit Bank of __________ (Bank) to carry out the goals and 
objectives of Section 351(h) of the Consolidated Farm and Rural 
Development Act (7 U.S.C. Sec. 1999(h)) as described in exhibit E of 7 
CFR part 1980, subpart B.

                         The Parties Agree That:

    I. The Bank will make available for purchase by qualified borrowers 
property eligible for the FCS Demonstration Project as further explained 
in paragraph II of exhibit E of 7 CFR part 1980, subpart B.
    II. The Bank may, at its discretion and for the purpose of 
maximizing the economic return on the sale of acquired property, 
subdivide tracts of land to make available parcels that permit eligible 
borrowers to purchase the parcels consistent with limits placed on the 
size of loans made, insured, or guaranteed under the Consolidated Farm 
and Rural Development Act.
    III. The Bank will periodically provide the FmHA or its successor 
agency under Public Law 103-354 State Director with current inventories 
of properties that may be eligible for the FCS Demonstration Project.
    IV. The Bank, through private sale, will sell land at fair market 
value, as determined by the Bank, to eligible borrowers.
    V. The Bank reserves the right to market and sell its acquired 
property to any qualified individual until, under the terms of the FCS 
Demonstration Project, FmHA or its successor agency under Public Law 
103-354 has determined the eligibility of the borrower and suitability 
of the property, and a purchase agreement has been executed between the 
eligible borrower and the Bank.
    VI. The Bank will provide technical assistance to the extent 
possible in connection with the implementation of the FCS Demonstration 
Project.

[[Page 645]]

    VII. The Bank will dispose of properties listed under the FCS 
Demonstration Project in a manner consistent with the applicable 
provisions of Section 4.36 of the Farm Credit Act of 1971, as amended, 
governing the rights of first refusal of former owners.
    VIII. The FmHA or its successor agency under Public Law 103-354 will 
process applications for participation in the FCS Demonstration Project 
in accordance with FmHA or its successor agency under Public Law 103-354 
regulations, including those set out in 7 CFR part 1980, subparts A and 
B.
    IX. The FmHA or its successor agency under Public Law 103-354 will 
determine the eligibility of the prospective borrower and the property 
for the FmHA or its successor agency under Public Law 103-354 guaranteed 
program.
    X. The FmHA or its successor agency under Public Law 103-354 will 
provide certificates of eligibility to eligible borrowers on a timely 
basis consistent with the availability of acquired property owned by 
institutions of the Farm Credit System certified to issue preferred 
stock under Section 6.27 of the Farm Credit Act of 1971.
    XI. The Bank and FmHA or its successor agency under Public Law 103-
354 are independently responsible for providing adequate media coverage 
of the FCS Demonstration Project. Media coverage will include news 
releases for local newspapers, radio, and television.
    This Agreement is effective upon signing by both the Administrator 
of the Farmers Home Administration or its successor agency under Public 
Law 103-354 and President of the Farm Credit Bank of ________. This 
Agreement may be amended at any time by written agreement of both 
parties, and shall terminate with the expiration of the authority for 
the FCS Demonstration Project.
 By_____________________________________________________________________
Administrator, Farmers Home Administration or its successor agency under 
Public Law 103-354
 Date:__________________________________________________________________
 By:____________________________________________________________________
President of the Farm Credit Bank of
 _______________________________________________________________________
Date:___________________________________________________________________
[54 FR 1594, Jan. 13, 1989; 54 FR 2409, Feb. 3, 1989, as amended at 55 
FR 2366, Jan. 24, 1990; 56 FR 8271, Feb. 28, 1991; 58 FR 44748, Aug. 25, 
1993; 58 FR 48300, Sept. 15, 1993; 58 FR 65888, Dec. 17, 1993]

Exhibit F--(Prepare One for Each Loan/Line of Credit to be Written Down) 
                      Shared Appreciation Agreement

    This Agreement is entered into between (Lender's name) (called 
``Lender'') and (Borrower's name) (called ``Borrower'') on (date) and 
expires on (Date) (maximum term of ten (10) years).
    Borrower is indebted to Lender for a loan or line of credit as 
evidenced by the note(s) or line of credit agreement(s) described below:

                                                                        
------------------------------------------------------------------------
     Date         Principal amount      Interest rate        Due date   
------------------------------------------------------------------------
                                                                        
                                                                        
------------------------------------------------------------------------

    This Agreement is attached to the note(s) or line of credit 
agreement(s) described above. As of the date of this Agreement, before 
write down, the unpaid principal balance on this note or line of credit 
agreement was $______ and the unpaid interest balance was $______. If a 
line of credit agreement is involved, the new line of credit ceiling is 
$______, and no increase will be made under the line of credit 
agreement(s). The value of the security covered by this agreement at the 
time of write down is $______.
    The note or line of credit agreement described above is secured by 
the following real estate security instruments:

                                                                                                                
----------------------------------------------------------------------------------------------------------------
                                                     Records of                                                 
    Grantor        Date of security  ------------------------------------------     Book or reel         Page   
                      instrument             County               State                                         
----------------------------------------------------------------------------------------------------------------
                                                                                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------

    Lender agrees to write down $______ of principal and accrued 
interest of the above-described note or line of credit agreement. After 
the write down, there is now due and owing the principal sum of $______ 
plus interest in the sum of $______ together with interest accruing from 
the date of this agreement on the unpaid principal balance at the rate 
of ____%.
    As a condition to, and in consideration of, Lender writing down the 
above amounts and restructuring the loan, Borrower agrees to recapture 
by the Lender an amount according to one of the following schedules:
    1. Seventy-five (75) percent of any positive appreciation in the 
market value of the property securing the loan or line of credit 
agreement as described in the above security instrument(s) between the 
date of this Agreement and either the expiration date of this Agreement 
or the date Borrower pays all guaranteed loan(s) or lines of credit in 
full, ceases farming or transfers title of the security, if such event 
occurs four (4) years or less from the date of this Agreement.
    2. Fifty (50) percent of any positive appreciation in the market 
value of the property securing the loan or line of credit agreement 
above as described in the security instruments between the date of this 
Agreement

[[Page 646]]

and either the expiration date of this Agreement or the date Borrower 
pays all guaranteed loans or lines of credit 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 Lender will be based on the difference 
between the value of the security at the time of disposal or cessation 
by Borrower of farming and the value of the security at the time this 
Agreement is entered into. Both values will be determined thorough an 
appraisal conducted by Lender. The amount of recapture will not exceed 
the amount of write down as stated on this form. Repayment of the 
recapture amount may be rescheduled or reamortized if the borrower is 
unable to pay the recapture amount at the expiration date of this 
agreement.
 _______________________________________________________________________
      (Borrower signature)
 _______________________________________________________________________
      (Lender signature)

   Exhibit G--1990 Farm Operating Loans Authorized By The ``Disaster 
                        Assistance Act of 1989''

                               I. General

    This exhibit contains policies and procedures modifying the 
guaranteed operating (OL) loan regulations, Loan Note Guarantees Only, 
as described in Sec. 1980.175 of this subpart, to implement the 
provisions of Public Law 101-82, the ``Disaster Assistance Act of 
1989.'' Subparts A and B of part 1980 are applicable to this program, 
except as modified by this exhibit. OL loan note guarantee requests from 
lenders, under this Exhibit, must be approved on or before September 30, 
1990.

                            II. Introduction

    The authorities contained in this exhibit enable FmHA or its 
successor agency under Public Law 103-354 to guarantee loans made by 
lenders, as set forth in subparts A and B of part 1980, under subtitle B 
of the Consolidated Farm and Rural Development Act, as modified by title 
III, section 302, of the ``Disaster Assistance Act of 1989.'' The 
purposes of these OL loans include: refinancing and reamortizing 1989 
annual operating loans, and/or 1989 and/or 1990 installments that are or 
will become due and payable during 1989 and/or 1990 on real estate debt 
(including buildings and storage facilities), farm equipment debt, 
livestock debt, or other operating debt of farmers and ranchers that 
otherwise cannot be repaid due to major production losses sustained as a 
result of drought or related condition occurring in 1988 or 1989, or 
excess moisture, freeze, storm or related condition occurring in 1989.

                            III. Definitions

    A. Farmer. A producer of agricultural crops/commodities for sale in 
the market place. Includes crop farmers, livestock ranchers and 
producers of livestock products.
    B. Installment. An amortized payment scheduled under the terms of a 
promissory note. For loans made as annual crop loans, the total amount 
due is the installment. For notes with a demand payment feature, refer 
to paragraph IV C(5) of this Exhibit for clarification of conditions 
that pertain to refinancing such notes.
    C. Major losses. Production losses, as defined by ASCS, of 
sufficient magnitude to qualify a producer for ASCS emergency livestock 
assistance or disaster program payments.
    D. Operating loan. A loan made for any authorized annual operating 
loan purpose, for calendar year 1989, as stated in Sec. 1980.175(c) of 
subpart B, for which payment cannot be made due to drought or related 
condition occurring in 1988 or 1989, or excess moisture, freeze, storm 
or related condition occurring in 1989.

                       IV. Program Administration

    Loan guarantee requests will not be approved until a determination 
is made by the Agricultural Stabilization and Conservation Service 
(ASCS) that the applicant is eligible for benefits under an ASCS 
livestock feed program or disaster payment program, or that the borrower 
incurred major production losses as determined by ASCS, but for other 
reasons is not eligible for ASCS disaster program benefits. The use of 
such benefits must be considered first for reducing the applicant's 
outstanding financial obligations incurred in the disaster year. This is 
to ensure that loan guarantees are not approved in excess of the 
farmer's actual financial needs.
    A. Eligibility. Farmers and ranchers who are determined eligible to 
receive disaster program benefits from ASCS, based on production losses 
to any commercial crop grown for harvest in 1989, may receive loans from 
lenders, guaranteed by FmHA or its successor agency under Public Law 
103-354, subject to the eligibility requirements contained in 
Sec. 1980.175(b) of this subpart, and the following:
    (1) Guarantees will be approved only for those farmers unable to 
make scheduled payments on their 1989 annual operating loans and/or 1989 
and/or 1990 scheduled installments on other farm debts, as a result of 
the conditions stated in paragraph II of this exhibit. If a request is 
made to refinance an installment not yet due and payable, the projected 
plan of operation must show that the applicant will be unable to meet 
the installment when it comes due.

[[Page 647]]

    (2) Farmers must otherwise be current with their obligations to the 
lender making the guaranteed loan, when the guarantee is approved. If a 
guarantee is approved to refinance installments due more than one 
creditor, the applicant must be current with all creditors refinanced, 
when the guarantee is approved.
    (3) The lender's guarantee request package, as prescribed in 
Sec. 1980.113 and Exhibit A of this subpart, will contain a properly 
executed (signed by an authorized ASCS official) Form CCC 441, 
``Application for 1989 Disaster Benefits,'' with attached worksheet, 
``1989 Disaster System Producer Calculated Payment Report,'' for each 
farm. This will establish that the farmer has been determined eligible 
by ASCS for a disaster program(s) payment(s).
    (4) The FmHA or its successor agency under Public Law 103-354 County 
Committee will certify that the applicant meets the requirements 
contained in Sec. 1980.175(b).
    B. Limitations. Farmers will not be eligible for loan guarantees 
under this Exhibit, if their ASCS disaster benefits are only in the 
form(s) of:
    1. Assistance for haying and grazing CRP acreage, as addressed in 
subtitle D of title I of the Act;
    2. Assistance for orchard farmers, under subtitle B of title I of 
the Act;
    3. Emergency livestock assistance, under title II of the Act;
    4. Livestock water assistance, under section 502 of title V of the 
Act; or
    5. Forest crop assistance, under subtitle C of title I of the Act.
    C. Loan Purposes. Eligible loan purposes include any of the 
following:
    1. Refinancing 1989 annual operating loans.
    2. Refinancing 1989 loan installments.
    3. Refinancing 1990 loan installments.
    4. Loans or loan installments to be refinanced must be due or will 
become due and payable during 1989 or 1990, and must have been incurred 
for:
    (a) real estate debt (including buildings and storage facilities);
    (b) farm equipment debt;
    (c) livestock debt; or
    (d) other operating debt.
    5. When a creditor or lender requests refinancing of a promissory 
note that contains a demand payment feature, and the debt was incurred 
for more than one purpose, e.g., operating expenses, machinery and/or 
equipment purchase, debt carryover, and other capital expenditures, only 
the annual operating expense portion, plus an amount equivalent to an 
annual installment(s) for each of the other purposes, can be included in 
the guaranteed loan.
    D. Terms. 1989 annual operating loans and/or 1989 and/or 1990 
installments refinanced will be scheduled for repayment on terms that 
will provide the borrower a reasonable opportunity to continue to 
receive new operating credit while repaying the guaranteed loan. When a 
loan is made to refinance more than one installment with the same 
creditor, or more than one installment with different creditors, the 
term of the guaranteed loan will be limited to not more than 6 years 
from the original due date of any installment being refinanced.
    1. This Exhibit does not preclude participation by more than one 
lender.
    2. Different lenders of the same applicant may request separate 
guarantees when refinancing their installments, provided:
    (a) Separate notes are taken and repayment of each note does not 
exceed 6 years from the original installment due date; and
    (b) The security requirements in Sec. 1980.175 (g) and (h) are met, 
except as stipulated in paragraph IV E of this exhibit.
    E. Security. Adequate security must exist and be maintained for the 
proposed debt(s) to be refinanced. A current market value appraisal will 
be completed in accordance with Sec. 1980.113(d)(9) of this subpart to 
ensure that sufficient collateral equity exists to fully secure the loan 
being guaranteed.
    1. Section 1980.175(d)(5) of this subpart, which requires separate 
and identifiable security, will not apply. Junior liens on collateral 
may be accepted when practical and agreeable with the lender proposing 
the loan.
    2. When a lender requests a guarantee for refinancing its own debt 
secured by chattels, a new financing statement will be required to 
implement the requirements of Sec. 1980.109(b) (1) and (2). A lien 
search will be made to show that the proposed collateral is, in fact, 
encumbered by the lender; and the subsequent filing will give the 
intended junior lien position. For these loans, the loan agreement, 
promissory note, and any new security instruments will include language 
stating:
    (a) The security position of the guaranteed loan being made is 
junior to the lender's original lien, and
    (b) The amount of the prior lien.
    3. For real estate installments being refinanced, the best lien 
obtainable on the real estate serving as collateral for the loan, may be 
accepted, provided the junior lien position will afford sufficient 
collateral equity to fully secure the guaranteed loan being made. If the 
junior lien will not fully secure the new loan, lender must obtain 
additional collateral having sufficient equity to assure the new 
guaranteed loan will be fully secured. This will be accomplished by 
either subordination of an existing lien(s) on the real estate in 
question or a lien on other real estate having sufficient collateral 
equity to make up the deficiency in security value.
    4. When a single loan is made to refinance more than one creditors' 
installments, the best lien obtainable may be taken, as a minimum, on 
the same items of collateral that

[[Page 648]]

serve as security for the loan installments being refinanced, provided 
the sum of the liens against the collateral does not exceed the present 
market value of the collateral.
    F. Servicing. 1. Servicing of loans made under this Exhibit will be 
in accordance with Sec. 1980.130 of this subpart, paragraph IX of form 
FmHA or its successor agency under Public Law 103-354 449-35, ``Lender's 
Agreement,'' and paragraph VII of exhibit A, attachment 1, ``Approved 
Lender Program, Lender's Agreement.''
    2. If it becomes necessary for the lender to make a protective 
advance to protect or preserve the collateral, or if liquidation becomes 
necessary, the lender will determine whether a substantial recovery can 
be made.
    G. Appeals. Adverse decisions by FmHA or its successor agency under 
Public Law 103-354 officials will be processed in accordance with 
subpart A of part 1980 and subpart B of part 1900 of this chapter.
[54 FR 48229, Nov. 22, 1989, and 55 FR 7472, Mar. 2, 1990]



                          Subpart C [Reserved]



                     Subpart D--Rural Housing Loans

    Source: 60 FR 26985, May 22, 1995, unless otherwise noted.



Sec. 1980.301  Introduction.

    (a) Policy. This subpart contains regulations for single family 
Rural Housing (RH) loan guarantees by the Rural Housing Service (RHS) 
and applies to lenders, borrowers, and other parties involved in making, 
guaranteeing, servicing, holding or liquidating such loans. Any 
processing or servicing activity conducted pursuant to this subpart 
involving authorized assistance to RHS 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. 
Applicants for this assistance are required to identify any known 
relationship or association with an RHS employee.
    (b) Program objective. The basic objective of the guaranteed RH loan 
program is to assist eligible households in obtaining adequate but 
modest, decent, safe, and sanitary dwellings and related facilities for 
their own use in rural areas by guaranteeing sound RH loans which 
otherwise would not be made without a guarantee. Guarantees issued under 
this subpart are limited to loans to applicants with incomes that do not 
exceed income limits as provided in exhibit C of FmHA Instruction 1980-D 
(available in any RHS office).
    (c) [Reserved]
    (d) Nondiscrimination. Loan guarantees and services provided under 
this subpart are subject to various civil rights statutes. Assistance 
shall not be denied to any person or applicant based on race, sex, 
national origin, color, familial status, religion, age, or physical or 
mental disability (the applicant must possess the capacity to enter into 
a legal contract for services). The Consumer Protection Act provides 
that the applicant may not be denied assistance based on receipt of 
income from public assistance or because the applicant has, in good 
faith, exercised any right provided under the Act.



Sec. 1980.302  Definitions and abbreviations.

    (a) The following definitions are applicable to RH loans:
    Agency: Rural Housing Service (RHS).
    Applicant. The party applying to a Lender for a loan.
    Approval official. An RHS employee with delegated loan approval 
authority under subpart A of part 1901 consistent with the amount and 
type of loan considered.
    Borrower. Collectively, all parties who applied for and received a 
specific guaranteed loan from an eligible Lender.
    Coapplicant. An adult member of the household who joins the 
applicant in applying to a lender for a loan.
    Conditional commitment. RHS's notice to the Lender that the material 
it has submitted is approved subject to the completion of all conditions 
and requirements set forth in the notice.
    Development standard. The current edition of any of the model 
building, plumbing, mechanical, and electrical codes listed in exhibit E 
to subpart A of part 1924 applicable to single family residential 
construction or other similar codes adopted by RHS for use in the state.
    Disabled person. A person who is unable to engage in any 
substantially gainful activity by reason of any medically determinable 
physical or mental

[[Page 649]]

impairment expected to result in death or which has lasted or is 
expected to last for a continuous period of not less than 12 months. The 
disability is expected to be of long or indefinite duration; 
substantially impede the person's ability to live independently; and is 
of such a nature that the person's ability to live independently could 
be improved by more suitable housing conditions. In the case of an 
individual who has attained the age of 55 and is blind, disability is 
defined as inability by reason of such blindness to engage in 
substantially gainful activity requiring skills or abilities comparable 
to those of any gainful activity in which the individual has previously 
engaged with some regularity over a substantial period of time. Receipt 
of veteran's benefits for disability, whether service-oriented or 
otherwise, does not automatically establish disability. A disabled 
person also includes a person with a developmental disability. A 
developmental disability means a severe, chronic disability of a person 
which:
    (1) Is attributable to a mental or physical impairment or a 
combination of mental and physical impairments;
    (2) Is manifested before the person attains age 22;
    (3) Is likely to continue indefinitely;
    (4) Results in substantial functional limitations in one or more of 
the following areas of major life activity:
    (i) Self-care,
    (ii) Receptive and expressive language,
    (iii) Learning,
    (iv) Mobility,
    (v) Self-direction,
    (vi) Capacity for independent living, and
    (vii) Economic self-sufficiency; and
    (5) Reflects the person's need for a combination and sequence of 
special care, treatment, or other services which are of lifelong or 
extended duration and are individually planned and coordinated.
    Displaced homemaker. An individual who is an adult; has not worked 
full-time full-year (2,080 hours) in the labor force for a number of 
years but has during such years worked primarily without remuneration to 
care for the home and family; and is unemployed or underemployed and is 
experiencing difficulty in obtaining or upgrading employment.
    Elderly family. An elderly family consists of one of the following:
    (1) A person who is the head, spouse, or sole member of a household 
and who is 62 years of age or older, or who is disabled and is the 
applicant/borrower or the coapplicant/coborrower; or
    (2) Two or more unrelated elderly (age 62 or older), disabled 
persons who are living together, at least one of whom is the applicant/
borrower or coapplicant/coborrower; or
    (3) In the case of a family where a deceased borrower/coborrower or 
spouse was at least 62 years old or disabled, the surviving household 
members shall continue to be classified as an ``elderly family'' for the 
purpose of determining adjusted income even though the surviving members 
may not meet the definition of elderly family on their own, provided:
    (i) They occupied the dwelling with the deceased family member at 
the time of his/her death; and
    (ii) If one of the surviving members is the spouse of the deceased 
family member, the surviving family shall be classified as an elderly 
family only until the remarriage of the surviving spouse; and
    (iii) At the time of death, the dwelling of the deceased family 
member was financed under title V of the Housing Act of 1949, as 
amended.
    Eligible lender. A Lender meeting the criteria outlined in 
Sec. 1980.309 who has requested and received RHS approval for 
participation in the program.
    Existing dwelling. A dwelling which has been completed for more than 
1 year as evidenced by an occupancy permit or a similar document.
    Extended family. A family unit comprised of adult relatives who live 
together with the other members of the household, for reasons of 
physical dependency, economics, and/or social custom, who, under other 
circumstances, could maintain separate households. A typical example is 
parents living with their adult children.
    Federal National Mortgage Association (Fannie Mae) rate. The rate 
authorized in exhibit B of FmHA Instruction 440.1 (available in any RHS 
office).

[[Page 650]]

    Finance Office. The office which maintains RHS's financial records.
    First-time homebuyer. Any individual who (and whose spouse) has had 
no present ownership in a principal residence during the 3 year period 
ending on the date of purchase of the property acquired with a 
guaranteed loan under this subpart. A first-time homebuyer includes 
displaced homemakers and single parents even though they might have 
owned, or resided in, a dwelling with a spouse. This definition is used 
to determine RHS processing priority in accordance with Sec. 1980.353.
    Guaranteed loan. A loan made, held, and serviced by a Lender for 
which RHS has entered into an agreement with the Lender in accordance 
with this subpart.
    Household or family. The applicant, coapplicant, and all other 
persons who will make the applicant's dwelling their primary residence 
for all or part of the next 12 months. The temporary absence of a child 
from the home due to placement in foster care shall not be taken into 
account in considering family composition and size. Foster children 
placed in the borrower's home and live-in aides shall not be counted as 
members of the household.
    Interest assistance. Loan assistance payments made by RHS to the 
Lender on behalf of the borrower.
    Lender. The organization making, holding, and/or servicing the loan 
which is guaranteed under the provisions of this subpart. The Lender is 
also the party requesting the guarantee. The Lender includes an entity 
purchasing an RHS guaranteed loan. A purchasing Lender acquires all the 
privileges, duties, and responsibilities of the originating Lender. The 
Lender is primarily responsible for originating, underwriting, 
servicing, and, where necessary, liquidating the loan and disposing of 
the property in a manner consistent with maximizing the Government's 
interest.
    Lender agreement. The signed master agreement between RHS and the 
Lender setting forth the Lender's loan responsibilities for loan 
processing and servicing guaranteed RH loans.
    Lender record change. The Lender's notice to RHS of a change of 
Lender or a change of servicer.
    Liquidation. Liquidation of the loan occurs when the Lender acquires 
title to the security, a third party buys the property at the 
foreclosure sale, or the borrower sells the property to a third party in 
order to avoid or cure a default situation with the prior approval of 
the Lender and RHS. In states providing a redemption period, the Lender 
does not typically acquire title until after expiration of the 
redemption period.
    Liquidation expense. The Lender's cost of liquidation including 
those costs that do not qualify as a protective advance.
    Loan note guarantee. The signed commitment issued by RHS setting 
forth the terms and conditions of the guarantee.
    Manufactured home. A structure built to the Federal Manufactured 
Home Construction and Safety Standards and RHS thermal requirements.
    Master interest assistance agreement. The agreement among RHS, the 
borrower, and the Lender which provides the basis for payment of 
interest assistance and shared equity.
    Minor. A person under 18 years of age. Neither the applicant, 
coapplicant, or spouse may be counted as a minor. Foster children placed 
in the borrower's home are not counted as minors for the purpose of 
determination of annual or adjusted income.
    Net family assets. Include:
    (1) The value of equity in real property, savings, individual 
retirement accounts (IRA), demand deposits, and the market value of 
stocks, bonds, and other forms of capital investments, but exclude:
    (i) Interests in Indian Trust land,
    (ii) The value of the dwelling and a minimum adequate site,
    (iii) Cash on hand which will be used to reduce the amount of the 
loan,
    (iv) The value of necessary items of personal property such as 
furniture and automobiles and the debts against them,
    (v) The assets that are a part of the business, trade, or farming 
operation in the case of any member of the household who is actively 
engaged in such operation, and
    (vi) The value of a trust fund that has been established and the 
trust is

[[Page 651]]

not revocable by, or under the control of, any member of the household, 
so long as the funds continue to be held in trust.
    (2) The value of any business or household assets disposed of by a 
member of the household for less than fair market value (including 
disposition in trust, but not in a foreclosure or bankruptcy sale) 
during the 2 years preceding the date of application, in excess of the 
consideration received therefore. In the case of a disposition as part 
of a separation or divorce settlement, the disposition shall not be 
considered to be less than fair market value if the household member 
receives important consideration not measurable in dollar terms.
    Net proceeds. The proceeds remaining from the property after it is 
sold or its net value as determined in accordance with this subpart. The 
determination of net proceeds depends upon whether the property is sold 
or acquired by the Lender. Net proceeds may be determined using the 
appraised value and subtracting authorized deductions when the Lender 
acquires the property.
    Protective advance. Advances made by the Lender when the borrower is 
in liquidation or otherwise in default to protect or preserve the 
security from loss or destruction.
    Qualifying income. The amount of the applicant's income which the 
lender determines is adequate and dependable enough to consider for 
repayment ability. This figure may be different from the adjusted income 
which is used for RHS program eligibility. Qualifying income is 
typically less than adjusted income unless the applicant has income from 
the sources listed in Sec. 1980.347(e).
    Rural area. An area meeting the requirements of Sec. 1980.312. Rural 
areas are designated on maps available in the RHS office servicing that 
area.
    Single parent. An individual who is unmarried or legally separated 
from a spouse and has custody or joint custody of one or more minor 
children or is pregnant.
    State Director. Director of RHS programs within a state office area.
    Veteran. A veteran is a person who has been discharged or released 
from the active forces of the United States Army, Navy, Air Force, 
Marine Corps, or Coast Guard under conditions other than dishonorable 
discharge including ``clemency discharges'' and who served on active 
duty in such forces:
    (1) From April 6, 1917, through March 31, 1921;
    (2) From December 7, 1941, through December 31, 1946;
    (3) From June 27, 1950, through January 31, 1955; or
    (4) For more than 180 days, any part of which occurred after January 
31, 1955, but on or before May 7, 1975.
    (b) The following abbreviations are applicable to this subpart:
    Fannie Mae-- Federal National Mortgage Association.
    FCS-- Farm Credit Service.
    FHA-- Federal Housing Administration.
    Freddie Mac-- Federal Home Loan Mortgage Corporation.
    Ginnie Mae-- Government National Mortgage Association.
    HUD-- Department of Housing and Urban Development.
    IRS-- Internal Revenue Service.
    MCCs-- Mortgage Credit Certificates.
    PITI-- Principal, Interest, Taxes, and Insurance.
    RHS-- Rural Housing Service.
    URAR-- Uniform Residential Appraisal Report.
    VA-- Department of Veterans Affairs.



Secs. 1980.303-1980.307  [Reserved]



Sec. 1980.308  Full faith and credit.

    The loan note guarantee constitutes an obligation supported by the 
full faith and credit of the United States and is incontestable except 
for fraud or misrepresentation of which the Lender has actual knowledge 
at the time it becomes such Lender or which the Lender participates in 
or condones. Misrepresentation includes negligent misrepresentation. A 
note which provides for the payment of interest on interest shall not be 
guaranteed. Any guarantee or assignment of a guarantee attached to or 
relating to a note which provides for the payment of interest on 
interest is void. Notwithstanding the prohibition of interest on 
interest, interest may be capitalized in connection with reamortization 
over the remaining term with written concurrence of RHS.

[[Page 652]]

The loan note guarantee will be unenforceable to the extent any loss is 
occasioned by violation of usury laws, negligent servicing, or failure 
to obtain the required security regardless of the time at which RHS 
acquires knowledge of the foregoing. Negligent servicing is defined as 
servicing that is inconsistent with this subpart and includes the 
failure to perform those services which a reasonably prudent Lender 
would perform in servicing its own loan portfolio of loans that are not 
guaranteed. The term includes not only the concept of a failure to act, 
but also not acting in a timely manner or acting contrary to the manner 
in which a reasonably prudent Lender would act up to the time of loan 
maturity or until a final loss is paid. Any losses occasioned will be 
unenforceable to the extent that loan funds are used for purposes other 
than those authorized in this subpart. When the Lender conducts 
liquidation in an expeditious manner, in accordance with the provisions 
of Sec. 1980.374, the loan note guarantee shall cover interest until the 
claim is paid within the limit of the guarantee.



Sec. 1980.309  Lender participation in guaranteed RH loans.

    (a) Qualification. The following Lenders are eligible to participate 
in the RHS guaranteed RH loan program upon presentation of evidence of 
said approval and execution of the RHS Lender Agreement.
    (1) Any state housing agency;
    (2) Any Lender approved by HUD as a supervised or nonsupervised 
mortgagee for submission of one to four family housing applications for 
Federal Housing Mortgage Insurance or as an issuer of Ginnie Mae 
mortgage backed securities;
    (3) Any Lender approved as a supervised or nonsupervised mortgagee 
for the VA;
    (4) Any Lender approved by Fannie Mae for participation in one to 
four family mortgage loans;
    (5) Any Lender approved by Freddie Mac for participation in one to 
four family mortgage loans;
    (6) An FCS institution with direct lending authority; and
    (7) Any Lender participating in other RHS, Rural Business-
Cooperative Service, Rural Utilities Service, and/or Farm Service Agency 
guaranteed loan programs.
    (b) Lender approval. A Lender listed in paragraph (a) of this 
section must request a determination of eligibility in order to 
participate as an originating Lender in the program. Requests may be 
made to the state office serving the state jurisdiction or to the 
National office when multiple state jurisdictions are involved.
    (1) The Lender must provide the following information to RHS:
    (i) Evidence of approval, as appropriate, for the criteria under 
paragraph (a) of this section, which the Lender meets.
    (ii) The Lender's Tax Identification Number.
    (iii) The name of an official of the Lender who will serve as a 
contact for RHS regarding the Lender's guaranteed loans.
    (iv) A list of names, titles, and responsibilities of the Lender's 
principal officers.
    (v) An outline of the Lender's internal loan criteria for issues of 
credit history and repayment ability and a copy of the Lender's quality 
control plan for monitoring production and servicing activities.
    (vi) An executed certification regarding debarment, suspension, or 
other matters--primary covered transactions. The certification will be 
obtained using a form prescribed by RHS.
    (2) The Lender must agree to:
    (i) Obtain and keep itself informed of all program regulations and 
guidelines including all amendments and revisions of program 
requirements and policies.
    (ii) Process and service RHS guaranteed loans in accordance with 
Agency regulations.
    (iii) Permit RHS employees or its designated representatives to 
examine or audit all records and accounts related to any RHS loan 
guarantee.
    (iv) Be responsible for the servicing of the loan, or if the loan is 
to be sold, sell only to an entity which meets the provisions of 
paragraph (a) of this section.
    (v) Use forms which have been approved by FHA, Fannie Mae, Freddie

[[Page 653]]

Mac, or, for FCS Lenders, use the appropriate FCS forms.
    (vi) Maintain its approval if qualification as an RHS Lender was 
based on approval by HUD, VA, Fannie Mae, or Freddie Mac including 
maintaining the minimum allowable net capital, acceptable levels of 
liquidity, and any required fidelity bonding and/or mortgage servicing 
errors and omissions policies required by HUD, VA, Fannie Mae, or 
Freddie Mac, as appropriate.
    (vii) Operate its facilities in a prudent and business-like manner.
    (viii) Assure that its staff is well trained and experienced in loan 
origination and/or loan servicing functions, as necessary, to assure the 
capability of performing all of the necessary origination and servicing 
functions.
    (ix) Notify RHS in writing if the Lender:
    (A) Ceases to meet any financial requirements of the entity under 
which the Lender qualified for RHS eligibility;
    (B) Becomes insolvent;
    (C) Has filed for bankruptcy protection, has been forced into 
involuntary bankruptcy, or has requested an assignment for the benefit 
of creditors;
    (D) Has taken any action to cease operations or discontinue 
servicing or liquidating any or all of its portfolio of RHS guaranteed 
loans;
    (E) Has any change in the Lender name, location, address, or 
corporate structure;
    (F) Has become delinquent on any Federal debt or has been debarred, 
suspended, or sanctioned by any Federal agency or in accordance with any 
applicable state licensing or certification requirements.
    (c) [Reserved]
    (d) Handling applications for Lender eligibility. Upon determination 
of a Lender's eligibility to originate loans, RHS and the Lender will 
execute the RHS Lender Agreement. The Lender Agreement establishes the 
Lender's authorization for participation in the program as an 
originator, servicer, or holder of RHS single family mortgage loans. The 
Lender Agreement shall be in effect until terminated by either the 
Agency or the Lender in accordance with the terms of the Lender 
Agreement and this subpart.
    (e) Lender sale of guaranteed loans. Loans guaranteed under this 
subpart may be sold only to entities which meet the qualifications in 
paragraphs (a) and (b) of this section or directly to Fannie Mae or 
Freddie Mac. Such entities are referred to as a Lender and are to be 
treated as a Lender for all purposes under this subpart. The selling 
Lender shall provide the original loan note guarantee to the purchasing 
Lender. The selling Lender is responsible for reporting the sale of any 
loan to RHS within 30 days using a reporting form provided by RHS. The 
purchasing Lender must execute a Lender Agreement or have a valid Lender 
Agreement on file with RHS. The purchasing Lender shall succeed to all 
rights, title, and interest of the Lender under the loan note guarantee. 
Any necessary or convenient assignments or other instruments relating to 
the loan and any other actions necessary or convenient to perfect or 
record such transaction are the responsibility of the purchasing Lender. 
The purchasing Lender assumes the obligations of, and will be bound by 
and will comply with, all covenants, agreements, terms, and conditions 
contained in any note, security instrument, loan note guarantee, and of 
any outstanding agreements in connection with such loan purchased. The 
purchasing Lender shall be subject to any defenses, claims, or setoffs 
that RHS would have against the Lender if the Lender had continued to 
hold the loan.
    (f) Lender responsibility. The Lender will be responsible for the 
processing, servicing, and liquidation (if necessary) of the loan. The 
Lender may use agents, correspondents, branches, financial experts, or 
other institutions in carrying out its responsibilities. Lenders are 
fully responsible for their own actions and the actions of those acting 
on the Lender's behalf.
    (1) Processing. The Lender must abide by limitations on loan 
purposes, loan limitations, interest rates, and terms set forth in this 
subpart. The Lender will obtain, complete, and submit to RHS the items 
required in Sec. 1980.353(c). The Lender may utilize the services of a 
non-RHS approved lender for originating residential loans. The RHS 
approved lender is responsible for the

[[Page 654]]

loan underwriting and for obtaining the RHS conditional commitment. The 
agent may close the loan in its name provided the loan is immediately 
transferred to the approved lender to whom the guarantee will be issued.
    (2) Servicing. Lenders are fully responsible for servicing and 
protecting the security for all guaranteed loans. When servicing is 
carried out by a third party, the Lender will inform RHS of the name and 
address of the servicer.
    (3) Liquidation. The Lender will complete any liquidation of loans 
guaranteed under the provisions of the Lender Agreement. Loss claims 
will be submitted on the RHS Loss Report form. The loss report will be 
accompanied by supporting information to outline disposition of all 
security pledged to secure the loan. The Lender shall also effect 
collection of the debt from other assets of the borrower to the extent 
practicable.
    (4) Counseling. Lenders are encouraged to offer or provide for home 
ownership counseling. Lenders may require first-time homebuyers to 
undergo such counseling if it is reasonably available in the local area. 
When home ownership counseling is provided or sponsored by RHS or 
another Federal agency in the local area, the Lender must require the 
borrower to successfully complete the course.
    (g) Monitoring a Lender's processing and servicing of loans. If RHS 
determines that the Lender is not fulfilling the obligations of the 
Lender Agreement or that the Lender fails to maintain the required 
criteria, the Lender will be notified in writing of the deficiencies and 
allowed a maximum of 30 days to correct them. If the Lender fails to 
make the required corrections, RHS will proceed as provided in paragraph 
(h) of this section.
    (1) Loan processing review for new Lenders. RHS may review loans 
developed by an eligible Lender to assure compliance with, and 
understanding of, Agency regulations.
    (2) [Reserved]
    (3) [Reserved]
    (h) Termination of Lender eligibility. The Lender remains eligible 
as long as the Lender meets the criteria in paragraph (a) of this 
section unless that Lender's status is revoked by RHS or by another 
Federal agency. RHS shall revoke the eligible Lender status of any 
Lender who fails to comply with requirements of paragraph (b) or (e) of 
this section. Status may also be revoked if the Lender violates the 
terms of the Lender Agreement, fails to properly service any guaranteed 
loan, or fails to adequately protect the interests of the Lender and the 
Government. If the Lender is determined to be no longer eligible, the 
Lender will continue to service any outstanding loans guaranteed under 
this subpart which are held by the Lender or RHS may require the Lender 
to transfer the servicing of the loan. In addition to revocation of 
eligible Lender status, the Lender may be debarred by RHS.



Sec. 1980.310  Loan purposes.

    The purpose of a loan guaranteed under this subpart must be to 
acquire a completed dwelling and related facilities to be used by the 
applicant as a primary residence. The loan may be to purchase a new 
dwelling or an existing dwelling. The guaranteed loan may be for ``take 
out'' financing for a loan to construct a new dwelling or improve an 
existing dwelling when the construction financing is arranged in 
connection with the loan package. The loan may include funds for the 
purchase and installation of necessary appliances, energy saving 
measures, and storm cellars. Incidental expenses for tax monitoring 
services, architectural, appraisal, survey, environmental, and other 
technical services may be included. Subject to Sec. 1980.311, eligible 
loan purposes also include:
    (a) Necessary related facilities such as a garage, storage shed, 
walks, driveway, and water and/or sewage facilities including reasonable 
connection fees for utilities which the buyer is required to pay.
    (b) Special design features or equipment necessary to accommodate a 
physically disabled member of the household.
    (c) The cost of establishing an escrow account for real estate taxes 
and/or insurance premiums.
    (d) Title clearance, title insurance, and loan closing; stock in a 
cooperative lending agency necessary to obtain the

[[Page 655]]

loan; and, for low-income applicants only, loan discount points to 
reduce the note interest rate from the rate authorized in Sec. 1980.320 
not exceeding the amount typical for the area.
    (e) Provide funds for seller equity and/or essential repairs when an 
existing guaranteed loan is to be assumed simultaneously.



Sec. 1980.311  Loan limitations and special provisions.

    (a) Prohibited loan purposes. Conditional commitments will not be 
issued if loan funds are to be used for:
    (1) Payment of construction draws.
    (2) The purchase of furniture or other personal property except for 
essential equipment and materials authorized in accordance with 
Sec. 1980.310.
    (3) Refinancing RHS debts, debts owed the Lender (other than 
construction/development, financing incurred in conjunction with the 
proposed loan), or debts on a manufactured home.
    (4) Purchase or improvement of income-producing land, or buildings 
to be used principally for income-producing purposes, or buildings not 
essential for RH purposes, or to buy or build buildings which are 
largely or in part specifically designed to accommodate a business or 
income-producing enterprise.
    (5) Payment of fees, charges, or commissions, such as finder's fees 
for packaging the applications or placement fees for the referral of a 
prospective applicant to RHS.
    (6) Improving the entry of a homestead entryman or desert entryman 
prior to receipt of patent.
    (7) Purchase a dwelling with an in-ground swimming pool.
    (b) Limitations. The principal purpose of the loan, except for a 
subsequent loan to an existing borrower, must be to buy or build a 
dwelling. The loan may include additional funds in accordance with 
Sec. 1980.310. The amount of the loan may not exceed the maximum dollar 
limitation of section 203(b)(2) of the National Housing Act (12 U.S.C. 
1702).
    (1) A loan for the acquisition of a newly constructed dwelling that 
meets the requirements of Sec. 1980.341(b) of this subpart may be made 
for up to 100 percent of the appraised value or the cost of acquisition 
and any necessary development including those purposes in Sec. 1980.310, 
whichever is less.
    (2) A loan for the acquisition of an existing dwelling and 
development, if any, in conjunction with the acquisition of an existing 
dwelling may be made for up to 100 percent of the appraised value or the 
cost of acquisition and necessary development including those purposes 
in Sec. 1980.310, whichever is less.
    (3) A loan for the acquisition of a newly constructed dwelling (a 
dwelling that does not meet the definition for an existing dwelling) 
that does not meet the requirements of Sec. 1980.341(b) is limited to 90 
percent of the present market value.
    (c) Subdivisions. Housing units may be financed in existing 
subdivisions approved by local, regional, state, or Federal government 
agencies before issuance of a conditional commitment. The subdivision 
must meet the requirements of Sec. 1901.203. An existing subdivision is 
one in which the local government has accepted the subdivision plan, its 
principal developments and right-of-ways, the construction of streets, 
water and water/waste disposal systems, and utilities; is at a point 
which precludes any major changes; and provisions are in place for 
continuous maintenance of the streets and the water and water/waste 
disposal systems. A dwelling served by a homeowners association (HOA) 
may be accepted when the project has been approved or accepted by HUD, 
VA, Fannie Mae, or Freddie Mac.



Sec. 1980.312  Rural area designation.

    A rural area is an area which is identified as rural by RHS in 
accordance with Sec. 1944.10. Current county maps showing ineligible 
areas are available in RHS field offices.



Sec. 1980.313  Site and building requirements.

    (a) Rural area. The property on which the loan is made must be 
located in a designated rural area as identified in Sec. 1980.312. A 
nonfarm tract to be purchased or improved with loan funds must not be 
closely associated with farm service buildings.

[[Page 656]]

    (b) Access. The property must be contiguous to and have direct 
access from a street, road, or driveway. Streets and roads must be hard 
surface or all-weather surface.
    (c) Water and water/waste disposal system. A nonfarm tract on which 
a loan is to be made must have an adequate water and water/waste 
disposal system and other related facilities. Water and water/waste 
disposal systems serving the site must be approved by a state or local 
government agency. When the site is served by a privately owned and 
centrally operated water and water/waste disposal system, the system 
must meet the design requirements of the State Department of Health or 
comparable reviewing and regulatory agency. Written verification must be 
obtained from the regulatory agency that the private water and water/
waste system complies with the Safe Drinking Water Act (42 U.S.C. 300F 
et seq.), and the Clean Water Act (33 U.S.C. 1251 et seq.), 
respectively. A system owned and/or operated by a private party must 
have a binding agreement which allows interested third parties, such as 
the Lender, to enforce the obligation of the operator to provide 
satisfactory service at reasonable rates.
    (d) [Reserved]
    (e) Modest house. Dwellings financed must provide decent, safe, and 
sanitary housing and be modest in cost. A dwelling that can be purchased 
with a loan not exceeding the maximum dollar limitation of section 
203(b)(2) of the National Housing Act (12 U.S.C. 1702) is considered 
modest. Generally, the value of the site must not exceed 30 percent of 
the total value of the property. When the value of the site is typical 
for the area, as evidenced by the appraisal, and the site cannot be 
subdivided into two or more sites, the 30 percent limitation may be 
exceeded.
    (f) Thermal standards. Dwellings financed shall meet the standards 
outlined in exhibit D of subpart A of part 1924 except for an existing 
dwelling, if documentation is provided to establish that the actual cost 
of heating and cooling is not significantly greater than those costs for 
a dwelling that meets RHS's thermal standards. If the dwelling is 
excepted, only the perimeter of the house at the band beam and the heat 
ducts in unheated basements or crawlspace must be insulated.
    (g) Existing dwelling. An existing dwelling financed must be cost 
effective to the applicant including reasonable costs of utilities and 
maintenance for the area. Loan guarantees may be made on an existing 
manufactured home when it meets the provisions of paragraph (i)(2)(i) of 
this section.
    (h) Repairs. Any dwelling financed with an RHS guarantee must be 
structurally sound, functionally adequate, and placed in good repair 
prior to issuance of the Loan Note Guarantee except as provided in 
Sec. 1980.315.
    (i) Manufactured homes. New units that meet the requirements of 
exhibit J of subpart A of part 1924 and purchased through RHS approved 
dealer-contractors may be considered for a guaranteed loan under this 
subpart. The Lender may obtain a list of RHS approved models and dealer-
contractors from any RHS office in the area served.
    (1) Loans may be guaranteed for the following purposes when the 
security covers both the unit and the lot:
    (i) A new unit and related site development work on a site owned or 
purchased by the applicant which meets the requirements and limitations 
of this section or a leasehold meeting the provisions of Sec. 1980.314.
    (ii) Transportation and set-up costs for a new unit.
    (2) Loans may not be guaranteed for:
    (i) An existing unit and site unless it is already financed with a 
Section 502 RH direct or guaranteed loan, is being sold from RHS 
inventory, or is being sold from the Lender's inventory provided the 
Lender acquired possession of the unit through a loan guaranteed under 
this subpart.
    (ii) The purchase of a site without also financing the unit.
    (iii) Existing debts owed by the applicant/borrower.
    (iv) A unit without an affixed certification label indicating the 
unit was constructed in accordance with the Federal Manufactured Home 
Construction and Safety Standards.
    (v) Alteration or remodeling of the unit when the initial loan is 
made.
    (vi) Furniture, including movable articles of personal property such 
as

[[Page 657]]

drapes, beds, bedding, chairs, sofas, lamps, tables, televisions, 
radios, stereo sets, and similar items. Items such as wall-to-wall 
carpeting, refrigerators, ovens, ranges, clothes washers or dryers, 
heating or cooling equipment, or similar items may be financed.
    (vii) Any unit not constructed to the RHS thermal standards as 
identified by an affixed label for the winter degree day zone where the 
unit will be located.



Sec. 1980.314  Loans on leasehold interests.

    A loan may be guaranteed if made on a leasehold owned or being 
acquired by the applicant when the Lender determines that long-term 
leasing of homesites is a well established practice and such leaseholds 
are freely marketable in the area provided the Lender determines and 
certifies to RHS that:
    (a) Unable to obtain fee title. The applicant is unable to obtain 
fee title to the property.
    (b) Unexpired term. The lease has an unexpired term (term plus 
option to renew) of at least 40 years from the date of approval.



Sec. 1980.315  Escrow accounts for exterior development.

    When proposed exterior development work cannot be completed because 
of weather and the work remaining to be done does not affect the 
livability of the dwelling, an escrow account for exterior development 
only may be established by the originating lender if the following 
conditions are met:
    (a) A signed contract and bid schedule is in effect for the proposed 
exterior development work.
    (b) The contract for development work must provide for completion 
within 120 days.
    (c) The Lender agrees to obtain a final inspection report and advise 
RHS when the work has been completed.
    (d) The escrow account must be funded in an amount sufficient to 
assure the completion of the remaining work. This figure should be 150 
percent of the cost of completion but may be higher if the Lender 
determines a higher amount is needed.



Sec. 1980.316  Environmental requirements.

    The requirements of subpart G of part 1940 apply to loan guarantees 
made under this subpart. Lenders and applicants must cooperate with RHS 
in the completion of these requirements. Lenders must become familiar 
with these requirements so that they can advise applicants and reduce 
the probability of unacceptable applications being submitted to RHS. RHS 
may require that Lenders and/or applicants obtain information for 
completing environmental assessments when necessary. The RHS approval 
official will utilize adequate, reliable information in completion of 
environmental review. Sources of information include, but are not 
limited to, the State Natural Resource Management Guide (available in 
any RHS office) and, as necessary, the technical expertise available 
within the Agency as well as other agencies and organizations to assist 
in the completion of the environmental review.



Sec. 1980.317  Equal opportunity and nondiscrimination requirements in use, occupancy, rental, or sale of housing.

    (a) Compliance. Loans guaranteed under this subpart are subject to 
the provisions of various civil rights statutes. RHS and the Lender may 
not discriminate against any person in making guaranteed housing loans 
available, or impose different terms and conditions for the availability 
of these loans based on a person's race, color, familial status, 
religion, sex, age, physical or mental disability, or national origin, 
provided the applicant possesses the capacity to enter into a legal 
contract for services. These requirements will be discussed with the 
applicant, builder, developer, and other parties involved as early in 
the negotiations as possible.
    (b) Reporting. If there is indication of noncompliance with these 
requirements, the matter will be reported by the borrower, Lender, or 
RHS personnel to the Administrator or the Director, Equal Opportunity 
Staff. Complaints and compliance will be handled by RHS in accordance 
with subpart E of part 1901.

[[Page 658]]

    (c) Forms and requirements. In accordance with Executive Order 
11246, the following equal opportunity and nondiscrimination forms and 
requirements are applicable when the loan guarantee involves a 
construction contract between the borrower and the contractor that is 
more than $10,000. The Lender is responsible for seeing that the 
requirements of paragraphs (c)(1) through (c)(5) of this section are 
met:
    (1) Equal Opportunity Agreement. Before loan closing, each borrower 
whose loan involves a construction contract of more than $10,000 must 
execute the RHS Equal Opportunity Agreement or the equivalent HUD form.
    (2) Construction contract or subcontract in excess of $10,000. If 
the contract or a subcontract exceeds $10,000:
    (i) The contractor or subcontractor must submit the Agency 
Compliance Statement before or as a part of the bid or negotiation.
    (ii) An Equal Opportunity Clause must be part of each contract and 
subcontract.
    (iii) With notification of the contract award, the contractor must 
receive the Agency Notice to Contractors and Applicants signed by RHS, 
with an attached Equal Employment Opportunity poster. Posters in Spanish 
must be provided and displayed where a significant portion of the 
population is Spanish speaking.
    (iv) Under Executive Order 11246 and Executive Order 11375, the 
contractor or subcontractor, subject to the requirements of paragraph 
(c)(5) of this section, is prohibited from discriminating because of 
race, color, religion, sex, or national origin to ensure equality of 
opportunity in all aspects of employment.
    (3) One hundred or more employees and construction contract or 
subcontract exceeds $10,000. If the contractor or subcontractor has 100 
or more employees and the contract or subcontract is for more than 
$10,000, in addition to the requirements of paragraph (c)(2) of this 
section, a report must be filed annually on or before March 31. Failure 
to file timely, complete, and accurate reports constitutes noncompliance 
with the Equal Opportunity Clause. Report forms are distributed by the 
Joint Reporting Committee and any questions on this form should be 
addressed by the contractor or subcontractor to the Joint Reporting 
Committee, 1800 G Street, NW., Washington, D.C. 20006.
    (4) Fifty or more employees and construction contract or subcontract 
exceeds $50,000. If the contract or subcontract is more than $50,000 and 
the contractor or subcontractor has 50 or more employees, in addition to 
the requirements of paragraph (c)(2) of this section, each such 
contractor or subcontractor must be informed that the contractor or 
subcontractor must develop a written affirmative action compliance 
program for each of the contractor's or subcontractor's establishments 
and put it on file in each of the personnel offices within 120 days of 
the commencement of the contract or subcontract.
    (5) [Reserved]
    (6) Employee complaints. Any employee of or applicant for employment 
with such contractors or subcontractors may file a written complaint of 
discrimination with RHS.
    (i) A written complaint of alleged discrimination must be signed by 
the complainant and should include the following information:
    (A) The name and address (including telephone number, if any) of the 
complainant.
    (B) The name and address of the person committing the alleged 
discrimination.
    (C) A description of the acts considered to be discriminatory.
    (D) Any other pertinent information that will assist in the 
investigation and resolution of the complaint.
    (ii) Such complaint must be filed not later than 180 days from the 
date of the alleged discrimination, unless the time for filing is 
extended by RHS for good cause shown by the complainant.



Sec. 1980.318  Flood or mudslide hazard area precautions.

    RHS policy is to discourage lending in designated flood and mudslide 
hazard areas. Loan guarantees shall not be issued in designated flood/
mudslide hazard areas unless there is no practical alternative.
    (a) Dwelling location. Dwellings and building improvements located 
in special flood or mudslide hazard areas, as

[[Page 659]]

designated by the Federal Emergency Management Agency (FEMA) may be 
financed under this subpart only if:
    (1) The community, as a result of such designation by FEMA as a 
special flood or mudslide prone area, has an approved flood plain area 
management plan.
    (2) The dwelling location and construction plans and specifications 
for new buildings or improvements to existing buildings comply with an 
approved flood plain area management plan (see paragraph (a)(1) of this 
section).
    (3) Potential environmental impacts and feasible alternatives have 
been fully considered by RHS in accordance with the requirements of 
subpart G of part 1940.
    (4) The first floor elevation is above the 100 year flood zone 
elevation.
    (b) Flood insurance. If the dwelling is located in a special flood 
or mudslide hazard area, flood insurance must be purchased by the 
borrower prior to loan closing and maintained thereafter. See subpart B 
of part 1806 (FmHA Instruction 426.2).



Sec. 1980.319  Other Federal, State, and local requirements.

    In addition to the specific requirements of this subpart, on all 
proposals financed with an RHS guarantee, Lenders and/or applicants must 
coordinate with all appropriate Federal, state, and local agencies. 
Applicants and/or Lenders will be required to comply with any Federal, 
state, or local laws, regulatory commission rules, ordinances, and 
regulations which exist at the time the loan guarantee is issued which 
affect the dwelling including, but not limited to:
    (a) Borrowing money and giving security therefore;
    (b) Land use zoning;
    (c) Health, safety, and sanitation standards; and
    (d) Protection of the environment and consumer affairs.



Sec. 1980.320  Interest rate.

    The interest rate must not exceed the established applicable usury 
rate. Loans guaranteed under this subpart must bear a fixed interest 
rate over the life of the loan. The rate shall be agreed upon by the 
borrower and the Lender and must not be more than the lender's published 
rate for VA first mortgage loans with no discount points or the current 
Fannie Mae rate as defined in Sec. 1980.302(a), whichever is higher. The 
lender must document the rate and the date it was determined.



Sec. 1980.321  Terms of loan repayment.

    (a) Note. Principal and interest shall be due and payable monthly.
    (b) Term. The term for final maturity shall be not less than 30 
years from the date of the note and not more than 30 years from the date 
of the first scheduled payment.



Sec. 1980.322  Loan guarantee limits.

    The amount of the loan guarantee is 90 percent of the principal 
amount of the loan.
    (a) The maximum loss payment under the guarantee of Single Family 
Housing loans is the lesser of:
    (1) Any loss of an amount equal to 90 percent of the principal 
amount actually advanced to the borrower, or
    (2) Any loss sustained by the Lender of an amount up to 35 percent 
of the principal amount actually advanced to the borrower, plus 85 
percent of any additional loss sustained by the Lender of an amount up 
to the remaining 65 percent of the principal amount actually advanced to 
the borrower.
    (b) Loss includes only:
    (1) Principal and interest evidenced by the guaranteed loan note;
    (2) Any loan subsidy due and owing; and
    (3) Any principal and interest indebtedness on RHS approved 
protective advances for protection and preservation of security.
    (c) Interest (including any subsidy) shall be covered by the loan 
note guarantee to the date of the final loss settlement when the Lender 
conducts liquidation in an expeditious manner in accordance with the 
provisions of Sec. 1980.376.



Sec. 1980.323  Guarantee fee.

    The Lender will pay a nonrefundable fee which may be passed on to 
the borrower. The amount of the fee is determined by multiplying the 
figure in exhibit K of FmHA Instruction 440.1

[[Page 660]]

(available in any RHS office) times 90 percent of the principal amount 
of the loan.



Sec. 1980.324  Charges and fees by Lender.

    (a) Routine charges and fees. The Lender may establish the charges 
and fees for the loan, provided they are the same as those charged other 
applicants for similar types of transactions.
    (b) Late payment charges. Late payment charges will not be covered 
by the guarantee. Such charges may not be added to the principal and 
interest due under any guaranteed note. Late charges may be made only 
if:
    (1) Maximum amount. The maximum amount does not exceed the 
percentage of the payment due as prescribed by HUD or Fannie Mae or 
Freddie Mac.
    (2) Routine. They are routinely made by the Lender in similar types 
of loan transactions.
    (3) Payments received. Payments have not been received within the 
customary time frame allowed by the Lender. The term ``payment 
received'' means that the payment in cash, check, money order, or 
similar medium has been received by the Lender at its main office, 
branch office, or other designated place of payment.
    (4) Calculating charges. The Lender does not change the rate or 
method of calculating the late payment charges to increase charges while 
the loan note guarantee is in effect.
    (5) Interest-assisted loans. The Lender will not penalize or charge 
any fee to the borrower when the only delinquency is a loan subsidy 
payment, which the Lender is entitled to but has not received.



Sec. 1980.325  Transactions which will not be guaranteed.

    (a) Lease payments. Payments made on a lease will not be guaranteed.
    (b) Loans made by other Federal agencies. Loans made by other 
Federal agencies will not be guaranteed. This does not preclude 
guarantees of loans made by an FCS institution with direct lending 
authority. This also does not preclude loans made by state or local 
government agencies assisted by a Federal agency.



Secs. 1980.326-1980.329  [Reserved]



Sec. 1980.330  Applicant equity requirements.

    A loan to purchase a new or existing dwelling may be made up to the 
appraised market value of the security.



Sec. 1980.331  Collateral.

    (a) General. The entire loan must be secured by a first lien on the 
property being financed (second lien when the loan is for a subsequent 
loan to an existing borrower or there is a transfer and assumption of an 
existing loan) and the Lender will maintain this lien priority. The 
Lender is responsible for assurance that proper and adequate security 
interest is obtained, maintained in existence, and of record to protect 
the interests of the Lender and RHS.
    (b) Third party liens, suits pending, etc. Among other things in 
obtaining the required security, it is necessary to ascertain that there 
are no adverse claims or liens against the property or the borrower, and 
that there are no suits pending or anticipated that would affect the 
property or the borrower.
    (c) All collateral must secure the entire loan. The Lender will not 
take separate collateral, including but not limited to mortgage 
insurance, to secure that portion of the loss not covered by the 
guarantee.



Sec. 1980.332  [Reserved]



Sec. 1980.333  Promissory notes and security instruments.

    (a) Loan instruments. The Lender may use its own forms for 
promissory notes, real estate mortgages, including deeds of trust and 
similar instruments, and security agreements provided there are no 
provisions that are in conflict or otherwise inconsistent with the 
provisions of Sec. 1980.309(b)(2)(v). The Lender is responsible for 
determining that the security instruments are adequate and are properly 
maintained of record.
    (b) Interest assistance instruments. When the loan guarantee is 
authorized from interest assisted funds, RHS will provide the Lender 
with the necessary forms and security instruments related to the 
interest assistance. The Lender will complete the Master Interest 
Assistance Agreement, assure that the

[[Page 661]]

closing agent properly records a junior mortgage or deed of trust which 
grants RHS a lien on the property in order to protect RHS's equity share 
subject only to the first mortgage or deed of trust to the Lender or 
other authorized prior lien, and forward the agreements and recorded 
instruments to RHS.



Sec. 1980.334  Appraisal of property serving as collateral.

    An appraisal of all property serving as security for the proposed 
loan will be completed and submitted to RHS for review with the request 
for loan guarantee. The Lender may pass the cost of the appraisal on to 
the borrower. The appraisal must have been completed within 6 months of 
the date the request for a conditional commitment is submitted to RHS.
    (a) Qualified appraiser. The Lender will use an appraiser that is 
properly licensed or certified, as appropriate, to make residential real 
estate appraisals in accordance with the criteria set forth by the 
Appraiser Qualification Board (AQB) of the Appraisal Foundation 
regardless of the amount of the loan. Appraisers may not discriminate 
against any person in making or performing appraisal services because of 
race, color, familial status, religion, sex, age, disability, or 
national origin.
    (b) Appraisal report. Residential appraisals will be completed using 
the sales comparison (market) and cost approach to market value.
    (1) URAR. The appraiser will use the most recent revision of the 
URAR.
    (i) The ``Estimated Reproduction Cost-New of Improvements'' section 
of the form must be completed when the dwelling is less than 1 year old.
    (ii) Not less than three comparable sales, which are not more than 
12 months old, will be used unless the appraiser provides documentation 
that such comparables are not available in the area. Comparable sales 
should be located as close as possible to the subject dwelling. When the 
need arises to use a comparable sale that is a considerable distance 
from the subject, the appraiser must use his or her knowledge of the 
area and apply good judgment in selecting comparable sales that are the 
best indicators of value for the subject property.
    (2) Supporting documentation. A narrative explanation supporting 
unusual adjustments must be attached to the appraisal.
    (3) Photographs. The appraisal report must include photographs which 
clearly provide front, rear, and street scene views of the subject 
property, and a front view for each comparable sale used in the 
completion of the appraisal.
    (c) RHS acceptance. The Lender will be required to correct or 
complete any appraisal returned by RHS for corrective action.



Secs. 1980.335-1980.339  [Reserved]



Sec. 1980.340  Acquisition, construction, and development.

    (a) Acquisition of property. The Lender is responsible for seeing 
that the property to be acquired with loan funds is acquired as planned 
and that the required security interest is obtained.
    (b) New construction. A new dwelling financed with a guaranteed loan 
must:
    (1) Have been built in accordance with building plans and 
specifications that contain approved building code certifications 
(eligible certifiers are listed in Sec. 1924.5(f)(1)(iii)).
    (2) Conform to RHS thermal standards (exhibit D of subpart A of part 
1924).
    (i) The builder may certify conformance with RHS thermal standards 
contained in paragraph IV A of exhibit D of subpart A of part 1924.
    (ii) A qualified, registered architect or a qualified, registered 
engineer must certify conformance with RHS thermal standards contained 
in paragraph IV C of exhibit D of subpart A of part 1924.
    (c) Development. The Lender and borrower are responsible for seeing 
that the loan purposes are accomplished and loan funds are properly 
utilized. This includes, but is not limited to, seeing that:
    (1) The applicable development standards are adhered to;
    (2) Drawings and specifications are certified and complied with;
    (3) Adequate water, electric, heating, waste disposal, and other 
necessary utilities and facilities are obtained;
    (4) Equal opportunity and nondiscrimination requirements are met, 
(see Sec. 1980.317); and

[[Page 662]]

    (5) A builder's warranty is issued when new construction, repair, or 
rehabilitation is involved, which provides for at least 1 year's 
warranty from the date of completion or acceptance of the work.



Sec. 1980.341  Inspections of construction and compliance reviews.

    (a) Qualified inspectors. Inspections will be made during 
construction by a construction inspector deemed qualified and approved 
by the Lender. A qualified inspector is one that a reasonable person 
would hire to perform an inspection of his/her own dwelling.
    (b) Inspections. Inspections shall be done by a party the Lender 
determines to be qualified, such as a HUD approved fee inspector. The 
sale agreement shall identify which party (i.e., purchaser or seller) is 
responsible to obtain and pay for required inspections and 
certifications. In connection with inspections involving construction 
contracts, equal opportunity and nondiscrimination compliance reviews 
must be made as required by Sec. 1980.317.
    (1) For existing dwellings, inspections must be made to determine 
that the dwelling:
    (i) Meets the current requirements of HUD Handbooks 4150.1 and 
4905.1 (available from the HUD Ordering Desk 1-800-767-7468).
    (ii) Meets the thermal standards per Sec. 1980.313(f).
    (2) For a newly constructed dwelling, when construction is planned, 
the Lender must see that the following inspections are made in addition 
to any additional inspections the Lender deems appropriate:
    (i) When footings and foundations are ready to be poured but prior 
to back-filling.
    (ii) When shell is closed in but plumbing, electrical, and 
mechanical work are still exposed.
    (iii) When construction is completed prior to occupancy.
    (iv) Inspections under paragraphs (b)(2) (i) and (ii) of this 
section are not required when the builder supplies an insured 10 year 
warranty plan acceptable under the requirements of exhibit L of subpart 
A of part 1924.
    (c) Water and water/waste disposal. The Lender will see that the 
water and water/waste disposal systems have been approved by a state or 
local government agency.



Secs. 1980.342-1980.344  [Reserved]



Sec. 1980.345  Applicant eligibility requirements for a guaranteed loan.

    Applicants who meet the requirements of this section are eligible 
for a loan guaranteed under this subpart. Applicants desiring loan 
assistance as provided in this subpart must file loan applications with 
a Lender that meets the requirements set forth in Sec. 1980.309. The 
Lender may accept applications filed through its agents, correspondents, 
branches, or other institutions. The Lender must have at least one 
personal interview with the applicant to verify the information on the 
application and to obtain a complete picture of the applicant's 
financial situation.
    (a) Eligible income. The applicant's adjusted annual income 
determined in accordance with Sec. 1980.348 may not exceed the 
applicable income limit contained in exhibit C of FmHA Instruction 1980-
D (available in any RHS office) at the time of issuance of the 
conditional commitment. Adjusted annual income is used to determine 
eligibility for the RHS loan guarantee.
    (b) Adequate and dependable income. The applicant (and coapplicant, 
if applicable) has adequate and dependably available income. The 
applicant's history of income and the history of the typical annual 
income of others in the area with similar types of employment will be 
considered in determining whether the applicant's income is adequate and 
dependable.
    (1) A farm or nonfarm business loss must be considered in 
determining repayment ability.
    (2) A loss may not be used to offset other income in order to 
qualify for or increase the amount of RHS assistance.
    (c) Determining repayment ability. In considering whether the 
applicant has adequate repayment ability, the Lender must calculate a 
total debt ratio. The applicant's total debt ratio is calculated by 
dividing the applicant's monthly obligations by gross monthly income.

[[Page 663]]

    (1) Monthly obligation consists of the principal, interest, taxes, 
and insurance (PITI) for the proposed loan (less any interest assistance 
under this program or any other assistance from a state or county 
sponsored program when such payments are made directly to the Lender on 
the applicant's behalf), homeowner and other assessments, and the 
applicant's long term obligations. Long term obligations include those 
obligations such as alimony, child support, and other obligations with a 
remaining repayment period of more than 6 months and other shorter term 
debts that are considered to have a significant impact on repayment 
ability.
    (i) Cosigned obligations. Debts which have been cosigned by the 
applicant for another party must be considered unless the applicant 
provides evidence (usually canceled checks of the co-obligor or other 
third party) that it has not been necessary for the applicant to make 
any payments over the past 12 months.
    (ii) Liability on a previous mortgage. When the applicant has 
disposed of a property through a sale, trade, or transfer without a 
release of liability, the debt must be considered unless the applicant 
provides evidence (usually canceled checks of the new owners) that the 
new owners have successfully made all payments over the past 12 months.
    (2) Income, for the purpose of determining the total debt ratio, 
includes the total qualifying income of the applicant, coapplicant, and 
any other member of the household who will be a party to the note.
    (i) An applicant's qualifying income may be different than the 
``adjusted annual income'' which is used to determine program 
eligibility. In considering qualifying income, the Lender must determine 
whether there is a historical basis to conclude that the income is 
likely to continue. Typically, income of less than 24 months duration 
should not be included in qualifying income. If the applicant is 
obligated to pay child care costs, the amount of any Federal tax credit 
for which the applicant is eligible may be added to the applicant's 
qualifying income.
    (ii) In considering income that is not subject to Federal income 
tax, the amount of tax savings attributable to the nontaxable income may 
be added for use with the repayment ratios. Adjustments for other than 
the applicable tax rate are not authorized. The Lender must verify that 
the income is not subject to Federal income tax and that the income (and 
its nontax status) is likely to continue. The Lender must fully document 
and support any adjustment made.
    (3) The applicant meets RHS requirements for repayment ability when 
the applicant's total debt ratio is less than or equal to 41 percent and 
the ratio of the proposed PITI to income does not exceed 29 percent.
    (4) Applicants who do not meet the requirements of this section will 
be considered ineligible unless another adult in the household has 
adequate income and wishes to join in the application as a coapplicant. 
The combined incomes and debts then may be considered in determining 
repayment ability.
    (5) If the applicant's total debt ratio and/or PITI ratio exceed the 
maximum authorized ratio, the Lender may request RHS concurrence in 
allowing a higher ratio based on compensating factors. Acceptable 
compensating factors include but are not limited to the applicant having 
a history over the previous 12 month period of devoting a similar 
percentage of income to housing expense to that of the proposed loan, or 
accumulating savings which, when added to the applicant's housing 
expense and shows a capacity to make payments on the proposed loan. A 
low total debt ratio, by itself, does not compensate for a high PITI.
    (d) Credit history. The applicant must have a credit history which 
indicates a reasonable ability and willingness to meet obligations as 
they become due.
    (1) Any or all of the following are indicators of an unacceptable 
credit history unless the cause of the problem was beyond the 
applicant's control and the criteria in paragraph (d)(3) of this section 
are met:
    (i) Incidents of more than one debt payment being more than 30 days 
late if the incidents have occurred within the last 12 months. This 
includes more

[[Page 664]]

than one late payment on a single account.
    (ii) Loss of security due to a foreclosure if the foreclosure has 
occurred within the last 36 months.
    (iii) Outstanding tax liens or delinquent Government debts with no 
satisfactory arrangements for payments, no matter what their age as long 
as they are currently delinquent and/or due and payable.
    (iv) A court-created or affirmed obligation (judgment) caused by 
non-payment that is currently outstanding or has been outstanding within 
the last 12 months.
    (v) Two or more rent payments paid 30 days or more past due within 
the last 3 years.
    (vi) Accounts which have been converted to collections within the 
last 12 months (utility bills, hospital bills, etc.).
    (vii) Collection accounts outstanding, with no satisfactory 
arrangements for payments, no matter what their age as long as they are 
currently delinquent and/or due and payable.
    (viii) Any debts written off within the last 36 months.
    (2) The following will not indicate an unacceptable credit history:
    (i) ``No history'' of credit transactions by the applicant.
    (ii) A bankruptcy in which applicant was discharged more than 36 
months before application.
    (iii) A satisfied judgment or foreclosure with no loss of security 
which was completed more than 12 months before the date of application.
    (3) The Lender may consider mitigating circumstances to establish 
the borrower's intent for good credit when the applicant provides 
documentation that:
    (i) The circumstances were of a temporary nature, were beyond the 
applicant's control, and have been removed (e.g., loss of job; delay or 
reduction in government benefits or other loss of income; increased 
expenses due to illness, death, etc.); or
    (ii) The adverse action or delinquency was the result of a refusal 
to make full payment because of defective goods or services or as a 
result of some other justifiable dispute relating to the goods or 
services purchased or contracted for.
    (e) Previous RHS loan. RHS shall determine whether the applicant has 
had a previous RHS debt which was settled, or is subject to settlement, 
or whether RHS otherwise suffered a loss on a loan to the applicant. If 
RHS suffered any loss related to a previous loan, a loan guarantee shall 
not be issued unless RHS determines the RHS loss was beyond the 
applicant's control, and any identifiable reasons for the loss no longer 
exist.
    (f) Other Federal debts. The loan approval official will check HUD's 
Credit Alert Interactive Voice Response System (CAIVRS) to determine if 
the applicant is delinquent on a Federal debt. The Lender will clearly 
document both its CAIVRS identifying number and the borrower and 
coborrower's CAIVRS access code near the signature line on the mortgage 
application form. No decision to deny credit can be based solely on the 
results of the CAIVRS inquiry. If CAIVRS identifies a delinquent Federal 
debt, the Lender will immediately suspend processing of the application. 
The applicant will be notified that processing has been suspended and 
will be asked to contact the appropriate Federal agency, at the 
telephone number provided by CAIVRS, to resolve the delinquency. When 
the applicant provides the Lender with official documentation that the 
delinquency has been paid in full or otherwise resolved, processing of 
the application will be continued. An outstanding judgment obtained by 
the United States in a Federal court (other than the United States Tax 
Court), which has been recorded, shall cause the applicant to be 
ineligible to receive a loan guarantee until the judgment is paid in 
full or otherwise satisfied. RHS loan guarantee funds may not be used to 
satisfy the judgment. If the judgment remains unsatisfied or if the 
applicant is delinquent on a Federal debt and is unable to resolve the 
delinquency, the Lender will reject the applicant.



Sec. 1980.346  Other eligibility criteria.

    The applicant must:
    (a) Be a person who does not own a dwelling in the local commuting 
area or owns a dwelling which is not structurally sound, functionally 
adequate;

[[Page 665]]

    (b) Be without sufficient resources to provide the necessary housing 
and be unable to secure the necessary conventional credit without an RHS 
guarantee upon terms and conditions which the applicant could reasonably 
be expected to fulfill.
    (c) Be a natural person (individual) who resides as a citizen in any 
of the 50 States, the Commonwealth of Puerto Rico, the U.S. Virgin 
Islands, Guam, American Samoa, the Commonwealth of the Northern 
Marianas, Federated States of Micronesia, and the Republics of the 
Marshall Islands and Palau, or a noncitizen who resides in one of the 
foregoing areas after being legally admitted to the U.S. for permanent 
residence or on indefinite parole.
    (d) Possess legal capacity to incur the loan obligation and have 
reached the legal age of majority in the state or have had the 
disability of minority removed by court action.
    (e) Have the potential ability to personally occupy the home on a 
permanent basis. Because of the probability of their moving after 
graduation, full-time students will not be granted loans unless:
    (1) The applicant intends to make the home his or her permanent 
residence and there are reasonable prospects that employment will be 
available in the area after graduation, and
    (2) An adult member of the household will be available to make 
inspections if the home is being constructed.



Sec. 1980.347  Annual income.

    Annual income determinations will be thoroughly documented in the 
Lender's casefile. Historical data based on the past 12 months or 
previous fiscal year may be used if a determination cannot logically be 
made. Annual income to be considered includes:
    (a) Current verified income, either part-time or full-time, received 
by any applicant/borrower and all adult members of the household, 
including any coapplicant/coborrower.
    (b) If any other adult member of the household is not presently 
employed but there is a recent history of such employment, that person's 
income will be considered unless the applicant/borrower and the person 
involved sign a statement that the person is not presently employed and 
does not intend to resume employment in the foreseeable future, or if 
interest assistance is involved, during the term of the Interest 
Assistance Agreement.
    (c) Income from such sources as seasonal type work of less than 12 
months duration, commissions, overtime, bonuses, and unemployment 
compensation must be computed as the estimated annual amount of such 
income for the upcoming 12 months. Consideration should be given to 
whether the income is dependable based on verification by the employer 
and the applicant's history of such income over the previous 24 months.
    (d) The following are included in annual income:
    (1) The gross amount, before any payroll deductions, of wages and 
salaries, overtime pay, commissions, fees, tips, bonuses, and other 
compensation for personal services of all adult members of the 
household.
    (2) The net income from operation of a farm, business, or 
profession. Consider the following:
    (i) Expenditures for business or farm expansion and payments of 
principal on capital indebtedness shall not be used as deductions in 
determining income. A deduction is allowed in the manner prescribed by 
IRS regulations only for interest paid in amortizing capital 
indebtedness.
    (ii) Farm and nonfarm business losses are considered ``zero'' in 
determining annual income.
    (iii) A deduction, based on straight line depreciation, is allowed 
in the manner prescribed by IRS regulations for the exhaustion, wear and 
tear, and obsolescence of depreciable property used in the operation of 
a trade, farm, or business by a member of the household. The deduction 
must be based on an itemized schedule showing the amount of straight 
line depreciation that could be claimed for Federal income tax purposes.
    (iv) Any withdrawal of cash or assets from the operation of a farm, 
business, or profession will be included in income, except to the extent 
the withdrawal is reimbursement of cash or assets invested in the 
operation by a member of the household.

[[Page 666]]

    (v) A deduction for verified business expenses, such as for lodging, 
meals, or fuel, for overnight business trips made by salaried employees, 
such as long-distance truck drivers, who must meet these expenses 
without reimbursement.
    (3) Interest, dividends, and other net income of any kind from real 
or personal property, including:
    (i) The share received by adult members of the household from income 
distributed from a trust fund.
    (ii) Any withdrawal of cash or assets from an investment except to 
the extent the withdrawal is reimbursement of cash or assets invested by 
a member of the household.
    (iii) Where the household has net family assets, as defined in 
Sec. 1980.302(a), in excess of $5,000, the greater of the actual income 
derived from all net family assets or a percentage of the value of such 
assets based on the current passbook savings rate.
    (4) The full amount of periodic payments received from social 
security (including social security received by adults on behalf of 
minors or by minors intended for their own support), annuities, 
insurance policies, retirement funds, pensions, disability or death 
benefits, and other similar types of periodic receipts.
    (5) Payments in lieu of earnings; such as unemployment, disability 
and worker's compensation, and severance pay.
    (6) Public assistance except as indicated in paragraph (e)(2) of 
this section.
    (7) Periodic allowances, such as:
    (i) Alimony and/or child support awarded in a divorce decree or 
separation agreement, unless the payments are not received and a 
reasonable effort has been made to collect them through the official 
entity responsible for enforcing such payments and they are not received 
as ordered; or
    (ii) Recurring monetary gifts or contributions from someone who is 
not a member of the household.
    (8) Any amount of educational grants or scholarships or VA benefits 
available for subsistence after deducting expenses for tuition, fees, 
books, and equipment.
    (9) All regular pay, special pay (except for persons exposed to 
hostile fire), and allowances of a member of the armed forces who is the 
applicant/borrower or coapplicant/coborrower, whether or not that family 
member lives in the unit.
    (10) The income of an applicant's spouse, unless the spouse has been 
living apart from the applicant for at least 3 months (for reasons other 
than military or work assignment), or court proceedings for divorce or 
legal separation have been commenced.
    (e) The following are not included in annual income but may be 
considered in determining repayment ability:
    (1) Income from employment of minors (including foster children) 
under 18 years of age. The applicant and spouse are not considered 
minors.
    (2) The value of the allotment provided to an eligible household 
under the Food Stamp Act of 1977.
    (3) Payments received for the care of foster children.
    (4) Casual, sporadic, or irregular cash gifts.
    (5) Lump-sum additions to family assets such as inheritances; 
capital gains; insurance payments from health, accident, hazard, or 
worker's compensation policies; and settlements for personal or property 
losses (except as provided in paragraph (d)(5) of this section).
    (6) Amounts which are granted specifically for, or in reimbursement 
of, the cost of medical expenses.
    (7) Amounts of education scholarships paid directly to the student 
or to the educational institution and amounts paid by the Government to 
a veteran for use in meeting the costs of tuition, fees, books, and 
equipment. Any amounts of such scholarships or veteran's payments, which 
are not used for the aforementioned purposes and are available for 
subsistence, are considered to be income. Student loans are not 
considered income.
    (8) The hazardous duty pay to a service person applicant/borrower or 
spouse away from home and exposed to hostile fire.
    (9) Any funds that a Federal statute specifies must not be used as 
the basis for denying or reducing Federal financial assistance or 
benefits. (Listed in exhibit F of FmHA Instruction 1980-D, available in 
any RHS office.)

[[Page 667]]

    (f) Income of live-in aides who are not relatives of the applicant 
or members of the household will not be counted in calculating annual 
income and will not be considered in determination of repayment ability.



Sec. 1980.348  Adjusted annual income.

    Adjusted annual income is annual income as determined in 
Sec. 1980.347 less the following:
    (a) A deduction of $480 for each member of the family residing in 
the household, other than the applicant, spouse, or coapplicant, who is:
    (1) Under 18 years of age;
    (2) Eighteen years of age or older and is disabled as defined in 
Sec. 1980.302(a); or
    (3) A full-time student aged 18 or older.
    (b) A deduction of $400 for any elderly family as defined in 
Sec. 1980.302(a).
    (c) A deduction for the care of minors 12 years of age or under, to 
the extent necessary to enable a member of the applicant/borrower's 
family to be gainfully employed or to further his or her education. The 
deduction will be based only on monies reasonably anticipated to be paid 
for care services and, if caused by employment, must not exceed the 
amount of income received from such employment. Payments for these 
services may not be made to persons whom the applicant/borrower is 
entitled to claim as dependents for income tax purposes. Full 
justification for such deduction must be recorded in detail in the loan 
docket.
    (d) A deduction of the amount by which the aggregate of the 
following expenses of the household exceeds 3 percent of gross annual 
income:
    (1) Medical expenses for any elderly family (as defined in 
Sec. 1980.302(a)). This includes medical expenses for any household 
member the applicant/borrower anticipates incurring over the ensuing 12 
months and which are not covered by insurance (e.g., dental expenses, 
prescription medicines, medical insurance premiums, eyeglasses, hearing 
aids and batteries, home nursing care, monthly payments on accumulated 
major medical bills, and full-time nursing or institutional care which 
cannot be provided in the home for a member of the household); and
    (2) Reasonable attendant care and auxiliary apparatus expenses for 
each disabled member of any household to the extent necessary to enable 
any member of such household (including such disabled member) to be 
employed.



Secs. 1980.349--1980.350  [Reserved]



Sec. 1980.351  Requests for reservation of funds.

    Upon receipt of a viable loan application and prior to loan 
underwriting, the Lender may request a reservation of loan guarantee 
funds for the loan application. The request should be made as follows:
    (a) The Lender must have a complete application on file that clearly 
indicates the borrower has sufficient qualifying income and an adequate 
credit history.
    (b) The reservation shall be valid for 60 days. The Lender must 
submit a request for a loan guarantee on or before the expiration date 
of the reservation. Substitutions of borrowers or dwellings are not 
authorized.
    (c) Reservations may be granted only when adequate funding authority 
is available. Reservations are subject to the availability of funds. 
Reservations will not exceed 90 percent of the funds available during 
that quarter.
    (d) [Reserved]
    (e) All reservations will expire at the end of 60 days or no later 
than the pooling date published in subpart L of part 1940 whichever 
occurs first.
    (f) [Reserved]



Sec. 1980.352  [Reserved]



Sec. 1980.353  Filing and processing applications.

    (a) Loan priorities. Complete applications will be considered by RHS 
in the order received from Lenders authorized to participate in the 
program except as provided in paragraph (b) of this section.
    (b) Preference. Preference is considered when there is a shortage of 
funds and there is more than one request for a conditional commitment or 
reservation of funds ready for approval. Applications for guarantees on 
loans to first-time homebuyers or veterans, their spouses, or children 
of deceased servicemen who died during one of the

[[Page 668]]

periods described in the definition of ``Veteran'' in Sec. 1980.302(a) 
will be given preference by RHS. Displaced homemakers and single parents 
are first-time homebuyers even though they previously owned or resided 
in a dwelling with a spouse.
    (c) Applications. If, upon completion of the loan underwriting 
process of an application, the Lender concludes that the application can 
be considered for an RHS guarantee, the Lender will provide written 
documentation addressing each of the loan eligibility requirements of 
this subpart and the basis for the conclusion in the applicant's file. 
The Lender will submit a request for the guarantee using a Form FmHA 
1980-21, ``Request for Single Family Housing Loan Guarantee.'' The form 
should contain or be supplemented with all of the following information:
    (1) Name, address, telephone number, social security number, age, 
citizenship status of the applicant, and number of persons in the 
household.
    (2) Amount of loan request and proposed use of loan funds.
    (3) Name, address, contact person, and telephone number of the 
proposed Lender.
    (4) Anticipated loan rates and terms, the date and amount of the 
Fannie Mae or VA rate used to determine the interest rate, and the 
Lender's certification that the proposed rate is in compliance with 
Sec. 1980.320.
    (5) Statement from the Lender that it will not make the loan as 
requested by the applicant without the proposed guarantee and that the 
applicant has been advised in writing that the applicant is subject to 
criminal action if he or she knowingly and willfully gives false 
information to obtain a federally guaranteed loan.
    (6) If the applicant is not a United States citizen, evidence of 
being legally admitted for permanent residence or indefinite parole.
    (7) The applicant's sex, race, and veteran status and whether 
applicant is a first-time homebuyer.
    (8) An appraisal report including information about the dwelling 
location with respect to neighborhood and community services and 
facilities, business and industrial enterprises, and streets or roads 
serving the housing.
    (9) Credit report obtained by the Lender.
    (10) An equal opportunity agreement supplied by RHS for construction 
contracts costing more than $10,000.
    (11) Evidence of compliance with the Privacy Act of 1974.
    (12) Lender's loan underwriting (repayment ability, 
creditworthiness, and security value).
    (13) A certification from the borrower regarding debarment, 
suspension, ineligibility, and voluntary exclusion from Federal programs 
using a form supplied by RHS.
    (14) A statement signed by the borrower acknowledging that the 
borrower understands that RHS approval of the guarantee is required and 
is subject to the availability of funds.
    (15) A copy of a valid verification of income for each adult member 
of the household.
    (16) A copy of the purchase agreement or bid for construction 
contract.
    (d) [Reserved]
    (e) Verifying information provided. Written documentation from third 
parties is the preferred method of verifying information. Verifications 
must pass directly from the source of information to the Lender and 
shall not pass through the hands of a third party or applicant.
    (1) Income verification. Employment verifications and other income 
verifications obtained in accordance with this paragraph are valid for 
120 days (180 days for proposed new construction). Income verifications 
must be valid at the time the conditional commitment is issued.
    (i) An RHS approved form or the equivalent HUD/FHA/VA or Fannie Mae 
form will be used to verify employment income of the loan applicant 
except when the applicant is self-employed. The form will be signed by 
the applicant or borrower or accompanied by an authorization for a 
release of information form signed by the applicant or borrower and sent 
directly to the employer by the Lender. The Lender should also obtain 
copies of the three most recent paycheck stubs. The information in the 
employer verification should be compared to the information in the 
paycheck stubs for consistency.

[[Page 669]]

    (ii) Income information that cannot be obtained by use of this form 
will be obtained in writing from third parties to the extent possible.
    (iii) Alimony and/or child support payments will be verified by 
obtaining a copy of the divorce decree or other legal document 
indicating the amount of the payments. When the applicant states that 
less than the amount awarded is received, the Lender will request 
documentation from the official entity through which payments are 
received or other third party able to provide the verification when 
payment is not made through an official entity indicating the amounts 
and dates of payments to the applicant during the previous 12 months.
    (iv) When it is not feasible to verify income in paragraph 
(e)(1)(iii) of this section through third parties, the Lender is 
authorized to accept an affidavit from the applicant stating the effort 
made to collect the amount awarded and the amounts and dates of payments 
received during the previous 12 months.
    (v) Applicants and borrowers deriving their income from a farming or 
business enterprise will provide current documentation of the income and 
expenses of the operation. In addition, historic information from the 
previous fiscal year must be presented.
    (vi) Social Security, pension, and disability income may be verified 
by obtaining a copy of the most recent award or benefit letter prepared 
and signed by the authorizing agency. This verification will be 
considered valid only for 1 year from the date of the award or benefit 
letter.
    (2) Verification of disability. An RHS supplied form will be used to 
verify disability in cases where State Review Board or Social Security 
records are not available. Receipt of veteran's benefits for disability, 
whether service-oriented or otherwise, does not automatically establish 
disability.
    (3) Verification of alien status. Aliens are required to present 
documentation of their status. Section 1944.9 outlines the acceptable 
forms of documentation.
    (4) Verification of credit history and current debt. The Lender 
shall determine all liabilities of all parties responsible for repayment 
of the proposed loan. Credit reporting information must pass directly 
between the Lender and the credit reporting agency or source.
    (i) Mortgage credit reports shall be used to determine 
creditworthiness unless the applicant resides in a remote rural area and 
conclusive or sufficient information would not be available. Information 
relative to judgments, garnishments, foreclosures, and bankruptcies must 
be obtained when a credit report is not obtained.
    (ii) The credit report must be the most recent revision of the 
Residential Mortgage Credit Report form and meet the standards 
prescribed by Fannie Mae, Freddie Mac, HUD, VA, or RHS.



