[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2008 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          

          7


          Parts 1950 to 1999

                         Revised as of January 1, 2008


          Agriculture
          



________________________

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2008
          With Ancillaries
                    Published by:
                    Office of the Federal Register
                    National Archives and Records
                    Administration
                    A Special Edition of the Federal Register

[[Page ii]]

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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 7:
    Subtitle B--Regulations of the Department of Agriculture 
      (Continued)
          Chapter XVIII--Rural Housing Service, Rural 
          Business-Cooperative Service, Rural Utilities 
          Service, and Farm Service Agency, Department of 
          Agriculture (Continued)                                    5
  Finding Aids:
      Table of CFR Titles and Chapters........................     365
      Alphabetical List of Agencies Appearing in the CFR......     383
      List of CFR Sections Affected...........................     393

[[Page iv]]





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

                     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

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HOW TO USE THE CODE OF FEDERAL REGULATIONS

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OMB CONTROL NUMBERS

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collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
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    (c) The incorporating document is drafted and submitted for 
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the revision dates of the 50 CFR titles.

[[Page vii]]


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    Raymond A. Mosley,
    Director,
    Office of the Federal Register.
    January 1, 2008.







[[Page ix]]



                               THIS TITLE

    Title 7--Agriculture is composed of fifteen volumes. The parts in 
these volumes are arranged in the following order: parts 1-26, 27-52, 
53-209, 210-299, 300-399, 400-699, 700-899, 900-999, 1000-1199, 1200-
1599, 1600-1899, 1900-1939, 1940-1949, 1950-1999, and part 2000 to end. 
The contents of these volumes represent all current regulations codified 
under this title of the CFR as of January 1, 2008.

    The Food and Nutrition Service current regulations in the volume 
containing parts 210-299, include the Child Nutrition Programs and the 
Food Stamp Program. The regulations of the Federal Crop Insurance 
Corporation are found in the volume containing parts 400-699.

    All marketing agreements and orders for fruits, vegetables and nuts 
appear in the one volume containing parts 900-999. All marketing 
agreements and orders for milk appear in the volume containing parts 
1000-1199.

    For this volume, Susannah C. Hurley and Moja N. Mwaniki were Chief 
Editors. The Code of Federal Regulations publication program is under 
the direction of Michael L. White, assisted by Ann Worley.


[[Page 1]]



                          TITLE 7--AGRICULTURE




                 (This book contains parts 1950 to 1999)

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

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

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

[[Page 3]]

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

[[Page 5]]



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




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


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

              SUBCHAPTER H--PROGRAM REGULATIONS (CONTINUED)
Part                                                                Page
1950            General.....................................           7
1951            Servicing and collections...................          10
1955            Property management.........................          78
1956            Debt settlement.............................         157
1957            Asset sales.................................         182
1962            Personal property...........................         183
1965            Real property...............................         221
1980            General.....................................         221
1981-1999

[Reserved]

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              SUBCHAPTER H_PROGRAM REGULATIONS (CONTINUED)





PART 1950_GENERAL--Table of Contents




Subparts A-B [Reserved]

   Subpart C_Servicing Accounts of Borrowers Entering the Armed Forces

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

Subparts A-B [Reserved]



   Subpart C_Servicing Accounts of Borrowers Entering the Armed Forces

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



Sec. 1950.101  Purpose.

    Borrowers with accounts serviced by the Farmers Home Administration 
or its successor agency under Public Law 103-354 (FmHA or its successor 
agency under Public Law 103-354) who have entered or who are entering 
military service will require special treatment. This subpart prescribes 
the authorities, policies, and routines for servicing such cases in 
addition to those contained in other FmHA or its successor agency under 
Public Law 103-354 regulations. This subpart is inapplicable to Farm 
Service Agency, Farm Loan Programs.

[45 FR 43152, June 26, 1980, as amended at 72 FR 64122, Nov. 15, 2007]



Sec. 1950.102  General.

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

[50 FR 45763, Nov. 1, 1985]



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

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

[[Page 8]]

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

[45 FR 43152, June 26, 1980, as amended at 50 FR 45763, Nov. 1, 1985; 52 
FR 26133, July 13, 1987; 55 FR 40646, Oct. 4, 1990]

[[Page 9]]



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

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

[[Page 10]]

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

[45 FR 43152, June 26, 1980, as amended at 50 FR 45764, Nov. 1, 1985; 52 
FR 26134, July 13, 1987; 55 FR 40646, Oct. 4, 1990]



Sec. 1950.105  Interest rate.

    (a) The Soldiers and Sailors Relief Act requires that the effective 
interest rate charged a borrower who enters active military duty after a 
loan is closed will not exceed 6 percent. This applies only to full-time 
active military duty and does not include military reserve status or 
National Guard participation.
    (b) As soon as the County Supervisor verifies that a borrower is on 
active duty, the County Supervisor will send the borrower a letter which 
states that the interest rate on the borrower's FmHA or its successor 
agency under Public Law 103-354 loans will not exceed 6 percent. At the 
same time, the County Supervisor will send the Finance Office a 
memorandum which states that the borrower is on active duty and that 
interest of not more than 6 percent should accrue on the borrower's 
loans, effective as of the date of the memorandum or as of the date of 
the last payment, whichever is later, until further notice. If a 
borrower's interest rate on any loan is less than 6 percent, the loan 
will continue to accrue interest at the lower rate. The assistance under 
this section may not be retroactively applied.
    (c) As soon as the County Supervisor verifies that a borrower is no 
longer on active duty, the County Supervisor will send the Finance 
Office a memorandum advising them to terminate the 6 percent interest 
rate. The rate will revert to the note rate (or the payment assistance 
rate), effective with the next scheduled payment. The 6 percent interest 
rate will not be cancelled retroactively.
    (d) Additional directions for handling Single Family Housing Loans 
are contained in 7 CFR part 3550.

[52 FR 26134, July 13, 1987, as amended at 60 FR 55122, Oct. 27, 1995; 
67 FR 78329, Dec. 24, 2002]



PART 1951_SERVICING AND COLLECTIONS--Table of Contents




                  Subpart A_Account Servicing Policies

Sec.
1951.1 Purpose.
1951.2 Policy.
1951.3 Authorities and responsibilities.
1951.4-1951.6 [Reserved]

[[Page 11]]

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

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

Subpart B [Reserved]

     Subpart C_Offsets of Federal Payments to USDA Agency Borrowers

1951.101 General.
1951.102 Administrative offset.
1951.103-1951.105 [Reserved]
1951.106 Offset of payments to entities related to debtors.
1951.107-1951.110 [Reserved]
1951.111 Salary offset.
1951.112-1951.132 [Reserved]
1951.133 Establishment of Federal Debt.
1951.134-1951.135 [Reserved]
1951.136 Procedures for Department of Treasury offset and cross-
          servicing for the Rural Housing Service (Community Facility 
          Program only) and the Rural Business-Cooperative Service.
1951.137 Procedures for Treasury offset and cross-servicing for the Farm 
          Service Agency (FSA) farm loan programs.
1951.138-1951.149 [Reserved]
1951.150 OMB control number.

                    Subpart D_Final Payment on Loans

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

Subpart E_Servicing of Community and Direct Business Programs Loans and 
                                 Grants

1951.201 Purposes.
1951.202 Objectives.
1951.203 Definitions.
1951.204 Nondiscrimination.
1951.205 Redelegation of authority.
1951.206 Forms.
1951.207 State supplements.
1951.208-1951.209 [Reserved]
1951.210 Environmental requirements.
1951.211 Refinancing requirements.
1951.212 Unauthorized financial assistance.
1951.213 Debt settlement.
1951.214 Care, management, and disposal of acquired property.
1951.215 Grants.
1951.216 Nonprogram (NP) loans.
1951.217 Public bodies.
1951.218 Use of Rural Development loans and grants for other purposes.
1951.219 [Reserved]
1951.220 General servicing actions.
1951.221 Collections, payments, and refunds.
1951.222 Subordination of security.
1951.223 Reamortization.
1951.224 Third party agreements.
1951.225 Liquidation of security.
1951.226 Sale or exchange of security property.
1951.227 Protective advances.
1951.228-1951.229 [Reserved]
1951.230 Transfer of security and assumption of loans.
1951.231 Special provisions applicable to Economic Opportunity (EO) 
          Cooperative Loans.
1951.232 Water and waste disposal systems which have become part of an 
          urban area.
1951.233-1951.239 [Reserved]
1951.240 State Director's additional authorizations and guidance.
1951.241 Special provision for interest rate change.
1951.242 Servicing delinquent Community Facility loans.
1951.243-1951.249 [Reserved]
1951.250 OMB control number.