Sec. 1980.354  [Reserved]



Sec. 1980.355  Review of requirements.

    Upon the Lender's review of the conditional commitment, the Lender 
may determine whether to accept the conditions outlined in it.
    (a) Accepting conditions. Immediately after reviewing the conditions 
and requirements in the conditional commitment and the options listed on 
the back of the form, the Lender may proceed with loan closing. If the 
conditions cannot be met, the Lender and borrower may propose alternate 
conditions to RHS.
    (b) Canceling commitment. If the Lender indicates in the acceptance 
or rejection of conditions that it desires to obtain a loan note 
guarantee and subsequently decides prior to loan closing that it no 
longer wants a loan note guarantee, the Lender should immediately advise 
the RHS approval official.



Secs. 1980.356--1980.359  [Reserved]



Sec. 1980.360  Conditions precedent to issuance of the loan note guarantee.

    (a) Lender certification. The Lender must certify to RHS that:
    (1) No major changes have been made in the Lender's loan conditions 
and requirements since the issuance of the conditional commitment, 
except those approved in writing by RHS. In the event the interest rate 
has not been fixed at the time the conditional commitment is issued, and 
the interest

[[Page 670]]

rate increases between the time of issuance of the conditional 
commitment and loan closing, the Lender should note the change when 
submitting the package to RHS for loan guarantee. If either or both of 
the underwriting ratios are exceeded as a result of the interest rate 
increase, the Lender should list the compensating factors that 
demonstrate that sufficient repayment ability still exists.
    (2) All planned property acquisition has been completed and:
    (i) All development has been completed; or
    (ii) An escrow account has been established in accordance with 
Sec. 1980.315.
    (3) Required insurance coverage is in effect and an escrow account 
has been established for the payment of taxes and insurance.
    (4) Truth-in-lending requirements have been met.
    (5) All equal employment opportunity and nondiscrimination 
requirements have been met.
    (6) The loan has been properly closed by a party skilled and 
experienced in conducting loan closings and the required security 
instruments, including any required shared equity instruments, have been 
obtained and recorded in the appropriate office in a timely and accurate 
manner.
    (7) The borrower has a marketable (clean and defensible) title to 
the property then owned by the borrower, subject to the instrument 
securing the loan to be guaranteed, and any other exceptions approved in 
writing by RHS.
    (8) Lien priorities are consistent with the requirements of the 
conditional commitment.
    (9) The loan proceeds have been disbursed for purposes and in 
amounts consistent with the conditional commitment.
    (10) There has been no adverse change in the borrower's situation 
since the conditional commitment was issued by RHS.
    (11) All other requirements of the conditional commitment have been 
met.
    (b) Inspections. The Lender will certify to RHS that inspections in 
accordance with Sec. 1980.341 have been completed.
    (c) Lender agreement. There must be a valid lender agreement on 
file.
    (d) Lender file. The Lender will maintain a file for each guaranteed 
RH loan containing originals or copies, as appropriate, of all documents 
pertaining to that loan.



Sec. 1980.361  Issuance of loan note guarantee.

    (a) When the Lender has certified that all requirements have been 
met, delivered a completed Loan Closing Report, and paid the guarantee 
fee, the RHS approval official will concurrently execute the loan note 
guarantee. The original will be provided to the Lender and be attached 
to the note.
    (b)--(c) [Reserved]



Sec. 1980.362  [Reserved]



Sec. 1980.363  Review of loan closing.

    The Lender must provide RHS with documentation that all of the 
closing conditions have been met within 10 days of issuance of the loan 
note guarantee. The Lender is responsible for deficiencies regardless of 
whether RHS discovers them in the loan closing review and/or notifies 
the Lender at that time. RHS reviews do not constitute any waiver of 
fraud, misrepresentation, or failure of judgment by the Lender.



Secs. 1980.364-1980.365  [Reserved]



Sec. 1980.366  Transfer and assumption.

    (a) General. Lenders may, but are not required to, permit a transfer 
to an eligible applicant. A transfer and assumption must be approved by 
RHS in writing. Transfers without assumption are not authorized. 
Transfers and assumptions under this subpart are subject to the RHS 
guarantee fee.
    (b) Eligible transferee. An eligible transferee is one who meets the 
eligibility requirements of this subpart and includes situations 
involving transfers of housing in an area that has ceased to be rural. 
Loans made and guaranteed under this subpart prior to March 29, 1989, 
may be transferred to an applicant meeting all eligibility requirements 
of this subpart except the applicant's adjusted annual income may exceed 
the maximum income for the area by not more than 10 percent.

[[Page 671]]

    (c) Determinations by the Lender. Before the transfer and assumption 
can be approved with the guarantee remaining in force, the Lender must 
determine that all of the following conditions can be met:
    (1) The transferee is an eligible applicant.
    (2) The transferee will assume the total remaining debt and acquire 
all of the property securing the guaranteed loan balance.
    (3) The transfer and assumption would not be made without the 
continuation of the loan guarantee.
    (4) The market value of the security being acquired by the 
transferee is at least equal to the secured indebtedness against it.
    (5) The priority of the existing lien securing the guaranteed loan 
will be maintained or improved.
    (6) Proper hazard insurance will be obtained.
    (7) The transfer and assumption can be properly closed and the 
conveyance instruments will be filed, registered, or recorded, as 
appropriate.
    (8) The transferor acknowledges continued liability for the debt in 
writing.
    (d) Changes in the promissory note or security instrument. If the 
assumption will result in changes in the repayment schedule or the 
interest rate, the changes must be approved by the present debtors since 
they will remain liable for the debt. Any changes in rates and terms 
must not exceed rates and terms allowed for new loans under this subpart 
and cannot exceed the interest rate on the initial loan. The debt must 
not exceed the amount remaining due on the original loan. The term of 
the loan may cover a period of up to 30 years from the date of transfer 
and assumption. The Lender's request for approval to RHS will be 
accompanied by:
    (1) An explanation of the reasons for the proposed change in the 
rates and terms.
    (2) A statement that the Lender's determinations required by 
paragraph (c) of this section can be made.
    (e) Release of liability. The Lender may not release the transferor 
of liability.
    (f) Forms and case numbers. The assumption may be made on the 
Lender's assumption agreement form. The assumption agreement must 
contain the RHS case numbers of the transferor and the transferee.
    (g) Lender's application to RHS. The Lender must submit the items 
outlined in Sec. 1980.353(e) of this subpart to RHS, in addition to 
items required in this section.
    (h) Notations and notices. The Lender must notify RHS whether the 
loan and security can be properly assumed and transferred. The Lender 
shall assure that the conveyance instruments are properly filed, 
registered, or recorded, as appropriate. Upon completion of the transfer 
and assumption, the Lender must provide RHS a copy of the transfer and 
assumption agreement. The Lender may present the loan note guarantee to 
RHS if it desires RHS to note the transfer and assumption on the loan 
note guarantee. If a new note is obtained, it will also be attached to 
the loan note guarantee.
    (i) Interest assistance. The original borrower's Master Interest 
Assistance Agreement may be transferred to an eligible transferee. 
Equity sharing, if any, owed by the transferor must be determined and 
collected at the time the loan is assumed and title to the property is 
transferred. See Sec. 1980.391.
    (j) Closing the transfer and assumption. As soon as the Lender has 
obtained RHS approval, the Lender may proceed with closing the 
transaction. The closing must include, but need not be limited to, the 
proper execution and delivery of the conveyance and assumption 
documents, compliance with any legal requirements, and actions necessary 
to perfect the transfer and the required lien priority.
    (k) Loan note guarantee. The existing loan note guarantee will 
continue to be in effect. RHS will note the transfer and assumption on 
the original loan note guarantee by completing the Assumption Agreement 
block by inserting the name of the assuming party.
    (l) Material furnished to RHS after closing. Immediately after 
closing, the Lender must furnish to RHS:
    (1) A conformed copy of the executed assumption agreement.
    (2) A statement showing:
    (i) Any changes made in the provisions of the promissory note or 
security instruments.

[[Page 672]]

    (ii) That all conditions and requirements of paragraph (b) of this 
section have been met.
    (iii) That the required insertions have been made per paragraph (h) 
of this section.
    (m) Notification of Lender. The RHS approval official will review 
the proposed transfer and assumption and notify the Lender of the 
decision in writing. The request for transfer and assumption will be 
treated as an application for guaranteed loan assistance and will be 
handled in accordance with Sec. 1980.353. The Lender may proceed with 
the transfer and assumption upon obtaining RHS approval.



Sec. 1980.367  Unauthorized sale or transfer of the property.

    RHS consent is required to continue with the RHS guarantee in the 
event of a sale or transfer of the property in accordance with 
Sec. 1980.366. If the property is transferred without RHS consent, the 
Lender must take one of the following actions:
    (a) Obtain RHS consent if the conditions of Sec. 1980.366 can be 
met;
    (b) Satisfy the RHS guarantee and continue with the loan without the 
loan note guarantee; or
    (c) Notify the borrower and the transferee of the default and 
service the loan in accordance with Sec. 1980.371.



Secs. 1980.368-1980.369  [Reserved]



Sec. 1980.370  Loan servicing.

    RHS encourages Lenders to provide borrowers with the maximum 
opportunity to become successful homeowners. Lenders should provide 
sufficient servicing and counseling to meet the objectives of the loan. 
Loan servicing should be approached as a preventive action rather than a 
curative action. Prompt followup by the Lender on delinquent payments 
and early recognition and solution of problems are keys to resolving 
many delinquent loan cases. The Lender shall perform those services 
which a reasonable and prudent Lender would perform in servicing its own 
portfolio of loans that are not guaranteed.
    (a) Normal loan servicing. The Lender is responsible for servicing 
the loan under the Lender Agreement and this subpart even if the Lender 
has engaged a third party to service the loan on its behalf. Normal 
servicing includes:
    (1) Receiving all payments as they fall due and proper application 
of payments to principal and interest and escrow accounts for taxes 
(including special assessments) and insurance.
    (2) Establishment and maintenance of an escrow account to pay real 
estate taxes and assessments and required hazard and flood insurance on 
the security. All escrow accounts must be fully insured by the Federal 
Deposit Insurance Corporation (FDIC). The Lender is responsible for 
maintaining escrow funds in a reasonable and prudent manner and for 
assuring that real estate taxes and assessments and required hazard and 
flood insurance are paid in a timely manner even if it requires 
advancing the Lender's own funds. The monthly payment may be adjusted 
when it is not adequate to meet established charges of the escrow 
account for the coming year. Escrow funds may be used only for the 
purpose for which they were collected.
    (3) Obtaining compliance with the covenants, loan agreement (if 
any), security instruments, and any supplemental agreements and 
notifying the borrower in writing of any violations.
    (b) Other servicing requirements. Other servicing requirements 
include taking actions to offset the effects of liens, probate 
proceedings, and other legal actions. The Lender's responsibility 
includes assuring that:
    (1) Insurance loss payments, condemnation awards, or similar 
proceeds are applied on debts in accordance with lien priorities on 
which the guarantee was based, or to rebuild or otherwise acquire needed 
replacement collateral.
    (2) The borrower complies with laws and ordinances applicable to the 
loan and the collateral.
    (3) The borrower is not released of liability for the loan except as 
provided in Agency regulations.
    (c) Servicing options. The Lender should make every effort to assist 
borrowers who are cooperative and willing to make a good faith effort to 
cure the delinquency. The Lender should consider the borrower's 
financial condition in attempting to work out repayment agreements. The 
Lender may revise the

[[Page 673]]

payment schedule of the loan on a temporary basis with the written 
concurrence of the borrower. Changes in the loan repayment such as 
reamortization of the unpaid balance within the remaining term of the 
loan may be done with prior written RHS concurrence. Reamortization 
shall not change the amount of the loan guarantee.
    (d) Lender reporting to RHS. Reports on Lender servicing case loads 
and performance are required as follows:
    (1) Monthly report. The Lender must prepare and submit a report in a 
manner prescribed by RHS identifying each borrower with a loan that is 
more than 30 days delinquent.
    (2) Annual report. The Lender will submit an annual report 
indicating the status of each borrower account as of December 31 using 
the format prescribed by RHS.
    (e) [Reserved]



Sec. 1980.371  Defaults by the borrower.

    Default occurs when the borrower fails to perform under any covenant 
of the mortgage or Deed of Trust and the failure continues for 30 days. 
The Lender will negotiate in good faith in an attempt to resolve any 
problem. The borrower must be given a reasonable opportunity to bring 
the account current before any foreclosure proceedings are started.
    (a) The Lender must make a reasonable attempt to contact the 
borrower if the payment is not received by the 20th day after it is due.
    (b) The Lender must make a reasonable attempt to arrange and hold an 
interview with the borrower for the purpose of resolving the delinquent 
account before the loan becomes 60 days delinquent. Reasonable effort 
consists of not less than one letter sent to the borrower at the 
property address via certified mail or similar method which the borrower 
refuses to accept or fails to respond.
    (c) If the Lender is unable to make contact with the borrower, the 
Lender must determine whether the property has been abandoned and the 
value of the security is in jeopardy before the account becomes two 
payments delinquent.
    (d) When the loan becomes three payments delinquent, the Lender must 
report borrower delinquencies to credit repositories and make a decision 
with regard to liquidation of the account. The Lender may proceed with 
liquidation of the account unless there are extenuating circumstances.



Sec. 1980.372  Protective advances.

    Protective advances must constitute an indebtedness of the borrower 
to the Lender and be secured by the security instrument. Protective 
advances are advances made for expenses of an emergency nature necessary 
to preserve or protect the physical security. Attorney fees are not a 
protective advance. The Lender will not make protective advances in lieu 
of an additional loan. In order to assure that a protective advance over 
$500 will be included in the loss payment, Lenders are encouraged to 
obtain prior RHS approval.



Sec. 1980.373  [Reserved]



Sec. 1980.374  Liquidation.

    If the Lender concludes the liquidation of a guaranteed loan account 
is necessary because of one or more defaults or third party actions that 
the borrower cannot or will not cure or eliminate within a reasonable 
period of time, the Lender will notify RHS of the decision to liquidate. 
Initiation of foreclosure begins with the first public action required 
by law such as filing a complaint or petition, recording a notice of 
default, or publication of a notice of sale. Foreclosure must be 
initiated within 90 days of the date the decision to liquidate is made 
unless the foreclosure has been delayed by law. When there is a legal 
delay (such as bankruptcy), foreclosure must be started within 60 days 
after it becomes possible to do so.
    (a) Expeditious liquidation. Once the decision to liquidate has been 
made, the Lender must proceed in an expeditious manner. Lenders must 
exercise due diligence in completing the foreclosure process. Lenders 
are expected to complete foreclosure within the time frames that are 
reasonable for the state in which the property is located.
    (b) Maximum collection. The Lender is expected to make the maximum 
collection possible on the indebtedness. The Lender will consider the 
possibility of

[[Page 674]]

recovery of any deficiency apart from the acquisition or sale of 
collateral. The Lender will submit a recommendation on such recovery 
considering the borrower's assets and ability to pay, prospects of 
future recovery, the costs of pursuing such recovery, recommendation for 
obtaining a judgment, and the collectability of a judgment in view of 
the borrower's assets.
    (c) Allowable liquidation costs. Certain reasonable liquidation 
costs (costs similar to those charged for like services in the area) 
will be allowed during the liquidation process. No in-house expenses of 
the Lender will be allowed including, but not limited to, employee 
salaries, staff lawyers, travel, and overhead. Liquidation costs are 
deducted from the gross sales proceeds of the collateral when the Lender 
has conducted the liquidation.
    (d) Servicing plan. The Lender must submit a servicing plan to RHS 
when the account is 90 days delinquent and a method other than 
foreclosure is recommended to resolve delinquency. RHS encourages 
Lenders and delinquent borrowers to explore an acceptable alternative to 
foreclosure to reduce loss and expenses of foreclosure. Although prior 
approval is not required in all cases, the Agency may reject a plan that 
does not protect the Government's interest.
    (1) Continuation with the borrower. The Lender may continue with the 
borrower when a clear and realistic plan to eliminate the delinquency is 
presented. The Lender must fully document the borrower's prospects of 
success and make this information available to RHS upon request.
    (2) Voluntary liquidation. RHS may accept the Lender's plan to use 
voluntary liquidation when the plan clearly addresses the 
responsibilities of the parties, the Lender maintains oversight of the 
progress of the sale, the property is listed for sale at a price in line 
with its market value (if there is not already a bona fide purchaser for 
the dwelling), and the expected cost to the Government is the same as or 
less than the cost of foreclosure.
    (3) Deed-in-lieu of foreclosure. The Lender may take a deed-in-lieu 
of foreclosure from the borrower when it will not result in a cost to 
the Government in excess of that expected for foreclosure.
    (4) Other methods. RHS may accept a proposal submitted by the Lender 
that is not specifically addressed in but is consistent with the 
provisions of this subpart if the Lender fully documents how the 
proposal will result in a savings to the Government.
    (e) Handling shared equity. Interest assistance payments made under 
Sec. 1980.390 of this subpart will not be subject to shared equity if 
the loan is liquidated in accordance with the Lender Agreement unless:
    (1) The property is sold at or prior to foreclosure for an amount 
exceeding the Lender's unpaid balance and costs of foreclosure, or
    (2) A junior lienholder takes over the Lender's loan.



Sec. 1980.375  Reinstatement of the borrower's account.

    The Lender may reinstate an account when all delinquent payments and 
any funds that were advanced to pay authorized expenses are paid or as 
required under state law. When the Lender wishes to consider other 
offers by the borrower to bring the account current, the Lender must 
obtain RHS concurrence.



Sec. 1980.376  Loss payments.

    Settlement of the guarantee will be processed in accordance with 
this section.
    (a) Loss payment. Loss payments will be made within 60 days of the 
Lender's properly filed claim. The Lender must submit its loss claim 
within 30 calendar days of loan liquidation. The claim may include 
interest on the unpaid principal accrued to final loss settlement. RHS 
will pay interest within the limits of the guarantee to the date the 
claim is paid when the Lender promptly and properly files the claim.
    (1) Determination of loss payment. To calculate the loss payment, 
first determine the unpaid debt by adding the unpaid principal and 
interest on the loan and the unpaid balance for principal and interest 
on authorized protective advances. The net proceeds from the property 
will be first applied to the unpaid debt. Any other proceeds recovered 
by the Lender from other sources

[[Page 675]]

shall also be applied to the total unpaid debt. Determination of net 
proceeds will be different depending on which of the following 
circumstances are involved.
    (i) If, at liquidation, title to the property is conveyed to a bona 
fide third-party purchaser, then final loss payment will be based on the 
net sales proceeds received for the property.
    (ii) If, at liquidation, title to the property is conveyed to the 
Lender, then the Lender must prepare and submit a property disposition 
plan to RHS for RHS concurrence. The plan will address the Lender's 
proposed method for sale of the property, the estimated value and 
minimum sale price, itemized estimated costs of the sale, and any other 
information that could impact the amount of loss on the loan. The Lender 
is allowed up to 6 months from the date the property is acquired to sell 
the property. Upon the Lender's written request, RHS will authorize one 
extension not to exceed 30 days to close the sale of a purchase offer 
accepted near the end of the 6-month period. Net proceeds will be based 
on the net proceeds received for the property when the sale is conducted 
in accordance with the plan as approved by RHS. If no sale offer is 
accepted within the 6-month period, then the RHS approval official will 
obtain and use a liquidation value appraisal of the property. When an 
appraisal is obtained, the amount of the net proceeds from the security 
is then determined by subtracting a cost factor, which is found in 
exhibit D of FmHA Instruction 1980-D (available in any RHS office), from 
the current market value.
    (iii) If a deficiency judgment is obtained, the Lender must enforce 
the judgment against the borrower before loss settlement if the current 
situation provides a reasonable prospect of recovery. A loss payment 
will be made when the Lender holds a deficiency judgment but there are 
not current prospects of collection, even if there may be in the future.
    (2) Payment procedure. RHS will pay losses on the loan according to 
the terms of the loan note guarantee unless RHS has determined there is 
cause for reduction of the loss amount. See Sec. 1980.377 for future 
recovery by the Lender.
    (i) If there is no dispute between RHS and the Lender regarding the 
amount of the loss and the Lender's eligibility for payment of loss, RHS 
will pay the loss within the limits of the guarantee.
    (ii) If RHS and the Lender do not agree on the amount of the loss, 
or RHS has determined that part of the loss is not payable to the Lender 
under the terms of the loan note guarantee, RHS will pay the undisputed 
portion. The disputed portion of the claim will be treated as an adverse 
decision and the Lender may appeal.
    (iii) When RHS has cause to believe that Lender fraud or other 
lender actions negating the guarantee exist, no loss payment may be made 
unless the situation is resolved.
    (3) The RHS approval official will conduct an audit of the account 
and review the loan in its entirety to determine why the loan failed and 
whether any reason exists for reducing or denying the loss claim. This 
information will be documented in the RHS casefile.
    (4) If a Lender's loss claim is denied or reduced, the RHS approval 
official will notify the Lender of all of the reasons for the action 
within 10 days of the decision and the Lender may appeal in accordance 
with Sec. 1980.399 and subpart B of part 1900.
    (5) The RHS approval official is authorized to approve loss payments 
in amounts of up to 50 percent of his/her delegated loan approval 
authority in accordance with exhibit D of FmHA Instruction 1901-A 
(available in any RHS office).
    (b) Denial or reduction of loss claims. The RHS approval official 
will fully document any loss claim which is denied or reduced including 
an analysis of how the amount of the reduction was determined. A 
connection must be made between the Lender's action or failure to act 
and the loss amount on the loan. The amount of loss occasioned by such 
action will be established. This information will be made available to 
the Lender upon request. A Lender's loss claim may be denied or reduced 
by RHS when:
    (1) The Lender has committed fraud. (Denial of claim.)

[[Page 676]]

    (2) The Lender claims items not authorized under RHS regulations. 
(Reduced by amount of unauthorized claim.)
    (3) The Lender violated usury laws. (Reduction for amount of loss 
caused by the violation.)
    (4) The Lender failed to obtain required security or maintain the 
security position. (Reduction for loss attributed to failure.)
    (5) Loan funds were used for unauthorized purposes. (Reduction by 
unauthorized amount.)
    (6) The Lender was negligent in loan servicing. Negligent servicing 
is a failure to perform those services which a reasonably prudent Lender 
would perform in servicing its own portfolio of loans that are not 
guaranteed. The term includes a failure to act, a failure to act in a 
timely manner, or acting in a manner contrary to that in which a 
reasonably prudent Lender would act. (Reduction for loss amount 
attributable to Lender negligence.) Examples of negligent servicing 
include:
    (i) A failure to contact the borrower in a timely manner when the 
borrower's account goes into default.
    (ii) A failure to pay real estate taxes or hazard insurance when 
due.
    (iii) A failure to notify RHS within required time limits when the 
borrower defaults on the loan.
    (iv) A failure to request loan subsidy when the borrower was 
eligible for loan subsidy and loan subsidy was available (subsidized 
loans only).
    (v) A failure to protect security during the liquidation phase.
    (7) The Lender delayed filing the loss claim. (Reduction in claim 
for interest accrued because the claim was not filed.)



Sec. 1980.377  Future recovery.

    The proceeds of any amounts recovered shall be shared in proportion 
to the amount of loss borne between RHS and the Lender. Although the 
Lender's actual loss may be different than the amount on which loss 
settlement was based, the proportion of recovery sharing must be based 
on the loss percentage upon which the loss payment calculation was 
based.



Secs. 1980.378-1980.389  [Reserved]



Sec. 1980.390  Interest assistance.

    In order to assist low-income borrowers in the repayment of the 
loan, RHS is authorized to provide interest assistance payments subject 
to the availability of funds. Regardless of what date a borrower's loan 
payment is due each month, interest assistance payments will be made by 
RHS directly to the Lender on or before the 15th day of the month in 
which the borrower's payment is due.
    (a) Policy. It is the policy of RHS to grant interest assistance on 
guaranteed loans to low-income borrowers to assist them in obtaining and 
retaining decent, safe, and sanitary dwellings and related facilities as 
long as the borrower remains eligible for payments when funds are 
available for interest assistance. Interest assistance must be 
established for the borrower at the time the loan guarantee is 
authorized.
    (b) Processing interest assistance agreements. The Lender will 
process the interest assistance agreement and submit it to RHS for 
approval.
    (1) RHS will reimburse the Lender in the amounts authorized in 
exhibit D of FmHA Instruction 1980-D (available in any RHS office) for 
the cost of processing the agreement. The fee will be paid upon receipt 
of a valid agreement which has been coded as requiring a processing fee 
payment. The processing fee is payable when:
    (i) A new agreement is made with the borrower except at the time of 
loan closing.
    (ii) The borrower had an agreement for the previous year and a new 
agreement is made for the current year.
    (iii) The borrower is eligible for but not presently on interest 
assistance and enters into a new interest assistance agreement.
    (iv) The borrower has a change in circumstances which requires a 
revision to the current agreement. When the change in circumstances 
results in an agreement with less than 90 days remaining, the agreement 
for the subsequent year will be prepared at the same time. This action 
is considered one agreement.

[[Page 677]]

    (2) A processing fee will not be paid when the revision to an 
existing agreement is required due to an error on the part of the Lender 
or the borrower.
    (c) Amount of interest assistance. (1) The amount of interest 
assistance granted will be the difference between the monthly 
installment due on the promissory note eligible for interest assistance 
and the amount the borrower would pay if the note were amortized at the 
rate corresponding to the borrower's income range as outlined in the 
master interest assistance agreement.
    (2) The basis for the amount of interest assistance for each loan is 
determined by the amount of interest assistance authorized to the Agency 
as shown in exhibit D of FmHA Instruction 1980-D (available in any RHS 
office) and the note interest rate.
    (3) A borrower receiving a loan in a high cost area will be granted 
an additional 1 percent interest assistance in order to assist the 
borrower up to the maximum rate in exhibit D of FmHA Instruction 1980-D 
(available in any RHS office).
    (i) The Administrator may designate an area as a high cost area for 
interest assistance purposes. Such designation may be granted when the 
State Director makes a written request for it and provides documentation 
that low-income borrowers in the area could not afford to purchase a 
dwelling under the interest assistance table in exhibit D of FmHA 
Instruction 1980-D (available in any RHS office). The area must also be 
designated by HUD as a high cost area. The amount of additional interest 
assistance for high cost areas is 1 percent; however, in no case will 
more interest assistance be granted than the amount necessary to reach 
the lowest floor rate in exhibit D of FmHA Instruction 1980-D (available 
in any RHS office).
    (ii) The change in a designation to (or from) a high cost area will 
not affect existing loans. An individual's loan eligibility for high 
cost designation is determined at the time of issuance of the 
conditional commitment for loan guarantee.
    (d) Shared equity. Prior to loan closing, the Lender will advise the 
applicant that interest assistance is subject to equity sharing.
    (e) Eligibility. To be eligible for interest assistance, a borrower 
must personally occupy the dwelling and must meet the following 
additional requirements:
    (1) Initial loans. Interest assistance may be granted at the time 
the loan note guarantee is issued, or an assumption is processed in 
accordance with Sec. 1980.366, when:
    (i) The borrower's adjusted income at the time of loan guarantee 
approval did not exceed the applicable low-income limit, the loan 
guarantee was funded from interest assisted guaranteed loan funds, and a 
master interest assistance agreement was completed at closing if the 
borrower is ever to receive interest assistance.
    (ii) The borrower's net family assets do not exceed the maximum 
allowable amount as per exhibit D of FmHA Instruction 1980-D (available 
in any RHS office) unless an exception is authorized. The calculation of 
net family assets will exclude the value of the dwelling and a minimum 
adequate dwelling site, cash on hand which will be used to reduce the 
amount of the loan, and household goods and personal automobiles and the 
debts against them. The Lender may request an exception at the time the 
initial application is submitted to RHS for a loan guarantee. For the 
purpose of determining whether an exception is justified, consideration 
will be given to the nature of the assets upon which a borrower is 
currently dependent for a livelihood or which could be used to reduce or 
eliminate the need for interest assistance.
    (iii) The loan was approved as a subsidized guaranteed loan on or 
after April 17, 1991.
    (iv) The amount of interest assistance will be $20 or more per month 
in accordance with the provisions of paragraph (c)(1) of this section. 
Interest assistance in amounts of less than $20 per month will not be 
granted.
    (2) Existing loans. Interest assistance may be granted at any time 
after loan closing if:
    (i) The requirements of paragraphs (e)(1)(i), (e)(1)(iii), and 
(e)(1)(iv) of this section are met.

[[Page 678]]

    (ii) The borrower's adjusted annual income does not exceed the low-
income limit.
    (iii) The borrower requests interest assistance through the Lender 
or the Lender determines that interest assistance is needed to enable 
the borrower to repay the loan.
    (iv) The Lender processes the interest assistance agreement and 
submits it to RHS for approval.
    (f) Processing interest assistance. The Lender will process interest 
assistance agreements in accordance with this section. The interest 
assistance agreement will be executed by the Lender and borrower and 
forwarded to RHS for approval.
    (1) Amount of interest assistance. The amount of interest assistance 
for which a borrower is eligible will be determined by use of the 
interest assistance agreement as outlined in paragraph (c) of this 
section.
    (i) Determination of income. The Lender is responsible for 
determining the borrower's annual and adjusted annual income as outlined 
in Secs. 1980.347 and 1980.348 of this subpart. Income of all persons 
occupying the dwelling will be verified in accordance with Sec. 1980.347 
of this subpart.
    (ii) Effective period. Annual interest assistance agreements will be 
for a 12-month period.
    (2) Interest assistance agreements. The master interest assistance 
agreement will be executed for each qualifying loan at loan closing 
provided funds are available for interest assistance at the time the 
guarantee is issued. This agreement establishes the conditions and 
maximum amounts of interest assistance for the life of the loan. Each 
year, an annual interest assistance agreement will be used to determine 
the amount of interest assistance for the coming 12 months.
    (i) The Lender will determine the borrower's adjusted annual income, 
document the calculations, and complete the interest assistance 
agreement form.
    (ii) The borrower will review the interest assistance agreement form 
and sign the form signifying that all information is correct as shown.
    (iii) If the information contained on the interest assistance 
agreement appears correct, RHS will approve the agreement and make 
monthly payments to the Lender on behalf of the borrower.
    (iv) When the borrower's income is within the low-income limits but 
the provisions of paragraphs (e)(1)(ii) or (e)(1)(iv) of this section 
preclude granting interest assistance, the master interest assistance 
agreement must be executed if the borrower desires to be considered for 
interest assistance at a later date due to a change in circumstances.
    (g) Interest assistance modification. A change in the borrower's 
circumstances after the effective date of the Annual Interest Assistance 
Agreement will be handled as follows:
    (1) RHS required modifications before expiration. The borrower is 
responsible for reporting any increases in income exceeding $100 per 
month to the Lender. The Lender is not responsible for monitoring the 
borrower's income. The Lender must process a revised interest assistance 
agreement when a reported increase in the borrower's income results in 
the need for less interest assistance in accordance with paragraph (c) 
of this section.
    (2) Additional interest assistance before expiration. The borrower 
may request and the Lender may process a modification of the interest 
assistance agreement and submit the modified agreement to RHS when:
    (i) The borrower's adjusted annual income decreases by more than 
$100 per month;
    (ii) The interest assistance calculation per paragraph (c) of this 
section indicates that the borrower is eligible for an additional $20 
interest assistance per month; and
    (iii) There are interest assistance funds available if the amount 
needed by the borrower exceeds the initial floor rate established at the 
time the loan was closed per paragraph (c) of this section.
    (3) Other changes in the borrower's circumstances. When one 
coborrower has left the dwelling, interest assistance based on the 
remaining coborrower's income may be extended if:

[[Page 679]]

    (i) The remaining coborrower is occupying the dwelling, owns a legal 
interest in the property, and is liable for the debt;
    (ii) The remaining coborrower certifies as to who lives in the 
house;
    (iii) Separation is not due only to work assignment or military 
orders; and
    (iv) The remaining coborrower is informed and agrees that should the 
coborrower begin to live in the dwelling, that coborrower's income will 
then be counted toward annual income and interest assistance may be 
reduced or canceled.
    (4) Effect of modification. An interest assistance agreement 
modified as per paragraph (g)(1), (g)(2), or (g)(3) of this section is 
valid for the remainder of the agreement period.
    (5) Correction of interest assistance agreement. When an error by 
RHS or the Lender resulted in too little interest assistance being 
granted, a corrected agreement will be prepared effective the date of 
the error if the error results in granting $20 or more per month less 
interest assistance than the borrower was eligible to receive. The 
Lender must return any overpayment made by the borrower unless an 
agreement is reached to apply the funds to the loan as an extra payment.
    (h) Eligibility review. Borrowers receiving interest assistance will 
be reviewed annually within 30 to 60 days prior to the anniversary date 
of the loan. All existing agreements must be reviewed and processed for 
the upcoming 12 months during the review period. Interest assistance 
will not be renewed if the amount that the borrower qualifies for is 
less than $20 per month.
    (1) The Lender will obtain written verification of the income of 
each borrower and all adult members of the borrower's household and 
conduct the review.
    (i) Borrower responsibility. The borrower will:
    (A) Report the income of each adult member of the household to the 
Lender;
    (B) Assure that each household member has provided sufficient 
information on that person's income for the Lender to conduct the 
review; and
    (C) Cooperate in the Lender's efforts to verify income.
    (ii) [Reserved]
    (2) Processing interest assistance renewals not reviewed during the 
review period. The Lender may process interest assistance renewals not 
completed during the review period as follows:
    (i) The amount of interest assistance will be based on the 
borrower's current annual income.
    (ii) The effective date will be:
    (A) The expiration period of the previous interest assistance 
agreement if the RHS approval official determines failure to renew was 
the fault of RHS or the Lender.
    (B) The next payment due date following approval in all other cases.
    (3) Interest assistance form. Interest assistance payments will not 
be made after the expiration date unless RHS receives and approves a new 
interest assistance agreement form.
    (i) Cancellation of interest assistance. (1) An existing interest 
assistance agreement will be canceled under the following circumstances:
    (i) When the borrower has never occupied the dwelling, the interest 
assistance will be canceled as of the date of issuance of the guarantee. 
The Lender will refund all interest assistance payments to RHS.
    (ii) The cancellation will be effective on the date on which the 
earliest action occurs which causes the cancellation or the date the 
Lender became aware of the situation if the date cannot be determined 
when:
    (A) The borrower ceases to occupy, sells, or conveys title to the 
dwelling.
    (B) The borrower has received improper interest assistance and a 
corrected agreement will not be submitted.
    (C) The borrower has had an increase in income and is no longer 
eligible for interest assistance.
    (D) The security is acquired by the Lender.
    (E) The Lender formally declares the loan to be in default and 
accelerates the loan.
    (2) [Reserved]
    (j) Overpayment. When the Lender becomes aware of circumstances that 
have resulted in an overpayment of interest assistance for any reason, 
except

[[Page 680]]

as provided in paragraph (k) of this section, the following actions will 
be taken:
    (1) The Lender will immediately notify RHS.
    (2) The borrower will be notified and the interest assistance 
agreement will be corrected.
    (3) A repayment agreement acceptable to RHS will be reached.
    (k) Unauthorized use of loan funds. When RHS becomes aware that the 
Lender allowed loan funds to be used for unauthorized purposes, interest 
assistance paid on said amounts will be promptly repaid by the Lender. 
The Lender may work out a repayment agreement with the borrower but is 
expected to make every effort to minimize the adverse impact on the 
borrower's repayment ability.
    (l) Appeals. All applicants/borrowers and Lenders may appeal adverse 
determinations in accordance with Sec. 1980.399 when RHS denies, 
reduces, cancels, or refuses to renew interest assistance.
    (m) Reinstatement of interest assistance. The RHS approval official 
may authorize reinstatement of the borrower's interest assistance if it 
was canceled because the loan was accelerated and if the acceleration 
was withdrawn with RHS approval.



Sec. 1980.391  Equity sharing.

    The policy of RHS is to collect all or a portion of interest 
assistance granted on a guaranteed RH loan when any of the events 
described in paragraph (a) of this section occur, if any equity exists 
in the security.
    (a) Determining the amount of shared equity. The RHS approval 
official will calculate shared equity when a borrower's account is 
settled by payment-in-full (including refinancing) of the outstanding 
indebtedness, the transfer of title, or when the borrower ceases to 
occupy the property. The calculation of shared equity when the account 
is in liquidation will be handled in accordance with Sec. 1980.374(e).
    (1) How to calculate. The amount of shared equity will be based on 
the amount of interest assistance granted on the loan, the appreciation 
in property value between the closing date of the loan and the date the 
account is satisfied or acquired by the Lender via liquidation action, 
the period of time the loan is outstanding, the amount of original 
equity the borrower has in the property, and the value of capital 
improvements to the property. Shared equity will be the lesser of the 
interest assistance granted or the amount of value appreciation 
available for shared equity. Value appreciation available for shared 
equity means the market value of the property less all debts secured by 
prior liens, sales expenses, any original borrower equity, principal 
reduction, and value added by any capital improvements.
    (i) Market value. Market value of the property as of the date the 
loan is to be paid in full or the date the borrower ceases to occupy and 
will be documented by one of the following:
    (A) A sales contract which reasonably represents the fair market 
value based on the Lender's and RHS approval official's knowledge of the 
property and the area.
    (B) Lender's appraisal when the loan will be refinanced provided the 
appraisal reasonably represents the fair market value.
    (C) If the items listed in either paragraph (a)(l)(i)(A) or 
(a)(1)(i)(B) of this section are not available, another current 
appraisal, if readily available, when the appraiser meets the 
qualifications of Sec. 1980.334.
    (D) When the account is being paid off from insurance proceeds, the 
most recent appraisal available if the Lender or RHS can document that 
it represents an accurate indication of the value at the time the 
dwelling was damaged or destroyed. If not, the best information 
available will be used to determine the market value. The RHS approval 
official will interview the borrower to determine the extent of 
improvements, if any, and the general condition of the property at the 
time of loss. The amount of the insurance payment is generally a good 
indication of value; however, tax records or comparable sales will be 
considered.
    (E) RHS appraisal, with prior approval of the State Director.
    (ii) Prior liens. Prior liens refers to the amount of liens that are 
prior to the Lender's liens and include, but may not be limited to, 
prior mortgages, and

[[Page 681]]

real estate taxes and assessments levied against the property.
    (iii) Sale/refinancing expenses. Sale/refinancing expenses include, 
but are not limited to, expenses commonly associated with the sale or 
refinancing of real estate that are not reimbursed, such as sales 
commissions, advertising costs, recording fees, pro rata taxes, points 
based on the current interest rate, appraisal fees, transfer tax, deed 
preparation fee, loan origination fee, etc. In refinancing situations, 
only those expenses necessary to finance the amount of the current RHS 
debt are allowed. Shared equity may be calculated using estimated 
expenses if actual expenses cannot be obtained and the RHS approval 
official is satisfied with the estimated amount and the prorating of the 
expenses are accurate for this transaction.
    (iv) Original borrower equity. Original equity consists of a 
contribution by the borrower that reduces the amount of the loan below 
the market value. The contribution may be in the form of cash and/or 
value of the lot if the home was constructed on the borrower's property.
    (v) Capital improvements. Capital improvements will be considered to 
the extent that they do not exceed market value contribution as 
indicated by a sales comparison analysis. Generally, the value added by 
improvements will be the difference in market value at the time of sale 
and market value without capital improvements. Cost of the improvement 
will not be considered, only contribution to value. Maintenance cost and 
replacement of short-lived depreciable items are normal expenses 
associated with home ownership and are not considered capital 
improvements.
    (2) Other considerations. (i) Overpayments of interest assistance. 
When RHS has overpaid interest assistance and the overpaid amounts 
remain uncollected at the time shared equity is calculated, the overpaid 
amount will be added to shared equity.
    (ii) Multiple loans. When a borrower has more than one loan and 
elects to pay only some of the loans, shared equity will not be 
calculated unless the remaining loan is not subject to shared equity. 
Shared equity will be calculated when the account is paid in full taking 
into consideration all of the interest assistance granted on the 
account.
    (b) Miscellaneous provisions--(1) Changes in terms. Shared equity 
will not be calculated when an account is reamortized.
    (2) Junior liens. Junior liens are not considered in the shared 
equity calculation. In the event a junior lienholder forecloses, the RHS 
approval official will calculate shared equity before providing the 
lienholder with a pay-off figure, which is in addition to any amounts 
still due the Lender on the loan in the same manner as paragraph (a) of 
this section.
    (c) Affordable housing proposals. Shared equity under an affordable 
housing innovation (such as limited equity or a state or county 
sponsored shared equity) will be calculated in accordance with this 
subpart unless prior written approval is obtained from RHS. Proposals 
that deviate from this subpart must be reviewed and approved in the 
National office prior to issuance of the loan note guarantee.



Sec. 1980.392  Mortgage Credit Certificates (MCCs) and Funded Buydown Accounts.

    (a) MCCs. MCCs are authorized under the Tax Reform Act of 1986 and 
allow the borrower to receive a Federal tax credit for a percentage of 
their mortgage interest payment. They may be used by RHS guaranteed RH 
borrowers to improve their repayment ability for the loan. MCCs impact 
on the borrower's tax liability. MCCs may be used with interest assisted 
loans when the amount of the tax credit is based on the amount of 
interest actually paid by the borrower. MCCs are subject to shared 
equity of a portion of any ``gain'' realized on the property when sold 
within 10 years after purchase. If the loan is also an RHS interest 
assisted loan, RHS shall receive priority for shared equity repayment. 
Income taxes are complex issues; RHS employees and Lenders are not 
expected to be able to identify all issues impacting the borrower's 
taxes. Lenders should encourage borrowers to consult with a tax advisor.

[[Page 682]]

    (1) When the Lender is participating in an MCC program the amount of 
the tax credit is considered as an additional resource available for 
repayment of the loan when the credit is taken on a monthly basis from 
withholding.
    (2) The Lender will submit a copy of the MCC and a copy of the 
applicant's Form IRS W-4, ``Employee's Withholding Allowance 
Certificate,'' along with the other materials for the loan guarantee 
request. The amount of tax credit is limited to the applicant's maximum 
tax liability.
    (i) The MCC must show the rate of credit allowed.
    (ii) The Form IRS W-4 must reflect that the borrower is taking the 
tax credit on a monthly basis.
    (iii) The Lender will certify that the borrower has completed and 
processed all of the necessary documents to obtain the tax credit in 
accordance with this section.
    (b) Funded buydown accounts. A funded buydown account is a prepaid 
arrangement between a builder or a seller and a Lender that is designed 
to improve applicant's repayment ability. Funded buydown accounts are 
permitted when the Lender obtains prior RHS concurrence. RHS will 
consider buydown accounts when there are compensating factors which 
indicate the borrower's ability to meet the expected increases in loan 
payment. The seller, Lender or other third party must place funds in an 
escrow account with monthly releases scheduled directly to the Lender to 
reduce the borrower's monthly payment during the early years of the 
loan. The maximum reduction which may be considered is 2 percent below 
the note rate, even though the actual buydown may be for more. 
Reductions in buydown assistance may not result in an increase in the 
interest rate paid by the borrower of more than 1 percent per year. The 
borrower shall not be required to repay escrowed buydown funds. Funds 
must be escrowed with a state or federally supervised Lender. Funded 
buydown accounts must be fully funded for the buydown period. Buydown 
periods must be at least 12 months for each 1 percent of the buydown.



Secs. 1980.393-1980.396  [Reserved]



Sec. 1980.397  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this subpart or address any omission of this 
subpart which is not inconsistent with the authorizing statute or other 
applicable law if the Administrator determines that application of the 
requirement, or provision, or failure to take action in the case of an 
omission would adversely affect the Government's financial interest. The 
Administrator will exercise this authority upon request of the State 
Director with the recommendation of the Assistant Administrator for 
Housing. Requests for exception must be made in writing accompanied by 
the borrower's casefile in cases involving specific borrowers and 
supported with documentation to explain the adverse effect, propose 
alternative courses of action, and to show how the adverse effect will 
be eliminated or minimized if the exception is granted.



Sec. 1980.398  Unauthorized assistance and other deficiencies.

    (a) Unauthorized assistance. Unauthorized assistance includes, but 
is not limited to, issuance of a loan note guarantee when the borrower 
was not eligible for the loan or the borrower was eligible but the loan 
was not made for authorized purposes. Unauthorized assistance in the 
form of interest assistance is discussed in Sec. 1980.390.
    (b) Initial determination of unauthorized assistance. The reasons 
for unauthorized assistance being received by the Lender may include:
    (1) Submission of false or inaccurate information by the Lender;
    (2) Submission of false or inaccurate information by the borrower;
    (3) Error by RHS personnel; or
    (4) Error by the Lender.
    (c) [Reserved]
    (d) [Reserved]
    (e) Categories of unauthorized assistance--(1) Minor deficiency. A 
minor deficiency is one that does not change the eligibility of the 
borrower, the eligibility of the property, or amount of the loan. Such 
incidents will be brought to the Lender's attention in

[[Page 683]]

writing. Examples of minor deficiencies include improperly completed 
builder certifications, use of an outdated credit report, or use of an 
outdated income verification. Minor deficiencies also include those 
significant deficiencies when the Lender is willing and able to correct 
the problem such as obtaining flood insurance for a dwelling located in 
a flood hazard area and assuring the escrow amount is sufficient.
    (2) Significant deficiency. A significant deficiency is one that 
creates a significant risk of loss to the Government, or involves 
acceptance of a borrower or property not permitted by Agency 
regulations. Such cases may result in probation or withdrawal of the 
Lender's approval for program participation. Examples of significant 
deficiencies include gross miscalculation of income, acceptance of 
property that is severely deficient of the required standards, missing 
builder certifications, and construction changes that materially affect 
value without proper change orders.
    (3) Fraud or misrepresentation. A deficiency that involves an action 
by the Lender to misrepresent either the financial capacity of the 
borrower or the condition of the property being financed may, in 
addition to any criminal and civil penalties, result in a withdrawal of 
RHS approval, or debarment. Examples of this type of deficiency include 
falsified Verifications of Employment, false certifications, reporting a 
delinquent loan as being current, and omitting conditions relating to 
the health and safety of a property.
    (f) Borrower noncompliance. When the borrower receives unauthorized 
assistance due to an error or oversight, the Lender may continue with 
the guaranteed loan. More serious violations will be viewed on a case-
by-case basis by the National office.
    (g) RHS error oversight. When the borrower receives unauthorized 
assistance solely due to an error or oversight by RHS, the Lender may 
continue with the guaranteed loan.



Sec. 1980.399  Appeals.

    The borrower and the Lender respectively can appeal an RHS 
administrative decision that directly and adversely impacts them. 
Decisions made by the Lender are not covered by this paragraph even if 
RHS concurrence is required before the Lender can proceed. Appeals will 
be conducted in accordance with the rules of the National Appeals 
Division, USDA.
    (a) Appealable decisions. (1) The borrower and the Lender must 
jointly execute the written request for an alleged adverse decision made 
by RHS. The Lender need not be an active participant in the appeal 
process.
    (2) The Lender only may appeal cases where RHS has denied or reduced 
the amount of a loss payment to the Lender.
    (b) Nonappealable decisions. (1) The Lender's decision as to whether 
to make a loan is not subject to appeal.
    (2) The Lender's decision to deny servicing relief is not subject to 
appeal.
    (3) The Lender's decision to accelerate the account is not subject 
to appeal.



Sec. 1980.400  [Reserved]



             Subpart E--Business and Industrial Loan Program

    Source: 52 FR 6501, Mar. 4, 1987, unless otherwise noted.



Sec. 1980.401  Introduction.

    (a) Direct Business and Industry (B&I) loans are disbursed by the 
Agency under this subpart. B&I loan guarantees are to be processed and 
serviced under the provisions of subparts A and B of part 4279 and 
subpart B of part 4287 of this title. Any processing or servicing 
activity conducted pursuant to this subpart involving authorized 
assistance to relatives, or business or close personal associates, is 
subject to the provisions of part 1900 subpart D of this chapter. 
Applicants for this assistance are required to identify any known 
relationship or association with any Agency employee.
    (b) The purpose of the B&I program is to improve, develop or finance 
business, industry and employment and improve the economic and 
environmental climate in rural communities, including pollution 
abatement and control. This purpose is achieved through bolstering the 
existing private credit

[[Page 684]]

structure through guarantee of quality loans which will provide lasting 
community benefits. It is NOT intended that the guarantee authority be 
used for marginal or substandard loans or to ``bail out'' lenders having 
such loans.
    (c) This subpart and its appendices (especially appendix I and 
appendix K) also contain regulations for Drought and Disaster (D&D) and 
Disaster Assistance for Rural Business Enterprises (DARBE) guaranteed 
loans authorized by section 331 of the Disaster Assistance Act of 1988 
(Pub. L. 100-387) and section 401 of the Disaster Assistance Act of 1989 
(Pub. L. 101-82). D&D loans must be to alleviate distress caused to 
rural business entities, directly or indirectly, by drought, hail, 
excessive moisture, or related conditions occurring in 1988, or to 
provide for the guarantee of loans to such rural business entities that 
refinance or restructure debt as a result of losses incurred, directly 
or indirectly, because of such natural disasters and are limited to a 
guarantee of principal only. DARBE loans must be to alleviate distress 
caused to rural business entities, directly or indirectly, by drought, 
freeze, storm, excessive moisture, earthquake, or related conditions 
occurring in 1988 or 1989, or to provide for the guarantee of loans to 
such rural business entities that refinance or restructure debt as a 
result of losses incurred, directly or indirectly, because of such 
natural disasters and within certain parameters guarantee both principal 
and interest.
    (d) The B&I loan program is administered by the Administrator 
through a State Director serving each State. The State Director is the 
focal point for the program and the local contact person for processing 
and servicing activities, although this subpart refers in various places 
to the duties and responsibilities of other FmHA or its successor agency 
under Public Law 103-354 employees.
    (e) Throughout this subpart there appear Administrative provisions 
for the State Director, District Director, and County Supervisor. These 
provisions establish the internal duties, responsibilities and 
procedures to carry out the requirements of the program. These 
provisions are identified as ``Administrative'' and follow appropriate 
sections of this subpart.
    (f) This subpart and its appendices also contains regulations for 
Business and Industry Disaster (BID) loans under the authority of the 
Dire Emergency Supplemental Appropriations Act, 1992, Public Law 102-
368. This program provides B&I guarantees for loans needed as a result 
of natural disasters. Some of the requirements of this subpart are 
waived or altered for BID loans. The waivers and alterations are 
provided in Sec. 1980.498 of this subpart.
[52 FR 6501, Mar. 4, 1987, as amended at 54 FR 4, Jan. 3, 1989; 54 FR 
42483, Oct. 17, 1989; 55 FR 19245, May 8, 1990; 57 FR 45969, Oct. 5, 
1992; 58 FR 229, Jan. 5, 1993; 61 FR 67633, Dec. 23, 1996]



Sec. 1980.402  Definitions.

    The following general definitions are applicable to the terms used 
in this subpart. Additional definitions may be found in Sec. 1980.6 of 
subpart A of this part.
    Area of high unemployment. An area in which a B&I Loan Guarantee can 
be issued, consisting of a county or group of contiguous counties or 
equivalent subdivisions of a State which, on the basis of the most 
recent 12-month average or the most recent annual average data, has a 
rate of unemployment 150 percent or more of the national rate. Data used 
must be those published by the Bureau of Labor Statistics, U.S. 
Department of Labor.
    Borrower. A borrower may be a cooperative, corporation, partnership, 
trust or other legal entity organized and operated on a profit or 
nonprofit basis; an Indian Tribe on a Federal or State reservation or 
other Federally recognized tribal group; a municipality, county or other 
political subdivision of a State; or an individual. Such borrower must 
be engaged in or proposing to engage in improving, developing or 
financing business, industry and employment and improving the economic 
and environmental climate in rural areas, including pollution abatement 
and control.
    Business and Industry Disaster Loans. Business and Industry loans 
guaranteed under the authority of the Dire Emergency Supplemental 
Appropriations Act, 1992, Public Law 102-368. These guaranteed loans 
cover costs arising from the direct consequences of natural disasters 
such as Hurricanes Andrew and Iniki and Typhoon Omar

[[Page 685]]

that occur after August 23, 1992, and receive a Presidential 
declaration. Also included are the costs to any producer of crops and 
livestock that are a direct consequence of at least a 40 percent loss to 
a crop, 25 percent loss to livestock or damage to building structures 
from a microburst wind occurrence in calendar year 1992.
    Community facilities. For the purpose of this subpart, community 
facilities are those facilities designed to aid in the development of 
private business and industry in rural areas. Such facilities include, 
but are not limited to, acquisition and site preparation of land for 
industrial sites (but not for improvements erected thereon), access 
streets and roads serving the site, parking areas extension or 
improvement of community transportation systems serving the site and 
utility extensions all incidental to site preparation. Projects eligible 
for assistance under Subpart A of Part 1942 of this chapter are not 
eligible for assistance under this subpart.
    Development cost. These costs include, but are not limited to, those 
for acquisition, planning, construction, repair or enlargement of the 
proposed facility; purchase of buildings, machinery, equipment, land 
easements, rights-of-way; payment of startup operating costs, and 
interest during the period before the first principal payment becomes 
due, including interest on interim financing.
    Disaster Assistance for Rural Business Enterprises. Guaranteed loans 
authorized by section 401 of the Disaster Assistance Act of 1989 (Pub. 
L. 101-82), providing for the guarantee of loans to assist in 
alleviating distress caused to rural business entities, directly or 
indirectly, by drought, freeze, storm, excessive moisture, earthquake, 
or related conditions occurring in 1988 or 1989, and providing for the 
guarantee of loans to such rural business entities that refinance or 
restructure debt as a result of losses incurred, directly or indirectly, 
because of such natural disasters. See this subpart and its appendices, 
especially appendix K, containing additional regulations for these 
loans.
    Drought and Disaster guaranteed loans. Guaranteed loans authorized 
by section 331 of the Disaster Assistance Act of 1988 (Pub. L. 100-387), 
providing for the guarantee of loans to assist in alleviating distress 
caused to rural business entities, directly or indirectly, by drought, 
hail, excessive moisture, or related conditions occurring in 1988, or 
providing for the guarantee of loans to such rural business entities 
that refinance or restructure debt as a result of losses incurred, 
directly or indirectly, because of such natural disasters.
    Hurricane Andrew. A hurricane that caused damage in southern Florida 
on August 24, 1992, and in Louisiana on August 26, 1992.
    Hurricane Iniki. A hurricane that caused damage in Hawaii on 
September 11, 1992.
    Letter of conditions. Letter issued by FmHA or its successor agency 
under Public Law 103-354 to a borrower setting forth the conditions 
under which FmHA or its successor agency under Public Law 103-354 will 
make a direct (insured) loan from the Rural Development Insurance Fund.
    Loan classification system. The process by which loans are examined 
and categorized by degree of potential for loss in the event of default.
    Microburst wind. A violently descending column of air associated 
with a thunderstorm which causes straight-line wind damage.
     Problem loan. A loan which is not performing according to its 
original terms and conditions or which is not expected in the future to 
perform according to those terms and conditions.
    Public body. A municipality, political subdivision, public 
authority, district, or similar organization.
    Rural area. Includes all territory of a State that is not within the 
outer boundary of any city having a population of fifty thousand or more 
and its immediately adjacent urbanized and urbanizing area with a 
population density of more than one hundred persons per square mile, as 
determined by the Secretary of Agriculture according to the latest 
decennial census of the United States.
    Seasoned loan. A loan which:
    (1) Has a remaining principal guaranteed loan balance of two-thirds 
or less of the original aggregate of all existing

[[Page 686]]

B&I guaranteed loans made to that business.
    (2) Is in compliance with all loan conditions and B&I regulations.
    (3) Has been current on the B&I guaranteed loan(s) payments for 24 
consecutive months.
    (4) Is secured by collateral which is determined to be adequate to 
insure there will be no loss on the B&I guaranteed loan.
    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.
    Typhoon Omar. A typhoon that caused damage in Guam on August 28, 
1992.
    Working capital. The excess of current assets over current 
liabilities. It identifies the relatively liquid portion of total 
enterprise capital which constitutes a margin or buffer for meeting 
obligations within the ordinary operating cycle of the business.
[52 FR 6501, Mar. 4, 1987, as amended at 53 FR 40401, Oct. 17, 1988; 54 
FR 4, Jan. 3, 1989, and 54 FR 26946, June 27, 1989; 54 FR 42483, Oct. 
17, 1989; 55 FR 19245, May 8, 1990; 57 FR 45969, Oct. 5, 1992]



Sec. 1980.403  Citizenship of borrowers.

    Loans to individuals will be made or guaranteed only to those who 
are citizens of the United States or reside in the United States after 
being legally admitted for permanent residence. At least 51 percent of 
the outstanding interest in any corporation or organization-type 
applicant must be owned by those who are either citizens of the United 
States or reside in the United States after being legally admitted for 
permanent residence.



Sec. 1980.404  [Reserved]



Sec. 1980.405  Rural area determinations.

    FmHA or its successor agency under Public Law 103-354 will determine 
if any area is rural for purposes of the Guaranteed or Insured loan 
program. The following will be used by FmHA or its successor agency 
under Public Law 103-354 in making area eligibility determinations when 
it is not clear from the geographical location of the applicant:
    (a) Urbanized area immediately adjacent to a city having a 
population of 50,000 or more: An urbanized area immediately adjacent to 
a city having a population of 50,000 or more is an area constituting for 
general social and economic purposes a single community having a 
boundary contiguous with that of the city. Such community may be 
incorporated or unincorporated and will extend from the contiguous 
boundary(ies) to the recognizable open country, less densely settled 
areas or natural boundaries such as forests or water. Minor open spaces 
such as airports, industrial sites, recreational facilities or public 
parks will be disregarded. Outer boundaries of an incorporated community 
will extend at least to its legal boundaries. Cities which may have a 
contiguous border with another city but are located across a river from 
such city and recognized as a separate community and are not otherwise 
considered a part of an urbanized or urbanizing area as defined in this 
section are not in a nonrural area.
    (b) Urbanizing area: An urbanizing area is one defined as a 
community which is not now or within the foreseeable future not likely 
to be clearly separate from and independent of a city of 50,000 or more 
population and its immediately adjacent urbanized areas. A community 
will be considered as ``separate from'' when it is separated from the 
city and its immediately adjacent urbanized area by open country, less 
densely settled areas or natural barriers such as forests or water. 
Minor open spaces such as airports, industrial sites, recreational 
facilities or public parks will be disregarded. A community will be 
considered as ``independent of'' when its social and economic structure 
(e.g., government, education, health and recreational facilities; 
business, industry, tax base and employment opportunities) is not 
primarily dependent on the city and its immediately adjacent urbanized 
area.
    (c) The State Director will proceed as follows in rural area 
determinations:

[[Page 687]]

When the FmHA or its successor agency under Public Law 103-354 State 
Director determines an area to be urbanizing, he must then determine the 
population density per square mile. If the area appears to be eligible, 
the State Director will request the National Office to provide him/her 
with the correct density figure. All such density determinations will be 
made on the basis of minor civil divisions or census county divisions as 
used by the Bureau of the Census. In making the density calculations, 
there will be excluded large nonresidential tracts devoted to urban land 
uses such as railroad yards, airports, industrial sites, parks, golf 
courses and cemeteries or land set aside for such purposes.



Secs. 1980.406--1980.410  [Reserved]



Sec. 1980.411  Loan purposes.

    Loans to borrowers with facilities located in both urban and rural 
areas will be limited to the amount necessary to finance the facility 
located in the eligible rural area.
    (a) Private entrepreneurs. Loans may be for improving, developing or 
financing business, industry and employment and improving the economic 
and environmental climate, including pollution and abatement control, of 
rural areas, and may include but not be limited to:
    (1) Business and industrial acquisitions, construction, conversion, 
enlargement, repair, modernization of development cost.
    (2) Purchasing and development of land, easements, rights-of-way, 
buildings, facilities, leases or materials.
    (3) Purchasing of equipment, lease-hold improvements machinery or 
supplies.
    (4) Pollution control and abatement including those in connection 
with farming and ranching operations.
    (5) Transportation services incidential to industrial development.
    (6) Startup costs and working capital.
    (7) The financing of housing development sites located in open 
country or cities, towns or villages with populations not in excess of 
those eligible for FmHA or its successor agency under Public Law 103-354 
rural housing loans, provided the community demonstrates a need for 
additional housing to prevent a loss of jobs in the area, or to house 
families moving to the area as a result of new employment opportunities.
    (8) Loans, other than for working capital or debt refinancing, for 
meat processing facilities and integrated meat and poultry operations. 
Loans may not be guaranteed for agricultural production as defined in 
Sec. 1980.412(e); however, applicants who are in the business of 
processing, marketing or packaging of agricultural products, as well as 
agricultural production, may be eligible for loan assistance for that 
portion of the business other than agricultural production provided the 
agricultural production aspect is separate from the rest of the 
business; i.e., the production aspects are handled through separate 
legal business entities or through maintenance of the accounting system 
in such a manner as to clearly identify the use of and future accounting 
of the loan proceeds and operation of the business.
    (9) Interest (including interest on interim financing) during the 
period before the first principal payment becomes due or the facility 
becomes income producing, whichever occurs first.
    (10) Feasibility studies.
    (11) Debt refinancing. Lenders and FmHA or its successor agency 
under Public Law 103-354 must provide as part of their loan analysis the 
reasons for refinancing and the file must be documented accordingly. 
Refinancing debts may be allowed in connection with viable projects when 
it is determined by the lender and FmHA or its successor agency under 
Public Law 103-354 that it is necessary to create new or save existing 
jobs. FmHA or its successor agency under Public Law 103-354 will 
consider any lender's exposure as it relates to this item and may adjust 
the guarantee percentage accordingly. Refinancing in accordance with 
this paragraph may be insured or guaranteed only when:
    (i) It is necessary to spread substantial debt payment over a longer 
period of time thereby improving the business' net cash flow and working 
capital position consistent with the useful life of the asset(s) being 
refinanced, or

[[Page 688]]

    (ii) For payment of short-term debt when required in situations 
customarily financed over long periods of time (e.g., financing the 
purchase of real estate, machinery, or equipment with short-term debt or 
cash expenditures, when lenders would not extend reasonable longer terms 
to the business), or
    (iii) It is necessary to place a permanent loan subsequent to an 
interim loan for financing the construction of the project.
    (12) Reasonable fees and charges only as specifically listed below 
and disclosed on Form FmHA or its successor agency under Public Law 103-
354 449-1, ``Application for Loan and Guarantee,'' or on an addendum to 
the application at the time the request is submitted to FmHA or its 
successor agency under Public Law 103-354 for processing. Authorized 
fees include professional fees rendered by professionals generally 
licensed by individual State or accreditation Associations, such as 
Engineers, Architects, Lawyers, Accountants, and Appraisers. The amount 
of the fee will be what is reasonable and customary in the community or 
region where the project is located. For example, Architects and 
Engineers customarily charge fees based on a percentage of estimated 
project costs. Lawyers, Accountants, and Appraisers customarily charge 
for services on an hourly basis. Any fees for professional or expert 
services are to be fully documented and justified on the Form FmHA or 
its successor agency under Public Law 103-354 449-1 and are subject to 
FmHA or its successor agency under Public Law 103-354 review and 
approval before the application is presented to the FmHA or its 
successor agency under Public Law 103-354 State Loan Review Board for 
action. The above approved fees and charges may be funded out of loan 
proceeds.
    (13) FmHA or its successor agency under Public Law 103-354 guarantee 
fee.
    (14) Acquisition of membership and/or stocks, bonds, or debentures 
necessary to obtain a loan from Production Credit Associations, Banks 
for Cooperatives, Small Business Investment Companies, and other 
lenders, provided such acquisition is required of all their borrowers. 
However, a lender which requires membership fees in such organization or 
the purchase of securities issued by such organization will not use such 
proceeds to acquire, lease or improve property which does not benefit 
its members.
    (15) Aquaculture including conservation, development and utilization 
of water for aquaculture. Aquaculture means the culture or husbandry of 
aquatic animals or plants by private industry for commercial purposes 
including the culture and growing of fish by private industry for the 
purpose of granting or augmenting publicly-owned and regulated stock of 
fish.
    (b) Public bodies. See Secs. 1980.481 and 1980.488.
[52 FR 6501, Mar. 4, 1987, as amended at 53 FR 45258, Nov. 9, 1988; 54 
FR 28022, July 5, 1989]



Sec. 1980.412  Ineligible loan purposes.

    Loans may not be made or guaranteed if the funds are used:
    (a) To pay off a creditor in excess of the value of the collateral.
    (b) For distribution or payment to the owner, partners, shareholders 
or beneficiaries of the applicant or members of their families when such 
persons will retain any portion of their equity in the business.
    (c) For projects in which such assistance exceeds $1 million and 
when direct employment increases more than 50 employees which is 
calculated to or is likely to result in the transfer from one area to 
another of any employment or business activity provided by the 
operations of the applicant. This limitation will not prohibit 
assistance for the expansion of an existing business entity through the 
establishment of a new branch, affiliate or subsidiary of such entity if 
the expansion will not result in an increase in the unemployment in the 
area of original location or in any other area where such entity 
conducts business operations unless there is reason to believe that such 
explanation is being established with the intention of closing down the 
operations of the existing business entity in the area of its original 
location or in any other area where it conducts such operations.
    (d) For projects in which such assistance exceeds $1 million and 
when direct employment increased more than 50 employees which is 
calculated to or

[[Page 689]]

likely to result in an increase in the production of goods, materials or 
commodities, or the availability of services or facilities in the area 
when there is not sufficient demand for such goods, materials, 
commodities, services or facilities to employ the efficient capacity of 
existing competitive commercial or industrial enterprises, unless such 
financial or other assistance will not have an adverse effect upon 
existing competitive enterprises in the area.
    (e) For agricultural production which means the cultivation, 
production (growing), and harvesting, either directly or through 
integrated operations, of agricultural products (crops, animals, birds, 
and marine life, either for fiber or food for human consumption), and 
disposal or marketing thereof, the raising, housing, feeding (including 
commercial custom feedlots), breeding, hatching, control, and/or 
management of farm and domestic animals. Exceptions to this definition 
are:
    (1) Aquaculture as identified under eligible purposes.
    (2) Commercial nurseries primarily engaged in the production of 
ornamental plants and trees and other nursery products such as bulbs, 
florists' greens, flowers, shrubbery, flower and vegetable seeds, sod, 
and the growing of vegetables from seed to the transplant stage.
    (3) Forestry which includes establishments primarily engaged in the 
operation of timber tracts, tree farms, forest nurseries, and related 
activities such as reforestation.
    (4) Loans for livestock and poultry processing as identified under 
eligible purposes.
    (5) The growing of mushrooms or hydroponics.
    (f) For the transfer of ownership of a business unless the loan will 
keep the business from closing, or prevent the loss of employment 
opportunities in the area, or provide expanded job opportunities.
    (g) For financing community antenna television services or 
facilities.
    (h) Charitable and educational institutions, churches, organizations 
affiliated with or sponsored by churches, and fraternal organizations.
    (i) For lending and investment institutions and insurance companies.
    (j) For assistance to government employees and military personnel 
who are directors, officers or have a major ownership of 20 percent or 
more in the business.
    (k) For any legitimate business activity when more than 10 percent 
of the annual gross revenue is derived from legalized gambling activity.
    (l) For any illegal business activity.
    (m) For hotels, motels, tourist homes, or convention centers.
    (n) For any tourist, recreation or amusement facility.
    (o) For any line of credit.

                             Administrative

    Par (c) and (d). The FmHA or its successor agency under Public Law 
103-354 State Director will review the criteria in Sec. 1980.412(c) and 
(d) and make a written determination with supporting data and reasons as 
to the determinations. Such review must be independent of the Department 
of Labor certification. The State Director will make sure the loan file 
contains these determinations as part of the loan analysis prior to the 
issuance of the Conditional Commitment for Guarantee.
[52 FR 6501, Mar. 4, 1987, as amended at 53 FR 45258, Nov. 9, 1988]



Sec. 1980.413  Transactions which will not be guaranteed.

    (a) The following transactions will not be guaranteed by FmHA or its 
successor agency under Public Law 103-354:
    (1) The guarantee of lease payments.
    (2) The guarantee of loans made by other Federal agencies. This does 
not preclude the guaranteeing of loans made by the Bank for 
Cooperatives, Federal Land Bank, or Production Credit Association.
    (3) The guarantee or making of any B&I loans(s), to any one 
borrower, when the total amount of the B&I loans(s) requested plus the 
outstanding balance of any existing B&I loan(s) is in excess of $10 
million.
    (b) Guaranteeing of loans involved in tax-exempt obligations under 
Sec. 1980.23 of Subpart A of this Part.

                             Administrative

    The State Director will consider the overall State allocations of 
funding authority in

[[Page 690]]

recommending loans for processing. Loan requests which fall within Small 
Business Administration (SBA) authority should continue to be referred 
to SBA. If the State Director decides to process SBA size loans, the 
loan file must be fully documented as to the reasons for such actions.
[52 FR 6501, Mar. 4, 1987, as amended at 53 FR 40401, Oct. 17, 1988]



Sec. 1980.414  Fees and charges by lender and others.

    [See Subpart A, Sec. 1980.22]
    (a) All fees and charges must be specifically documented and 
justified on the Form FmHA or its successor agency under Public Law 103-
354 449-1 or on an addendum to the application at the time the loan 
request is submitted to FmHA or its successor agency under Public Law 
103-354 for processing. Allowable fees will be those reasonably and 
customarily charged borrowers in similar circumstances in the ordinary 
course of business and are subject to FmHA or its successor agency under 
Public Law 103-354 review and approval.
    (b) Packaging fees include services rendered by the lender or others 
in connection with preparation of the application and seeing the project 
through to final decision. These services may or may not be performed by 
an investment banker. If an investment banker provides needed assistance 
in addition to the packaging of the loan, additional charges may be 
added to the packaging fee. The maximum allowable packaging fees are 2 
percent of the total principal amount of the loan up to $1 million and 
on all amounts over $1 million, an additional one-fourth percent up to 
total maximum fee of $50,000. Packaging fees, investment banker fees and 
and other fees and charges not specifically provided for in this section 
are permitted subject to FmHA or its successor agency under Public Law 
103-354 review and approval. Loan proceeds may be used to pay fees as 
specifically authorized under Secs. 1980.411(a)(12) and (13). Packaging 
fees, investment banker fees, and any other fees or charges shall not be 
paid from loan proceeds.
[52 FR 6501, Mar. 4, 1987, as amended at 53 FR 45258, Nov. 9, 1988]



Secs. 1980.415--1980.418  [Reserved]



Sec. 1980.419  Eligible lenders.

    [See Subpart A, Sec. 1980.13.]

                             Administrative

    A. Par (a) of Subpart A, Sec. 1980.13 requires National Office 
approval for any variations.
    B. Par (b)(4) of Subpart A, Sec. 1980.13, State Director submits 
information to National Office with recommendations.
    C. With prior written approval of the FmHA or its successor agency 
under Public Law 103-354 National Office, a new eligible lender may be 
substituted for the original lender provided the new lender agrees to 
assume all original loan requirements including liabilities, servicing 
responsibilities and acquiring legal title to the unguaranteed portion 
of the loan. Such approval will be granted by the National Office only 
when a lender discontinues lending operations or other extreme 
situations require a substitution of lender. If approved by the National 
Office, the State Director will submit to the Finance Office Form FmHA 
or its successor agency under Public Law 103-354 1980-42. ``Notice of 
Substitution of Lender.''



Sec. 1980.420  Loan guarantee limits.

    The percentage of guarantee, up to the maximum allowed by this 
section, is a matter of negotiation between the lender and FmHA or its 
successor agency under Public Law 103-354.
    (a) For loans of $2 million or less, the maximum percentage of 
guarantee is 90 percent.
    (b) For loans over $2 million but not over $5 million, the maximum 
percentage of guarantee is 80 percent.
    (c) For loans in excess of $5 million, the maximum percentage of 
guarantee is 70 percent.
    (d) Lenders and borrowers will propose the percentage of guarantee. 
FmHA or its successor agency under Public Law 103-354 informs lenders 
and borrowers in writing on Form FmHA or its successor agency under 
Public Law 103-354 449-14 of any percentage of guarantee less than 
proposed by the lender and borrower, and the reasons therefore. FmHA or 
its successor agency under Public Law 103-354 determines the percentage 
of guarantee after considering all credit factors involved, including 
but not limited to:

[[Page 691]]

    (1) Borrower's management. The borrower's management, and when 
appropriate, equity capital, history of operation, marketing plan, raw 
material requirements, and availability of necessary supporting 
utilities and services;
    (2) Collateral. Collateral for the loan;
    (3) Financial condition. Financial condition of borrower or 
borrower's principals, if appropriate;
    (4) Lender's exposure. The lender's exposure before and after the 
loan, and any applicable limits on the lender's lending authority; and
    (5) Trends and conditions. Current trends and economic conditions.
[53 FR 40401, Oct. 17, 1988]



Secs. 1980.421--1980.422  [Reserved]



Sec. 1980.423  Interest rates.

    (a) Guaranteed loans. Rates will be negotiated between the lender 
and the borrower. They may be either fixed or variable as long as they 
are legal. Interest rates will be those rates customarily charged 
borrowers in similar circumstances in the ordinary course of business 
and are subject to FmHA or its successor agency under Public Law 103-354 
review and approval. Should any part of the loan(s) be sold by the 
lender, FmHA or its successor agency under Public Law 103-354, in its 
analysis, will take into consideration in approving the lender's 
interest rate, the rate at which guaranteed loans are being sold or 
traded in the secondary market.
    (1) A variable interest rate must be a rate that is tied to a base 
rate published periodically in a recognized national or regional 
financial publication specifically agreed to by the lender and borrower. 
The variable interest rate may be adjusted at different intervals during 
the term of the loan but the adjustments may not be more often than 
quarterly. The intervals between interest rate adjustments will be 
specified in the Loan Agreement. The lender must incorporate within the 
variable rate promissory note at loan closing, the provision for 
adjustment of payment installments coincident with an interest rate 
adjustment. This will assure that the outstanding principal balance is 
properly amortized within the prescribed loan maturity to eliminate the 
possibility of a balloon payment at the end of the loan.
    (2) Under a Memorandum of Understanding between FmHA or its 
successor agency under Public Law 103-354 and the Farm Credit 
Administration dated September 25, 1974, the interest rate on loans made 
by the Bank for Cooperatives, Federal Land Banks and Production Credit 
Associations may be a variable rate based on their administrative and 
borrowing costs.
    (3) Any change in the interest rate between the date of issuance of 
the Form FmHA or its successor agency under Public Law 103-354 
conditional Commitment For Guarantee,'' and before the issuance of the 
Loan Note Guarantee must be approved by the State Director. Approval of 
such change will be shown on an amendment to Form FmHA or its successor 
agency under Public Law 103-354 449-14.
    (4) It is permissible to have one interest rate on the guaranteed 
portion of the loan and another interest rate on the unguaranteed 
portion of the loan, provided the lender and borrower agree and:
    (i) The rate on the unguaranteed portion does not exceed that 
currently being charged on loans of similar size and purpose for 
borrowers under similar circumstances.
    (ii) The rate on the guaranteed portion of the loan will not exceed 
the rate on the unguaranteed portion.
    (5) When multi-rates are used, the lender will provide FmHA or its 
successor agency under Public Law 103-354 with the overall effective 
interest rate for the entire loan.
    (6) The borrower, lender and holder (if any) may collectively effect 
a permanent reduction in the interest rate of their B&I guaranteed loan 
at any time during the life of the loan upon written agreement by these 
parties. FmHA or its successor agency under Public Law 103-354 must be 
notified by the lender, in writing, within 10 calendar days of the 
change. If the guaranteed portion has been repurchased by FmHA or its 
successor agency under Public Law 103-354, then FmHA or its successor 
agency under Public Law 103-354 is a holder and must affirm or reject 
interest rate change proposals.

[[Page 692]]

When FmHA or its successor agency under Public Law 103-354 is a holder, 
it will concur in such interest rate change only when it is demonstrated 
to FmHA or its successor agency under Public Law 103-354 that the change 
is a more viable alternative than initiating or proceeding with 
liquidation of the loan or continuing with the loan in its present state 
and that the Government's financial interests are not adversely 
affected. Factors which will be considered in making such determination 
will include whether the proposed interest rate will be below the 
Government's cost of borrowing money, whether continuing with the loan 
would realistically promote or enhance rural development and employment 
in rural areas, whether the monetary recovery would be increased by 
proceeding immediately to liquidation, if applicable, or allowing the 
borrower to continue at a reduced interest rate, and whether an in-depth 
financial analysis by the lender reasonably indicates that the business 
would be successful at a lower interest rate and reasonably indicates 
that the borrower could make the reduced payment and pay off amounts in 
arrears, if any. The FmHA or its successor agency under Public Law 103-
354 will reflect the documentation of the interest rate change decision.
    (i) Fixed rates cannot be changed to variable rates to reduce the 
interest rate to the borrower unless the variable rate has a ceiling 
which is less than the original fixed rate.
    (ii) Variable rates can be changed to reduced fixed rates. In a 
final loss settlement, when qualifying rate changes were made with the 
required written agreements and notification, the interest will be 
calculated for the periods the given rates were in effect, except that 
interest claimed on a loan which originated at a variable rate can never 
exceed the amount which would have been eligible for claim had the 
variable interest remained in force. The lesser cost to the Government 
will always prevail. The lender must maintain records which adequately 
document the accrued interest claimed.
    (iii) The lender is responsible for the legal documentation of 
interest changes by an allonge attached to the promissory note(s) or any 
other legally effective amendment of the rate(s); however, no new 
note(s) may be issued.
    (7) No increases in interest rates will be permitted under the B&I 
loan guarantee except the normal fluctuations in approved variable 
interest rate loans.
    (b) Insured loans. (1) Loans for other than those in paragraph 
(b)(2) of this section will bear interest at a rate prescribed by FmHA 
or its successor agency under Public Law 103-354, and will be announced 
periodically. The interest rate for insured loans will be the rate in 
effect at the time the loan is approved or at the time the loan is 
closed, whichever rate is lower.
    (2) Loans to public bodies, nonprofit associations and Indian Tribes 
used to finance community facilities will bear interest at the rate 
prescribed in FmHA or its successor agency under Public Law 103-354 
Instruction 440.1, Exhibit B (available in any FmHA or its successor 
agency under Public Law 103-354 Office).

                             Administrative

    Par (a)(6) and (a)(7). (Added 4-26-85, SPECIAL PN.) The Director 
will notify the Finance Office of any interest rate reduction by using 
Form FmHA or its successor agency under Public Law 103-354 1980-47, 
``Guaranteed Loan Borrower Adjustments.'' The State Director will make 
corrections to the Rural Community Facility Tracking System (FCFTS) 
reflecting the interest rate change. The FmHA or its successor agency 
under Public Law 103-354 loan file, as well as the attachments to the 
copy of the promissory note in the file, will be documented by the State 
Director to reflect any change in the interest rate.
[52 FR 6501, Mar. 4, 1987, as amended at 54 FR 28022, July 5, 1989]



Sec. 1980.424  Term of loan repayment.

    (a) Principal and interest on the loan will be due and payable as 
provided in the promissory note except, any interest accrued as the 
result of the borrower's default on the guaranteed loan(s) over and 
above that which would have accrued at the normal note rate on the 
guaranteed loan(s) will not be guaranteed by FmHA or its successor 
agency under Public Law 103-354. The lender will structure repayments as 
established in the loan agreement between the lender and borrower. 
Ordinarily,

[[Page 693]]

such installments will be scheduled for payment as agreed upon by the 
lender and applicant but on terms that reasonably assure repayment of 
the loan. However, the first installment to include a repayment of 
principal may be scheduled for payment after the project is operable and 
has begun to generate income, but such installment will be due and 
payable within three years from the date of the promissory note and at 
least annually thereafter. Interest will be due at least annually from 
the date of the note. Ordinarily, monthly payments will be expected, 
except for seasonal-type businesses.
    (b) The maximum time allowable for final maturity for an FmHA or its 
successor agency under Public Law 103-354 guaranteed B&I loan will be 
limited to thirty (30) years for land, buildings and permanent fixtures; 
the usable life of the machinery and equipment purchased with loan 
funds, but not to exceed fifteen (15) years; and seven (7) years for the 
working capital portion of the loan. The term for a loan that is being 
refinanced may be based on the collateral the lender will take to secure 
the loan.
    (c) The maximum time allowable for final maturity of an FmHA or its 
successor agency under Public Law 103-354 insured loan for community 
facilities will not exceed forty (40) years.
    (d) FmHA or its successor agency under Public Law 103-354 will not 
guarantee any loan in which the promissory note or any other document 
provides for the payment of interest upon interest.

                             Administrative

    It is permissible for lenders to structure the borrower's financial 
proposal under the multi-note option as provided for in paragraph III 
A.2. of Form FmHA or its successor agency under Public Law 103-354 449-
35, ``Lender's Agreement,'' in the following ways:
    A. To treat the entire financial package of the borrower as one loan 
(i.e., loan purposes may include one or any combination of working 
capital, machinery and equipment or real estate) provided:
    1. The loan is amortized to provide repayment of the working capital 
portion within the 7 years, the machinery and equipment portion within 
useful life or 15 years, whichever is less, and real estate portion 
within 30 years.
    2. One note represents the unguaranteed portion of the loan. It is 
permissible to issue as many as 10 notes or the guaranteed portion of 
the loan.
    3. A Form FmHA or its successor agency under Public Law 103-354 449-
34, ``Loan Note Guarantee,'' is attached to all notes, including the 
unguaranteed note.
    4. One interest rate (either variable or fixed) is used for the 
entire loan or one interest rate is used on the guaranteed portion and a 
different interest rate is used on the unguaranteed portion, subject to 
the requirements and conditions found in Sec. 1980.423 of this subpart.
    5. One of each of the following Forms: FmHA or its successor agency 
under Public Law 103-354 449-14, FmHA or its successor agency under 
Public Law 103-354 1940-3, ``Request for Obligation of Funds--Guaranteed 
Loans,'' FmHA or its successor agency under Public Law 103-354 449-35, 
and FmHA or its successor agency under Public Law 103-354 1980-19, 
``Guaranteed Loan Closing Report,'' is used.
    B. To treat the financial package of the borrower as separate loans 
that are processed as a single application provided:
    1. A separate loan is made for each purpose (i.e., working capital, 
machinery and equipment or real estate). As an example, a working 
capital loan could be structured as follows:
    One note for $XXXX at X% interest due in 7 years representing the 
unguaranteed portion of the loan, and
    Up to 10 notes for $XXXX at X% interest due in 7 years representing 
the guaranteed portions of the loan.
    2. A Form FmHA or its successor agency under Public Law 103-354 449-
34 is attached to all notes, including the unguaranteed note.
    3. A different interest rate may be used on the guaranteed and 
unguaranteed portions of the loan, subject to the requirements and 
conditions found in Sec. 1980.423 of this subpart.
    4. Separate Forms FmHA or its successor agency under Public Law 103-
354 449-14, 1940-3, 449-35, and 1980-19 are required for each loan. If 
you have two loans, one for working capital and another for real estate, 
then a set of these forms will be required for each loan.
    C. Form FmHA or its successor agency under Public Law 103-354 449-
36, ``Assignment Guarantee Agreement,'' will never be used when the 
multi-note option is utilized.
    D. Par. (b). The State Director will assure that the loan officer 
reviewing the application fully evaluates the useful life of the 
collateral offered for the loan when determining maturities for the 
loan. Loan requests for the maximum maturities could result in 
collateral obsolescence prior to full repayment of the indebtedness. The 
loan file must be

[[Page 694]]

documented to support the maturity granted for the loan.
[52 FR 6501, Mar. 4, 1987, as amended at 56 FR 8271, Feb. 28, 1991]



Sec. 1980.425  Availability of credit from other sources.

    (a) Inability to obtain credit elsewhere is not a requirement for 
guaranteed assistance under this subpart.
    (b) To be eligible for an insured loan under this subpart, the 
borrower must be unable to obtain the required credit from private or 
cooperative sources at reasonable rates and terms, taking into 
consideration prevailing private and cooperative rates and terms in the 
community in or near the borrower's location(s) for loans for similar 
purposes and period of time. The borrower's inability to obtain such 
credit elsewhere will be determined in accordance with subpart A of part 
1942 of this chapter.



Sec. 1980.426--1980.431  [Reserved]



Sec. 1980.432  Environmental requirements.

    [See subpart A, Sec. 1980.40 and subpart G of part 1940 of this 
chapter.]

                             Administrative

    When required by subpart G of part 1940 of this chapter, the 
approving official will review Form FmHA or its successor agency under 
Public Law 103-354 1940-20, ``Request for Environmental Information,'' 
submitted by the borrower and the environmental impact assessment 
prepared by the environmental reviewer. The approving official will 
indicate his/her decision as part of the assessment when required. If 
the approving official determines that an EIS is required, he/she will 
notify the borrower and lender in writing.



Sec. 1980.433  Flood or mudslide hazard area precautions.

    (See subpart A, Sec. 1980.42.)

                             Administrative

    The State Director is responsible for determining if a project is 
located in a special flood or mudslide hazard area. Refer to subpart B 
of part 1806 of this chapter [FmHA or its successor agency under Public 
Law 103-354 Instruction 426.2].



Sec. 1980.434  Equal opportunity and nondiscrimination requirements.

    (See subpart A Sec. 1980.41.)

                             Administrative

    The State Director will assure that equal opportunity and 
nondiscrimination requirements are met. If there is indication of 
noncompliance with these requirements, such facts will be reported by 
the Compliance Reviewing Officer or FmHA or its successor agency under 
Public Law 103-354 Official in writing to the Administrator, ATTN: Equal 
Opportunity Officer.



Sec. 1980.435--1980.440  [Reserved]



Sec. 1980.441  Borrower equity requirements.

    (a) A minimum of 10 percent tangible balance sheet equity will be 
required for insured loans at loan closing or at the time the Loan Note 
Guarantee is issued for guaranteed loans. However, balance sheet equity 
in the amount of at least 20-25 percent will be required under the 
following circumstances:
    (1) For new businesses since they do not have a history of proven 
operations and such businesses generally experience unforeseen startup 
expenses which may deplete the available cash resources.
    (2) For businesses where the borrower does not or cannot offer a 
limited or full personal or corporate guarantee as required in 
Sec. 1980.443 and thereby weakens the financial soundness of the loan.
    (3) For energy related businesses since these types of projects may 
be technically feasible, but in many instances are more susceptible to 
higher risk. A higher equity position will assure management's 
commitment to the project.
    (b) FmHA or its successor agency under Public Law 103-354 may also 
require more than a 10 percent equity investment in projects other than 
those in paragraphs (a)(1), (2) and (3) of this section if the reviewing 
official makes a written determination that special circumstances 
necessitate this course of action. Special circumstances are limited to 
credit factors which negatively affect the financial soundness of the 
loan, the chances of the project's success or the repayment ability of 
the borrower. Such determination will be in writing by the reviewing 
official and explain fully what the special circumstances are and how 
FmHA or its successor agency under Public Law 103-

[[Page 695]]

354 decided upon the percentage of equity investment to be required in 
the individual case.
    (c) FmHA or its successor agency under Public Law 103-354 will 
require the borrower to contribute all of the equity requirement in the 
form of either cash or tangible earning assets injected into the 
business and reflected on the balance sheet. Appraisal surplus and/or 
subordinated debt cannot be used in the calculation of the equity 
requirements.
[52 FR 6501, Mar. 4, 1987, as amended at 58 FR 40039, July 27, 1993]



Sec. 1980.442  Feasibility studies.

    A feasibility study by a recognized independent consultant will be 
required for all loans, except as provided in this paragraph. The cost 
of the study will be borne by the borrower and may be paid from funds 
included in the loan. The loan approval official may make an exception 
to the requirement of a feasibility study for loans to existing 
businesses when the financial history of the business, the current 
financial condition of the business, and guarantees or other collateral 
offered for the loan are sufficient to protect the interest of the 
lenders and FmHA or its successor agency under Public Law 103-354. FmHA 
or its successor agency under Public Law 103-354 will thoroughly 
document the justification for the exception to the feasibility study 
for such businesses. An acceptable feasibility study should include but 
not be limited to:
    (a) Economic feasibility. Information related to the project site, 
availability of trained or trainable labor; utilities; rail, air and 
road service to the site; and the overall economic impact of the 
project.
    (b) Market feasibility. Information on the sales organization and 
management, nature and extent of market area, marketing plans for sale 
of projected output, extent of competition and commitments from 
customers or brokers.
    (c) Technical feasibility. Technical feasibility reports shall be 
prepared by individuals who have previous experience in the design and 
analysis of similar facilities and/or processes as are proposed in the 
application. The technical feasibility reports shall address the 
suitability of the selected site for the intended use, including an 
environmental impact analysis. The report shall be based upon verifiable 
data and contain sufficient information and analysis so that a 
determination may be made on the technical feasibility of achieving the 
levels of income and/or production that are projected in the financial 
statements. The report shall also identify any constraints or 
limitations in these financial projections and any other facility or 
design related factors which might affect the success of the enterprise. 
The report shall also identify and estimate project operating and 
development costs and specify the level of accuracy of these estimates 
and the assumptions on which these estimates have been based. For the 
purpose of the technical feasibility reports, the project engineer or 
architect may be considered an independent party provided the principals 
of the firm or any individual of the firm who participates in the 
technical feasibility report does not have a financial interest in the 
project, and provided further that no other individual or firm with the 
expertise necessary to make such a determination is reasonably available 
to perform the function.
    (d) Financial feasibility. An opinion on the reliability of the 
financial projections and the ability of the business to achieve the 
projected income and cash flow. An assessment of the cost accounting 
system, the availability of short-term credit for seasonal business and 
the adequacy of raw material and supplies.
    (e) Management feasibility. Evidence that continuity and adequacy of 
management has been evaluated and documented as being satisfactory.

                             Administrative

    FmHA or its successor agency under Public Law 103-354 loan approval 
officials will be selective in approving borrowers for new business 
ventures involved in unproven products, services, or markets. Should 
such businesses be considered, additional equity will usually be 
required.
[52 FR 6501, Mar. 4, 1987, as amended at 58 FR 40039, July 27, 1993]

[[Page 696]]



Sec. 1980.443  Collateral, personal and corporate guarantees and other requirements.

    (a) Collateral. (1) The lender is responsible for seeing that proper 
and adequate collateral is obtained and maintained in existence and of 
record to protect the interest of the lender, the holder, and FmHA or 
its successor agency under Public Law 103-354.
    (2) Collateral must be of such a nature that repayment of the loan 
is reasonably assured when considered with the integrity and ability of 
project management, soundness of the project, and applicant's 
prospective earnings. Collateral may include, but is not limited to the 
following: Land, buildings, machinery, equipment, furniture, fixtures, 
inventory, accounts receivable, cash or special cash collateral 
accounts, marketable securities and cash surrender value of life 
insurance. Collateral may also include assignments of leases or 
leasehold interest, revenues, patents, and copyrights.
    (3) All collateral must secure the entire loan. The lender will not 
take separate collateral to secure only that portion of the loan or loss 
not covered by the guarantee. The lender will not require compensating 
balances or certificates of deposit as a means of eliminating the 
lender's exposure on the unguaranteed portion of the loan. However, 
compensating balances as used in the ordinary course of business may be 
used.
    (4) Release of collateral of a going concern is based on a complete 
analysis of the proposal.
    (i) Release of collateral prior to payment-in-full of the FmHA or 
its successor agency under Public Law 103-354 guaranteed debt must be 
requested by the lender and concurred with by the State Director as 
prescribed in Sec. 1980.469 Administrative D.2 of this subpart subject 
to the following conditions:
    (A) Collateral taken initially or subsequently may not be released 
prior to the payoff, in full, of the loan balance without adequate 
consideration for the value of that collateral. Adequate consideration 
may include, but is not limited to:
    (1) Application of the net proceeds from the sale of the collateral 
to the note in inverse order of maturity. All or part of the total 
proceeds, if approved by the Administrator, may be applied to the 
payment of current or delinquent principal and interest on the note; or
    (2) Use of the net proceeds from the sale of collateral to purchase 
collateral of equal or greater value for which the lender will obtain a 
first lien position; or
    (3) Application of net proceeds from the sale of collateral to the 
borrower's business operations in such a manner that enhancement of the 
borrower's debt service ability can be clearly demonstrated; for 
example, the payoff or reamortization of the loan as the result of a 
large extra payment which reduces subsequent installments on the loan; 
or
    (4) Assurance to FmHA or its successor agency under Public Law 103-
354 that the release of collateral will contribute to the project's 
success thereby furthering the goals of the B&I program to show why the 
release of collateral will contribute to the success of the borrower and 
repayment of the loan; and
    (B) FmHA or its successor agency under Public Law 103-354 must not 
be adversely affected by the release of collateral; and
    (C) If the release of collateral does not involve a reduction of the 
FmHA or its successor agency under Public Law 103-354 guaranteed debt 
equal to the net proceeds of the disposition of the collateral, then it 
must be determined that the remaining collateral is sufficient to 
provide for the recovery of the FmHA or its successor agency under 
Public Law 103-354 guaranteed loan(s).
    (ii) Sale of collateral of a going concern to the borrower, 
borrower's stockholder(s) or officer(s), the lender or lender's 
stockholder(s) or officer(s) must be based on an arm's-length 
transaction with the concurrence of FmHA or its successor agency under 
Public Law 103-354.
    (b) Personal and corporate guarantees. (1) Unconditional personal/
corporate guarantees (i.e., absolute guarantees of full and punctual 
payment and performance by the borrower) from owners or major 
stockholders as determined by FmHA or its successor agency under Public 
Law 103-354 and all partners of

[[Page 697]]

partnerships (except for limited partnerships) unless restricted by law 
will be required unless exempted as provided for in paragraph (b)(2) of 
this section. Guarantees of parent, subsidiaries, or affiliated 
companies and/or secured guarantees may also be required. FmHA or its 
successor agency under Public Law 103-354 is not a co-guarantor with the 
personal or corporate guarantors. The personal and corporate guarantees 
are part of the collateral for the loan.
    (2) An exception to the requirement for personal or corporate 
guarantees may be made by FmHA or its successor agency under Public Law 
103-354 when requested by the lender and if:
    (i) The borrower has a satisfactory and current (not over 90 days 
old) credit report, proven management, evidence of the market necessary 
to support projections, profitable historical performance of no less 
than 3 years, abundant collateral to protect the lender and FmHA or its 
successor agency under Public Law 103-354, sufficient cash flow to 
service its debts and meets key industry standards such as those of 
Robert Morris Associates, Dunn and Bradstreet or the like; or
    (ii) The borrower's stock is widely enough held so that no one 
individual can exercise control. Examples of control would include but 
are not limited to: Holding sufficient proxies and maintaining 
sufficient family or special interest voting blocks; or
    (iii) A borrower which has a parent, subsidiary, or affiliate which 
is legally restricted from guaranteeing, or if the guarantee would 
conflict with existing contractual obligations. Examples of existing 
contractual obligations include but are not limited to restrictions in 
loan agreements or in credit lines which may preclude guaranteeing.
    (3) No guarantees are required from any partners in a limited 
partnership.
    (4) As a general rule, stockholders of publicly traded corporations 
will not be required to guarantee. However, such guarantees can be 
required from some of the stockholders where such guarantees are 
determined necessary to adequately protect the interest of the 
Government.
    (5) If the guarantee would conflict with existing contractual 
restrictions, the Administrator will have the authority to grant 
exceptions to the above restrictions upon a finding by the Administrator 
that such a guarantee is not necessary to adequately protect the 
Government's interest. Relief would only be granted as to contractual 
restrictions existing at the time the lender filed an application with 
FmHA or its successor agency under Public Law 103-354.
    (6) Unsecured personal guarantees, while collateral, will not be 
considered for purposes of adequacy of security. Personal guarantees 
will be secured by collateral when business collateral offered is 
determined by FmHA or its successor agency under Public Law 103-354 to 
be insufficient or when the borrower's credit does not meet the 
program's normal requirements or anytime the lender deems such security 
should be taken.
    (7) Guarantors of borrowers will:
    (i) In the case of personal guarantees, provide current financial 
statements (not over 60 days old at time of filing), signed by the 
guarantors, which make a clear disclosure of community or homestead 
property.
    (ii) in the case of corporate guarantees, provide current financial 
statements (not over 90 days old at time of filing), certified by an 
officer of the corporation.
    (iii) When applicable, provide written evidence to FmHA or its 
successor agency under Public Law 103-354 of their inability to provide 
a guarantee because of existing contractual arrangements or legal 
restrictions.
    (c) Other requirements. (1) The lender will ascertain that no claim 
or liens of laborers, material men, contractors, subcontractors, 
suppliers of machinery and equipment or other parties are against the 
collateral of the borrower, and that no suits are pending or threatened 
that would adversely affect the collateral of the borrower when the 
security instruments are filed.
    (2) Hazard insurance with a standard mortgage clause naming the 
lender as beneficiary will be required on every loan in an amount that 
is at least the lesser of the depreciated replacement value of the 
property being insured or

[[Page 698]]

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 collateral.
    (3) Ordinarily, life insurance, which may be decreasing term 
insurance, is required for the principals and key employees of the 
borrower and will be assigned or pledged to the lender. A schedule of 
life insurance available for the benefit of the loan will be included as 
part of the application.
    (4) Workman's compensation insurance is required in accordance with 
State law.

                             Administrative

    A. Par (a)(2). FmHA or its successor agency under Public Law 103-
354's credit analysis of collateral will consist of the following:
    1. Little or no value will be assigned to unsecured personal or 
corporate guarantees.
    2. A maximum of 80 percent of current market value will be given to 
real estate. Special purpose real estate should be assigned less value.
    3. FmHA or its successor agency under Public Law 103-354 at its 
option may permit a maximum of 60 percent of book value to be assigned 
to acceptable accounts receivable; however, all accounts over 90 days 
past due, contra accounts, affiliated accounts and other accounts 
deemed, by the FmHA or its successor agency under Public Law 103-354 
official, not to be collateral will be omitted. Calculations to 
determine the percentage to be applied in the analysis are to be based 
on the realizable value of the accounts receivable taken from a current 
aging of accounts receivable from the borrower's most recent financial 
statement.
    4. A maximum of 60 percent of book value will be assigned to 
inventory.
    5. Collateral value assigned to machinery and equipment, furniture 
and fixtures will be based upon its marketability, mobility, useful life 
and alternative uses, if any.
    B. Par (b). The State Director will assure that the collateral 
values and personal and corporate guarantees are fully reviewed, 
analyzed and the loan file is documented as to the facts and reasons for 
decisions reached.



Sec. 1980.444  Appraisal of property serving as collateral.

    (a) Appraisal reports prepared by independent qualified fee 
appraisers will be required on all property that will serve as 
collateral. In the case of loans two million dollars or less, the State 
Director may modify this requirement by permitting the appraisal to be 
made by a qualified appraiser on the lender's staff with experience 
appraising the type of collateral involved. The appraisers will give 
their opinion regarding the current market value of the collateral and 
the purpose for which the appraisal will be used. The lender will be 
responsible for assuring that appropriate appraisals are made.
    (b) The lender will be responsible for determining that appraisers 
have the necessary qualifications and experience to make the appraisals. 
The lender will consult with FmHA or its successor agency under Public 
Law 103-354 for its recommendations before having the appraisal made.
    (c) The lender will determine that the fees or charges of appraisers 
are reasonable.
    (d) Independent appraisals will be made in accordance with the 
accepted format of the industry and those prepared by the lender in 
accordance with its policy and procedures. All appraisals will become 
part of the application. (See Sec. 1980.541(i)(6) of this subpart.)
    (e) If a subsequent loan request is made within 3 years from the 
date of the most recent borrower's appraisal report, and there is no 
significant change in collateral, then the FmHA or its successor agency 
under Public Law 103-354 State Director in his/her discretion, and if 
the lender agrees, may use the existing appraisal report in lieu of 
having a new appraisal prepared.
[52 FR 6501, Mar. 4, 1987, as amended at 53 FR 40401, Oct. 17, 1988]



Sec. 1980.445  Periodic financial statements and audits.

    All borrowers will be required to submit periodic financial 
statements to the lender. Lenders must forward copies of the financial 
statements and the lender's analysis of the statements to the Agency.
    (a) Audited financial statements. Except as provided in paragraphs 
(d) and (e) of this section, all borrowers with a total principal and 
interest loan balance for loans under this subpart, at the end of the 
borrower's fiscal year of

[[Page 699]]

more than $1 million, must submit annual audited financial statements. 
The audit must be performed in accordance with generally accepted 
accounting principles (GAAP). In addition, the audits are also to be 
performed in accordance with approriate Office of Management and Budget 
(OMB) circulars and any Agency requirements specified in this subpart.
    (b) Unaudited financial statements. For borrowers with a loan 
balance (principal plus interest at year-end) of $1 million or less, the 
Agency will require annual financial statements which may be statements 
compiled or reviewed by an accountant qualified in accordance with the 
publication ``Standards for Audit of Governmental Organizations, 
Programs, Activities and Functions'' instead of audited financial 
statements.
    (c) Internal financial statements. The Agency may require submission 
of financial statements prepared by the borrower at whatever frequency 
is determined necessary to adequately monitor the loan. Quarterly 
financial statements will be required on new business enterprises or 
those needing close monitoring.
    (d) Minimum requirements. This section sets out minimum requirements 
for audited and unaudited financial statements to be submitted to the 
Agency. If specific circumstances warrant, the Agency may require 
audited financial statements or independent unaudited financial 
statements in excess of the minimum requirements. For example, loans 
that depend heavily on inventory and accounts receivable for collateral 
will normally be audited, regardless of the size of the loan. Nothing in 
this section shall be considered an impediment to the lender requiring 
financial statements more frequently than required by the Agency or 
requiring audited financial statements when the Agency would accept 
unaudited financial statements.
    (e) Public bodies and nonprofit corporations. Notwithstanding other 
provisions of this section, any public body or nonprofit corporation 
that receives a guarantee of a loan that meets the thresholds 
established by OMB Circular A-128 or A-133 for coverage under such 
circular, must provide an audit in accordance with the applicable OMB 
Circular A-128 or A-133 for the fiscal year of the borrower in which the 
Loan Note Guarantee is issued. If the loan is for development or 
purchases made in a previous fiscal year through interim financing, an 
audit, in accordance with the applicable circular, will also be provided 
for the fiscal year in which the development or purchases occurred. Any 
audit provided by a public body or nonprofit corporation in compliance 
with OMB Circular A-128 or A-133 will be considered adequate to meet the 
requirements of this section for that year. OMB Circulars are available 
from the Office of Management and Budget, EOP Publications Office, 725 
17th Street, NW., Room 2200, New Executive Office Building, Washington, 
DC 20503.
[61 FR 18494, Apr. 26, 1996]



Secs. 1980.446--1980.450  [Reserved]



Sec. 1980.451  Filing and processing applications.

    (a) Borrowers' and lenders' contact. Borrowers and lenders desiring 
FmHA or its successor agency under Public Law 103-354 assistance as 
provided in this subpart may file preapplications or applications with 
the County Supervisor or District Director servicing the area in which 
the project is to be located. In either case, the requirements of 
Sec. 1980.46 of Subpart A of this part must be met. The County 
Supervisor or District Director receiving the request for assistance 
will promptly notify the State Director of the nature and facts of the 
request. The FmHA or its successor agency under Public Law 103-354 State 
Director will promptly arrange an early meeting with the borrower and 
lender representatives to discuss assembly, preparation and processing 
of preapplications and applications. The State Director may call upon 
the County Supervisor and District Director to assist the State Office 
in any way necessary.
    (b) Applications from cooperatives. Borrowers eligible for loans 
from the Bank for Cooperatives will be encouraged to obtain guaranteed 
loans from that source since the Bank for Cooperatives is experienced in 
making and servicing such loans and can provide substantial counsel to 
the applicant. Applications

[[Page 700]]

must be submitted to the Bank for Cooperatives as a test for credit 
elsewhere when an insured loan is being considered. (See FmHA or its 
successor agency under Public Law 103-354 Instruction 2000-Q available 
in any FmHA or its successor agency under Public Law 103-354 office for 
Memorandum of Understanding between FmHA or its successor agency under 
Public Law 103-354 and Farm Credit Administration.)
    (c) Borrowers eligible for Small Business Administration (SBA) 
assistance. All borrowers for loan guarantees eligible for SBA 
assistance will be advised by FmHA or its successor agency under Public 
Law 103-354 at the time of receipt of the preapplication of the 
availability of such assistance and will be encouraged to apply to that 
agency. (See FmHA or its successor agency under Public Law 103-354 
Instruction 2000-P available in any FmHA or its successor agency under 
Public Law 103-354 office for Memorandum of Understanding between SBA 
and FmHA or its successor agency under Public Law 103-354).
    (d) Loan Priorities. Applications and preapplications received by 
FmHA or its successor agency under Public Law 103-354 will be considered 
in the order received; however, for the purpose of assigning priorities 
as described in paragraph (d)(3) of this section, FmHA or its successor 
agency under Public Law 103-354 will compare an application to other 
pending applications.
    (1) FmHA or its successor agency under Public Law 103-354 will 
cooperate fully with appropriate State agencies in guaranteeing and 
insuring loans in a manner which will assure maximum support of the 
State's strategies for development of its rural areas.
    (2) When applications on hand otherwise have equal priority, the 
applications from a veteran will have preference. A veteran is a person 
who has been discharged or released from the active forces of the United 
States Army, Navy, Air Force, Marine Corps, or Coast Guard under 
conditions other than dishonorable and who served on active duty in such 
forces:
    (i) During the period April 6, 1917, though March 31, 1921;
    (ii) During the period of December 7, 1941, through December 31, 
1946;
    (iii) During the period of June 27, 1950, through January 31, 1955; 
or
    (iv) For a period of more than 180 days, any part of which occurred 
after January 31, 1955; but on or before May 17, 1975. Discharges under 
conditions other than dishonorable include ``clemency discharges.''
    (3) Priorities will be assigned by FmHA or its successor agency 
under Public Law 103-354 to eligible applications on the basis of a 
point system that takes into account project location, the creation and 
saving of jobs, the cost at which those jobs would be created or saved, 
seasonal and part-time job impact, and leveraging of FmHA or its 
successor agency under Public Law 103-354 assistance. The application 
and supporting information submitted with it will be used to determine 
an eligible proposed project's priority for available funds or guarantee 
authority. The priorities described in this paragraph will be used by 
FmHA or its successor agency under Public Law 103-354 to score projects. 
A copy of the calculation of the score should be placed in the case file 
for future reference.
    (i) Location priorities. The priority score for location will be the 
score for the highest-ranked category in which the project fits. If the 
location does not fit one of these categories, its receives no points 
for location. The categories, and their point scores, are:
    (A) Located in a city or area under 25,000 population (10 points).
    (B) Located in a city or area under 25,000 population that is in an 
area of high unemployment as of the date of application (20 points).
    (C) Located in an area of high unemployment as of the date of 
application, provided the borrower certifies in writing to the State 
Director in simple narrative or letter form that the project will employ 
on a permanent, full-time basis (providing at its own cost such training 
or retraining as may be needed) persons (numbering no fewer than 25 
percent of the project's employment) who are members of displaced farm 
families which recently derived from farming or ranching the majority of 
their combined incomes but are no

[[Page 701]]

longer actively engaged in farming or ranching as operators or employees 
(35 points).
    (ii) Jobs priorities. The priority score for jobs created and/or 
saved is the score for the highest-ranked category in which the project 
fits. If the project does not fit one of these categories, it receives 
no points for jobs. The categories, and their point scores, are:
    (A) Project will contribute to the overall economic stability of the 
project area and generate permanent jobs beyond the entrepreneur and the 
entrepreneur's household (10 points).
    (B) Project will contribute to the overall economic stability of the 
project area and will employ on a permanent, full-time basis a number of 
persons that is significant in the context of the area's economy (20 
points).
    (C) Project will contribute to the overall economic stability of the 
project area, will employ on a permanent, full-time basis a number of 
persons that is significant in the context of the area's economy, and 
will retain in that area a significant number of jobs that would 
otherwise be lost (35 points)
    (iii) Job cost priorities. The priority score for the project's cost 
per job is the score for the highest-ranked category in which the 
project fits. First, divide the amount of the FmHA or its successor 
agency under Public Law 103-354 guaranteed loan by the number of jobs 
created or saved. This will result in the cost per job. Count only full-
time jobs. Part-time jobs may be reduced to a fraction of a full-time 
job and counted. For example, a 20-hour-per-week job, or a job that is 
full-time for six months per year, is one-half of a job. Second, 
determine the State's nonmetropolitan household income as described in 
Sec. 1980.451(d)(3)(vi). Third, divide the cost per job by the State's 
nonmetropolitan household income. For example, if the cost per job is 
$10,000 and the State's nonmetropolitan household income is $20,000, the 
result will be 0.5. The categories, and their point scores are:
    (A) Loans on which the result is greater than 1.5 but less than 2.0 
(5 points).
    (B) Loans on which the result is from 1.0 to 1.5 (15 points).
    (C) Loans on which the result is less than 1.0 (25 points).
    If the result exceeds 2.0, a high cost per job in that State, no 
points are received for job cost.
    (iv) Additional Points. There shall be added to the score the points 
indicated for any and all of the following criteria met by the project.
    (A) FmHA or its successor agency under Public Law 103-354 guaranteed 
loan is less than 50 percent of project cost (5 points).
    (B) Percentage of guarantee is 10 or more percentage points less 
than the maximum allowable for a loan of its size (5 points).
    (C) Project will, in addition to any permanent full-time jobs, 
create a significant number of part-time or seasonal jobs that will 
provide additional income to underemployed residents of the project area 
without their having to give up any present part-time or seasonal jobs 
(10 points).
    (v) Administrative Points. The State Director may assign up to 20 
points to an application in addition to those points scored under 
Sec. 1980.451(d)(3) (i) through (iv). These administrative points are 
intended to be assigned by a State Director only in cases of unforeseen 
exigencies, emergencies, benefits to other FmHA or its successor agency 
under Public Law 103-354-assisted projects (including the limiting of 
financial risks affecting FmHA or its successor agency under Public Law 
103-354 loans and loan guarantees) or the loss of financing if FmHA or 
its successor agency under Public Law 103-354 funds are not committed in 
a timely fashion. They may also be assigned in cases in which the 
project's goods or services are essential to other Federally assisted 
projects and activities in the area or to the successful implementation 
of an economic development strategy for the area that is sponsored and/
or operated by an agency of the Federal or State government. An 
explanation for the assigning of these points by the State Director will 
be appended to the calculation of the project score maintained in the 
case file. If an application is considered in the National Office, the 
Administrator may also assign up to 20 points. An assignment of points 
by the Administrator

[[Page 702]]

will be by memorandum, stating the Administrator's reasons, and that 
memorandum will be appended to the calculation of the project score 
maintained in the case file. In assigning priorities to applications and 
in selecting projects for funding, FmHA or its successor agency under 
Public Law 103-354 will consider State development strategies. Funds 
(guarantee authority) allocated for use as prescribed in this regulation 
are to be considered for use by Indian tribes within the State 
regardless of whether State development plans include Indian 
reservations within the State's boundaries. It is essential that Indians 
residing on such reservations have equal opportunity to participate in 
any benefits of these programs.
    (vi) Indexation. When current, annual data are not available to 
determine a State's nonmetropolitan household income for purposes of the 
calculations described in paragraph (d)(3)(iii) of this section, 
indexation of census data is necessary. The State Director will use the 
figure from the most recent decennial census of the United States, 
increased by a factor representing the increase since the year of that 
census in the Consumer Price Index (``CIP-U''). That factor shall be 
furnished annually by the National Office, FmHA or its successor agency 
under Public Law 103-354.
    (e) Filing preapplications and applications. Borrowers or lenders 
may file preapplications described in paragraph (f) of this section if 
they desire an expression of FmHA or its successor agency under Public 
Law 103-354 interest prior to assembling the complete application and 
request for Loan Note Guarantee or they may present the complete 
application, in one package, including the material required in 
paragraphs (f), (i), (j), and (k) of this section.
    (f) Preapplications. Applicants may file preapplications with the 
County, District, or State Office including:
    (1) A letter prepared by the borrower and the lender which shall 
include:
    (i) Borrower's name, address, contact person and telephone number.
    (ii) Amount of loan request.
    (iii) Name of the proposed lender, address, contact person, and 
telephone number.
    (iv) Brief description of the projects, products and services 
provided.
    (v) Type and number of employment opportunities and unemployment 
rate where the project will be located.
    (vi) Amount of borrower's equity and guarantees offered.
    (vii) Anticipated loan maturity and interest rates.
    (viii) Availabiity of raw materials and supplies.
    (ix) If a corporation, names and addresses of borrower's parent, 
affiliates and/or subsidiary firms and a brief description of 
relationship, products and ownership among borrower, parent, affiliates 
and subsidiary firms.
    (2) Form FmHA or its successor agency under Public Law 103-354 449-
22, ``Certification of Non-Relocation and Market and Capacity 
Information Report.''
    (3) Form FmHA or its successor agency under Public Law 103-354 449-
4, ``Statement of Personal History,'' for a proprietor (owner), each 
partner, officer, director, key employee and stockholders holding 20 
percent or more interest in the borrower except for those corporations 
listed on a major stock exchange and for those so listed if required by 
FmHA or its successor agency under Public Law 103-354. Forms FmHA or its 
successor agency under Public Law 103-354 449-4 are not required to be 
submitted for elected officials and appointed officials in connection 
with loan applications from public bodies. Failure to report full, 
complete and accurate information on the Statement of Personal History 
may result in FmHA or its successor agency under Public Law 103-354's 
not making or guaranteeing the loan. Whenever possible, a local, 
regional, or national credit report, furnished by the lender, will be 
used to verify data on Form FmHA or its successor agency under Public 
Law 103-354 449-4.
    (4) A record of any pending or final regulatory or legal (civil or 
criminal) action against the borrower, parent, affiliate, proposed 
guarantors, subsidiaries, principal stockholders, officers and 
directors.

[[Page 703]]

    (5) For existing businesses, a current balance sheet, and latest 
profit and loss statement (not more than 60 days old) and financial 
statements including parent, affiliate and subsidiary firms, for at 
least the last 3 years or more if necessary for a thorough evaluation.
    (6) A detailed projection of gross revenue, net earnings and cash 
flow statements for 3 years including assumptions upon which such 
forecasts are based.
    (7) Sales projections indicating the percent of the national and 
local market the business expects to obtain.
    (8) Intergovernmental consultation should be carried out in 
accordance with 7 CFR Part 3015, Subpart V, ``Intergovernmental Review 
of Department of Agriculture Programs and Activities.'' See FmHA or its 
successor agency under Public Law 103-354 Instruction 1940-J, available 
in any FmHA or its successor agency under Public Law 103-354 Office.
    (g) Preliminary determination by FmHA or its successor agency under 
Public Law 103-354. If preparation information indicates the project 
will not meet FmHA or its successor agency under Public Law 103-354's 
minimum credit standards for a sound loan, is ineligible, does not have 
sufficient priority or that funds or guarantee authority are not 
available for the project, FmHA or its successor agency under Public Law 
103-354 will so inform the lender. The lender will be notified in 
writing with all reasons for the decision indicated. If it appears that 
the project is eligible, has sufficient priority, is economically 
feasible and loan guarantee authority is available, FmHA or its 
successor agency under Public Law 103-354 will inform the lender and 
borrower in writing and request that they complete the application.
    (h) Department of Labor certifications. FmHA or its successor agency 
under Public Law 103-354 will submit Form FmHA or its successor agency 
under Public Law 103-354 449-22 to the Department of Labor for the 
necessary certification that the proposal will not be in conflict with 
Sec. 1980.412(c) and (d).
    (i) Content of Applications:
    (1) Form FmHA or its successor agency under Public Law 103-354 449-
1.
    (2) Form FmHA or its successor agency under Public Law 103-354 449-
2.
    (3) Form FmHA or its successor agency under Public Law 103-354 1940-
20, when required by Subpart G of Part 1940 of this chapter.
    (4) Architectural or engineering plans, if applicable.
    (5) Cost estimates and forecasts of contingency funds to cover 
inflation or project changes.
    (6) Appraisal reports.
    (7) For existing businesses a pro forma balance sheet at startup and 
for at least three additional projected years, indicating the necessary 
startup capital, operating capital and short-term credit based on 
financial statements for the last three years, or more (if available); 
and projected cash flow and earnings statements for at least three years 
supported by a list of assumptions showing the basis for the 
projections. The business should submit a current balance sheet with a 
debt schedule of any debts to be refinanced and an income statement to 
FmHA or its successor agency under Public Law 103-354, through the 
lender, every 90 days from the time the application is filed with the 
lender to the time of issuance of the Loan Note Guarantee. If debt 
refinancing is requested, a debt schedule is prepared (correlated to the 
latest balance sheets) reflecting the debts to be refinanced including 
the name of the creditor, the original loan amount and loan balance, 
date of loan, interest rate, maturity date, monthly or annual payments, 
payment status and collateral that secured such loans.
    (8) For new businesses, a pro forma balance sheet at startup and for 
the next three years, project cash flow (monthly first year, quarterly 
for two additional years) and projected earnings statements for three 
years supported by a list of assumptions showing the basis for the 
projections.
    (9) Any credit reports obtained by the lender or FmHA or its 
successor agency under Public Law 103-354 on the borrower, its 
principals and parent, affiliate and subsidiary firms.
    (10) Form FmHA or its successor agency under Public Law 103-354 400-
1, ``Equal Opportunity Agreement,'' if construction costing more than 
$10,000 is involved.

[[Page 704]]

    (11) Copies of building permits, if applicable, and any necessary 
certifications and recommendations of appropriate regulatory or other 
agency having jurisdiction over the project including any pollution 
control agency.
    (12) Personal and corporate financial statements of those guarantors 
named in Sec. 1980.443.
    (13) Proposed loan agreement. (See paragraph VII of Form FmHA 449-
35). Loan agreements between the borrower and lender will be required. 
The final executed loan agreement must include the Agency requirements 
as set forth in the Form FmHA 449-14 including the requirements for 
periodic financial statements in accordance with Sec. 1980.445. The loan 
agreement must also include, but is not limited to, the following:
    (i) Prohibition against assuming liabilities or obligations of 
others.
    (ii) Restrictions on dividend payments.
    (iii) Limitation on purchase or sale of equipment and fixed assets.
    (iv) Limitations on compensation of officers and owners.
    (v) Minimum working capital requirements.
    (vi) Maximum debt to net worth ratio.
    (vii) Restrictions concerning consolidations, mergers or other 
circumstances.
    (viii) Limitations on selling the business without concurrence of 
the lender and FmHA or its successor agency under Public Law 103-354.
    (ix) Repayment and amortization of the loan.
    (x) List of collateral for the loan including a list of persons and/
or corporations guaranteeing the loan with a schedule for providing the 
lender and FmHA or its successor agency under Public Law 103-354 with 
personal and/or corporate financial statements. (See Sec. 1980.443)
    (14) A complete feasibility study when required. (See Sec. 1980.442)
    (15) Any additional information required by FmHA or its successor 
agency under Public Law 103-354.
    (16) For companies listed on major stock exchanges and/or subject to 
the Securities and Exchange Commission regulations, a copy of Form 10-K, 
``Annual Report Pursuant to section 13 or 15 D of the Act of 1934.''
    (17) Documented evidence that the project is located within or 
without special flood or mudslide hazard areas.
    (18) Notices of compliance with the Privacy Act of 1974.
    (i) If the borrower is acting in a personal capacity and not as an 
entrepreneur for such entities as proprietorships, partnerships, or 
corporations, and FmHA or its successor agency under Public Law 103-354 
solicits personal information for him/her, the individual will be 
provided Form FmHA or its successor agency under Public Law 103-354 410-
9, ``Statement Required by the Privacy Act.''
    (ii) If FmHA or its successor agency under Public Law 103-354 
desires to obtain information concerning an individual from any source, 
FmHA or its successor agency under Public Law 103-354 will provide such 
source with Form FmHA or its successor agency under Public Law 103-354 
410-10, ``Privacy Act Statement to References.''
    (19) On any request for refinancing of existing loan(s) as 
authorized under Sec. 1980.411(a)(11), the lender is required, as a 
minimum, to obtain the previously held collateral as security for the 
guaranteed loan(s). Additional collateral will be required by FmHA or 
its successor agency under Public Law 103-354 when refinancing of 
unsecured or undersecured loans is unavoidable in order to accomplish 
the necessary strengthening of the firm's current position.
    (j) Use of forms. FmHA or its successor agency under Public Law 103-
354 numbered forms will be used where shown in both preapplications and 
applications. Otherwise, lenders should use their forms, real estate 
mortgages, security instruments and other agreements, provided such 
forms do not contain any provisions that are in conflict or are 
inconsistent with provisions of the subpart.
    (k) Certificate of need. If the loan request is for health care 
facilities (e.g., hospitals or nursing homes), a ``Certificate of Need'' 
will be obtained by the borrower from the appropriate regulatory or 
other agency having jurisdiction over the project and submitted to FmHA 
or its successor agency under

[[Page 705]]

Public Law 103-354 by the lender. If a significant part of the project's 
income will be from third party payors, (e.g., medicare or medicaid), 
the project will be designed and operated in a manner necessary to meet 
the requirements of the third-party payors.

                             Administrative

                         A. The State Director:

    1. Determines if material and information submitted is completed and 
signed by the appropriate party in the appropriated capacity.
    2. May request the comments and recommendations of the County 
Supervisor and District Director. Such comments will include but are not 
limited to the following: Community attitude toward project; a summary 
of comments regarding the proposal by the lender, county leaders and 
other interested parties; whether the project is likely to result in the 
need for additional community facilities such as schools, water, sewer 
and health care services, and if so, the community's plan for providing 
such facilities; availability of any required additional labor force and 
training plans for such force, if needed; an economic forecast of the 
effect on the community should the project fail, if financed.
    3. Will furnish all individuals acting in a personal capacity at the 
time of filing a preapplication or application and two copies of Form 
FmHA or its successor agency under Public Law 103-354 410-9. The 
individual will sign both copies, retaining one and providing FmHA or 
its successor agency under Public Law 103-354 with the other copy which 
becomes a part of the loan file.
    4. Will provide any source whom FmHA or its successor agency under 
Public Law 103-354 obtains information concerning an individual with two 
copies of Form FmHA or its successor agency under Public Law 103-354 
410-10. The source will sign both copies, retain one and provide FmHA or 
its successor agency under Public Law 103-354 with the other copy which 
becomes a part of the loan file.
    5. Will input the necessary data via terminal screens into the Rural 
Community Facility Tracking System (RCFTS). The RCFTS data structure 
consists of 3 sets: Applicant/Borrower (BOR), Facility (FAC), and Loan/
Grant Request (LGR) sets. There are multiple screens for the BOR and LGR 
sets. The State Director may, if he/she so desires, prepare a Form FmHA 
or its successor agency under Public Law 103-354 2033-34, ``Management 
System Card--Business and Industry,'' in accordance with FmHA or its 
successor agency under Public Law 103-354 Instruction 2033-F.
    6. Will forward immediately to the National Office on all projects.
    (a) Form FmHA or its successor agency under Public Law 103-354 449-
22 (7 copies) for loans over $1 million and when direct employment 
increases more than 50 employees.
    (b) For insured loans where the borrower leases facilities to 
another, submit Form FmHA or its successor agency under Public Law 103-
354 449-22 for such borrower. The lessor(s) will also be required to 
provide Form FmHA or its successor agency under Public Law 103-354 449-
22. Subsequent loan requests require resubmission of Form FmHA or its 
successor agency under Public Law 103-354 449-22.
    (c) A local, national or regional credit report and Form FmHA or its 
successor agency under Public Law 103-354 449-4 for all loans over one 
million dollars or for loans, regardless of size, when the State 
Director believes a character evaluation check is advisable.

    Note: Forms FmHA or its successor agency under Public Law 103-354 
449-22 and FmHA or its successor agency under Public Law 103-354 449-4 
should only be processed if a complete preapplication or application has 
been received.

    B. Miscellaneous Administrative provisions:
    1. Par (f). Preapplications are not to be accepted or processed 
unless a lender has agreed in writing to finance the proposal. The 
preapplication letter is a joint letter prepared by the borrower and 
lender.
    2. Par (g). Upon receipt of all preapplications in excess of $5 
million, the State Director will transmit to the National Office the 
material required under paragraph (f)(1), (f)(4) and (f)(5) of this 
section together with recommendations and observations an analysis of 
the quality and permanency of the employment opportunities involved in 
the project. The National Office will review the proposed project in 
relation to objectives, priorities and intent of the program and will 
advise the State Director. After receiving the National Office advice or 
for loans less than $5 million, the State Director will inform the 
borrower of the decision.
    3. Par (i). State Director submits a transmittal letter with 
recommendations on loan applications requiring National Office review. 
Included are:
    (a) Loan file.
    (b) Form FmHA or its successor agency under Public Law 103-354 449-
29, ``Project Summary--Business Industrial Loan Division,'' including 
State Director's a spread sheets, financial history and projections (use 
attachments to Project Summary if necessary).
    (c) Proposed Form FmHA or its successor agency under Public Law 103-
354 449-14.
    (d) Copy of FmHA or its successor agency under Public Law 103-354 
State Loan Review Board Minutes.

[[Page 706]]

    (e) Notification of required financial and other reports, their 
frequency, due dates and fiscal yearend.
    4. Par (i)(9), Credit reports.
    (a) The National Office has a contract to provide credit reports for 
preapplications, applications, and in instances after the loan(s) is 
made, where a credit report is needed.
    (b) States should first try to have the lender provide such a report 
because credit reports are the responsibility of the lender.
    (c) Any state needing a credit report should telephone the National 
Office, Director, B&I, and give the name of the business and the city 
and State location. The report will be mailed to the State the same day, 
if possible.
    5. File documentation. Applications will be organized in a loan file 
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.) An 8-position folder with tabs will be 
utilized.
    The State Director may supplement the Position Guides to include 
specific legal requirements within their State. If the lender prepares a 
complete application package, it may accompany the docket provided the 
docket is organized in a binder, indexed and tabbed. Feasibility studies 
should be kept separate. It is the responsibility of FmHA or its 
successor agency under Public Law 103-354 employees who work on 
applications or servicing actions to add to the correspondence section 
of the loan file (also known as the running record) a written report of 
any field visits, meetings, telephone conversations and memorandums 
covering decisions or reasons for FmHA or its successor agency under 
Public Law 103-354's actions on the cases. Particular attention must be 
given to this requirement on cases that become delinquent or problems in 
order that FmHA or its successor agency under Public Law 103-354 
position will be defensible in the event of an adverse action.
    6. Par (i), (13), Audit agreements and requirements. FmHA or its 
successor agency under Public Law 103-354 urges the use of a written 
agreement between the lender and borrower to assure that there is no 
misunderstanding concerning FmHA or its successor agency under Public 
Law 103-354 audit requirements.
    7. Par (i), Forms and documents found in loan docket. The following 
table is a guide to forms and documents used in completing an 
application and loan docket. The filing position within the 8 position 
folder is shown on the right. Some of these items may not be applicable 
for a particular loan. However, a complete loan docket may need to 
include items in addition to the following:

             Description of Record or Form Number and Title             
------------------------------------------------------------------------
                                                                 Filing 
                                                                position
------------------------------------------------------------------------
AD-425........................  Contractor's Affirmative               1
                                 Action Plan For Equal                  
                                 Employment Opportunity.                
FmHA or its successor agency    Equal Opportunity Agreement..          6
 under Public Law 103-354 400-                                          
 1.                                                                     
FmHA or its successor agency    Notice to Contractors and              6
 under Public Law 103-354 400-   Applicants.                            
 3.                                                                     
FmHA or its successor agency    Assurance Agreement..........          3
 under Public Law 103-354 400-                                          
 4.                                                                     
FmHA or its successor agency    Compliance Statement.........          6
 under Public Law 103-354 400-                                          
 6.                                                                     
FmHA or its successor agency    Applicant Reference Letter...          3
 under Public Law 103-354 410-                                          
 8.                                                                     
FmHA or its successor agency    Statement Required by the              3
 under Public Law 103-354 410-   Privacy Act.                           
 9.                                                                     
FmHA or its successor agency    Privacy Act Statement to               3
 under Public Law 103-354 410-   References.                            
 10.                                                                    
FmHA or its successor agency    Inspection Report............          6
 under Public Law 103-354 424-                                          
 12.                                                                    
FmHA or its successor agency    Request for Obligation of              2
 under Public Law 103-354 1940-  Funds--Guaranteed Loans;               
 3.                              Filing Position 2.                     
FmHA or its successor agency    Environmental Checklist for            3
 under Public Law 103-354 1940-  Categorical Exclusion, or.             
 22.                                                                    

[[Page 707]]

                                                                        
FmHA or its successor agency    Environmental Assessment for           3
 under Public Law 103-354 1940-  Class I Action, or.                    
 21.                                                                    
Exhibit H, Subpart G of Part    Environmental Assessment for           3
 1940.                           Class II Action.                       
                                Environmental Impact                   3
                                 Statement.                             
FmHA or its successor agency    Acknowledgement of Obligated           2
 under Public Law 103-354 440-   Funds/Check Request.                   
 57.                                                                    
FmHA or its successor agency    Application for Loan and               3
 under Public Law 103-354 449-   Guarantee.                             
 1.                                                                     
FmHA or its successor agency    Statement of Collateral......          5
 under Public Law 103-354 449-                                          
 2.                                                                     
FmHA or its successor agency    Statement of Personal History          3
 under Public Law 103-354 449-                                          
 4.                                                                     
FmHA or its successor agency    Request for Environmental              3
 under Public Law 103-354 1940-  Information.                           
 20.                                                                    
FmHA or its successor agency    Condition Commitment for               2
 under Public Law 103-354 449-   Guarantee.                             
 14.                                                                    
FmHA or its successor agency    Certification of Non-                  3
 under Public Law 103-354 449-   relocation and Market and              
 22.                             Capacity Information Report.           
FmHA or its successor agency    Project Summary--Business              3
 under Public Law 103-354 449-   Industrial Loan Division.              
 29.                                                                    
FmHA or its successor agency    Loan Note Guarantee..........          2
 under Public Law 103-354 449-                                          
 34.                                                                    
FmHA or its successor agency    Lender's Agreement...........          2
 under Public Law 103-354 449-                                          
 35.                                                                    
FmHA or its successor agency    Assignment Guarantee                   2
 under Public Law 103-354 449-   Agreement.                             
 36.                                                                    
FmHA or its successor agency    Guaranteed Loan Closing                2
 under Public Law 103-354 1980-  Report.                                
 19.                                                                    
                                Annual Audit Report..........          1
                                Borrower Financial Statements          3
                                Chattel Security Instruments.          1
                                Report--Exhibit B, FmHA or             1
                                 its successor agency under             
                                 Public Law 103-354                     
                                 Instruction 2015--C.                   
                                Borrower's Certification of            1
                                 Indebtedness.                          
                                Lender's Loan Agreement......          2
                                Promissory Notes.............          2
                                Bond (specimen) Bond                   2
                                 Ordinances, Bond Transcripts           
                                 or Similar Items.                      
                                Running Case Record..........          3
                                Market Analysis Information            3
                                 (feasibility study).                   
                                Borrower's and Lender's                3
                                 Preapplication Letters.                
                                Lender's Evaluation and                3
                                 Recommendations.                       
                                Cost Estimates and Forecast            6
                                 for Contingency Funds.                 
                                Dun and Bradstreet Reports...          3
                                Corporate or Personal                  3
                                 Financial Statements of                
                                 Guarantors.                            
                                S.E.C. 10-K Report...........          3
                                Pro-forma Balance Sheet......          3
                                Current Profit and Loss                3
                                 Statements.                            
                                Projection of Gross Revenues           3
                                 and Net Earnings.                      
                                Cash Flow Statements, 3 Years          3
                                 with Assumptions.                      
                                Appraisal Reports............          8
                                Documentation for Considering          3
                                 Refinancing.                           
                                Financial Statements for last          3
                                 3 years.                               
                                Complete Debt Schedule.......          3
                                Interim Financial Statements.          3

[[Page 708]]

                                                                        
                                Aging and Turnover of                  3
                                 Receivables and Inventory.             
                                Credit Reports...............          3
                                Records of any Pending or              3
                                 Final Regulatory Litigation.           
                                Comments on any State                  3
                                 Development Strategies..               
                                Flood or Mudslide Hazard Area          3
                                 Statement.                             
                                National Historic                      3
                                 Preservation Act Statement.            
                                State Review Board Minutes...          3
                                Certificate of Need (Health            3
                                 Care Facilities).                      
                                Clean Air and Water Pollution          3
                                 Control Act Requirements               
                                 Statement.                             
                                Correspondence (excluding              4
                                 closing instruments).                  
                                Department of Labor                    4
                                 Certification.                         
                                Mortgagee Title Insurance              5
                                 Policy.                                
                                Title Opinions...............          5
                                By-Laws, Resolutions, or               5
                                 Regulations and Amendments.            
                                Articles of Incorporation, By-         5
                                 laws and Regulations or                
                                 Charter.                               
                                Lender Security agreements             5
                                 and Financing Statements.              
                                Lender Mortgages and Notes...          5
                                Advice of Office of General            5
                                 Counsel from Review of                 
                                 Docket.                                
                                Partnership Agreements.......          5
                                Other Documents used in Loan           5
                                 Closing.                               
                                Schedule of Stock Ownership..          5
                                Franchise Agreement..........          5
                                Construction Contracts and             6
                                 Compliance Statements.                 
                                Lender's Approval of Plans             6
                                 and Specifications.                    
                                Engineer's Certification of            6
                                 Satisfactory Completion in             
                                 Accordance with Plans and              
                                 Specifications.                        
                                Lender's Audit of                      6
                                 Expenditures and Project               
                                 Costs.                                 
                                Evidence of Concurrence and            6
                                 compliance with Construction           
                                 Requirements of State,                 
                                 County, and Municipal                  
                                 Government (including                  
                                 building permits).                     
                                Lender's Closing                       6
                                 Certification.                         
                                Lender's Loan Servicing Plan.          6
                                Loan Closing Opinion of                6
                                 Lender's Legal Counsel.                
------------------------------------------------------------------------

[52 FR 6501, Mar. 4, 1987, as amended at 53 FR 40401, Oct. 17, 1988; 53 
FR 45258, Nov. 9, 1988; 55 FR 26199, June 27, 1990; 56 FR 8271, Feb. 28, 
1991; 61 FR 18495, Apr. 26, 1996]



Sec. 1980.452  FmHA or its successor agency under Public Law 103-354 evaluation of application

    FmHA or its successor agency under Public Law 103-354 will evaluate 
the application and make a determination whether the borrower is 
eligible, the proposed loan is for an eligible purpose and that there is 
reasonable assurance of repayment ability, sufficient collateral and 
sufficient equity and the proposed loan complies with all applicable 
statutes and regulations. If FmHA or its successor agency under Public 
Law 103-354 determines it is unable to guarantee the loan, the lender 
will be informed in writing. Such notification will include the reasons 
for denial of the guarantee. If FmHA or its successor agency under 
Public Law 103-354 is able to guarantee the loan, it will provide the 
lender and the borrower with Form FmHA or its successor agency under 
Public Law 103-354 449-14, listing all requirements for such guarantees. 
FmHA or its successor agency under Public Law 103-354 will include in 
the requirements of the Conditional Commitment for Guarantee a full 
description of the approved use of guaranteed loan funds as reflected in 
the Form FmHA or its successor agency under Public Law 103-354 449-1. 
The Conditional Commitment for Guarantee may not be issued on any loan 
until the State Director has been notified by the National Officer that 
the Statements of Personal History(s) have been processed and cleared. 
FmHA or its successor agency under Public Law 103-354 State Directors 
are the only persons authorized to execute Form FmHA or its successor 
agency under Public Law 103-354 449-14.

                             Administrative

    State Director evaluates the application and considers:
    A. Rural area determinations. (See Sec. 1980.405 of this subpart.)

[[Page 709]]

    B. Community impact of the proposal which includes:
    1. Number of businesses and industries in the town or city.
    2. Employment impact upon the community.
    3. Availability of skilled and unskilled labor and permanency of 
employment opportunities.
    4. Vocational and educational facilities to provide skilled labor, 
if applicable.
    5. Policies of applicant regarding unemployment, lay-offs, wage 
scales, etc.
    C. If debt refinancing is requested, consider in accordance with 
Sec. 1980.411(a)(11) of this subpart and:
    1. A complete review will be made to determine whether it is 
essential to restructure the company's debts on a schedule that will 
allow the business to operate successfully rather than merely 
guaranteeing an unsound loan.
    (a) Obtain a borrower's complete debt schedule. Schedule should 
agree with borrower's latest balance sheet.
    (b) Determine from lender if the borrower's present loan(s) is on 
the lender's regulatory examiner's report and if so determine the loan 
classification.
    (c) Analyze lender's liability ledger on the borrower, individual 
customer credit file, installment Loan Ledger Card or Computer printouts 
and other credit reports.
    (d) The percentage of guarantee should be adjuted to assure that the 
lender does not bring its previously existing unguaranteed exposure 
under the guarantee.
    (e) Any special servicing requirements should be identified and 
included in the Conditional Commitment for Guarantee.
    D. Applications will be analyzed by an FmHA or its successor agency 
under Public Law 103-354 State Loan Review Board before execution of 
Form FmHA or its successor agency under Public Law 103-354 449-14. When 
analyzing the B&I loan request, the State Loan Review Board will 
specifically address the issue of the guarantee percentage to be 
approved. Consideration of reducing the maximum guarantee to less than 
90 percent is appropriate when the loan has sufficient strength to 
warrant further participation by the private sector or refinancing of 
existing lender debts to the borrower is involved. Ordinarily, B&I loan 
guarantees should be structured so that the lender bears a significant 
portion of the risk of loss from a default. ``Significant'' means equal 
to or greater than 20 percent of the loss stemming from default. All 
review board meetings will be fully documented, including the review and 
decision concerning the guarantee percentage, and will be signed by 
those FmHA or its successor agency under Public Law 103-354 employees 
serving on the board. A copy of such documentation will be retained in 
the loan file.
    1. Generally, the review board consists of the State Director as 
Chairperson, Community and Business Program Chief or the Business and 
Industry Chief (Loan Specialist) and either the Community Programs 
Chief, Rural Housing Chief, or Farmer Programs Chief, as appropriate.
    2. The State Director may wish to contact non-FmHA or its successor 
agency under Public Law 103-354 sources for expertise, such as banker or 
other lenders, industrial development specialists from state 
commissions, academicians, certified public accountants, tax attorneys, 
successful business and professional lenders, management consultants and 
officials from other Federal agencies. Outside resource consultants may 
be reimbursed only for their travel costs (transportation and 
subsistence). (See FmHA or its successor agency under Public Law 103-354 
Instruction 2036-A which is available in any FmHA or its successor 
agency under Public Law 103-354 Office).
    3. The Rural Housing Loan Chief will be a member of the FmHA or its 
successor agency under Public Law 103-354 State Loan Review Board if a 
site development loan (see Sec. 1980.411(a)(7) of this subpart) is being 
considered. The Community and Business Programs Chief (Loan Specialist) 
will be a member if a loan for facilities of the type financed under the 
provisions of Subpart A of Part 1942 of this chapter is being 
considered. The Farmer Programs Chief will be a member of the board if a 
project, the success of which is dependent on the production of 
agricultural products, is being considered. If the proposed project 
covers more than one program area, all the chiefs for those programs 
involved will be members of the board. If the approval of an application 
for a B&I loan may result in benefiting or hindering other FmHA or its 
successor agency under Public Law 103-354 programs, the review board 
will determine whether the making of such loan or guarantee is likely to 
result in embarrassment for FmHA or its successor agency under Public 
Law 103-354 as a result of a possible conflict of interest whereby other 
parties may accuse the agency of giving loan preference to housing 
borrowers (in the case of site development) or producers (in the case of 
agricultural processing plants) or other FmHA or its successor agency 
under Public Law 103-354 programs.
    4. The State Director may request the County Supervisor and/or 
District Director to attend the review board meeting whenever it is 
determined they may have special knowledge of the proposed loan which 
may affect the board's decision.
    5. Prior to submission of a B&I guaranteed loan(s) request to the 
National Office for loan processing review and prior to loan approval, 
the appropriate loan processing official must visit the project site and 
discuss

[[Page 710]]

the loan proposal with the lender and borrower. In the event there are 
multiple project sites the official should visit a representative sample 
of project sites to develop deeper understanding of the project 
operation. For businesses without a developed project site a visit is 
not necessary; however, a visit with the lender and borrower is still 
required. The findings of the visit should be documented in the loan 
docket submitted to the National Office.
    6. The State Director will prepare an original and two copies of 
Form FmHA or its successor agency under Public Law 103-354 1940-3 for 
each loan to be obligated. Also, for each initial loan, Form FmHA or its 
successor agency under Public Law 103-354 1980-50, ``Add, Delete, or 
Change Guaranteed Loan Borrower Information,'' will be prepared. The 
State Director will sign the original and one copy and conform the 
second copy. Form FmHA or its successor agency under Public Law 103-354 
1940-3 will not be mailed to the Finance Office. Notice of approval to 
lender will be accomplished by providing or sending the lender the 
signed copy of Form FmHA or its successor agency under Public Law 103-
354 1940-3 and Form FmHA or its successor agency under Public Law 103-
354 449-14 on the obligation date, unless the Administrator has given 
prior authorization to the Finance Office to obligate before the 6-day 
reservation period and directs the State Director to forward Form FmHA 
or its successor agency under Public Law 103-354 1940-3 to the lender in 
advance of issuance of Form FmHA or its successor agency under Public 
Law 103-354 449-14. The State Director or designee will record the 
actual date of lender notification on the original of the Form FmHA or 
its successor agency under Public Law 103-354 1940-3 and retain the 
original of the form as a permanent part of the FmHA or its successor 
agency under Public Law 103-354 case file. The State Director may retain 
the remaining conformed copy of Form FmHA or its successor agency under 
Public Law 103-354 1940-3. The State Director or designee will use the 
State Office terminal to request reservation/obligation of funds. Use of 
the telephone for the reservation/obligation of funds is restricted to 
those instances when the State Office terminal is inoperative. Form FmHA 
or its successor agency under Public Law 103-354 1980-50 will be 
prepared and distributed for initial loans only.
    a. Immediately after contacting the Finance Office, the requesting 
official will furnish the requesting office's security identification 
code. Failure to furnish the security code will result in rejection of 
the request for reservation of authority. After the security code is 
furnished, all pertinent information contained on Form FmHA or its 
successor agency under Public Law 103-354 1940-3 will be furnished to 
the Finance Office. Upon receipt of the telephone request for 
reservation of authority, the Finance Office will record all information 
necessary to process the request for reservation in addition to the date 
and time of the request.
    b. The individual making the telephone request will record the date 
and time of the telephone request and place his/her signature in section 
35 of Form FmHA or its successor agency under Public Law 103-354 1940-3.
    c. The Finance Office will terminally process telephone reservation 
requests. Those requests for reservation received before 2:30 p.m. 
Central Time, to the extent possible, will be processed on the date 
received; however, there may be instances in which the reservation will 
be processed on the next working day.
    d. Each working day the Finance Office will notify the State Office 
by telephone of all projects for which authority was reserved during the 
previous night's processing cycle and the date of obligation. If 
authority cannot be reserved for a project, the Finance Office will 
notify the State Office that authority is not available within the State 
allocation. The obligation date will be 6 working days from the date of 
the request for reservation of authority which is being processed in the 
Finance Office. The Finance Office will mail to the State Director Form 
FmHA or its successor agency under Public Law 103-354 440-57, 
``Acknowledgment of Obligated Funds/Check Request,'' prepared in 
duplicate, confirming the reservation of authority with the obligation 
date inserted as required by item No. 9 on the FMI for Form FmHA or its 
successor agency under Public Law 103-354 440-57. Immediately after 
notification by telephone of the reservation of authority, the State 
Director will call the Legislative Affairs and Public Information staff 
in the National Office as required by FmHA or its successor agency under 
Public Law 103-354 Instruction 2015-C (available in any FmHA or its 
successor agency under Public Law 103-354 office).
    e. See FmHA or its successor agency under Public Law 103-354 
Instruction 2015-C (available in any FmHA or its successor agency under 
Public Law 103-354 office) for notification procedures.
    7. State Director notifies the lender and borrower if he/she will 
not issue the Form FmHA or its successor agency under Public Law 103-354 
449-14.
[52 FR 6501, Mar. 4, 1987, as amended at 53 FR 45258, Nov. 9, 1988; 56 
FR 8271, Feb. 28, 1991]



Sec. 1980.453  Review of requirements.

    (a) Immediately after reviewing the conditions and requirements in 
Form FmHA or its successor agency under Public Law 103-354 449-14 the 
lender and applicant should complete and sign the ``Acceptance of 
Conditions,'' and

[[Page 711]]

return a copy to the FmHA or its successor agency under Public Law 103-
354 State Director. If certain conditions cannot be met, the lender and 
borrower may propose alternate conditions to FmHA or its successor 
agency under Public Law 103-354.
    (b) If the lender indicates in the ``Acceptance of Conditions'' that 
it desires to obtain a Loan Note Guarantee and subsequently decides at 
any time after receiving a conditional commitment that it no longer 
wants a Loan Note Guarantee, the lender will immediately advise the FmHA 
or its successor agency under Public Law 103-354 State Director.

                             Administrative

    A. The State Director will negotiate with the lender and proposed 
borrower any changes made to the initially issued or proposed Form FmHA 
or its successor agency under Public Law 103-354 449-14. For loans 
requiring National Office concurrence, a copy of Form FmHA or its 
successor agency under Public Law 103-354 449-14 and any amendments 
thereto will be included when the loan file is submitted to the National 
Office for review. When the National Office recommends modifications or 
additions to Form FmHA or its successor agency under Public Law 103-354 
449-14, the State Director will further negotiate these recommendations 
with the lender and proposed borrower. If, as a result of these further 
negotiations, the lender, proposed borrower or State Director presents 
alternate conditions which would result in a change in the scope of the 
proposed project and if the loan exceeds the State Director's loan 
approval authority, the State Director will submit these conditions by 
memorandum to the National Office for consideration with a copy of the 
revised Form FmHA or its successor agency under Public Law 103-354 449-
14 and any amendments thereto. If the loan is within the State 
Director's loan approval authority, the State Director may approve such 
changes.
    B. On loan applications within the State Director's loan approval 
authority, the State Director will submit to the National Office, 
Business and Industry Division, within 30 days after the Form FmHA or 
its successor agency under Public Law 103-354 449-14 has been accepted:
    1. A copy of Form FmHA or its successor agency under Public Law 103-
354 449-29.
    2. A copy of Form FmHA or its successor agency under Public Law 103-
354 449-14 is accepted by the lender and borrower.
    2. A copy of FmHA or its successor agency under Public Law 103-354 
State Loan Review Board Minutes.
    4. Notification of required financial and other reports, their 
frequency, due dates and fiscal year-end.
    5. A copy of the proposed loan agreement between the lender and the 
borrower.
    6. When debt refinancing is involved, a copy of the justification 
for the refinancing.
    7. The cover memorandum should indicate whether the Form FmHA or its 
successor agency under Public Law 103-354 449-34 has been issued. If the 
Loan Note Guarantee has been issued, enclose a copy of the Lender 
Certification required by Sec. 1980.60(a) of Subpart A of this part, 
and, if not, a proposed date for issuance of the Form FmHA or its 
successor agency under Public Law 103-354 449-34.
[52 FR 6501, Mar. 4, 1987, as amended at 54 FR 28022, July 5, 1989; 57 
FR 4359, Feb. 5, 1992]



Sec. 1980.454  Conditions precedent to issuance of the Loan Note Guarantee.

    In addition to compliance with the requirements of Sec. 1980.60 of 
subpart A of this subpart, compliance with the following provisions are 
required prior to issuance of the Loan Note Guarantee.
    (a) Transfer of lenders. The FmHA or its successor agency under 
Public Law 103-354 State Director may approve a substitution of a new 
eligible lender in place of a former lender who holds an outstanding 
Conditional Commitment for Guarantee (where the Loan Note Guarantee has 
not yet been issued and the loan is within the State Director's loan 
approval authority) provided there are no changes in the borrower's 
ownership or control, loan purposes, scope of project and loan 
conditions in the Form FmHA or its successor agency under Public Law 
103-354 449-14 and the loan agreement remains the same. To effect such a 
substitution, the former lender will provide FmHA or its successor 
agency under Public Law 103-354 with a letter stating the reasons it no 
longer desires to be a lender for the project. For loans in excess of 
the State Director's loan approval authority, National Office 
concurrence is required. The State Director will submit a recommendation 
concerning the transfer of lenders along with the lender's letter 
stating the reasons it no longer desires to be a lender for the project. 
The substituted lender will execute a new Part ``B'' of Form FmHA or its 
successor agency under Public Law 103-354 449-1. If approved by FmHA

[[Page 712]]

or its successor agency under Public Law 103-354, the State Director 
will issue a letter or amendment to the original Form FmHA or its 
successor agency under Public Law 103-354 449-14 reflecting the new 
lender and the new lender will acknowledge acceptance of the letter or 
amendment in writing.
    (b) Substitution of borrowers. FmHA or its successor agency under 
Public Law 103-354 will not issue a Loan Note Guarantee to the lender 
who is in receipt of a Form FmHA or its successor agency under Public 
Law 103-354 449-14 with an obligation in a previous fiscal year if the 
originally approved borrower (including changes in legal entity) or 
owners are changed. The only exception to this provision prohibiting a 
change in the legal entity's form of ownership is when the originally 
approved borrower or owner is replaced with substantially the same 
individuals with substantially the same interests, as originally 
approved and identified in the Form FmHA or its successor agency under 
Public Law 103-354 449-1, item 15. All requests for exceptions must be 
approved by the FmHA or its successor agency under Public Law 103-354 
National Office.
    (c) Changes in terms and conditions in Form FmHA or its successor 
agency under Public Law 103-354 449-14. It is the intent of FmHA or its 
successor agency under Public Law 103-354 that once the Form FmHA or its 
successor agency under Public Law 103-354 449-14 is issued and accepted 
by the lender, the commitment is not to be modified as to the scope of 
the project, overall facility concept, project purpose, use of proceeds 
or terms and conditions. Should changes be requested by the lender, the 
State Director will negotiate with the lender and proposed borrower any 
proposed changes to the originally accepted Form FmHA or its successor 
agency under Public Law 103-354 449-14. If, as a result of these 
negotiations, the lender, proposed borrower or State Director presents 
alternate conditions which would result in a change in the scope of the 
project, and if the loan exceeds the State Director's loan approval 
authority, the State Director will submit these changes in the 
conditions by memorandum to the National Office for consideration with a 
copy of the revised Form FmHA or its successor agency under Public Law 
103-354 449-14 and any amendments thereto. Changes to the conditional 
commitment may be approved by the State Director for loans within their 
loan approval authority.
    (d) Additional requirements for B&I guaranteed loans. All B&I 
borrowers and lenders, as applicable, must comply with Appendix D, 
paragraphs (I) (A) and (B); (II)(A) through (II)(A)(2)(g)(1); (II) (B) 
and (C); (III) (A), (B), (C), (D), and (E).
    (e) Preguarantee review. Coincident with, or immediately after loan 
closing, the lender will contact FmHA or its successor agency under 
Public Law 103-354 and provide those documents and certifications 
required in Secs. 1980.60 and 1980.61 of subpart A of this part. Only 
when the FmHA or its successor agency under Public Law 103-354 B&I or 
C&BP Chief or Loan Specialist, as required in paragraph B. 
(Administrative) of this section, is satisfied that all conditions for 
the guarantee have been met will the Loan Note Guarantee be executed.
    (f) Loan closing. When loan closing plans are established, the 
lender will notify FmHA or its successor agency under Public Law 103-
354.
    (g) Closing of working capital loans. The State Director will not 
issue a Loan Guarantee for a working capital loan prior to the 
completion of all proposed construction for the project. Working capital 
loan funds will not be used to pay short-term notes.

                             Administrative

    A. The State Director reviews: 1. [Reserved]
    2. Plans for inspections made on construction projects. These should 
be coordinated with the lender and borrower. Form FmHA or its successor 
agency under Public Law 103-354 424-12, ``Inspection Reports,'' may be 
used by the State Engineer or Architect who will make an inspection of 
the projects which involve substantial construction. The inspection 
shall be completed prior to the issuance of the Loan Note Guarantee to 
assure all construction is complete. The State Loan Specialist or Chief 
may also participate in the inspections.
    3. Cost overruns, if any, and how they will be met. State Directors 
may approve cost overruns for projects in any amount or percentage 
within their loan approval authority

[[Page 713]]

not to exceed 10 percent in loan amounts between $1 million and $10 
million.
    4. Basic credit requirements of all loans.
    B. In all cases, the Program Chief or the B&I Loan Specialist will 
conduct a preguarantee review before issuance of the Loan Note Guarantee 
to assure that all requirements of the application, Conditional 
Commitment for Guarantee and Loan Agreement have been met including the 
required certifications using language specified by the regulations, and 
will provide such verification in the loan file, including arrangements 
for annual audit reports. In the conduct of this review, all 
requirements of Sec. 1980.60(a) of Subpart A of this part will be 
reviewed and special attention should be paid to reviewing current 
financial statements of the borrower to assure that no adverse change 
has taken place. The District Director may participate in the review.
    C. The State Director or any other FmHA or its successor agency 
under Public Law 103-354 personnel shall not sign any documents other 
than those specifically provided for in Subparts A or E of this part. No 
certificates shall be signed except the ``Certificate of Incumbency and 
Signature'' as set forth as Appendix B of this subpart.
    D. Par (a) Transfer of Lender. The State Director will analyze all 
requests for substituted lenders including the servicing capability, 
eligibility and experience of the new lender before the request is 
approved. If approved, notify the Finance Office of the change using 
Form FmHA or its successor agency under Public Law 103-354 1980-42, Do 
not deobligate and reobligate the loan if the Form FmHA or its successor 
agency under Public Law 103-354 449-14 was issued in a previous fiscal 
year.
    E. Par (b) Substitution of borrowers. The State Director will review 
any request for exceptions to substitution of borrowers and forward such 
requests with a memorandum of facts and recommendations to the National 
Office for a decision. The National Office will not approve any request 
where the legal entity is changed, such as from a corporation to a 
partnership, etc., or if the ownership changes more than 20 percent.
    F. Par (c) Changes in terms and conditions in Form FmHA or its 
successor agency under Public Law 103-354 449-14. The State Director 
will review any request for changes to Form FmHA or its successor agency 
under Public Law 103-354 449-14. Only those changes which do not 
materially affect the project, its capacity, employment, original 
projections or credit factors may be approved. Changes in legal entities 
or where tax considerations are the reason for change will not be 
approved when modifying any loan guarantee or conditions of guarantee. 
State Directors may approve these changes in terms and conditions if the 
loan is within the State Director's loan approval authority and the 
change will not result in a major change in the scope of the project. 
Changes in terms and conditions for loans in excess of the State 
Director's loan approval authority, must be submitted to the National 
Office with a memorandum of facts and recommendations for review and 
concurrence.

    In order to identify the number and types of action taken, the 
following procedures are to be followed when requests of this type are 
approved by FmHA or its successor agency under Public Law 103-354.

    1. Start with the number 1 when the first modification is approved 
and enter this number in the upper right hand corner of the Letter of 
Concurrence and on the related ``Modification or Administration Action'' 
sheet.
    2. Next to the modified wording on the work copy of the Conditional 
Commitment for Guarantee and the Term Loan Agreement or any form which 
has been modified, pencil in a short cross reference to the modification 
and identify the number given it.
    3. File the copies of the ``Modification or Administrative Action'' 
sheet and related Letters of Concurrence numerically in the docket 
directly on top of the affected original documents of conditions.
    4. This order of recordkeeping should include any requests which 
were declined by the National Office.
[52 FR 6501, Mar. 4, 1987, as amended at 53 FR 26413, July 12, 1988; 57 
FR 4359, Feb. 5, 1992; 61 FR 18495, Apr. 26, 1996]



Secs. 1980.455--1980.460  [Reserved]



Sec. 1980.461  Issuance of Lender's Agreement, Loan Note Guarantee, and Assignment Guarantee Agreement.

    [See Sec. 1980.61 of Subpart A, of this part]

                             Administrative

    A. Par (a) of Subpart A, Sec. 1980.61. The original Form FmHA or its 
successor agency under Public Law 103-354 449-35 will be retained in the 
FmHA or its successor agency under Public Law 103-354 loan file.
    B. Par (b)(1) of Subpart A, Sec. 1980.61. Copies of all issued Loan 
Note Guarantees will be kept in the FmHA or its successor agency under 
Public Law 103-354 loan file.
    C. Par (b)(2) of Subpart A, Sec. 1980.61. The State Director will 
approve all substitutions of Loan Note Guarantee or Contracts of 
Guarantee.
    D. It is imperative that the original loan covered by a Contract of 
Guarantee is current.

[[Page 714]]

    E. The Registered Holder will transmit to the State Director: 1. 
Request for substitution together with the original Contract of 
Guarantee.
    2. Copies of the notes with lender's identification numbers. (All 
requirements of the Lender's Agreement will be complied with before any 
new notes are issued.)
    3. Certification that the loan is current and in good standing.
    4. Certification of outstanding principal amount of the loan.
    5. Executed Lender's Agreement. (FmHA or its successor agency under 
Public Law 103-354 provides form to Lender).
    6. Executed Form FmHA or its successor agency under Public Law 103-
354 1980-19. (See Sec. 1980.21 of Subpart A of this part for calculation 
of fee due).
    7. Payment for appropriate guarantee fee.
    F. State Director will: 1. Review all the requirements of Paragraph 
E of this section.
    2. Verify the submitted request and if in order, send the guarantee 
fee and Form FmHA or its successor agency under Public Law 103-354 1980-
19 to Finance Office with a notation of the date the new Loan Note 
guarantee will be issued. (Note: The substitution of a Loan Note 
Guarantee for the Contract of Guarantee is not to be considered as a new 
loan for recordkeeping purposes).
    3. Complete the Loan Note Guarantee (appropriate number for 
attachment to each note), date and sign the instrument. The following 
statement will be entered at the top of the form: ``This Loan Note 
Guarantee is issued in substitution of Contract of Guarantee dated 
________.'' The State Director will transfer from the Contract of 
Guarantee all information pertaining to the Loan Note Guarantee.
    4. Execute Lender's Agreement.
    5. Cancel the original Contract of Guarantee.
    6. Transmit to the lender the original Loan Note Guarantee and a 
copy of executed Lender's Agreement and retain in the loan file copies 
of the Loan Note Guarantee with attached original cancelled Contract of 
Guarantee, a copy of Form FmHA or its successor agency under Public Law 
103-354 1980-19 and the original Lender's Agreement.
    All applicable provisions of this subpart and Subpart A of this part 
apply to the loan when the Loan Note Guarantee is signed.
    G. Alternate Procedure: If the Registered Holder does not want to 
deliver the original contract of Guarantee with his/her request for 
substitution, the State Director will accept a copy of the Contract of 
Guarantee and proceed as above. However, the Loan Note Guarantee will be 
delivered only upon receipt of the original Contract of Guarantee.
    H. Par (b)(3) of Subpart A, Sec. 1980.61. For reporting purposes 
where multi-notes are issued, the loan to the borrower will be counted 
as one loan regardless of the number of notes issued.
    I. Par (b)(4) of Subpart A, Sec. 1980.61. The State Director will 
notify the Finance Office of the transaction.
    J. Par (d) of Subpart A, Sec. 1980.61. A copy of Form FmHA or its 
successor agency under Public Law 103-354 449-36 will be kept and a copy 
of executed Lender's Agreement retained in loan file along with copies 
of the Loan Note Guarantee with attached original cancelled Contract of 
Guarantee, copy of Guarantee Fee Report and the original Lender's 
Agreement.
    K. Par (e) of Subpart A, Sec. 1980.61. State Director signs all 
Forms FmHA or its successor agency under Public Law 103-354 449-13, 
``Denial Letter.''
    L. Par (g) of Subpart A, Sec. 1980.61. The State Director will: 1. 
Review Form FmHA or its successor agency under Public Law 103-354 1980-
19 for completeness.
    2. Deposit the guarantee fee through concentration banking and 
include the amount in the total collections on the Daily Activity 
Report.
    3. Submit Form FmHA or its successor agency under Public Law 103-354 
1980-19, Guaranteed Loan Closing Report with the Daily Activity Report 
and other attachments to Finance Office in the salmon envelope marked 
``CR''. This form is used in lieu of the 451-2, ``Schedule of 
Remittance.''
    4. On the Daily Activity Report, Form 1980-19 will be counted as one 
in the item count as if it were a card or coupon.
    5. Ascertain that originals or copies, as appropriate, are retained 
in the FmHA or its successor agency under Public Law 103-354 Loan file.



Secs. 1980.462--1980.468  [Reserved]



Sec. 1980.469  Loan servicing.

    The lender is responsible for loan servicing and for notifying the 
FmHA or its successor agency under Public Law 103-354 of any violations 
in the Lender's Loan Agreement. (See Paragraph X of Form FmHA or its 
successor agency under Public Law 103-354 449-35).
    (a) All B&I guaranteed loans in the lender's portfolio will be 
classified by the lender as soon as it is notified by the State Office 
to do so and again whenever there is a change in the loan which would 
impact on the original classification. The State Director will notify 
the lender of this requirement for all existing loan guarantees, when 
new Loan Note Guarantees are issued to a lender and/or when the State 
Office becomes aware of a condition that

[[Page 715]]

would affect the classification and justification of the classification 
will be sent to the State Office. The loans will be classified according 
to the following criteria:
    (1) Substandard Classifications. Those 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 category 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 the lender and FmHA or its successor agency under 
Public Law 103-354 will sustain some loss.
    (2) Doubtful Classification. Those loans which have all the 
weaknesses inherent in those classified Substandard with the added 
characteristics that the weaknesses make collection or liquidation in 
full, based on currently known facts, conditions and values, highly 
questionable and improbable.
    (3) Loss Classifications. Those loans which are considered 
uncollectible and of such little value that their continuance as 
bankable 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.
    (b) There is a close relationship between classifications; and no 
classifications category should be viewed as more important than the 
other. The uncollectibility aspect of Doubtful and Loss classifications 
are of obvious importance; however, the function of the Substandard 
classification is to indicate those loans that are unduly risky which 
may result in future claims against the B&I guarantee.
    (c) Substandard, Doubtful and Loss are adverse classifications. 
There are other classifications for loans which are not adversely 
classified but which require the attention and followup of the lenders 
and FmHA or its successor agency under Public Law 103-354. These 
classifications are:
    (1) Special Mention Classification. Those loans which do not 
presently expose the lender and 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 
the lender's close attention. Failure to correct these deficiencies 
could result in greater credit risk in the future. This classification 
would include loans that the lender is unable to supervise properly 
because of a lack of expertise, an inadequate loan agreement, the 
condition of or lack of control over the collateral, failure to obtain 
proper documentation or any other deviations from prudent lending 
practices. Adverse trends in the borrower'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 
designation. Loans in which actual, not potential, weaknesses are 
evident and significant should be considered for a Substandard 
classification.
    (2) Seasoned Loan Classification. A loan which: (i) Has a remaining 
principal guaranteed loan balance of two thirds or less of the original 
aggregate of all existing B&I guaranteed loans made to that business.
    (ii) Is in compliance with all loan conditions and B&I regulations.
    (iii) Has been current on the B&I guaranteed loan(s) payments for 24 
consecutive months.
    (iv) Is secured by collateral which is determined to be adequate to 
ensure there will be no loss on the guaranteed loan.
    (3) Current Non-problem Classification--Those loans that are current 
and are in compliance with all loan conditions and B&I regulations but 
do not meet all the criteria for a Seasoned Loan classification. All 
loans not classified as Seasoned or Current Non-problem will be reported 
on the quarterly status report with documentation of the details of the 
reason(s) for the assigned classification.

                             Administrative

    Refer to Appendix G of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 Office) for advice on how to 
interact with the lender on liquidations and property management.
    A. While the lender has the primary responsibility for loan 
servicing and protecting the collateral, the State Director is 
responsible for seeing that servicing as required by the Lender's 
Agreement and regulation is

[[Page 716]]

properly accomplished. Loan servicing is intended to be a 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.
    B. Paragraph II of the Lender's Agreement. 1. The Loan Note 
Guarantee is unenforceable by the lender to the extent any loss is 
occasioned by violation of usury laws, use of loan funds for 
unauthorized purposes, negligent servicing, or failure to obtain the 
required security regardless of the time at which FmHA or its successor 
agency under Public Law 103-354 acquires knowledge of the foregoing. As 
used herein, the phrase ``use of loan funds for unauthorized purposes'' 
refers to the situation in which the lender in fact agrees with the 
borrower that loan funds are to be so used and the phrase ``unauthorized 
purposes'' means any purpose not listed by the Lender in the completed 
application as approved by FmHA or its successor agency under Public Law 
103-354.
    2. With respect to the negligent servicing and use of loan funds for 
unauthorized purposes, the Loan Note Guarantee is unenforceable by the 
lender to the extent any loss is occasioned by negligent servicing and 
use of loan funds for unauthorized purposes regardless of the time FmHA 
or its successor agency under Public Law 103-354 acquires knowledge of 
the negligent servicing or use of loan funds for unauthorized purposes 
by the lender. Only the amount of the loss caused by negligent servicing 
or use of loan funds for unauthorized purposes can be withheld from the 
final loss claim submitted by the lender. The dollar amount withheld 
from the final loss claim must be ascertainable. In order to determine 
the final loss amount, the guaranteed loan collateral and any collateral 
of the guarantor(s) must be liquidated and settled or a settlement with 
the guarantor(s) reached. In the event there is reason to suspect the 
lender of negligent servicing or use of loan funds for unauthorized 
purposes during the life of the loan, the lender should be notified in 
writing that (a) the acts of negligent servicing and/or use of loan 
funds for unauthorized purposes will cause the guarantee to be 
unenforceable by the lender to the extent these acts cause a loss; (b) 
any decision not to honor any part of the guarantee is not possible 
until the loan has been liquidated and a loss established; (c) if any 
loss occurs FmHA or its successor agency under Public Law 103-354 will 
consider whether negligent acts of the lender caused a loss after the 
liquidation is complete; and (d) at the time FmHA or its successor 
agency under Public Law 103-354 determines a loss has occurred as the 
result of negligent servicing the lender may appeal any adverse 
decision.
    3. When facts or circumstances indicate that criminal violations may 
have been committed by an applicant, a borrower, or third party 
purchaser, the State Director will refer the case to the appropriate 
Regional Inspector General for Investigations, Office of Inspector 
General (OIG), USDA, in accordance with FmHA or its successor agency 
under Public Law 103-354 Instruction 2012-B (available in any FmHA or 
its successor agency under Public Law 103-354 office) for criminal 
investigation. Any questions as to whether a matter should be referred 
will be resolved through consultation with OIG for Investigations and 
the State Director and confirmed in writing. In order to assure 
protection of the financial and other interest of the government, a 
duplicate of the notification will be sent to the Office of General 
Counsel (OGC). After OIG has accepted any matter for investigation, FmHA 
or its successor agency under Public Law 103-354 staff must coordinate 
with OIG in advance regarding routine servicing actions on existing 
loans. A borrower or lender can be sued even though criminal fraud is 
present. If FmHA or its successor agency under Public Law 103-354 has 
good reason to believe that, for example, a borrower or a lender made a 
false statement to obtain a loan or guarantee, or a lender submitted a 
loss claim to FmHA or its successor agency under Public Law 103-354 
which was false or fraudulent, it should promptly call the matter to the 
attention of OGC--even if no payment of the loss claim has occurred yet. 
(This would include those situations in which a borrower lied to the 
lender in order to get the loan, the lender believed the borrower and 
made the loan--which was guaranteed by FmHA or its successor agency 
under Public Law 103-354--and then the lender presented a loss claim to 
FmHA or its successor agency under Public Law 103-354 for payment after 
the borrower defaulted on the loan.) Sometimes it might be necessary to 
ask OIG to do an investigation to establish all the aspects of the 
fraud. If at all possible, this should then be done prior to referral to 
OGC.
    4. There are two methods the Government could use to seek relief for 
the fraud. One of the ways the Government could seek redress for the 
fraud is to sue under the False Claims Act (31 U.S.C. sections 3729-
3731). If fraud is proven to have occurred, the False Claims Act 
provides for the recovery of double damages and a $2,000 penalty (and 
the costs of one civil suit) for each act involving, for example: (a) 
Knowingly submitting to a Government employee of false or fraudulent 
claim for payment or approval, (b) knowingly making or using a false 
record or statement to get a false or fraudulent claim paid or approved, 
or (c) conspiring to defraud the United States by getting a false or 
fraudulent claim allowed or paid. Suit under the False Claims Act must 
be filed within six

[[Page 717]]

years from the date of the commission of the act (e.g., presentation of 
the claim to FmHA or its successor agency under Public Law 103-354 for 
payment). The double damage feature ought to be a good incentive to 
convince OIG to undertake necessary investigations to help establish the 
fraud.
    5. In order to decide whether to file suit, the Department of 
Justice will need to know such things as: What was the amount of the 
loan or the loss paid to the lender or holder? How much did the scheme 
cost the Government? What is the difference in money between what the 
Government paid out and what it should have paid out? Does the borrower 
or lender have enough assets to make it worth suing? If FmHA or its 
successor agency under Public Law 103-354 can answer these questions 
before referral to OGC--either on its own or by using OIG--than OGC can 
refer the matter that much more quickly to the Justice Department.
    6. There is also a way to bring suit for civil fraud by alleging 
that ``common law'' fraud occurred. This would just involve proving that 
a borrower or a lender falsely represented by their words or actions, a 
matter of fact either by alleging something in a false or misleading 
manner or by concealing something that should have been disclosed; and 
that FmHA or its successor agency under Public Law 103-354 was deceived 
by this conduct, and relied on it to its detriment. Under ``common law'' 
fraud, only single damages could be recovered, and there would be no 
$2,000 penalty assessed. The action would generally have to be brought 
within three years from the date of the discovery of the fraud.
    7. Neither the False Claims Act nor the right to bring a ``common 
law'' action for fraud precludes the Government from just suing to 
recover the money wrongfully or mistakenly paid by its employees. If the 
Justice Department decides not to pursue a civil frauds claim under the 
False Claims Act or ``common law,'' it will return the matter to OGC. 
Depending on what stage the proceedings were in when the matter was 
first referred, FmHA or its successor agency under Public Law 103-354 
could then continue to negotiate with the lender or OGC could re-refer 
the case to Justice for any contract-based actions, including fraud or 
misrepresentation based on the terms of the guarantee.
    C. The State Director will assure that: 1. [Reserved]
    2. A timetable for routine site, borrower and lender visitations by 
FmHA or its successor agency under Public Law 103-354 personnel is 
established before the Loan Note Guarantee is issued. As a guide, visits 
to newly established borrowers with the lender represented should be 
scheduled monthly. Visits to established, nonproblem borrowers must be 
made at least annually except for seasoned loans which will be visited 
at least bi-annually. Special attention problem accounts should be 
visited as frequently as the need demands. If possible, these 
visitations should be coordinated with the lender's visits.
    3. During or in preparation for field visits, the following 
functions are to be performed:
    (a) Current financial information is obtained in advance and 
analyzed for trends.
    (b) Any issues revealed or problems not resolved from the last 
visitation are included in the agenda.
    (c) Collateral is observed and its condition, maintenance, 
protection and utilization by the borrower appears to be satisfactory.
    (d) A report of the visit is made on Form FmHA or its successor 
agency under Public Law 103-354 449-39, ``Field Visit Review (Business 
and Industrial Loans),'' or otherwise documented and included in the 
loan file. The report should include an opinion of the borrower's status 
based upon observations made during the visit.
    (e) Any instructions or directions to the lender should be confirmed 
by letter.
    4. The Program Chief or Loan Specialist will conduct an annual 
meeting with each lender or its agent with whom a Loan Note Guarantee(s) 
or Contract of Guarantee(s) is outstanding. This cannot be redelegated. 
These meetings may be scheduled at the time FmHA or its successor agency 
under Public Law 103-354 makes periodic field inspections to the 
borrower's place of business. At the meeting, a review will be made of 
the lender's performance in loan servicing, including enforcement of 
conditions and covenants in the loan agreements. The observations and 
results of the meeting will be documented. Form FmHA or its successor 
agency under Public Law 103-354 449-39 may be used for this purpose. 
Servicing exceptions on the part of the lender which are noted by FmHA 
or its successor agency under Public Law 103-354 will be confirmed by 
letter to the lender.
    5. The lender performs an adequate analysis of borrower financial 
statements for FmHA or its successor agency under Public Law 103-354. 
FmHA or its successor agency under Public Law 103-354 in turn will 
evaluate the lender's analysis and follow up with the lender on 
servicing action(s) required or negative observations not detected 
through the lender's analysis. The financial statement analysis of the 
lender, the financial statement and a memorandum reflecting FmHA or its 
successor agency under Public Law 103-354's analysis, including a 
comparison to previous and projected performance of the borrower, will 
be forwarded to the National Office, Attention: Business and Industry 
Division, only for the following loans:
    (a) All loans within the first year of loan closing.

[[Page 718]]

    (b) Loans over one year old as determined by the State Director or a 
National Office assigned loan reviewer who is participating in a field 
review. In event of a disagreement between the State Director and an 
assigned loan reviewer as to which loans should be included, the 
assigned loan reviewer's decision will take precedence.
    (c) All problem and delinquent loans.
    (d) Loans that the State Director would like reviewed by the 
National Office.
    6. Meetings are arranged between the lender, borrower and FmHA or 
its successor agency under Public Law 103-354 to resolve any problems of 
late payment, etc.
    D. State Director authorities. 1. The State Director may delegate 
authority for the conduct of all functions listed in Sec. 1980.469 
Administrative B., except item C. 4. in Administrative B.
    2. The State Director may approve B&I guaranteed loan servicing 
actions as authorized in separate written approval authorities issued in 
accordance with Subpart A of Part 1901 of this chapter.
    3. Servicing actions on loans which exceed the State Director's loan 
approval authority are to be referred together with the State Director's 
recommendations to the Director, Business and Industry Division, for 
prior review and concurrence.
[52 FR 6501, Mar. 4, 1987, as amended at 53 FR 40403, Oct. 17, 1988; 60 
FR 26350, May 17, 1995; 61 FR 18495, Apr. 26, 1996]



Sec. 1980.470  Defaults by borrower.

    [See Sec. 1980.63 of Subpart A, of this part.]

                             Administrative

    Refer to Appendix G of FmHA or its successor agency under Public Law 
103-354 Instruction 1980-E (available in any FmHA or its successor 
agency under Public Law 103-354 Office) for advice on how to interact 
with the lender on liquidations and property management.
    A. In case of any monetary or significant non-monetary default under 
the loan agreement, the lender is responsible for arranging a meeting 
with the State Director, or its designee, and borrower to resolve the 
problem. A memorandum of the meeting, individuals who attend, a summary 
of the problem and proposed solution will be prepared by the FmHA or its 
successor agency under Public Law 103-354 representative and retained in 
the loan file. When the State Director receives a notice of default on a 
loan, he/she will immediately notify the National Office in writing of 
the details and will subsequently report the problem loan to the 
National Office on the quarterly status report. The State Director will 
notify the lender and borrower of any decision reached by FmHA or its 
successor agency under Public Law 103-354.
    B. In considering servicing options, some of which are identified in 
paragraph X. A of Form FmHA or its successor agency under Public Law 
103-354 449-35, the prospects for providing a permanent cure without 
adversely affecting the risks of the FmHA or its successor agency under 
Public Law 103-354 and the lender must become the paramount objective. 
Within the State Director's authority temporary curative actions such as 
payment deferments, moratoriums on payments or collateral subordination, 
if approved, must strengthen the loan and be in the best interests of 
the lender and FmHA or its successor agency under Public Law 103-354. 
Some of these actions may require concurrence of the holder(s). A 
deferral, rescheduling, reamortization or moratorium is limited by the 
period of time authorized by this subpart for the purpose for which the 
loan(s) is made or the remaining useful life of the collateral securing 
the loan. For example, if the promissory note on a working captial loan 
is scheduled to mature in 2 years the loan could be rescheduled for 7 
years or the remaining life of the collateral whichever is the lesser of 
the two.
    C. Subsequent loan guarantee requests will be processed in 
accordance with provisions of Sec. 1980.473 of this subpart.
    D. If the loan was closed with the multi-note option, the lender may 
need to possess all notes to take some servicing actions. In these 
situations when FmHA or its successor agency under Public Law 103-354 is 
holder of some of the notes, the State Director may endorse the notes 
back to the lender after the State Director has sought the advice and 
guidance of OGC, provided a proper receipt is received from the lender 
which defines the reason for the transfer. Under no circumstances will 
FmHA or its successor agency under Public Law 103-354 endorse the 
original Form FmHA or its successor agency under Public Law 103-354 449-
34 to the lender.
    E. The State Director's authority to approve servicing actions is 
defined in Sec. 1980.469, Administrative D.2.
    F. Consultant services may be recommended by the State Director to 
assist FmHA or its successor agency under Public Law 103-354 and the 
lender in determining which servicing action is appropriate. Requests 
for consultant services should be made by the State Director and 
addressed to the Administrator, Attn: Business and Industry Division. A 
full explanation of the loan history, an evaluation and scope of the 
proposed study and the need should be included in the request.
    G. When the National Office determines it is necessary on individual 
cases, due to some special servicing requirements, it may, at its 
option, assume the servicing responsibility on individual cases.

[[Page 719]]

    H. The State Director will report all delinquent and problem loans 
quarterly to the Director, Business and Industry Division, by the 10th 
day of January, April, July and October.
    I. The State Director will notify the Finance Office by memorandum 
of any change in payment terms such as reamortizations or interest rate 
adjustments and effective dates of any changes resulting from servicing 
actions.



Sec. 1980.471  Liquidation.

    (See Sec. 1980.64 of subpart A of this part.)
    Refer to appendix G of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 Office) for advice on how to 
interact with the lender on liquidations and property management.
    (a) Collateral acquired by the lender can only be released after a 
complete review of the proposal.
    (1) There may be instances when the lender acquires the collateral 
of a business where the cost of liquidation exceeds the potential 
recovery value of the collection. Whenever this occurs the lender with 
the concurrence of FmHA or its successor agency under Public Law 103-
354on the collateral in lieu of liquidation.
    (2) Sale of acquired collateral to the former borrower, former 
borrower's stockholder(s) or officer(s), the lender or lender's 
stockholder(s) or officer(s) must be based on an arm's length 
transaction with the concurrence of FmHA or its successor agency under 
Public Law 103-354.

                             Administrative

    A. The State Director determines which FmHA or its successor agency 
under Public Law 103-354 personnel will attend meetings with the lender.
    B. Introduction to Paragraph XI and Paragraph XI B of the Lender's 
Agreement. FmHA or its successor agency under Public Law 103-354 will 
exercise the option to liquidate only when there is reason to believe 
the lender is not likely to initiate liquidation efforts that will 
result in maximum recovery. When there is reason to believe the lender 
will not initiate efforts that will maximize recovery through 
liquidation, the State Director will forward the lender's liquidation 
plan, if available with appropriate recommendations, along with the 
State Director's exceptions to the lender's plan, if any, to the 
Director, Business and Industry Division, for evaluation and approval or 
rejection of the State Director's recommendation regarding liquidation. 
Only when compromise cannot be reached between FmHA or its successor 
agency under Public Law 103-354 and the lender on the best means of 
liquidation will FmHA or its successor agency under Public Law 103-354 
consider conducting the liquidation. The State Director has no authority 
to exercise the option to liquidate without National Office approval. 
When FmHA or its successor agency under Public Law 103-354 liquidates, 
reasonable liquidation expenses will be assessed against the proceeds 
derived from the sale of the collateral. In such instances the State 
Director will send to the Finance Office Form FmHA or its successor 
agency under Public Law 103-354 1980-45, ``Notice of Liquidation 
Responsibility.''
    C. State Directors are authorized to approve lender liquidation 
plans as authorized on separate written approval authorities issued in 
accordance with Subpart A of Part 1901 of this chapter. Within delegated 
authorities, the State Director may approve a written partial 
liquidation plan submitted by the lender covering collateral that must 
be immediately protected or cared for in order to preserve or maintain 
its value. Approval of the partial liquidation plan must be in the best 
interest of the government. The approved partial liquidation plan is 
only good for those actions necessary to immediately preserve and 
protect the collateral and must be followed by a complete liquidation 
plan prepared by the lender in accordance with the requirements of 
paragraph XII A of the Lender's Agreement.
    D. Paragraph XI D. State Directors are responsible for review and 
acceptance of accounting reports as submitted by lenders and for 
submission of such reports to lenders when FmHA or its successor agency 
under Public Law 103-354 is conducting liquidation, after they have been 
submitted with the State's recommendations to the Director, Business and 
Industry Division for prior review.
    E. Paragraph XI E 2. State Directors are authorized to approve final 
reports of loss from the lender in separate written approval authorities 
issued in accordance with Subpart A of Part 1901 of this chapter. The 
State Director will submit to the Finance Office for payment any loss 
claims of the lender on Form FmHA or its successor agency under Public 
Law 103-354 499-30, ``Loan Note Guarantee Report of Loss.'' The Finance 
Office forwards loss payment checks to the State Director for delivery 
to lender. When a loss claim is involved on a particular loan guarantee, 
ordinarily one ``Estimated Loss Report'' will be authorized. Only one 
final ``Report of Loss'' will be authorized. A final Form FmHA or its 
successor agency under Public Law 103-354 449-30 must be filed with the 
Finance Office at the completion of all

[[Page 720]]

liquidations. Finance Office will use this form to close out the 
account.
    F. Paragraph XI E 3. Final loss payments will be made within the 60 
days required but only after a review by FmHA or its successor agency 
under Public Law 103-354 to assure that all collateral for the loan has 
been properly accounted for and liquidation expenses are reasonable and 
within approved limits. State Directors are responsible to see that such 
reviews are accomplished by the State within 30 days and final loss 
claims in excess of the State Director's approval authority are 
forwarded to be accepted or otherwise resolved by the Director, Business 
and Industry Division within the 60-day period. Any estimated loss 
payments made to the lender must be taken into consideration when paying 
a final loss on the FmHA or its successor agency under Public Law 103-
354 guaranteed loan. The estimated loss payment must be treated as a 
deduction from the principal amount of the loan and interest cannot be 
accrued on the principal amount of the loan that is equal to the 
estimated loss payment. Community and Business Program Chiefs (C&BP), 
Business and Industry Chiefs or Loan Specialists will conduct such 
reviews. The State Director may request National Office assistance in 
the conduct of any review. All reviews for final loss claim in excess of 
the State Director's approval authority (See Subpart A of Part 1901 of 
this Chapter) will be submitted to the National Office, Business and 
Industry Division, for concurrence prior to the State Director's 
approval of the claim. Close scrutiny of liquidation proceeds and their 
application in accordance with lien priorities is required. Before final 
loss payments are approved and to assist in the required review, the 
C&BP Chief, B&I Chief or Loan Specialist will prepare a narrative 
history of the guarantee transaction which will serve as the summary of 
occurrence which led to failure of the borrower and actions taken to 
maximize loan recovery. The original of this report will be filed in the 
loan case file. A copy of this report together with the review of the 
final loss claim will be included in the material sent to the Director, 
B&I Division, for review prior to approval of final loss payments.



Sec. 1980.472  Protective advances.

    [See Sec. 1980.65 Subpart A of this Part.]

                             Administrative

    Refer to Appendix G of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 Office) for advice on how to 
interact with the lender on liquidations and property management.
    A. Protective advances will not be made in lieu of additional loans, 
in particular, working capital loans. Protective advances are advances 
made by the lender for the purpose of preserving and protecting the 
collateral where the debtor has failed to and will not or cannot meet 
its obligations. Ordinarily, protective advances are made when 
liquidation is contemplated or in process. A precise rule of when a 
protective advance should be made is impossible to state. A common, but 
by no means the only, period when protective advances might be needed is 
during liquidation. At this point, the borrower and success of the 
project are no longer of paramount importance, but preserving collateral 
for maximum recovery is of vital importance. Elements which should 
always be considered include how close the project is to liquidation or 
default, how much control the borrower will have over the funds, what 
danger is there that collateral may be destroyed and whether there will 
be a good chance of saving the collateral later if a protective advance 
in contemplation of liquidation is made immediately. A protective 
advance must be an indebtedness of the borrower.
    B. The State Director must approve, in writing, all protective 
advances on loans within his/her loan approval authority which exceed a 
total commulative advance of $500 to the same borrower. Protective 
advances must be reasonable when associated with the value of collateral 
being preserved.
    C. When considering protective advances, sound judgment must be 
exercised in determining that the additional funds advanced will 
actually preserve collateral interests and recovery is actually enhanced 
by making the advance.



Sec. 1980.473  Additional loans or advances.

    (Refer to paragraph XIII of Form FmHA or its successor agency under 
Public Law 103-354 449-35.)

                             Administrative

    Only the State Director shall approve within his/her loan approval 
authority additional nonguaranteed loans or advances prior to or 
subsequent to the issuance of the Loan Note Guarantee. The State 
Director shall determine that there will be no adverse changes in the 
borrower's financial situation and that such loan or advance is not 
likely to adversely affect the collateral or the guaranteed loan.



Sec. 1980.474  [Reserved]



Sec. 1980.475  Bankruptcy.

    (a) It is the lender's responsibility to protect the guaranteed loan 
debt and all the collateral securing it in bankruptcy proceedings. These 
responsibilities include but are not limited to the following:

[[Page 721]]

    (1) The lender will file a proof of claim where necessary and all 
the necessary papers and pleadings concerning the case.
    (2) The lender will attend and where necessary participate in 
meetings of the creditors and all court proceedings.
    (3) The lender, whose collateral is subject to being used by the 
trustee in bankruptcy, will immediately seek adequate protection of the 
collateral.
    (4) Where appropriate, the lender should seek involuntary conversion 
of a pending Chapter 11 case to a liquidating proceeding under Chapter 7 
or under Section 1123(b) (4) or seek dismissal of the proceedings.
    (5) When permitted by the Bankruptcy Code, the lender will request 
modification of any plan of reorganization whenever it appears that 
additional recoveries are likely.
    (6) FmHA or its successor agency under Public Law 103-354 will be 
kept adequately and regularly informed in writing of all aspects of the 
proceedings.
    (b) In a Chapter 11 reorganization, if an independent appraisal of 
collateral is necessary in FmHA or its successor agency under Public Law 
103-354's opinion, FmHA or its successor agency under Public Law 103-354 
and the lender will share such appraisal fee equally.
    (c) Expenses on Chapter 11 reorganization, liquidating Chapter 11 or 
Chapter 7 (unless the lender is directly handling the liquidation) cases 
are not to be deducted from the collateral proceeds.
    (d) Estimated loss payments. See paragraph XVI of Form FmHA or its 
successor agency under Public Law 103-354 449-35.

                             Administrative

    Refer to Appendix G of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office) for advice on how to 
interact with the lender on liquidation and property management.
    A. It is the responsibility of the State Program Chief to see that 
FmHA or its successor agency under Public Law 103-354 is being fully 
informed by the lender in all bankruptcy cases.
    B. All bankruptcy cases should be reported immediately to the 
National Office by utilizing and completing a problem/delinquent status 
report. The Regional Attorney must be informed promptly of the 
proceedings.
    C. Chapter 11 pertains to a reorganization of a business 
contemplating an ongoing business rather than a termination and 
dissolution of the business where legal protection is afforded to the 
business as defined under Chapter 11 of the Bankruptcy Code. 
Consequently, expenses incurred by the lender in a Chapter 11 
reorganization can never be liquidation expenses unless the proceeding 
becomes a Liquidating 11. If the proceeding should become a Liquidating 
11, reasonable and customary liquidation expenses may be deducted from 
proceeds of collateral provided the lender is doing the actual 
liquidation of the collateral as provided by the Lender's Agreement. 
Chapter 7 pertains to a liquidation of the borrower's assets. If and 
when liquidation of the borrower's assets under Chapter 7 is conducted 
by the bankruptcy trustee, the lender cannot claim expenses.
    D. The State Director may approve the repurchase of the unpaid 
guaranteed portion of the loan from the holder(s) to reduce interest 
accruals during Chapter 7 proceedings or after a Chapter 11 proceeding 
becomes a liquidation proceeding. On loans in bankruptcy, any loss 
payment must be halted in accordance with the Lender's Agreement and 
carry the approval of the State Director.
    E. The State Director must approve in advance and in writing the 
lender's estimated liquidation expenses on loans in liquidation 
bankruptcy. These expenses must be reasonable and customary and not in-
house expenses of the lender.
    F. The lender is responsible for advising FmHA or its successor 
agency under Public Law 103-354 of the completion of the Chapter 11 
reorganization plan; however, the FmHA or its successor agency under 
Public Law 103-354 servicing office will monitor the lender's files to 
ensure timely notification of servicing actions.
    G. If an estimated loss claim is paid during the operation of the 
reorganization plan, and the borrower repays in full the remaining 
balance of the loan as set forth in the plan without an additional loss 
sustained by the lender, a Final Report of Loss is not necessary. The 
Finance Office will close out the estimated loss account as a Final Loss 
at the time notification of payment in full is received.
    H. If the bankruptcy court attempts to direct that loss payments 
will be applied to the account other than the unsecured principal first 
and then to unsecured accrued interest, the lender is responsible for 
notifying the FmHA or its successor agency under Public Law 103-354 
servicing office immediately. The FmHA or its successor agency under 
Public Law 103-354 servicing office will then obtain advice from OGC on 
what actions FmHA or its successor agency under Public Law 103-354 
should take.

[[Page 722]]

    I. Protective Advances--Authorized protective advances may be 
included with the estimated loss payment associated with the Chapter 11 
reorganization provided they were incurred in connection with 
liquidation of the account prior to the borrower filing bankruptcy.
    J. Adequate Protection--The bankruptcy court can order protection of 
the collateral while the borrower is in a reorganization bankruptcy. The 
lender whose collateral is subject to being used by the trustee in 
bankruptcy should immediately seek adequate protection of the 
collateral, including petitioning for a super priority.
[54 FR 1598, Jan. 13, 1989]



Sec. 1980.476  Transfer and assumptions.

    (a) All transfers and assumptions will be approved in writing by 
FmHA or its successor agency under Public Law 103-354. Such transfers 
and assumptions will be to an eligible applicant.
    (b) Transfers and assumptions will be considered without regard to 
Sec. 1980.451 (d) of this subpart.
    (c) The borrower will submit to FmHA or its successor agency under 
Public Law 103-354 Form FmHA or its successor agency under Public Law 
103-354 449-4 for the required character evaluation prior to the 
execution of the Assumption Agreement.
    (d) Available transfer and assumption options to eligible borrowers 
include the following:
    (1) The total indebtedness may be transferred to another borrower on 
the same terms.
    (2) The total indebtedness may be transferred to another borrower on 
different terms not to exceed those terms for which an initial loan can 
be made.
    (3) Less than the total indebtedness may be transferred to another 
borrower on the same terms.
    (4) Less than the total indebtedness may be transferred to another 
borrower on different terms.
    (e) In any transfer and assumption case, the transferor, including 
any guarantor(s), may be released from liability by the lender with FmHA 
or its successor agency under Public Law 103-354 written concurrence 
only when the value of the collateral being transferred is at least 
equal to the amount of the loan or part of the loan being assumed. If 
the transfer is for less than the entire debt:
    (1) FmHA or its successor agency under Public Law 103-354 must 
determine that the transferor and any guarantors have no reasonable 
debt-paying ability considering their assets and income at the time of 
transfer.
    (2) The FmHA or its successor agency under Public Law 103-354 County 
Committee must certify that the transferor has cooperated in good faith, 
used due diligence to maintain the collateral against loss, and has 
otherwise fulfilled all of the regulations of this subpart to the best 
of borrower's ability.
    (f) Any proceeds received from the sale of secured property before a 
transfer and assumption will be credited on the transferor's guaranteed 
loan debt in inverse order of maturity before the transfer and 
assumption transaction is closed.
    (g) When the transferee makes any cash downpayment in connection 
with the transfer and assumption:
    (1) The lender will employ an independent appraiser, subject to 
concurrence of both the transferor and transferee, to make an appraisal 
to determine the fair market value of all the collateral securing the 
loan. Such appraisal report fee and any other costs related thereto will 
be paid by the transferor and the transferee as they mutually agree.
    (2) The market value of the secured property being acquired by the 
transferee, plus any additional security the transferee proposes to give 
to secure the debt, will be adequate to secure the balance of the total 
guaranteed loan owed, plus any prior liens. If any cash downpayment is 
made, it may be paid directly to the transferor as payment for equity in 
the project provided:
    (i) The lender recommends and FmHA or its successor agency under 
Public Law 103-354 approves the case downpayment be released to the 
transferor. The lender and FmHA or its successor agency under Public Law 
103-354 may require that an amount be retained for an established period 
of time in escrow as a reserve account as security for use against any 
future default on the loan. Any interest accruing on such an escrow 
account may be paid periodically to the transferor.

[[Page 723]]

    (ii) Any payments that are to be made by the transferee to the 
transferor in respect to the downpayment do not suspend the transferee's 
obligation to continue to meet the guaranteed loan payments as they come 
due under the terms of the assumption.
    (iii) The transferor will agree not to take any actions against the 
transferee in connection with such transfer in the future without first 
obtaining the written approval of FmHA or its successor agency under 
Public Law 103-354 and the lender.
    (iv) The lender determines that there is repayment ability for the 
guaranteed debt assumed and any other indebtedness of the transferee.
    (h) The lender will make, in all cases, a complete credit analysis 
to determine viability of the project, subject to FmHA or its successor 
agency under Public Law 103-354 review and approval, including any 
requirement for deposits in an escrow account as security to meet its 
determined equity requirements for the project.
    (i) The lender will issue a statement to FmHA or its successor 
agency under Public Law 103-354 that the transaction can be properly 
transferred and the conveyance instruments will be filed, registered, or 
recorded as appropriate and legally permissible.
    (j) FmHA or its successor agency under Public Law 103-354 will not 
guarantee any additional loans to provide equity funds for a transfer 
and assumption.
    (k) The assumption will be made on the lender's form of assumption 
agreement.
    (l) The assumption agreement will contain the FmHA or its successor 
agency under Public Law 103-354 case number of the transferor and 
transferee.
    (m) Loan terms cannot be changed by the Assumption agreement unless 
previously approved in writing by FmHA or its successor agency under 
Public Law 103-354, with the concurrence of any holder(s) and 
concurrence of the transferor (including guarantors) if they have not 
been released from personal liability. Any new loan terms cannot exceed 
those authorized in this subpart. The lender's request will be supported 
by:
    (1) An explanation of the reasons for the proposed change in the 
loan terms.
    (2) Certification that the lien position securing the guaranteed 
loan will be maintained or improved, proper hazard insurance will be 
continued in effect and all applicable Truth in Lending requirements 
will be met.
    (n) In the case of a transfer and assumption, it is the lender's 
responsibility to see that all such transfers and assumptions will be 
noted on all originals of the Loan Note Guarantee(s). The lender will 
provide FmHA or its successor agency under Public Law 103-354 a copy of 
the transfer and assumption agreement. Notice must be given by the 
lender to FmHA or its successor agency under Public Law 103-354 before 
any borrower or guarantor is released from liability.
    (o) The holder(s), if any, need not be consulted on a transfer and 
assumption case unless there is a change in loan terms.
    (p) If a loss should occur upon consummation of a complete transfer 
of assets and assumption for less than the full amount of the debt and 
the transferor-debtor (including personal guarantor) is released from 
personal liability, as provided in paragraph (e) of this section, the 
lender, if it holds the guaranteed portion, may file an estimated 
``report of Loss'' on Form FmHA or its successor agency under Public Law 
103-354 449-30 to recover its pro rata share of the actual loss at that 
time. In completing Form FmHA or its successor agency under Public Law 
103-354 449-30, the amount of the debt assumed will be entered on Line 
24 as Net Collateral (Recovery). Approved protective advances and 
accrued interest thereon made during the arrangement of a transfer and 
assumption, if not assumed by the transferee, will be entered on Form 
449-30, lines 13 and 14.

                             Administrative

    Refer to Appendix G of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 Office) for advice on how to 
interact with the lender on liquidations and property management.
    A. The State Director may approve all transfer and assumption 
provisions if the guaranteed loan debt balance is within his/her 
individual loan approval authority including:

[[Page 724]]

    1. Consent in writing to the release of the transferor and 
guarantors from liability.
    2. Any changes in loan terms.
    Note.-- The assumption will be reviewed as if it were a new loan. 
The Loan Note Guarantee(s) will be endorsed in the space provided on the 
form(s).
    B. A copy of the Assumption Agreement will be retained in the FmHA 
or its successor agency under Public Law 103-354 file. The State 
Director will notify the Finance Office of all approved transfer and 
assumption cases on Form FmHA or its successor agency under Public Law 
103-354 1980-7, ``Notice of Transfer and Assumption of a Guaranteed 
Loan,'' and submit Form FmHA or its successor agency under Public Law 
103-354 1980-50 for all new borrowers and Form FmHA or its successor 
agency under Public Law 103-354 1980-51, ``Add, Change, or Delete 
Guaranteed Loan Record,'' in order that Finance records may be adjusted 
accordingly.
    C. Any transfer and assumption of less than the total indebtedness 
must be submitted to the Director, Business and Industry Division, for 
review and concurrence.
    D. If the guaranteed loan debt balance is in excess of the State 
Director's loan approval authority, the State Director will forward the 
file, together with his/her recommendations, to the National Office for 
approval, ATTN: Business and Industry Division.



Secs. 1980.477--1980.480  [Reserved]



Sec. 1980.481  Insured loans.

    Applications from private parties for whom FmHA or its successor 
agency under Public Law 103-354 and such borrowers agree that a 
guarantee lender is not available and from public bodies shall be 
processed as insured loans in accordance with the applicable provisions 
of this subpart and Subpart A of Part 1942 of this chapter, including 
the credit elsewhere requirement, except as provided in Sec. 1980.488 of 
this subpart which provides for the guarantee of taxable bond issues of 
public bodies. Loans to public bodies will be used only to finance:
    (a) Community facilities as defined in Sec. 1980.402 of this 
subpart, and
    (b) Constructing and equipping industrial plants for lease to 
private businesses (not including loans for operating such businesses) 
when the requesting loan is not available under Subpart A of Part 1942 
of this chapter.

                             Administrative

    A. Without specific written delegated authority, all insured loans 
require National Office concurrence prior to approval.
    B. Applications from private parties for insured loans will not be 
encouraged.
    C. Loan closings on insured loans will be in accordance with this 
subpart, the Regional Attorney and applicable provisions of Subpart A of 
Part 1942 of this chapter.
[52 FR 6501, Mar. 4, 1987, as amended at 53 FR 40403, Oct. 17, 1988]



Secs. 1980.482--1980.487  [Reserved]



Sec. 1980.488  Guaranteed industrial development bond issues.

    (a) Loans to public bodies will be guaranteed only in connection 
with the issuance of any class or series of industrial development bonds 
(as defined in section 103(c)(2) of the Internal Revenue Code of 1954, 
as amended (IRC)), the interest on which is included in gross income 
under IRC. No part of the loan guaranteed by FmHA or its successor 
agency under Public Law 103-354 may extend to any class or series of 
industrial development bonds the interest on which is excludable from 
gross income under section 103(a)(1) of such Code. Before the execution 
of any Loan Note Guarantee, the lender will furnish FmHA or its 
successor agency under Public Law 103-354 evidence regarding interest on 
bonds being taxable for Federal income tax purposes. Such evidence may 
be in the form of an unqualified opinion of a recognized bond counsel or 
a ruling from the Internal Revenue Service. Guaranteed loans to public 
bodies can only be used for constructing and equipping industrial plants 
for lease to private businesses engaged in industrial manufacturing and 
does not provide funds for debt refinancing, working capital and other 
miscellaneous fees, charges or services. The lessee will have to provide 
necessary capital and sufficient financial strength to provide for a 
sound project.
    (b) If FmHA or its successor agency under Public Law 103-354 and the 
applicant agree that a guaranteed lender is not available, the 
application may be considered for an insured loan under the provisions 
of Sec. 1980.481 of this subpart.

[[Page 725]]

                             Administrative

    The lender is responsible for notifying the FmHA or its successor 
agency under Public Law 103-354 of the taxability of the proposed bond 
issue.



Sec. 1980.489  [Reserved]



Sec. 1980.490  Business and industry buydown loans.

    (a) Introduction. This section contains regulations for the Business 
and Industry Buydown (BIB) loan program. The purpose of this program is 
to provide loan guarantees with reduced interest rates to the borrowers, 
under the authority of Public Law 103-50 (107 Stat. 241). All provisions 
of Subparts A and E of this part apply to BIB loans except as provided 
in this section. All forms used in connection with a BIB loan will be 
those used with other B&I loans, except as provided in this section.
    (b) Location of applicants. Businesses eligible for BIB loans shall 
be located within the area covered by the Presidential disaster 
declaration related to Hurricanes Andrew or Iniki or Typhoon Omar.
    (c) Interest rate. (1) If the interest rate charged by the lender 
(note rate) on a BIB loan is a variable rate in accordance with 
Sec. 1980.423 of this subpart, the base rate must be the prime rate as 
published in the Wall Street Journal and the note rate must not exceed 
the prime rate as published in the Wall Street Journal by more than 100 
basis points. If the note rate is fixed, it must not exceed by more than 
100 basis points the prime rate as published in the Wall Street Journal 
on the day the Loan Note Guarantee is issued.
    (2) The note rate for a BIB loan must be the same for the entire 
loan, including both the guaranteed and unguaranteed portion.
    (d) Interest rate buydown. (1) To be eligible for a BIB loan, the 
business must provide evidence and the lender and FmHA or its successor 
agency under Public Law 103-354 must determine that, at least for the 
first year of the loan, the business will not have adequate cash flow to 
meet all of its financial obligations including the required payments on 
the proposed loan at the note rate, but that it can meet all obligations 
if the interest rate is reduced by 100 basis points.
    (2) During the first year after a Loan Note Guarantee is issued for 
a BIB loan, FmHA or its successor agency under Public Law 103-354 will 
pay one percentage point of interest on the loan directly to the lender, 
thereby reducing the interest due from the borrower by this amount. This 
interest payment shall be applied to both the guaranteed and 
unguaranteed portion of the loan pro ratably according to FmHA or its 
successor agency under Public Law 103-354 regulations.
    (3) Interest payments by FmHA or its successor agency under Public 
Law 103-354 may continue in subsequent years if the borrower's cash flow 
is insufficient to pay all obligations including the required payments 
on the proposed loan at the note rate. On or about each yearly 
anniversary of the promissory note the lender may submit a request to 
FmHA or its successor agency under Public Law 103-354 for continued 
interest payments, along with current profit and loss and cash flow 
statements and cash flow projections to show that the continued payments 
are needed for another year. FmHA or its successor agency under Public 
Law 103-354 will promptly review the material submitted, determine 
whether the continued interest payments by FmHA or its successor agency 
under Public Law 103-354 are needed to provide for sufficient cash flow 
in the coming year, and notify the lender in writing of the 
determination. Once interest payments by FmHA or its successor agency 
under Public Law 103-354 are terminated because the borrower's cash flow 
is determined to be sufficient to pay the note rate, such payments will 
not be made in subsequent years even if the cash flow decreases.
    (4) This section does not authorize interest payments by FmHA or its 
successor agency under Public Law 103-354 on B&I loans other than those 
approved under this section. To be eligible for interest payments by 
FmHA or its successor agency under Public Law 103-354, the loan must be 
designated as a BIB loan when approved and funded from funds authorized 
by Public Law 103-50.
    (e) Duration of BIB loan program. No BIB loan will be obligated 
after September 30, 1994.

[[Page 726]]

    (f) Administrative procedures. (1) A lender that wants a B&I 
application considered under BIB authorities should so indicate by 
notation on Form FmHA or its successor agency under Public Law 103-354 
449-1 or by letter submitted with the Form FmHA or its successor agency 
under Public Law 103-354 449-1.
    (2) FmHA or its successor agency under Public Law 103-354 will 
identify a loan as a BIB loan by notation in the top margin of Form FmHA 
or its successor agency under Public Law 103-354 449-29 and by the 
``type of assistance'' code listed on Form FmHA or its successor agency 
under Public Law 103-354 1940-3, in accordance with the Forms Manual 
Insert.
    (3) FmHA or its successor agency under Public Law 103-354 will set 
out the interest buydown provisions in accordance with this section in 
the Conditional Commitment for Guarantee. When the Loan Note Guarantee 
is issued, the lender and FmHA or its successor agency under Public Law 
103-354 will execute Form FmHA or its successor agency under Public Law 
103-354 1980-48, ``Business and Industry Interest Rate Buydown 
Agreement.''
    (4) The lender will request the interest payment from FmHA or its 
successor agency under Public Law 103-354 by submitting Form FmHA or its 
successor agency under Public Law 103-354 1980-23, ``Request for 
Business and Industry Interest Buydown Payment,'' to the FmHA or its 
successor agency under Public Law 103-354 servicing office. Each request 
must cover exactly 1 year and be filed within 30 days after the 
anniversary date of the promissory note, except when interest buydown is 
terminated between anniversary dates. The FmHA or its successor agency 
under Public Law 103-354 servicing office will review each request for 
consistency with FmHA or its successor agency under Public Law 103-354 
regulations and the Form FmHA or its successor agency under Public Law 
103-354 1980-48 and, if the claim is valid, will approve it and forward 
it to the Finance Office for issuance of the payment to the lender.
    (g) Termination of interest buydown. When FmHA or its successor 
agency under Public Law 103-354 purchases a portion of a loan, interest 
buydown will cease on the entire loan. Interest buydown will also cease 
upon termination of the Loan Note Guarantee or assumption/transfer of 
the loan. In the event of any action that causes the interest buydown to 
terminate, the lender will submit a claim on Form FmHA or its successor 
agency under Public Law 103-354 1980-23 for interest buydown payments 
through the date of termination.
    (h) Loan purposes. (1) Refinancing. Section 1980.452 Administrative 
C.1. (d) of this subpart does not apply to BIB loans if refinancing is 
needed as a direct consequence of the disaster. In such cases, the 
lender may be allowed to bring previously unguaranteed exposure under 
the guarantee. No loan will be refinanced unless the current market 
value of the collateral is at least equal to the amount of the loan to 
be refinanced plus any new loan amount.
    (2) Agriculture. Section 1980.412 (e) of this subpart does not apply 
to BIB loans. BIB loans may be guaranteed for agriculture production, 
which means the cultivation, production (growing), and harvesting, 
either directly or through integrated operations, of agricultural 
products (crops, animals, birds, and marine life, either for fiber or 
food for human consumption), and disposal or marketing thereof, the 
raising, housing, feeding (including commercial custom feedlots), 
breeding, hatching, control and/or management of farm or domestic 
animals.
    (3) Other eligible businesses. Eligible types of businesses also 
include:
    (i) Commercial nurseries primarily engaged in the production of 
ornamental plants and trees and other nursery products such as bulbs, 
florists' greens, flowers, shrubbery, flower and vegetable seeds, sod, 
and the growing of vegetables from seed to the transplant stage.
    (ii) Forestry which includes establishments primarily engaged in the 
operation of timber tracts, tree farms, forest nurseries, and related 
activities such as reforestation.
    (iii) The growing of mushrooms or hydroponics.
    (4) Recreation and tourism. Loans may be guaranteed for tourist or 
recreation facilities except for hotels, motels, bed

[[Page 727]]

and breakfasts, race tracks, gambling, or golf courses.
    (5) Meat processing facilities. The provisions of Sec. 1980.411 
(a)(8) of this subpart will not apply to BIB loans. Loans, including 
working capital or debt refinancing, may be guaranteed for businesses 
engaged in meat or poultry processing.
    (i) Small Business Administration. Section 1980.451 (c) of this 
subpart will not apply to BIB loans. Applicants eligible for Small 
Business Administration assistance will be advised of the availability 
of that assistance.
    (j) Loan guarantee limits. Notwithstanding the provisions of 
Sec. 1980.420 of this subpart, the guarantee percentage on any BIB loan 
will not exceed 80 percent.
    (k) Credit quality analysis. In analyzing the credit quality of a 
proposed loan to a business that has lost assets to a natural disaster, 
primary emphasis will be placed on the operating history of the 
business, rather than its current financial condition. If the business 
has a sound, profitable and successful history prior to the disaster and 
there are reasonable projections to ensure it can operate successfully 
in the future, the proposed loan may be approved even if disaster losses 
have caused somewhat less equity and/or collateral than would normally 
be expected for a B&I loan guarantee. If the business appears to have 
had an unprofitable operation or inadequate cash flow prior to the 
disaster, the proposed loan guarantee will not be approved.
    (l) Equity requirements. The equity requirements of Sec. 1980.441 of 
this subpart do not apply to BIB loans.
    (m) Collateral. Section 1980.443 Administrative A. 2., 3., and 4. of 
this subpart will not apply to BIB loans. Collateral may be considered 
at its current market value without discount. Work-in-process inventory 
may be valued at the estimated market value of the finished product. All 
costs of producing the finished product must be included in the cash 
flow analysis.
    (n) Conditional approval. A Form FmHA or its successor agency under 
Public Law 103-354 449-14 may be issued prior to receipt of specific 
items needed to complete an application package provided:
    (1) The lender and/or borrower demonstrates to the Government's 
satisfaction that it has a need for a prompt indication of the 
availability of the proposed loan guarantee and the conditions under 
which a guarantee are available;
    (2) The specific items missing from the application package will 
take considerable time to obtain;
    (3) The lender requests a commitment prior to providing the items;
    (4) The attachment to Form FmHA or its successor agency under Public 
Law 103-354 449-14 clearly states that the commitment is conditioned on 
satisfactory completion of the missing item(s) and a guarantee will not 
be issued unless all conditions of these regulations are met; and
    (5) No Form FmHA or its successor agency under Public Law 103-354 
449-14 will be issued prior to the obligation date established with the 
Finance Office.
    (o) Financial statements. All requirements of Sec. 1980.451(i)(13) 
of this subpart will apply except that for BIB loans minimum annual 
financial statements will be required as follows:
    (1) For nonagricultural borrowers with a B&I indebtedness of 
$500,000 or less, an annual compilation by an independent certified 
public accountant or by an independent public accountant licensed and 
certified on or before December 31, 1970.
    (2) For nonagricultural borrowers with a B&I indebtedness of 
$500,001 through $1 million, an annual review by an independent 
certified public accountant or by an independent public accountant 
licensed and certified on or before December 31, 1970.
    (3) For nonagricultural borrowers with a B&I indebtedness of more 
than $1 million, an annual audited financial statement by an independent 
certified public accountant or by an independent public accountant 
licensed and certified on or before December 31, 1970.
    (4) All agricultural loans will require annual financial statements 
per Sec. 1980.113 of subpart B of this part.
    (p) Agriculture loans. The following additional provisions apply to 
BIB loan guarantees for businesses engaged in agriculture production:

[[Page 728]]

    (1) General policy. Paragraph (p) of this section contains the 
regulations for making BIB loans to farmers for agricultural purposes. 
BIB loans made for agricultural purposes are subject to the provisions 
in subparts A and E of this part except as specified. In addition, 
certain sections of subpart B of this part referenced in this section 
are applicable subject to the limitations outlined in this section. 
Several key loan processing and loan servicing requirements stipulated 
in subpart B of this part do not apply to loans made to borrowers under 
this section.
    (2) Type of guarantee. BIB loans will be processed under the Loan 
Note Guarantee option of Sec. 1980.101 (e)(1) of subpart B of this part 
Only. No loan will be processed for a Contract of Guarantee (Line of 
Credit) under Sec. 1980.101 (e)(2) of subpart B of this part.
    (3) Farm size. Loan guarantees may be made under the BIB program 
without regard to the size of the farming operation.
    (4) Filing and processing preapplications and applications. If the 
applicant has already developed material for an FmHA or its successor 
agency under Public Law 103-354 Farmer Programs loan or if the financial 
and production information required by Sec. 1980.113 of subpart B of 
this part is needed to document repayment ability or is required by the 
lender, Sec. 1980.113 of subpart B of this part may apply with the 
following exceptions:
    (i) Lines of credit will not be guaranteed.
    (ii) If the application is submitted solely for a farm as defined in 
Sec. 1980.106(b) of subpart B of this part, Form FmHA or its successor 
agency under Public Law 103-354 1980-25, ``Farmer Programs 
Application,'' or Form FmHA or its successor agency under Public Law 
103-354 449-1, will be used as an application for assistance.
    (5) Evaluation of applications. If the application is developed and 
processed in accordance with Sec. 1980.113 of subpart B of this part, 
the provisions outlined in Sec. 1980.114 of subpart B of this part apply 
with the following exceptions:
    (i) Timeframe requirements for the evaluation of applications and 
references to the Approved Lender Program are not applicable.
    (ii) County Committee reviews of applications processed under this 
section will not be required. If the loan approval official finds the 
applicant is not eligible, the applicant will be notified in writing of 
the reasons for disapproval and his/her rights through inclusion of the 
Equal Credit Opportunity Act (ECOA) statement. An opportunity will be 
given for an appeal as set out in subpart B of part 1900 of this 
chapter.
    (iii) When applied to BIB applications, references in Sec. 1980.114 
of this part to ``County Office'' shall normally be construed to mean 
``State Office.'' References to ``County Supervisor'' shall be construed 
to mean ``Business and Industry Chief or Community and Business Programs 
Chief, or other appropriate FmHA or its successor agency under Public 
Law 103-354 official as designated by the State Director.''
    (6) Terms of loan repayment. (i) Principal and interest on the loan 
will be due and payable to coincide with the cash flow operating cycle 
of the business. Installments will be scheduled for payment as agreed 
upon by the lender and borrower on terms that reasonably assure 
repayment of the loan. The first installment to include a repayment of 
principal may be scheduled for payment after the project is operational 
and has begun to generate income. However, such installment will be due 
and payable within 6 years from the date of the debt instrument and at 
least annually thereafter. Interest will not be deferred and will be due 
at least annually from the date of the debt instrument. In granting a 
deferral of principal payment, the loan approval official must document 
based on pro forma financial statements and the nature of the crop that 
the deferral of payments is necessary.
    (ii) The lender must ensure that loan repayment is scheduled to 
eliminate the possibility of a balloon payment at the end of the loan.
    (7) Agriculture BIB loan purposes. Loans may be made only for the 
following purposes:
    (i) Operating purposes as outlined in Sec. 1980.175 (c)(1) of 
Subpart B of this part except for those stipulated in 
Sec. 1980.175(c)(1)(iv) and (vii).

[[Page 729]]

    (ii) Real estate purposes as outlined in Sec. 1980.180 (c) of 
Subpart B of this part except for those stipulated in Sec. 1980.180 
(c)(1) and (4).
    (iii) Refinancing in accordance with paragraph (h)(1) of this 
section and Secs. 1980.411 (a)(11), 1980.451 (i)(19), and 1980.452 
Administrative C. (except Sec. 1980.452 Administrative C. 1. (d) of this 
subpart.
    (8) Sodbuster and swampbuster requirements. The provisions of 
exhibit M of subpart G of part 1940 of this chapter will apply to loans 
made to enterprises engaged in agricultural production.
[59 FR 28466, June 2, 1994]



Secs. 1980.491--1980.494  [Reserved]



Sec. 1980.495  FmHA or its successor agency under Public Law 103-354 forms and guides.

    The following FmHA or its successor agency under Public Law 103-354 
forms and guides, as applicable, are used in connection with processing 
B&I, D&D, and DARBE loan guarantees; they are incorporated in this 
subpart and made a part hereof:
    (a) Form FmHA or its successor agency under Public Law 103-354 449-
1. ``Application for Loan and Guarantee,'' is referred to as ``Appendix 
A,''
    (b) The ``Certificate of Incumbency and Signature'' is referred to 
as ``Appendix B,''
    (c) ``Guidelines for Loan Guarantees for Alcohol Fuel Production 
Facilities'' is referred to as ``Appendix C,''
    (d) ``Alcohol Production Facilities Planning, Performing, 
Development and Project Control'' is referred to as ``Appendix D,''
    (e) ``Environmental Assessment Guidelines'' is referred to as 
``Appendix E.''
    (f) Form FmHA or its successor agency under Public Law 103-354 449-
14, ``Conditional Commitment for Guarantee'' is referred to as 
``Appendix F,'' and
    (g) ``Liquidation and Property Management Guide'' is referred to as 
``Appendix G.''
    (h) ``Suggested Format for the Opinion of the Lender's Legal 
Counsel'' is referred to as ``Appendix H.''
    (i) ``Instructions for Loan Guarantees for Drought and Disaster 
Relief'' and Forms FmHA or its successor agency under Public Law 103-354 
1980-68, ``Lender's Agreement--Drought and Disaster Guaranteed Loans,'' 
1980-69, ``Loan Note Guarantee--Drought and Disaster Guaranteed Loans,'' 
and 1980-70, ``Assignment Guarantee Agreement--Drought and Disaster 
Guaranteed Loans,'' are referred to as ``Appendix I.''
    (j) [Reserved]
    (k) ``Regulations for Loan Guarantees for Disaster Assistance for 
Rural Business Enterprises'' and Forms FmHA or its successor agency 
under Public Law 103-354 1980-71, ``Lender's Agreement--Disaster 
Assistance for Rural Business Enterprises Guaranteed Loans,'' 1980-72 
``Loan Note Guarantee--Disaster Assistance for Rural Business 
Enterprises Guaranteed Loans,'' and 1980-73 ``Assignment Guarantee 
Agreement--Disaster Assistance for Rural Business Enterprises Guaranteed 
Loans'' are referred to as ``Appendix K.''
[52 FR 6501, Mar. 4, 1987, as amended at 54 FR 4, Jan. 3, 1989, and 54 
FR 26946, June 27, 1989; 54 FR 42483, Oct. 17, 1989]



Sec. 1980.496  Exception authority.

    The Administrator may in individual cases grant an exception to any 
requirement or provision of this subpart which is not inconsistent with 
any applicable law or opinion of the Comptroller General, provided the 
Administrator determines that application of the requirement or 
provision would adversely affect the Government's interest. Requests for 
exceptions must be in writing by the State Director and submitted 
through the Assistant Administrator, Community and Business Programs. 
Requests must be supported with documentation to explain the adverse 
effect on the Government's interest, propose alternative courses of 
action, and show how the adverse effect will be eliminated or minimized 
if the exception is granted.



Sec. 1980.497  General administrative.

    Refer to appendix G of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 Office) for advice on how to 
interact with the OGC on liquidations and property management.

[[Page 730]]

    (a) Office of the General Counsel (OGC). In performing the FmHA or 
its successor agency under Public Law 103-354 functions with respect to 
B&I, D & D, and DARBE loans, the advice and assistance of OGC may be 
sought and followed on any legal matter. However, it is the 
responsibility of the lender to ascertain that all requirements for 
making, securing, and servicing the loan are duly met. If FmHA or its 
successor agency under Public Law 103-354 has any questions concerning 
the lender's resolution of these matters, OGC should be consulted. 
Assistance of OGC will be requested on all loans as specified herein and 
all liquidations and workouts.
    (b) Contact with OGC. Initial informal contact with OGC should be 
made as soon as possible. FmHA or its successor agency under Public Law 
103-354 State Directors should use the following format in formally 
requesting legal assistance on workouts.
    (1) Origination: All written requests should come from the State 
Director.
    (2) Method: Request should be made by referral memorandum to the 
Regional Attorney setting forth a brief statement of the facts, the 
reason assistance is requested, the extent of legal assistance sought, 
the date when FmHA or its successor agency under Public Law 103-354's 
response to the lender's liquidation plan (if any) is due and:
    (i) Projected losses on collateral: e.g., projected losses on 
collateral are expected to be significant.
    (ii) Unusual or complex nature of primary collateral: e.g., multi-
state foreclosures or foreclosure of leases or general intangibles.
    (iii) Presence of other major creditors or of senior creditors: 
e.g., guaranteed loan collateral may be subject to a prior lien or other 
creditors may have rights in other assets of borrower, such as inventory 
and accounts receivable.
    (iv) Litigation is pending or threatened: e.g., bankruptcy, other 
foreclosure suits.
    (3) Materials to submit: Referral memorandums will be accompanied by 
a copy of lender's liquidation plan together with a copy of FmHA or its 
successor agency under Public Law 103-354's planned response and 
principal loan papers, conditional commitment for guarantee, guarantee 
documents and any comments from the National Office. If lender refuses 
to prepare a plan, the State Director should so state. DO NOT SEND 
DOCKETS unless specifically requested by OGC.
    (c) Reviews prior to issuance of the loan note guarantee. After the 
conditional commitment for guarantee has been issued and proposed with 
closing documents prepared by the lender and forwarded to FmHA or its 
successor agency under Public Law 103-354 with the lender's legal 
counsel's opinion in the suggested format of appendix H of this subpart, 
but prior to issuing the loan note guarantee, the State Director will 
forward the loan docket to the Regional Attorney for review. After an 
administrative review, the State Director will include with the docket a 
letter with recommendations and indicating any special items, documents 
or problems that need to be addressed specifically which may have a 
significant impact upon the loan or may be contrary to the regulation. 
The docket will be assembled for OGC review in accordance with 
Sec. 1980.451 Administrative B 5 of this subpart and indexed and tabbed.
    (d) Please submit the following for OGC review. Copies of:
    (1) Letter from FmHA or its successor agency under Public Law 103-
354 National Office authorizing loan guarantee containing conditions (if 
applicable);
    (2) Form FmHA or its successor agency under Public Law 103-354 449-
14, including any amendments;
    (3) Loan Agreement;
    (4) Promissory Notes;
    (5) Security documents--Real Estate Mortgage, Security Agreement, 
Financing Statements, and Leases (if applicable);
    (6) Personal or corporation guarantees with related security 
documents;
    (7) Proposed Form FmHA or its successor agency under Public Law 103-
354 449-35.
    (8) Proposed Form FmHA or its successor agency under Public Law 103-
354 449-34.
    (9) Proposed Form FmHA or its successor agency under Public Law 103-
354 449-36, if any;

[[Page 731]]

    (10) Proposed Lender's Certification (Sec. 1980.60 of subpart A of 
this part); and
    (11) Opinion of Lender's Counsel in form prescribed by OGC.
    (e) Do not submit for OGC review feasibility studies, title 
information, or the original application unless specifically requested 
to do so.
    (f) OGC advice. The Regional Attorney will review the docket and 
furnish advice to FmHA or its successor agency under Public Law 103-354 
on whether it may issue the LOAN NOTE GUARANTEE AFTER THE LOAN IS 
CLOSED. SUCH ADVICE IS FOR THE BENEFIT OF FmHA or its successor agency 
under Public Law 103-354 ONLY AND DOES NOT RELIEVE THE LENDER OF ITS 
RESPONSIBILITIES UNDER FmHA or its successor agency under Public Law 
103-354 REGULATIONS. The Regional Attorney at his/her option may attend 
the loan closing. Upon receipt of the Regional Attorney's advice, the 
State Director will correct or cause to be corrected any noted 
deficiencies before issuing the Loan Note Guarantee.
    (g) Delegation of authority. The State Director may delegate those 
administrative duties and responsibilities as authorized in the 
Administrative sections of this subpart, except those specifically 
reserved to the State Director.



Sec. 1980.498  Business and Industry Disaster Loans.

    (a) Introduction. This section contains regulations for the Business 
and Industry Disaster (BID) loan program. The purpose of the program is 
to provide loan guarantees under the authority of the Dire Emergency 
Supplemental Appropriations Act, 1992, Public Law 102-368. These 
guaranteed loans cover costs arising from the consequences of natural 
disasters such as Hurricanes Andrew and Iniki and Typhoon Omar that 
occur after August 23, 1992, and receive a Presidential declaration. 
Also included are the costs to any producer of crops and livestock that 
are a consequence of at least a 40 percent loss to a crop, 25 percent 
loss to livestock, or damage to building structures from a microburst 
wind occurrence in calendar year 1992. No BID loan guarantee will be 
approved after September 30, 1993. All provisions of subparts A and E of 
part 1980 of this chapter apply to BID loans, except as provided in this 
section. All forms used in connection with a BID loan will be those used 
with other Business and Industry (B&I) loans, except as provided in 
paragraph (m) of this section.
    (b) Location of Applicants. (1) Section 1980.405 of this subpart. 
``Rural area determinations,'' will not apply to BID loans. BID loans 
may be made in rural and nonrural areas.
    (2) Eligible borrowers' businesses must be located within the area 
covered by the Presidential declaration except for those with qualifying 
losses from microburst wind in accordance with paragraph (a) of this 
section.
    (c) Loan Purposes. Loans may be guaranteed for the purposes listed 
in Sec. 1980.411 of this subpart, ``Loan Purposes,'' except as follows:
    (1) Relationship to disaster. The purpose of any BID loan must be to 
cover costs that are a direct consequence of a natural disaster or 
microburst of wind in accordance with paragraph (a) of this section. The 
amount of the loan must not be greater than the amount needed as 
determined by the Rural Development Administration or its successor 
agency under Public Law 103-354 (RDA or its successor agency under 
Public Law 103-354) to cure problems caused by the natural disaster so 
that the business is reestablished on a successful basis. Facilities 
which were damaged or destroyed by the natural disaster may be repaired 
or replaced by modern facilities as necessary to ensure success. 
Replacement by modern facilities will not be made solely for the purpose 
of enlarging the business or increasing its production capacity. No loan 
for a change of purpose of the business will be guaranteed. Eligible 
refinancing or working capital loans should not exceed the amount needed 
to overcome the financial distress caused by the disaster. Losses that 
were adequately paid by insurance or by loans or grants from other 
sources will not be covered by BID loans. BID loans may be used to 
supplement insurance payments and/or assistance from other sources when 
the insurance coverage or other assistance is not sufficient.

[[Page 732]]

    (2) Refinancing. Section 1980.452, Administrative C.1.(d) of this 
subpart does not apply to BID loans. If refinancing is needed as a 
direct consequence of the disaster, the lender may be allowed to bring 
previously unguaranteed exposure under the guarantee. No loan will be 
refinanced unless the current market value of the collateral is at least 
equal to the amount of the loan to be refinanced plus any new loan 
amount.
    (3) Agriculture. Section 1980.412(e) of this subpart does not apply 
to BID loans. BID loans may be guaranteed for agriculture production, 
which means the cultivation, production (growing), and harvesting, 
either directly or through integrated operations, of agricultural 
products (crops, animals, birds, and marine life, either for fiber or 
food for human consumption), and disposal or marketing thereof, the 
raising, housing, feeding (including commercial custom feedlots), 
breeding, hatching, control and/or management of farm or domestic 
animals.
    (4) Other eligible businesses. Eligible types of businesses also 
include:
    (i) Commercial nurseries primarily engaged in the production of 
ornamental plants and trees and other nursery products such as bulbs, 
florists' greens, flowers, shrubbery, flower and vegetable seeds, sod, 
and the growing of vegetables from seed to the transplant stage.
    (ii) Forestry which includes establishments primarily engaged in the 
operation of timber tracts, tree farms, forest nurseries, and related 
activities such as reforestation.
    (iii) The growing of mushrooms or hydroponics.
    (5) Recreation and tourism. Loans may be guaranteed for tourist or 
recreation facilities except for hotels, motels, bed and breakfasts, 
race tracks, gambling, or golf courses.
    (6) Meat processing facilities. The provisions of 
Sec. 1980.411(a)(8) of this subpart will not apply to BID loans. Loans, 
including working capital or debt refinancing, may be guaranteed for 
businesses engaged in meat or poultry processing.
    (d) Federal Emergency Management Agency (FEMA). BID loans may be 
approved only to the extent that the assistance is not available from 
FEMA. The case file will be documented to show that FEMA assistance was 
not available or that FEMA assistance is not adequate to cover the costs 
as a consequence of the natural disaster.
    (e) Small Business Administration. Section 1980.451 of this subpart 
will not apply to BID loans. Applicants eligible for Small Business 
Administration assistance will be advised of the availability of that 
assistance.
    (f) Loan guarantee limits. Notwithstanding the provisions of 
Sec. 1980.420 of this subpart, the guarantee percentage on any BID loan 
will not exceed 80 percent.
    (g) Credit quality analysis. In analyzing the credit quality of a 
proposed loan to a business that has lost assets to a natural disaster, 
primary emphasis will be placed on the operating history of the 
business, rather than its current financial condition. If the business 
has a sound, profitable and successful history prior to the disaster and 
there are reasonable projections to ensure it can operate successfully 
in the future, the proposed loan may be approved even if disaster losses 
have caused somewhat less equity and/or collateral than would normally 
be expected for a B&I guarantee. If the business appears to have had an 
unprofitable operation or inadequate cash flow prior to the disaster, 
the proposed loan guarantee will not be approved.
    (h) Equity requirements. The equity requirements of Sec. 1980.441 of 
this subpart do not apply to BID loans.
    (i) Feasibility studies. Feasibility studies as required by 
Sec. 1980.442 of this subpart will not be required for BID loans if the 
business has a successful financial history that supports future plans 
and projections that indicate a successful operation with adequate 
repayment ability.
    (j) Collateral. Section 1980.443, Administrative A. 2., 3., and 4. 
of this subpart will not apply to BID loans. Collateral may be 
considered at its current market value without discount. Work-in-process 
inventory may be valued at the estimated market value of the finished 
product. All costs of producing the finished product must be included in 
the cash flow analysis.
    (k) Conditional approval. A Form FmHA or its successor agency under

[[Page 733]]

Public Law 103-354 449-14, ``Conditional Commitment for Guarantee,'' may 
be issued prior to receipt of specific items needed to complete an 
application package provided:
    (1) The lender and/or borrower demonstrates to the Government's 
satisfaction that it has a need for a prompt indication of the 
availability of the proposed loan guarantee and the conditions under 
which a guarantee are available;
    (2) The specific items missing from the application package will 
take considerable time to obtain;
    (3) The lender requests a commitment prior to providing the items;
    (4) The attachment to Form FmHA or its successor agency under Public 
Law 103-354 449-14 clearly states that the commitment is conditioned on 
satisfactory completion of the missing item(s) and a guarantee will not 
be issued unless all conditions of these regulations are met; and
    (5) No Form FmHA or its successor agency under Public Law 103-354 
449-14 will be issued prior to the obligation date established with the 
Finance Office.
    (l) Financial statements. All requirements of Sec. 1980.451(i)(13) 
of this subpart will apply except that it is modified for BID loans to 
require minimum annual financial statements as follows:
    (1) For nonagricultural borrowers with a B&I indebtedness of 
$500,000 or less, an annual compilation by an independent certified 
public accountant or by an independent public accountant licensed and 
certified on or before December 31, 1970.
    (2) For nonagricultural borrowers with a B&I indebtedness of 
$500,001 through $1,000,000, an annual review by an independent 
certified public accountant or by an independent public accountant 
licensed and certified on or before December 31, 1970.
    (3) For nonagricultural borrowers with a B&I indebtedness of more 
than $1 million, an annual audited financial statement by an independent 
certified public accountant or by an independent public accountant 
licensed and certified on or before December 31, 1970.
    (4) All agricultural loans will require annual financial statements 
per Sec. 1980.113 of subpart B of part 1980 of this chapter.
    (m) Agriculture loans. The following additional provisions apply to 
BID loan guarantees for businesses engaged in agriculture production:
    (1) General policy. This portion of this section contains the 
regulations for making BID loans to farmers for agricultural purposes. 
BID loans made for agricultural purposes are subject to the provisions 
in subparts A and E of part 1980 of this chapter except as specified. In 
addition, certain sections of subpart B of part 1980 of this chapter 
referenced in this section are applicable subject to the limitations 
outlined in this section. BID loans made for agricultural purposes are 
made under the Business and Industry authority of section 310B of the 
Consolidated Farm and Rural Development Act of 1972, as amended. In this 
regard, several key loan processing and loan servicing requirements 
stipulated in subpart B of part 1980 of this chapter do not apply to 
loans made to borrowers under this section. Only the material cross-
referenced to subpart B of part 1980 of this chapter is to be utilized 
in lieu of or in addition to the requirements contained in subpart E of 
part 1980 of this chapter in processing loans under this section.
    (2) Type of guarantee. See Sec. 1980.101(e)(1) of subpart B of part 
1980 of this chapter. BID loans will be processed under the Loan Note 
Guarantee option ONLY. No loan will be processed for a Contract of 
Guarantee (Line of Credit) under this section.
    (3) Abbreviations and definitions. (i) The abbreviations and 
definitions found in Sec. 1980.106 of subpart B of part 1980 of this 
chapter will apply to loans made under this section except for ``family 
farm,'' ``related by blood or marriage,'' and ``subsequent loans.''
    (ii) Loan guarantees may be made under the BID program without 
regard to the size of the farming operation.
    (4) Loan eligibility requirements. In addition to the requirements 
set forth in this subpart, the requirements in Sec. 1980.175(b) of 
subpart B of part 1980 of this chapter regarding controlled substances 
are applicable.
    (5) Filing and processing preapplications and applications. If the

[[Page 734]]

applicant has already developed material for an FmHA or its successor 
agency under Public Law 103-354 Farmer Programs loan or if the financial 
and production information required by Sec. 1980.113 of subpart B of 
part 1980 of this chapter is needed to document repayment ability or is 
required by the lender, Sec. 1980.113 of subpart B of part 1980 of this 
chapter may apply with the following exceptions:
    (i) Lines of credit will not be guaranteed.
    (ii) Timeframes for applicant/lender notification in Sec. 1980.113 
of subpart B of part 1980 of this chapter do not apply.
    (iii) If the application is submitted solely for a farm as defined 
in Sec. 1980.106(b) of subpart B of part 1980 of this chapter, Form FmHA 
or its successor agency under Public Law 103-354 410-1, ``Application 
for FmHA or its successor agency under Public Law 103-354 Services,'' or 
Form FmHA or its successor agency under Public Law 103-354 449-1, 
``Application for Loan and Guarantee,'' will be used as an application 
for assistance.
    (6) Evaluation of applications. If the application is developed and 
processed in accordance with Sec. 1980.113 of subpart B of part 1980 of 
this chapter, the provisions outlined in Sec. 1980.114 of subpart B of 
part 1980 of this chapter applies with the following exceptions:
    (i) Timeframe requirements for the evaluation of applications and 
references to the Approved Lender Program are not applicable.
    (ii) County Committee reviews of applications processed under this 
section will not be required. If the loan approval official finds the 
applicant is not eligible, the applicant will be notified in writing of 
the reasons for disapproval and the opportunity given for an appeal as 
set out in subpart B of part 1900 of this chapter.
    (7) Terms of loan repayment. (i) Principal and interest on the loan 
will be due and payable to coincide with the cash flow operating cycle 
of the business. Installments will be scheduled for payment as agreed 
upon by the lender and borrower on terms that reasonably assure 
repayment of the loan. The first installment to include a repayment of 
principal may be scheduled for payment after the project is operable and 
has begun to generate income. However, such installment will be due and 
payable within 6 years from the date of the debt instrument and at least 
annually thereafter. All accrued interest will be due at least annually 
from the date of the debt instrument. In no case will interest be 
deferred. In granting a deferral of principal payment, the loan approval 
official must document based on pro forma financial statements and the 
nature of the crop that the deferral of payments is necessary.
    (ii) The lender must ensure that loan repayment is scheduled to 
eliminate the possibility of a balloon payment at the end of the loan.
    (8) BID agriculture loan purposes. Loans may be made only for the 
following purposes:
    (i) Operating purposes as outlined in Sec. 1980.175(c)(1) of subpart 
B of part 1980 of this chapter except for those stipulated in paragraphs 
(c)(1) (iv) and (vii) of that section.
    (ii) Real estate purposes as outlined in Sec. 1980.180(c) of subpart 
B of part 1980 of this chapter except for those stipulated in paragraphs 
(c) (1) and (4) of that section.
    (iii) Refinancing in accordance with paragraphs (c)(1) and (c)(2) of 
this section and Secs. 1980.411(a)(11), 1980.451(i)(19) and 1980.452 
ADMINISTRATIVE C [except 1980.452 ADMINISTRATIVE C 1(d)] of this 
subpart.
    (9) Sodbuster and swampbuster requirements. The provisions of 
exhibit M of subpart G of part 1940 of this chapter will apply to loans 
made to enterprises engaged in agricultural production.
[57 FR 45969, Oct. 5, 1992, as amended at 58 FR 34342, June 24, 1993; 58 
FR 38952, July 21, 1993; 58 FR 41172, Aug. 3, 1993; 58 FR 48300, Sept. 
15, 1993]



Sec. 1980.499  [Reserved]



Sec. 1980.500  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 0575-0029. Public reporting burden 
for this collection of information is estimated to vary from 5 minutes 
to 58 hours per response, with an average of 4 hours per response 
including time for

[[Page 735]]

reviewing instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the collection 
of information. Send comments regarding this burden estimate or any 
other aspect of this collection of information, including suggestions 
for reducing this burden, to the Department of Agriculture, Clearance 
Officer, OIRM, Room 404-W, Washington, DC 20250; and to the Office of 
Management and Budget, Paperwork Reduction Project (OMB 0575-XXXX), 
Washington, DC 20503.
[55 FR 19245, May 8, 1990]
                         Appendices to Subpart E

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[[Page 745]]

           Appendix B--Certificate of Incumbency and Signature

   U.S. Department of Agriculture--Farmers Home Administration or its 
                successor agency under Public Law 103-354

    I, (Name)____________, (Title)-------- of the Farmers Home 
Administration or its successor agency under Public Law 103-354, (FmHA 
or its successor agency under Public Law 103-354), an Agency of the 
United States Department of Agriculture, DO HEREBY CERTIFY that the 
following person holds the office of (State Director, State Program Loan 
Chief, District Director, or County Supervisor)____________ of ________, 
for FmHA or its successor agency under Public Law 103-354 and that the 
signature appearing below and that the signatures appearing above that 
person's name on the following described document is the genuine 
signature of such person:
    1. Form(s) FmHA or its successor agency under Public Law 103-354 
449-34, ``Loan Note Guarantee,'' dated______ relating to loan made by 
(Lender's Name)____________ to (Borrower's Name)____________, FmHA or 
its successor agency under Public Law 103-354 Loan Identification No.__.
    2. Form(s) FmHA or its successor agency under Public Law 103-354 
449-35, ``Lender's Agreement,'' dated______ relating to loan made by 
(Lender's Name)______________ to (Borrower's Name)______________, FmHA 
or its successor agency under Public Law 103-354 Loan Identification 
No.__.
    3. Form(s) FmHA or its successor agency under Public Law 103-354 
449-36, ``Assignment Guarantee Agreement,'' dated______ relating to loan 
made by (Lender's Name)______________ to (Borrower's 
Name)______________, FmHA or its successor agency under Public Law 103-
354 Loan Identification No.__.
    Signature______________ (Name
Type)______________.
    In witness whereof, I have hereunto signed my name this ____ day of 
________, 19__.

Farmers Home Administration or its successor agency under Public Law 
103-354.
 By --__________________________________________________________________
 (Title)________________________________________________________________

 Appendix C--Guidelines for Loan Guarantees for Alcohol Fuel Production 
                               Facilities

    (1) Alcohol production facility. An alcohol production facility is a 
facility in which alcohol, suitable for use by itself or in combination 
with other substances as a substitute for petroleum or petrochemical 
feedstocks and not suitable for beverage purposes, is manufactured from 
biomass.
    (2) The alcohol production facility includes all facilities 
necessary for the production and storage of alcohol and the processing 
of the by-products of alcohol production. The intent is to limit the 
alcohol and by-products processing facilities to those facilities which 
are necessary to yield marketable products and necessary for the 
financial success of the project. Further refinements, such as gasoline 
blending or the construction of facilities which use the alcohol or by-
products in another manufacturing process, are not considered part of 
the alcohol production facility.
    (3) Application will be reviewed by both B&I personnel and the State 
Office engineer and forwarded to the National Office if approval is 
recommended.
    (4) The applicant should have a startup tangible book equity of 20-
25 percent. (Appraisal surplus and subordinated debt are not eligible 
equity items.)
    (5) Loan maturity maximums will be as follows:

Real Estate=15-20 years
Machinery & Equipment=10 years or less depending on the estimated life 
of the equipment involved
Working Capital=3 years (It is assumed that the additional equity 
required for these projects will provide much of the working capital 
needs.)

    (6) Farmers Home Administration or its successor agency under Public 
Law 103-354 will ordinarily only finance new facilities and will not get 
involved in the refinancing of existing ones.
    (7) Priority consideration will be given to the use of primary fuel 
other than petroleum or natural gas.
    (8) A positive energy balance must be indicated and supported by 
appropriate data; i.e., the energy content of the alcohol produced at 
the alcohol production facility must be greater than the energy used to 
produce the alcohol and by-products.
    (9) Plant location, in relation to feedstocks, primary fuel and 
markets for product and by-products, will be an important consideration.
    (10) Debt refinancing will only be considered in modest amounts and 
only when necessary to provide a satisfactory lien position.
    (11) Feasibility studies are very important and required and will be 
prepared by competent and knowledgeable independent parties.
    (12) Participating lenders must either have expertise or the 
availability of expertise in this field.
    (13) The proposed operating managers must have experience in this or 
a related field.
    (14) Alcohol Fuel Production Facilities are eligible for assistance 
underthe Drought and Disaster (D&D) Guaranteed Loan and Disaster 
Assistance for Rural Business Enterprises (DARBE) programs described in 
this

[[Page 746]]

subpart, and especially in appendix I and appendix K. Any such loan must 
meet the requirements for D&D and DARBE loans.
[52 FR 6522, Mar. 4, 1987, as amended at 53 FR 40403, Oct. 17, 1988; 54 
FR 5, Jan. 3, 1989, and 54 FR 26946, June 27, 1989; 54 FR 42483, Oct. 
17, 1989]

    Appendix D--Alcohol Production Facilities Planning, Performing, 
                     Development and Project Control

    (I) Design Policy. The borrower shall ensure or cause to be ensured 
that:
    (A) All project facilities are designed utilizing accepted 
engineering practices and are conformed to applicable Federal, State and 
local codes and requirements.
    (B) Proven equipment and processes are employed in all project 
facilities unless an exception is granted by the Administrator or 
designee of the Farmers Home Administration or its successor agency 
under Public Law 103-354 (FmHA or its successor agency under Public Law 
103-354) (``Administrator'') in accordance with paragraph (B)(2) hereof 
and pilot equipment or processes are used instead.
    (1) Equipment and processes shall be considered ``proven'' if they 
have been successfully employed in other commercial facilities.
    (2) Equipment and processes shall be considered pilot if they have 
not been used in a commercial operation but have been operated on a 
scale such that all design and material problems have been identified 
and resolved and operations maintained to demonstrate that the equipment 
and process may be successfully applied to the proposed commercial 
operation. Pilot equipment and processes may be considered for use in 
the project subject to the following:
    (a) The plans, specifications, and operational data for the 
applicable facilities are reviewed by the Administrator or designee and 
lender. If, in the opinion of FmHA or its successor agency under Public 
Law 103-354, the proposed processes or equipment are insufficiently 
developed to assure reliable and successful operation of the project, 
proven processes and equipment will be utilized.
    (b) If pilot processes or equipment are used, the Administrator or 
designee will also require that:
    (i) Reasonable provision is made in the project for conversion to 
proven equipment or processes; and
    (ii) The borrower agrees to convert to proven equipment or processes 
if conversion is necessary to protect the interest of the Government in 
the project. A reserve account for this conversion may be required. This 
account will not be an eligible loan purpose.
    (C) Facility and equipment design incorporates cost-effective 
primary fuel systems, energy recovery systems and conservation measures 
to the maximum extent that this is feasible and consistent with 
paragraphs (I), (A), and (B) of this appendix.
    (II) Technical Services.
    (A) The borrower is responsible for selecting engineering 
consultants with suitable experience, training and professional 
competence in the design and construction of the project to assure that 
the completed project will operate at the prescribed levels of 
performance. In discharging its responsibility the borrower will obtain 
or cause to be obtained:
    (1) Full engineering services for design and construction inspection 
for all project facilities. Resident inspection by qualified persons 
will be required.
    (2) Agreements for engineering or design/build services which 
describe the project facilities in terms of the parameters critical to 
the successful operation of the project. The parameters shall include 
input quantities, conversion efficiency, rate of production and fuel 
consumption and product quality under normal operating conditions. The 
design parameters will be mutually agreed upon by the borrower, lender, 
the State Director and the project engineer, and may not be modified 
without the written concurrence of each of these parties. These 
agreements for engineering or design/build services will require, or the 
borrower will otherwise obtain, assurance satisfactory to the State 
Director that:
    (a) The project engineer will maintain adequate insurance to protect 
the borrower, lender and the Government from incurring expenses 
resulting from errors and omissions of the engineer in performance of 
engineering services.
    (b) The project engineer will certify that only proven equipment and 
processes will be utilized in the proposed development. The State 
Director may request evidence of successful operations of such proven 
equipment and process. If proven equipment or processes are not used in 
the project, the project engineer will identify these items and provide 
the information necessary for acceptance by the Administrator, borrower 
and lender in accordance with paragraph (I)(B)(2) of this appendix.
    (c) If used equipment or existing facilities are incorporated into 
the project, they must be inspected by the project engineer or by 
another qualified engineer of the borrower. This engineer will prepare a 
report describing the proposed facilities or equipment and will comment 
on their suitability for use in the project. The report will also 
identify the modifications necessary for successful integration into the 
project. A cost estimate will also be included comparing new equipment 
and facilities to the proposed existing facilities or used equipment. 
Consideration must

[[Page 747]]

be given to the relative energy requirements of used and new facilities 
and their relative operation and maintenance costs.
    (d) The project engineer or qualified individuals representing the 
manufacturer of principal equipment (or the designer/builder if the 
contractor has designed the plant) will visit the plant site at 
reasonable intervals for a period of one year after substantial 
completion of the project. Such personnel will be experienced in the 
proper operation and maintenance of applicable plant components. A 
report will be presented to the borrower within two weeks of each site 
visit advising the borrower of operation and maintenance deficiencies. A 
copy of each report will be forwarded to the State Director and lender 
by the borrower.
    (e) The project engineer will prepare or supervise the preparation 
of a record drawing of all facilities. One copy will be submitted to the 
lender and the borrower.
    (f) The project engineer or another group acceptable to the State 
Director and lender will prepare an operation and maintenance manual and 
assist the borrower in the start-up of the project. The operation and 
maintenance manual will describe the specific operation and maintenance 
procedures which must be performed for the project to operate at its 
rated capacity and efficiency and outline product testing, quality 
control, plant safety and emergency shut-down procedures.
    (g) The project engineer will assist the borrower in determining 
acceptability of materials, equipment and construction during the 
construction period, review shop drawings, payment estimates and change 
orders, and assist in determining substantial completion of the project 
and final completion of individual contracts.
    (1) The project is substantially complete when:
    (i) Construction is sufficiently completed in accordance with plans 
and specifications so that the project may be used for its intended 
purpose, and;
    (ii) The project is producing products of the quantity and quality 
and at the conversion and energy efficiencies proposed in the completed 
application submitted by the lender and borrower and approved by the 
FmHA or its successor agency under Public Law 103-354.
    (2) The State Director must concur that the project is substantially 
complete. The following evidence, in form and substance satisfactory to 
the State Director and lender, must be submitted prior to such 
concurrence:
    (i) A certificate from the project engineer stating that all 
facilities are substantially complete. Engineers who design specialized 
equipment or processes must also certify that construction/fabrication 
is acceptable in accordance with plans and specifications previously 
approved by them. The certification of the project engineer must be 
based upon a project start-up procedure where the complete project 
operates continuously to reach steady-state operating conditions. During 
this period contractors and engineers will identify and correct problems 
in operations, malfunctions in equipment, failure in materials and 
defects in workmanship. After this pre-startup, the certifying engineers 
will monitor project operations for a continuous period of at least 72 
hours or 3 consecutive batch runs as appropriate to assure that all 
equipment is operating satisfactorily at rated capacity and efficiency.
    (ii) Copies of system operation and performance data obtained during 
project start-up.
    (iii) Exceptions to substantial completion and a list of 
nonsubstantial items which must be completed prior to release of any 
contractor's retainage.
    (3) If the project is not producing products of the required 
quantity or quality at the prescribed conversion efficiencies, even 
though the project is otherwise physically complete in accordance with 
paragraph (1)(i) of this subparagraph, the project engineer will prepare 
a report identifying the corrective actions including an estimate of 
costs and additional time necessary to meet established performance 
criteria.
    (4) The project must be certified to be substantially complete by an 
independent engineer if any portion of the project has been designed or 
constructed by the borrower or the project engineer has participated in 
any portion of the construction.
    (B) Modification of plans and specifications will not be made 
without the written authorization of the project engineer.
    (C) The Administrator, State Director or their representative's 
acceptance or concurrence in feasibility studies, preliminary 
engineering reports, plans, specifications, contract documents and 
payment estimates will not be construed as a representation of the 
adequacy of same, reliability of cost estimates or quality of 
construction, nor will such acceptance or concurrence be deemed a waiver 
of any of the Government's rights or remedies against any person or 
party. Reviews and construction inspections by the Administrator, State 
Director or their representatives are solely for the benefit of the 
Government and do not relieve the lender or borrower of their obligation 
to conduct project reviews and inspections.
    (III) Project Construction.
    (A) Borrower will not award contracts for the construction of any 
project facilities unless and until:
    (1) The borrower obtains applicable construction permits, right-of-
ways, licenses and approvals of Federal, State and local authorities for 
the construction of such facilities.

[[Page 748]]

    (2) The State Director concurs in applicable plans, specifications 
and contract documents. Standard contract documents prescribed for use 
in Federally assisted projects may be used as a guide for determining 
the minimum standards for contract acceptability. These standard 
documents are contained in Guides 18 and 19 of subpart A of part 1942 of 
this chapter (available in any FmHA or its successor agency under Public 
Law 103-354 office).
    (B) The borrower has the responsibility, without recourse to the 
Government, for the settlement and satisfaction of all contractual and 
administrative issues arising out of procurements. This includes, but is 
not limited to, disputes, claims, protests of awards, or other matters 
of a contractual nature. Matters concerning violation of laws are to be 
referred to such local, State, or Federal authority as may have proper 
jurisdiction.
    (C) The borrower's attorney will review executed contract documents 
including applicable performance and payment bonds and provide a 
certificate to the borrower and lender that they have been properly 
executed and that the persons executing these documents have been 
properly authorized to do so.
    (D) In all contracts for construction or facility improvement 
awarded in excess of $100,000, the borrower will require bonds and a 
bank letter of credit or cash deposit in escrow, assuring performance 
and payment of 100 percent of the contract cost. The surety will 
normally be in the form of performance and payment bonds. Such assurance 
shall remain in full force and effect through any warranty period. 
Companies providing performance and payment bonds must hold a 
certificate of authority as an acceptable security on Federal bonds and 
eligible for listing in Treasury circular 510 as amended and be legally 
doing business in the State the project is located.
    (E) Project Changes. Any change in the project which may affect 
collateral, its ultimate financial viability or compliance with the 
conditional commitment must have prior approval of the lender and FmHA 
or its successor agency under Public Law 103-354.
    (1) Construction contracts will require that change orders receive 
prior approval from the lender when such changes:
    (a) Increase or decrease contract price,
    (b) Materially modify contract provisions,
    (c) Increase or decrease time of completion,
    (d) Affect project performance.
    (2) All change orders will be recorded on a chronologically numbered 
contract change order as they occur. Change orders will not be included 
in payment estimates until approved by the borrower, project engineer, 
the lender and concurred in by FmHA or its successor agency under Public 
Law 103-354.
    (F) Warranty.
    (1) All major equipment must be guaranteed by the manufacturer to be 
free from defects in workmanship and materials for a period of one year 
after start-up of equipment.
    (2) Equipment purchased by a construction contractor or design 
builder and all other work shall be further warranted to be free from 
defect in material and workmanship by the contractor or the design 
builder for a period of one year after substantial completion of the 
contract.
    (3) Applicable provisions to this effect shall be included in 
equipment purchase orders or construction contracts.
    (G) Lease agreements. Where the right of use or control of any 
property or equipment not owned by the borrower is essential to the 
successful operation of the project during the life of the loan, such 
right will be evidenced by written agreements or contracts between the 
owner(s) of the property or equipment and the borrower. Lease agreements 
shall not contain provisions for restricted use of the site or facility, 
forfeiture or similiar cancellation clauses and shall provide for the 
right to transfer and lease without restriction. Such lease contracts or 
agreements shall be approved by the lender and FmHA or its successor 
agency under Public Law 103-354.
    (IV) Project Control.
    (A) Lender will adopt project control procedures to assure that loan 
funds are applied for costs or expenses properly attributable to the 
project (``Eligible Project Costs'') as proposed in the completed 
application submitted by the lender and borrower and approved by the 
FmHA or its successor agency under Public Law 103-354. A project 
monitoring account (``Project Monitoring Account'') will be developed by 
lender for this purpose and concurred in by the State Director. This 
account will be divided into sufficient budget categories to permit 
adequate control of expenditures and identification of potential budget 
overruns.
    (B) The first advance (``First Advance'') of loan funds to the 
borrower will not commence from the Project Monitoring Account prior to 
lender's receipt of evidence that:
    (1) The borrower has made adequate provisions for compliance with 
measures established by FmHA or its successor agency under Public Law 
103-354 to mitigate adverse historical and environmental impacts.
    (2) Applicable engineering, design/build, construction management, 
inspection and plant start-up service agreements have been obtained and 
accepted by the State Director and lender.
    (3) The project engineer has prepared a detailed cost estimate and 
construction schedule for all facilities related to the project. This 
estimate must indicate that the project can be completed with the funds 
available as shown on the Form FmHA or its successor

[[Page 749]]

agency under Public Law 103-354 449-1, ``Application for Loan and 
Guarantee.'' A reasonable contingency amount will be included in the 
estimate. This contingency shall be at least 20 percent of the estimated 
project costs for which firm bids have not been received plus 5 percent 
of project costs for which firm bids have been received. Construction 
interest and inspection costs will be based upon a reasonable 
contingency for unforeseen delays in project completion. The estimate 
shall include a listing with associated costs of any proposed leasing 
arrangements for property or equipment that is essential to the 
successful operation of the project.
    (4) All funds necessary for construction of project facilities will 
be available when needed.
    (5) The borrower has retained a project manager with sufficient 
experience and training to supervise project construction and 
engineering services on behalf of the borrower.
    (C) After the first advance, future advances may be made from the 
Project Monitoring Account, in accordance with prudent lender practice, 
for all Eligible Project Costs established in the Project Monitoring 
Account, provided these payments are made in accordance with the terms 
of applicable contracts and are approved by the borrower and, when 
applicable, recommended by the project engineer.
    (D) Payments for Eligible Project Costs incurred by the borrower 
prior to satisfaction of the conditions precedent to the first advance 
shall be made with borrower's funds or other nonguaranteed loan funds 
only. These payments however, may be reimbursed through the Project 
Monitoring Account as authorized by the State Director after compliance 
with Paragraph (IV)(B) hereof. The lender will not advance and the 
borrower will not be entitled to loan funds for reimbursement if such 
costs or expenses incurred by the borrower prior to the first advance, 
or at anytime thereafter, were for costs or expenses other than Eligible 
Project Costs. Costs and expenses accruing from but not limited to, 
interest charges imposed by construction, equipment, material or service 
contracts, penalty payments, damage claims, awards or settlements are 
not Eligible Project Costs unless specifically approved by the State 
Director.
    (E) The lender will monitor the progress of construction and 
undertake the reviews and project inspections necessary to reasonably 
assure that funds are paid for Eligible Project Costs and that problems 
in project development are expeditiously reported to the State Director.
    (F) The lender will prepare a monthly report showing the 
expenditures made from each budget category of the Project Monitoring 
Account. This report will include a review of construction progress 
including proposed and approved contract change orders and, to the 
extend possible, identify problems or delays in construction or other 
matters which might affect successful startup of project. This report 
may be based upon information received from the project engineer and 
borrower and/or independent observations of the lender. The report will 
be initialed by the borrower and project engineeer and submitted to the 
State Director.
    (G) Transfer of loan funds between established or new categories of 
the Project Monitoring Account or any change in the total amount of 
funds committed to the project will be reported by the lender to the 
State Director as these changes occur.

             Appendix E--Environmental Assessment Guidelines

    In completing an assessment, it is important to understand the 
comprehensive nature of the impacts which must be analyzed. 
Consideration must be given to all potential impacts associated with the 
construction of the project and its operation and maintenance. The 
attainment of the project's major objectives often induces or supports 
changes in population densities, land uses, community services, 
transportation systems and resource consumption. The impacts of these 
activities must also be assessed.
    The environmental reviewer should consult with appropriate experts 
from Federal, State and local agencies, universities and other 
organizations or groups whose views could be helpful in the assessment 
of potential impacts. In so doing, each discussion which is utilized in 
reaching a conclusion with respect to the degree of an impact should be 
summarized in the assessment as accurately as possible and include name, 
title, phone number, and organization of the individual contacted, plus 
the date of contact. Related correspondence should be attached to the 
assessment.
    The Farmers Home Administration or its successor agency under Public 
Law 103-354 assessment should be prepared in the following format; it 
should address the listed items and questions and contain as attachments 
the indicated descriptive materials, as well as the environmental 
information submitted by the applicant.
    These assessment guidelines have been designed to cover the wide 
variety of impacts which may be encountered. Consequently, not every 
issue or potential impact raised in these guildlines may be relevant to 
each project. The purpose of the format is to give the preparer an 
understanding of a standard range of impacts, environmental factors and 
issues which may be encountered. In preparing an assessment, each topic 
heading identified by a roman numeral and each environmental factor 
listed under topic heading IV,

[[Page 750]]

such as air quality for example, must be addressed.
    The amount of analysis and material that must be provided will 
depend upon the type and size of the project, the environment in which 
it is located and the range and complexity of the potential impacts. The 
amount of analysis and detail provided, therefore, must be commensurate 
with the magnitude of the expected impact. The analysis of each 
environmental factor (i.e., water quality) must be taken to the point 
that a conclusion can be reached and supported concerning the degree of 
the expected impact with respect to that factor.
    (I) Project description and need. Identify the name, project number, 
location, and specific elements of the project along with their sizes, 
and, when applicable, their design capacities. Indicate the purpose of 
the project, FmHA or its successor agency under Public Law 103-354's 
position regarding the need for it, and the extent or area of land to be 
considered as the project site.
    (II) Primary beneficiaries and related activities.
    Identify any existing businesses or major developments that will 
benefit from the project and those which will expand or locate in the 
area because of the project. Specify by name, product, service, and 
operations involved.
    Identify any related activities which are defined as interdependent 
parts of an FmHA or its successor agency under Public Law 103-354 
action. Such undertakings are considered interdependent parts whenever 
they either make possible or support the FmHA or its successor agency 
under Public Law 103-354 action or are themselves induced or supported 
by the FmHA or its successor agency under Public Law 103-354 action or 
another related activity. These activities may have been completed in 
the very recent past and are now operational or they may reasonably be 
expected to be accomplished in the near future. Related activities may 
or may not be Federally permitted or assisted. When they are, identify 
the involved Federal agency(s).
    In completing the remainder of the assessment, it must be remembered 
that the impacts to be addressed are those which stem from the project, 
the primary beneficiaries, and the related activities.
    (III) Description of project area. Describe the project site and its 
present use. Describe the surrounding land uses; indicate the directions 
and distances involved. The extent of the surrounding land to be 
considered depends on the extent of the impacts of the project, its 
related activities, and the primary beneficiaries. Unique or sensitive 
areas must be pointed out. These include residential, schools, 
hospitals, recreational, historical sites, beaches, lakes, rivers, 
parks, floodplains, wetlands, dunes, estuaries, barrier islands, natural 
landmarks, unstable soils, steep slopes, aquifer recharge areas, 
important farmlands and forestlands, prime rangelands, endangered 
species habitats, or other delicate or rare ecosystems.
    Attach adequate location maps of the project area, as well as (1) a 
U.S. Geological Survey ``15 minute'' (``7\1/2\ minute'' if available) 
topographic map which clearly delineates the area and the location of 
the project elements, (2) the Department of Housing and Urban 
Development's floodplain map(s) for the project area, (3) site photos, 
(4) if completed, a standard soil survey for the project and, (5) if 
available, an aerial photograph of the site. When necessary for 
descriptive purposes or environmental analysis, include land use maps or 
other graphic information. All graphic materials shall be of high 
quality resolution.
    (IV) Environmental impact.
    (1) Air Quality--Discuss, in terms of the amounts and types of 
emissions to be produced, all aspects of the project including 
beneficiaries' operations and known indirect effects (such as increased 
motor vehicle traffic) which will affect air quality. Indicate the 
existing air quality in the area. Indicate if topographical or 
meteorological conditions hinder or affect the dispersals of air 
emissions. Evaluate the impact on air quality given the types and 
amounts of projected emissions, the existing air quality and 
topographical and meteorological conditions. Discuss the project's 
consistency with the State's air quality implementation plan for the 
area, the classification of the air quality control region within which 
the project is located, and the status of compliance with air quality 
standards within that region. Cite any contacts with appropriate experts 
and agencies which must issue necessary permits.
    (2) Water Quality--Discuss, in terms of amounts and types of 
effluents all aspects of the project, including primary beneficiaries' 
operations and known indirect effects which will affect water quality. 
Indicate the existing water quality of surface and/or underground water 
to be affected. Evaluate the impacts of the project on this existing 
water quality. Indicate if an aquifer recharge area is to be adversely 
affected. If the project lies within or will affect a sole source 
aquifer recharge area as designated by the Environmental Protection 
Agency (EPA), contact the appropriate EPA regional office to determine 
if its review is necessary. If it is, attach the results of its review.
    Indicate the source and available supply of raw water and the extent 
to which the additional demand will affect the raw water supply. 
Describe the wastewater treatment system(s) to be used and indicate 
their capacity and their adequacy in terms of the degree of treatment 
provided. Discuss the characteristics and uses of the receiving waters 
for any

[[Page 751]]

sources of discharge. If the treatment systems are or will be inadequate 
or overloaded, describe the steps being taken for necessary improvements 
and their completion dates. Compare such dates to the completion date of 
the FmHA or its successor agency under Public Law 103-354 project. 
Analyze the impacts on the receiving water during any estimated period 
of inadequate treatment.
    Discuss the project's consistency with the water quality planning 
for the area, such as EPA's Section 208 areawide waste treatment 
management plan. Describe how surface runoff is to be handled and the 
effect of erosion on streams.
    Evaluate the extent to which the project may create shortages for or 
otherwise adversely affect the withdrawal capabilities of other present 
users of the raw water supply, particularly in terms of possible human 
health, safety, or welfare problems.
    For projects utilizing a groundwater supply, evaluate the potential 
for the project to exceed the safe pumping rate for the aquifer to the 
extent that it would (1) adversely affect the pumping capability of 
present users, (2) increase the likelihood of brackish or saltwater 
intrusion, thereby decreasing water quality, or (3) substantially 
increase surface subsidence risks.
    For projects utilizing a surface water supply, evaluate the 
potential for the project to (1) reduce flows below the minimum required 
for the protection of fish and wildlife or (2) reduce water quality 
standards below those established for the stream classification at the 
point of withdrawal or the adjacent downstream section.
    Cite contacts with appropriate experts and agencies that must issue 
necessary permits.
    (3) Solid Waste Management--Indicate all aspects of the project, 
including primary beneficiaries' operations, and known indirect effects 
which will necessitate the disposal of solid wastes. Indicate the kinds 
and expected quantities of solid wastes involved and the disposal 
techniques to be used. Evaluate the adequacy to these techniques 
especially in relationship to air and water quality. Indicate if 
recycling or resource recovery programs are or will be used. Cite any 
contacts with appropriate experts and agencies that must issue necessary 
permits.
    (4) Land Use--Given the description of land uses as previously 
indicated, evaluate (a) the effect of changing the land use of the 
project site and (b) how this change in land use will affect the 
surrounding land uses and those within the project's area of 
environmental impact. Particularly address the potential impacts to the 
unique or sensitive areas discussed under Section III, Description of 
Project Area. Also address any changes in land use which may result from 
demand for feedstock for the plant's operation. Describe the existing 
land use plan and zoning restrictions for the project area. Evaluate the 
consistency of the project and its impacts with these plans.
    (5) Transportation--Describe available facilities such as highways 
and rail. Discuss whether the project will result in an increase in 
motor vehicle traffic and the existing roads' ability to safely 
accommodate this increase. Indicate if additional traffic control 
devices are to be installed. Describe new traffic patterns which will 
arise because of the project. Discuss how these new traffic patterns 
will affect the land uses described above, especially residential, 
hospitals, schools, and recreational. Describe the consistency of the 
project's transportation impacts with the transportation plans for the 
area and any air quality control plans. Cite any contact with 
appropriate experts.
    (6) Natural Environment--Indicate all aspects of the project, 
including construction, beneficiaries' operations, and known indirect 
effects which will affect the natural environment including wildlife, 
their habitats, and unique natural features. Cite contacts with 
appropriate experts. If an area listed on the National Registry of 
Natural Landmarks may be affected, consult with the Department of 
Interior and document these consultations and any agreements reached 
regarding avoidance or mitigation of potential adverse impacts.
    (7) Human Population--Indicate the number of people to be relocated 
and arrangements being made for this relocation. Discuss how impacts 
resulting from the project such as changes in land use, transportation 
changes, air emissions, noise, odor, etc., will effect nearby residents 
and their lifestyles or users of the project area and surrounding areas. 
Cite contacts with appropriate experts.
    (8) Construction--Indicate the potential effects of construction of 
the project on air quality, water quality noise levels, solid waste 
disposal, soil erosion and siltation. Describe the measures that will be 
employed to limit adverse effects. Give particular consideration to 
erosion, stream siltation, and clearing operations.
    (9) Energy Impacts--Indicate the project's and its primary 
beneficiaries' effects on the area's existing energy supplies. This 
discussion should address not only the direct energy utilization, but 
any major indirect utilization resulting from the siting of the project. 
Describe the availability of these supplies to the project site. Discuss 
whether the project will utilize a large share of the remaining capacity 
of an energy supply or will create a shortage of such supply. Discuss 
any steps to be taken to conserve energy.
    (10) Discuss any of the following areas which may be relevant: 
noise, vibrations, safety, seismic conditions, fire prone locations, 
radiation, and aesthetic considerations. Cite any discussions with 
appropriate experts.

[[Page 752]]

    (V) Coastal Zone Management Act.
    Indicate if the project is within or will impact a coastal area 
defined as such by the state's approved Coastal Zone Management Program. 
If so, consult with the State agency responsible for the Program to 
determine the project's consistency with it. The results of this 
coordination shall be included in the assessment and considered in 
completing the environmental impact determination and environmental 
findings,
    (VI) Compliance with Advisory Council on Historic Preservation's 
regulations.
    In this section, the environmental reviewer shall detail the steps 
taken to comply with the above regulations as specified in Subpart F of 
Part 1901 of this Chapter. First, indicate that the National Register of 
Historic Places, including its monthly supplements, has been reviewed 
and whether there are any listed properties located within the area to 
be affected by the project. Second, indicate the steps taken such as 
historical/archeological surveys to determine if there are any 
properties eligible for listing located within the affected area. 
Summarize the results of the consultation with the State Historic 
Preservation Officer (SHPO) and attach appropriate documentation of the 
SHPO's views. Discuss the views of any other experts contacted. Based 
upon the above review process and the views of the SHPO, state whether 
or not an eligible or listed property will be affected.
    If there will be an effect, discuss all of the steps and protective 
measures taken to complete the Advisory Council's regulations. Describe 
the affected property and the nature of the effect. Attach to the 
asessment the results of the coordination process with the Advisory 
Council on Historic Preservation.
    (VII) Compliance with the Wild and Scenic Rivers Act.
    Indicate whether the project will affect a river or portion of it 
which is either included in the National Wild and Scenic Rivers System 
or designated for potential addition to the System. This analysis shall 
be conducted through discussions with the appropriate regional office of 
the National Park Service or the Forest Service when its lands are 
involved, as well as the appropriate State agencies having 
implementation authorities. A summary of discussions held or any 
required formal coordination shall be included in the assessment.
    (VIII) Compliance with the Endangered Species Act.
    Indicate whether the project will either (1) affect a listed 
endangered or threatened species or critical habitat or (2) adversely 
affect a proposed critical habitat for an endangered or threatened 
species or jeopardize the continued existence of a proposed endangered 
or threatened species. This analysis shall be conducted in consultation 
with the Fish and Wildlife Service and the National Marine Fisheries 
Service, when appropriate.
    The results of any required coordination shall be included in the 
assessment along with any completed biological opinion and mitigation 
measures to be required for the project. These factors shall be 
considered in completing the environmental impact determination.
    (IX) Compliance with Executive Order 11988, Floodplain Management, 
and Executive Order 11990, Protection of Wetlands.
    Indicate whether the project is either located within a 100-year 
floodplain (500-year floodplain for a critical action) or a wetland or 
will impact a floodplain or wetland. If so, determine if there is a 
practicable alternative project or location. If there is no such 
alternative, determine whether all practicable mitigation measures are 
included in the project and document as an attachment these 
determinations and the steps taken to inform the public, locate 
alternatives, and mitigate potential adverse impacts. See the U.S. Water 
Resource Council's Floodplain Management Guidelines for more specific 
guidance.
    (X) State Environmental Policy Act.
    Indicate if the proposed project is subject to a State environmental 
policy act or similar regulation. Summarize the results of compliance 
with these requirements and attach available documentation.
    (XI) Consultation requirements.
    Attach the comments of any State or local agency received through 
the implementation of Executive Order 12372, Intergovernmental Review of 
Federal Programs.
    (XII) Environmental analysis of participating Federal agency.
    Indicate if another federal agency is participating in the project 
either through the provision of additional funds, a companion project, 
or a permit review authority. Summarize the results of the involved 
agency's environmental impact analysis and attach available 
documentation.
    (XIII) Reaction to project.
    Discuss any negative comments or public views raised about the 
project and the consideration given to these comments. Indicate whether 
a public hearing or public information meeting has been held either by 
the applicant or FmHA or its successor agency under Public Law 103-354 
to include a summary of the results and any objections raised. Indicate 
any other examples of the community's awareness of the project, such as 
newspaper articles or public notifications.
    (XIV) Cumulative impacts.
    Summarize the cumulative impacts of this project and the related 
activities. Give particular attention to land use changes and air and 
water quality impacts. Summarize the results of the environmental impact 
analysis done for any of these related activities and/

[[Page 753]]

or your discussion with the sponsoring agencies. Attach available 
documentation of the analysis.
    (XV) Adverse impact.
    Summarize the potential adverse impacts of the proposal as pointed 
out in the above analysis.
    (XVI) Alternatives.
    Discuss the feasibility of alternatives to the project and their 
environmental impacts. These alternatives should include (a) alternative 
location, (b) alternative designs, (c) alternative projects having 
similar benefits, and (d) no project.
    (XVII) Mitigation measures.
    Describe any measures which will be taken or required by FmHA or its 
successor agency under Public Law 103-354 to avoid or mitigate the 
identified adverse impacts. Such measures shall be included as special 
requirements or provisions to the offer of financial assistance.

            Appendix F--Conditional Commitment for Guarantee

       USDA-FmHA or its successor agency under Public Law 103-354

Form FmHA or its successor agency under Public Law 103-354 449-14
(Rev. 12-89)
FORM APPROVED
OMB NO. 0575-0024
 TO: Lender_____________________________________________________________
 Case No._______________________________________________________________
 Lender's Address_______________________________________________________
 State__________________________________________________________________
 Borrower_______________________________________________________________
 County_________________________________________________________________
 Type of Loan___________________________________________________________
 Principal Amount of Loan_______________________________________________
 $______________________________________________________________________
    From an examination of information supplied by the Lender on the 
above proposed loan, the county committee certification or 
recommendation, if required, and other relevant information deemed 
necessary, it appears that the transaction can properly be completed.
    Therefore, the United States of America acting through the Farmers 
Home Administration or its successor agency under Public Law 103-354 
(FmHA or its successor agency under Public Law 103-354) hereby agrees 
that, in accordance with applicable provisions of the FmHA or its 
successor agency under Public Law 103-354 regulations published in the 
Federal Register and related forms, it will execute Form(s) FmHA or its 
successor agency under Public Law 103-354 449-34, ``Loan Note 
Guarantee,'' subject to the conditions and requirements specified in 
said regulations and below.
    The Loan Note Guarantee fee payable by the Lender to FmHA or its 
successor agency under Public Law 103-354 will be the amount as 
specified in the regulations on the date of this Conditional Commitment 
for Guarantee. The interest rate for the loan is \1\ ________% and, if 
applicable, the loan subsidy rate is ________% \1\. If a variable rate 
is used, it must be tied to a base rate which cannot change more often 
than ________ \2\ and must be published periodically in a financial 
publication specifically agreed to by the Lender and Borrower.
---------------------------------------------------------------------------


    \1\ Footnotes appear at the end of Form.
---------------------------------------------------------------------------

    A Loan Note Guarantee will not be issued until the Lender certifies 
as required in 7 CFR 1980.60 that there has been no adverse change(s) in 
the Borrower's financial condition, nor any other adverse change in the 
Borrower's condition during the period of time from FmHA or its 
successor agency under Public Law 103-354's issuance of the Conditional 
Commitment for Guarantee to issuance of the Loan Note Guarantee. The 
Lender's certification must address all adverse changes and be supported 
by financial statements of the Borrower and its guarantors not more than 
60 days old at the time of certification. As used in this paragraph 
only, the term ``Borrower'' includes any parent, affiliate, or 
subsidiary of the Borrower.
    This agreement becomes null and void unless the conditions are 
accepted by the Lender and Borrower within 60 days from date of issuance 
by FmHA or its successor agency under Public Law 103-354. Any 
negotiations concerning these conditions must be completed by that time.
    Except as set out below, the purposes for which the loan funds will 
be used and the amounts to be used for such purposes are set out on the 
Request for Loan Note Guarantee, the Request for Guarantee Operating 
Loan Line of Credit, Emergency Livestock Loan, or Economic Emergency 
Loan, or the Application for Loan and Guarantee. Once this instrument is 
executed and returned to FmHA or its successor agency under Public Law 
103-354, no major change of conditions or approved loan purpose as 
listed on the forms will be considered. Additional Conditions and 
Requirements including Source and Use of Funds:\3\
    This conditional commitment will expire on ________ \4\ unless the 
time is extended in writing by FmHA or its successor agency under Public 
Law 103-354, or upon the Lender's earlier notification to FmHA or its 
successor agency under Public Law 103-354 that it does not desire to 
obtain an FmHA or its successor agency under Public Law 103-354 
guarantee.

UNITED STATES OF AMERICA
 BY:____________________________________________________________________
 Date:__________________________________________________________________
 FmHA or its successor agency under Public Law 103-354  (Title)_________

[[Page 754]]

                        Acceptance of Conditions

To: Farmers Home Administration or its successor agency under Public Law 
103-354 (FmHA or its successor agency under Public Law 103-354)\5\
The conditions of this Conditional Commitment for Guarantee including 
attachments are acceptable and the undersigned intends to proceed with 
the loan transaction and request issuance of a Loan Note Guarantee 
within ________ days.
 _______________________________________________________________________
(Name of Lender)
 By:____________________________________________________________________
(Signature of Lender)
 \6\ ___________________________________________________________________
(Signature for Borrower)
 _______________________________________________________________________
    \1\ Insert fixed interest rate or, if authorized by regulations, 
variable interest rate followed by a ``V'' and the appropriate loan 
subsidy rate, if applicable.
    \2\ Insert the period prescribed in the applicable FmHA or its 
successor agency under Public Law 103-354 regulation. For B&I loans 
``quarterly'' and for CP loans ``annually'' will be inserted in this 
space.
    \3\ Insert any additional conditions or requirements in this space 
or on an attachment referred to in this space; otherwise, insert 
``NONE''.
    \4\ FmHA or its successor agency under Public Law 103-354 will 
determine the expiration date of this contract. Consideration will be 
given to the date indicated by the lender in the acceptance of 
conditions. If construction is involved the expiration date will 
correspond with the projected completion of the project.
    \5\ Return completed and signed copy of this form to FmHA or its 
successor agency under Public Law 103-354 issuing office.
    \6\ Required in B&I, CP, and RH-MF cases, not in other cases.
[55 FR 11139, Mar. 27, 1990]

                         Appendix G--[Reserved]

   Appendix H--Suggested Format for the Opinion of the Lender's Legal 
                                 Counsel

     (Legal Opinion to be Retyped on Lender's Counsel's Letterhead)

To: (Name of Lender).

    I/We have acted as counsel to (Lender) ________ in connection with a 
$ (amount) ________ (type) ________ loan by the (Lender) ________ 
(hereinafter ``the Lender'' to (Borrower) ________ (hereinafter 
``Borrower''), the terms of which loans are set forth in a certain Loan 
Agreement (hereinafter ``the Loan Agreement'') executed by the Lender 
and Borrower on (date) ________.
    In connection with this loan, I/we have examined:
    1. The corporate records of Borrower, including its Articles of 
Incorporation, By-Laws and Resolutions of its Board of Directors.
    2. The Loan Agreement between the Lender and Borrower.
    3. The Security Agreement executed by Borrower on (date) ________.
    4. The Guaranty (where applicable) executed on (date) ________ by 
(personal guarantors) ________.
    5. Financing Statements executed by Borrower and the Lender.
    6. Real Estate Mortgages dated ________ and executed by Borrower in 
favor of the Lender.
    7. Real Estate Mortgages dated ________ and/or other security 
documents dated________ executed by (personal guarantors) ________ in 
favor of the Bank.
    8. The appropriate title and/or lien searches relating to Borrower's 
property.
    9. The pledge of stock and instruments related thereto.
    10. Such other materials, including relevant provisions of the laws 
of this state as I/we have deemed pertinent as a basis for rendering the 
opinion hereafter set forth.

                          In Some Circumstances

    11. Lease(s) between Borrower and (lessor's name) ________ for the 
rental of (property being rented) ________, (if real property, give the 
address of the premises; if machinery equipment, etc., give brief, 
precise description of property for a (length of lease) ________ term 
commencing on (date) ________.
    Based on the foregoing examinations, I am/we are of the opinion and 
advise you that:
    1. Borrower is a duly organized corporation in good standing under 
the laws of the Commonwealth/State of (State) ________.
    2. Borrower has the necessary corporate power to authorize and has 
taken the necessary corporate action to authorize the Loan Agreement and 
to execute and deliver the Note, Security Agreement, Financing 
Statement, and Mortgage. Said instruments hereinafter collectively 
referred to as the ``Loan Instruments.''
    3. The Loan Instruments were all duly authorized, executed, and 
delivered and constitute the valid and legally binding obligation of the 
Borrower and collectively create and valid (first) lien upon or valid 
security interest in favor of the Lender, in the security covered 
thereby, and are enforceable in accordance with their terms except to 
the extent that the enforceability (but not the validity) thereof may be 
limited by laws of bankruptcy, insolvency, or other laws generally 
affecting creditors' rights.
    4. The execution and delivery of the Loan Instruments and compliance 
with the provisions thereof under the circumstances contemplated thereby 
did not, do not and will not in any material respect conflict with, 
constitute default under, or contravene any

[[Page 755]]

contract or agreement or other instrument to which the Borrower is a 
party or any existing law, regulation, court order, or consent decree or 
device to which the Borrower is subject.
    5. All applicable Federal, State and local tax returns and reports 
as required have been duly filed by Borrower and all Federal, State and 
local taxes, assessments and other governmental charges imposed upon 
Borrower or its respective assets, which are due and payable, have been 
paid.
    6. The guaranty has been duly executed by the Guarantors and is a 
legal, valid and binding joint and several obligations of the 
Guarantors, enforceable in accordance with its terms, except to the 
extent that the enforceability (but not the validity) thereof may be 
limited by laws of bankruptcy, insolvency, or other laws generally 
affecting creditors' rights.
    7. All necessary consents, approvals, or authorizations of any 
governmental agency or regulatory authority or of stockholders which are 
necessary have been obtained. The improvements and the use of the 
property comply in all respects with all Federal, State, and local laws 
applicable thereto.
    8. (In cases involving subordinate or other than first lien 
position) That the mortgage/deed of trust on Borrower's real estate and 
(fixtures, e.g., machinery and equipment) and the security interest on 
(type of collateral, e.g., machinery and equipment, accounts, 
receivables and inventory) both given as security to the Lender for the 
Loan, will be subordinate to (first mortgagee) ________ given as 
security for a loan in the amount of $________ and the security interest 
in Borrower's (type of collateral, e.g., accounts inventory) ________ 
given to (secured creditor) ________ as security for a loan (state type 
of loan, i.e., revolving line of credit, ________ if known) in the 
amount of $________.
    9. That there are no liens, as of the date hereof, on record with 
respect to the property of Borrower other than those set forth above.
    10. There are no actions, suits or proceedings pending or, to the 
best of our knowledge, threatened before any court or administrative 
agency against Borrower which could materially adversely affect the 
financial condition and operations of Borrower.
    11. Borrower has good and marketable title to the real estate 
security free and clear of all liens and encumbrances other than those 
set forth above. I/we have no knowledge of any defect in the title of 
the Borrower to the property described in the Loan Instruments.
    12. Borrower is the absolute owner of all property given to secure 
the repayment of the loan, free and clear of all liens, encumbrances, 
and security interests.
    13. Duly executed and valid functioning statements have been filed 
in all offices in which it is necessary to file financing statements to 
fully perfect the security interests granted in the Loan Instruments.
    14. Duly executed real estate mortgages/deeds of trust have been 
recorded in all offices in which it is necessary to record to fully 
perfect the security interests granted in the Loan Instruments.
    15. (IN SOME OTHER CIRCUMSTANCES) The Indemnification Agreemnt has 
been duly executed by the Indemnitors and is a legal, valid and binding 
joint and several obligation of the Indemnitors, enforceable in 
accordance with its terms, except to the extent that the enforceability 
(but not the validity) thereof may be limited by laws of bankruptcy, 
insolvency, or other laws generally affecting creditors' rights.
    16. That the lease contains a valid and enforceable right of 
assignment and right of reassignment, enforceable in accordance with its 
terms, except to the extent the enforceability (but not the validity) 
thereof may be limited by laws of bankruptcy, insolvency, or other laws 
generally affecting creditors' rights.
    17. The Lender's lien has been duly noted on all motor vehicle 
titles, stock certificates or other instruments where such notations are 
required for proper perfection of security interests therein.
    18. That a valid pledge of the outstanding and unissued stock and/or 
shares of Borrower has been obtained and the Lender has a validly 
perfected and enforceable security interest in the shares/stock of 
Borrower, except to the extent the enforceability thereof may be limited 
by laws of bankruptcy, insolvency, or other laws generally affecting 
creditors rights.
[52 FR 6522, Mar. 4, 1987]

 Appendix I--Instructions for Loan Guarantees for Drought and Disaster 
                                 Relief

    A. In general. Drought and Disaster (D&D) guaranteed loans are 
authorized by section 331 (``Disaster Assistance for Rural Business 
Enterprises'') of the Disaster Assistance Act of 1988, which provides 
for guarantees of up to 90 percent of the unpaid principal amount of 
qualifying loans. Interest and protective advances are not covered by 
the guarantee. Drought and Disaster Guaranteed Loans may be either to 
assist in alleviating financial distress caused to rural business 
entities, directly or indirectly, by drought, hail, excessive moisture, 
or related conditions occurring in 1988, or to assist such entities that 
refinance or restructure debt as a result of losses incurred, directly 
or indirectly, because of such natural disasters. Where used in this 
appendix, the term ``natural disaster(s)'' refers only to drought, hail, 
excessive moisture, and related conditions occurring in 1988. All 
provisions of Subparts A and E of

[[Page 756]]

Part 1980 of this chapter apply to D&D loans, except as provided in this 
appendix. All forms used in connection with a D&D loan will be those 
used in connection with a B&I guaranteed loan, except for the following 
three forms that are incorporated in this Appendix I of this Subpart E, 
made a part hereof, and appear in the Federal Register following the 
body of this appendix as Exhibits A, B, and C in the following order:
    (1) Form FmHA or its successor agency under Public Law 103-354 1980-
68, ``Lender's Agreement--Drought and Disaster Guaranteed Loans,'' will 
be used instead of Form FmHA or its successor agency under Public Law 
103-354 449-35, ``Lender's Agreement.''
    (2) Form FmHA or its successor agency under Public Law 103-354 1980-
69, ``Loan Note Guarantee--Drought and Disaster Guaranteed Loans,'' will 
be used instead of Form FmHA or its successor agency under Public Law 
103-354 449-34, ``Loan Note Guarantee.''
    (3) Form FmHA or its successor agency under Public Law 103-354 1980-
70, ``Assignment Guarantee Agreement--Drought and Disaster Guaranteed 
Loans,'' will be used instead of Form FmHA or its successor agency under 
Public Law 103-354 449-36, ``Assignment Guarantee Agreement.''
    B. Loan purpose. Except for Secs. 1980.411(a)(11), 1980.412, and 
section C., below, loan procees may be used for purposes described in 
Sec. 1980.411(a) if such use of loan proceeds will assist in alleviating 
financial distress caused, directly or indirectly, by drought, hail, 
excessive moisture, or related conditions which occurred in 1988. In 
lieu of the debt refinancing requirements in Sec. 1980.411(a)(11), the 
following refinancing requirements apply to D&D loans. Loan proceeds to 
be used for refinancing must be used solely for refinancing or 
restructuring of debts as a result of losses incurred, directly or 
indirectly, as a result of drought, hail, excessive moisture, or related 
condition occurring in 1988, and such refinancing or restructuring of 
debt(s) must be essential for the borrower to meet its financial 
obligations in a timely fashion. In addition, D&D loan proceeds may be 
used for hotels, motels, tourist or recreation facilities which meet the 
eligibility requirements for D&D guaranteed loans.
    C. Ineligible loan purposes. See Sec. 1980.412. Except for hotels, 
motels, tourist and recreation facilities mentioned in section B of this 
appendix, purposes listed as ineligible B&I loan purposes are ineligible 
D&D loan purposes. In addition, D&D guaranteed loans may not be used 
for:
    (1) Business expansion, acquisition of real estate, machinery, 
equipment, inventory, other goods or services, or for any other purpose 
unless related directly to the financial distress or loss that is the 
basis for the D&D guaranteed loan.
    (2) Any eligible agricultural production purpose if annual tillage 
of the soil is involved.
    (3) Refinancing or restructuring debt(s) which are or were in 
payment default more than 60 consecutive days during the 12 months 
preceding the date of the adverse financial effect of the natural 
disaster of 1988 upon the borrower.
    D. Transactions which will not be guaranteed. In addition to 
transactions listed in Sec. 1980.413, FmHA or its successor agency under 
Public Law 103-354 will not guarantee:
    (1) D&D guaranteed loan(s) to any borrower if the total cumulative 
principal amount of D&D guaranteed loan(s) to that borrower would exceed 
$500,000, or
    (2) Any D&D guaranteed loan if the completed application is not 
received by FmHA or its successor agency under Public Law 103-354 on or 
before September 30, 1991.
    E. Borrower equity requirements. See Sec. 1980.441. In lieu of the 
borrower equity requirements in Sec. 1980.441, paragraphs (a) and (b), 
the following applies to D&D loans. Tangibles balance sheet equity must 
be positive when the Loan Note Guarantee is issued. Equity must be such 
that, when considered with other credit factors, repayment of the loan 
and the continued success of the business operation are reasonably 
assured. Requirements of Sec. 1980.441(c) apply to D&D guaranteed loans.
    F. Filing and processing preapplications and applications. See 
Sec. 1980.451. All requirements of Sec. 1980.451 remain in effect. But, 
in addition to the information required as part of a preapplication 
under Sec. 1980.451(f), and unless previously submitted, as a part of an 
application under Sec. 1980.451(i) evidence is required which 
demonstrates:
    (1) The causal relationship between a 1988 natural disaster and the 
financial distress or loss upon which the preapplication or application 
is based; and,
    (2) That the amount of the loan requested is not greater than the 
amount necessary for curing the problems caused by the natural disaster. 
Financial distress or loss shall be determined on the basis of a 
comparison of financial data for comparable periods of time and need not 
necessarily be based on data at the year's end. Evidence submitted may 
include, but is not limited to, the following:
    (a) Evidence of financial loss or distress (including loss or 
distress caused by business interruption) resulting from physical damage 
caused by natural disaster, or
    (b) Evidence that the financial loss and/or distress of the business 
is the direct or indirect result of loss of sales, business 
interruption, loss of markets, shortage of raw materials, or decline in 
patronage or customers caused by a natural disaster. It must be shown 
that business operations were damaged as a result of such natural 
disaster.

[[Page 757]]

    G. Loan guarantee limit. See Sec. 1980.20 of Subpart A. The maximum 
loss covered by the Loan Note Guarantee, Form FmHA or its successor 
agency under Public Law 103-354 1980-69, can never exceed the percentage 
of guarantee multiplied by the unpaid principal amount of the loan as 
evidenced by the note(s) or by assumption agreement(s). Interest, 
capitalized interest, and protective advances are not covered by the 
guarantee of a D&D loan.
    H. Percentage of guarantee. See Sec. 1980.420. The maximum 
percentage of guarantee on a D&D loan is 90 percent of the unpaid 
principal.
    I. Lender's existing unguaranteed exposure. The provisions of 
Sec. 1980.452 Administrative C. 1(d) do not apply.
    J. No direct or ``insured'' loans. Sections 1980.423(b), 
1980.488(b), 1980.481, 1980.411(b), and other provisions of this subpart 
dealing with ``insured'' or direct loans do not apply to D&D loans. All 
D&D loans are FmHA or its successor agency under Public Law 103-354 
guaranteed loans. FmHA or its successor agency under Public Law 103-354 
has no authority to make D&D loans directly to borrowers.

   Exhibit A to Appendix I--Lender's Agreement; Drought and Disaster 
              Guaranteed Loans (Interest not Guaranteed)\1\

 Form FmHA or its successor agency under Public Law 103-354 1980-68 (11-
                                   88)

 FmHA or its successor agency under Public Law 103-354 Loan Ident. No.__
---------------------------------------------------------------------------


    \1\ Public reporting burden for this collection of information is 
estimated to average 1.5 hours per response, including the time for 
reviewing instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the collection 
of information. Send comments regarding this burden estimate or any 
other aspect of this collection of information, including suggestions 
for reducing this burden to, Department of Agriculture, Clearance 
Officer, OIRM, Room 404-W, Washington, DC 20250; and to the Office of 
Management and Budget, Paperwork Reduction Project (OMB No. 0575-0029), 
Washington, DC 20503.
---------------------------------------------------------------------------

 _______________________________________________________________________
        (Lender) of
 _______________________________________________________________________
        has made a loan(s) to
 _______________________________________________________________________
        (Borrower)
 _______________________________________________________________________
in the principal amount of $____________________________________________
as evidenced by ______ note(s) (include Bond as appropriate) described 
as follows:
 _______________________________________________________________________
________________________________________________________________________
The United States of America, acting through Farmers Home Administration 
or its successor agency under Public Law 103-354 (FmHA or its successor 
agency under Public Law 103-354) has entered into a Loan Note 
Guarantee--Drought and Disaster Guaranteed Loans (Loan Note Guarantee)'' 
(Form FmHA or its successor agency under Public Law 103-354 1980-69) or 
has issued a ``Conditional Commitment for Guarantee'' (Form FmHA or its 
successor agency under Public Law 103-354 449-14) to enter into a Loan 
Note Guarantee with the Lender applicable to such loan to participate in 
a percentage of any loss on the loan not to exceed ______% of the amount 
of the principal advance and any interest (including any loan subsidy) 
thereon. The terms of the Loan Note Guarantee are controlling. In order 
to facilitate the marketability of the guaranteed portion of the loan 
and as a condition for obtaining a guarantee of the loan(s), the Lender 
enters into this agreement. The maximum loss guaranteed is governed by 7 
CFR Part 1980 Subpart E Appendix I and the Loan Note Guarantee (Drought 
and Disaster Guaranteed Loans)

    The Parties Agree:
    I. The maximum loss covered under the Loan Note Guarantee will not 
exceed ______ percent of the principal (Maximum $______).
    II. Full Faith and Credit. The Loan Note Guarantee constitutes an 
obligation supported by the full faith and credit of the United States 
and is incontestable except for fraud or misrepresentation of which the 
Lender has actual knowledge at the time it became such Lender or which 
Lender participates in or condones. Any note which provides for the 
payment of interest on interest shall not be guaranteed. Any Loan Note 
Guarantee or Assignment Guarantee Agreement Drought and Disaster 
Guaranteed Loan (Assignment Guarantee Agreement) attached to or relating 
to a note which provides for payment of interest on interest is void.
    The Loan Note Guarantee will be unenforceable by the Lender to the 
extent any loss is occasioned by violation of usury laws, negligent 
servicing, or failure to obtain the required security regardless of the 
time at which FmHA or its successor agency under Public Law 103-354 
acquires knowledge of the foregoing. Any losses will be unenforceable by 
the Lender to the extent that loan funds are used for purposes other 
than those specifically approved by FmHA or its successor agency under 
Public Law 103-354 in its Conditional Commitment for Guarantee. 
Negligent servicing is defined as the failure to perform those services 
which a reasonably prudent Lender would perform in servicing its own 
portfolio of loans that are not guaranteed. The term includes not only 
the concept of failure to act but also not acting in a timely manner or 
acting in a manner contrary to the manner in which a reasonably

[[Page 758]]

prudent lender would act up to the time of loan maturity or until a 
final loss is paid.
    III. Lender's Sale or Assignment of Guaranteed Loan. A. The Lender 
may retain all of the guaranteed loan. The Lender is not permitted to 
sell or participate any amount of the guaranteed or unguaranteed 
portion(s) of the loan(s) to the applicant or Borrower or members of 
their immediate families, their officers, directors, stockholders, other 
owners, or any parent, subsidiary or affiliate. If the Lender desires to 
market all or part of the guaranteed portion of the loan at or 
subsequent to loan closing, such loan must not be in default as set 
forth in the terms of the notes. The Lender may proceed under the 
following options:
    1. Assignment. Assign all or part of the guaranteed portion of the 
loan to one or more Holders by using Form FmHA or its successor agency 
under Public Law 103-354 1980-70, ``Assignment Guarantee Agreement--
Drought and Disaster Guaranteed Loan.'' Holder(s), upon written notice 
to Lender and FmHA or its successor agency under Public Law 103-354, may 
reassign the unpaid guaranteed portion of the loan sold thereunder. Upon 
such notification the assignee shall succeed to all rights and 
obligations of the Holder(s) therunder. If this portion is selected, the 
Lender may not at a later date cause to be issued any additional notes.
    2. Multi-Note System. When this option is selected by the Lender, 
upon disposition the Holder will receive one of the Borrower's executed 
notes and Form FmHA or its successor agency under Public Law 103-354 
1980-69, ``Loan Note Guarantee--Drought and Disaster Guaranteed Loan'' 
attached to the Borrower's note. However, all rights under the security 
instruments (including personal and/or corporate guarantees) will remain 
with the Lender and in all cases inure to its and the Government's 
benefit notwithstanding any contrary provisions of state law.
    a. At Loan Closing: Provide for no more than 10 notes, unless the 
Borrower and FmHA or its successor agency under Public Law 103-354 agree 
otherwise, for the guaranteed portion and one note for the unguaranteed 
portion. When this option is selected, FmHA or its successor agency 
under Public Law 103-354 will provide the Lender with a Form FmHA or its 
successor agency under Public Law 103-354 1980-69, for each of the 
notes.
    b. After Loan Closing: (1) Upon written approval by FmHA or its 
successor agency under Public Law 103-354, the Lender may cause to be 
issued a series of new notes, not to exceed the total provided in 2.a. 
above, as replacement for previously issued guaranteed note(s) provided:
    (a) The Borrower agrees and executes the new notes.
    (b) The interest rate does not exceed the interest rate in effect 
when the loan was closed.
    (c) The maturity of the loan is not changed.
    (d) FmHA or its successor agency under Public Law 103-354 will not 
bear any expenses that may be incurred in reference to such reissue of 
notes.
    (e) There is adequate collateral securing the note(s).
    (f) No intervening liens have arisen or have been perfected and the 
secured lien priority remains the same.
    (2) FmHA or its successor agency under Public Law 103-354 will issue 
the appropriate Loan Note Guarantees--Drought and Disaster Guaranteed 
Loan to be attached to each of the notes then extant in exchange for the 
original Loan Note Guarantee--Drought and Disaster Guaranteed Loan which 
will be cancelled by FmHA or its successor agency under Public Law 103-
354.
    3. Participations. a. The Lender may obtain participation in its 
loan under its normal operating procedures. Participation means a sale 
of an interest in the loan wherein the Lender retains the note, 
collateral securing the note, and all responsibility for loan servicing 
and liquidation.
    b. The Lender is required to hold in its portfolio or retain a 
minimum of 5 percent of the total guaranteed loan(s) amount. The amount 
required to be retained must be of the unguaranteed portion of the loan 
and cannot be participated to another. The Lender may sell the remaining 
amount of the unguaranteed portion of the loan only through 
participation. However, the Lender will always retain the responsibility 
for loan servicing and liquidation.
    B. When a guaranteed portion of a loan is sold by the Lender to a 
Holder(s), the Holder(s) shall thereupon succeed to all rights of Lender 
under the Loan Note Guarantee--Drought and Disaster Guaranteed Loan to 
the extent of the portion of loan purchased. Lender will remain bound to 
all the obligations under the Loan Note Guarantee--Drought and Disaster 
Guaranteed Loan, and this agreement, and the FmHA or its successor 
agency under Public Law 103-354 program regulations found in the 
applicable Subpart of Title 7 CFR Part 1980, and to future FmHA or its 
successor agency under Public Law 103-354 program regulations not 
inconsistent with the express provisions hereof.
    C. The Holder(s) upon written notice to the Lender may resell the 
unpaid guaranteed portion of the loan sold under provision III A.
    IV. The Lender agrees loan funds will be used for the purposes 
authorized in the applicable Subpart of Title 7 CFR Part 1980 and in 
accordance with the terms of Form FmHA or its successor agency under 
Public Law 103-354 449-14.

[[Page 759]]

    V. The Lender certifies that none of its officers or directors, 
stockholders or other owners has a substantial financial interest in the 
borrower. The Lender certifies that neither the Borrower nor its 
officers or directors, stockholders, or other owners has a substantial 
financial interest in the Lender.
    VI. The Lender certifies that it has no knowledge of any material 
adverse change, financial or otherwise, in the Borrower. Borrower's 
business, or any parent, subsidiaries, or affiliates since it requested 
a Loan Note Guarantee.
    VII. Lender certifies that a loan agreement and/or loan instruments 
concurred in by FmHA or its successor agency under Public Law 103-354 
has been or will be signed with the Borrower.
    VIII. Lender certifies it has paid the required guarantee fee.
    IX. Servicing. A. The Lender will service the entire loan and will 
remain mortgagee and/or secured party of record, not withstanding the 
fact that another may hold a portion of the loan. The entire loan will 
be secured by the same security with equal lien priority for the 
guaranteed and unguaranteed portions of the loan. Lender may charge 
Holder a servicing fee. The unguaranteed portion of a loan will not be 
paid first nor given any preference or priority over the guaranteed 
portion of the loan.
    B. Disposition of the guaranteed portion of a loan may be made prior 
to full disbursement, completion of construction and acquisitions only 
with the prior written approval of FmHA or its successor agency under 
Public Law 103-354. Subsequent to full disbursement completion of 
construction, and acquisition, the guaranteed portion of the loan may be 
disposed of as provided herein.
    It is the Lender's responsibility to see that all construction is 
properly planned before any work proceeds; that any required permits, 
licenses or authorizations are obtained from the appropriate regulatory 
agencies; that the Borrower has obtained contracts through acceptable 
procurement procedures; that periodic inspections during construction 
are made and that FmHA or its successor agency under Public Law 103-
354's concurrence on the overall development schedule is obtained.
    C. Lender's servicing responsibilities include, but are not limited 
to:
    1. Obtaining compliance with the covenants and provisions in the 
note, loan agreement, security instruments, and any supplemental 
agreements and notifying in writing FmHA or its successor agency under 
Public Law 103-354 and the Borrower of any violations. None of the 
aforesaid instruments will be altered without FmHA or its successor 
agency under Public Law 103-354's prior written concurrence. The Lender 
must service the loan in a reasonable and prudent manner.
    2. Receiving all payments on principal and interest (including any 
loan subsidy) on the loan as they fall due and promptly remitting and 
accounting to any Holder(s) of their pro rata share thereof determined 
according to their respective interests in the loan, less only Lender's 
servicing fee. The loan may be reamortized or renewed only with 
agreement of the Lender and Holder(s) of the guaranteed portion of the 
loan and only with FmHA or its successor agency under Public Law 103-
354's written concurrence. It is the Lender's responsibility to maximize 
the collection of interest due on the loan. The Holder(s) remain 
entitled to all interest due up to the point of repurchase by the Lender 
or purchase from the Holder(s) by FmHA or its successor agency under 
Public Law 103-354 if such interest can be collected. If FmHA or its 
successor agency under Public Law 103-354 has repurchased, FmHA or its 
successor agency under Public Law 103-354 is equally so entitled.
    3. Inspecting the collateral as often as necessary to properly 
service the loan.
    4. Assuring that adequate insurance is maintained. This includes 
hazard insurance obtained and maintained with a loss payable clause in 
favor of the Lender as the mortgagee or secured party.
    5. Assuring that: taxes, assessment or ground rents against or 
affecting collateral are paid; the loan and collateral are protected in 
foreclosure, bankruptcy, receivership, insolvency, condemnation, or 
other litigation, insurance loss payments, condemnation awards, or 
similar proceeds are applied on debts in accordance with lien priorities 
on which the guarantee was based, or to rebuilding or otherwise 
acquiring needed replacement collateral with the written approval of 
FmHA or its successor agency under Public Law 103-354; proceeds from the 
sale or other disposition of collateral are applied in accordance with 
the lien priorities on which the guarantee is based, except that 
proceeds from the disposition of collateral, such as machinery, 
equipment, furniture or fixtures, may be used to acquire property of 
similar nature in value up to $______ without written concurrence of 
FmHA or its successor agency under Public Law 103-354; the Borrower 
complies with all laws and ordinances applicable to the loan, the 
collateral and or operating of the farm, business or industry.
    6. Assuring that if personal or corporate guarantees are part of the 
collateral, current financial statements from such loan guarantors will 
be obtained and copies provided to FmHA or its successor agency under 
Public Law 103-354 at such time and frequency as required by the loan 
agreement or Conditional Commitment for Guarantee. In the case of 
guarantees secured by collateral, assuring the security is properly 
maintained.

[[Page 760]]

    7. Obtaining the lien coverage and lien priorities specified by the 
Lender and agreed to by FmHA or its successor agency under Public Law 
103-354, properly recording or filing lien or notice instruments to 
obtain or maintain such lien priorities during the existence of the 
guarantee by FmHA or its successor agency under Public Law 103-354.
    8, Assuring that the Borrower obtains marketable title to the 
collateral.
    9. Assuring that the Borrower (any party liable) is not released 
from liability for all or any part of the loan, except in accordance 
with FmHA or its successor agency under Public Law 103-354 regulations.
    10. Providing FmHA or its successor agency under Public Law 103-354 
Finance Office with loan status reports semiannually as of June 30 and 
December 31 on Form FmHA or its successor agency under Public Law 103-
354 1980-41, ``Guaranteed Loan Status Report.''
    11. Obtaining from the Borrower periodic financial statements under 
the following schedule:
 _______________________________________________________________________
    Lender is responsible for analyzing the financial statements, taking 
any servicing actions and providing copies of statements and record of 
actions to the FmHA or its successor agency under Public Law 103-354 
office immediately responsible for the loan.
    12. Monitoring the use of loan funds to assure they will not be used 
for any purpose that will contribute to excessive erosion of highly 
erodible land or to the conversion of wetlands to produce an 
agricultural commodity, as further explained in 7 CFR Part 1940, Subpart 
G, Exhibit M.
    X. Default. A. The Lender will notify FmHA or its successor agency 
under Public Law 103-354 when a Borrower is thirty (30) days past due on 
a payment or if the Borrower has not met its responsibilities of 
providing the required financial statements to the Lender or is 
otherwise in default. The Lender will notify FmHA or its successor 
agency under Public Law 103-354 of the status of a Borrower's default on 
Form FmHA or its successor agency under Public Law 103-354 1980-44. 
``Guaranteed Loan Borrower Default Status.'' A meeting will be arranged 
by the Lender with the Borrower and FmHA or its successor agency under 
Public Law 103-354 to resolve the problem. Actions taken by the Lender 
with written concurrence of FmHA or its successor agency under Public 
Law 103-354 will include but are not limited to the following or any 
combination thereof:
    1. Deferment of principal payments (subject to rights of any 
Holder(s)).
    2. An additional temporary loan by the Lender to bring the account 
current.
    3. Reamortization of or rescheduling the payments on the loan 
(subject to rights of any Holder(s)).
    4. Transfer and assumption of the loan in accordance with the 
applicable Subpart of Title 7 CFR Part 1980.
    5. Reorganization.
    6. Liquidation.
    7. Subsequent loan guarantees.
    8. Changes in interest rates with FmHA or its successor agency under 
Public Law 103-354's, Lender's, and the Holders(s) approval; provided, 
such interest rate is adjusted proportionally between the guaranteed and 
unguaranteed portion of the loan and the type of rate remains the same.
    B. The Lender will negotiate in good faith in an attempt to resolve 
any problem to permit the Borrower to cure a default, where reasonable.
    C. The Lender has the option to repurchase the unpaid guaranteed 
portion of the loan from the Holder(s) within 30 days of written demand 
by the Holder(s) when: (a) the Borrower is in default not less than 60 
days in payment of principal or interest due on the loan or (b) the 
Lender has failed to remit to the Holder(s) its pro rata share of any 
payment made by the Borrower or any loan subsidy within 30 days of its 
receipt thereof. The repurchase by the Lender will be for an amount 
equal to the unpaid guaranteed portion of the principal and accrued 
interest less the Lender's servicing fee. The loan note guarantee will 
not cover the note interest to the Holder on the guaranteed loan(s). 
Holder(s) will concurrently send a copy of demand to FmHA or its 
successor agency under Public Law 103-354. The lender will accept an 
assignment without recourse from the Holder(s) upon repurchase. The 
Lender is encouraged to repurchase the loan to facilitate the accounting 
for funds, resolve the problem, and to permit the borrower to cure the 
default, where reasonable. The Lender will notify the Holder(s) and FmHA 
or its successor agency under Public Law 103-354 of its decision.
    D. If Lender does not repurchase as provided by paragraph C, FmHA or 
its successor agency under Public Law 103-354 will purchase from 
Holder(s) the unpaid principal balance of the guaranteed portion within 
30 days after written demand to FmHA or its successor agency under 
Public Law 103-354 from the Holder(s). The loan note guarantee will not 
cover the note interest to the Holder on the guaranteed loan(s). Such 
demand will include a copy of the written demand made upon the Lender.
    The Holder(s) or its duly authorized agent will also include 
evidence of its right to require payment from FmHA or its successor 
agency under Public Law 103-354. Such evidence will consist of either 
the originals of the Loan Note Guarantee and note properly endorsed to 
FmHA or its successor agency under Public Law 103-354 or the original of

[[Page 761]]

the Assignment Guarantee Agreement properly assigned to FmHA or its 
successor agency under Public Law 103-354 without recourse including all 
rights, title, and interest in the loan. FmHA or its successor agency 
under Public Law 103-354 will be subrogated to all rights of Holder(s). 
The Holder(s) will include in its demand the amount of unpaid principal, 
due (no capitalized interest).
    The Holder will also inform FmHA or its successor agency under 
Public Law 103-354 of the amount of past interest and capitalized 
interest it is owed. Such interest is not guaranteed. The Holder(s) 
remain entitled to all interest due up to the point of repurchase by the 
Lender or purchase by FmHA or its successor agency under Public Law 103-
354 from the Holder(s) if such interest is or can be collected. If FmHA 
or its successor agency under Public Law 103-354 has purchased, FmHA or 
its successor agency under Public Law 103-354 is equally entitled.
    The FmHA or its successor agency under Public Law 103-354 office 
serving the Borrower will promptly notify the Lender of the Holder(s) 
demand for payment. The Lender will promptly provide the FmHA or its 
successor agency under Public Law 103-354 office servicing the Borrower 
with the information necessary for FmHA or its successor agency under 
Public Law 103-354's determination of the appropriate amount due the 
Holder(s). Any discrepancy between the amount claimed by the Holder(s) 
and the information submitted by the Lender must be resolved before 
payment will be approved. FmHA or its successor agency under Public Law 
103-354 will notify both parties who must resolve the conflict before 
payment by FmHA or its successor agency under Public Law 103-354 will be 
approved. Such a conflict will suspend the running of the 30 day payment 
requirement. Upon receipt of the appropriate information, the FmHA or 
its successor agency under Public Law 103-354 office servicing the 
Borrower will review the demand and submit it to the State Director for 
verification. After reviewing the demand, the State Director will 
transmit the request to the FmHA or its successor agency under Public 
Law 103-354 Finance Office for issuance of the appropriate check. Upon 
issuance, the Finance Office will notify the office serving the Borrower 
and State Director and remit the check(s) to the Holder(s).
    E. Lender consents to the purchase by FmHA or its successor agency 
under Public Law 103-354 and agrees to furnish on request by FmHA or its 
successor agency under Public Law 103-354 a current statement certified 
by an appropriate authorized officer of the Lender of the unpaid 
principal and interest then owed by the Borrower on the loan and the 
amount due to the Holder(s). Lender agrees that any purchase by FmHA or 
its successor agency under Public Law 103-354 does not change, alter or 
modify any of the Lender's obligations to FmHA or its successor agency 
under Public Law 103-354 arising from said loan or guarantee, nor does 
such purchase waive any of FmHA or its successor agency under Public Law 
103-354's rights against Lender, and FmHA or its successor agency under 
Public Law 103-354 will have the right to set-off against Lender all 
rights inuring to FmHA or its successor agency under Public Law 103-354 
from the Holder against FmHA or its successor agency under Public Law 
103-354's obligation to Lender under the Loan Note Guarantee. To the 
extent FmHA or its successor agency under Public Law 103-354 holds a 
portion of a loan, loan subsidy will not be paid the Lender.
    F. Servicing fees assessed by the Lender to a Holder are collectible 
only from payment installments received by the Lender from the Borrower. 
When FmHA or its successor agency under Public Law 103-354 repurchases 
from a Holder, FmHA or its successor agency under Public Law 103-354 
will pay the Holder only the amounts due the Holder. FmHA or its 
successor agency under Public Law 103-354 will not reimburse the Lender 
for servicing fees assessed to a Holder and not collected from payments 
received from the Borrower. No servicing fee shall be charged FmHA or 
its successor agency under Public Law 103-354 and no such fee is 
collectible from FmHA or its successor agency under Public Law 103-354.
    G. Lender may also repurchase the guaranteed portion of the loan 
consistent with paragraph 10 of the Loan Note Guarantee.
    XI. Liquidation. If the Lender concludes that liquidation of a 
guaranteed loan account is necessary because of one or more defaults or 
third party actions that the Borrower cannot or will not cure or 
eliminate within a reasonable period of time, a meeting will be arranged 
by the Lender with FmHA or its successor agency under Public Law 103-
354. When FmHA or its successor agency under Public Law 103-354 concurs 
with the Lender's conclusion or at any time concludes independently that 
liquidation is necessary, it will notify the Lender and the matter will 
be handled as follows:
    The Lender will liquidate the loan unless FmHA or its successor 
agency under Public Law 103-354, at its option, decides to carry out 
liquidation.
    When the decision to liquidate is made, the Lender may proceed to 
purchase from Holder(s) the guaranteed portion of the loan. The 
Holder(s) will be paid according to the provision in the Loan Note 
Guarantee or the Assignment Guarantee Agreement.
    If the Lender does not purchase the guaranteed portion of the loan, 
FmHA or its successor agency under Public Law 103-354 will be notified 
immediately in writing. FmHA or its successor agency under Public Law 
103-

[[Page 762]]

354 will then purchase the guaranteed portion of the loan from the 
Holder(s). If FmHA or its successor agency under Public Law 103-354 
holds any of the guaranteed portion, FmHA or its successor agency under 
Public Law 103-354 will be paid first its pro rata share of the proceeds 
from liquidation of the collateral.
    A. Lender's proposed method of liquidation. Within 30 days after the 
decision to liquidate, the Lender will advise FmHA or its successor 
agency under Public Law 103-354 in writing of its proposed detailed 
method of liquidation called a liquidation plan and will provide FmHA or 
its successor agency under Public Law 103-354 with:
    1. Such proof as FmHA or its successor agency under Public Law 103-
354 requires to establish the Lender's ownership of the guaranteed loan 
promissory note(s) and related security instruments.
    2. Information lists concerning the Borrower's assets including real 
and personal property, fixtures, claims, contracts, inventory (including 
perishables), accounts receivable, personal and corporate guarantees, 
and other existing and contingent assets, advice as to whether or not 
each item is serving as collateral for the guaranteed loan.
    3. A proposed method of making the maximum collection possible on 
the indebtedness.
    4. If the outstanding loan balance including accrued interest is 
less than $200,000, the Lender will obtain an estimate of the market and 
potential liquidated value of the collateral. On loan balances in excess 
of $200,000, the Lender will obtain an independent appraisal report on 
all collateral securing the loan, which will reflect the current market 
value and potential liquidation value. The appraisal report is for the 
purpose of permitting the Lender and FmHA or its successor agency under 
Public Law 103-354 to determine the appropriate liquidation actions. Any 
independent appraiser's fee will be shared equally by FmHA or its 
successor agency under Public Law 103-354 and the Lender.
    B. FmHA or its successor agency under Public Law 103-354's response 
to Lender's liquidation plan. FmHA or its successor agency under Public 
Law 103-354 will inform the Lender in writing whether it concurs in the 
Lender's liquidation plan within 30 days after receipt of such 
notification from the Lender. If FmHA or its successor agency under 
Public Law 103-354 needs additional time to respond to the liquidation 
plan, it will advise the Lender of a definite time for such response. 
Should FmHA or its successor agency under Public Law 103-354 and the 
Lender not agree on the Lender's liquidation plan, negotiations will 
take place between FmHA or its successor agency under Public Law 103-354 
and the Lender to resolve the disagreement. The Lender will ordinarily 
conduct the liquidation; however, should FmHA or its successor agency 
under Public Law 103-354 opt to conduct the liquidation, FmHA or its 
successor agency under Public Law 103-354 will proceed as follows:
    1. The Lender will transfer to FmHA or its successor agency under 
Public Law 103-354 all rights and interests necessary to allow FmHA or 
its successor agency under Public Law 103-354 to liquidate the loan. In 
this event, the Lender will not be paid for any loss until after the 
collateral is liquidated and the final loss is determined by FmHA or its 
successor agency under Public Law 103-354.
    2. FmHA or its successor agency under Public Law 103-354 will 
attempt to obtain the maximum amount of proceeds from liquidation.
    3. Options available to FmHA or its successor agency under Public 
Law 103-354 include any one or combination of the usual commercial 
methods of liquidation.
    C. Acceleration. The Lender or FmHA or its successor agency under 
Public Law 103-354, if it liquidates, will proceed as expeditiously as 
possible when acceleration of the indebtedness is necessary including 
giving any notices and taking any other legal actions required by the 
security instruments. A copy of the acceleration notice or other 
acceleration document will be sent to FmHA or its successor agency under 
Public Law 103-354 or the Lender, as the case may be.
    D. Liquidation: Accounting and Reports. When the Lender conducts the 
liquidation, it will account for funds during the period of liquidation 
and will provide FmHA or its successor agency under Public Law 103-354 
with periodic reports on the progress of liquidation, disposition of 
collateral, resulting costs and additional procedures necessary for 
successful completion of liquidation. The Lender will transmit to FmHA 
or its successor agency under Public Law 103-354 any payments received 
from the Borrower and/or pro rata share of liquidation or other 
proceeds, etc. when FmHA or its successor agency under Public Law 103-
354 is the holder of a portion of the guaranteed loan using Form FmHA or 
its successor agency under Public Law 103-354 1980-43, ``Lender's 
Guaranteed Loan Payment to FmHA or its successor agency under Public Law 
103-354.'' When FmHA or its successor agency under Public Law 103-354 
liquidates, the Lender will be provided with similar reports on request.
    E. Determination of Loss and Payment. In all liquidation cases, 
final settlement will be made with the Lender after the collateral is 
liquidated. FmHA or its successor agency under Public Law 103-354 will 
have the right to recover losses paid under the guarantee from any party 
liable.
    1. Form FmHA or its successor agency under Public Law 103-354 449-
30, ``Loan Note Guarantee Report of Loss,'' will be used for 
calculations of all estimated and final loss

[[Page 763]]

determinations. Estimated loss payments may be approved by FmHA or its 
successor agency under Public Law 103-354 after the Lender has submitted 
a liquidation plan approved by FmHA or its successor agency under Public 
Law 103-354. Payment will be made in accordance with applicable FmHA or 
its successor agency under Public Law 103-354 regulations.
    2. When the Lender is conducting the liquidation, and owns any of 
the guaranteed portion of the loan, it may request a tentative loss 
estimate by submitting to FmHA or its successor agency under Public Law 
103-354 an estimate of the loss that will occur in connection with 
liquidation of the loan. FmHA or its successor agency under Public Law 
103-354 will agree to pay an estimated loss settlement to the Lender 
provided the Lender applies such amount due to the outstanding principal 
balance owed on the guaranteed debt. Such estimate will be prepared and 
submitted by the Lender on Form FmHA or its successor agency under 
Public Law 103-354 449-30, using the basic formula as provided on the 
report except that the appraisal value will be used in lieu of the 
amount received from the sale of collateral.
    After the Report of Loss estimate has been approved by FmHA or its 
successor agency under Public Law 103-354, and within 30 days 
thereafter, FmHA or its successor agency under Public Law 103-354 will 
send the original Report of Loss estimate to FmHA or its successor 
agency under Public Law 103-354 Finance Office for issuance of a 
Treasury check in payment of the estimated amount due the Lender.
    After liquidation has been completed, a final loss report will be 
submitted on Form FmHA or its successor agency under Public Law 103-354 
449-30 by the Lender to FmHA or its successor agency under Public Law 
103-354.
    3. After the Lender has completed liquidation, FmHA or its successor 
agency under Public Law 103-354 upon receipt of the final accounting and 
report of loss, may audit and will determine the actual loss. If FmHA or 
its successor agency under Public Law 103-354 has any questions 
regarding the amounts set forth in the final Report of Loss, it will 
investigate the matter. The Lender will make its records available to 
and otherwise assist FmHA or its successor agency under Public Law 103-
354 in making the investigation. If FmHA or its successor agency under 
Public Law 103-354 finds any discrepancies, it will contact the Lender 
and arrange for the necessary corrections to be made as soon as 
possible. When FmHA or its successor agency under Public Law 103-354 
finds the final Report of Loss to be proper in all respects, it will be 
tentatively approved in the space provided on the form for that purpose.
    4. When the Lender has conducted liquidation and after the final 
Report of Loss has been tentatively approved:
    a. If the loss is greater than the estimated loss payment, FmHA or 
its successor agency under Public Law 103-354 will send the original of 
the final Report of Loss to the Finance Office for issuance of a 
Treasury check in payment of the additional amount owed by FmHA or its 
successor agency under Public Law 103-354 to the Lender.
    b. If the loss is less than the estimated loss, the Lender will 
reimburse FmHA or its successor agency under Public Law 103-354 for the 
overpayment plus interest at the note rate from date of payment.
    5. If FmHA or its successor agency under Public Law 103-354 has 
conducted liquidation, it will provide an accounting and Report of Loss 
to the Lender and will pay the Lender in accordance with the Loan Note 
Guarantee.
    F. Maximum amount of interest loss payment. Interest is not covered 
by the guarantee.
    G. Application of FmHA or its successor agency under Public Law 103-
354 loss payment. The estimated loss payment shall be applied as of the 
date of such payment. The total amount of the loss payment remitted by 
FmHA or its successor agency under Public Law 103-354 will be applied by 
the Lender on the guaranteed portion of the loan debt. However, such 
application does not release the Borrower from liability. At time of 
final loss settlement the Lender will notify the Borrower that the loss 
payment has been so applied. In all cases a final Form FmHA or its 
successor agency under Public Law 103-354 449-30 prepared and submitted 
by the Lender must be processed by FmHA or its successor agency under 
Public Law 103-354 in order to close out the files at the FmHA or its 
successor agency under Public Law 103-354 Finance Office.
    H. Income from collateral. Any net rental or other income that has 
been received by the Lender from the collateral will be applied on the 
guaranteed loan debt.
    I. Liquidation costs. Certain reasonable liquidation costs will be 
allowed during the liquidation process. These liquidation costs will be 
submitted as a part of the liquidation plan. Such costs will be deducted 
from gross proceeds from the disposition of collateral unless the costs 
have been previously determined by the Lender (with FmHA or its 
successor agency under Public Law 103-354 written concurrence) to be 
protective advances. If changed circumstances after submission of the 
liquidation plan require a revision of liquidation costs, the Lender 
will procure FmHA or its successor agency under Public Law 103-354's 
written concurrence prior to proceeding with the proposed changes. No 
in-house expenses of the Lender will be allowed.

[[Page 764]]

In-house expenses include, but are not limited to, employees' salaries, 
staff lawyers, travel and overhead.
    J. Foreclosure. The parties owning the guaranteed portion and 
unguaranteed portions of the loan will join to institute foreclosure 
action or, in lieu of foreclosure, to take a deed of conveyance to such 
parties. When the conveyance is received and liquidated, net proceeds 
will be applied to the guaranteed loan debt.
    K. Payment. Such loss will be paid by FmHA or its successor agency 
under Public Law 103-354 within 60 days after the review of the 
accounting of the collateral.
    XII. Protective Advances. Protective advances will not be covered by 
the guarantee.
    XIII. Additional Loans or Advances. The Lender will not make 
additional expenditures or new loans without first obtaining the written 
approval of FmHA or its successor agency under Public Law 103-354 even 
though such expenditures or loans will not be guaranteed.
    XIV. Future Recovery. After a loan has been liquidated and a final 
loss has been paid by FmHA or its successor agency under Public Law 103-
354, any future funds which may be recovered by the Lender, will be pro-
rated between FmHA or its successor agency under Public Law 103-354 and 
the Lender. FmHA or its successor agency under Public Law 103-354 will 
be paid such amount recovered in proportion to the percentage it 
guaranteed for the loan and the Lender will retain such amounts in 
proportion to the percentage of the unguaranteed portion of the loan.
    XV. Transfer and Assumption Cases. Refer to the applicable Subpart 
of Title 7 of CFR Part 1980.
    If a loss should occur upon consummation of a complete transfer and 
assumption for less than the full amount of the debt and the transferor-
debtor (including personal guarantees) is released from personal 
liability, the Lender, if it holds the guarantee portion, may file an 
estimated Report of Loss on Form FmHA or its successor agency under 
Public Law 103-354 449-30, ``Loan Note Guarantee Report of Loss,'' to 
recover its pro rata share of the actual loss at that time. In 
completing Form FmHA or its successor agency under Public Law 103-354 
449-30, the amount of the debt assumed will be entered on line 24 as Net 
Collateral (Recovery).
    XVI. Other Requirements. This agreement is subject to all the 
requirements of the applicable Subpart of Title 7 CFR Part 1980, and any 
future amendments of these regulations not inconsistent with this 
agreement. Interested parties may agree to abide by future FmHA or its 
successor agency under Public Law 103-354 regulations not inconsistent 
with this agreement.
    XVII. Execution of Agreements. If this agreement is executed prior 
to the execution of the Loan Note Guarantee, this agreement does not 
impose any obligation upon FmHA or its successor agency under Public Law 
103-354 with respect to execution of such contract. FmHA or its 
successor agency under Public Law 103-354 in no way warrants that such a 
contract has been or will be executed.
    XVIII. Notices. All notices and actions
 will be initiated through FmHA or its successor agency under Public Law 
103-354 for--___________________________________________________________
 _______________________________________________________________________
(State) with mailing address at the
 Date of this instrument________________________________________________
 _______________________________________________________________________
Dated this ______ day of ______, 19__.

Lender:
 By_____________________________________________________________________
 Title__________________________________________________________________
United States of America
Farmers Home Administration or its successor agency under Public Law 
103-354
 By_____________________________________________________________________
 Title__________________________________________________________________
Attest: ______ (SEAL)

   Exhibit B to Appendix I--Loan Note Guarantee; Drought and Disaster 
               Guaranteed Loans (Interest not Guaranteed)

 Form FmHA or its successor agency under Public Law 103-354 1980-69 (11-
                                   88)

 Borrower_______________________________________________________________
 Lender_________________________________________________________________
 Lender's Address_______________________________________________________
 State__________________________________________________________________
 County_________________________________________________________________
 Date of Note___________________________________________________________
 FmHA or its successor agency under Public Law 103-354 Loan 
Identification Number___________________________________________________
 Lender's IRS ID Tax Number_____________________________________________
 Principal Amount of Loan $_____________________________________________
    The guaranteed portion of the loan is $______ which is ______ 
(______ %)
percent of loan principal. The principal amount of loan is evidenced by 
______ note(s) (includes bonds as appropriate) described below. The 
guaranteed portion of each note is indicated below. This instrument is 
attached to note ______ in the face amount of $ ______ and is number 
______ of ______ .

 Lender's Identifying Number____________________________________________
 Face Amount____________________________________________________________
 Percent of Total Face Amount___________________________________________
 Amount Guaranteed______________________________________________________

Maximum Loss Guaranteed Governed by 7 CFR Part 1980, Subpart E, Appendix 
                                    I

Total  $ ______ 100%  $ ______
    In consideration of the making of the subject loan by the above 
named Lender, the United States of America, acting through the Farmers 
Home Administration or its successor agency under Public Law 103-354 of 
the United States Department of Agriculture (herein called ``FmHA or its 
successor agency under Public Law 103-354''), pursuant to

[[Page 765]]

the Disaster Assistance Act (P.L. 100-387, 7 USC    ) does hereby agree 
that in accordance with and subject to the conditions and requirements 
herein, it will pay to:
    The Lender the lesser of 1. or 2. below:
    1. Any loss sustained by such Lender on the guaranteed portion 
including principal indebtedness as evidenced by said note(s) or by 
assumption agreement(s), or
    2. The guaranteed principal advanced to or assumed by the Borrower 
under said note(s) or assumption agreement(s) (Maximum   $    ). No 
capitalized interest is guaranteed.
    Definition of Holder. The Holder is the person or organization other 
than the Lender who holds all or part of the guaranteed portion of the 
loan with no servicing responsibilities. Holders are prohibited from 
obtaining any part(s) of the guaranteed portion of the loan with 
proceeds from any obligation, the interest on which is excludable from 
income, under Section 103 of the Internal Revenue Code of 1954, as 
amended (IRC). When the Lender assigns a part(s) of the guaranteed loan 
to an assignee, the assignee becomes a Holder only when Form FmHA or its 
successor agency under Public Law 103-354 1980-70, ``Assignment 
Guarantee Agreement--Drought and Disaster Guaranteed Loans,'' is used.
    Definition of Lender. The Lender is the person or organization 
making and servicing the loan which is guaranteed under the provisions 
of the applicable subpart of 7 CFR Part 1980. The Lender is also the 
party requesting a loan guarantee.

                         Conditions of Guarantee

    1. Loan Servicing. Lender will be responsible for servicing the 
entire loan, and Lender will remain mortgagee and/or secured party of 
record not withstanding the fact that another party may hold a portion 
of the loan. When multiple notes are used to evidence a loan, Lender 
will structure repayments as provided in the loan agreement.
    2. Priorities. The entire loan will be secured by the same security 
with equal lien priority for the guaranteed and unguaranteed portions of 
the loan. The unguaranteed portion of the loan will not be paid first 
nor given any preference or priority over the guaranteed portion.
    3. Full Faith and Credit. The Loan Note Guarantee constitutes an 
obligation supported by the full faith and credit of the United States 
and is incontestable except for fraud or misrepresentation of which 
Lender or any Holder has actual knowledge at the time it became such 
Lender or Holder or which Lender or any Holder participates in or 
condones. If the note to which this is attached or relates provides for 
payment of interest on interest, then this Loan Note Guarantee is void. 
In addition, the Loan Note Guarantee will be unenforceable by Lender to 
the extent any loss is occasioned by the violation of usury laws, 
negligent servicing, or failure to obtain the required security 
regardless of the time at which FmHA or its successor agency under 
Public Law 103-354 acquires knowledge of the foregoing. Any losses 
occasioned will be unenforceable to the extent that loan funds are used 
for purposes other than those specifically approved by FmHA or its 
successor agency under Public Law 103-354 in its Conditional Commitment 
for Guarantee. Negligent servicing is defined as the failure to perform 
those services which a reasonably prudent lender would perform in 
servicing its own portfolio of loans that are not guaranteed. The term 
includes not only the concept of a failure to act but also not acting in 
a timely manner or acting in a manner contrary to the manner in which a 
reasonably prudent lender would act up to the time of loan maturity or 
until a final loss is paid.
    4. Rights and Liabilities. The guarantee and right to require 
purchase will be directly enforceable by Holder notwithstanding any 
fraud or misrepresentation by Lender or any unenforceability of this 
Loan Note Guarantee by Lender. Nothing contained herein will constitute 
any waiver by FmHA or its successor agency under Public Law 103-354 of 
any rights it possesses aganinst the Lender. Lender will be liable for 
and will promptly pay to FmHA or its successor agency under Public Law 
103-354 any payment made by FmHA or its successor agency under Public 
Law 103-354 to Holder which if such Lender had held the guaranteed 
portion of the loan, FmHA or its successor agency under Public Law 103-
354 would not be required to make.
    5. Payments. Lender will receive all payments of principal, or 
interest, on account of the entire loan and will promptly remit to 
Holder(s) its pro rata share thereof determined according to its 
respective interest in the loan, less only Lender's servicing fee.
    6. Protective Advances. Protective advances made by Lender will not 
be guaranteed.
    7. Repurchase by Lender. The Lender has the option to repurchase the 
unpaid guaranteed portion of the loan from the Holder(s) within 30 days 
of written demand by the Holder(s) when: (a) the borrower is in default 
not less than 60 days on principal or interest due on the loan or (b) 
the Lender has failed to remit to the Holder(s) its pro rata share of 
any payment made by the borrower or any loan subsidy within 30 days of 
its receipt thereof. The repurchase by the Lender will be for an amount 
equal to the unpaid guaranteed portion of principal and accrued interest 
less the Lender's servicing fee. The Loan Note Guarantee will not cover 
the note interest on the guaranteed loan(s). Holder(s) will concurrently 
send a copy of demand to FmHA or its successor agency under Public

[[Page 766]]

Law 103-354. The Lender is encouraged to repurchase the loan to 
facilitate the accounting for funds, resolve the problem, and to permit 
the borrower to cure the default, where reasonable. The Lender will 
notify the Holder(s) and FmHA or its successor agency under Public Law 
103-354 of its decision.
    8. FmHA or its successor agency under Public Law 103-354 Purchase. 
If Lender does not repurchase as provided by paragraph 7 hereof, FmHA or 
its successor agency under Public Law 103-354 will purchase from Holder 
the unpaid principal balance of the guaranteed portion less Lender's 
servicing fee, within thirty (30) days after written demand to FmHA or 
its successor agency under Public Law 103-354 from Holder. The Loan Note 
Guarantee will not cover the note interest to the Holder on the 
guaranteed loan(s). Such demand will include a copy of the written 
demand made upon the Lender. The Holder(s) or its duly authorized agent 
will also include evidence of its right to require payment from FmHA or 
its successor agency under Public Law 103-354. Such evidence will 
consist of either the original of the Loan Note Guarantee properly 
endorsed to FmHA or its successor agency under Public Law 103-354 or the 
original of the Assignment Guarantee Agreement properly assigned to FmHA 
or its successor agency under Public Law 103-354 without recourse 
including all rights, title, and interest in the loan. FmHA or its 
successor agency under Public Law 103-354 will be subrogated to all 
rights of Holder(s). The Holder(s) will include in its demand the amount 
of unpaid principal due (no capitalized interest).
    The Holder will also inform FmHA or its successor agency under 
Public Law 103-354 of the amount of past interest and capitalized 
interest it is owed. Such interest is not guaranteed. The Holder(s) 
remain entitled to all interest due to the point of repurchase by the 
Lender or purchase by FmHA or its successor agency under Public Law 103-
354 from the Holder(s) if such interest is or can be collected. If FmHA 
or its successor agency under Public Law 103-354 has purchased, FmHA or 
its successor agency under Public Law 103-354 is equally entitled.
    The FmHA or its successor agency under Public Law 103-354 will 
promptly notify the Lender of its receipt of the Holder(s)'s demand for 
payment. The Lender will promptly provide the FmHA or its successor 
agency under Public Law 103-354 with the information necessary for FmHA 
or its successor agency under Public Law 103-354 determination of the 
appropriate amount due the Holder(s). Any discrepancy between the amount 
claimed by the Holder(s) and the information submitted by the Lender 
must be resolved before payment will be approved. FmHA or its successor 
agency under Public Law 103-354 will notify both parties who must 
resolve the conflict before payment of FmHA or its successor agency 
under Public Law 103-354 will be approved. Such conflict will suspend 
the running of the 30 day payment requirement. Upon receipt of the 
appropriate information, FmHA or its successor agency under Public Law 
103-354 will review the demand and submit it to the State Director for 
verification. After reviewing the demand the State Director will 
transmit the request to the FmHA or its successor agency under Public 
Law 103-354 Finance Office for issuance of the appropriate check. Upon 
issuance, the Finance Office will notify the office servicing the 
borrower and State Director and remit the check(s) to the Holder(s).
    9. Lender's Obligations. Lender consents to the purchase by FmHA or 
its successor agency under Public Law 103-354 and agrees to furnish on 
request by FmHA or its successor agency under Public Law 103-354 a 
current statement certified by an appropriate authorized officer of the 
Lender of the unpaid principal and interest then owed by Borrowers on 
the loan and the amount including any loan subsidy then owed by any 
Holder(s). Lender agrees that any purchase by FmHA or its successor 
agency under Public Law 103-354 does not change, alter or modify any of 
the Lender's obligations to FmHA or its successor agency under Public 
Law 103-354 arising from said loan or guarantee nor does it waive any of 
FmHA or its successor agency under Public Law 103-354's rights against 
Lender, and that FmHA or its successor agency under Public Law 103-354 
will have the right to set-off against Lender all rights inuring to FmHA 
or its successor agency under Public Law 103-354 as the Holder of this 
instrument against FmHA or its successor agency under Public Law 103-
354's obligation to Lender under the Loan Note Guarantee.
    10. Repurchase by Lender for Servicing. If, in the opinion of the 
Lender, repurchase of the guaranteed portion of the loan is necessary to 
adequately service the loan, the Holder will sell the portion of the 
loan to the Lender for an amount equal to the unpaid principal and 
interest (including any loan subsidy) on such portion less Lender's 
servicing fee. The Loan Note Guarantee will not cover the note interest 
to the Holder on the guaranteed loans.
    a. The lender will not repurchase from the Holder(s) for arbitrage 
purposes or other purposes to further its own financial gain.
    b. Any repurchase will only be made after the Lender obtains FmHA or 
its successor agency under Public Law 103-354 written approval.
    c. If the Lender does not repurchase the portion from the Holder(s), 
FmHA or its successor agency under Public Law 103-354 at its option may 
purchase such guaranteed portions for servicing purposes.

[[Page 767]]

    11. Custody of Unguaranteed Portion. The Lender may retain, or sell 
the unguaranteed portion of the loan only through participation. 
Participation, as used in this instrument, means the sale of an interest 
in the loan wherein the Lender retains the note, collateral securing the 
note, and all responsibility for loan servicing and liquidation.
    12. When Guarantee Terminates. This Loan Note Guarantee will 
terminate automatically (a) upon full payment of the guaranteed loan; or 
(b) upon full payment of any loss obligation hereunder; or (c) upon 
written notice from the Lender to FmHA or its successor agency under 
Public Law 103-354 that the guarantee will terminate 30 days after the 
date of notice, provided the Lender holds all of the guaranteed portion 
and the Loan Note Guarantee(s) are returned to be cancelled by FmHA or 
its successor agency under Public Law 103-354.
    13. Settlement. The amount due under this instrument will be 
determined and paid as provided in the applicable Subpart of Part 1980 
of Title 7 CFR in effect on the date of this instrument.
    14. Notices. All notices and actions will be initiated through the 
FmHA or its successor agency under Public Law 103-354 ______
for ______ (State) with mailing address at the date of this instrument:
 _______________________________________________________________________
United States of America
Farmers Home Administration or its successor agency under Public Law 
103-354
 By:____________________________________________________________________
 Title:_________________________________________________________________
 (Date)_________________________________________________________________
 Assumption Agreement by________________________________________________
dated ______, 19__
 Assumption Agreement by________________________________________________
dated ______, 19__

  Exhibit C to Appendix I--Assignment Guarantee Agreement--Drought and 
         Disaster Guaranteed Loans (Interest Not Guaranteed) \1\

 FmHA or its successor agency under Public Law 103-354 Loan Ident. No.__
---------------------------------------------------------------------------


    \1\ Public reporting burden for this collection of information is 
estimated to average 2 hours per response, including the time for 
reviewing instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the collection 
of information. Send comments regarding this burden estimate or any 
other aspect of this collection of information, including suggestions 
for reducing this burden to, Department of Agriculture, Clearance 
Officer, OIRM, Room 404-W, Washington, DC 20250; and to the Office of 
Management and Budget, Paperwork Reduction Project (OMB No. 0575-0029), 
Washington, DC 20503.
---------------------------------------------------------------------------

 Form FmHA or its successor agency under Public Law 103-354 1980-70 (11-
                                   88)

 _______________________________________________________________________
of______________________________________________________________________
 (Lender) has made a loan to____________________________________________
 in the principal amount of $___________________________________________
 as evidenced by a note(s) dated________________________________________
The United States of America, acting through Farmers Home Administration 
or its successor agency under Public Law 103-354 (FmHA or its successor 
agency under Public Law 103-354) entered into a Loan Note Guarantee--
Drought and Disaster Guaranteed Loans (Loan Note Guarantee) (Form FmHA 
or its successor agency under Public Law 103-354 1980-69) with the 
Lender applicable to such loan to guarantee the loan not to exceed 
______ % of the amount of the principal advanced.
 _______________________________________________________________________
of______________________________________________________________________

 (Holder) desires to purchase from Lender ______ % of the guaranteed 
portion of such loan. Copies of Borrower's note(s) and the Loan Note 
Guarantee are attached hereto as a part hereof._________________________
    Now, Therefore, the Parties Agree:
    1. The principal amount of the loan now outstanding is $ ______ . 
Lender hereby assigns to Holder ______ % of the guaranteed portion of 
the loan representing $ ______ of such loan now outstainding in 
accordance with all of the terms and conditions hereinafter set forth. 
The Lender and FmHA or its successor agency under Public Law 103-354 
certify to the Holder that the Lender has paid and FmHA or its successor 
agency under Public Law 103-354 has received the Guarantee Fee in 
exchange for the issuance of the Loan Note Guarantee.
    2. Loan Servicing. The Lender will be responsible for servicing the 
entire loan and will remain mortgagee and/or secured party of record. 
The entire loan will be secured by the same security with equal lien 
priority for the guaranteed and unguaranteed portions of the loan.
    The Lender will receive all payments on account of principal of, or 
interest (including any loan subsidy) on, the entire loan and shall 
promptly remit to the Holder its pro rata share thereof determined 
according to their respective interests in the loan, less only Lender's 
servicing fee.
    3. Servicing Fee. Holder agrees that Lender will retain a servicing 
fee of ______ percent per annum of the unpaid balance of the guaranteed 
portion of the loan assigned hereunder.
    4. Purchase by Holder. The guaranteed protion purchased by the 
Holder will always be a portion of the loan which is guaranteed. The 
Holder will hereby succeed to all rights of the Lender under the Loan 
Note Guarantee to the extent of the assigned portion of

[[Page 768]]

the loan. The Lender, however, will remain bound by all the obligations 
under the Loan Note Guarantee and the program regulations found in the 
applicable Subpart of 7 CFR Part 1980 now in effect and future FmHA or 
its successor agency under Public Law 103-354 program regulations not 
inconsistent with the provisions hereof.
    5. Full Faith and Credit. The Loan Note Guarantee constitutes an 
obligation supported by the full faith and credit of the United States 
and is inconstestable except for fraud or misrepresentation of which the 
Holder has actual knowledge at the time of this assignment, or which it 
participates in or condones. A note which provides for the payment of 
interest on interest shall not be guaranteed. Any Assignment Guarantee 
Agreement--Drought and Disaster Guaranteed Loan attached to or relating 
to a note which provides for payment of interest on interest is void.
    6. Rights and Liabilities. The guarantee and right to require 
purchase will be directly enforceable by Holder notwithstanding any 
fraud or misrepresentations by Lender or any unenforceability of the 
Loan Note Guarantee by Lender. Nothing contained herein shall constitute 
any waiver by FmHA or its successor agency under Public Law 103-354 of 
any rights it possesses against the Lender, and the Lender agrees that 
Lender will be liable and will promptly reimburse FmHA or its successor 
agency under Public Law 103-354 for any payment made by FmHA or its 
successor agency under Public Law 103-354 to Holder which, if such 
Lender had held the guaranteed portion of the loan, FmHA or its 
successor agency under Public Law 103-354 would not be required to make. 
The Holder(s) upon written notice to the Lender may resell the unpaid 
balance of the guaranteed portion of the loan assigned hereunder. An 
endorsement may be added to the Form FmHA or its successor agency under 
Public Law 103-354 1980-70 to effectuate the transfer.

Lender:
Address:
 By_____________________________________________________________________
 Title__________________________________________________________________
 Attest:________________________________________________________________
        (SEAL)
Holder:
Address:
 By_____________________________________________________________________
 Title__________________________________________________________________
 Attest:________________________________________________________________
        (SEAL)

United States of America
Farmers Home Administration or its successor agency under Public Law 
103-354
 Address:_______________________________________________________________
 By_____________________________________________________________________
 Title__________________________________________________________________
[54 FR 5, Jan. 3, 1989, as amended at 54 FR 14792, Apr. 13, 1989; 54 FR 
26946, June 27, 1989]

                              Appendix J  

                               [Reserved]

Appendix K--Regulations for Loan Guarantees for Disaster Assistance For 
                       Rural Business Enterprises

                              A. In general

    Disaster Assistance for Rural Business Enterprises (DARBE) 
guaranteed loans are authorized by Section 401 of the Disaster 
Assistance Act of 1989, which provides for guarantees of up to 90 
percent of the unpaid principal and interest amount of qualifying loans, 
or $2,500,000 whichever is less, to any one borrower. DARBE guaranteed 
loans may be either to assist in alleviating financial distress caused 
to rural business entities, directly or indirectly, by drought, freeze, 
storm, excessive moisture, earthquake, or related conditions occurring 
in 1988 or 1989, or to assist such entities that refinance or 
restructure debt as a result of losses incurred, directly or indirectly, 
because of such natural disasters. Where used in this appendix, the term 
``natural disaster(s)'' refers only to drought, freeze, storm, excessive 
moisture, earthquake, and related conditions occurring in 1988 or 1989. 
All provisions of subparts A and E of part 1980 of this chapter apply to 
DARBE loans, except as provided in this appendix. All forms used in 
connection with a DARBE loan will be those used in connection with a 
Business and Industrial (B&I) guaranteed loan, except for the following 
three forms that are incorporated in this appendix K of this subpart E, 
made a part hereof, and appear in the Federal Register following the 
body of this appendix as exhibits A, B, and C in the following order:
    (1) Form FmHA or its successor agency under Public Law 103-354 1980-
71, ``Lender's Agreement--Disaster Assistance for Rural Business 
Enterprise Guaranteed Loans,'' will be used instead of Form FmHA or its 
successor agency under Public Law 103-354 449-35, ``Lender's 
Agreement.''
    (2) Form FmHA or its successor agency under Public Law 103-354 1980-
72, ``Loan Note Guarantee--Disaster Assistance for Rural Business 
Enterprise Guaranteed Loans,'' will be used instead of Form FmHA or its 
successor agency under Public Law 103-354 449-34, ``Loan Note 
Guarantee.''
    (3) Form FmHA or its successor agency under Public Law 103-354 1980-
73, ``Assignment Guarantee Agreement--Disaster Assistance for Rural 
Business Enterprise Guaranteed Loans,'' will be used instead of Form 
FmHA or its successor agency under Public Law 103-354 449-36, 
``Assignment Guarantee Agreement.''

                            B. Loan purposes

    Loan proceeds may be used for purposes described in 
Sec. 1980.411(a), except in lieu of the debt refinancing requirements in

[[Page 769]]

Sec. 1980.411(a)(11), the following refinancing requirements apply to 
DARBE loans. Loan proceeds to be used for refinancing must be used 
solely for refinancing or restructuring of debts as a result of losses 
incurred, directly or indirectly, as a result of drought, freeze, storm, 
excessive moisture, earthquake, or related conditions occurring in 1988 
or 1989, and such refinancing or restructuring of debt(s) must be 
essential for the borrower to meet its financial obligations in a timely 
fashion. DARBE loan proceeds may be used for hotels, motels, tourist, or 
recreation facilities which meet the eligibility requirements of DARBE 
guaranteed loans in addition to the eligible loan purposes as stated in 
FmHA or its successor agency under Public Law 103-354 Instruction 1980-
E. In addition, DARBE loan proceeds may be used for business enterprises 
engaged in agricultural production (production agriculture) which means 
the cultivation, production (growing), and harvesting, either directly 
or through integrated operations, of agricultural products (crops, 
animals, birds, and marine life, either for fibers or food for human 
consumption), and disposal or marketing thereof, the raising, housing, 
feeding (including commercial custom feedlots), breeding, hatching, 
control and/or management of farm and domestic animals. Other eligible 
uses of loan proceeds under agricultural production include:
    (1) Commercial nurseries primarily engaged in the production of 
ornamental plants and trees and other nursery products such as bulbs, 
florists' greens, flowers, shrubbery, flower and vegetable seeds, sod, 
and the growing of vegetables from seed to the transplant stage.
    (2) Forestry which includes establishments primarily engaged in the 
operation of timber tracts, tree farms, forest nurseries, and related 
activities such as reforestation.
    (3) Loans for livestock and poultry processing as identified under 
eligible purposes.
    (4) The growing of mushrooms or hydroponics.
    In addition, those business enterprises which qualify for assistance 
as agricultural production must be ineligible entities for FmHA or its 
successor agency under Public Law 103-354 farmer program loans because 
the entity exceeds the definition of a family-size farm as defined by 
FmHA or its successor agency under Public Law 103-354 Instruction 1941-
A, Sec. 1941.4(d).

                       C. Ineligible loan purposes

    FmHA or its successor agency under Public Law 103-354 Instruction 
1980-E, Sec. 1980.412 are ineligible purposes for DARBE guaranteed loans 
except for hotels, motels, tourist, recreation facilities and 
agricultural production (production agriculture) as defined in 
Sec. 1980.412(e), DARBE guaranteed loans may not be used for:
    (1) Business expansion, acquisition of real estate, machinery, 
equipment, inventory, other goods or services, or for any other purpose 
unless related directly to the financial distress or loss that is the 
basis for the DARBE guaranteed loan.
    (2) Alleviating financial distress of entities engaged in 
agricultural production that are eligible for other FmHA or its 
successor agency under Public Law 103-354-type farm loan programs.

              D. Transactions which will not be guaranteed

    In addition to transactions listed in FmHA or its successor agency 
under Public Law 103-354 Instruction 1980-E, Sec. 1980.413, except for 
Sec. 1980.413(a)(3), FmHA or its successor agency under Public Law 103-
354 will not make DARBE guaranteed loans if the completed application is 
not received by FmHA or its successor agency under Public Law 103-354 on 
or before September 30, 1991, nor will FmHA or its successor agency 
under Public Law 103-354 make subsequent DARBE guarantee loans.

                     E. Borrower equity requirements

    See FmHA or its successor agency under Public Law 103-354 
Instruction 1980-E, Sec. 1980.441. In lieu of the borrower equity 
requirements in Sec. 1980.441, paragraphs (a) and (b), the following 
applies to DARBE loans. Tangible balance sheet equity must be positive 
when the Loan Note Guarantee is issued. Equity must be such that, when 
considered with other credit factors, repayment of the loan and the 
continued success of the business operation are reasonably assured. 
Requirements of Sec. 1980.441(c) apply to DARBE guaranteed loans.

        F. Filing and processing preapplications and applications

    See FmHA or its successor agency under Public Law 103-354 
Instruction 1980-E, Sec. 1980.451. All requirements of Sec. 1980.451 
remain in effect. In addition to the information required as part of a 
preapplication under Sec. 1980.451(f), and unless previously submitted 
as a part of an application under Sec. 1980.451(i) evidence is required 
which demonstrates to FmHA or its successor agency under Public Law 103-
354's satisfaction:
    (1) The causal relationship between a 1988 or 1989 natural disaster 
and the financial distress or loss upon which the preapplication or 
application is based; and,
    (2) That the amount of the loan requested is not greater than the 
amount necessary for curing the problems caused by the natural disaster. 
Financial distress or loss shall be determined on the basis of a 
comparison of financial data for comparable periods of time and need not 
necessarily be based on data at the year's end. Evidence submitted may 
include, but is not limited to, the following:

[[Page 770]]

    (a) Evidence of financial loss or distress (including loss or 
distress caused by business interruption) resulting from physical damage 
caused by natural disaster, or
    (b) Evidence that the financial loss and/or distress of the business 
is the direct or indirect result of loss of sales, business 
interruption, loss of markets, shortage of raw materials, or decline in 
patronage or customers caused by a nautral disaster. It must be shown 
that business operations were damaged as a result of such natural 
disaster.
    (3) Evidence of compliance with Sodbuster and Swampbuster 
requirements as referenced in paragraph K below.
    G. Loan guarantee limit. The total principal amount of DARBE 
guaranteed loans to any one borrower cannot exceed $10,000,000. The 
maximum loss covered by Form FmHA or its successor agency under Public 
Law 103-354 1980-72, ``Loan Note Guarantee DARBE,'' issued on any one 
borrower can never exceed the percentage of guarantee multiplied by the 
unpaid principal and accrued interest on the loan as evidenced by the 
note(s) or by assumption agreement(s), and protective advances, or 
$2,500,000, whichever is the lesser amount.
    H. Percentage of guarantee. The provisions of FmHA or its successor 
agency under Public Law 103-354 instruction 1980-E, Sec. 1980.420 will 
not apply to DARBE. For loans in excess of $2,000,000, the percentage of 
guarantee will be calculated so that the guaranteed portion of the 
principal amount of the loan cannot exceed $2,000,000. For loans of 
$2,000,000 or less the maximum percentage of guarantee will be 90 
percent. For example, a loan of $10,000,000 would not exceed a 20 
percent guarantee; a $5,000,000 loan would not exceed a 40 percent 
guarantee.

               I. Lender's existing unguaranteed exposure

    The provisions of Sec. 1980.452 ADMINISTRATIVE C. 1(d) do not apply.

                      J. No direct or insured loans

    FmHA or its successor agency under Public Law 103-354 Instruction 
1980-E, Secs. 1980.423(b), 1980.488(b), 1980.481, 1980.411(b), and other 
provisions of this subpart dealing with insured or direct loans do not 
apply to DARBE loans. All DARBE loans are FmHA or its successor agency 
under Public Law 103-354 guaranteed loans. FmHA or its successor agency 
under Public Law 103-354 has no authority to make DARBE loans directly 
to borrowers.

                K. Sodbuster and Swampbuster requirements

    The provisions of FmHA or its successor agency under Public Law 103-
354 Instruction 1940-G, exhibit M, will apply to loans made to rural 
business enterprises engaged in agricultural production.

                         Exhibit A to Appendix K

USDA-FmHA or its successor agency under Public Law 103-354

    Form FmHA or its successor agency under Public Law 103-354 1980-71
    (Rev. 11-89)
    FORM APPROVED
    OMB NO. 0575-0029

                           Lender's Agreement

        Disaster Assistance for Rural Business Enterprise (DARBE)

                            Guaranteed Loans

 Maximum Loss Payable by FmHA or its successor agency under Public Law 
              103-354 to a Holder or Lender Is $2,500,000.

Type of Loan.
 _______________________________________________________________________
Applicable 7 CFR part 1980 subpart
 _______________________________________________________________________
FmHA or its successor agency under Public Law 103-354 Loan Ident. No.
 _______________________________________________________________________
(Lender) of
 _______________________________________________________________________
has made a loan(s) to
 _______________________________________________________________________
(Borrower)
 _______________________________________________________________________
in the principal amount of $______________ as evidenced by
 _______________________________________________________________________
note(s) (include Bond as appropriate) described as follows:
 _______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
The United States of America, acting through Farmers Home Administration 
or its successor agency under Public Law 103-354 (FmHA or its successor 
agency under Public Law 103-354) has entered into a ``Loan Note 
Guarantee--DARBE'' (Form FmHA or its successor agency under Public Law 
103-354 1980-72) or has issued a ``Conditional Commitment for 
Guarantee'' (Form FmHA or its successor agency under Public Law 103-354 
449-14) to enter into a Loan Note Guarantee with the Lender applicable 
to such loan to participate in a percentage of any loss on the loan not 
to exceed __________% of the amount of the principal advance and any 
interest (including any loan subsidy) thereon. The terms of the Loan 
Note Guarantee are controlling. In order to facilitate the marketability 
of the guaranteed portion of the loan and as a condition for obtaining a 
guarantee of the loan(s), the Lender enters into this agreement.

[[Page 771]]

                           The Parties Agree:

I. The maximum loss covered under the Loan Guarantee--DARBE will not 
exceed ________ percent of the principal and accrued interest including 
any loan subsidy on the above indebtedness.

   The Maximum Loss Payment Under a Loan Guarantee Under the Disaster 
  Assistance For Rural Business Enterprise Guaranteed Loan Program is 
    Limited to $2,500,000, or the Percentage of Guarantee Times the 
Principal, Accrued Interest, and Approved Protective Advances, Whichever 
                                is Less.

                       II. Full Faith and Credit.

    The Loan Note Guarantee--DARBE constitutes an obligation supported 
by the full faith and credit of the United States and is incontestable 
except for fraud or misrepresentation of which the Lender has actual 
knowledge at the time it became such Lender or which Lender participates 
in or condones. Any note which provides for the payment of interest on 
interest shall not be guaranteed. Any Loan Note Guarantee--DARBE or 
Assignment Guarantee Agreement--DARBE attached to or relating to a note 
which provides for payment of interest on interest is void.
    The Loan Note Guarantee--DARBE will be unenforceable by the Lender 
to the extent any loss is occasioned by violation of usury laws, 
negligent servicing, or failure to obtain the required security 
regardless of the time at which FmHA or its successor agency under 
Public Law 103-354 acquires knowledge of the foregoing. Any losses will 
be unenforceable by the Lender to the extent that loan funds are used 
for purposes other than those specifically approved by FmHA or its 
successor agency under Public Law 103-354 in its Conditional Commitment 
for Guarantee. Negligent servicing is defined as the failure to perform 
those services which a reasonably prudent Lender would perform in 
servicing its own portfolio of loans that are not guaranteed. The term 
includes not only the concept of a failure to act but also not acting in 
a timely manner or acting in a manner contrary to the manner in which a 
reasonably prudent Lender would act up to the time of loan maturity or 
until a final loss is paid.

Public reporting burden for this collection of information is estimated 
to average 1\1/2\ hours per response, including the time for reviewing 
instructions, searching existing data sources, gathering and maintaining 
the data needed, and completing and reviewing the collection of 
information. Send comments regarding this burden estimate or any other 
aspect of this collection of information including suggestions for 
reducing this burden, to Department of Agriculture, Clearance Officer, 
OIRM, Room 404-W, Washington, D.C. 20250; and to the Office of 
Management and Budget, Paperwork Reduction Project (OMB No. 0575-0029), 
Washington, D.C. 20503.

       III. Lender's Sale or Assignment of Guarantee Loan--DARBE.

    A. The Lender may retain all of the guaranteed loan. The Lender is 
not permitted to sell or participate in any amount of the guaranteed or 
unguaranteed portion(s) of the loan(s) to the applicant or Borrower or 
members of their immediate families, their officers, directors, 
stockholders, other owners, or any parent, subsidiary or affiliate. If 
the Lender desires to market all or part of the guaranteed portion of 
the loan at or subsequent to loan closing, such loan must not be in 
default as set forth in the terms of the notes. The Lender may proceed 
under the following options:
    1. Assignment. Assign all or part of the guaranteed portion of the 
loan to one or more Holders by using Form FmHA or its successor agency 
under Public Law 103-354 1980-73, ``Assignment Guarantee Agreement--
DARBE.'' Holder(s), upon written notice to Lender and FmHA or its 
successor agency under Public Law 103-354, may reassign the unpaid 
guaranteed portion of the loan sold thereunder. Upon such notification 
the assignee shall succeed to all rights and obligations of the 
Holder(s) thereunder. If this option is selected, the Lender may not at 
a later date cause to be issued any additional notes.
    2. Multi-Note System. When this option is selected by the Lender, 
upon disposition the Holder will receive one of the Borrower's executed 
notes and Form FmHA or its successor agency under Public Law 103-354 
1980-72, ``Loan Note Guarantee--DARBE,'' attached to the Borrower's 
note. However, all rights under the security instruments (including 
personal and/or corporate guarantees) will remain with the Lender and in 
all cases inure to its and the Government's benefit notwithstanding any 
contrary provisions of state law.
    a. At Loan Closing: Provide for no more than 10 notes, unless the 
Borrower and FmHA or its successor agency under Public Law 103-354 agree 
otherwise, for the guaranteed portion and one note for the unguaranteed 
portion. When this option is selected, FmHA or its successor agency 
under Public Law 103-354 will provide the Lender with a Form FmHA or its 
successor agency under Public Law 103-354 1980-72, for each of the 
notes.
    b. After Loan Closing:
    (1) Upon written approval by FmHA or its successor agency under 
Public Law 103-354, the Lender may cause to be issued a series of new 
notes, not to exceed the total provided in 2.a. above, as replacement 
for previously issued guaranteed note(s) provided:

[[Page 772]]

    (a) The Borrower agrees and executes the new notes.
    (b) The interest rate does not exceed the interest rate in effect 
when the loan was closed.
    (c) The maturity of the loan is not changed.
    (d) FmHA or its successor agency under Public Law 103-354 will not 
bear any expenses that may be incurred in reference to such reissue of 
notes.
    (e) There is adequate collateral securing the note(s).
    (f) No intervening liens have arisen or have been perfected and the 
secured lien priority remains the same.
    (2) FmHA or its successor agency under Public Law 103-354 will issue 
the appropriate Loan Note Guarantees--DARBE to be attached to each of 
the notes then extant in exchange for the original loan Note Guarantee--
DARBE which will be cancelled by FmHA or its successor agency under 
Public Law 103-354.
    3. Participations.
    a. The Lender may obtain participation in its loan under its normal 
operating procedures. Participation means a sale of an interest in the 
loan wherein the Lender retains the note, collateral securing the note, 
and all responsibility for loan servicing and liquidation.
    b. The Lender is required to hold in its own portfolio or retain a 
minimum of 5% for Disaster Assistance for Rural Business Enterprises 
loans of the total guaranteed loan(s) amount. The amount required to be 
retained must be of the unguaranteed portion of the loan and cannot be 
participated to another. The Lender may sell the remaining amount of the 
unguaranteed portion of the loan only through participation. However, 
the Lender will always retain the responsibility for loan servicing and 
liquidation.
    B. When a guaranteed portion of a loan is sold by the Lender to a 
(Holder(s), the Holder(s) shall thereupon succeed to all rights of 
Lender under the Loan Note Guarantee--DARBE to the extent of the portion 
of the loan purchased. Lender will remain bound to all the obligations 
under the Loan Note Guarantee--DARBE, and this agreement, and the FmHA 
or its successor agency under Public Law 103-354 program regulations 
found in the applicable subpart of title 7 CFR part 1980, and to future 
FmHA or its successor agency under Public Law 103-354 program 
regulations not inconsistent with the express provisions hereof.
    C. The Holder(s) upon written notice to the lender may resell the 
unpaid guaranteed portion of the loan sold under provision III A.

IV. The Lender agrees loan funds will be used for the purposes 
authorized in the applicable subpart of title 7 CFR part 1980 and in 
accordance with the terms of Form FmHA or its successor agency under 
Public Law 103-354 449-14.

V. The Lender certifies that none of its officers or directors, 
stockholders or other owners (except stockholders in a Farm Credit Bank 
or other Farm Credit System Institution with direct lending authority 
that have normal stockshare requirements for participation) has a 
substantial financial interest in the Borrower. The Lender certifies 
that neither the Borrower nor its officers or directors, stockholders or 
other owners has a substantial financial interest in the Lender. If the 
Borrower is a member of the board of directors or an officer of a Farm 
Credit Bank or other Farm Credit System Institution with direct lending 
authority, the Lender certifies that an FCS institution on the next 
highest level will independently process the loan request and will act 
as the Lender's agent in servicing the account.

VI. The Lender certifies that it has no knowledge of any material 
adverse change, financial or otherwise, in the Borrower, Borrower's 
business, or any parent, subsidiaries, or affiliates since it requested 
a Loan Note Guarantee--DARBE.

VII. Lender certifies that a loan agreement and/or loan instruments 
concurred in by FmHA or its successor agency under Public Law 103-354 
has been or will be signed with the Borrower.

VIII. Lender certifies that it has paid the required guarantee fee.

                             IX. Servicing.

    A. The Lender will service the entire loan and will remain mortgagee 
and/or secured party of record, notwithstanding the fact that another 
may hold a portion of the loan. The entire loan will be secured by the 
same security with equal lien priority for the guaranteed and 
unguaranteed portions of the loan. Lender may charge Holder a servicing 
fee. The unguaranteed portion of a loan will not be paid first nor given 
any preference or priority over the guaranteed portion of the loan.
    B. Disposition of the guaranteed portion of a loan may be made prior 
to full disbursement, completion of construction and acquisitions only 
with the prior written approval of FmHA or its successor agency under 
Public Law 103-354. Subsequent to full disbursement, completion of 
construction, and acquisition, the guaranteed portion of the loan may be 
disposed of as provided herein.
    It is the Lender's responsibility to see that all construction is 
properly planned before any work proceeds; that any required permits, 
licenses or authorizations are obtained from the appropriate regulatory 
agencies; that the Borrower has obtained contracts through acceptable 
procurement procedures;

[[Page 773]]

that periodic inspections during construction are made and that FmHA or 
its successor agency under Public Law 103-354's concurrence on the 
overall development schedule is obtained.
    C. Lender's servicing responsibilities include, but are not limited 
to:
    1. Obtaining compliance with the convenants and provisions in the 
note, loan agreement, security instruments, and any supplemental 
agreements and notifying in writing FmHA or its successor agency under 
Public Law 103-354 and the Borrower of any violations. None of the 
aforesaid instruments will be altered without FmHA or its successor 
agency under Public Law 103-354's prior written concurrence. The Lender 
must service the loan in a reasonable and prudent manner.
    2. Receiving all payments on principal and interest (including any 
loan subsidy) on the loan as they fall due and promptly remitting and 
accounting to any Holder(s) of their pro rata share thereof determined 
according to their respective interests in the loan, less only Lender's 
servicing fee. The loan may be reamortized, renewed, rescheduled or (for 
Farm Ownership, Soil and Water, and Operating loans only) written down 
only with agreement of the Lender and Holder(s) of the guaranteed 
portion of the loan and only with FmHA or its successor agency under 
Public Law 103-354's written concurrence. For loans covered by 7 CFR 
part 1980, subpart H, the Holder may designate the payee when an 
Individual Certificate is issued.
    3. Inspecting the collateral as often as necessary to properly 
service the loan.
    4. Assuring that adequate insurance is maintained. This includes 
hazard insurance obtained and maintained with a loss payable clause in 
favor of the Lender as the mortgagee or secured party.
    5. Assuring that: taxes, assessment or ground rents against or 
affecting collateral are paid; the loan and collateral are protected in 
foreclosure, bankruptcy, receivership, insolvency, condemnation, or 
other litigation, insurance loss payments, condemnation awards, or 
similar proceeds are applied on debts in accordance with lien priorities 
on which the guarantee was based, or to rebuilding or otherwise 
acquiring needed replacement collateral with the written approval of 
FmHA or its successor agency under Public Law 103-354; proceeds from the 
sale or other disposition of collateral are applied in accordance with 
the lien priorities on which the guarantee is based, except that 
proceeds from the disposition of collateral, such as machinery, 
equipment, furniture or fixtures, may be used to acquire property of 
similar nature in value up to $____________ without written concurrence 
of FmHA or its successor agency under Public Law 103-354; the Borrower 
complies with all laws and ordinances applicable to the loan, the 
collateral and/or operating of the farm, business or industry.
    6. Assuring that if personal or corporate guarantees are part of the 
collateral, current financial statements from such loan guarantors will 
be obtained and copies provided to FmHA or its successor agency under 
Public Law 103-354 at such time and frequency as required by the loan 
agreement or Conditional Commitment for Guarantee. In the case of 
guarantees secured by collateral, assuring the security is properly 
maintained.
    7. Obtaining the lien coverage and lien priorities specified by the 
Lender and agreed to by FmHA or its successor agency under Public Law 
103-354, properly recording or filing lien or notice instruments to 
obtain or maintain such lien priorities during the existence of the 
guarantee by FmHA or its successor agency under Public Law 103-354.
    8. Assuring that the Borrower obtains marketable title to the 
collateral.
    9. Assuring that the Borrower (any party liable) is not released 
from liability for all or any part of the loan, except in accordance 
with FmHA or its successor agency under Public Law 103-354 regulations.
    10. Providing FmHA or its successor agency under Public Law 103-354 
Finance Office with loan status reports semiannually as of June 30 and 
December 31 on Form FmHA or its successor agency under Public Law 103-
354 1980-41, ``Guaranteed Loan Status Report.''
    11. Obtaining from the Borrower periodic financial statements under 
the following schedule:
Lender is responsible for analyzing the financial statements, taking any 
servicing actions and providing copies of statements and record of 
actions to the FmHA or its successor agency under Public Law 103-354 
office immediately responsible for the loan.
    12. Monitoring the use of loan funds to assure they will not be used 
for any purpose that will contribute to excessive erosion of highly 
erodible land or to the conversion of wetlands to produce an 
agricultural commodity, as further explained in 7 CFR part 1940, subpart 
G, exhibit M.

                               X. Default.

    A. The Lender will notify FmHA or its successor agency under Public 
Law 103-354 when a Borrower is thirty (30) days (90 days for guaranteed 
rural housing loan) past due on a payment or if the Borrower has not met 
its responsibilities of providing the required financial statements to 
the Lender or is otherwise in default. The Lender will notify FmHA or 
its successor agency under Public Law 103-354 of the status of a 
Borrower's default on Form FmHA or its successor agency under Public Law 
103-354 1980-44, ``Guaranteed Loan Borrower Default Status.'' A meeting 
will be arranged by the Lender with

[[Page 774]]

the Borrower and FmHA or its successor agency under Public Law 103-354 
to resolve the problem. Actions taken by the Lender with written 
concurrence of FmHA or its successor agency under Public Law 103-354 
will include but are not limited to the following or any combination 
thereof:
    1. Deferment of principal payments (subject to rights of any 
Holder(s)).
    2. An additional temporary loan by the Lender to bring the account 
current.
    3. Reamortization of or rescheduling the payments on the loan 
(subject to rights of any Holder(s)).
    4. Transfer and assumption of the loan in accordance with the 
applicable subpart of title 7 CFR part 1980.
    5. Reorganization.
    6. Liquidation.
    7. Subsequent loan guarantees.
    8. Changes in interest rates with FmHA or its successor agency under 
Public Law 103-354's Lender's, and the Holder'(s) approval; provided, 
such interest rate is adjusted proportionally between the guaranteed and 
unguaranteed portion of the loan and the type of rate remains the same.
    9. Principal and interest write down in accordance with 7 CFR part 
1980, subpart B, Sec. 1980.125.
    B. The Lender will negotiate in good faith in an attempt to resolve 
any problem to permit the Borrower to cure a default, where reasonable.
    C. The Lender has the option to repurchase the unpaid guaranteed 
portion of the loan from the Holder(s) within 30 days of written demand 
by the Holder(s) when: (a) the Borrower is in default not less than 60 
days in payment of principal or interest due on the loan or (b) the 
Lender has failed to remit to the Holder(s) its pro rata share of any 
payment made by the Borrower or any loan subsidy within 30 days of its 
receipt thereof. The repurchase by the Lender will be for an amount 
equal to the unpaid guaranteed portion of the principal and accrued 
interest less the Lender's servicing fee. The loan note guarantee will 
not cover the note interest to the Holder on the guaranteed loan(s) 
accruing after 90 days from the date of the demand letter to the Lender 
requesting the repurchase. Holder(s) will concurrently send a copy of 
demand to FmHA or its successor agency under Public Law 103-354. The 
Lender will accept an assignment without recourse from the Holder(s) 
upon repurchase. The Lender is encouraged to repurchase the loan to 
facilitate the accounting for funds, resolve the problem, and to permit 
the borrower to cure the default, where reasonable. The Lender will 
notify the Holder(s) and FmHA or its successor agency under Public Law 
103-354 of its decision. As per the terms of the Loan Note Guarantee--
DARBE the maximum loss payment will not exceed $2,500,000 for principal, 
interest and approved protective advances.
    D. If Lender does not repurchase as provided by paragraph C, FmHA or 
its successor agency under Public Law 103-354 will purchase from 
Holder(s) the unpaid principal balance of the guaranteed portion herein 
together with accrued interest (including any loan subsidy) to date of 
repurchase, within 30 days after written demand to FmHA or its successor 
agency under Public Law 103-354 from the Holder(s). The loan note 
guarantee will not cover the note interest to the Holder on the 
guaranteed loan(s) accruing after 90 days from the date of original 
demand letter of the Holder(s) to the Lender requesting the repurchase. 
Such demand will include a copy of the written demand upon the Lender. 
Under the Disaster Assistance for Rural Business Enterprise Guaranteed 
Loan program, the maximum cumulative payment to the holder(s) of the 
guaranteed portion of the loan is limited to $2,500,000 or the 
percentage of guarantee multiplied by the principal and accrued interest 
together with protective advances, whichever is less.
    The Holder(s) or its duly authorized agent will also include 
evidence of its right to require payment from FmHA or its successor 
agency under Public Law 103-354. Such evidence will consist of either 
the originals of the Loan Note Guarantee--DARBE and note properly 
endorsed to FmHA or its successor agency under Public Law 103-354 or the 
original of the Assignment Guarantee Agreement properly assigned to FmHA 
or its successor agency under Public Law 103-354 without recourse 
including all rights, title, and interest in the loan. FmHA or its 
successor agency under Public Law 103-354 will be subrogated to all 
rights of Holder(s). The Holder(s) will include in its demand the amount 
due including unpaid principal, unpaid interest (including any loan 
subsidy) to date of demand and interest subsequently accruing from date 
of demand to proposed payment date. Unless otherwise agreed to by FmHA 
or its successor agency under Public Law 103-354, such proposed payment 
will not be later than 30 days from the date of the demand.
    The FmHA or its successor agency under Public Law 103-354 office 
serving the Borrower will promptly notify the Lender of the Holder(s) 
demand for payment. The Lender will promptly provide the FmHA or its 
successor agency under Public Law 103-354 office servicing the Borrower 
with the information necessary for FmHA or its successor agency under 
Public Law 103-354's determination of the appropriate amount due the 
Holder(s). Any discrepancy between the amount claimed by the Holder(s) 
and the information submitted by the Lender must be resolved before 
payment will be approved. FmHA or its successor agency under Public Law 
103-354 will notify both parties who must resolve the conflict before 
payment by FmHA or its

[[Page 775]]

successor agency under Public Law 103-354 will be approved. Such a 
conflict will suspend the running of the 30 day payment requirement. 
Upon receipt of the appropriate information, the FmHA or its successor 
agency under Public Law 103-354 office servicing the Borrower will 
review the demand and submit it to the State Director for verification. 
After reviewing the demand, the State Director will transmit the request 
to the FmHA or its successor agency under Public Law 103-354 Finance 
Office for issuance of the appropriate check. Upon issuance, the Finance 
Office will notify the office serving the Borrower and State Director 
and remit the check(s) to the Holder(s).
    E. Lender consents to the purchase by FmHA or its successor agency 
under Public Law 103-354 and agrees to furnish on request by FmHA or its 
successor agency under Public Law 103-354 a current statement certified 
by an appropriate authorized officer of the Lender of the unpaid 
principal and interest then owed by the Borrower on the loan and the 
amount due the Holder(s). Lender agrees that any purchase by FmHA or its 
successor agency under Public Law 103-354 does not change, alter or 
modify any of the Lender's obligations to FmHA or its successor agency 
under Public Law 103-354 arising from said loan or guarantee, nor does 
such purchase waive any of the FmHA or its successor agency under Public 
Law 103-354's rights against Lender, and FmHA or its successor agency 
under Public Law 103-354 will have the right to set-off against Lender 
all rights insuring to FmHA or its successor agency under Public Law 
103-354 from the Holder against FmHA or its successor agency under 
Public Law 103-354's obligation to Lender under the Loan Note 
Guarantee--DARBE. To the extent FmHA or its successor agency under 
Public Law 103-354 holds a portion of a loan, loan subsidy will not be 
paid the Lender.
    F. Servicing fees assessed by the Lender to the Holder are 
collectible only from payment installments received by the Lender from 
the Borrower. When FmHA or its successor agency under Public Law 103-354 
repurchases from a Holder, FmHA or its successor agency under Public Law 
103-354 will pay the Holder only the amounts due the Holder, FmHA or its 
successor agency under Public Law 103-354 will not reimburse the Lender 
for servicing fees assessed to a Holder and not collected from payments 
received from the Borrower. No servicing fee shall be charged FmHA or 
its successor agency under Public Law 103-354 and no such fee is 
collectible from FmHA or its successor agency under Public Law 103-354.
    G. Lender may also repurchase the guaranteed portion of the loan 
consistent with paragraph 10 of the Loan Note Guarantee--DARBE.

                            XI. Liquidation.

    If the Lender concludes that liquidation of a guaranteed loan 
account is necessary because of one or more defaults or third party 
actions that the Borrower cannot or will not cure or eliminate within a 
reasonable period of time, a meeting will be arranged by the Lender with 
FmHA or its successor agency under Public Law 103-354. When FmHA or its 
successor agency under Public Law 103-354 concurs with the Lender's 
conclusion or at any time concludes independently that liquidation is 
necessary, it will notify the Lender and the matter will be handled as 
follows:
    The Lender will liquidate the loan unless FmHA or its successor 
agency under Public Law 103-354, at its option, decides to carry out 
liquidation.
    When the decision to liquidate is made, the Lender may proceed to 
purchase from Holder(s) the guaranteed portion of the loan. The 
Holder(s) will be paid according to the provisions in the Loan Note 
Guarantee--DARBE or the Assignment Guarantee Agreement--DARBE.
    When the decision to liquidate is made, the Lender may proceed to 
purchase from Holder(s) the guaranteed portion of the loan. The 
Holder(s) will be paid according to the provisions in the Loan Note 
Guarantee--DARBE or the Assignment Guarantee Agreement--DARBE.
    If the Lender does not purchase the guaranteed portion of the loan 
FmHA or its successor agency under Public Law 103-354 will be notified 
immediately in writing. FmHA or its successor agency under Public Law 
103-354 will then purchase the guaranteed portion of the loan from the 
Holder(s). If FmHA or its successor agency under Public Law 103-354 
holds any of the guaranteed portion, FmHA or its successor agency under 
Public Law 103-354 will be paid first its pro rata share of the proceeds 
from liquidation of the collateral.
    A. Lender's proposed method of liquidation. Within 30 days after the 
decision to liquidate, the Lender will advise FmHA or its successor 
agency under Public Law 103-354 in writing of its proposed detailed 
method of liquidation called a liquidation plan and will provide FmHA or 
its successor agency under Public Law 103-354 with:
    1. Such proof as FmHA or its successor agency under Public Law 103-
354 requires to establish the Lender's ownership of the guaranteed loan 
promissory note(s) and related security instruments.
    2. Information lists concerning the Borrower's assets including real 
and personal property, fixtures, claims, contracts, inventory (including 
perishables), accounts receivable, personal and corporate guarantees, 
and other existing and contingent assets, advice as to

[[Page 776]]

whether or not each item is serving as collateral for the guaranteed 
loan.
    3. A proposed method of making the maximum collection possible on 
the indebtedness.
    4. If the outstanding principal DARBE loan balance including accrued 
interest is less than $200,000, the Lender will obtain an estimate of 
the market and potential liquidated value of the collateral. On DARBE 
loan balances in excess of $200,000, the Lender will obtain an 
independent appraisal report on all collateral securing the loan, which 
will reflect the current market value and potential liquidation value. 
The appraisal report is for the purpose of permitting the Lender and 
FmHA or its successor agency under Public Law 103-354 to determine the 
appropriate liquidation actions. Any independent appraiser's fee will be 
shared equally by FmHA or its successor agency under Public Law 103-354 
and the Lender.
    B. FmHA or its successor agency under Public Law 103-354's response 
to Lender's liquidation plan. FmHA or its successor agency under Public 
Law 103-354 will inform the Lender in writing whether it concurs in the 
Lender's liquidation plan within 30 days after receipt of such 
notification from the Lender. If FmHA or its successor agency under 
Public Law 103-354 needs additional time to respond to the liquidation 
plan, it will advise the Lender of a definite time for such response. 
Should FmHA or its successor agency under Public Law 103-354 and the 
Lender not agree on the Lender's liquidation plan, negotiations will 
take place between FmHA or its successor agency under Public Law 103-354 
and the Lender to resolve the disagreement. The Lender will ordinarily 
conduct the liquidation; however, should FmHA or its successor agency 
under Public Law 103-354 opt to conduct the liquidation, FmHA or its 
successor agency under Public Law 103-354 will proceed as follows:
    1. The Lender will transfer to FmHA or its successor agency under 
Public Law 103-354 all rights and interest necessary to allow FmHA or 
its successor agency under Public Law 103-354 to liquidate the loan. In 
this event, the Lender will not be paid for any loss until after the 
collateral is liquidated and the final loss is determined by FmHA or its 
successor agency under Public Law 103-354.
    2. FmHA or its successor agency under Public Law 103-354 will 
attempt to obtain the maximum amount of proceeds from liquidation.
    3. Options available to FmHA or its successor agency under Public 
Law 103-354 include any one or combination of the usual commercial 
methods of liquidation.
    C. Acceleration. The Lender or FmHA or its successor agency under 
Public Law 103-354, if it liquidates, will proceed as expeditiously as 
possible when acceleration of the indebtedness is necessary including 
giving any notices and taking any other legal actions required by the 
security instruments. A copy of the acceleration notice or other 
acceleration document will be sent to FmHA or its successor agency under 
Public Law 103-354 or the Lender, as the case may be.
    D. Liquidation. Accounting and Reports. When the Lender conducts the 
liquidation, it will account for funds during the period of liquidation 
and will provide FmHA or its successor agency under Public Law 103-354 
with periodic reports on the progress of liquidation, disposition of 
collateral, resulting costs and additional procedures necessary for 
successful completion of liquidation. The Lender will transmit to FmHA 
or its successor agency under Public Law 103-354 any payments received 
from the Borrower and/or pro rata share of liquidation or other 
proceeds, etc. when FmHA or its successor agency under Public Law 103-
354 is the holder of a portion of the guaranteed loan using Form FmHA or 
its successor agency under Public Law 103-354 1980-43, ``Lender's 
Guaranteed Loan Payment to FmHA or its successor agency under Public Law 
103-354.'' When FmHA or its successor agency under Public Law 103-354 
liquidates, the Lender will be provided with similar reports on request.
    E. Determination of Loss and Payment. In all liquidation cases, 
final settlement will be made with the Lender after the collateral is 
liquidated. FmHA or its successor agency under Public Law 103-354 will 
have the right to recover losses paid under the guarantee from any party 
liable.
    1. Form FmHA or its successor agency under Public Law 103-354 449-
30, ``Loan Note Guarantee Report of Loss,'' will be used for 
calculations of all estimated and final loss determinations. Estimated 
loss payments may be approved by FmHA or its successor agency under 
Public Law 103-354 after the Lender has submitted a liquidation plan 
approved by FmHA or its successor agency under Public Law 103-354. 
Payments will be made in accordance with applicable FmHA or its 
successor agency under Public Law 103-354 regulations.
    2. When the Lender is conducting the liquidation, and owns any of 
the guaranteed portion of the loan, it may request a tentative loss 
estimate by submitting to FmHA or its successor agency under Public Law 
103-354 an estimate of loss that will occur in connection with 
liquidation of the loan. FmHA or its successor agency under Public Law 
103-354 will agree to pay an estimated loss settlement to the Lender 
provided the lender applies such amount due to the outstanding principal 
balance owed on the guaranteed debt. Such estimate will be prepared and 
submitted by the Lender on Form FmHA or its successor agency under 
Public Law 103-354 449-30, using the basic formula as provided on the 
report except that the appraisal

[[Page 777]]

value will be used in lieu of the amount received from the sale of 
collateral. For Farm Ownership, Soil and Water, and Operating loans 
only, if it appears the liquidation period will exceed 90 days, the 
Lender will file an estimated loss claim. Once this claim is approved by 
FmHA or its successor agency under Public Law 103-354, the Lender will 
discontinue interest accrual on the defaulted loan and the loss claim 
will be promptly processed in accordance with the applicable FmHA or its 
successor agency under Public Law 103-354 regulations.
    After the Report of Loss estimate has been approved by FmHA or its 
successor agency under Public Law 103-354, and within 30 days 
thereafter, FmHA or its successor agency under Public Law 103-354 will 
send the original Report of Loss estimate to FmHA or its successor 
agency under Public Law 103-354 Finance Office for issuance of a 
Treasury check in payment of the estimated amount due the Lender.
    After liquidation has been completed, a final loss report will be 
submitted on Form FmHA or its successor agency under Public Law 103-354 
449-30 by the Lender to FmHA or its successor agency under Public Law 
103-354.
    3. After the Lender has completed liquidation, FmHA or its successor 
agency under Public Law 103-354 upon receipt of the final accounting and 
report of loss, may audit and will determine the actual loss. If FmHA or 
its successor agency under Public Law 103-354 has any questions 
regarding the amounts set forth in the final Report of Loss, it will 
investigate the matter. The Lender will make its records available to 
and otherwise assist FmHA or its successor agency under Public Law 103-
354 in making the investigation. If FmHA or its successor agency under 
Public Law 103-354 finds any discrepancies, it will contact the Lender 
and arrange for the necessary corrections to be made as soon as 
possible. When FmHA or its successor agency under Public Law 103-354 
finds the final Report of Loss to be proper in all respects, it will be 
tentatively approved in the space provided on the form for that purpose.
    4. When the Lender has conducted liquidation and after the final 
Report of Loss has been tentatively approved:
    a. If the loss is greater than the estimated loss payment, FmHA or 
its successor agency under Public Law 103-354 will send the original to 
the final Report of Loss to the Finance Office for issuance of a 
Treasury check in payment of the additional amount owed by FmHA or its 
successor agency under Public Law 103-354 to the Lender.
    b. If the loss is less than the estimated loss, the Lender will 
reimburse FmHA or its successor agency under Public Law 103-354 for the 
overpayment plus interest at the note rate from date of payment.
    5. If FmHA or its successor agency under Public Law 103-354 has 
conducted liquidation, it will provide an accounting and Report of Loss 
to the Lender and will pay the Lender in accordance with the Loan Note 
Guarantee--DARBE.
    6. In those instances where the Lender has made authorized 
protective advances, it may claim recovery for the guaranteed portion of 
any loss of monies advanced as protective advances and interest 
resulting from such protective advances as provided above, and such 
payment will be made by FmHA or its successor agency under Public Law 
103-354 when the final Report of Loss is approved.
    F. Maximum amount of interest loss payment. Notwithstanding any 
other provisions of this agreement, the amount payable by FmHA or its 
successor agency under Public Law 103-354 to the Lender cannot exceed 
the limits set forth in the Loan Note Guarantee--DARBE. If FmHA or its 
successor agency under Public Law 103-354 conducts the liquidation, loss 
occasioned by accruing interest will be covered by the guarantee only to 
the date FmHA or its successor agency under Public Law 103-354 accepts 
this responsibility. Loss occasioned by accruing interest will be 
covered to the extent of the Loan Note Guarantee--DARBE to the date of 
final settlement when the liquidation is conducted by the Lender 
provided it proceeds expeditiously with the liquidation plan approved by 
FmHA or its successor agency under Public Law 103-354. The balance of 
allowable accrued interest payable to the Lender, if any, will be 
calculated on the final Report of Loss form.
    G. Application of FmHA or its successor agency under Public Law 103-
354 loss payment. The estimated loss payment shall be applied as of the 
date of such payment. The total amount of the loss payment remitted by 
FmHA or its successor agency under Public Law 103-354 will be applied by 
the Lender on the guaranteed portion of the loan debt. However, such 
application does not release the Borrower from liability. In all cases a 
final Form FmHA or its successor agency under Public Law 103-354 449-30 
prepared and submitted by the Lender must be processed by FmHA or its 
successor agency under Public Law 103-354 in order to close out the 
files at the FmHA or its successor agency under Public Law 103-354 
Finance Office.
    H. Income from collateral. Any net rental or other income that has 
been received by the Lender from the collateral will be applied on the 
guaranteed loan debt.
    I. Liquidation costs. Certain reasonable liquidation costs will be 
allowed during the liquidation process. The liquidation costs will be 
submitted as a part of the liquidation plan. Such costs will be deducted 
from gross proceeds from the disposition of collateral

[[Page 778]]

unless the costs have been previously determined by the Lender (with 
FmHA or its successor agency under Public Law 103-354 written 
concurrence) to be protective advances. If changed circumstances after 
submission of the liquidation plan require a revision of liquidation 
costs, the Lender will procure FmHA or its successor agency under Public 
Law 103-354's written concurrence prior to proceeding with the proposed 
changes. No in-house expenses of the Lender will be allowed. In-house 
expenses include, but are not limited to, employee's salaries, staff 
lawyers, travel and overhead.
    J. Foreclosure. The parties owning the guaranteed portion and 
unguaranteed portions of the loan will join the institute foreclosure 
action or, in lieu of foreclosure, to take a deed of conveyance to such 
parties. When the conveyance is received and liquidated, net proceeds 
will be applied to the guaranteed loan debt.
    K. Payment. Such loss will be paid by FmHA or its successor agency 
under Public Law 103-354 within 60 days after the review of the 
accounting of the collateral.

                        XII. Protective Advances.

    Protective advances must constitute an indebtedness of the Borrower 
to the Lender and be secured by the security instrument(s). FmHA or its 
successor agency under Public Law 103-354 written authorization is 
required on all protective advances in excess of $500. Protective 
advances include, but are not limited to, advances made for taxes, 
annual assessments, ground rent, hazard or flood insurance premiums 
affecting the collateral, and other expenses necessary to preserve or 
protect the security. Attorney fees are not a protective advance.

                   XIII. Additional Loans or Advances.

    The Lender will not make additional expenditures or new loans 
without first obtaining the written approval of FmHA or its successor 
agency under Public Law 103-354 even though such expenditures or loans 
will not be guaranteed.

                          XIV. Future Recovery.

    After a loan has been liquidated and a final loss has been paid by 
FmHA or its successor agency under Public Law 103-354, any future funds 
which may be recovered by the Lender, will be pro-rated between FmHA or 
its successor agency under Public Law 103-354 and the Lender. FmHA or 
its successor agency under Public Law 103-354 will be paid such amount 
recovered in proportion to the percentage it guaranteed for the loan and 
the Lender will retain such amounts in proportion to the percentage of 
the unguaranteed portion of the loan.

                   XV. Transfer and Assumption Cases.

    Refer to the applicable subpart of title 7 of CFR part 1980.
    If a loss should occur upon consummation of a complete transfer and 
assumption for less than the full amount of the debt and the transferor-
debtor (including personal guarantees) is released from personal 
liability, the Lender, if it holds the guaranteed portion, may file an 
estimated Report of Loss on Form FmHA or its successor agency under 
Public Law 103-354 449-30, ``Loan Note Guarantee Report of Loss,'' to 
recover its pro rata share of the actual loss at that time. In 
completing Form FmHA or its successor agency under Public Law 103-354 
449-30, the amount of the debt assumed will be entered on line 24 as Net 
Collateral (Recovery). Approved protective advances and accrued interest 
thereon made during the arrangement of a transfer and assumption, if not 
assumed by the Transfer, will be entered on Form FmHA or its successor 
agency under Public Law 103-354 449-30, line 13 and 14.

                            XVI. Bankruptcy.

    A. The Lender is responsible for protecting the guaranteed loan debt 
and all collateral securing the loan in bankruptcy proceedings. When the 
loan is involved in a reorganization bankruptcy proceeding under 
chapters 11, 12 or 13 of the Bankruptcy Code, payment of loss claims may 
be made as provided in this paragraph XVI. For a chapter 7 bankruptcy or 
liquidation plan in a chapter 11 bankruptcy, only paragraphs XVI B3 and 
B6 are applicable.
    B. Loss Payments.
    1. Estimated Loss Payments.
    a. If a borrower has filed for protection under a reorganization 
bankruptcy, the Lender will request a tentative estimated loss payment 
of accrued interest and principal written off. This request can only be 
made after the bankruptcy plan is confirmed by the court. Only one 
estimated loss payment is allowed during the reorganization bankruptcy. 
All subsequent claims during reorganization will be considered revisions 
to the initial estimated loss. A revised estimated loss payment may be 
processed by FmHA or its successor agency under Public Law 103-354, at 
its option, in accordance with any court approved changes in the 
reorganization plan. At the time the performance under the confirmed 
reorganization plan has been completed, the Lender is responsible for 
providing FmHA or its successor agency under Public Law 103-354 with the 
documentation necessary to review and adjust the estimated loss claim to 
(a) reflect the actual principal and interest reduction on any part of 
the guaranteed debt determined to be unsecured and (b) to reimburse the 
Lender

[[Page 779]]

for any court ordered interest rate reduction during the term of the 
reorganization plan.
    b. The Lender will use Form FmHA or its successor agency under 
Public Law 103-354 449-30, ``Loan Note Guarantee Report of Loss,'' to 
request an estimated loss payment and to review estimated loss payments 
during the course of the reorganization plan. The estimated loss claim 
as well as any revisions to this claim will be accompanied by applicable 
legal documentation to support the claim.
    c. Upon completion of the reorganization plan, the Lender will 
complete Form FmHA or its successor agency under Public Law 103-354 
1980-44, ``Guaranteed Loan Borrower Default Status,'' and forward this 
form to the Finance Office.
    2. Interest Loss Payments.
    a. Interest loss payments sustained during the period of the 
reorganization plan will be processed in accordance with paragraph XVI 
B1.
    b. Interest loss payments sustained after the reorganization plan is 
completed will be processed annually when the Lender sustains a loss as 
a result of a permanent interest rate reduction which extends beyond the 
period of the reorganization plan.
    c. Form FmHA or its successor agency under Public Law 103-354 449-30 
will be completed to compensate the Lender for the difference in 
interest rates specified on the Loan Note Guarantee--DARBE or Interest 
Rate Buydown Agreement and the rate of interest specified by the 
bankruptcy court.
    3. Final Loss Payments.
    a. Final Loss Payments will be processed when the loan is 
liquidated.
    b. If the loan is paid in full without an additional loss, the 
Finance Office will close out the estimated loss account at the time 
notification of payment in full is received.
    4. Payment Application. The Lender must apply estimated loss 
payments first to the unsecured principal of the guaranteed portion of 
the debt and then to the unsecured interest of the guaranteed portion of 
the debt. In the event the bankruptcy court attempts to direct the 
payments to be applied in a different manner, the Lender will 
immediately notify the FmHA or its successor agency under Public Law 
103-354 servicing office.
    5. Overpayments. Upon completion of the reorganization plan, the 
Lender will provide FmHA or its successor agency under Public Law 103-
354 with the documentation necessary to determine whether the estimated 
loss paid equals the actual loss sustained. If the actual loss 
sustained, as a result of the reorganization, is greater than the 
estimated loss payment, the Lender will submit a revised estimated loss 
in order to obtain payment of the additional amount owed by FmHA or its 
successor agency under Public Law 103-354 to the Lender. If the actual 
loss payment is less than the estimated loss, the Lender will reimburse 
FmHA or its successor agency under Public Law 103-354 for the 
overpayment plus interest at the note rate from the date of the payment 
of the estimated loss.
    6. Protective Advances. If approved protective advances were made 
prior to the borrower having filed bankruptcy, as a result of prior 
liquidation action, these protective advances and accrued interest will 
be entered on Form FmHA or its successor agency under Public Law 103-354 
449-30.

                        XVII. Other Requirements.

    This agreement is subject to all the requirements of the applicable 
subpart of title 7 CFR part 1980, and any future amendments of these 
regulations not inconsistent with this agreement. Interested parties may 
agree to abide by future FmHA or its successor agency under Public Law 
103-354 regulations not inconsistent with this agreement.

                     XVIII. Execution of Agreements.

    If this agreement is executed prior to the execution of the Loan 
Note Guarantee--DARBE, this agreement does not impose any obligation 
upon FmHA or its successor agency under Public Law 103-354 with respect 
to the execution of such contract. FmHA or its successor agency under 
Public Law 103-354 in no way warrants that such a contract has been or 
will be executed.

                              XIX. Notices.

    All notices and actions will be initiated through FmHA or its 
successor agency under Public Law 103-354 for
 _______________________________________________________________________
(State) with mailing address at the date of this instrument
Dated this __________ day of __________, 19 ____.

                                 Lender:

Attest:
 _______________________________________________________________________
(Seal)
By
 _______________________________________________________________________
Title
 _______________________________________________________________________
United States of America
Farmers Home Administration or its successor agency under Public Law 
103-354
By
 _______________________________________________________________________
Title
 _______________________________________________________________________

                         Exhibit B to Appendix K

USDA-FmHA or its successor agency under Public Law 103-354
    Form FmHA or its successor agency under Public Law 103-354 1980-72

[[Page 780]]

    (Rev. 11-89)
    Type of Loan: __________
    Applicable 7 CFR part 1980
    Subpart________

                           Loan Note Guarantee

        Disaster Assistance for Rural Business Enterprise (DARBE)

                            Guaranteed Loans

 Maximum Loss Payable by FmHA or its successor agency under Public Law 
               103-354 To a Holder or Lender is $2,500,000

 _______________________________________________________________________

USDA-FmHA or its successor agency under Public Law 103-354

    From FmHA or its successor agency under Public Law 103-354 1980-72
    (Rev. 11-89)
    Type of Loan:__________
    Applicable 7 CFR Part 1980
    Subpart__________

                           Loan Note Guarantee

                         Disaster Assistance for

                    Rural Business Enterprise (DARBE)

                            Guaranteed Loans

 Maximum Loss Payable by FmHA or its successor agency under Public Law 
                                 103-354

                   To a Holder or Lender is $2,500,000

 _______________________________________________________________________
Borrower--
 _______________________________________________________________________
Lender--
 _______________________________________________________________________
Lender's Address
 _______________________________________________________________________
State
 _______________________________________________________________________
County
 _______________________________________________________________________
Date of Note
 _______________________________________________________________________
FmHA or its successor agency under Public Law 103-354 Loan 
Identification No.
 _______________________________________________________________________
Principal Amount of Loan $
 --Borrower_____________________________________________________________
  
________________________________________________________________________
Lender

  
--Lender's Address______________________________________________________
  
--State_________________________________________________________________
  
County__________________________________________________________________
  
--Date of Note__________________________________________________________
  
--FmHA or its successor agency under Public Law 103-354 Loan 
Identification No.______________________________________________________
  
--Lender's IRS ID Tax No._______________________________________________
  
--Principal Amount of Loan $____________________________________________
    The guaranteed portion of the loan is ____________ which is ________ 
(________%) percent of loan principal. The principal amount of loan is 
evidenced by ____________ note(s) (includes bonds as appropriate) 
described below. The guaranteed portion of each note is indicated below. 
This instrument is attached to note ________ in the face amount of 
$________ and is number ________ of. ________.

                                                                        
------------------------------------------------------------------------
                                          Percent                       
 Lender's identifying                    of total                       
        Number            Face amount      face      Amount guaranteed  
                                          amount                        
------------------------------------------------------------------------
                       $                        %  $                    
                                                                        
                                                                        
                                                                        
                                                                        
------------------------------------------------------------------------
    Total              $________ 100%         100  $________            
                                                                        
------------------------------------------------------------------------

    In consideration of the making of the subject loan by the above 
named Lender, the United States of America, acting through the Farmers 
Home Administration or its successor agency under Public Law 103-354 of 
the United States Department of Agriculture (herein called ``FmHA or its 
successor agency under Public Law 103-354''), pursuant to the Disaster 
Assistance Act of 1989 does hereby agree that in accordance with and 
subject to the conditions and requirements herein, it will pay to:

    A. Holders:

    1. Any loss sustained by the Holder on the guaranteed portion and 
interest due on such portion up to a maximum aggregate amount of 
$2,500,000. On loans with multiple Holders and/or a Lender who owns part 
of the guaranteed portion, if the aggregate losses exceed $2,500,000, 
each Holder's loss will be prorated by the percentage of the guaranteed 
portion of the loan the holder owns.
    B. The Lender the lesser of 1, or 2 below:

    1. Any loss sustained by the Lender on the guaranteed portion 
including:
    a. Principal and interest indebtedness as evidenced by said note(s) 
or by assumption agreement(s), and
    b. Principal and interest indebtedness on secured protective 
advances for protection and preservation of collateral made with FmHA or 
its successor agency under Public Law 103-354's authorization, including 
but not limited to advances for taxes, annual assessments, any ground 
rents, and hazard or flood insurance premiums affecting the collateral, 
but only to the extent that inclusion of such protective advances would 
not cause

[[Page 781]]

the total aggregate loss to exceed $2,500,000, or
    2. The guaranteed principal advanced to or assumed by the Borrower 
under said note(s) or assumption agreement(s) and any interest due 
thereon.

But only up to a maximum aggregate amount of $2,500,000. On loans with 
single or multiple holders and a Lender who owns part of the guaranteed 
portion, if the aggregate losses exceed $2,500,000, the Lender's loss 
will be prorated by the percentage of the guaranteed portion of the loan 
the Lender owns.

If FmHA or its successor agency under Public Law 103-354 conducts the 
liquidation of the loan, loss occasioned to a Lender by accruing 
interest (including any loan subsidy) after the date FmHA or its 
successor agency under Public Law 103-354 accepts responsibility for 
liquidation will not be covered by this Loan Note Guarantee--DARBE. If 
Lender conducts the liquidation of the loan, accruing interest 
(including any loan subsidy) shall be covered by this Loan Note 
Guarantee--DARBE to date of final settlement when the Lender conducts 
the liquidation expeditiously in accordance with the liquidation plan 
approved by FmHA or its successor agency under Public Law 103-354.

                          Definition of Holder.

    The Holder is the person or organization other than the Lender who 
holds all or part of the guaranteed portion of the loan with no 
servicing responsibilities. Holders are prohibited from obtaining any 
part(s) of the guaranteed portion of the loan with proceeds from any 
obligation, the interest on which is excludable from income, under 
section 103 of the Internal Revenue Code of 1954, as amended (IRC). When 
the Lender assigns a part(s) of the guaranteed loan to an assignee, the 
assignee becomes a Holder only when Form FmHA or its successor agency 
under Public Law 103-354 1980-73, ``Assignment Guarantee Agreement--
DARBE,'' is used. Loan evidenced by a single note may be assigned only 
by using Form FmHA or its successor agency under Public Law 103-354 
1980-73.

                          Definition of Lender.

    The Lender is the person or organization making and servicing the 
loan which is guaranteed under the provisions of the applicable subpart 
7 CFR part 1980. The Lender is also the party requesting a loan 
guarantee.

                           1. Loan Servicing.

    Lender will be responsible for servicing the entire loan, and the 
Lender will remain mortgagee and/or secured party of record not 
withstanding the fact that another party may hold a portion of the loan. 
When multiple notes are used to evidence a loan, Lender will structure 
repayments as provided in the loan agreement.

                             2. Priorities.

    The entire loan will be secured by the same security with equal lien 
priority for the guaranteed and unguaranteed portions of the loan. The 
unguaranteed portion of the loan will not be paid first nor given any 
preference or priority over the guaranteed portion.

                        3. Full Faith and Credit.

    The Loan Note Guarantee--DARBE constitutes an obligation supported 
by the full faith and credit of the United States and is incontestable 
except for fraud or misrepresentation of which Lender or any Holder has 
actual knowledge at the time it became such Lender or Holder or which 
Lender or any Holder participates in or condones. If the note to which 
this is attached or relates provides for payment of interest on 
interest, then this Loan Note Guarantee--DARBE is void. In addition, the 
Loan Note Guarantee--DARBE will be unenforceable by Lender to the extent 
any loss is occasioned by the violation of usury laws, negligent 
servicing, or failure to obtain the required security regardless of the 
time at which FmHA or its successor agency under Public Law 103-354 
acquires knowledge of the foregoing. Any losses occasioned will be 
unenforceable to the extent that loan funds are used for purposes other 
than those specifically approved by FmHA or its successor agency under 
Public Law 103-354 in its Conditional Commitment for Guarantee. 
Negligent servicing is defined as the failure to perform those services 
which a reasonably prudent lender would perform in servicing its own 
portfolio of loans that are not guaranteed. The term includes not only 
the concept of a failure to act but also not acting in a timely manner 
or acting in a manner contrary to the manner in which a reasonably 
prudent lender would act up to the time of loan maturity or until a 
final loss is paid.

                       4. Rights and Liabilities.

    The guarantee and right to require purchase will be directly 
enforceable by Holder notwithstanding any fraud or misrepresentation by 
Lender or any unenforceability of this Loan Note Guarantee--DARBE by 
Lender. Nothing contained herein will constitute any waiver by FmHA or 
its successor agency under Public Law 103-354 of any rights it possesses 
against the Lender. Lender will be liable for and will promptly pay to 
FmHA or its successor agency under Public Law 103-354 any payment made 
by FmHA or its successor agency under Public Law 103-354 to Holder which 
if such Lender had held the guaranteed portion of the loan, FmHA or its 
successor agency under Public Law 103-354 would not be required to make.

[[Page 782]]

                              5. Payments.

    Lender will receive all payments of principal, or interest, and will 
promptly remit to Holder(s) its pro rata share thereof determined 
according to its respective interest in the loan, less only Lender's 
servicing fee.

                         6. Protective Advances.

    Protective advances made by Lender pursuant to the regulations will 
be guaranteed against a percentage of loss to the extent provided in 
this Loan Note Guarantee--DARBE notwithstanding the guaranteed portion 
of the loan that is held by another.

                        7. Repurchase by Lender.

    The Lender has the option to repurchase the unpaid guaranteed 
portion of the loan from the Holder(s) within 30 days of written demand 
by the Holder(s) when: (a) the borrower is in default not less than 60 
days on principal or interest due on the loan or (b) the Lender has 
failed to remit to the Holder(s) its pro rata share of any payment made 
by the borrower or any loan subsidy within 30 days of its receipt 
thereof. The repurchase by the Lender will be for an amount equal to the 
unpaid guaranteed portion of principal and accrued interest less the 
Lender's servicing fee. The Loan Note Guarantee--DARBE will not cover 
the note interest to the Holder on the guaranteed loan(s) accruing after 
90 days from the date of the demand letter to the Lender requesting the 
repurchase. Holder(s) will concurrently send a copy of demand to FmHA or 
its successor agency under Public Law 103-354. The Lender will accept an 
assignment without recourse from the Holder(s) upon repurchase. The 
Lender is encouraged to repurchase the loan to facilitate the accounting 
for funds, resolve the problem, and to permit the borrower to cure the 
default, where reasonable. The Lender will notify the Holder(s) and FmHA 
or its successor agency under Public Law 103-354 of its decision. As per 
the terms of this guarantee the maximum loss payment will not exceed 
$2,500,000 for principal, interest, and approved protective advances.

   8. FmHA or its successor agency under Public Law 103-354 Purchase.

    If Lender does not repurchase as provided by paragraph 7 hereof, 
FmHA or its successor agency under Public Law 103-354 will purchase from 
Holder the unpaid principal balance of the guaranteed portion together 
with accrued interest to date of repurchase less Lender's servicing fee, 
within thirty (30) days after written demand to FmHA or its successor 
agency under Public Law 103-354 from Holder. The Loan Note 
GuaranteeDARBE will not cover the note interest to the Holder on the 
guaranteed loan(s) accruing after 90 days from the date of the original 
demand letter of the Holder to the Lender requesting the repurchase. 
Such demand will include a copy of the written demand made upon the 
Lender. The Holder(s) or its duly authorized agent will also include 
evidence of its right to require payment from FmHA or its successor 
agency under Public Law 103-354. Such evidence will consist of either 
the original of the Loan Note Guarantee--DARBE properly endorsed to FmHA 
or its successor agency under Public Law 103-354 or the original of the 
Assignment Guarantee Agreement--DARBE properly assigned to FmHA or its 
successor agency under Public Law 103-354 without recourse including all 
rights, title, and interest in the loan. FmHA or its successor agency 
under Public Law 103-354 will be subrogated to all rights of Holder(s). 
The Holder(s) will include in its demand the amount due including unpaid 
principal, unpaid interest to date of demand and interest subsequently 
accruing from date of demand to proposed payment date or $2,500,000, 
whichever is less. Unless otherwise agreed to by FmHA or its successor 
agency under Public Law 103-354, such proposed payment will not be later 
than 30 days from the date of demand. On loans with multiple Holders 
and/or a Lender who owns part of the guaranteed portion, if the 
aggregate unpaid principal and unpaid interest on the guaranteed portion 
exceeds $2,500,000, the Holder will be paid on a prorated basis--
prorated by the percentage of the guaranteed portion of the loan the 
Holder owns.
    The FmHA or its successor agency under Public Law 103-354 will 
promptly notify the Lender of its receipt of the Holder(s)'s demand for 
payment. The Lender will promptly provide the FmHA or its successor 
agency under Public Law 103-354 with the information necessary for FmHA 
or its successor agency under Public Law 103-354 determination of the 
appropriate amount due the Holder(s). Any discrepancy between the amount 
claimed by the Holder(s) and the information submitted by the Lender 
must be resolved before payment will be approved. FmHA or its successor 
agency under Public Law 103-354 will notify both parties who must 
resolve the conflict before payment by FmHA or its successor agency 
under Public Law 103-354 will be approved. Such conflict will suspend 
the running of the 30 day payment requirement. Upon receipt of the 
appropriate information, FmHA or its successor agency under Public Law 
103-354 will review the demand and submit it to the State Director for 
verification. After reviewing the demand the State Director will 
transmit the request to the FmHA or its successor agency under Public 
Law 103-354 Finance Office for issuance of the appropriate check. Upon 
issuance, the Finance Office will notify the office servicing the 
borrower and State Director and remit the check(s) to the Holder(s).

[[Page 783]]

                        9. Lender's obligations.

    Lender consents to the purchase by FmHA or its successor agency 
under Public Law 103-354 and agrees to furnish on request by FmHA or its 
successor agency under Public Law 103-354 a current statement certified 
by an appropriate authorized officer of the Lender of the unpaid 
principal and interest then owed by Borrowers on the loan and the amount 
including any loan subsidy then owed to any Holder(s). Lender agrees 
that any purchase by FmHA or its successor agency under Public Law 103-
354 does not change, alter or modify any of the Lender's obligations to 
FmHA or its successor agency under Public Law 103-354 arising from said 
loan or guarantee nor does it waive any of FmHA or its successor agency 
under Public Law 103-354's rights against Lender, and that FmHA or its 
successor agency under Public Law 103-354 will have the right to set-off 
against Lender all rights inuring to FmHA or its successor agency under 
Public Law 103-354 as the Holder of this instrument against FmHA or its 
successor agency under Public Law 103-354's obligation to Lender under 
the Loan Note Guarantee--DARBE.

                 10. Repurchase by Lender for Servicing.

    If, in the opinion of the Lender, repurchase of the guaranteed 
portion of the loan is necessary to adequately service the loan, the 
Holder will sell the portion of the loan to the Lender for an amount 
equal to the unpaid principal and interest on such portion. The Lender's 
servicing fee will be subtracted from these amounts. The Loan Note 
Guarantee--DARBE will not cover the note interest to the Holder on the 
guaranteed loans accruing after 90 days from the date of the demand 
letter of the Lender or FmHA or its successor agency under Public Law 
103-354 to the Holder(s) requesting the Holder(s) to tender their 
guaranteed portion(s).
    a. The Lender will not repurchase from the Holder(s) for arbitrage 
purposes or other purposes to further its own financial gain.
    b. Any repurchase will only be made after the Lender obtains FmHA or 
its successor agency under Public Law 103-354 written approval.
    c. If the Lender does not repurchase the portion from the Holder(s), 
FmHA or its successor agency under Public Law 103-354 at its option may 
purchase such guaranteed portions for servicing purposes.

                  11. Custody of Unguaranteed Portion.

    The Lender may retain, or sell the unguaranteed portion of the loan 
only through participation. Participation, as used in this instrument, 
means the sale of an interest in the loan wherein the Lender retains the 
note, collateral securing the note, and all responsibility for loan 
servicing and liquidation.

                     12. When Guarantee Terminates.

    This Loan Note Guarantee--DARBE will terminate automatically (a) 
upon full payment of the guaranteed loan; or (b) upon full payment of 
any loss obligation hereunder; or (c) upon written notice from the 
Lender to FmHA or its successor agency under Public Law 103-354 that the 
guarantee will terminate 30 days after the date of notice, provided the 
Lender holds all of the guaranteed portion and the Loan Note 
Guarantee(s) are returned to be cancelled by FmHA or its successor 
agency under Public Law 103-354.

                             13. Settlement.

    The amount due under this instrument will be determined and paid as 
provided in the applicable Subpart of Part 1980 of Title 7 CFR in effect 
on the date of this instrument.

                              14. Notices.

    All notice and actions will be initiated through the FmHA or its 
successor agency under Public Law 103-354 ______________ for __________ 
(State) with mailing address at the date of this instrument:
 _______________________________________________________________________
________________________________________________________________________
United States of America
Farmers Home Administration or its successor agency under Public Law 
103-354
By:
 _______________________________________________________________________
Title:
 _______________________________________________________________________
(Date)
 _______________________________________________________________________
Assumption Agreement by
 _______________________________________________________________________
dated____________,19____,
Assumption Agreement by
 _______________________________________________________________________
dated____________,19____.

                         Exhibit C to Appendix K

USDA-FmHA or its successor agency under Public Law 103-354

    Form FmHA or its successor agency under Public Law 103-354 1980-73
    (Rev. 11-89)
    FORM APPROVED
    OMB NO. 0575-0029

                     ASSIGNMENT GUARANTEE AGREEMENT

        DISASTER ASSISTANCE FOR RURAL BUSINESS ENTERPRISE (DARBE)

                             GUARANTEED LOAN

 MAXIMUM LOSS PAYABLE BY FmHA or its successor agency under Public Law 
               103-354 TO A HOLDER OR LENDER IS $2,500,000

Type of Loan:
 _______________________________________________________________________

[[Page 784]]

Applicable 7 CFR Part 1980 Subpart
 _______________________________________________________________________
FmHA or its successor agency under Public Law 103-354 Loan 
Identification Number
 _______________________________________________________________________
____________ of ____________
(Lender) has made a loan to
 _______________________________________________________________________
in the principal amount of $ __________ as evidenced by a note(s) dated 
__________. The United States of America, acting through Farmers Home 
Administration or its successor agency under Public Law 103-354 (FmHA or 
its successor agency under Public Law 103-354) entered into a Loan Note 
Guarantee--Disaster Assistance for Rural Business Enterprise Guaranteed 
Loans (Form FmHA or its successor agency under Public Law 103-354 1980-
72) with the Lender applicable to such loan to guarantee the loan not to 
exceed ________ % of the amount of the principal advanced and any 
interest (including any loan subsidy) due thereon as provided therein. 
Under the Disaster Assistance and Rural Business Enterprise Guaranteed 
Loan program, the maximum cumulative payment to the holder(s) of the 
guaranteed portion of the loan is limited to $2,500,000 or the 
percentage of guarantee multiplied by the principal and interest, 
whichever is less.
__________ of __________
(Holder) desires to purchase from Lender ________ % of the guaranteed 
portion of such loan. Copies of Borrower's note(s) and the Loan Note 
Guarantee--Disaster Assistance for Rural Business Enterprises are 
attached hereto as a part hereof.

                   Now, Therefore, the Parties Agree:

    1. The principal amount of the loan now outstanding is $ __________. 
Lender hereby assigns to Holder ________ % of the guaranteed portion of 
the loan representing
$__________ of such loan now outstanding in accordance with all of the 
terms and conditions hereinafter set forth. The Lender and FmHA or its 
successor agency under Public Law 103-354 certify to the Holder that the 
Lender has paid and FmHA or its successor agency under Public Law 103-
354 has received the Guarantee Fee in exchange for the issuance of the 
Loan Note Guarantee--Disaster Assistance for Rural Business Enterprises.
    2. Loan Servicing. The Lender will be responsible for servicing the 
entire loan and will remain mortgagee and/or secured party of record. 
The entire loan will be secured by the same security with equal lien 
priority for the guaranteed and unguaranteed portions of the loan.
    The Lender will receive all payments on account of principal of, or 
interest on, the entire loan and shall promptly remit to the Holder its 
pro rata share thereof determined according to their respective 
interests in the loan, less only Lender's servicing fee.
    3. Servicing Fee. Holder agrees that Lender will retain a servicing 
fee of ________ percent per annum of the unpaid balance of the 
guaranteed portion of the loan assigned hereunder.
    4. Purchase by Holder. The guaranteed portion purchased by the 
Holder will always be a portion of the loan which is guaranteed. The 
Holder will hereby succeed to all rights of the Lender under the Loan 
Note Guarantee--Disaster Assistance for Rural Business Enterprises to 
the extent of the assigned portion of the loan. The Lender, however, 
will remain bound by all the obligations under the Loan Note Guarantee--
Disaster Assistance for Rural Business Enterprises and the program 
regulations found in the applicable subpart of 7 CFR part 1980 now in 
effect and future FmHA or its successor agency under Public Law 103-354 
program regulations not inconsistent with the provisions hereof.

Public reporting burden for this collection of information is estimated 
to average 2 hours per response, including the time for reviewing 
instructions, searching existing data sources, gathering and maintaining 
the data needed, and completing and reviewing the collection of 
information. Send comments regarding this burden estimate or any other 
aspect of this collection of information, including suggestions for 
reducing this burden, to Department of Agriculture, Clearance Officer, 
OIRM, Room 404-W, Washington, DC 20250; and to the Office of Management 
and Budget, Paperwork Reduction Project (OMB No. 0575-0029), Washington, 
DC 20503.

    5. Full Faith and Credit. The Loan Note Guarantee--DARBE constitutes 
an obligation supported by the full faith and credit of the United 
States and is incontestable except for fraud or misrepresentation of 
which the Lender or any Holder has actual knowledge at the time of this 
assignment, or which the Holder participates in or condones. If the note 
to which this is attached or relates provides for payment of interest on 
interest, then this Loan Note Guarantee--DARBE is void. In addition, the 
Loan Note Guarantee--DARBE will be unenforceable by Lender to the extent 
any loss is occasioned by the violation of usury laws, negligent 
servicing, or failure to obtain the required security regardless of the 
time at which FmHA or its successor agency under Public Law 103-354 
acquires knowledge of the foregoing. Any losses occasioned will be 
unenforceable to the extent that loan funds are used for purposes other 
than those specifically approved by FmHA or its successor agency under 
Public Law 103-354 in its Conditional Commitment for Guarantee. 
Negligent servicing is defined as the failure to perform those services 
which a reasonably prudent lender would perform in servicing its own 
portfolio of loans that are not guaranteed. The term includes not only 
the concept of a failure to act but also not acting in a timely manner

[[Page 785]]

or acting in a manner contrary to the manner in which a reasonably 
prudent lender would act up to the time of loan maturity or until a 
final loss is paid.
    6. Rights and Liabilities. The guarantee and right to require 
purchase will be directly enforceable by Holder notwithstanding any 
fraud or misrepresentations by Lender or any unenforceability of the 
Loan Note Guarantee--DARBE by Lender. Nothing contained herein shall 
constitute any waiver by FmHA or its successor agency under Public Law 
103-354 of any rights it possesses against the Lender, and the Lender 
agrees that Lender will be liable and will promptly reimburse FmHA or 
its successor agency under Public Law 103-354 for any payment made by 
FmHA or its successor agency under Public Law 103-354 to Holder which, 
if such Lender had held the guaranteed portion of the loan, FmHA or its 
successor agency under Public Law 103-354 would not be required to make. 
The Holder(s) upon written notice to the Lender may resell the unpaid 
balance of the guaranteed portion of the loan assigned hereunder. An 
endorsement may be added to the Form FmHA or its successor agency under 
Public Law 103-354 1980-73 to effectuate the transfer.
    7. Repurchase by the Lender (Defaults). The Lender has the option to 
repurchase the unpaid guaranteed portion of the loan from the Holder(s) 
within 30 days of written demand by the Holder(s) when: (a) the borrower 
is in default not less than 60 days on principal or interest due on the 
loan or (b) the Lender has failed to remit to the Holder(s) its pro rata 
share of any payment made by the borrower or any loan subsidy within 30 
days of its receipt thereof. The repurchase by the Lender will be for an 
amount equal to the unpaid guaranteed portion of principal and accrued 
interest (including any loan subsidy), less the Lender's servicing fee. 
The loan note guarantee will not cover the note interest to the Holder 
on the guaranteed loan(s) accruing after 90 days from the date of the 
demand letter to the Lender requesting the repurchase. Holder(s) will 
concurrently send a copy of demand to FmHA or its successor agency under 
Public Law 103-354. The Lender will accept an assignment without 
recourse from the Holder(s) upon repurchase. The Lender is encouraged to 
repurchase the loan to facilitate the accounting for funds, resolve the 
problem, and to permit the borrower to cure the default, where 
reasonable. The Lender will notify the Holder(s) and FmHA or its 
successor agency under Public Law 103-354 of its decision. As per the 
terms of the Loan Note Guarantee--DARBE the maximum loss payment will 
not exceed $2,500,000 for principal, interest and approved protective 
advances.
    8. Purchase by FmHA or its successor agency under Public Law 103-
354. If Lender does not repurchase as provided by paragraph 7, FmHA or 
its successor agency under Public Law 103-354 will purchase from Holder 
the unpaid principal balance of the guaranteed portion together with 
accrued interest to date of repurchase, less Lender's servicing fee, 
within 30 days after written demand to FmHA or its successor agency 
under Public Law 103-354 from the Holder. The Loan Note Guarantee--DARBE 
will not cover the note interest to the Holder on the guaranteed loans 
accruing after 90 days from the date of the original demand letter of 
the Holder to the Lender requesting the repurchase. Such demand will 
include a copy of the written demand made upon the Lender. The Holder(s) 
or its duly authorized agent will also include evidence of its right to 
require payment from FmHA or its successor agency under Public Law 103-
354. Such evidence will consist of either the original of the Loan Note 
Guarantee--DARBE properly endorsed to FmHA or its successor agency under 
Public Law 103-354 or the original of the Assignment Guarantee 
Agreement--DARBE properly assigned to FmHA or its successor agency under 
Public Law 103-354 without recourse including all rights, title, and 
interest in the loan. FmHA or its successor agency under Public Law 103-
354 will be subrogated to all rights of Holder(s). The Holder will 
include in its demand the amount due including unpaid principal, unpaid 
interest to date of demand and interest subsequently accruing from date 
of demand to proposed payment date or $2,500,000, whichever is less. 
Unless otherwise agreed to by FmHA or its successor agency under Public 
Law 103-354, such proposed payment will not be later than 30 days from 
the date of demand.
    On loans with multiple Holders and/or a Lender who owns part of the 
guaranteed portion, if the aggregate unpaid principal and unpaid 
interest on the guaranteed portion exceeds $2,500,000, the Holder will 
be paid on a prorated basis--prorated by the percentage of the 
guaranteed portion of the loan the Holders owns.
    The FmHA or its successor agency under Public Law 103-354 will 
promptly notify the Lender of its receipt of the Holder's demand for 
payment. The Lender will promptly provide the FmHA or its successor 
agency under Public Law 103-354 with the information necessary for FmHA 
or its successor agency under Public Law 103-354's determination of the 
appropriate amount due the Holder(s). Any discrepancy between the amount 
claimed by the Holder(s) and the information submitted by the Lender 
must be resolved before payment will be approved. FmHA or its successor 
agency under Public Law 103-354 will notify both parties who must 
resolve the conflict before payment will be approved. Such a conflict 
will suspend the running of the 30 day payment requirement. Upon receipt 
of the appropriate information, FmHA or its successor agency under 
Public Law

[[Page 786]]

103-354 will review the demand and submit it to the State Director for 
verification. After reviewing the demand the State Director will 
transmit the request to the FmHA or its successor agency under Public 
Law 103-354 Finance Office for issuance of the appropriate check. Upon 
issuance, the Finance Office will notify the office servicing the 
borrower and the State Director and remit the check(s) to the Holder(s).
    9. Lender's Obligations. Lender consents to the purchase by FmHA or 
its successor agency under Public Law 103-354 and agrees to furnish on 
request by FmHA or its successor agency under Public Law 103-354 a 
current statement certified by an appropriate authorized officer of the 
Lender of the unpaid principal and interest then owed by Borrowers on 
the loan and the amount then owed to any Holder(s). Lender agrees that 
any purchase by FmHA or its successor agency under Public Law 103-354 
does not change, alter or modify any of the Lender's obligations to FmHA 
or its successor agency under Public Law 103-354 arising from said loan 
or guarantee nor does it waive any of FmHA or its successor agency under 
Public Law 103-354's rights against Lender, and that FmHA or its 
successor agency under Public Law 103-354 shall have the right to set-
off against Lender all rights inuring to FmHA or its successor agency 
under Public Law 103-354 as the Holder of this instrument against FmHA 
or its successor agency under Public Law 103-354's obligation to Lender 
under the Loan Note Guarantee--DARBE.
    10. Repurchase by Lender for Servicing. If, in the opinion of the 
Lender, repurchase of the assigned portion of the loan is necessary to 
adequately service the loan, the Holder will sell the assigned portion 
of the loan to the Lender for an amount equal to the unpaid principal 
and interest on such portion. The Lender's servicing fee will be 
subtracted from these amounts. The loan note guarantee will not cover 
the note interest to the Holder on the guaranteed loans accruing after 
90 days from the date of the demand letter of the Lender or FmHA or its 
successor agency under Public Law 103-354 to the Holder(s) requesting 
the Holder(s) to tender their guaranteed portion(s).
    a. The Lender will not repurchase from the Holder(s) for arbitrage 
purpose or other purposes to further its own financial gain.
    b. Any repurchase will only be made after the Lender obtains FmHA or 
its successor agency under Public Law 103-354 written approval.
    c. If the Lender does not repurchase the portion from the Holder(s), 
FmHA or its successor agency under Public Law 103-354 at its option may 
purchase such guaranteed portions for servicing purposes.
    11. Foreclosure. The parties owning the guaranteed portions and 
unguaranteed portion of the loan will join to institute foreclosure 
action, or in lieu of foreclosure, take a deed of conveyance to such 
parties.
    12. Reassignment. Holder upon written notice to Lender and FmHA or 
its successor agency under Public Law 103-354 may reassign the unpaid 
guaranteed portion of the loan sold hereunder. Upon such notification, 
the assignee will succeed to all rights and obligations of the Holder 
hereunder.
    13. Notices. All notices and actions will be initiated through the 
FmHA or its successor agency under Public Law 103-354 ____________ for 
____________ (state) with mailing address at the date of this 
assignment:
 _______________________________________________________________________
Dated this ____________ day of ____________, 19____.
Lender:
 _______________________________________________________________________
Address:
 _______________________________________________________________________
Attest: ____________(Seal)
By
 _______________________________________________________________________
Title
 _______________________________________________________________________
Holder:
 _______________________________________________________________________
Address:
 _______________________________________________________________________
Attest: ____________(Seal)
By
 _______________________________________________________________________
Title
 _______________________________________________________________________
United States of America
Farmers Home Administration or its successor agency under Public Law 
103-354
Address:
 _______________________________________________________________________
________________________________________________________________________
By
 _______________________________________________________________________
Title
 _______________________________________________________________________
[54 FR 42483, Oct. 17, 1989, as amended at 55 FR 137, Jan. 3, 1990; 55 
FR 19245, May 8, 1990]

                          Exhibits to Subpart E

                                Exhibit G

    Note.----The Exhibit is not published in the Code of Federal 
Regulations. It is available in any FmHA or its successor agency under 
Public Law 103-354 office.

[54 FR 1599, Jan. 13, 1989]



                         Subparts F-H [Reserved]



             Subpart I--Community Programs Guaranteed Loans

    Source: 55 FR 11139, Mar. 27, 1990, unless otherwise noted.

[[Page 787]]



Sec. 1980.801  Introduction.

    (a) This subpart, supplemented by subpart A of this part, contains 
the regulations for Community Programs (CP) loans guaranteed by the 
Farmers Home Administration or its successor agency under Public Law 
103-354 (FmHA or its successor agency under Public Law 103-354), and 
applies to lenders, holders, borrowers, and other parties involved in 
making, guaranteeing, holding, servicing, or liquidating such loans. Any 
processing or servicing activity conducted pursuant to this subpart 
involving authorized assistance to FmHA or its successor agency under 
Public Law 103-354 employees, members of their families, known close 
relatives, or business or close personal associates, is subject to the 
provisions of subpart D of part 1900 of this chapter. Applicants for 
this assistance are required to identify any known relationship or 
association with an FmHA or its successor agency under Public Law 103-
354 employee.
    (b) The purpose of the CP Guaranteed Loan Programs is to improve, 
develop, or finance water or waste disposal and other essential 
community facilities in rural areas. This purpose is achieved through 
bolstering the existing private credit structure through the guarantee 
of quality loans which will provide lasting community benefits. It is 
NOT intended that the guarantee authority be used for marginal or 
substandard loans or to ``bail out'' lenders having such loans.
    (c) The CP loan program is administered by the Administrator through 
a State Director serving each State. The District Director is the focal 
point for the program and the local contact person for processing and 
servicing activities, although this subpart refers in various places to 
the duties and responsibilities of other FmHA or its successor agency 
under Public Law 103-354 employees.
[55 FR 11139, Mar. 27, 1990, as amended at 58 FR 229, Jan. 5, 1993]



Sec. 1980.802  Definitions.

    The following general definitions are applicable to the terms used 
in this subpart. Additional definitions may be found in Sec. 1980.6 of 
subpart A of this part.
    Borrower. A borrower may be a cooperative, corporation, or other 
legal entity organized and operated on a nonprofit basis; an Indian 
Tribe on a Federal or State reservation or other Federally recognized 
Indian tribal group; a municipality, county, or other political 
subdivision of a State. Groups organized under the general profit 
corporation laws may be eligible if they actually will be operated on a 
not-for-profit basis under their charter, bylaws, mortgage, or a 
supplemental agreement provision as may be required as a condition of 
loan approval.
    Collateral. Security pledged for the guaranteed loan.
    Community facilities. For the purposes of this subpart, community 
facilities are those facilities designed to provide, enlarge, extend, or 
otherwise improve water or waste disposal and other essential community 
facilities providing essential service primarily to rural residents.
    Lender. The person or organization making and servicing the loan 
which is guaranteed under the provisions of this subpart. The lender is 
also referred to in this subpart as the applicant, who is requesting a 
guarantee during the preapplication and application stage of processing.
    Lender's exposure. The lender's exposure before and after the loan, 
and any applicable limits on the lender's lending authority.
    Loan classification system. The process by which loans are examined 
and categorized by degree of potential for loss in the event of default.
    Problem loan. A loan which is not performing according to its 
original terms and conditions or which is not expected in the future to 
perform according to those terms and conditions.
    Protective advances. Protective advances will not be made in lieu of 
additional loans. Protective advances are advances made by the lender 
for the purpose of preserving and protecting the collateral where the 
debtor has failed to and will not or cannot meet its obligations to 
protect or preserve collateral. Ordinarily, protective advances are made 
when liquidation is

[[Page 788]]

contemplated or in process. A protective advance must be an indebtedness 
of the borrower.
    Public body. A municipality, county or other political subdivision 
of a state, an Indian Tribe on a Federal or State reservation, or 
another Federally recognized Indian Tribe.
    Service area. The service area is that area reasonably expected to 
be served by the facility being financed by the guaranteed loan.
    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.



Secs. 1980.803--1980.804  [Reserved]



Sec. 1980.805  Rural area determinations.

    Facilities financed through FmHA or its successor agency under 
Public Law 103-354 guarantee must primarily serve rural residents. For 
water or waste disposal facilities, the terms ``rural'' and ``rural 
area'' will not include any area in any city or town with a population 
in excess of 10,000 inhabitants according to the latest decennial census 
of the United States. For essential community facilities, the terms 
``rural'' and ``rural area'' will not include any area in any city or 
town with a population in excess of 20,000 inhabitants according to the 
latest decennial census of the United States. Facilities must be located 
in rural areas except for utility-type services, such as water, sewer, 
natural gas, or hydroelectric serving both rural and nonrural areas. In 
such cases, funds guaranteed by FmHA or its successor agency under 
Public Law 103-354 may be used to finance only that portion serving 
rural users, regardless of facility location. Loans for water or waste 
disposal facilities will not be made to any city or town with a 
population in excess of 10,000. Loans for essential community facilities 
will not be made to any city or town with a population in excess of 
20,000.



Sec. 1980.806  Availability of credit from other sources.

    To be eligible for a guaranteed loan under this subpart, the 
borrower must be unable to obtain the required credit without the CP 
loan guarantee from private, commercial, or cooperative sources at 
reasonable rates and terms for loans for similar purposes and period of 
time. The borrower must certify in writing and FmHA or its successor 
agency under Public Law 103-354 shall determine the credit is not 
available from other sources at reasonable rates and terms without the 
CP loan guarantee. The lender also must certify that it would not make 
the loan without the guarantee. These certifications shall become a part 
of the FmHA or its successor agency under Public Law 103-354 case file.
[56 FR 29170, June 26, 1991]



Secs. 1980.807--1980.810  [Reserved]



Sec. 1980.811  Legal authority and responsibility.

    Each borrower must have or will obtain the legal authority necessary 
for constructing, operating, and maintaining the proposed facility or 
service and for obtaining, giving security for, and repaying the 
proposed loan. The borrower shall be responsible for operating, 
maintaining, and managing the facility, and providing for its continued 
availability and use at reasonable rates and terms. This responsibility 
shall be exercised by the borrower even though the facility may be 
operated, maintained, or managed by a third party under contract, 
management agreement, or written lease. Leases may be used when this is 
the only feasible way to provide the service and is the customary 
practice to provide such service in the state. Management agreements 
should provide for at least those items listed in Guide 24 of FmHA or 
its successor agency under Public Law 103-354 Instruction 1942-A 
(available in any FmHA or its successor agency under Public Law 103-354 
office.) Such contracts, management agreements, or leases must not 
contain options or other provisions for transfer of ownership.

[[Page 789]]



Sec. 1980.812  Priorities.

    Section 1942.17(c) of subpart A of part 1942 of this chapter shall 
apply to loans to be guaranteed under this subpart.
[55 FR 11139, Mar. 27, 1990, as amended at 56 FR 29170, June 26, 1991]



Sec. 1980.813  Eligible loan purposes.

    (a) Funds may be used to construct, enlarge, extend, or otherwise 
improve water or waste disposal, and other essential community 
facilities providing essential service primarily to rural residents and 
rural businesses. Rural businesses would include facilities such as 
educational and other publicly owned facilities.
    (1) Water or waste disposal facilities include water, sanitary 
sewerage, solid waste disposal, and storm wastewater facilities.
    (2) Essential community facilities are those public improvements 
requisite to the beneficial and orderly development of a community 
operated on a nonprofit basis including but not limited to:
    (i) Fire, rescue, and public safety;
    (ii) Health services;
    (iii) Community, social, or cultural services;
    (iv) Transportation facilities such as streets, roads, and bridges;
    (v) Hydroelectric generating facilities and related connecting 
systems and appurtenances, when not eligible for Rural Electrification 
Administration (REA) financing;
    (vi) Supplemental and supporting structures for other rural 
electrification or telephone systems (including facilities such as 
headquarters and office buildings, storage facilities, and maintenance 
shops) when not eligible for REA financing; and
    (vii) Natural gas distribution systems; and
    (viii) Industrial park sites, but only to the extent of land 
acquisition and necessary site preparation, including access ways and 
utility extensions to and throughout the site. Funds may not be used in 
connection with industrial parks to finance on-site utility systems, or 
business and industrial buildings.
    (3) Otherwise improve includes but is not limited to the following:
    (i) The purchase of major equipment, such as solid waste collection 
trucks and X-ray machines, which will in themselves provide an essential 
service to rural residents;
    (ii) The purchase of existing facilities when it is necessary either 
to improve or to prevent a loss of service; and
    (iii) Payment of tap fees and other utility connection charges as 
provided in utility purchase contracts.
    (b) Funds also may be used:
    (1) To construct or relocate public buildings, roads, bridges, 
fences, or utilities, and to make other public improvements necessary to 
the successful operation or protection of facilities authorized in 
paragraphs (a) (1) and (2) of this section.
    (2) To relocate private buildings, roads, bridges, fences, or 
utilities, and other private improvements necessary to the successful 
operation or protection of facilities authorized in paragraph (a) of 
this section.
    (3) To pay the following expenses, but only when such expenses are a 
necessary part of a loan to finance facilities authorized in paragraphs 
(a), (b)(1), and (b)(2) of this section.
    (i) Reasonable fees and costs such as origination fee, legal, 
engineering, architectural, fiscal advisory, recording, environmental 
impact analyses, archaeological surveys and possible salvage or other 
mitigation measures, planning, and establishing or acquiring rights.
    (ii) Interest on loans until the facility is self-supporting, but 
not for more than three years unless a longer period is approved by the 
FmHA or its successor agency under Public Law 103-354 National Office; 
interest on loans secured by general obligation bonds until tax revenues 
are available for payment, but not for more than two years unless a 
longer period is approved by the FmHA or its successor agency under 
Public Law 103-354 National Office; and interest on interim financing.
    (iii) Costs of acquiring interest in land; rights, such as water 
rights, leases, permits, rights-of-way; and other evidence of land or 
water control necessary for development of the facility.

[[Page 790]]

    (iv) Purchasing or renting equipment necessary to install, maintain, 
extend, protect, operate, or utilize facilities.
    (v) Initial operating expenses for a period ordinarily not exceeding 
one year when the borrower is unable to pay such expenses.
    (vi) Refinancing debts incurred by, or on behalf of, a community 
when all of the following conditions exist:
    (A) The debts being refinanced are a secondary part of the total 
loan;
    (B) The debts are incurred for the facility or service being 
financed or any part thereof;
    (C) Arrangements cannot be made with the creditors to extend or 
modify the terms of the debts so that a sound basis will exist for 
making a loan.
    (4) To pay obligations for construction incurred before issuance of 
the conditional commitment. Construction work should not be started and 
obligations for such work or materials should not be incurred before the 
conditional commitment is issued. However, if there are compelling 
reasons for proceeding with construction before the conditional 
commitment is issued, applicants may request FmHA or its successor 
agency under Public Law 103-354 approval to pay such obligations. Such 
requests may be approved if FmHA or its successor agency under Public 
Law 103-354 determines that:
    (i) Compelling reasons exist for incurring obligations before 
issuance of conditional commitment; and
    (ii) The obligations will be incurred for authorized loan purposes; 
and
    (iii) Contract documents have been approved by the lender; and
    (iv) All environmental requirements applicable to the applicant and 
the borrower have been met; and
    (v) The borrower has the legal authority to incur the obligations at 
the time proposed, and payment of the debts will remove any basis for 
any mechanics, material, or other liens that may attach to the security 
property. FmHA or its successor agency under Public Law 103-354 may 
authorize payment of such obligations at the time of loan closing. FmHA 
or its successor agency under Public Law 103-354's authorization to pay 
such obligations is on the condition that it is not committed to make 
the loan guarantee. FmHA or its successor agency under Public Law 103-
354 assumes no responsibility for any obligations incurred by the 
borrower; and the borrower must subsequently meet all loan guarantee 
approval requirements. The lender's request and FmHA or its successor 
agency under Public Law 103-354 authorization for paying such 
obligations shall be in writing. If construction is started without FmHA 
or its successor agency under Public Law 103-354 approval, post approval 
in accordance with this section may be considered.
[55 FR 11139, Mar. 27, 1990, as amended at 56 FR 29170, June 26, 1991; 
57 FR 21199, May 19, 1992]



Sec. 1980.814  Ineligible loan purposes.

    Loan funds may not be used to finance:
    (a) On-site utility systems or business and industrial buildings in 
connection with industrial parks.
    (b) Facilities to be used primarily for recreation purposes.
    (c) Community antenna television services or facilities.
    (d) Electric generation or transmission facilities or telephone 
systems, except as provided in Sec. 1980.813 (a)(2)(v) or (a)(2)(vi) of 
this subpart; or extensions to serve a particular essential community 
facility as provided in Sec. 1980.813 (b)(1) or (b)(2) of this subpart.
    (e) Facilities which are not modest in size, design, and cost.
    (f) Finder's and packager's fees.
    (g) Projects located within the Coastal Barriers Resource System 
that do not qualify for an exception as defined in Section 6 of the 
Coastal Barriers Resource Act, Pub. L. 97-348 (available in any FmHA or 
its successor agency under Public Law 103-354 office).
    (h) New combined sanitary and storm water sewer facilities.
[55 FR 11139, Mar. 27, 1990, as amended at 56 FR 29170, June 26, 1991]



Sec. 1980.815  Transactions which will not be guaranteed.

    (a) Loans made by any Federal or State agencies. This does not 
preclude guaranteeing loans made by the Bank for Cooperatives or Federal 
Land Bank.
    (b) Loans involved in tax-exempt obligations according to 
Sec. 1980.23 of subpart A of this part.

[[Page 791]]

    (c) Loans for a water or waste disposal facility involving an FmHA 
or its successor agency under Public Law 103-354 grant.
[55 FR 11139, Mar. 27, 1990, as amended at 56 FR 29171, June 26, 1991]



Sec. 1980.816  Facilities for public use.

    The parameters for ``facilities for public use,'' as defined at 
Sec. 1942.17(e) of Subpart A of Part 1942 of this chapter, are 
applicable as well for this subpart. In addition:
    (a) The term ``Applicant/Borrower,'' as used in Sec. 1942.17(e), 
shall mean the lender and the borrower for purposes of this subpart.
    (b) The term ``FmHA or its successor agency under Public Law 103-354 
Fundings,'' as used in Sec. 1942.17(e), shall mean FmHA or its successor 
agency under Public Law 103-354 guarantee for purposes of this subpart.



Sec. 1980.817  Fees and charges by lender.

    (a) Allowable fees and charges by the lender are shown under 
Sec. 1980.22 of Subpart A of this part.
    (b) Guarantee fees are as shown under Sec. 1980.21 of Subpart A of 
this Part.



Sec. 1980.818  Eligible lenders.

    (a) Eligible lenders as defined in this section may participate in 
the FmHA or its successor agency under Public Law 103-354 CP loan 
guarantee program. These lenders must be subject to credit examination 
and supervision by either an agency of the United States or a state. 
Only those lenders listed in this section are eligible to make and 
service guaranteed loans, and such lenders must be in good standing with 
their licensing authority and have met licensing, loan making loan 
servicing, and other requirements of the state in which the collateral 
will be located, and the loan making and/or loan servicing office 
requirements of Sec. 1980.13 of Subpart A of this Part. A lender must 
have the capability to adequately service loans for which a guarantee is 
requested. Eligible lenders include:
    (1) Any Federal or State chartered:
    (i) Bank, or
    (ii) Savings and loan association.
    (2) Any mortgage company that is a part of a bank holding company,
    (3) Farm Credit Bank of the Federal Land Bank Association or other 
Farm Credit System institution with direct lending authority authorized 
to make loans of the type guaranteed by this subpart.
    (4) An insurance company regulated by a State or National insurance 
regulatory agency, and
    (5) Other lenders that possess the legal powers necessary and 
incidental to making and servicing guaranteed loans involving community 
development type projects. These lenders must also be subject to credit 
examination and supervision by either an agency of the United States or 
a state, and other requirements as set forth in paragraph (a) of this 
section. These types of lenders must be approved by the FmHA or its 
successor agency under Public Law 103-354 Administrator prior to the 
issuance of the loan guarantee.
    (b) With written concurrence of FmHA or its successor agency under 
Public Law 103-354, another eligible lender may be substituted for a 
lender who holds an outstanding Form FmHA or its successor agency under 
Public Law 103-354 449-14, ``Conditional Commitment for Guarantee,'' 
provided the borrower, loan purposes, scope of the project, and loan 
terms remain unchanged. After issuance of the Loan Note Guarantee and 
with prior written approval of the FmHA or its successor agency under 
Public Law 103-354 Administrator, a new eligible lender may be 
substituted for the original lender provided the new lender agrees to 
assume all original loan requirements including liabilities, servicing 
responsibilities, and acquiring legal title to the unguaranteed portion 
of the loan. Such approval will be granted by the FmHA or its successor 
agency under Public Law 103-354 Administrator only when a lender 
discontinues lending operations or other extreme situations require a 
substitution of lender. If approved by the FmHA or its successor agency 
under Public Law 103-354 Administrator, the State Director will submit 
to the Finance Office Form FmHA or its successor agency under Public Law 
103-354 1980-42, ``Notice of Substitution of Lender.''
[55 FR 11139, Mar. 27, 1990, as amended at 56 FR 29171, June 26, 1991]

[[Page 792]]



Sec. 1980.819  Loan guarantee limits.

    The percentage of guarantee, up to the maximum allowed by this 
section, is a matter for negotiation between the lender and FmHA or its 
successor agency under Public Law 103-354.
    (a) Normally, guarantees will not exceed 80 percent unless 
extraordinary circumstances exist. The State Director will document 
these circumstances in the case file. National Office concurrence is 
required when the requested guarantee exceeds 80 percent. The maximum 
allowable guarantee will be 90 percent.
    (b) Lenders and borrowers will propose the percentage of guarantee. 
FmHA or its successor agency under Public Law 103-354 informs lenders 
and borrowers in writing on Form FmHA or its successor agency under 
Public Law 103-354 449-14, of any percentage of guarantee less than 
proposed by the lender and borrower, and the reasons therefore. FmHA or 
its successor agency under Public Law 103-354 determines the percentage 
of guarantee after considering all credit factors involved, including 
but not limited to:
    (1) Borrower's management.
    (2) Collateral.
    (3) Financial condition.
    (4) Lender's exposure (retain a minimum of 5% of the total 
guaranteed loan(s) amount. The amount required to be retained must be of 
the unguaranteed portion of the loan and cannot be participated to 
another.)
    (5) Current trends and economic conditions.
[55 FR 11139, Mar. 27, 1990, as amended at 56 FR 29171, June 26, 1991]



Secs. 1980.820--1980.822  [Reserved]



Sec. 1980.823  Interest rates.

    (a) Rates will be negotiated between the lender and the borrower. 
They may be either fixed or variable rates as long as they are legal. 
Interest rates will be those rates customarily charged borrowers in 
similar circumstances in the ordinary course of business and are subject 
to FmHA or its successor agency under Public Law 103-354 review and 
approval. FmHA or its successor agency under Public Law 103-354 will 
take into consideration in approving the lender's interest rate, the 
rate at which guaranteed loans are being sold or traded in the secondary 
market.
    (b) A variable interest rate must be tied to a base rate published 
periodically in a recognized national or regional financial publication 
specifically agreed to by the lender and borrower. Notice of any 
interest rate change proposed by the lender should allow a sufficient 
time period for the borrower to obtain any required state or other 
regulatory approval and to implement any user rate adjustments necessary 
as a result of the interest rate change. The interest rate will not be 
raised more than one percent per year. The intervals between interest 
rate adjustments will be specified in the loan agreement but not more 
often than annually. During the life of the loan, the interest rate will 
not be increased more than 5 percentage points over the interest rate at 
loan closing. The lender must incorporate within the variable rate 
promissory note or bond at loan closing, the provision for adjustment of 
payment installments coincident with an interest rate adjustment. This 
will assure the outstanding principal balance is properly amortized 
within the prescribed loan maturity to eliminate the possibility of a 
balloon payment at the end of the loan.
    (c) Any change in the interest rate between the date of issuance of 
the Form FmHA or its successor agency under Public Law 103-354 449-14 
and before the issuance of the Loan Note Guarantee (Form FmHA or its 
successor agency under Public Law 103-354 449-34) must be approved by 
the State Director. Approval of such change will be shown on an 
amendment to Form FmHA or its successor agency under Public Law 103-354 
449-14.
    (d) It is permissible to have one interest rate on the guaranteed 
portion of the loan and another interest rate on the unguaranteed 
portion of the loan, provided the lender and borrower agree and:
    (1) The rate on the unguaranteed portion does not exceed that 
currently being charged on loans of similar purpose for borrowers under 
similar circumstances.
    (2) The rate on the guaranteed portion of the loan will not exceed 
the rate on the unguaranteed portion.

[[Page 793]]

    (e) When multi-rates are used, the lender will provide FmHA or its 
successor agency under Public Law 103-354 with the overall effective 
interest rate for the entire loan. Multi-rate loans must be either fixed 
or variable, but not both.
    (f) The borrower, lender and holder (if any) may collectively effect 
a permanent reduction in the interest rate on their CP guaranteed loan 
at any time during the life of the loan upon written agreement by these 
parties. FmHA or its successor agency under Public Law 103-354 must be 
notified by the lender, in writing, within 10 calendar days of the 
change. If the guaranteed portion has been repurchased by FmHA or its 
successor agency under Public Law 103-354, then FmHA or its successor 
agency under Public Law 103-354 is a holder, and must affirm or reject 
interest rate change proposals. When FmHA or its successor agency under 
Public Law 103-354 is a holder, it will concur in such interest rate 
change only when it is demonstrated to FmHA or its successor agency 
under Public Law 103-354 that the change is a more viable alternative 
than initiating or proceeding with liquidation of the loan or continuing 
with the loan in its present state and that the Government's financial 
interests are not adversely affected. Factors which will be considered 
in making such determination will include whether the proposed interest 
rate will be below the Government's cost of borrowing money; whether 
continuing with the loan would realistically promote or enhance rural 
development, whether the monetary recovery would be increased by 
proceeding immediately to liquidation, if applicable; or allowing the 
borrower to continue at a reduced interest rate; and whether an in-depth 
financial analysis by the lender reasonably indicates that the project 
would be successful at a lower interest rate and reasonably indicates 
that the borrower could make the reduced payment and pay off amounts in 
arrears, if any. The FmHA or its successor agency under Public Law 103-
354 file will reflect the documentation of the interest rate change 
decision.
    (1) Fixed rates cannot be changed to variable rates to reduce the 
interest rate to the borrower unless the variable rate has a ceiling 
which is less than the original fixed rate.
    (2) Variable rates can be changed to a lower fixed rate. In a final 
loss settlement, when qualifying rate changes are made with the required 
written agreements and notification, the interest will be calculated for 
the periods the given rates were in effect, except that interest claimed 
on a loan which originated at a variable rate, can never exceed the 
amount which would have been eligible for claim, had the variable rate 
remained in force. The lesser cost to the Government will always 
prevail. The lender must maintain records e which adequately document 
the accrued interest claimed.
    (3) The lender is responsible for the legal documentation of 
interest changes by a rider attached to the promissory note(s) or any 
other legally effective amendment of the rate(s); however, no new 
note(s) may be issued.
    (g) No increases in interest rates will be permitted under the CP 
loan guarantee except the normal fluctuations in approved variable 
interest rate loans.
    (h) FmHA or its successor agency under Public Law 103-354 will 
notify the Finance Office of any interest rate reduction by using Form 
FmHA or its successor agency under Public Law 103-354 1980-47, 
``Guaranteed Loan Borrower Adjustments.'' The District Director will 
make corrections to the Rural Community Facility Tracking System (RCFTS) 
reflecting the interest rate change. The FmHA or its successor agency 
under Public Law 103-354 loan file, as well as the attachments to the 
copy of the promissory note in the file, will be documented by the 
District Director to reflect any change in the interest rate.
[55 FR 11139, Mar. 27, 1990, as amended at 56 FR 29171, June 26, 1991]



Sec. 1980.824  Terms of loan repayment.

    (a) Principal and interest on the loan will be due and payable as 
provided in the debt instrument except, any interest accrued as the 
result of the borrower's default on the guaranteed loan(s) over and 
above that which would have accrued at the debt instrument rate on

[[Page 794]]

the guaranteed loan(s) will not be guaranteed by FmHA or its successor 
agency under Public Law 103-354. The lender will structure repayments as 
established in the loan agreement between the lender and borrower. 
Ordinarily, such installments will be scheduled for payment as agreed 
upon by the lender and borrower on terms that reasonably assure 
repayment of the loan. However, the first installment to include a 
repayment of principal may be scheduled for payment after the project is 
operable and has begun to generate income, but such installment will be 
due and payable within two years from the date of the debt instrument 
and at least annually thereafter. Interest will be due at least annually 
from the date of the debt instrument. Ordinarily, monthly payments will 
be expected, except for borrowers with income limited to less frequent 
intervals.
    (b) The maximum time allowable for final maturity for an FmHA or its 
successor agency under Public Law 103-354 guaranteed CP loan will be 
limited to the useful life of the facility, not to exceed forty (40) 
years.
    (c) FmHA or its successor agency under Public Law 103-354 will not 
guarantee any loan in which the bond, promissory note or any other 
document provides for the payment of interest upon interest.
[55 FR 11139, Mar. 27, 1990, as amended at 56 FR 29171, June 26, 1991]



Secs. 1980.825--1980.831  [Reserved]



Sec. 1980.832  Environmental requirements.

    The environmental requirements for this subpart are set out at 
Sec. 1980.40 of subpart A of this part and subpart G of part 1940 of 
this chapter.



Sec. 1980.833  Flood or mudslide hazard area precautions.

    The flood or mudslide hazard area precuations required for this 
subpart are set out at Sec. 1980.42 of subpart A of this part.



Sec. 1980.834  Equal opportunity and nondiscrimination requirements.

    The equal opportunity and nondiscrimination requirements for this 
subpart are set out at Sec. 1980.41 of subpart A of this part.



Secs. 1980.835--1980.841  [Reserved]



Sec. 1980.842  Economic feasibility requirements.

    The economic feasibility requirements for this subpart are set out 
at Sec. 1942.17(h) of subpart A and/or at Sec. 1942.116 of subpart C of 
part 1942 of this chapter.
[56 FR 29171, June 26, 1991]



Sec. 1980.843  Security.

    (a) The lender is responsible for seeing that proper and adequate 
security is obtained and maintained in existence and of record to 
protect the interest of the lender, the holder, and FmHA or its 
successor agency under Public Law 103-354.
    (b) Security must be of such a nature that repayment of the loan is 
reasonably assured when considered with the integrity and ability of 
project management, soundness of the project, and the applicant's 
prospective earnings. The security may include but is not limited to the 
following: General Obligation Bonds, pledge of taxes or assessments, 
facility revenue, land, easements, rights-of-way, water rights, 
buildings, machinery, equipment, accounts receivable, contracts, and 
cash or other accounts. Security may also include assignments of leases 
or leasehold interest.
    (c) All security must secure the entire loan. The lender will not 
take separate security to secure only the unguaranteed portion of the 
loan. The lender will not require compensating balances or certificates 
of deposit as a means of eliminating the lender's exposure on the 
unguaranteed portion of the loan.



Sec. 1980.844  Appraisal reports.

    (a) Essential community facilities. (1) Appraisal reports prepared 
by independent third party qualified fee appraisers will be required for 
all real estate transactions. For loans of $1 million or less, the State 
Director may modify this requirement by permitting the appraisal to be 
made by a qualified

[[Page 795]]

appraiser on the lender's staff with experience appraising the type of 
security involved. The appraisers will give their opinion regarding the 
current market value of the security and the purpose for which the 
appraisal will be used. The lender will be responsible for assuring that 
appropriate appraisals are made, and for determining that prices paid 
for construction, equipment, and other project development are 
reasonable and fair.
    (2) The lender will require that appraisals be conducted at a 
minimum in accordance with generally accepted appraisal standards as 
reflected in the ``Uniform Standards of Professional Appraisals 
Practices'' as promulgated by the Appraisal Standards Board of the 
Appraisal Foundation.
    (3) The lender will determine that the fees or charges of appraisers 
are reasonable.
    (4) Independent appraisals will be made in accordance with the 
accepted format of the industry and those prepared by the lender in 
accordance with its policy and procedures. All appraisals will become 
part of the application.
    (5) If a subsequent loan request is made within 3 years from the 
date of the most recent borrower's appraisal report, and there is no 
significant change in the collateral, then the FmHA or its successor 
agency under Public Law 103-354 State Director at his/her discretion, 
and if the lender agrees, may use the existing appraisal report in lieu 
of having a new appraisal prepared.
    (b) Utility-type projects. The borrower is responsible for the 
acquisition of all property rights necessary for the project and will 
determine that prices paid are reasonable and fair. An independent 
appraiser may be utilized.
[55 FR 11139, Mar. 27, 1990, as amended at 56 FR 29171, June 26, 1991]



Secs. 1980.845--1980.850  [Reserved]



Sec. 1980.851  Processing applications.

    (a) Preapplications. (1) The County Office may handle initial 
inquiries and provide basic information about the program. They are to 
provide Standard Form (SF) 424.1 or 424.2, ``Application for Federal 
Assistance.'' The County Supervisor will assist borrowers as needed in 
completing SF-424 and in filing written notice of intent and request for 
priority recommendations with the appropriate clearinghouse (except 
Federally recognized Indian tribes which will be dealt with in 
accordance with Sec. 1940.453(c) of subpart J of part 1940 of this 
chapter). The County Supervisor will inform the borrower that if credit 
for the project is available from commercial sources without the 
guarantee at reasonable rates and terms, the borrower is not eligible 
for a loan guaranteed by FmHA or its successor agency under Public Law 
103-354. Preapplications filed in the County Office will be forwarded 
immediately to the District Office. The applicant/borrower will be 
informed that further processing will be handled by the District Office. 
An information folder will be established and maintained by the County 
Office once a preapplication is received. In the event the 
preapplication is filed in the District Office, the District Director 
may assist the borrower in completing the preapplication requirements. 
The District Director will meet with the borrower/applicant, whenever 
appropriate, to discuss FmHA or its successor agency under Public Law 
103-354 preapplication processing. The appropriate information to set up 
the County Office information file will be sent to the County Supervisor 
by the District Director. Guidance and assistance will be provided by 
the State Director, as needed, for orderly application processing. The 
District Director will determine that the preapplication is properly 
completed and fully reviewed. The District Director will then forward 
the preapplication package to the State Director. The preapplication 
package will contain:
    (i) Eligibility determination and recommendations.
    (ii) One copy of SF-424.
    (iii) State intergovernmental review comments and recommendations 
for the borrower's project (clearinghouse comments.)
    (iv) Priority recommendations.
    (v) Supporting documentation necessary to make an eligibility 
determination, such as financial statements, audits, or copies of 
organizational documents or existing debt instruments.

[[Page 796]]

The District Director will advise borrowers/applicants on what documents 
are necessary. Borrowers should not be required to expend significant 
amounts of money or time developing supporting documentation at the 
preapplication stage.
    (vi) Information on applicant.
    (2) The State Director will review each SF-424 along with other 
information that is deemed necessary to determine whether financing from 
commercial sources at reasonable rates and terms is available without a 
guarantee. If credit elsewhere is indicated, the State Director will 
instruct the District Director to so inform the applicant.
    (3) If preapplication information indicates the project is 
ineligible, does not have sufficient priority, or that funds or 
guarantee authority are not available for the project, FmHA or its 
successor agency under Public Law 103-354 will so inform the applicant. 
The applicant will be notified in writing with all reasons for the 
decision indicated. If it appears that the project is eligible, has 
sufficient priority, is economically feasible, and loan guarantee 
authority is available, FmHA or its successor agency under Public Law 
103-354 will inform the applicant and borrower in writing and request 
that they complete the application. The applicant must be informed that 
an environmental review has not been conducted and no major commitment 
should be made that could affect the consideration of alternatives.
    (b) Applications--(1) Application conference. When an applicant is 
notified to proceed with an application, the District Director should 
arrange for a conference with the applicant and borrower to provide 
copies of appropriate appendices and forms, and furnish guidance 
necessary for orderly application processing. The District Director will 
confirm decisions made at this conference by letter to the applicant and 
borrower. As the application is being processed, and the need develops 
for additional conference, the District Director will arrange with the 
applicant for such conferences.
    (2) Content of application package. (i) Form FmHA or its successor 
agency under Public Law 103-354 1980-10, ``Application for Loan and 
Guarantee.''
    (ii) Form FmHA or its successor agency under Public Law 103-354 
1910-11, ``Applicant Certification Federal Collection Policies for 
Consumer or Commercial Debts.''
    (iii) Form FmHA or its successor agency under Public Law 103-354 
1940-20, ``Request for Environmental Information.''
    (iv) Preliminary architectural or engineering report as appropriate, 
in accordance with Guides 6, 7, and 8 of subpart A of part 1942 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (v) Cost estimates.
    (vi) Appraisal reports (as appropriate).
    (vii) Credit reports obtained by the lender or FmHA or its successor 
agency under Public Law 103-354 on the borrower.
    (viii) Form FmHA or its successor agency under Public Law 103-354 
400-1, ``Equal Opportunity Agreement.''
    (ix) Copies of building permits, if applicable, and any necessary 
certifications and recommendations of appropriate regulatory or other 
agencies having jurisdiction over the project.
    (x) Financial feasibility study, when required.
    (xi) Proposed loan agreement.
    (xii) Complete environmental review.
    (xiii) Any additional information as may be required.
    (3) Review of decision. If at any time prior to issuance of the 
conditional commitment, it is decided that favorable action will not be 
taken on a preapplication or application, the District Director will 
notify the applicant in writing of the reasons why the request was not 
favorably considered. The notification to the applicant will state that 
a review of this decision by FmHA or its successor agency under Public 
Law 103-354 may be requested by the applicant under subpart B of part 
1900 of this chapter. The following statement will also be made on all 
notifications of adverse action. ``The Federal Equal Credit Opportunity 
Act prohibits creditors from discriminating against credit applicants on 
the basis of race, color, religion, national origin, sex, marital 
status, age (provided that

[[Page 797]]

the applicant has the capacity to enter into a binding contract); 
because all or part of the applicant's income is derived from any public 
assistance program; or because the applicant has in good faith exercised 
any right under the Consumer Credit Protection Act. The Federal Agency 
that administers compliance with this law is the Federal Trade 
Commission, Equal Credit Opportunity, Washington, DC 20580.''
[55 FR 11139, Mar. 27, 1990, as amended at 56 FR 29171, June 26, 1991]



Sec. 1980.852  FmHA or its successor agency under Public Law 103-354 evaluation of application.

    (a) FmHA or its successor agency under Public Law 103-354 will 
complete Form FmHA or its successor agency under Public Law 103-354 
1942-45, ``Project Summary--Water and Waste Disposal and other Utility-
type Projects,'' or Form FmHA or its successor agency under Public Law 
103-354 1942-43, ``Project Summary Community Facilities (Other Than 
Utility-type Projects),'' as appropriate. The application will be 
evaluated and a determination made as to whether the borrower is 
eligible, the proposed loan is for an eligible purpose, and there is 
reasonable assurance of repayment ability, sufficient collateral and 
equity, the proposed loan complies with all applicable statutes and 
regulations, and adequate funds are available. The FmHA or its successor 
agency under Public Law 103-354 Architect/Engineer will review the 
Preliminary Architect/Engineer reports and provide technical analysis 
and recommendations on the appropriate Project Summary. If FmHA or its 
successor agency under Public Law 103-354 determines it is unable to 
guarantee the loan, the lender will be informed in writing. Such 
notification will include the reasons for denial of the guarantee. If 
FmHA or its successor agency under Public Law 103-354 conditionally 
commits to guaranteeing the loan after the receipt of a completed 
application in accordance with Sec. 1980.47 of subpart A of this part, 
it will provide the lender and the borrower with Form FmHA or its 
successor agency under Public Law 103-354 449-14, listing all conditions 
for such guarantees. FmHA or its successor agency under Public Law 103-
354 will include in the requirements of the Conditional Commitment for 
Guarantee a full description of the approved use of guaranteed loan 
funds as reflected in the Form FmHA or its successor agency under Public 
Law 103-354 1980-10.
    (b) Within 30 days after the Form FmHA or its successor agency under 
Public Law 103-354 449-14 has been accepted, the State Director will 
send to the National Office, Attention: Community Facilities Division or 
Water and Waste Disposal Division, as appropriate, the following 
documents:
    (1) A copy of Form FmHA or its successor agency under Public Law 
103-354 1942-43 or FmHA or its successor agency under Public Law 103-354 
1942-45.
    (2) A copy of Form FmHA or its successor agency under Public Law 
103-354 449-14 (with attachments) as accepted by the lender and 
borrower.
    (3) A copy of the proposed loan agreement between the lender and the 
borrower.
    (4) A copy of Form FmHA or its successor agency under Public Law 
103-354 1980-10.
    The cover memorandum should indicate whether the Form FmHA or its 
successor agency under Public Law 103-354 449-34 has been issued. If the 
Loan Note Guarantee has been issued, enclose a copy of the Lender 
Certification required by Sec. 1980.60(a) of subpart A of this part, 
and, if not, a proposed date for issuance of the Form FmHA or its 
successor agency under Public Law 103-354 449-34.
[56 FR 29172, June 26, 1991]



Sec. 1980.853  Loan approval and obligating funds.

    The State Director will prepare an original and two copies of Form 
FmHA or its successor agency under Public Law 103-354 1940-3, ``Request 
for Obligation of Funds--Guaranteed Loans'' for each loan to be 
obligated. Also, for each initial loan, Form FmHA or its successor 
agency under Public Law 103-354 1980-50, ``Add, Delete, or Change 
Guaranteed Loan Borrower Information,'' will be prepared. The State 
Director will sign the original and one copy and conform the second 
copy. Form FmHA or its successor agency under Public Law 103-354 1940-3 
will not

[[Page 798]]

be mailed to the Finance Office. Notice of approval to lender will be 
accomplished by providing or sending the lender the signed copy of Forms 
FmHA or its successor agency under Public Law 103-354 1940-3 and 449-14 
on the obligation date, unless the Administrator has given prior 
authorization to the Finance Office to obligate before the 6-day 
reservation period and directs the State Director to forward Form FmHA 
or its successor agency under Public Law 103-354 1940-3 to the lender in 
advance of issuance of Form FmHA or its successor agency under Public 
Law 103-354 449-14. The State Director or designee will record the 
actual date of lender notification on the original of the Form FmHA or 
its successor agency under Public Law 103-354 1940-3 and retain the 
original of the form and the remaining conformed copy of Form FmHA or 
its successor agency under Public Law 103-354 1940-3. The State Director 
or designee will use the State Office terminal to request reservation/
obligation of funds. Use of the telephone for the reservation/obligation 
of funds is restricted to those instances when the State Office terminal 
is inoperative. Form FmHA or its successor agency under Public Law 103-
354 1980-50 will be prepared and distributed for initial loans only.
    (a) Immediately after contacting the Finance Office, the requesting 
official will furnish the requesting office's security identification 
code. Failure to furnish the security code will result in rejection of 
the request for reservation of authority. After the security code is 
furnished, all pertinent information contained on Form FmHA or its 
successor agency under Public Law 103-354 1940-3 will be furnished to 
the Finance Office. Upon receipt of the telephone request for 
reservation of authority, the Finance Office will record all information 
necessary to process the request for reservation in addition to the date 
and time of the request.
    (b) The individual making the telephone request will record the date 
and time of the telephone request and place his/her signature in section 
41 of Form FmHA or its successor agency under Public Law 103-354 1940-3.
    (c) The Finance Office will terminally process telephone reservation 
requests. Those requests for reservations received before 2:30 p.m. 
Central Time, to the extent possible, will be processed on the date 
received; however, there may be instances in which the reservation will 
be processed on the next working day.
    (d) Each working day the Finance Office will notify the State Office 
by telephone of all projects for which authority was reserved during the 
previous night's processing cycle and the date of obligation. If 
authority cannot be reserved for a project, the Finance Office will 
notify the State Office that authority is not available within the State 
allocation. The obligation date will be 6 working days from the date of 
the request for reservation of authority which is being processed in the 
Finance Office. Immediately after notification by telephone of the 
reservation of authority, the State Director will call the Legislative 
Affairs and Public Information Staff in the National Office as required 
by FmHA or its successor agency under Public Law 103-354 Instruction 
2015-C (available in any FmHA or its successor agency under Public Law 
103-354 office).
[55 FR 11139, Mar. 27, 1990, as amended at 56 FR 8271, Feb. 28, 1991; 56 
FR 29172, June 26, 1991]



Sec. 1980.854  Projects requiring National Office review.

    (a) The following will be submitted to the National Office when the 
loan guarantee is not within the State Director's approval authority.
    (1) Transmittal memorandum including:
    (i) Recommendation.
    (ii) Date of expected obligation.
    (iii) Any unusual circumstances.
    (2) Preapplication package.
    (3) Application package.
    (4) Project Summary (Form FmHA or its successor agency under Public 
Law 103-354 1942-45 or 1942-43).
    (b) For applications to be reviewed in the field, at least those 
items in paragraphs (a)(2) through (4) of this section, should be 
available.
[55 FR 11139, Mar. 27, 1990, as amended at 56 FR 29172, June 26, 1991]

[[Page 799]]



Sec. 1980.855  Review of requirements.

    (a) Immediately after reviewing the conditions and requirements in 
Form FmHA or its successor agency under Public Law 103-354 449-14, the 
lender and borrower should complete and sign the ``Acceptance of 
Conditions,'' and return a copy to the FmHA or its successor agency 
under Public Law 103-354 District Director. If certain conditions cannot 
be met, the lender and borrower may propose alternate conditions to FmHA 
or its successor agency under Public Law 103-354.
    (b) If the lender indicates in the ``Acceptance of Conditions'' that 
it desires to obtain a Loan Note Guarantee (Form FmHA or its successor 
agency under Public Law 103-354 449-34), and subsequently decides at any 
time after receiving a conditional commitment that it no longer wants a 
guarantee, the lender will immediately advise the FmHA or its successor 
agency under Public Law 103-354 District Director.



Sec. 1980.856  Conditions precedent to issuance of the Loan Note Guarantee (Form FmHA or its successor agency under Public Law 103-354 449-34).

    In addition to compliance with the requirements of Sec. 1980.60 of 
subpart A of this part, compliance with the following provisions are 
required prior to issuance of the Loan Note Guarantee:
    (a) Transfer of lenders. With prior written concurrence of the FmHA 
or its successor agency under Public Law 103-354 Administrator, the FmHA 
or its successor agency under Public Law 103-354 approval official may 
approve a substitution of a new eligible lender in place of a former 
lender who holds an outstanding Conditional Commitment for Guarantee 
(where Loan Note Guarantee has not yet been issued) provided, there are 
no changes in the borrower's ownership or control, loan purposes, scope 
of project, and loan conditions in the Form FmHA or its successor agency 
under Public Law 103-354 449-14, and the loan agreement remains the 
same. To effect such a substitution, the former lender will provide FmHA 
or its successor agency under Public Law 103-354 with a letter stating 
the reasons it no longer desires to be a lender for the project. The 
substituted lender will execute a new Part ``B'' of Form FmHA or its 
successor agency under Public Law 103-354 1980-10. If approved by FmHA 
or its successor agency under Public Law 103-354, the Administrator will 
issue a letter of amendment to the original Form FmHA or its successor 
agency under Public Law 103-354 449-14 reflecting the new lender who 
will acknowledge acceptance of the letter or amendment in writing. If 
the Loan Note Guarantee has been issued, the provisions of 
Sec. 1980.818(b) regarding substitution of lender must be followed.
    (b) Substitution of borrowers. FmHA or its successor agency under 
Public Law 103-354 will not issue a Loan Note Guarantee to the lender 
who is in receipt of a Form FmHA or its successor agency under Public 
Law 103-354 449-14 with an obligation in a previous fiscal year if the 
originally approved borrower (including changes in legal entity) or 
owners are changed. The only exception to this provision prohibiting a 
change in the legal entity's form of ownership is when the originally 
approved borrower or owner is replaced with substantially the same 
individuals with substantially the same interests, as originally 
approved and identified in Form FmHA or its successor agency under 
Public Law 103-354 1980-10. All requests for exceptions must be approved 
by the FmHA or its successor agency under Public Law 103-354 National 
Office.
    (c) Changes in terms and conditions in Form FmHA or its successor 
agency under Public Law 103-354 449-14. Once Form FmHA or its successor 
agency under Public Law 103-354 449-14 is issued and accepted by the 
lender and borrower, the Commitment shall not be modified as to the 
scope of the project, overall facility concept, project purpose, use of 
proceeds, or terms and conditions. Only minor changes will be 
considered, unless otherwise provided for in this subpart.
    (d) Preguarantee review. Coincident with, or immediately after loan 
closing, the lender will contact FmHA or its successor agency under 
Public Law 103-354 and provide those documents and certifications 
required in Secs. 1980.60 and 1980.61 of subpart A of this part. For any 
loans involving bonds, the

[[Page 800]]

opinion of the recognized bond counsel will be reviewed to determine the 
adequacy of the bonds issued or to be issued. Only when the District 
Director is satisfied that all conditions for the guarantee have been 
met, will the Loan Note Guarantee be executed.
    (e) Title for land, rights-of-way, or easements. Where applicable, 
the lender must certify that the borrower has obtained:
    (1) A legal opinion relative to the title to rights-of-way and 
easements. Lenders are responsible for ensuring that borrowers have 
obtained valid, continuous, and adequate rights-of-way and easements 
needed for the construction, operation, and maintenance of a facility. 
Ordinarily, an opinion of counsel relative to rights-of-way similar to 
Form FmHA or its successor agency under Public Law 103-354 442-22, 
``Opinion of Counsel Relative to Right-of-Way,'' is sufficient 
documentation for rights-of-way.
    (2) A title report by the borrower's attorney showing ownership of 
the land and all mortgages or other lien defects, restrictions, or 
encumbrances, if any. It is the responsibility of the lender to obtain 
and record such releases, consents, or subordinations to such property 
rights from holders of outstanding liens or other instruments as may be 
necessary for the construction, operation, and maintenance of the 
facility and to provide the required security. For example, when a site 
is for major structures for utility-type facilities, such as a reservoir 
or pumping station, and the lender is able to obtain only a right-of-way 
or easement on such a site rather than a fee simple title, such a title 
report should be requested.
    (f) Loan closing. When loan closing plans are established, the 
lender will notify FmHA or its successor agency under Public Law 103-
354.
    (g) Review by OGC. After the conditional commitment for guarantee 
has been issued and proposed closing documents prepared by the lender 
and forwarded to FmHA or its successor agency under Public Law 103-354 
with the lender's legal counsel's opinion but prior to issuing the loan 
note guarantee, the State Director will forward the loan docket to the 
Regional Attorney for review. After an administrative review, the State 
Director will include with the docket a letter with recommendations 
indicating any special items, documents or problems that need to be 
addressed specifically which may have a significant impact upon the loan 
or may be contrary to the regulation. Copies of the following documents 
should be submitted for OGC review:
    (1) Letter from FmHA or its successor agency under Public Law 103-
354 National Office authorizing loan guarantee containing conditions (if 
applicable);
    (2) Form FmHA or its successor agency under Public Law 103-354 449-
14, including any amendments;
    (3) Loan agreement;
    (4) Promissory notes and/or bond transcript;
    (5) Security documents--real estate mortgage, security agreement, 
financing statements, and leases (if applicable);
    (6) Proposed Forms FmHA or its successor agency under Public Law 
103-354 449-34, 449-35, ``Lender's Agreement,'' and 449-36 ``Assignment 
Guarantee Agreement,'' if any;
    (7) Proposed lender's certification (Sec. 1980.60 of Subpart A of 
this part); and
    (8) Opinion of lender's counsel in form prescribed by OGC.
    (h) OGC advice. The Regional Attorney will review the docket for 
legal sufficiency and furnish advice to FmHA or its successor agency 
under Public Law 103-354. Such advice is for the benefit of FmHA or its 
successor agency under Public Law 103-354 only and does not relieve the 
lender of its responsibilities under FmHA or its successor agency under 
Public Law 103-354 regulations. Upon receipt of the Regional Attorney's 
advice, the State Director will correct or cause to be corrected any 
noted deficiencies before issuing the Loan Note Guarantee.
[55 FR 11139, Mar. 27, 1990, as amended at 56 FR 29172, June 26, 1991]



Sec. 1980.857  Issuance of lender's agreement, loan note guarantee, contract of guarantee, and assignment guarantee agreement.

    Compliance with Sec. 1980.61 of subpart A of this part is required 
for this subpart.

[[Page 801]]



Secs. 1980.858--1980.868  [Reserved]



Sec. 1980.869  Design and construction.

    Specifications for design and construction provided at 
Sec. 1942.18(d), (j)(1) and (2), and (n)(1), (2), (4), (5), (6), and 
(11) of subpart A of part 1942 of this chapter also apply to this 
subpart. The lender will provide FmHA or its successor agency under 
Public Law 103-354 with a written certification at the end of 
construction that all funds were utilized for authorized purposes. The 
lender will also certify that the FmHA or its successor agency under 
Public Law 103-354 design policies have been met. The lender will 
monitor the progress of construction and undertake the reviews and 
project inspections necessary to reasonably assure that funds are used 
for eligible project costs and that problems in project development are 
expeditiously reported to the District Director.



Sec. 1980.870  Loan servicing.

    The lender will be responsible for servicing the entire loan in 
accordance with the lender's loan agreement. The lender will notify FmHA 
or its successor agency under Public Law 103-354 of any violations of 
the lender's loan agreement.
    (a) The lender will require, at a minimum, annual audited financial 
statements which will be reviewed by the lender and a copy forwarded to 
the FmHA or its successor agency under Public Law 103-354 District 
Office with a summary evaluation by the lender. After receipt of the 
evaluation, the District Director will determine if a joint FmHA or its 
successor agency under Public Law 103-354 lender and borrower site visit 
will be necessary. Site visits will be conducted at least once every 
three years but may be scheduled more frequently if conditions warrant. 
Delinquent borrowers will be visited at least annually. The State 
Director may waive the audit requirement for financial statements for 
borrowers with gross annual income of less than $100,000.
    (b) The District Director or his/her designated representative will 
meet annually with each lender or his/her agent with whom a CP loan 
guarantee is outstanding. At this meeting, a review will be made of the 
lender's performance in loan servicing and a determination of any future 
actions needed. This meeting will be documented in the running record 
for each borrower serviced by the lender and followed by a letter to the 
lender. The letter shall be placed in each borrower's case file.
[55 FR 11139, Mar. 27, 1990, as amended at 56 FR 29173, June 26, 1991]



Sec. 1980.871  Loan classification.

    All CP guaranteed loans will be classified by FmHA or its successor 
agency under Public Law 103-354 at loan closing and again whenever there 
is a change in the loan which would impact on the original 
classification. The loans will be classified as set out at Sec. 1904.104 
of subpart C of part 1904 of this chapter.
[56 FR 29173, June 26, 1991]



Sec. 1980.872  Defaults by borrower.

    (a) In case of any monetary or significant non-monetary default 
under the loan agreement, the lender is responsible for arranging a 
meeting with the District Director or designated representative and 
borrower to resolve the problem. A memorandum of the meeting listing the 
individuals in attendance and summarizing the problem and proposed 
solution will be prepared by the FmHA or its successor agency under 
Public Law 103-354 representative and retained in the loan file. When 
the District Director receives a notice of default on a loan, he/she 
will immediately notify the State Office in writing of the details. The 
District Director will notify the lender and borrower of any decision 
reached by FmHA or its successor agency under Public Law 103-354.
    (b) In considering servicing options, some of which are identified 
in paragraph X. A of Form FmHA or its successor agency under Public Law 
103-354 449-35, the prospects for providing a permanent cure without 
adversely affecting the risks to FmHA or its successor agency under 
Public Law 103-354 and the lender must become the paramount objective. 
Within the State Director's authority, temporary curative actions such 
as payment deferments or collateral subordination, must

[[Page 802]]

strengthen the loan and be in the best interest of the lender and FmHA 
or its successor agency under Public Law 103-354. Some of these actions 
may require concurrence of the holder(s).
    (c) If the loan was closed with the multi-note option, the lender 
may need to possess all notes to take some servicing action. In these 
situations when FmHA or its successor agency under Public Law 103-354 is 
holder of some of the notes, the State Director may endorse the notes 
back to the lender after the State Director has sought the advice and 
guidance of the Office of the General Counsel (OGC), provided a proper 
receipt is received from the lender which defines the reason for the 
transfer. Under no circumstances will FmHA or its successor agency under 
Public Law 103-354 endorse the original Form FmHA or its successor 
agency under Public Law 103-354 449-34 to the lender.
    (d) When the State Office determines it is necessary on individual 
cases, due to some special servicing requirements, it may, at its 
option, assume the servicing responsibility.
    (e) The State Director will report all deliquent and problem loans 
quarterly to the appropriate National Office program division by the 
20th day of January, April, July, and October.
    (f) The District Director will notify the Finance Office on Form 
FmHA or its successor agency under Public Law 103-354 1980-47 of any 
change in payment terms such as reamortizations or interest rate 
adjustments and effective dates of any changes resulting from servicing 
actions.
[55 FR 11139, Mar. 27, 1990. Redesignated and amended at 56 FR 29173, 
June 26, 1991]



Sec. 1980.873  Liquidation.

    Liquidation will be conducted in accordance with the lender's loan 
agreement and Sec. 1980.64 of subpart A of this part.
    (a) State Directors are authorized to approve lender liquidation 
plans as authorized on separate written approval authorities issued in 
accordance with subpart A of part 1901 of this chapter. Within delegated 
authorities, the State Director may approve a written partial 
liquidation plan submitted by the lender covering collateral that must 
be immediately protected or cared for in order to preserve or maintain 
its value. Approval of the partial liquidation plan must be in the best 
interest of the government. The approved partial liquidation plan is 
only good for those actions necessary to immediately preserve and 
protect the collateral and must be followed by a complete liquidation 
plan prepared by the lender in accordance with the requirements of the 
lender's agreement.
    (b) Collateral acquired by the lender can only be released after a 
complete review of the proposal.
    (1) There may be instances when the lender acquires the collateral 
of a borrower where the cost of liquidation exceeds the potential 
recovery value of the security. Whenever this occurs, the lender with 
the concurrence of FmHA or its successor agency under Public Law 103-
354, can abandon the collateral in lieu of liquidation.
    (2) Sale of acquired collateral to the former borrower, former 
borrower's stockholder(s) or officer(s), or the lender or lender's 
stockholder(s) or officer(s), will require the concurrence of FmHA or 
its successor agency under Public Law 103-354.
    (c) FmHA or its successor agency under Public Law 103-354 will 
exercise the option to liquidate only when there is reason to believe 
the lender is not likely to initiate liquidation efforts that will 
result in maximum recovery. When there is reason to believe the lender 
will not initiate efforts that will maximize recovery through 
liquidation, the State Director will forward the lender's liquidation 
plan, if available, with appropriate recommendations along with the 
State Director's exceptions to the lender's plan to the Director of the 
appropriate program division for evaluation and approval or rejection of 
the State Director's recommendation. The State Director has no authority 
to exercise the option to liquidate without National Office approval. 
When FmHA or its successor agency under Public Law 103-354 liquidates, 
reasonable liquidation expenses will be assessed against the proceeds 
derived from the sale of the collateral. In such instances the State 
Director will send to the Finance Office Form FmHA or its successor 
agency

[[Page 803]]

under Public Law 103-354 1980-45, ``Notice of Liquidation 
Responsibility'' to notify the Finance Office that FmHA or its successor 
agency under Public Law 103-354 has liquidation responsibility and Form 
FmHA or its successor agency under Public Law 103-354 1980-46, ``Report 
of Liquidation Expense,'' to request payment of liquidation costs.
    (d) State Directors are responsible for review and acceptance of 
accounting reports as submitted by lenders and for submission of such 
reports to lenders when FmHA or its successor agency under Public Law 
103-354 is conducting liquidation.
    (e) State Directors are authorized to approve final reports of loss 
from the lender in separate written approval authorities issued in 
accordance with subpart A of part 1901 of this chapter. The State 
Director will submit to the Finance Office for payment any loss claims 
of the lender on Form FmHA or its successor agency under Public Law 103-
354 449-30, ``Loan Note Guarantee Report of Loss.'' The Finance Office 
forwards loss payment checks to the State Director for delivery to the 
lender. When a loss claim is involved on a particular loan guarantee, 
ordinarily one estimated ``Report of Loss'' will be authorized. In the 
case of bankruptcy, more than one estimated ``Report of Loss'' may be 
authorized. Only one final filed with the Finance Office at the 
completion of all liquidations. The Finance Office will use this form to 
close out the account.
    (f) Final loss payments will be made within the 60 days required, 
but only after a review by FmHA or its successor agency under Public Law 
103-354 to assure that all collateral for the loan has been properly 
accounted for and liquidation expenses are reasonable and within 
approved limits. State Directors are responsible to see that such 
reviews are accomplished by the State within 30 days, and final loss 
claims in excess of the State Director's approval authority are 
forwarded to be accepted or otherwise resolved by the appropriate 
National Office program division within the 60-day period. Any estimated 
loss payments made to the lender must be taken into consideration when 
paying a final loss on the FmHA or its successor agency under Public Law 
103-354 guaranteed loan. The estimated loss payment must be treated as a 
deduction from the principal amount of the loan that is equal to the 
estimated loss payment. The State Director may request National Office 
assistance in the conduct of any review. All reviews for final loss 
claim in excess of the State Director's approval authority (See subpart 
A of part 1901 of this chapter) will be submitted to the appropriate 
National Office program division for concurrence prior to the State 
Director's approval of the claim. Close scrutiny of liquidation proceeds 
and their application in accordance with lien priorities is required. 
Before final loss payments are approved and to assist in the required 
review, the State Director will prepare a narrative history of the 
guarantee transaction which will serve as the summary of occurrences 
which led to failure of the borrower and actions taken to maximize loan 
recovery. The original of this report will be filed in the loan case 
file.
[55 FR 11139, Mar. 27, 1990. Redesignated at 56 FR 29173, June 26, 1991]



Sec. 1980.874  Protective advances.

    Protective advances may be made in accordance with the lender's loan 
agreement and Sec. 1980.65 of subpart A of this part.
    (a) The State Director must approve in writing, all protective 
advances on loans within his/her loan approval authority which exceed a 
total cumulative advance of $500 to the same borrower. Protective 
advances must be reasonable when associated with the value of collateral 
being preserved.
    (b) When considering protective advances, sound judgement must be 
exercised in determining that the additional funds advanced will 
actually preserve collateral interests and recovery is actually enhanced 
by making the advance.
[55 FR 11139, Mar. 27, 1990. Redesignated at 56 FR 29173, June 26, 1991]



Sec. 1980.875  Additional loans or advances.

    The State Director may approve within his/her loan approval 
authority additional nonguaranteed loans or advances prior to or 
subsequent to the

[[Page 804]]

issuance of the Loan Note Guarantee (Form FmHA or its successor agency 
under Public Law 103-354 449-34). The State Director shall determine 
that there will be no adverse changes in the borrower's financial 
situation and that such loan or advance is not likely to adversely 
affect the collateral or the guaranteed loan.
[55 FR 11139, Mar. 27, 1990. Redesignated at 56 FR 29173, June 26, 1991]



Sec. 1980.876  Bankruptcy.

    (a) It is the lender's responsibility to protect the guaranteed loan 
debt and all the collateral securing it in bankruptcy proceedings. These 
responsibilities include but are not limited to the following:
    (1) The lender will file a proof of claim where necessary and all 
the necessary papers and pleadings concerning the case.
    (2) The lender will attend and where necessary participate in 
meetings of the creditors and all court proceedings.
    (3) The lender, whose collateral is subject to being used by the 
trustee in bankruptcy, will immediately seek adequate protection of the 
collateral.
    (4) Where appropriate, the lender should seek involuntary conversion 
of a pending chapter 11 case to a liquidation proceeding under chapter 7 
or under section 1123(b)(4), or seek dismissal of the proceedings.
    (5) FmHA or its successor agency under Public Law 103-354 will be 
kept adequately and regularly informed in writing of all aspects of the 
proceedings.
    (b) In a chapter 9 or chapter 11 reorganization, if an independent 
appraisal in necessary in FmHA or its successor agency under Public Law 
103-354's opinion, FmHA or its successor agency under Public Law 103-354 
and the lender will share such appraisal fee equally.
    (c) Expenses on chapter 11 reorganizations, chapter 11 or chapter 7 
liquidations (unless the lender is directly the liquidator) are not to 
be deducted from the collateral proceeds.
    (d) All bankruptcy cases should be reported immediately to the 
National Office by utilizing and completing a problem/delinquent status 
report. The Regional Attorney must be informed promptly of the 
proceedings.
    (e) FmHA or its successor agency under Public Law 103-354 or the 
lender, with the approval of the State Director, may initiate the 
repurchase of the unpaid guaranteed portion of the loan from the 
holder(s) to reduce interest accruals during certain bankruptcy 
proceedings. The State Director may approve the repurchase of the unpaid 
guaranteed portion of the loan from the holder(s) to reduce interest 
accrual during chapter 7 proceedings or after a chapter 11 proceeding 
becomes a liquidation proceeding. If the lender is the holder, an 
estimated loss payment may be filed at the initiation of a chapter 7 
proceeding or after a chapter 11 proceeding becomes a liquidation 
proceeding. On loans in bankruptcy, any loss payment must be handled in 
accordance with the lender's agreement (Form FmHA or its successor 
agency under Public Law 103-354 449-35) and carry the approval of the 
State Director.
    (f) The State Director must approve in advance and in writing the 
lender's estimated liquidation expenses on loans in liquidation 
bankruptcy. These expenses must be reasonable and customary and not in-
house expenses of the lender.
[55 FR 11139, Mar. 27, 1990. Redesignated at 56 FR 29173, June 26, 1991]



Sec. 1980.877  Transfer and assumptions.

    (a) General. It is the policy of FmHA or its successor agency under 
Public Law 103-354 to approve transfers and assumptions of loans to 
transferees who will continue the original purpose of the guaranteed 
loan. All transfers and assumptions will be approved in writing by FmHA 
or its successor agency under Public Law 103-354. Transfers and 
assumptions may be approved subject to the following:
    (1) When the transaction is to a member of the borrower's 
organization at a price which will not result in a loss to the lender.
    (2) Transfers to eligible borrowers will receive preference over 
transfers to ineligible borrowers, if recovery to the lender from the 
sale price is not less than it would be if the transfer was to an 
ineligible borrower.
    (3) The present borrower is unable or unwilling to accomplish the 
objectives

[[Page 805]]

of the guaranteed loan and the transfer will be to the lender's 
advantage.
    (4) If the debt(s) is not equal to the present market value, the 
transferee will assume an amount at least equal to either the present 
market value or the debt, whichever is less. The percentage of FmHA or 
its successor agency under Public Law 103-354's guarantee will be based 
on the new debt or the current market value, whichever is less.
    (5) The lender concurs in the plans for dispositon of funds in the 
transferor's debt service, reserve, and operation and maintenance 
account.
    (b) Eligible borrowers. (1) The total indebtedness may be 
transferred to an eligible borrower on the same terms.
    (2) The total indebtedness may be transferred to another borrower on 
different terms not to exceed those terms for which an initial 
guaranteed loan can be made.
    (3) Less than the total indebtedness may be transferred to another 
borrower on the same or different terms.
    (4) A guaranteed loan for which the transferee is eligible may be 
made in connection with a transfer subject to the policies and 
procedures governing the kind of loan being made.
    (5) If the transferor is to receive a payment for its equity, the 
total FmHA or its successor agency under Public Law 103-354 debt must be 
assumed.
    (c) Ineligible borrower. Transfers to ineligible borrowers are 
considered only when needed as a method for servicing problem cases when 
an eligible transferee is not available. Transfers should not be 
considered as a means by which members can obtain an equity or as a 
method of providing a source of easy credit for purchasers. Transfers 
are as follows:
    (1) All transfers to ineligible borrowers will include a one-time 
nonrefundable transfer fee. Transfer fees will be collected and payments 
applied in accordance with paragraph (d) of this section.
    (2) For all loans covered by this subpart, the State Director, is 
authorized to approve a transfer of indebtedness to, and assumption of, 
a loan by a transferee who does not meet the eligibility requirements 
for the kind of loan being assumed when the ineligible borrower will:
    (i) Make a significant downpayment.
    (ii) Agree to pay the remaining balance within not more than 15 
years. Installments will be at least equal to the amount amortized over 
a period not greater than the remaining life of the debt being 
transferred and the balance will be due the fifteenth year.
    (3) Interest rates to ineligible transferees will be the rate 
specified in the note of the transferor or the rates customarily charged 
borrowers in similar circumstances in the ordinary course of business 
and are subject to FmHA or its successor agency under Public Law 103-354 
review and approval. The rates may be either fixed or variable.
    (i) Transferees must have the ability to repay the debt according to 
the assumption agreement and must have the legal authority to enter into 
the contract. The borrower will submit a current balance sheet. The 
lender will obtain and analyze the credit history of the borrower. In 
all transfers, consideration will be given to obtaining individual 
liability agreements from members of the transferee organization.
    (ii) This subpart does not preclude the transferor from receiving 
equity payments when the full amount of the debt is assumed. However, 
equity payments will not be made on more favorable terms than those on 
which the balance of the debt will be paid.
    (d) Transfer fees. Transfer fees are a one-time nonrefundable cost 
to be collected by the lender at the time of application or proposal.
    (1) Amount. The transfer fees will be a standard fee plus the cost 
of the appraisal. This fee will be established by the FmHA or its 
successor agency under Public Law 103-354 National Office and issued 
annually to all FmHA or its successor agency under Public Law 103-354 
State Offices for further distribution.
    (2) Remittance. The lender will collect and submit the fee to the 
FmHA or its successor agency under Public Law 103-354 District Office. 
The FmHA or its successor agency under Public Law 103-354 District 
Office will submit the fee to the Finance Office identified as a 
transfer fee using Form FmHA or its

[[Page 806]]

successor agency under Public Law 103-354 451-2, ``Schedule of 
Remittance.''
    (3) Waiver. When the State Director determines waiving the transfer 
fee is in the best interest of the Government, the file will be 
submitted to the National Office with appropriate recommendations for 
the request.
    (e) Processing transfers and assumptions. (1) In any transfer and 
assumption case, the transferor, including any guarantor(s), may be 
released from liability by the lender with FmHA or its successor agency 
under Public Law 103-354 written concurrence, only when the value of the 
collateral being transferred is at least equal to the amount of the loan 
or part of the loan being assumed. If the transfer is for less than the 
entire debt:
    (i) FmHA or its successor agency under Public Law 103-354 must 
determine that the transferor and any guarantors have no reasonable 
debt-paying ability considering their assets and income at the time of 
transfer.
    (ii) The District Director must certify that the transferor has 
cooperated in good faith, used due diligence to maintain the collateral 
against loss, and has otherwise fulfilled all of the regulations of this 
subpart to the best of the borrower's ability.
    (2) The lender will make, in all cases, a complete credit analysis 
to determine viability of the project, subject to FmHA or its successor 
agency under Public Law 103-354 review and approval, including any 
requirement for deposits in an escrow account as security to meet its 
determined equity requirements for the project.
    (3) The lender will issue a statement to FmHA or its successor 
agency under Public Law 103-354 that the transaction can be properly 
transferred and the conveyance instruments will be filed, registered, or 
recorded as appropriate and legally permissible.
    (4) The State Director may approve all transfer and assumption 
provisions if the guaranteed loan debt balance is within his/her loan 
approval authority including:
    (i) Consent in writing to the release of the transferor and 
guarantors from liability.
    (ii) Any changes in loan terms.

    Note: The assumption will be reviewed as if it were a new loan. The 
Loan Note Guarantee(s) (Form FmHA or its successor agency under Public 
Law 103-354 449-34) will be endorsed in the space provided on the 
form(s).

    (5) The assumption will be made on the lender's form of assumption 
agreement and will contain the FmHA or its successor agency under Public 
Law 103-354 case number of the transferor and transferee.
    (6) If the guaranteed loan debt balance is in excess of the State 
Director's loan approval authority, the State Director will forward the 
file, together with his/her recommendations, to the appropriate National 
Office program division for approval.
    (7) A copy of the Assumption Agreement will be retained in the FmHA 
or its successor agency under Public Law 103-354 file. The District 
Director will notify the Finance Office of all approved transfer and 
assumption cases on Form FmHA or its successor agency under Public Law 
103-354 1980-7, ``Notification of Transfer and Assumption of a 
Guaranteed Loan,'' and submit Form FmHA or its successor agency under 
Public Law 103-354 1980-50, for all new borrowers and Form FmHA or its 
successor agency under Public Law 103-354 1980-51, ``Add, Change, or 
Delete Guaranteed Loan Record,'' in order that Finance Office records 
may be adjusted accordingly.
    (8) Loan terms cannot be changed by the Assumption Agreement unless 
previously approved in writing by FmHA or its successor agency under 
Public Law 103-354, with the concurrence of any holder(s) and the 
transferor (including guarantors) if they have not been released from 
personal liability. Any new loan terms cannot exceed those authorized in 
this subpart. The lender's request will be supported by:
    (i) An explanation of the reasons for the proposed change in the 
loan terms.
    (ii) Certification that the lien position securing the guaranteed 
loan will be maintained or improved, proper hazard insurance will be 
continued in effect, and all applicable Truth in Lending requirements 
will be met.
    (9) In the case of a transfer and assumption, it is the lender's 
responsibility to see that all such transfers and

[[Page 807]]

assumptions will be noted on all originals of the Loan Note 
Guarantee(s). The lender will provide FmHA or its successor agency under 
Public Law 103-354 a copy of the transfer and assumption agreeement. 
Notice must be given by the lender to FmHA or its successor agency under 
Public Law 103-354 before any borrower or guarantor is released from 
liability.
    (10) The holder(s), if any, need not be consulted on a transfer and 
assumption case unless there is a change in loan terms.
    (11) If a loss should occur upon consummation of a complete transfer 
of assets and assumption for less than the full amount of the debt and 
the transferor-debtor (including personal guarantor) is released from 
personal liability, as provided in paragraph (e) of this section, the 
lender, if it holds the guaranteed portion, may file an estimated 
``Report of Loss'' on Form FmHA or its successor agency under Public Law 
103-354 449-30 to recover its pro rata share of the actual loss at that 
time. In completing Form FmHA or its successor agency under Public Law 
103-354 449-30, the amount of the debt assumed will be entered on line 
24 as Net Collateral (Recovery). Approved protective advances and 
accrued interest thereon made during the arrangement of a transfer and 
assumption, if not assumed by the transferee, will be entered on Form 
FmHA or its successor agency under Public Law 103-354 449-30, lines 13 
and 14.
    (f) Submission to National Office. (1) Under any of the following 
conditions, a proposed transfer or assumption will be forwarded to the 
National Office for prior review and approval before making any 
commitments:
    (i) Where a loss to the Government will result; or
    (ii) The prospective transferee is a member of the present 
borrower's organization; or
    (iii) Proposals for transfer or assumption are made on more liberal 
terms than set forth in paragraphs (b) and (c) of this section; or
    (iv) Proposals for cash downpayment to the present borrower in an 
amount which exceeds that actual sales expenses; or
    (v) The transfer fee is to be waived for a prospective transferee.
    (2) All submissions to the National Office will contain:
    (i) Transfer case file.
    (ii) OGC comments on the proposed transfer or assumption.
    (iii) Appropriate forms to complete the transfer prepared by the 
transferee.
    (iv) Completed environmental review.
    (v) Any other necessary supporting information.
[55 FR 11139, Mar. 27, 1990. Redesignated and amended at 56 FR 29173, 
June 26, 1991]



Sec. 1980.878  Mergers.

    (a) General. State Directors are authorized to approve mergers or 
consolidations (which are herein referred to as mergers) when the 
resulting organization will be eligible for an FmHA or its successor 
agency under Public Law 103-354 guaranteed loan and assumes all the 
liabilities and acquires all the assets of the merged borrower. Mergers 
may be approved when:
    (1) The merger is in the best interest of the Government and the 
merging borrower.
    (2) The resulting borrower can meet all required conditions as set 
forth in specific loan note agreements.
    (3) All property can be legally transferred to the resulting 
borrower.
    (4) The membership of each organization involved is made aware of 
the proposed merger.
    (b) Distinguishing mergers from transfers and assumptions. Mergers 
occur when one corporation combines with another corporation in such a 
way that the first corporation ceases to exist as a separate entity 
while the other continues. In a consolidation, two or more corporations 
combine to form a new, consolidated corporation, with the original 
corporations ceasing 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 the transferor's assets, nor assume all the transferor's 
liabilities.
[55 FR 11139, Mar. 27, 1990. Redesignated and amended at 56 FR 29173, 
June 26, 1991]

[[Page 808]]



Sec. 1980.879  Disposition of acquired property.

    (a) When the lender acquires title to the collateral through a 
voluntary basis or foreclosure means, and the FmHA or its successor 
agency under Public Law 103-354 final loss claim is not paid until final 
disposition, the lender should proceed as quickly as possible to develop 
a plan to see that the collateral is fully protected and a program to 
dispose of the collateral is commenced.
    (b) Any collateral accepted by the lender on a voluntary basis or 
through foreclosure means must be titled in only the lender's name. FmHA 
or its successor agency under Public Law 103-354 should never be named 
as owner or co-owner of the collateral. FmHa's position is that of a 
guarantor.
    (c) The first step the lender should take after acquiring the 
collateral is to see that the collateral is protected from deterioration 
(weather, vandalism). Hazard insurance in an amount necessary to cover 
the fair market value of the collateral should be maintained by the 
lender.
    (d) The lender will prepare and submit to the District Director a 
plan on the best method of sale keeping in mind any prospective 
purchasers. The District Director will review and recommend action on 
the plan and forward the plan to the State Director for concurrence. 
Concurrence or non-concurrence of the plan shall be made in writing to 
the lender. If an existing liquidation plan addressed the disposition of 
acquired property, no further review is required unless modification of 
the plan is needed.
    (e) Methods of liquidation.
    (1) Direct sale by lender.
    (2) Commercial broker.
    (i) Broker should be experienced in the type of property involved.
    (ii) The written agreement with the broker should include an 
agreement which allows that if the lender finds a purchaser, no 
commission would be paid to the broker.
    (iii) A maximum of 120 days should be allowed on the contract. The 
contract should be renewable if all parties agree.
    (3) Public auction.
    (i) An experienced professional auctioneer should be engaged.
    (ii) Adequate advertising should be obtained.
    (iii) The lender with FmHA or its successor agency under Public Law 
103-354 concurrence shall determine a minimum sale price for the 
collateral.
    (f) Abandonment of the collateral.
    (1) The primary purpose of collateral is to afford a net return on 
the loan balance. However, there will be times when FmHA or its 
successor agency under Public Law 103-354 will be faced with situations 
when converting the collateral to cash would result in a loss.
    (2) Situations when this type of action could exist are:
    (i) Senior lien claims held by other parties against the guaranteed 
loan collateral and the senior lien claims are more than the collateral 
value.
    (ii) Collateral on the loan has deteriorated to the point where the 
net sale value (after expenses) of the collateral would not produce any 
funds that could be applied to the outstanding debt.
    (iii) Specialized collateral which has little or no value or demand, 
taking into consideration the expenses of the sale.
    (3) Anytime there is a case when the conversion of collateral to 
cash can reasonably be expected to result in a negative net recovery 
amount, abandonment of the collateral should be strongly considered. 
When a decision to abandon the property is made, the District Director 
will document the decision in the file and will advise the State 
Director of the decision.
[55 FR 11139, Mar. 27, 1990. Redesignated and amended at 56 FR 29173, 
June 26, 1991]



Sec. 1980.880  State Director's additional authorizations and guidance.

    All proposed servicing actions which the State Director or lender is 
not authorized by this subpart to approve will be referred to the 
National Office.
[55 FR 11139, Mar. 27, 1990. Redesignated at 56 FR 29173, June 26, 1991]



Sec. 1980.881  Appeals.

    Appeals are handled in accordance with Sec. 1980.80 of subpart A of 
this part

[[Page 809]]

and subpart B of part 1900 of this chapter.
[55 FR 11139, Mar. 27, 1990. Redesignated at 56 FR 29173, June 26, 1991]



Secs. 1980.882--1980.899  [Reserved]



Sec. 1980.900  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 0575-0137. Public reporting burden 
for this collection of information is estimated to vary from 1 to 50 
hours with an average of 20 hours per response including time for 
reviewing instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the collection 
of information. Send comments regarding this burden estimate or any 
other aspect of this collection of information, including suggestions 
for reducing this burden, to Department of Agriculture, Clearance 
Office, OIRM, room 404-W, Washington, DC 20250; and to the Office of 
Management and Budget, Paperwork Reduction Project (OMB 0575-0137), 
Washington, DC 20503.



PART 1981--1999  [RESERVED]



[[Page 811]]


                              FINDING AIDS






  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.
  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected



[[Page 813]]





                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 1998)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                          Title 2--[Reserved]

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  General Accounting Office (Parts 1--99)
        II  Federal Claims Collection Standards (General 
                Accounting Office--Department of Justice) (Parts 
                100--299)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
        IV  Advisory Committee on Federal Pay (Parts 1400--1499)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
       VII  Advisory Commission on Intergovernmental Relations 
                (Parts 1700--1799)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Part 2100)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Part 3201)
     XXIII  Department of Energy (Part 3301)

[[Page 814]]

      XXIV  Federal Energy Regulatory Commission (Part 3401)
       XXV  Department of the Interior (Part 3501)
      XXVI  Department of Defense (Part 3601)
    XXVIII  Department of Justice (Part 3801)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Part 4301)
      XXXV  Office of Personnel Management (Part 4501)
        XL  Interstate Commerce Commission (Part 5001)
       XLI  Commodity Futures Trading Commission (Part 5101)
      XLII  Department of Labor (Part 5201)
     XLIII  National Science Foundation (Part 5301)
       XLV  Department of Health and Human Services (Part 5501)
      XLVI  Postal Rate Commission (Part 5601)
     XLVII  Federal Trade Commission (Part 5701)
    XLVIII  Nuclear Regulatory Commission (Part 5801)
         L  Department of Transportation (Part 6001)
       LII  Export-Import Bank of the United States (Part 6201)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Part 6401)
      LVII  General Services Administration (Part 6701)
     LVIII  Board of Governors of the Federal Reserve System (Part 
                6801)
       LIX  National Aeronautics and Space Administration (Part 
                6901)
        LX  United States Postal Service (Part 7001)
       LXI  National Labor Relations Board (Part 7101)
      LXII  Equal Employment Opportunity Commission (Part 7201)
     LXIII  Inter-American Foundation (Part 7301)
       LXV  Department of Housing and Urban Development (Part 
                7501)
      LXVI  National Archives and Records Administration (Part 
                7601)
      LXIX  Tennessee Valley Authority (Part 7901)
      LXXI  Consumer Product Safety Commission (Part 8101)
     LXXIV  Federal Mine Safety and Health Review Commission (Part 
                8401)
     LXXVI  Federal Retirement Thrift Investment Board (Part 8601)
    LXXVII  Office of Management and Budget (Part 8701)

                          Title 6--[Reserved]

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Consumer Service, Department of Agriculture 
                (Parts 210--299)

[[Page 815]]

       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
      XIII  Northeast Dairy Compact Commission (Parts 1300--1399)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy, Department of Agriculture (Parts 
                2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  [Reserved]
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)

[[Page 816]]

     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Immigration and Naturalization Service, Department of 
                Justice (Parts 1--499)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Meat and Poultry 
                Inspection, Department of Agriculture (Parts 300--
                599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
        XI  United States Enrichment Corporation (Parts 1100--
                1199)
        XV  Office of the Federal Inspector for the Alaska Natural 
                Gas Transportation System (Parts 1500--1599)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)

[[Page 817]]

      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Thrift Depositor Protection Oversight Board (Parts 
                1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700-1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Export Administration, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)

[[Page 818]]

            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  United States Customs Service, Department of the 
                Treasury (Parts 1--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)

[[Page 819]]

        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training, Department of Labor 
                (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development, International 
                Development Cooperation Agency (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  United States Information Agency (Parts 500--599)
        VI  United States Arms Control and Disarmament Agency 
                (Parts 600--699)
       VII  Overseas Private Investment Corporation, International 
                Development Cooperation Agency (Parts 700--799)
        IX  Foreign Service Grievance Board Regulations (Parts 
                900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Board for International Broadcasting (Parts 1300--
                1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

[[Page 820]]

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs and Section 202 Direct Loan Program) 
                (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--999)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Part 1001)

[[Page 821]]

       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Part 1200)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--799)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Bureau of Alcohol, Tobacco and Firearms, Department of 
                the Treasury (Parts 1--299)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--199)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Pension and Welfare Benefits Administration, 
                Department of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

[[Page 822]]

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)
       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
        VI  Bureau of Mines, Department of the Interior (Parts 
                600--699)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)
      XXIX  Presidential Commission on the Assignment of Women in 
                the Armed Forces (Part 2900)

[[Page 823]]

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Transportation (Parts 1--
                199)
        II  Corps of Engineers, Department of the Army (Parts 
                200--399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799)
        XI  National Institute for Literacy (Parts 1100-1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                        Title 35--Panama Canal

         I  Panama Canal Regulations (Parts 1--299)

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
       XIV  Assassination Records Review Board (Parts 1400-1499)

[[Page 824]]

             Title 37--Patents, Trademarks, and Copyrights

         I  Patent and Trademark Office, Department of Commerce 
                (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Rate Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--799)
         V  Council on Environmental Quality (Parts 1500--1599)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans 
                Employment and Training, Department of Labor 
                (Parts 61-1--61-999)
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System
       201  Federal Information Resources Management Regulation 
                (Parts 201-1--201-99) [Reserved]
            Subtitle F--Federal Travel Regulation System
       301  Travel Allowances (Parts 301-1--301-99)
       302  Relocation Allowances (Parts 302-1--302-99)

[[Page 825]]

       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Parts 303-1--303-2)
       304  Payment from a Non-Federal Source for Travel Expenses 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Health Care Financing Administration, Department of 
                Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10005)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)

[[Page 826]]

         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  ACTION (Parts 1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)
      XXII  Christopher Columbus Quincentenary Jubilee Commission 
                (Parts 2200--2299)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Transportation (Parts 1--
                199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Department of Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  United States Agency for International Development 
                (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)

[[Page 827]]

        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  United States Information Agency (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        35  Panama Canal Commission (Parts 3500--3599)
        44  Federal Emergency Management Agency (Parts 4400--4499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399)
        54  Defense Logistics Agency, Department of Defense (Part 
                5452)
        57  African Development Foundation (Parts 5700--5799)
        61  General Services Administration Board of Contract 
                Appeals (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Research and Special Programs Administration, 
                Department of Transportation (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)

[[Page 828]]

       III  Federal Highway Administration, Department of 
                Transportation (Parts 300--399)
        IV  Coast Guard, Department of Transportation (Parts 400--
                499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR



[[Page 829]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 1998)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

ACTION                                            45, XII
Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Commission on Intergovernmental          5, VII
     Relations
Advisory Committee on Federal Pay                 5, IV
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development, United      22, II
     States
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Consumer Service                       7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Alaska Natural Gas Transportation System, Office  10, XV
     of the Federal Inspector
Alcohol, Tobacco and Firearms, Bureau of          27, I
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII

[[Page 830]]

Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Arms Control and Disarmament Agency, United       22, VI
     States
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Assassination Records Review Board                36, XIV
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Board for International Broadcasting              22, XIII
Census Bureau                                     15, I
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Christopher Columbus Quincentenary Jubilee        45, XXII
     Commission
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Commerce Department                               44, IV
  Census Bureau                                   15, I`
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Export Administration, Bureau of                15, VII
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office                     37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Customs Service, United States                    19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII

[[Page 831]]

  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 2
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Elementary and Secondary Education, Office of     34, II
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Enrichment Corporation, United States             10, XI
Environmental Protection Agency                   5, LIV; 40, I
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                25, III, LXXVII; 48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export Administration, Bureau of                  15, VII
Export-Import Bank of the United States           5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII

[[Page 832]]

Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               4, II
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
  Federal Acquisition Regulation                  48, 44
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II; 49, III
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
Federal Inspector for the Alaska Natural Gas      10, XV
     Transportation System, Office of
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Pay, Advisory Committee on                5, IV
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Property Management Regulations System    41, Subtitle C
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Consumer Service                         7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Accounting Office                         4, I, II
General Services Administration                   5, LVII
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Property Management Regulations System  41, 101, 105
  Federal Travel Regulation System                41, Subtitle F
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
     of Certain Employees
[[Page 833]]

  Relocation Allowances                           41, 302
  Travel Allowances                               41, 301
Geological Survey                                 30, IV
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Great Lakes Pilotage                              46, III
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          5, XLV; 45, Subtitle A
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Health Care Financing Administration            42, IV
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Health Care Financing Administration              42, IV
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Human Development Services, Office of             45, XIII
Immigration and Naturalization Service            8, I
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Information Agency, United States                 22, V
  Federal Acquisition Regulation                  48, 19
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Intergovernmental Relations, Advisory Commission  5, VII
     on
Interior Department
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II

[[Page 834]]

  Mines, Bureau of                                30, VI
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            43, Subtitle A
  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
  International Development, United States        22, II; 48, 7
       Agency for
  Overseas Private Investment Corporation         5, XXXIII; 22, VII
International Fishing and Related Activities      50, III
International Investment, Office of               31, VIII
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                5, XXVIII; 28, I
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             4, II
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration and Naturalization Service          8, I
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Pension and Welfare Benefits Administration     29, XXV
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training, Office of    41, 61; 20, IX
       the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
Management and Budget, Office of                  5, III, LXXVII; 48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II
Micronesian Status Negotiations, Office for       32, XXVII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II

[[Page 835]]

Mines, Bureau of                                  30, VI
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
National Aeronautics and Space Administration     5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National Archives and Records Administration      5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Bureau of Standards                      15, II
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National and Community Service, Corporation for   45, XXV
National Council on Disability                    34, XII
National Credit Union Administration              12, VII
National Drug Control Policy, Office of           21, III
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
National Weather Service                          15, IX
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Dairy Compact Commission                7, XIII
Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Panama Canal Commission                           48, 35
Panama Canal Regulations                          35, I
Patent and Trademark Office                       37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension and Welfare Benefits Administration       29, XXV
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
     Acquisition Regulation
[[Page 836]]

  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Postal Rate Commission                            5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Commission on the Assignment of      32, XXIX
     Women in the Armed Forces
Presidential Documents                            3
Prisons, Bureau of                                28, V
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Regional Action Planning Commissions              13, V
Relocation Allowances                             41, 302
Research and Special Programs Administration      49, I
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     13, I
Smithsonian Institution                           36, V
Social Security Administration                    20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  22, I
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Depositor Protection Oversight Board       12, XV
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  Coast Guard                                     33, I; 46, I; 49, IV
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II; 49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Research and Special Programs Administration    49, I
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X

[[Page 837]]

Transportation, Office of                         7, XXXIII
Travel Allowances                                 41, 301
Treasury Department                               5, XXI; 17, IV
  Alcohol, Tobacco and Firearms, Bureau of        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs Service, United States                  19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  International Investment, Office of             31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
United States Enrichment Corporation              10, XI
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training, Office of the  41, 61; 20, IX
     Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 839]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations which were 
made by documents published in the Federal Register since January 1, 
1986, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Pages numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 1986, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, and 1973-1985'' published in seven 
separate volumes.

                                  1986

7 CFR
                                                                   51 FR
                                                                    Page
Chapter XVIII
Heading revised; nomenclature change; interim......................66443
1951.8  (a) and (b) revised.........................................4137
1951.15  (e) revised; eff. 1-20-87.................................45432
1951.33  Introductory text revised..................................4137
1951.40  Introductory text revised..................................4137
1951.44  (k) revised................................................4137
    (a)(3) and (b)(1)(ii)(A) revised; interim......................13475
1951.51  (a) revised; eff. 1-20-87.................................45433
1951.101--1951.150 (Subpart C)  Added; interim.....................42821
1951.221  Added....................................................20467
1951.250  Added (OMB numbers)......................................20467
1951.313  (a)(2)(i)(B) amendment confirmed..........................6393
1951.315  (a), (b), and (c) revised; eff. 1-20-87..................45433
1951.506  (a) (2) and (5) revised..................................27671
1951.561  (a)(1)(i) revised.........................................4138
1951.604  (a)(1)(v) revised........................................11563
1951.606  Introductory text amended................................11563
1951.608  (a)(3) and (b) revised...................................11563
1951.612  (a)(1)(iii) revised.......................................4138
    (a)(2) introductory text added; (a)(2)(i) revised..............11563
1951.618  (a)(2) and (3) amended; (b)(1)(i) and (ii) revised.......11563
1951.658  (a) introductory text amended............................11563
1951.661  (a)(1)(i) revised........................................11563
1951.711  (b)(1) and (c) corrected.................................11563
1955  Authority citation revised....................................4138
    Technical correction...........................................17922
1955.2  Revised.....................................................4138
1955.10  (a)(1) and (f)(2) introductory text revised; eff. 1-20-87
                                                                   45433
1955.15  (d) (1) and (2) introductory text revised..................4138
    (d)(5) revised; eff. 1-20-87...................................45433
1955.18  (h) added; interim.........................................9175
    (a) revised; interim...........................................13475
1955.20  (b)(2) revised; eff. 1-20-87..............................45433
1955.53  (e) through (n) redesignated as (f) through (o); new (e) 
        added.......................................................4139
1955.55  (a) and (b)(1) revised.....................................4139
1955.63  (b) and (c) redesignated as (c) and (d); new (b) added; 
        interim....................................................13475
1955.64  (a)(3) revised; interim...................................13475
1955.65  (b) and (c)(1) revised; interim...........................13476
1955.66  (a)(2)(iii) revised; interim...............................9175

[[Page 840]]

    (a)(2)(iii) and (b) revised; (c) through (j) redesignated as 
(d), (e), (g), and (i) through (m); new (c), (f), and (h) added; 
new (g) revised; interim...........................................13476
1955.73  Added; interim.............................................9176
1955.103  (n) revised; interim.....................................13477
    (n) revised....................................................18436
    Effective date corrected.......................................19053
1955.105  Revised; interim..........................................9176
    Existing text designated as (a) and heading added; (b) added 
                                                                   40786
1955.106  (d)(2) revised............................................6734
    Introductory text, (a), and (c) revised; (d) redesignated as 
(e); new (e)(2) through (5) redesignated as (e)(3) through (6); 
new (d) and (e)(2) added; new (e)(1) revised; interim..............13477
1955.107  (a) revised...............................................6734
    Introductory text and (a) revised; interim......................9177
    (b) revised; interim...........................................13478
1955.108  (a) revised; interim.....................................13478
1955.109  Added; interim...........................................13479
1955.113  Introductory text revised................................18436
    Effective date corrected.......................................19053
    Introductory text corrected....................................22796
1955.117  (e) revised...............................................6734
1955.118  (c) amended...............................................6734
    (b) amended....................................................18436
    Effective date corrected.......................................19053
1955.137  (c) added; interim.......................................13479
1955.139  (a) and (b)(1) revised; interim..........................13479
1955.140  (a) revised; interim.....................................13480
1956  Added; eff. 1-20-87..........................................45434
1962  Authority citation revised..............................4139, 6734
    Technical correction...........................................17922
1962.3  (d) added; interim.........................................13480
1962.4  (c) revised; interim.......................................13481
1962.17  (a), (b)(1), (2), (4), and (5), and (c)(5) revised; 
        (c)(6) added; interim......................................13481
1962.30  (b)(7) and (d)(3) added...................................40786
1962.34  Introductory text, (a)(2), (b)(3) introductory text, 
        (f)(8) and (12), and (g)(1) revised.........................4139
    (a)(2) amended..................................................6734
    (a)(3) revised.................................................13482
    Introductory text revised......................................40786
    (d) and (h) revised; eff. 1-20-87..............................45439
1962.40  (c) revised................................................4139
1962.41  (e) revised; interim......................................13482
1962.42  (c)(9) redesignated as (d); interim.......................13482
1962.46  (f) revised................................................4140
    Introductory text and (c)(3) revised; eff. 1-20-87.............45439
1962.47  (c)(3) revised.............................................4140
    Revised........................................................34580
    (a)(3)(i), (b)(2) introductory text, and (c)(3) revised; eff. 
1-20-87............................................................45439
1962.49  (e)(4) revised; eff. 1-20-87..............................45439
1965  Authority citation revised...................................11564
1965.1--1965.50 (Subpart A)  Added..................................4140
1965.2  Revised; interim...........................................13482
1965.12  Introductory text revised.................................40787
1965.24  (a) revised; eff. 1-20-87.................................45439
1965.26  (f)(6) revised; interim...................................13482
    (f) introductory text, (5), and (6) revised; eff. 1-20-87......45440
1965.27  (c)(2) and (d) (2) and (3) amended.........................6735
    (b)(5) revised; interim........................................13483
    Technical correction...........................................17922
    Introductory text and (b) introductory text revised............40787
    (a) and (f) introductory text revised; eff. 1-20-87............45440
1965.34  (c) revised; eff. 1-20-87.................................45440
1965.65  (c)(6) amended............................................27672
1965.85  (a) amended...............................................11564
1965.101  Revised...................................................4157
1965.126  (c)(1) revised............................................6735
    Technical correction...........................................17922
1980  Amendments in 50 FR 39883 confirmed...........................6707
    Authority citation revised.....................................22274
1980.20  Introductory text revised; interim.........................6710
    Confirmed......................................................29905
1980.47  Added; interim.............................................6710
    Confirmed......................................................29905
1980.60  (a)(9) revised; interim....................................6710
    Confirmed......................................................29905
1980.61  (e) revised; interim.......................................6710
    Confirmed......................................................29905

[[Page 841]]

1980.80  Revised; interim...........................................6710
    Confirmed......................................................29905
1980.83  (a) revised; (b) table amended; interim....................6710
    Confirmed......................................................29905
1980.1--1980.100 (Subpart A)  Appendix H added; interim.............6712
    Appendix I added; interim.......................................6715
    Confirmed......................................................29905
1980.101  (a) revised; interim......................................6716
    Confirmed......................................................29905
    (f) added; interim.............................................22275
1980.106  (b) (16) through (31) redesignated as (b) (17) through 
        (27) and (29) through (33); new (b) (16) and (28) added; 
        (b)(10) and new (21)(ii) revised; interim...................6716
    Confirmed......................................................29905
1980.108  (a)(2) (i) through (iii) redesignated as (a)(2) (ii) 
        through (iv); (a)(1)(iii) and new (2)(i) added; (c) and 
        (d) revised; interim........................................6716
    Confirmed......................................................29905
    (a)(3)(v) added; interim.......................................23513
    Comment time extended..........................................30835
1980.109  (a) (1) through (3) redesignated as (a) (2) through (4); 
        new (a)(1) added; interim...................................6716
    Confirmed......................................................29905
1980.113  (a)(5), (b), (c), and administrative text revised; 
        interim.....................................................6717
    Confirmed......................................................29905
1980.114  (a) revised; interim......................................6717
    Confirmed......................................................29905
    Amended; interim...............................................23513
    Comment time extended..........................................30835
1980.115  Introductory text and (b) revised; administrative text 
        amended; interim............................................6717
    Confirmed......................................................29905
    Amended; interim...............................................23513
    Comment time extended..........................................30835
1980.116  Revised; interim..........................................6717
    Confirmed......................................................29905
1980.123  (c) through (o) redesignated as (d) through (p); new (c) 
        added......................................................40787
1980.145  (b) revised; interim......................................6718
    Confirmed......................................................29905
1980.146  Administrative text amended; interim......................6718
    Confirmed......................................................29905
1980.148  Revised; interim..........................................6718
    Confirmed......................................................29905
1980.170  Temporary suspension continued; interim...................6718
    Confirmed......................................................29905
1980.175  (b)(1)(i), (2) introductory text, (i), (iii), (iv) 
        introductory text, (A), and (E), and (v), (d)(1), (e), and 
        (f)(4) revised; (b)(2)(vi) added; interim...................6718
    Confirmed......................................................29905
    (d)(3) redesignated as (d)(4); new (d)(3) added; interim.......23514
    Comment time extended..........................................30835
    (b) introductory text added....................................40787
1980.180  (b)(1), (c)(1)(i) and (2) introductory text, (i), (iii), 
        (iv) introductory text, (A), and (E), (v) introductory 
        text, and (f) (2) and (3) revised; (c)(2)(vi) added; 
        interim.....................................................6719
    Confirmed......................................................29905
    (e)(3) added; interim..........................................23514
    Comment time extended..........................................30835
    (c) introductory text added....................................40788
1980.185  (b), (c)(1)(i), (2) introductory text, (iii), (v), and 
        (ix), and (f) (2) and (3) revised; interim..................6720
    Confirmed......................................................29905
    (e)(3) added; interim..........................................23514
    Comment time extended..........................................30835
    (c) introductory text added....................................40788
1980.101--1980.200 (Subpart B)  Exhibit A amended; Exhibits C and 
        D added; interim............................................6721
    Confirmed......................................................29905
    Exhibit D amended..............................................29905
1980.302  (a) revision confirmed....................................6393
1980.330  (h)(1) revision confirmed.................................6393
1980.601--1980.700 (Subpart G)  Added; interim.....................34929

                                  1987

7 CFR
                                                                   52 FR
                                                                    Page
Chapter XVIII
1950.103  (a) revised..............................................26133
1950.104  Introductory text and (d) revised........................26134
1950.105  Added....................................................26134
1951  Authority citation revised.............................6319, 11457

[[Page 842]]

1951.1  Revised....................................................26134
1951.6  (c) (1), (2), and (3) (ii), (iv), (v), (vi) and (vii), (d) 
        and (e) (1) and (4) revised................................29175
1951.7  (h) added..................................................11457
1951.9  (a)(4) added...............................................26134
1951.44  (c)(9) added..............................................26134
1951.46  Added.....................................................26135
1951.50  Added (OMB number)........................................26137
1951.105  (f) amended..............................................18544
1951.111  Added....................................................18544
1951.201  Revised..................................................38908
1951.203  (f) added................................................42272
1951.207  (l) added................................................11457
1951.210  (c) (1) through (4), (d) introductory text and (1) 
        through (6), (e), and (f) redesignated as (c) (2) through 
        (5), (e) introductory text and (1) through (4), (6), and 
        (7), (f), and (g); new (c)(1), (d), and (e)(5) added; new 
        (f)(13) amended............................................42272
1951.211  (c) introductory text amended............................42272
1951.252  (a) revised..............................................26137
1951.261  (b)(1)(i)(A) revised.....................................26137
1951.301--1951.318 (Subpart G)  Revised..............................246
1951.304  Added; interim (exp. 7-1-87)..............................6319
1951.308  (a) introductory text and (b) revised....................29176
1951.309  (a)(1) revised...........................................29176
1951.315  Corrected.................................................6132
1951.407  (c) amended...............................................9113
1951.408  Removed...................................................9113
1951.551  Revised..................................................26138
1951.604  (a)(1)(iv)(B) amended....................................11985
    Policy guidelines..............................................23543
1951.701  Revised..................................................38908
1955.1  Revised....................................................38909
1955.3  (d) revised................................................26138
1955.10  (a)(1) correctly revised..................................48519
1955.18  (a) revised; (d) amended..................................41957
1955.51  (d) added.................................................38909
1955.53  (o) revised................................................8037
    (e) and (g) revised............................................26138
1955.63  (a) and (c) amended.......................................41957
1955.105  (a) revised..............................................26138
1955.114  Introductory text amended................................41957
1955.115  Introductory text amended................................41957
1956.54  (f) revised...............................................26138
1956.57  (j)(3) revised............................................47689
1956.58  (a) revised...............................................28239
    (e) revised....................................................46348
    (b)(1) amended; (d) (1), (2), and (3) revised..................47689
1956.70  (b)(2) amended; (b)(3) revised............................47689
1956.75  (b)(4)(i)(A) amended......................................46348
    (a) introductory text revised; (b) introductory text amended 
                                                                   47689
1957  Added........................................................35520
1962.17  (b) (1), (2) introductory text and (i)(A), (4) and (5) 
        revised....................................................32121
1962.47  (b)(2)(i) correctly revised...............................39207
1965.7  (d) revised................................................26138
1965.12  Introductory text revised.................................26138
1965.13  Introductory text revised.................................26139
1965.31  Introductory text added...................................26139
1965.65  (a)(1)(i) revised; (a)(1)(iv) and (f)(6)(iv) removed; 
        (a)(1)(v), (c) (1) through (14), and (f) (8) through (13) 
        redesignated as (a)(1)(iv), (c) (2) through (15), and (f) 
        (9) through (14); new (c)(1) and (f)(8) added; new 
        (c)(10)(i) revised.........................................24288
1965.70  (a) amended; (d)(8) revised...............................24288
1965.90  Revised...................................................24288
1965.92  Amended...................................................24291
1965.51--1965.100 (Subpart B)  Exhibit A redesignated as Exhibit B 
        and revised; new Exhibits A and C added....................24291
1965.103  (b) introductory text amended.............................9113
1965.105  (b)(1) amended; (c) revised...............................9113
1965.106  (a) heading revised; (b) and (c) redesignated as (c) and 
        (d); new (d) amended; new (b) added.........................9113
1965.110  (a)(1)(ii) amended; (a)(4) added..........................9113
1965.111  (a) and (b) amended; (c) removed..........................9113
1965.112  (b) revised...............................................9114
1965.113  (a) amended; (c) revised..................................9114

[[Page 843]]

1965.116  (b) revised...............................................9114
1965.117  Introductory text, (b)(5), (d)(2) and (g) amended; (e) 
        introductory text revised; (h) added........................9114
1965.118  (c) revised; (d) added....................................9114
1965.125  (a)(1) introductory text amended; (a) (2) and (3) 
        revised.....................................................9115
1965.126  Introductory text, (b) (2) and (5), (c) (1) and (2) 
        introductory text, (i), and (ii) and (e)(4) revised; 
        (b)(13) added; (b)(3), (4)(i), and (12) and (e)(5) amended
                                                                    9115
1965.127  (a)(3) introductory text, (b)(1)(i) and (2) revised.......9116
1965.137  Revised...................................................9116
1980  Authority citation revised...................................19302
1980.11  Amended....................................................6500
1980.12  (a) (1) and (3) revised....................................6500
1980.41  (b)(3)(iii)(A) revised.....................................6500
1980.46  (a)(2) revised.............................................6500
1980.61  (b)(4) and (h) revised.....................................6500
1980.63  Revised....................................................6501
1980.67  Revised....................................................6501
1980.83  (b) table amended...................................6501, 22290
1980.85  Added......................................................6501
1980.146  (c)(2) amended...........................................22290
1980.307  (d)(1) and Administrative amended........................19302
1980.327  (b)(1) revised...........................................19302
1980.401--1980.500 (Subpart E)  Sections revised....................6501
1980.401--1980.500 (Subpart E)  Appendix C revised; Appendix H 
        added.......................................................6522
1980.602  (a)(1) introductory text revised; interim................25587
1980.611  (a) and (c) introductory text revised; interim...........25588
1980.625  Revised; interim.........................................25588
1980.630  Revised; interim.........................................25588
1980.632  (c) and (d) revised; interim.............................25588
1980.642  (e), (k), and (l) revised; interim.......................25588
1980.644  Heading, (a), (b), and (d) introductory text revised; 
        (f) added; interim.........................................25588
1980.645  (a) and (b) revised; (d) removed; interim................25589
1980.646  Removed; interim.........................................25589
1980.651  (f) revised; interim.....................................25589
1980.655  Revised; interim.........................................25589
1980  Appendix B amended; interim..................................25589

                                  1988

7 CFR
                                                                   53 FR
                                                                    Page
Chapter XVIII
1951  Authority citation added; subpart and section authority 
        citations removed..........................................35716
1951.1--1951.50 (Subpart A)  Authority citation revised.....26591, 30656
1951.7  (f) removed; (g) and (h) redesignated as (f) and (g); 
        (d)(1) revised; interim....................................35716
1951.8  (a) revised; interim.......................................35717
1951.9  Introductory text revised; interim.........................35717
1951.10  Introductory text revised; interim........................35717
1951.15  (e) revised...............................................13100
1951.25  (b)(5) revised; interim...................................35717
1951.33  Removed; interim..........................................35717
1951.40  Removed; interim..........................................35717
1951.41  (h)(2) redesignated as (h)(3); new (h)(2) added............5357
    Removed; interim...............................................35717
1951.44  (b)(5) removed............................................15798
    (j)(1) revised.................................................15799
    Removed; interim...............................................35717
1951.46  Removed; interim..........................................35717
1951.1--1951.50 (Subpart A)  Exhibits C-1 through G removed; 
        interim....................................................35717
1951.51--1951.55 (Subpart B)  Revised..............................26591
1951.51  (a) revised...............................................13100
1951.55  Revised...................................................33804
1951.105  (f) amendment confirmed..................................44177
1951.111  (b) (1), (3), (4), (5), (6) and (7) and (e) (2) through 
        (14) redesignated as (b) (7), (1), (5), (4), (3) and (6) 
        and (e) (4) through (16); new (e) (2) and (3) added........44178
    Introductory text, new (b) (5) and (7), (c)(2), (e) 
introductory text and (9), (f)(1), (h)(3), (i)(2), (k)(4), (l) (1) 
and (3), and (o) revised...........................................44178
1951.207  (e)(1)(xii) added.........................................7337
1951.210  (a)(8) added..............................................7337
1951.215  Revised...................................................3861

[[Page 844]]

1951.221  (a) and (b)(1) revised...................................15798
1951.251  Revised..................................................30656
1951.254  (e) added................................................39740
1951.261  (e)(2)(i) amended........................................17688
    (f)(1) introductory text and (2) removed; (f)(1) (i) through 
(iv) redesignated as (f) (1) through (4); (b)(1)(i)(A), 
(d)(1)(iv), (e)(2)(iii) and (4) introductory text and (f) 
introductory text revised; (b)(1)(i)(A) (1) and (2) added..........39740
1951.262  (c)(2) revised; interim..................................35717
    (a)(1) and (b)(2) revised......................................39741
1951.312  (d) and (e)(3) introductory text and (i) amended.........17688
1951.313  (b) amended..............................................17688
1951.314  (a)(8) revised; interim..................................35717
1951.315  Amended..................................................27825
1951.501  (a)(2)(ii) amended; (c) added............................16244
1951.504  (i) amended...............................................2194
    (c) through (h) and (i) through (s) redesignated as (d) 
through (i) and (k) through (u); new (c) and (j) added.............16244
1951.507  (e)(1) amended...........................................16245
1951.510  (e) (5) through (8) redesignated as (e) (6) through (9); 
        (e)(4) revised; (e)(5) added...............................16245
1951.514  Revised..................................................16245
1951.517  (b)(4) introductory text, (i), and (ii) amended..........15800
    (b)(1) amended.................................................16245
1951.518  Added....................................................16245
1951.558  (c)(1) (ii) and (iii) revised; interim...................35717
1951.612  (a)(1)(iii) revised......................................27825
1951.851--1951.900 (Subpart R)  Added..............................30656
1951.901--1951.950 (Subpart S)  Added; interim.....................35718
1951.912  (a) introductory text corrected..........................39014
1951.901--1951.950 (Subpart S)  Exhibit A corrected................45755
1955  Authority citation revised...................................35762
1955.1  Amended....................................................27825
1955.2  Amended....................................................27826
1955.3  Amended.............................................27826, 30664
    Amended; interim...............................................35762
1955.4  Revised....................................................27826
1955.5  (d) revised................................................27826
1955.10  (a)(1) and (2)(iii), (d) (3) and (7), (e), (f)(1) 
        introductory text, and (h)(1) revised; (f)(2) introductory 
        text amended; (h) (5) and (6) redesignated as (h) (6) and 
        (7); new (h)(5) added......................................27826
    Introductory text, (c)(1)(ii) and (d)(8) revised; interim......35762
1955.11  (b)(1) amended............................................27827
1955.13  Revised; interim..........................................35762
1955.15  (a)(2)(i), (d)(4), and (f)(3) revised; (b)(3) added; 
        (e)(2) and (f)(5) amended..................................27827
    Introductory text, (d)(2)(iv), (3) and (5), and (f)(5) 
revised; interim...................................................35763
1955.18  (f) revised...............................................13100
    (a) amended; (b) introductory text, (c), and (d) revised.......27827
    Introductory text, (i), (j) and (k) added; (h) revised; 
interim............................................................35764
1955.20  (d) revised...............................................27828
    (b) introductory text revised; interim.........................35764
1955.1--1955.50 (Subpart A)  Exhibit G added; interim..............35764
1955.51--1955.100 (Subpart B)  Revised; interim....................35765
1955.53  Amended............................................27828, 30664
1955.54  Revised...................................................27828
1955.55  (b)(2)(iii) revised; (d) redesignated as (e) and revised; 
        new (d) added..............................................27828
1955.57  Added.....................................................27828
1955.63  (c) amended...............................................27829
1955.64  (a)(1) amended............................................27829
1955.65  (c)(4) revised............................................27829
1955.66  (a)(2)(iii) revised........................................7338
    (b) revised....................................................27829
1955.68  (a) and (c) revised.......................................27829
1955.102  Revised..................................................27829
    Revised; interim...............................................35776
1955.103  Amended...........................................27830, 30664
    Amended; interim...............................................35776
1955.104  Revised..................................................27830
1955.105  (a) revised..............................................30664
    Revised; interim...............................................35777
1955.106  (e)(7) added..............................................7338
    Redesignated as 1955.107; new 1955.106 redesignated from 
1955.109 and revised; interim......................................35777
1955.107  Introductory text revised.................................7338

[[Page 845]]

    Redesignated as 1955.108; new 1955.107 redesignated from 
1955.106; interim..................................................35777
    Revised; interim...............................................35778
1955.108  Redesignated as 1955.109; new 1955.108 redesignated from 
        1955.107; interim..........................................35777
    Revised; interim...............................................35779
1955.109  Redesignated as 1955.106 and revised; new 1955.109 
        redesignated from 1955.108; interim........................35777
    Revised; interim...............................................35780
1955.110  Redesignated as 1955.111.................................27831
1955.111  Removed; new 1955.111 redesignated from 1955.110 and 
        revised....................................................27831
1955.112  Revised..................................................27831
1955.113  Revised..................................................27831
1955.114  Revised..................................................27832
1955.115  Revised..................................................27833
1955.116  Revised..................................................27834
1955.117  Revised..................................................27834
1955.118  Revised..................................................27835
1955.119  Revised..................................................27836
1955.122  (a) through (d) redesignated as (b) through (e); new (b) 
        and (e) revised; new (a) and (f) added; interim............35780
1955.123  (a) revised; interim.....................................35781
1955.127  Revised..................................................27836
1955.128  Revised; interim.........................................35781
1955.130  Revised..................................................27836
1955.131  (b) revised..............................................27837
1955.134  (b) revised..............................................27837
1955.135  Revised..................................................27837
1955.137  (a)(2)(ii)(A) revised; (a)(3)(i) amended; (d) and (e) 
        added......................................................27837
1955.138  Introductory text and (a) revised........................27837
1955.139  (a)(2) revised; (a)(3)(iv) amended.......................27838
    Heading, (a)(3) introductory text, (i) (A), and (B) and (iii) 
revised; (a)(3) (v) and (vi) and (c) added; interim................35781
1955.140--1955.143  Revised........................................27838
1955.140  Revised; interim.........................................35783
1955.144  Heading revised; (a) amended.............................27839
1955.145  Revised..................................................27839
1955.146  (a) revised..............................................27839
1955.147  Introductory text and (b) revised; (e) amended...........27839
1955.148  Revised..................................................27839
1956  Authority citation revised...................................13100
1956.57  (b) and (j) (2) and (3) amended...........................13100
    (j)(3) amended.................................................36955
1956.58  (b)(1) and (2)(i)(B) amended..............................13100
1956.66  Introductory text, (b) and (c) amended....................13100
1956.70  (b) (2) and (3) and (c) amended...........................13100
    (b) (2) and (3) amended........................................36955
1956.75  (a) amended...............................................13100
    (a) introductory text and (b) introductory text................36955
1956.85  (a)(3) and (b)(2) amended.................................13100
1956.96  (b)(3) amended............................................13100
1956.99  Amended...................................................13100
1956.101--1056.150 (Subpart C)  Added..............................13100
1956.101  Correctly revised........................................45888
1962  Authority citation revised...................................35783
1962.4  Paragraph designations removed; section amended; interim 
                                                                   35783
1962.6  (c)(1)(iv), (2)(ii) and (3)(ii) revised; interim...........35783
1962.8  Introductory text revised; interim.........................35783
1962.13  Introductory text revised; interim........................35783
1962.17  (a)(2), (b) (2) and (5) revised; (a)(3) added; interim....35784
1962.29  (b) introductory text revised; (b) (2) through (4) 
        redesignated as (b) (3) through (5); new (b)(2) added; 
        interim....................................................35785
1962.30  (b)(8) added...............................................7338
    (b) (1) through (8) redesignated as (b)(2) through (9); new 
(b)(1) added........................................................8740
1962.34  (a)(4) and (b)(5) added....................................7338
    (f) (9) and (13) and (g)(1) revised............................10358
    (f)(7) amended.................................................17688
    (a)(2) revised; interim........................................35785
1962.40  (b) introductory text, (b)(3) and (e)(1) revised; (f) 
        added; interim.............................................35785
1962.41  Introductory text and (e) revised; (f) added; interim.....35785

[[Page 846]]

1962.42  (a) introductory text, (c)(5)(i) introductory text, (ii) 
        and (6)(ii)(A) and (d) revised; interim....................35786
1962.47  (a)(3), (c)(3) and (4)(i) revised; interim................35786
1962.49  (c) (1) and (2) revised; interim..........................35787
1962.1--1962.49 (Subpart A)  Exhibits B and D revised; Exhibits E 
        and F added; interim.......................................35787
1965  Authority citation revised............................10358, 35794
1965.7  (a) through (k) redesignated as (b) through (l); 
        introductory text and new (a) added; interim...............35794
1965.11  (b) introductory text, (c)(1) (i) and (ii) introductory 
        text, (2)(ii) and (3) revised; (c)(2)(i)(C) removed; 
        interim....................................................35794
1965.12  (a)(9) added...............................................7339
    (b)(2)(ii)(C) revised...........................................8740
    (f) amended....................................................17688
    (a)(8), (b)(2)(ii)(B) and (g) revised; interim.................35794
    (f) corrected..................................................36432
1965.13  Introductory text and (f)(4)(ii) revised; interim.........35795
1965.17  (a) revised; interim......................................35795
1965.25  (a) introductory text and (d) introductory text revised; 
        interim....................................................35795
1965.26  (a)(2), (b) introductory text and (1), (c), (d), (e) 
        introductory text, and (f) introductory text and (6) 
        revised; (g) added; (b)(4) removed.........................35795
1965.27  (b)(20) revised............................................7339
    (b)(5) introductory text amended...............................10358
    (g)(4) revised.................................................17688
    (b)(4)(v) removed; (b)(4)(vi) redesignated as (b)(4)(v); 
introductory text, (b) introductory text, (1), (3), (4)(iv), (5) 
introductory text and (iv), (c)(1)(iii), and (g) (8) and (9) 
revised; interim...................................................35797
1965.31  (a)(2) revised; interim...................................35798
1965.1--1965.50 (Subpart A)  Exhibits A through D added; interim 
                                                                   35798
1965.65  (a)(4), (c)(2) and (11) revised............................2194
    (c)(10) introductory text, (ii), and (iii) amended..............7492
    (a)(8) removed; (a)(9) redesignated as (a)(8); interim.........13245
    (b)(8), (c) (11) and (12), and (f) (2) and (12) amended........15800
1965.68  (a)(1)(x) revised..........................................2195
1965.90  Revised; interim..........................................13245
1965.51--1965.100 (Subpart B)  Exhibits A, B and C revised; 
        Exhibits E through E-4 added; interim......................13248
    Exhibit C amended..............................................17688
1965.104  (b)(3) revised...........................................27840
1965.106  (a) heading, (b), and (c) revised........................27840
1965.125  (a)(1) amended; (a)(3) removed; (a)(4) redesignated as 
        (a)(3); (a)(2) revised.....................................27840
1965.126  (c)(2) introductory text revised.........................10358
    Introductory text and (b)(3) amended; (a), (b)(1) introductory 
text, (4) (i) and (ii), (5), and (13), (c) introductory text and 
(2), (d), and (e)(4)(ii) revised...................................27841
1965.127  (a) introductory text, (1), (2), and (3) and (b)(1) 
        revised....................................................27842
1965.128  Revised..................................................27843
1965.129  Introductory text revised................................27843
1965.137  Revised..................................................27843
1980  Authority citation revised...................................26413
1980.20  Introductory text revised.................................40400
1980.67  Revised...................................................26413
1980.80  Revised...................................................26413
1980.1--1980.100 (Subpart A)  Appendixes B and E amended............7339
    Appendix A revised; interim.....................................8150
    Appendix B revised; interim.....................................8153
    Appendix D revised; interim.....................................8160
    Appendix E revised; interim.....................................8162
1980.113  (d)(12) added.............................................7339
1980.115  Amended; interim..........................................8167
1980.101--1980.200 (Subpart B)  Exhibit A amended.............7339, 8167
1980.331  Amended..................................................10241
1980.332  Amended..................................................10241

[[Page 847]]

1980.402  Paragraph designations removed; text amended.............40401
1980.411  (a)(9) removed; (a) (10) through (16) redesignated as 
        (a) (9) through (15).......................................45258
1980.412  (e)(5) removed; (e)(6) redesignated as (e)(5); (e) 
        introductory text revised..................................45258
1980.413  (a)(4) removed; (b) amended..............................40401
1980.414  (b) amended..............................................45258
1980.420  Added....................................................40401
1980.423  (a)(1) revised...........................................40401
1980.442  Introductory text revised................................40401
1980.444  (a) revised..............................................40401
1980.451  (d) introductory text and (3), (f)(3), (i)(13) 
        introductory text revised; undesignated text following (k) 
        amended....................................................40401
    (i)(19) amended................................................45258
1980.452  Amended..................................................45258
1980.454  Undesignated text following (g) amended..................26413
1980.469  Undesignated text following (c) amended..................40403
1980.481  (a) amended..............................................40403
1980.401--1980.500 (Subpart E)  Appendix C amended.................40403
1980.680  Revised..................................................26413

                                  1989

7 CFR
                                                                   54 FR
                                                                    Page
Chapter XVIII
1951  Authority citation revised...................................10269
1951.6  (e)(4) revised.............................................46845
1951.7  (g) redesignated as (h) and revised; new (g) added.........10269
1951.10  Introductory text revised.................................46844
1951.11  (d)(1) (i) and (ii) redesignated as (d)(1) (ii) and 
        (iii); new (d)(1)(i) added.................................46845
1951.12  (b) revised...............................................18883
1951.1--1951.50 (Subpart A)  Exhibit A added.......................10270
1951.111  (d)(1) introductory text, (h)(1), (3), (m), and (p)(1) 
        revised; (f) (2), (3), (6), and (7), (g)(2), (h)(1) (i) 
        and (ii) amended...........................................26945
    (e) correctly designated.......................................27097
1951.121--1951.122  Added............................................966
1951.123--1951.127  Added............................................967
1951.207  (l) revised..............................................10270
1951.210  (f)(15) added............................................29332
1951.211  (c) introductory text amended............................29332
1951.308  (a)(2) (ii) and (v) revised..............................28021
1951.309  (b)(1) (i) through (iv) redesignated as (b)(1) (ii) 
        through (v); new (b)(1)(i) added; (b)(3) revised...........46845
1951.312  (d) introductory text, (2) and (e) introductory text 
        revised....................................................28021
1951.313  (a)(2), (g) (1), (2), and (h) amended....................28021
1951.314  (a)(5) amended...........................................28021
1951.318  Redesignated as 1951.320 and revised; new 1951.318 added
                                                                   14638
1951.320  Redesignated from 1951.318 and revised...................14638
1951.612  (a)(5) revised...........................................28412
1951.711  (b)(3) revised...........................................28020
1955.4  (b) revised.................................................6875
1955.55  (f) added.................................................20521
1955.60  Revised...................................................20522
1955.61  Revised...................................................20522
1955.63  (c) revised...............................................20522
1955.64  Introductory text, (a) introductory text and (1) revised 
                                                                   20522
1955.66  (a)(2) introductory text added; (a)(2)(i) and (e)(2) and 
        (f) heading revised; and text amended......................20523
1955.72  Revised...................................................20523
1955.80  (a) and (b) amended.......................................20523
1955.51--1955.100 (Subpart B)  Undesignated text revised...........20524
1955.109  (j) added................................................29333
1955.113  (a)(1) amended............................................6875
1955.117  (f) amended...............................................6875
1955.118  (k) added................................................29333
1955.143  (a) (1) and (2) amended...................................6875
1955.147  (f) revised...............................................6875
1956.105  (j) and (k) added; interim...............................47510
1956.137  Added; interim...........................................47510
1956.150  Revised; interim.........................................47510
1957  Revised; interim.............................................47958
    Correctly designated...........................................50306
1962.14  (a) amended...............................................47960
1962.18  Revised...................................................14791

[[Page 848]]

1962.49  (e) introductory text revised.............................42799
1965.12  (f) amended................................................8523
1965.27  (b)(21) added.............................................29333
1965.65  (f)(12) amended............................................8523
    (a)(9) added...................................................29333
1965.68  (a)(2)(iii), (b)(1)(i), (ii), (iv), and (2)(ii) revised 
                                                                    7529
1965.104  (b)(3) amended...........................................20524
1965.105  (b)(2) amended; (e)(2) revised...........................20524
1965.110  (c) amended...............................................8523
1965.125  (a)(2)(ii)(B) amended.....................................6875
1965.126  (e)(4)(ii) amended........................................6875
1965.129  Introductory text amended.................................6875
1980  Authority citation revised......................................4,
                                                     42481, 47960, 48229
1980.1  Amended; interim...........................................12874
1980.6  (a) and (b) amended; interim...................................4
    (a) amended.....................................................1548
    (a) amended; interim...........................................12874
    Regulation at 54 FR 4 confirmed................................26946
    (a) revised; interim...........................................42481
    (b) amended; interim...........................................42482
1980.13  (b) introductory text revised..............................1548
    (b)(5) amended.................................................14334
    (b)(2) amended.................................................47960
1980.20  Introductory text amended; interim............................4
    Revised.........................................................1548
    Regulation at 54 FR 4 confirmed................................26946
    (a) revised; interim...........................................42482
1980.22  (a) revised................................................1548
1980.40  Revised....................................................1548
    Revised; interim...............................................42482
1980.41  (a) revised................................................1549
1980.67  Redesignated as 1980.68; new 1980.67 added.................1549
1980.68  Redesignated from 1980.67..................................1549
1980.83  (b) table amended; interim.............................4, 42483
    Regulation at 54 FR 4 confirmed................................26946
    (a) amended....................................................47960
1980.85  Revised....................................................1549
1980.1--1980.100 (Subpart A)  Appendix B revised....................1549
    Appendix E revised..............................................1553
    Appendix H revised..............................................1557
    Appendix D revised.............................................47345
    Appendix G revised.............................................47960
1980.101--1980.200 (Subpart B)  Sections revised....................1558
1980.101  (a) amended; interim...............................2086, 48229
    Regulation at 54 FR 2086 confirmed.............................30883
1980.113  (d)(3) amended...........................................47967
1980.101--1980.200 (Subpart B)  Exhibit B removed...................1558
    Exhibit A revised...............................................1582
    Exhibit D revised...............................................1592
    Exhibit E added.................................................1594
    Exhibit E corrected.............................................5409
    Exhibit G added; interim........................................2086
    Exhibit F added.................................................1596
    Regulation at 54 FR 2086 confirmed.............................30883
    Exhibit A amended.......................................37093, 47967
    Exhibit G revised; interim.....................................48229
1980.246  (a)(4) removed; (a) (5) through (7) redesignated as (a) 
        (4) through (6); (a)(1) and new(a)(4) amended..............47967
1980.247  Amended..................................................47967
1980.284  Added.....................................................1597
1980.201--1980.294 (Subpart C)  Appendix A amended.................47967
1980.301--1980.400 (Subpart D)  Revised; interim...................12874
1980.401  (c) and (d) redesignated as (d) and (e); new (c) added; 
        interim........................................................4
    Regulation at 54 FR 4 confirmed................................26946
    (c) revised; interim...........................................42483
1980.402  Amended; interim......................................4, 42483
    Regulation at 54 FR 4 confirmed................................26946
1980.411  (a)(11) introductory text revised........................28022
1980.423  (a)(1) revised...........................................28022
1980.453  Amended..................................................28022
1980.475  (a)(5) redesignated as (a)(6); new (a)(5) and (d) added; 
        (b) and undesignated text revised...........................1598
1980.495  Introductory text amended; (i) added; interim................4
    Regulation at 54 FR 4 confirmed................................26946
    Introductory text revised; (k) added; interim..................42483

[[Page 849]]

1980.497  (a) amended; interim.....................................42483
1980.401--1980.500 (Subpart E)  Appendix I added; interim..............5
    Exhibit G added.................................................1599
    Regulation at 54 FR 5 confirmed; amended.......................26946
    Appendix I corrected...........................................14792
    Appendix C amended; interim.................................5, 42483
    Regulation at 54 FR 5 confirmed................................26946
    Appendix K added; interim......................................42483
1980.511  (a)(4) removed; (a) (5) and (6) redesignated as (a) (4) 
        and (5); (a)(1) and (c)(2) amended.........................47967
1980.513  Amended..................................................47967
1980.577  (b) amended..............................................47967
1980.583  Added.....................................................1599
1980.593  (b) amended..............................................47967
1980.501--1980.600 (Subpart F)  Appendix A amended.................47967
    Appendix B removed.............................................47967

                                  1990

7 CFR
                                                                   55 FR
                                                                    Page
Chapter XVIII
1950.103  (a)(2) amended...........................................40646
1950.104  Introductory text and (d) amended........................40646
1951  Authority citation revised....................................5975
1951.101  Revised..................................................11005
1951.102  Added....................................................11005
1951.103  Added....................................................11005
    (b) amended....................................................25820
1951.104  Added....................................................11006
    (d) amended....................................................25820
1951.105  Revised..................................................11007
    (a), (b)(1), and (4) amended...................................25820
1951.122  Revised..................................................38035
    (a)(4) amended; (b)(3) removed; (b)(4) and (5) redesignated as 
(b)(3) and (4); (a)(8) added; (d)(1) revised.......................52037
1951.123  Amended..................................................38036
1951.124  Amended..................................................38036
1951.125  Revised..................................................38036
    Amended........................................................52037
1951.126  Revised..................................................38036
    Amended........................................................52037
1951.127  Amended..................................................38036
1951.128  Added....................................................38036
1951.129  Added....................................................38036
1951.130  Added....................................................38037
1951.131  Added....................................................38037
1951.132  Added....................................................38037
1951.133  Added....................................................38037
1951.134  Added....................................................38037
1951.135  Added....................................................38037
1951.201--1951.250 (Subpart E)  Revised.............................4399
1951.251  Revised; interim.........................................29563
1951.313  (d) and (h) revised......................................35295
1951.504  (k) through (u) redesignated as (l) through (v); new (k) 
        added; interim.............................................25078
1951.506  (a)(3) amended; (a)(5)(iv) redesignated as (a)(5)(v); 
        new (a)(5)(iv) added; interim..............................25078
1951.509  Added; interim...........................................25078
1951.510  (c)(2)(v)(C) revised......................................5975
    (c)(3) amended; (e)(4) through (9) redesignated as (e)(5) 
through (10); new (e)(4) added; interim............................25078
1951.510--1951.550 (Subpart K)  Exhibit B added; interim...........25079
1951.568  (a)(6)(ii) revised.......................................35295
1951.618  (a)(7)(ii) and (b)(1)(v) revised.........................35295
1951.909  (e)(4)(ii)(A) removed; (e)(4)(ii)(B) through (D) 
        redesignated as (e)(4)(ii)(A) through (e)(4)(ii)(C); 
        (e)(4)(i) and (iii)(C) revised.............................35295
1951.911  (a)(2)(ii) and (b)(5) revised.............................9875
1955.1  Revised.....................................................5963
1955.18  (f) and (g) revised.......................................35295
1955.107  (e)(2) revised............................................9876
1955.111  Revised...................................................3942
1955.114  (a)(1)(iv) revised........................................3942
1955.118  Introductory text, (a) through (k), (b)(6) introductory 
        text, (1)(i), (ii) and (2), (h)(1) through (3) 
        redesignated as (a) through (b)(11), (b)(6)(i), (A), (B), 
        (ii), and (8)(i) through (iii); new (b)(4) and new 
        (6)(i)(B) revised; new (b)(8)(iv) added.....................3942
1955.119  Redesignated as 1955.120; new 1955.119 added..............3942
1955.120  Redesignated from 1955.119................................3942
1955.130  (f)(2) amended............................................3943
1955.132  Added.....................................................3943
1955.144  (b) amended...............................................3943

[[Page 850]]

1955.147  Introductory text amended.................................3943
1956.101  Revised..................................................30197
1956.105  Regulation at 54 FR 47510 confirmed......................30196
1956.137  Regulation at 54 FR 47510 confirmed......................30196
1956.147  Added....................................................30197
1956.150  Regulation at 54 FR 47510 confirmed......................30196
1962.6  (c)(2)(ii) amended.........................................28370
1962.13  (b) amended................................................4165
1962.49  (d) and (e)(1) revised....................................35296
1965.55  (a)(1) amended; interim...................................29564
1965.65  (b)(13) added; interim....................................25080
    (f)(12) table amended..........................................13504
    (c)(10) introductory text amended..............................26648
1965.68  (b)(2)(vii), (viii), and (ix) added; interim..............25080
1965.70  (b)(3)(viii) added; interim...............................25081
1965.88  Redesignated from 1965.89; interim........................29564
1965.89  Redesignated as 1965.88; new 1965.89 added; interim.......29564
1965.90  (b)(2) introductory text revised; interim.................29564
1965.51--1965.100 (Subpart B)  Exhibit E amended; interim....4986, 29564
1980  Authority citation revised.......................136, 19245, 26199
1980.6  (b) amended; interim.......................................11134
    (a) amended....................................................19245
1980.20  (a) introductory text revised; interim......................137
1980.60  (a)(12) amended; interim..................................11134
1980.1--1980.100 (Subpart A)  Appendix B revised; interim..........11134
1980.101  Regulation at 54 FR 48229 confirmed.......................7472
1980.110  (b) amended...............................................2366
1980.113  (a)(3) revised...........................................23887
1980.122  Amended...................................................2366
1980.124  (a)(8) added.............................................23887
1980.101--1980.200 (Subpart B)  Exhibits D and E amended............2366
    Regulation at 54 FR 48229 confirmed.............................7472
1980.401  (c) amended..............................................19245
1980.402  Amended..................................................19245
1980.451  Amended..................................................26199
1980.500  Revised..................................................19245
1980.401--1980.500 (Subpart E)  Appendix K amended; Exhibit A 
        revised; interim.............................................137
    Exhibit B revised; interim.......................................142
    Exhibit C revised; interim.......................................144
    Appendix F revised; interim....................................11139
    Appendix K amended.............................................19245
1980.601--1980.700 (Subpart G)  Revised.............................5963
    Appendix B removed..............................................5963
    Appendix D added................................................5975
1980.801--1980.900 (Subpart I)  Added; interim.....................11139

                                  1991

7 CFR
                                                                   56 FR
                                                                    Page
Chapter XVIII
1951  Authority citation revised....................................2256
    Authority citation revised.....................................67484
1951.15  (e) amended...............................................10147
1951.25  (c)(2) introductory text revised...........................3395
1951.1--1951.50 (Subpart A)  Exhibit B revised......................3396
1951.55  Revised...................................................28038
1951.223  (b)(4) and (c)(3) amended................................25351
1951.252  (c), (d) and (e) redesignated as (d), (e) and (f); (b) 
        revised; new (c) and (g) added.............................12442
1951.254  (b)(2) and (3) redesignated as (b)(3) and (4); (a)(3) 
        and new (b)(2) added.......................................12442
1951.261  (b)(1)(i) introductory text; (b)(1)(i)(A), (ii), (iv), 
        (2) and (d)(1) revised; (d)(3) and (4) amended.............12442
1951.301--1951.350 (Subpart G)  Revised.............................6946
1951.309  (b)(1) introductory text, (v), and (3) revised; 
        (b)(1)(vi) added; interim..................................41766
1951.313  (g) introductory text and (i) revised; interim...........41766
1951.314  (b)(1) revised............................................3396
    Introductory text amended; interim.............................41766
1951.330  Added; interim...........................................41766
1951.501  (d) added................................................28038
1951.504  (k) and (l) revised; eff. 1-27-92........................66961
1951.506  (a)(1) revised............................................2256

[[Page 851]]

    (a)(6) and (c) revised.........................................28038
1951.507  (e) revised..............................................28038
1951.509  Reviowsed; eff. 1-27-92..................................66961
1951.510  (c)(2)(iv) revised........................................2257
1951.512  Revised..................................................28038
1951.550  Revised (OMB numbers)....................................28039
1951.501--1951.550 (Subpart K) Exhibit B revised; eff. 1-27-92.....66962
1951.552  (g) revised..............................................33862
1951.561  (a)(1) introductory text revised.........................33862
1951.906  Amended; interim.........................................29402
1951.909  (e)(3)(vii)(B) and (j)(5) revised; (e)(4)(iv)(B) amended
                                                                    3396
    (a) amended....................................................10147
1951.911  (a)(5)(ii)(B) amended....................................10147
    (a)(4)(i) through (vi) redesignated as (a)(4)(ii) through 
(vii); new (a)(4)(i) added; (a)(6)(ii) and (7)(ii) revised; 
interim............................................................11351
    (a) introductory text and (1)(ii) amended; (a)(2)(ii) revised; 
interim............................................................29402
    (a)(7)(i) amended; eff. 1-30-92................................67484
1951.901--1951.950 (Subpart S)  Exhibit G amended...................3396
    Exhibit A amended...............................................6952
1955.1  Amended....................................................15821
1955.3  Amended....................................................15821
    Amended; interim...............................................29402
    Amended; eff. 1-30-92..........................................67484
1955.5  (d) revised; (e) added......................................6953
1955.10  (f)(2) introductory text revised..........................12645
    Introductory text and (e) revised..............................15821
    Introductory text amended......................................40245
1955.15  (d)(2)(iv) introductory text revised.......................6953
    (d)(2)(iv)(A), (B), (f)(5) and (6) introductory text revised; 
(d)(2)(iv)(C) and (D) added........................................15822
1955.18  (f) and (k) amended.......................................10147
    (i) revised....................................................15823
    (i) revised; interim...........................................29402
1955.1--1955.50 (Subpart A)  Exhibit G revised.....................15823
    Exhibit G-1 added..............................................15823
1955.53  Amended; interim..........................................29402
1955.66  (h) revised; interim......................................29403
1955.103  Amended; interim.........................................29403
    Amended; eff. 1-30-92..........................................67484
1955.107  (c) revised; interim.....................................29403
1955.114  (c)(3) and (5) revised....................................2257
1955.135  Revised...................................................6953
1955.141  (e) revised...............................................2257
1956  Authority citation revised.............................6953, 10147
1956.51--1956.100 (Subpart B)  Revised.............................10147
1956.57  (c) revised................................................6953
1956.58  Introductory text, (a), (b) introductory text, (1) and 
        (3) revised.................................................6953
    (a)(1) introductory text correctly revised.....................14187
1962.6  (c)(2)(i) amended..........................................15824
1962.8  Amended....................................................15824
1962.13  Introductory text revised.................................15824
1962.17  (b)(2)(ii) and (iii) revised..............................15824
1962.29  (b) introductory text revised.............................15825
1962.34  (f)(12) and (13) removed; (g)(3)(i) amended................3396
    (f)(5) removed; (f)(6) redesignated as (f)(5); (e)(2), (3) and 
(f)(4) revised.....................................................12646
    Introductory text amended......................................15825
1962.40  (a)(1) introductory text, (b) and (e)(1) introductory 
        text revised...............................................15825
1962.41  Introductory text revised.................................15825
1962.42  (a) introductory text, (c) introductory text and (d) 
        revised....................................................15825
1962.46  (f) revised...............................................15826
1962.47  (a)(3), (c)(2) through (5) revised........................15826
1962.1--1962.50 (Subpart A)  Exhibit D revised.....................15827
    Exhibit D-1 added..............................................15828
    Exhibit E revised..............................................15829
1965  Authority citation revised..............................2257, 6954
1965.11  (c)(1) introductory text amended; (c)(1)(i) through 
        (iii), (2)(i)(B), (ii) introductory text and (3) revised 
                                                                   15829
1965.12  (c) amended; eff. 1-30-92.................................67484
1965.13  (f)(2) revised............................................10154

[[Page 852]]

1965.25  (d) introductory text revised.............................15830
1965.26  (c)(2) introductory text revised...........................6954
    (f)(5)(i) and (g)(3) revised...................................12646
    (a)(1) introductory text, (b), (c)(1), (2)(iv) introductory 
text and (C) revised; (c)(3) added.................................15830
1965.27  (e), (b)(5), (c)(2) and (d) introductory text amended; 
        (g)(9) revised..............................................3396
    (f)(1) and (g)(6)(i) revised...................................12646
    (b)(5)(iii)(B) removed; (b)(5)(iii)(C) and (D) redesignated as 
(b)(5)(iii)B) and (C); (c)(1)(iii)(A), (B) and (e) revised.........15831
    (b)(13) and (g)(8) amended; eff. 1-30-92.......................67484
1965.31  (c) amended; eff. 1-30-92.................................67484
1965.34  Introductory text revised.................................15831
1965.1--1965.50 (Subpart A)  Exhibit B heading revised.............15832
1965.55  (a)(12) revised............................................2257
1965.61  (b) and (c) revised........................................2257
1965.63  (d) and (e)(2) revised.....................................2257
1965.65  (a)(3), (c)(3) and (7) revised.............................2257
    (f)(12) amended.................................................2258
    (b)(2) amended.................................................10154
    (f)(2) and (6)(i) amended......................................25351
    (f)(14)(i) revised.............................................28039
    (b)(13) removed; eff. 1-30-92..................................66964
    (g)(1) revised; eff. 1-30-92...................................67484
1965.68  Revised...................................................25351
    (c)(8) added; eff. 1-27-92.....................................66964
1965.70  (d)(5) revised; (b)(3)(ix) through (xi) and (d)(9) added; 
        (b)(3) introductory text amended...........................25352
    (b)(3)(viii) removed; (b)(3)(ix), (x) and (xi) redesignated as 
(b)(3)(viii), (ix) and (x); eff. 1-27-92...........................66964
1965.77  (c)(7)(vii) revised; eff. 1-30-92.........................67484
1965.79  (b)(16) amended; eff. 1-30-92.............................67484
1965.89  Introductory text, (c) and (d) revised; eff. 1-27-92......66964
1965.100  Revised..................................................28039
1965.101--1965.150 (Subpart C)  Revised.............................6954
1965.125  (a)(3) amended............................................3397
1965.126  (e)(3) revised; eff. 1-30-92.............................67484
1965.127  (b)(1)(ii) revised........................................3397
1980  Authority citation revised...................................10154
1980.21  Revised...................................................11503
1980.41  (a) revised...............................................11504
1980.83  (a) revised; interim.......................................8259
    (b) amended; interim............................................8260
1980.100  Revised; interim..........................................8260
1980.1--1980.100 (Subpart A)  Appendix I revised; interim...........8261
    Appendix J added; interim.......................................8263
1980.101  (a) amended; interim......................................8264
1980.110  (b) amended; interim......................................8264
1980.113  Amended; interim..........................................8264
1980.115  Amended; interim....................................8264, 8265
1980.122  Amended; interim..........................................8265
1980.124  (b)(5) revised; (b)(9) and (c)(4) amended; interim........8265
1980.125  (a) introductory text, (1) and (b)(2) amended; interim 
                                                                    8265
1980.145  (b) amended; interim......................................8265
1980.175  (e)(4) amended; (e)(6) added; interim.....................8265
1980.200  Revised; interim..........................................8265
1980.101--1980.200 (Subpart B)  Exhibit A amended; interim..........8265
    Exhibits C and D amended; interim...............................8266
    Exhibit E amended; interim......................................8271
1980.301--1980.400 (Subpart D)  text Revised.......................15752
1980.340  (c)(3) amended; interim...................................8271
1980.350  (j)(2) amended...........................................10154
1980.354  (c)(1) amended; interim...................................8271
1980.301--1980.400 (Subpart D)  Exhibits B, D, E and F revised; 
        Exhibits G, I and J added..................................15752
1980.424  Amended; interim..........................................8271
1980.451  Amended; interim..........................................8271
1980.452  Amended; interim..........................................8271
1980.628  (e) amended; interim......................................8271
1980.646  (b)(1) and (c) amended; interim...........................8271
1980.648  (b)(2) amended; interim...................................8271
1980.806  Revised..................................................29170

[[Page 853]]

1980.812  Amended..................................................29170
1980.813  (a)(2)(vii) redesignated as (a)(2)(viii) and new 
        (a)(2)(vii) added..........................................29170
1980.814  (d) revised..............................................29170
1980.815  (a) revised..............................................29171
1980.818  (a)(3) and (4) revised...................................29171
1980.819  (a) and (b)(4) revised; (b) amended......................29171
1980.823  (a), (b) and (c) revised.................................29171
1980.824  (c) amended..............................................29171
1980.842  Revised..................................................29171
1980.844  (a)(1) and (2) revised...................................29171
1980.851  (b)(2)(ii) through (xii) redesignated as (b)(2)(iii) 
        through (xiii); new (b)(2)(ii) added; (a)(1) introductory 
        text, (v), (b)(1), (2) introductory text, new (b)(2)(iv) 
        and new (b)(2)(vii) revised................................29171
1980.852  Revised..................................................29172
1980.853  Introductory text, (a) and (b) amended; interim...........8271
    Introductory text amended......................................29172
1980.854  (a)(5) removed...........................................29172
1980.856  Introductory text and (a) amended; (c) and (e)(1) 
        revised; (g) and (h) added.................................29172
1980.870  (a) amended..............................................29173
1980.871  Redesignated as 1980.872; new 1980.871 added.............29173
1980.872  Redesignated as 1980.873; new 1980.872 redesignated from 
        1980.871; (a), (b), (d) and (e) revised....................29173
1980.873  Redesignated as 1980.874; new 1980.873 redesignated from 
        1980.872...................................................29173
1980.874  Redesignated as 1980.875; new 1980.874 redesignated from 
        1980.873...................................................29173
1980.875  Redesignated as 1980.876; new 1980.875 redesignated from 
        1980.874...................................................29173
1980.876  Redesignated as 1980.877; new 1980.876 redesignated from 
        1980.875...................................................29173
1980.877  Redesignated as 1980.878; new 1980.877 redesignated from 
        1980.876; (e)(5) and (7) redesignated as (e)(7) and (5); 
        (c) and new (e)(7) amended.................................29173
1980.878  Redesignated as 1980.879; new 1980.878 redesignated from 
        1980.877; (b) amended......................................29173
1980.879  Redesignated as 1980.880; new 1980.879 redesignated from 
        1980.878; (e) introductory text amended; (e)(4) 
        introductory text, (i), (ii) introductory text, (A), (B), 
        (C) and (iii) redesignated as (f) introductory text, (1), 
        (2) introductory text, (i), (ii), (iii) and (3)............29173
1980.880  Redesignated as 1980.881; new 1980.880 redesignated from 
        1980.879...................................................29173
1980.881  Redesignated from 1980.880...............................29173

                                  1992

7 CFR
                                                                   57 FR
                                                                    Page
Chapter XVIII
1951  Authority citation revised............................18680, 36590
1951.10  (a)(5) removed; (a)(6) and (7) redesignated as (a)(5) and 
        (6)........................................................18680
1951.151--1951.155 (Subpart D)  Added................................774
1951.201  Revised..................................................11568
    Amended........................................................33101
1951.220  (a) amended................................................775
    (e)(1)(ii) amended.............................................21199
    (d) revised....................................................36591
1951.224  (a)(1)(i), (ii) and (d) amended..........................21199
1951.227  (c) amended..............................................36591
1951.230  (d)(1)(i) amended........................................36590
1951.232  Introductory text amended................................21199
1951.261  (d)(3) amended; eff. 1-19-93.............................59906
1951.514  Amended..................................................36591
1951.501--1951.550 (Subpart K)  Exhibit B corrected.................1313
1951.901--1951.950 (Subpart S)  Sections revised; interim..........18626
1951.911  Regulation at 56 FR 67484 effective date delayed to 3-
        31-92.......................................................3276
    (b)(6)(ii) amended.............................................36591
    (a)(5)(i)(A) amended; interim..................................47257
1951.901--1951.950 (Subpart S)  Exhibit A amended; interim.........18650

[[Page 854]]

    Exhibits B revised and C-1 added; interim......................18658
    Exhibit E revised; interim.....................................18659
    Exhibit F amended; interim.....................................18660
    Exhibit G amended; interim.....................................18661
    Exhibit H amended; Exhibit I revised; interim..................18662
    Exhibit J-1 added; interim.....................................18664
    Exhibit L revised; interim.....................................18669
    Exhibits N and O revised; interim..............................18670
    Exhibit H amended..............................................36591
    Exhibit C-1 amended; interim...................................47257
1955.3  Regulation at 56 FR 67484 effective date delayed to 3-31-
        92..........................................................3276
1955.5  (d) amended................................................36590
1955.10  (d)(3) and (f)(1) introductory text revised................1372
1955.15  (d)(2)(iv)(C) and (D) revised; interim....................18671
    (b)(3) amended.................................................31642
    (d)(2) introductory text and (6)(i) introductory text revised 
                                                                   60085
1955.50  Revised....................................................1372
1955.53  Amended; interim...................................19525, 19528
1955.55  (e) and (f)(1)(ii) amended................................36591
1955.63  (a) revised; interim......................................19528
1955.64  (a)(3) amended............................................31642
1955.65  (c)(1) amended; (c)(4) revised............................36591
1955.66  (p) removed; (c)(2) amended; interim......................19525
    (a)(2)(iii)(F) revised.........................................31642
1955.67  (a) introductory text and (b) amended.....................36592
1955.68  (a) amended...............................................36592
1955.69  (a) amended...............................................36592
1955.103  Regulation at 56 FR 67484 effective date delayed to 3-
        31-92.......................................................3276
    Amended; interim........................................19525, 19528
    Amended........................................................31642
1955.105  (c)(5) and (d) amended; interim..........................19528
1955.106  (b) revised..............................................19525
1955.107  (e) revised; (f) added; interim..........................19525
    Introductory text revised; interim.............................19528
1955.108  Introductory text and (c) revised; (d) amended; interim 
                                                                   19528
    (d)(3) revised.................................................36592
1955.137  (a) heading revised; (b), (c), (d) and (e) redesignated 
        as (e), (f), (g) and (h); new (b), (c) and (d) added.......31642
1955.139  (c)(2)(v) amended.......................................31644,
                                                                   36592
1955.141  (a) amended..............................................36592
1955.101--1955.150 (Subpart C)  Exhibit A added....................31644
1956.58  (b)(1) revised............................................42691
1956.51--1956.100 (Subpart B)  Exhibit A removed...................60085
1962  Authority citation revised...................................36592
1962.6  (c)(2)(i) amended..........................................20741
1962.17  (c)(5) revised; (c)(6) removed............................18680
    (a)(1) revised.................................................60085
1962.29  (a)(1) amended; (b) introductory text revised.............36592
1962.30  (b)(1) removed; (b)(2) through (9) redesignated as (b)(1) 
        through (8); (a), new (b)(1), (4), (5) and (6) revised.....18680
1962.40  (e)(4) revised............................................36592
    (b)(2) introductory text, (i) and (ii) amended.................60085
1962.41  (c) revised...............................................60085
1962.42  (a)(1)(v), (b)(1), (2), (3) and (c)(7) amended............36592
1962.49  (c)(2) and (3)(ii)(A) amended.............................60085
1965.3  Amended....................................................36592
1965.11  (c)(1) introductory text amended..........................20741
    (b) introductory text amended; (b)(3) revised..................36592
1965.12  Regulation at 56 FR 67484 effective date delayed to 3-31-
        92..........................................................3276
    Introductory text, (e)(2) and (f) amended; (a)(6) and (7) 
removed; (a)(8) and (9) redesignated as (a)(6) and (7); heading, 
(a) introductory text, (b) and (g) revised; (a)(8) through (13) 
added..............................................................18680
1965.13  (a) amended.................................................775
1965.25  Heading and (a) revised...................................18681
1965.27  Regulation at 56 FR 67484 effective date delayed to 3-31-
        92..........................................................3276

[[Page 855]]

1965.31  Regulation at 56 FR 67484 effective date delayed to 3-31-
        92..........................................................3276
1965.34  (e) revised...............................................60085
1965.65  Regulation at 56 FR 67484 effective date delayed to 3-31-
        92..........................................................3276
    (g)(5) amended; eff. 1-19-93...................................59906
1965.75  (c)(2) amended............................................36592
1965.77  Regulation at 56 FR 67484 effective date delayed to 3-31-
        92..........................................................3276
1965.79  Regulation at 56 FR 67484 effective date delayed to 3-31-
        92..........................................................3276
1965.90  (c) amended.................................................776
1965.104  (b) introductory text amended; (c)(1)(ii) removed........36593
    (c)(1)(ii) correctly removed...................................61489
1965.126  Regulation at 56 FR 67484 effective date delayed to 3-
        31-92.......................................................3276
1980  Authority citation revised....................................4337
1980.13  (b) introductory text revised..............................6067
1980.47  Heading and introductory text revised; (d) added...........6068
1980.83  (b) table amended..........................................6068
1980.108  (a)(1)(iii) and (iv) revised.............................18681
1980.113  (d)(8)(ii)(D) revised; interim...........................12992
1980.311  Revised...................................................1638
1980.401  (f) added................................................45969
1980.402  Amended..................................................45969
1980.453  Amended...................................................4359
1980.454  (e) and undesignated text amended; (a) and (c) revised 
                                                                    4359
1980.498  Added....................................................45969
1980.813  (a) introductory text revised............................21199
1980.901--1980.1000 (Subpart J)  Added; interim.....................4337

                                  1993

7 CFR
                                                                   58 FR
                                                                    Page
Chapter XVIII
1951  Authority citation revised.....................15418, 40954, 69200
1951.8  (a) amended................................................52646
1951.25  Heading and (a) revised; (b)(3) amended...................15074
1951.201  Revised...................................................5566
    Regulation at 58 FR 5566 confirmed.............................42639
1951.251  Amended..................................................38925
1951.252  (d) amended..............................................38925
1951.261  (d)(3) revised; (d)(4) redesignated as (d)(5); new 
        (d)(4) added; (e)(2)(iii) and (5) amended..................38925
1951.264  Revised..................................................38926
1951.301  Amended..................................................52646
1951.314  (a)(6) revised; (a)(10) added............................52646
1951.451--1951.500 (Subpart J)  Added..............................52646
1951.506  (a)(1), (2) and (5)(v) revised; (a)(3), (5)(i), (ii), 
        (iii) and (c) amended; (a)(7) added........................40954
1951.507  (e) revised..............................................40955
1951.510  (c)(2) introductory text amended; (c)(3) redesignated as 
        (c)(4); (c)(1) and new (4) revised; new (c)(3) added.......40955
1951.512  Amended..................................................40955
1951.517  (a) amended; (b)(3)(ii) and (4) revised..................40955
1951.501--1951.550 (Subpart K)  Exhibit B amended..................40956
1951.608  (e)(1)(i)(B) and (iii) amended...........................52651
1951.612  (a)(1)(i) and (ii) amended; (a)(1)(iv) introductory text 
        removed; (a)(1)(iv)(A) through (D) redesignated as 
        (a)(1)(iii)(A) through (D); (a)(1)(iii) introductory text, 
        new (A) and new (D) revised................................52651
1951.618  (a)(1)(ii) and (8)(i)(B) removed; (a)(1)(iii) and 
        (8)(i)(C) redesignated as (a)(1)(ii) and (8)(i)(B); (b) 
        introductory text amended..................................52651
1951.651  Revised..................................................38926
1951.652  (g) amended..............................................38926
1951.653  Revised..................................................38926
1951.654  (e) added................................................38926
1951.656  (e) amended..............................................38926
1951.658  (a) introductory text revised............................38926
1951.661  (a)(1)(i) amended........................................38926
1951.668  (c) added................................................38926
1951.901  Amended....................................................228

[[Page 856]]

1951.909  (e)(4)(iv) through (viii) and (h)(v) through (x) 
        redesignated as (e)(4)(vii) through (xi) and (h)(4)(ix) 
        through (xiv); (e)(4)(ii), (iii) and (h)(4)(iv) revised; 
        new (e)(4)(iv), new (v), new (vi) and new (h)(4)(v) 
        through (viii) added; interim..............................30104
    (f)(1) introductory text amended; interim......................44752
    (i)(3)(iii) and (4)(ii) amended; interim.......................44753
    (a)(3) and (c)(5) added; interim; eff. 2-28-94.................69200
1951.910  (a)(1) amended; interim..................................44753
1951.911  (a)(6)(ii) and (7)(ii) amended; interim..................44752
    (a)(7)(ii) amended; interim....................................44753
    (a)(7)(iii), (iv), (b)(9), (10) and (c) revised................52651
    (a)(7)(iii) correctly revised..................................64455
1951.916  Revised...................................................4066
    Existing text designated as (a); new (a) heading and (b) 
added; interim.....................................................15418
1951.901--1951.950 (Subpart S)  Exhibit A amended; interim.........30105
    Exhibit J-1 amended; interim...................................30106
    Exhibit F amended..............................................44753
    Exhibits A, B and F amended; interim; eff. 2-28-94.............69200
1955  Authority citation revised...................................48290
1955.2  Amended....................................................52652
1955.3  Amended; interim...........................................68723
1955.9  Added; interim.............................................68723
1955.10  (h)(6) amended............................................38926
    (e) introductory text amended; interim.........................44752
    Introductory text and (f)(1)(iii) amended; (f)(2)(i) and (ii) 
redesignated as (f)(2)(iv) and (v); new (f)(2)(i), new (ii) and 
(iii) added; (f)(2) introductory text, (3)(i)(M), (ii)(F) and 
(g)(1) revised; interim............................................68724
1955.15  (f)(2) through (6) redesignated as (f)(3) through (7); 
        (d)(2) introductory text, (iv)(D), (3)(ii)(C), new (f)(6), 
        and new (7) introductory text amended; (d)(2)(v) and new 
        (f)(2) added...............................................38927
    (d)(5) revised.................................................58648
    Introductory text, (d)(1) and (3)(i) introductory text 
amended; (d)(3)(i)(A) introductory text, (f)(1), (3) and (6) 
revised; interim...................................................68725
1955.18  (e)(2)(ii) amended; (l) added.............................38927
    (a), (b) introductory text and (c) amended; (d) revised; 
interim............................................................68725
1955.1--1955.50 (Subpart A)  Exhibit G and G-1 amended; interim....44752
1955.53  Amended...................................................58648
1955.63  (a) revised...............................................58648
1955.66  (h)(2) amended; interim...................................44752
    (c)(2), (e)(1) and (g) revised; (d)(4) amended.................58649
1955.80  (c) revised...............................................58649
1955.81  Amended...................................................58649
1955.101  Amended..................................................52652
1955.102  Amended..................................................52652
1955.103  Amended; interim..................................44752, 48290
    Amended........................................................58649
1955.105  (d) revised..............................................58649
1955.106  (b) revised..............................................58649
1955.107  (c) amended; interim.....................................44752
    (a) revised; (d)(2) amended; interim...........................68725
1955.108  (a) revised..............................................52652
    (b) amended; (c) revised.......................................58649
1955.109  (a), (c), (h) and (i) revised; (b) amended...............52652
1955.113  Introductory text amended................................38927
1955.114  (a)(3)(ii) amended; (b) revised..........................38927
    (c) introductory text revised..................................38949
    (a)(5) amended.................................................52652
1955.115  (b) amended..............................................38928
    (a) introductory text revised..................................52652
1955.117  (b) amended..............................................38928
1955.118  (b)(7) amended...........................................38928

[[Page 857]]

    Heading, (a), (b) introductory text, (2) through (6), (8)(iii) 
and (10) revised...................................................52653
1955.119  Introductory text and (d) introductory text revised......52653
1955.120  Amended..................................................52653
1955.122  (a) through (f) redesignated as (b) through (g); new (a) 
        added; new (b) revised; interim............................48290
    (d)(1) amended.................................................58650
1955.123  (a) and (b) revised......................................52653
    (a) revised....................................................58650
1955.128  Revised..................................................58650
1955.146  (c) and (d) redesignated as (d) and (e); new (c) added 
                                                                   38928
1956.51  Revised...................................................21344
1956.54  Amended...................................................21344
1956.57  (b) and (h) heading revised; (c) and (g)(1)(i) amended; 
        (k) removed; (l) redesignated as (k).......................21344
1956.58  Removed...................................................21345
1956.66  (a)(2) and (b) introductory text amended; (b)(1) 
        introductory text and (b)(2) removed; (b)(1)(i), (ii) and 
        (iii) redesignated as (b)(1), (2) and (3); (a) 
        introductory text and new (b)(3) revised; (c) added........21345
1956.71  Added.....................................................21345
1956.84  Added.....................................................21345
1956.85  (b)(1) amended............................................21345
1956.86  Added.....................................................21345
1956.96  Revised...................................................21345
1956.97  Redesignated from 1956.98; (a) and (c) amended; (d) added
                                                                   21346
1956.98  Redesignated as 1956.97...................................21346
1956.101  Revised; interim..........................................5566
    Regulation at 58 FR 5566 confirmed.............................42639
1956.137  (d)(5) amended...........................................21346
1956.145  Introductory text, (b) and (c) amended...................21346
1956.146  Added....................................................21346
1962.1  Amended....................................................52654
1962.16  (a) amended...............................................46075
1962.17  (a)(1) introductory text, (3), (b)(1), (2)(i) and (vii) 
        revised; (a)(2), (b)(2)(ii) and (iii) amended..............46075
1962.34  (b)(3) revised; (d) amended; (e)(2) removed; (e)(3) 
        redesignated as (e)(2).....................................52654
1962.47  (b)(2)(i) amended; (c) and (d) redesignated as (d) and 
        (e); new (c) added.........................................21346
1965.1  Revised....................................................52654
1965.2  (a), (b) and (c) redesignated as (b), (c) and (d); new (a) 
        added......................................................52654
1965.11  (c)(2)(ii)(A) amended.....................................38928
1965.12  (a)(6) amended............................................26682
    (d) and (f) amended; interim...................................44752
    (d) and (g) amended; interim...................................44753
    Introductory text and (g) amended..............................52654
1965.13  (d) introductory text amended; interim....................44752
    Introductory text amended......................................52654
1965.17  (c) removed; (d) redesignated as (c)......................52654
1965.25  (d)(1) amended; interim...................................44752
1965.26  (a)(2) amended; interim...................................44752
    (e)(4)(i) heading and (ii) removed; (e)(4)(i)(A), (B) and (C) 
redesignated as (e)(4)(i), (ii) and (iii); new (e)(4)(iii) amended
                                                                   52654
1965.27  (g)(5) and (h)(1) introductory text amended; interim......44752
    Introductory text and (c)(1)(ii) amended; (c)(1)(iii)(C), (d), 
(f), (g)(4) and (6)(i) revised.....................................52654
1965.31  (c) amended...............................................52655
1965.34  Removed...................................................52655
1965.55  (a)(7) amended............................................38928
1965.61  (e)(2) introductory text and (iv) amended.................40956
1965.65  (c)(11) through (15), (d)(7), (f)(13) and (14) 
        redesignated as (c)(12) through (16), (d)(8), (f)(14) and 
        (15); new (c)(11), new (d)(7) and new (f)(13) added; 
        (c)(10) introductory text, new (c)(12), new (d)(8) and 
        (f)(12) amended; (b)(3), (4), (c)(1), (3), (5), (f)(4) 
        introductory text, (7) introductory text and (8) revised 
                                                                   38928
    (b)(11) amended................................................40956

[[Page 858]]

1965.68  (c)(3) amended; (c)(7) revised; (c)(8) redesignated as 
        (c)(9); new (c)(8) added...................................38930
1965.70  (a) and (b)(2) amended; (b)(3) redesignated as (b)(4); 
        new (b)(3) added; (d)(8) revised...........................38930
1965.77  (d)(2)(iii) amended.......................................38930
1965.89  (c) introductory text, (1) and (d) amended................38930
1965.90  Revised...................................................38930
1965.92  Amended...................................................38930
1965.100  Amended..................................................38930
1965.51--1965.100 (Subpart B)  Exhibits A, B, C, E, E-1, E-2, E-3 
        and E-4 removed............................................38930
1965.101  Amended..................................................52655
1965.104  (c)(2) revised...........................................52655
1965.105  Introductory text amended; (c) removed; (d) and (e) 
        redesignated as (c) and (d)................................52655
1965.125  (a)(2)(iv) revised; (a)(2)(v) added......................52655
1965.126  (c)(2) introductory text revised..........................4067
    Introductory text, (b)(3) and (d) revised; (b)(1) introductory 
text and (4)(ii) introductory text amended.........................52655
1965.201--1965.250 (Subpart E)  Added..............................38931
1965.204  (b) amended..............................................40956
1965.214  (f)(2) amended...........................................40956
1980  Authority citation revised............................48291, 69201
1980.6  (a) and (b) amended; interim...............................34306
    (a) amended; interim...........................................48291
1980.11  Amended; interim..........................................34307
1980.13  (b) introductory text, (2), (4) and (c) revised; interim 
                                                                   34307
1980.20  (a) introductory text amended; interim....................34307
1980.21  (a) revised; interim......................................48291
1980.22  (a) revised; interim......................................48291
1980.46  (a)(1) and (2) introductory text revised; interim.........34307
1980.60  (a) introductory text revised; interim....................34307
1980.61  (a), (b)(1), (3), (4) and (d) revised; interim............34308
1980.62  Revised; interim..........................................34308
1980.63  (a) revised; interim......................................34308
1980.64  (a) revised; interim......................................34308
1980.65  Revised; interim..........................................34308
1980.66  Revised; interim..........................................34308
1980.83  (a) revised; interim......................................34308
1980.84  (b)(4) revised; interim...................................34308
1980.1--1980.100 (Subpart A)  Appendix E revised; interim..........34309
    Appendix F revised; interim.............................34312, 48292
    Appendix G revised; interim.............................34316, 65874
1980.101  (a) amended................................................228
    (a) revised; interim...........................................34329
1980.106  (b)(1) and (17) introductory text revised; (b)(17)(iii) 
        amended; interim...........................................34329
    (b) amended; interim....................................48296, 65886
1980.108  (b)(4) added; (d) introductory text revised; (d)(2) 
        introductory text removed; (d)(2)(i) and (ii) redesignated 
        as (d)(2) and (3)..........................................15074
    (b)(2), (d) heading, (1), (2) introductory text, (i) and (ii) 
amended; interim...................................................48282
    (a)(2)(i) removed; (a)(2)(ii), (iii) and (iv) redesignated as 
(a)(2)(i), (ii) and (iii); new (a)(2)(i) revised; (b)(1) amended; 
(e) added; interim.................................................48296
1980.109  (a)(2)(ii) amended; (a)(2)(iv) removed; (a)(2)(iii) 
        revised; interim...........................................48297
1980.113  Revised; interim.........................................34329
    (a)(10) amended; interim.......................................68721
1980.114  Introductory text revised; undesignated text amended; 
        interim....................................................34331
    Introductory text amended; interim.............................44748
    Amended; interim...............................................48297
    Introductory text revised; (a) and (b) redesignated as (c) and 
(d); new (c) and undesignated text amended; new (a) and new (b) 
added; interim.....................................................68721
1980.115  Revised; interim.........................................34331
    Introductory text, (a) and (b) revised; interim................44748
    Introductory text revised; interim.............................48297

[[Page 859]]

    (a) and (b) redesignated as (c) and (d); new (a) and new (b) 
added; introductory text revised; undesignated text amended; 
interim............................................................68722
    Amended; interim; eff. 2-28-94.................................69201
1980.116  Revised; interim.........................................34332
    Amended; interim........................................44748, 68722
1980.117  Introductory text removed; (a) through (d) added; 
        undesignated text amended; interim.........................34332
    Amended; interim...............................................44748
1980.118  (b) and (c) revised; (d) added; undesignated text 
        amended; interim...........................................34332
    Corrected......................................................40190
1980.119  Added; interim...........................................34332
1980.122  Amended; interim.........................................34334
1980.123  (b), (c), (h) and undesignated text amended; interim.....34334
1980.124  (a)(1) revised; interim..................................48297
    (a)(4) revised; interim; eff. 2-28-94..........................69201
1980.125  (c)(4) and (d)(4) revised; interim.......................34334
1980.130  Revised; interim.........................................34334
1980.131  Added; interim...........................................34335
1980.136  Revised; interim.........................................34335
1980.139  Revised; interim.........................................34335
1980.144  (a) introductory text and (d) revised; undesignated text 
        amended; interim...........................................34335
1980.145  (a) and (b) revised; undesignated text amended; interim 
                                                                   34336
1980.146  Revised; interim.........................................34336
1980.147  Revised; interim.........................................48297
1980.175  (b) introductory text and (f)(2) revised; interim........34338
    (c)(1)(iv), (d)(1) and (h)(2) amended; interim.................48282
    (b)(2)(iv)(A) and (e)(2) amended; (d)(1) through (5) 
redesignated as (d)(2) through (6); new (d)(1) and (7) added; 
(e)(1) revised; interim............................................48297
    (b)(4) added; interim; eff. 2-28-94............................69201
1980.176  Added; interim...........................................48298
1980.180  (c)(1)(iv), (d)(4) and (5) added; interim................48299
1980.185  (b)(1)(iii) through (vii) redesignated as (b)(1)(iv) 
        through (viii), (b)(2)(iv) through (ix) redesignated as 
        (b)(2)(v) through (x) and (d)(1), (2) and (3) redesignated 
        as (d)(2), (3) and (4); (b)(1)(i), new (viii), (2)(iii) 
        and new (ix) amended; new (b)(1)(iii), new (b)(2)(iv), 
        (xi), (xii) and new (d)(1) added; new (b)(1)(vii), new 
        (2)(viii) and (c) revised..................................15075
    (b) introductory text revised; interim.........................34338
    (b)(1)(i) and (2)(iii) amended; interim........................48299
1980.190  Added; interim...........................................34339
1980.191  Added; interim; eff. 2-28-94.............................69201
1980.101--1980.200 (Subpart B)  Exhibit A amended; interim.........34341
    Exhibit D amended; interim.....................................34342
    Exhibit E amended; interim.....................................44748
    Exhibit C revised; interim.....................................44753
    Exhibits A and E amended; interim..............................48300
    Exhibit D amended; interim..............................65886, 65887
    Exhibit E amended; interim.....................................65888
    Exhibit D amended; interim; eff. 2-28-94.......................69204
1980.201  (a) amended................................................229
1980.207  Introductory text revised..................................229
1980.246  (c)(5)(i) amended; interim...............................44752
1980.301  (a) amended................................................229
1980.401  (a) amended................................................229
1980.441  Undesignated text removed................................40039
1980.442  Introductory text revised; undesignated text added.......40039
1980.498  (l)(4) amended; (m)(5)(iv) removed; interim..............34342
    (m)(5) introductory text, (6) introductory text and (8) 
heading revised; (m)(8)(iii) added.................................38952
    (a) revised; interim...........................................41172
    (l)(4) and (m)(5)(iii) amended; (m)(3)(i) revised; interim.....48300
1980.501  (a) amended................................................229
1980.601  Amended....................................................229
1980.801  (a) amended................................................229

[[Page 860]]

1980.901  (a) amended................................................229

                                  1994

7 CFR
                                                                   59 FR
                                                                    Page
Chapter XVIII
    Heading revised; nomenclature change; interim..................66443
1951.201  Amended; interim.........................................41389
1951.261  (b)(1)(i)(A)(1) and (2) removed; CFR correction..........63698
1951.506  (a)(3) and (4) revised...................................54789
1951.910   (b) revised.............................................25803
1951.951--1951.1000  (Subpart T) added; interim....................53081
1951.1000  OMB number; interim.....................................53083
1955.3  Regulation at 58 FR 68723 eff. date corrected to 12-29-94 
                                                                   15966
1955.4  (a) revised................................................43441
1955.9  Regulation at 58 FR 68723 eff. date corrected to 12-29-94 
                                                                   15966
1955.10  Regulation at 58 FR 68724 eff. date corrected to 12-29-94
                                                                   15966
1955.15  Regulation at 58 FR 68725 eff. date corrected to 12-29-94
                                                                   15966
1955.18  Regulation at 58 FR 68725 eff. date corrected to 12-29-94
                                                                   15966
1955.107  Regulation at 58 FR 68725 eff. date corrected to 12-29-
        94.........................................................15966
1956.102  Existing text designated as (a); (a) heading and (b) 
        added......................................................46160
1956.143  Added....................................................46160
1956.147  (a)(3)(iv) and (v)(B) amended............................46162
1956.150  Revised (OMB number).....................................46162
1980  Authority citation revised...................................28466
1980.490  Added; interim...........................................28466
1980.498  Regulation at 58 FR 41172 confirmed......................23615

                                  1995

7 CFR
                                                                   60 FR
                                                                    Page
1950  Authority citation revised...................................55122
1950.105  (c) amended..............................................55122
1951  Authority citation revised............................46756, 55122
1951.155  (c) introductory text amended............................55145
1951.301  Amended..................................................55145
1951.304  (d) added................................................55145
1951.312  (b) amended..............................................55145
1951.313  Redesignated as 1951.314; new 1951.313 added.............55145
1951.314  Redesignated as 1951.315; new 1951.314 redesignated from 
        1951.313...................................................55145
    (e) amended....................................................55146
1951.315  Redesignated as 1951.316; new 1951.15 redesignated from 
        1951.314...................................................55145
1951.316  Redesignated as 1951.317; new 1951.16 redesignated from 
        1951.315...................................................55145
1951.317  Redesignated as 1951.318; new 1951.17 redesignated from 
        1951.316...................................................55145
1951.318  Redesignated as 1951.319; new 1951.18 redesignated from 
        1951.317...................................................55145
1951.319  Redesignated as 1951.320; new 1951.19 redesignated from 
        1951.318...................................................55145
1951.320  Redesignated from 1951.319...............................55145
1951.330  (b)(4) and (c) amended...................................55146
1951.401  Revised..................................................55146
1951.457  (b) revised..............................................55146
1951.602  (g), (h) and (i) redesignated as (h), (i) and (j); new 
        (g) added..................................................55146
1951.604  (a)(1)(iv)(E) amended....................................55146
1951.608  (a)(3)(ii) amended.......................................55146
1951.951--1951.1000 (Subpart T)  Revised...........................46756
1955  Authority citation revised...................................55122
1955.3  Amended....................................................55147
1955.10  (f)(2)(ii) amended........................................28320
1955.15  (d)(2)(iv) amended........................................55147
1955.18  (a) through (d) and (f) through (l) removed...............34455
1955.20  (b)(2) amended............................................28320

[[Page 861]]

1955.63  (a) and (b) revised; introductory text, (c) introductory 
        text and (3) amended; (d) removed..........................34455
    (c) introductory text and (1) amended..........................55147
1955.64  Removed...................................................34455
1955.66  (i), (k)(1) and (l) through (o) removed; (j) amended......34455
    (e)(2) amended.................................................55122
1955.72  Amemded...................................................34455
1955.80  Removed...................................................34455
1955.107  Introductory text, (d)(3), (f) introductory text, (1) 
        introductory text, (v), (2) and (3) amended; (a) revised; 
        (b), (d)(1), (2) and (6) removed...........................34455
1955.108  Amended..................................................34455
1955.109  (a), (c) and (g) amended; (b), (d), (e) and (i) removed 
                                                                   34455
1955.137  (b)(1)(ii), (iii), (2) introductory text, (6), (7), (d), 
        (e)(1) introductory text, (ii), (2) and (4) amended; (c) 
        and (h) removed............................................34455
1955.140  (a) and (b) amended......................................34455
1955.141  (a), (b) and (c) removed.................................34455
1955.142  Removed..................................................34455
1955.143  Removed..................................................34455
1955.144  Amended..................................................34455
1956.86  Removed...................................................28322
1956.146  Removed..................................................28322
1962.34  (h) amended...............................................28321
1965  Authority citation revised...................................55122
1965.26  (f)(5)(ii) amended........................................28321
    (c)(2) introductory text and (3) amended.......................55122
    (c)(2)(iv)(C) and (3) amended..................................55147
1965.27  (f) amended...............................................28321
1965.101  Revised..................................................55147
1965.126  (b)(3), (4)(i), (ii)(A) and (8) amended..................55147
1980  Authority citation revised............................52839, 53255
1980.11  Revised...................................................53255
1980.12  Removed...................................................53255
1980.13  (a) introductory text, (2), (b) introductory text, (2), 
        (4), (5) and (c) amended...................................53255
1980.20  (a) introductory text revised; (a)(1) and (b) 
        introductory text amended..................................53255
1980.83  (b) removed...............................................53256
1980.84  Heading and (b) introductory text revised; (a) removed....53256
1980.100  Revised..................................................53256
1980.1--1980.100 (Subpart A)  appendix A revised...................53256
    appendix C revised.............................................53258
    appendix D revised.............................................53259
    appendix E revised.............................................53260
    Appendixes K and L added.......................................53263
1980.101--1980.200 (Subpart B)  Exhibit D amended..................53264
1980.124  (a)(4), (6), (7), (b)(6), (12) and (e) revised; (d)(1) 
        removed; (a)(8), (d)(2) and (3) redesignated as (a)(9), 
        (d)(1) and (2); new (a)(8) added; (b)(8), (10), (c)(3), 
        new (d)(2) and (f) amended.................................53264
1980.125  (a) introductory text, (4), (8) introductory text and 
        (b)(1)(i) amemded; (a)(10) removed.........................53264
1980.191  (e) revised..............................................53264
1980.200  Revised..................................................53264
1980.301--1980.399 (Subpart D)  Revised............................26985
1980.469  (c)(3) revised...........................................26350
1980.613  Existing text designated as (a); (b) added...............52839

                                  1996

7 CFR
                                                                   61 FR
                                                                    Page
1951  Authority citation revised.............................3781, 35927
    Technical correction...........................................63928
1951.101--1951.150 (Subpart C)  Heading revised; interim...........59778
1951.101  Revised; interim.........................................59778
1951.151  Revised; interim.........................................59778
1951.201  Revised...................................................3781
1951.251  Revised; interim.........................................35927
    Amended; interim...............................................59778
1951.252  Revised; interim.........................................35927
1951.253  Revised; interim.........................................35927
1951.254  Removed; interim.........................................35927
1951.255  Revised; interim.........................................35927
1951.261  Removed; interim.........................................35927
1951.262  Revised; interim.........................................35928
1951.263  Revised; interim.........................................35928
1951.264  Revised; interim.........................................35928
1951.265  Revised; interim.........................................35928
1951.266  Revised; interim.........................................35928
1951.300  Revised (OMB number); interim............................35928

[[Page 862]]

1951.251--1951.300 (Subpart F)  Exhibit A removed; interim.........35928
1951.301--1951.350 (Subpart G)  Removed; interim...................59778
1951.401--1951.413 (Subpart I)  Removed; interim...................59778
1951.451  Introductory text revised; interim.......................59778
1951.601--1951.650 (Subpart M)  Removed; interim...................59778
1951.906  Amended; interim.........................................35928
1951.909  (e)(3)(vii), (4) heading and (xi) amended; (e)(3)(vi)(B) 
        and (C) removed; interim...................................35929
1955  Authority citation revised...................................35929
    Technical correction...........................................63928
1955.1  Revised; interim...........................................59778
1955.51  Revised; interim..........................................59778
1955.66  Introductory text, (a)(1) and (2)(iii)(A) through (D) 
        amended; interim...........................................35929
1955.101  Amended; interim.........................................59778
1956  Authority citation revised...................................59778
    Technical correction...........................................63928
1956.51  Revised; interim..........................................59779
1962  Authority citation revised...................................35929
1962.5  Removed; interim...........................................35929
1962.6  Revised; interim...........................................35929
1962.8  (a) and (b) removed; interim...............................35930
1962.9  Removed; interim...........................................35930
1962.12  Removed; interim..........................................35930
1962.13  Revised; interim..........................................35930
1962.14  Amended; interim..........................................35930
1962.16  Introductory text added; (a) revised; interim.............35930
1962.17  (a) revised; interim......................................35930
    Amended; interim...............................................35931
1962.34  (b)(1) through (4) and (d) amended; (e) revised; (f) 
        through (h) removed; interim...............................35931
1962.40  (c), (d), (e)(1) introductory text, (i) and (2) amended; 
        (e)(4) removed; interim....................................35931
1962.43  Removed; interim..........................................35931
1962.44  (a) and (c) removed; (b) amended; interim.................35931
1962.46  Amended; interim..........................................35931
1962.47  (a)(3)(i), (b) introductory text, (2)(i), (iv) and (c) 
        introductory text amended; interim.........................35931
1962.1--1962.49 (Subpart A)  Exhibit F removed; interim............35931
1965  Authority citation revised...................................35931
    Technical correction...........................................63928
1965.13  (f)(4)(ii) introductory text, (A) and (B) amended; 
        interim....................................................35931
1965.101--1965.139 (Subpart C)  Removed; interim...................59779
1965.217  (d)(2)(ii)(A) removed; (d)(2)(ii)(B), (C) and (D) 
        redesignated as (d)(2)(ii)(A), (B) and (C); (d)(2)(i)(B), 
        new (ii)(B), new (C)(1) and (iii)(A) amended...............39852
1980  Authority citation revised..............35931, 43149, 65157, 67632
1980.6  (a) amended................................................67632
    (b) amended....................................................67633
1980.13  (a) introductory text, (2) and (c) amended; (a)(3) 
        removed....................................................67633
1980.20  (a) introductory text amended.............................67633
1980.41  (b)(3)(iii)(A) amended....................................67633
1980.46  (a)(2) amended............................................67633
1980.47  (d) amended...............................................67633
1980.48  Added; eff. 1-10-97.......................................65157
1980.60  (a)(2) revised............................................67633
1980.61  (b)(3), (4) and (h) amended...............................67633
1980.63  (b) amended...............................................67633
1980.67  (a) amended...............................................67633
1980.68  Amended...................................................67633
1980.101  (a), (b) and (e)(1) amended; (e)(2) revised; interim.....35932
1980.106  (b) amended; interim.....................................35932
1980.108  (a)(1)(i) and (2)(i) revised; (a)(1)(iii) amended; 
        interim....................................................35932
1980.109  (b) introductory text revised; interim...................35932
1980.110  (a), (b) and (c) amended; interim........................35932
1980.113  Introductory text, (a) introductory text, (1), (2), (5), 
        (7) introductory text, (ii) introductory text, (D) 
        introductory text and (b) introductory text amended; 
        (a)(6), (7)(i)(B), (ii)(B), (C), (D)(1), (11)(ii) and 
        (iii) revised; (a)(12) and (c) added; interim..............35932

[[Page 863]]

1980.114  Amended; (c) and (d) redesignated as (d) and (e); 
        heading and new (e) revised; introductory text, (a), (b) 
        and new (d) removed; new (c) added; interim................35933
1980.115  Amended; heading revised; (a) through (d) removed; 
        interim....................................................35933
1980.125  (a) introductory text, (b)(1)(i), (3), (c) introductory 
        text, (4) and (d)(3) through (6) amended; interim..........35933
1980.126  Amended; interim.........................................35933
1980.129  Amended; introductory text revised; interim..............35934
1980.130  Amended; interim.........................................35934
1980.136  (a), (b) and (d) amended; interim........................35934
1980.146  (e)(2)(iv)(A) and (3) revised; (e)(2)(iv)(B), (4), (5), 
        (7) and (8) amended........................................43149
1980.147  Removed..................................................43149
1980.148  Removed; interim.........................................35934
1980.149  Removed; interim.........................................35934
1980.153  Removed; interim.........................................35934
1980.175  (b) introductory text and (1)(i) amended; interim........35934
1980.101--1980.200 (Subpart B)  Exhibit A amended; interim.........35934
1980.201--1980.294 (Subpart C)  Removed............................21362
1980.401  (a) revised..............................................67633
1980.445  Added....................................................18494
1980.451  (i)(13) introductory text revised........................18495
1980.454  Amended..................................................18495
1980.469  Amended..................................................18495
1980.501--1980.600 (Subpart F)  Removed............................21362
1980.601--1980.700 (Subpart G)  Removed............................55877
1980.901--1980.1000 (Subpart J)  Removed...........................21362

                                  1997

7 CFR
                                                                   62 FR
                                                                    Page
1951  Authority citation revised............................16469, 41798
    Hearing........................................................28982
1951.101  Revised; interim.........................................41798
1951.102  Revised; interim.........................................41799
1951.103  Removed; interim.........................................41799
1951.104  Removed; interim.........................................41799
1951.105  Removed; interim.........................................41799
1951.111  Introductory text revised; (a) introductory text, (1), 
        (2) and (b)(1) amended; interim............................41799
1951.201--1951.250 (Subpart E)  Heading amended....................42387
1951.201  Amended; interim.........................................16469
    Revised........................................................33510
    Amended........................................................42387
1951.262  (f)(1) and (2) revised; interim..........................10120
1951.454  Amended; interim.........................................10120
1951.455  (a), (b), (c), (e), (f), (g) introductory text, (2), 
        (h), (i) and (j) amended; (g)(1) and (4) removed; (g)(2), 
        (3) and (5) redesignated as (g)(1), (2) and (3); interim 
                                                                   10120
1951.457  (a) revised; interim.....................................10120
1951.458  Revised; interim.........................................10120
1951.504  Amended; interim.........................................25070
1951.506  (a)(3) amended...........................................25065
    (a)(5)(iv) removed; (a)(5)(v) redesignated as (a)(5)(iv); new 
(a)(5)(iv) amended; interim........................................25070
1951.509  Removed; interim.........................................25070
1951.517  (b)(4)(i)(A), (B), (ii)(A), (B) and (iii) amended; 
        interim....................................................25065
1951.501--1951.550 (Subpart K)  Exhibit B removed; interim.........25070
1951.901  Revised; interim.........................................10120
1951.902  Revised; interim.........................................10120
1951.903  Revised; interim.........................................10121
1951.904  Added; interim...........................................10121
1951.906  Revised; interim.........................................10121
1951.907  (c), (d) and (e) revised; (f) removed; interim...........10123
1951.908  Revised; interim.........................................10124
1951.909  Revised; interim.........................................10124
1951.910  Revised; interim.........................................10132
1951.911  Revised; interim.........................................10132
1951.914  (a)(5)(iii) removed; (a)(5)(iv), (v), and (vi) 
        redesignated as (a)(5)(iii), (iv) and (v); interim.........10134
1951.917  Removed; interim.........................................10134
1951.918  Removed; interim.........................................10134
1951.901--1951.950 (Subpart S)  Exhibit A revised; interim.........10134
    Exhibit B revised; interim.....................................10143
    Exhibits C, C-1 and E revised; interim.........................10144
    Exhibit F revised; interim.....................................10146
    Exhibit H revised; interim.....................................10147
    Exhibit J-1 revised; interim...................................10149

[[Page 864]]

    Exhibits K, L and M revised; interim...........................10156
    Exhibits N through Q removed; interim..........................10157
1951.953  (a) removed; (b) revised.................................41252
1951.954  (a)(1) amended; (b)(2) and (4) revised...................41252
1951.957  (b)(7) revised...........................................41253
1951.958  (a)(2) amended; interim..................................10157
1955.3  Amended; interim...........................................44395
1955.4  (a) amended; interim.......................................44395
1955.9  Revised; interim...........................................44395
1955.15  (b)(3) amended............................................44396
1955.1--1955.50 (Subpart A)  Exhibits G and G-1 amended............44396
1955.53  Amended; interim..........................................44396
1955.63  Introductory text, (a) and (b) revised; interim...........44396
1955.66  Revised; interim..........................................44397
1955.51--1955.100 (Subpart B)  Exhibit B revised...................44939
1955.102  Amended; interim.........................................44399
1955.103  Amended; interim.........................................44399
1955.105  (a) and (d) amended; interim.............................44399
1955.106  (a) and (c) revised; interim.............................44399
1955.107  Revised; interim.........................................44399
1955.108  Revised; interim.........................................44401
1955.109  (a) amended; interim.....................................44401
1955.122  (b) removed; (c) through (g) redesignated as (b) through 
        (f); interim...............................................44401
1955.130  (c)(5) and (6) amended; interim..........................44401
1955.137  Added; interim...........................................44401
1955.139  (a)(3) introductory text and (c) revised; interim........44402
1955.140  Revised; interim.........................................44403
1955.148  Revised..................................................44404
1956  Authority citation revised...................................10157
1956.51--1956.100 (Subpart B)  Heading revised; interim............10157
1956.54  Amended; interim..........................................10157
1956.57  (b) amended; (k) revised; (l) added; interim..............10157
1956.66  Introductory text and (a) introductory text amended; 
        interim....................................................10157
1956.101  Revised..................................................33511
1962.13  (a)(1) amended; interim...................................10157
1962.34  (b)(3) and (d) amended; (b)(6) added; interim.............10157
1962.40  (a), (b)(1) and (2) introductory text amended; interim....10157
1962.41  (a) amended; (c) through (f) revised; interim.............10157
1962.42  (a) introductory text, (1)(i), (iii), (iv) and (b)(1) 
        amended; (a)(1)(v) and (2) revised; interim................10158
1962.46  (g)(2)(iv) added; interim.................................10158
1962.1--1962.49 (Subpart A)  Exhibit D-1 removed; interim..........10158
1965  Hearing......................................................28982
1965.1--1965.50 (Subpart A)  Heading revised; interim..............10158
1965.26  (a)(1)(iv), (2), (b), (c)(1), (3), (f)(4), (5)(ii) and 
        (6) revised; (f)(5)(iii) added; interim....................10158
1965.27  Introductory text, (c)(2), (d), (e) and (f) amended; 
        interim....................................................10159
1965.65  (a) introductory text revised; interim....................25070
1965.68  (c)(9) removed; interim...................................25070
1965.210  Revised; interim.........................................25070
1965.213  (a), (b) and (c) redesignated as (b), (c) and (d); new 
        (a) added; new (b) introductory text and new (1) revised; 
        interim....................................................25071
1980.20  (a) introductory text amended; interim.....................9357
1980.106  (b) amended; interim......................................9357
    Amended; interim...............................................28619
1980.108  (a)(3)(ii) revised; interim...............................9357
1980.119  (d) revised; interim......................................9357
1980.174  Added; interim............................................9358
    (a) introductory text revised; interim.........................28619
1980.175  (b) introductory text, (c)(1), (2) and (d)(1) revised; 
        (d)(7) removed; (d)(2) through (6) redesignated as (d)(3) 
        through (7); new (d)(2) added; (i)(3) amended; interim......9358
    (b), (c)(2)(ii) and (d)(1) amended; interim....................28619
1980.176  Removed; interim..........................................9358
1980.180  (c) revised; (d)(4) and (5) removed; interim..............9358
    (a), (c)(1) and (5) amended; interim...........................28619

[[Page 865]]

1980.190  (e) amended; interim.....................................28619