Exhibits A-H to Subpart E [Note]

      Subpart F_Analyzing Credit Needs and Graduation of Borrowers

1951.251 Purpose.
1951.252 Definitions.
1951.253 Objectives.
1951.254 [Reserved]
1951.255 Nondiscrimination.
1951.256-1951.261 [Reserved]
1951.262 Farm Credit Programs-graduation of borrowers.
1951.263 Graduation on non-Farm Credit programs borrowers.
1951.264 Action when borrower fails to cooperate, respond or graduate.

[[Page 12]]

1951.265 Application for subsequent loan, subordination, or consent to 
          additional indebtedness from a borrower who has been requested 
          to graduate.
1951.266 Special requirements for MFH borrowers.
1951.267-1951.299 [Reserved]
1951.300 OMB control number.

Exhibit A to Subpart F [Reserved]
Exhibit B to Subpart F--Suggested Outline for Seeking Information From 
          Lenders on Credit Criteria for Graduation of Single Family 
          Housing Loans

Subparts G-N [Reserved]

Subpart O_Servicing Cases Where Unauthorized Loan(s) or Other Financial 
    Assistance Was Received_Community and Insured Business Programs.

1951.701 Purpose.
1951.702 Definitions.
1951.703 Policy.
1951.704-1951.705 [Reserved]
1951.706 Initial determination that unauthorized assistance was 
          received.
1951.707 Determination of the amount of unauthorized assistance.
1951.708 Notification to recipient.
1951.709 Decision on servicing actions.
1951.710 [Reserved]
1951.711 Servicing options in lieu of liquidation or legal action to 
          collect.
1951.712-1951.716 [Reserved]
1951.717 Exception authority.
1951.718-1951.750 [Reserved]

Subparts P-Q [Reserved]

               Subpart R_Rural Development Loan Servicing

1951.851 Introduction.
1951.852 Definitions and abbreviations.
1951.853 Loan purposes for undisbursed RDLF loan funds from HHS.
1951.854 Ineligible assistance purposes.
1951.855-1951.858 [Reserved]
1951.859 Terms of loans.
1951.860 Interest on loans.
1951.861-1951.865 [Reserved]
1951.866 Security.
1951.867 Conflict of interest.
1951.868-1951.870 [Reserved]
1951.871 Post award requirements.
1951.872 Other regulatory requirements.
1951.873-1951.876 [Reserved]
1951.877 Loan agreements.
1951.878-1951.880 [Reserved]
1951.881 Loan servicing.
1951.882 [Reserved]
1951.883 Reporting requirements.
1951.884 Non-Federal funds.
1951.885 Loan classifications.
1951.886-1951.888 [Reserved]
1951.889 Transfer and assumption.
1951.890 Office of Inspector General and Office of General Counsel 
          referrals.
1951.891 Liquidation; default.
1951.892-1951.893 [Reserved]
1951.894 Debt settlement.
1951.895 [Reserved]
1951.896 Appeals.
1951.897 Exception authority.
1951.898-1951.899 [Reserved]
1951.900 OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1932 Note; 7 U.S.C. 1989; 31 
U.S.C. 3716; 42 U.S.C. 1480

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



                  Subpart A_Account Servicing Policies

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



Sec. 1951.1  Purpose.

    This subpart sets forth the policies and procedures to use in 
servicing accounts. This subpart also applies to Rural Rental Housing 
Loan (RRH), Rural Cooperative Housing Loan (RCH), Labor Housing Loan 
(LH), Rural Housing Site Loan (RHS), and Site Option Loan (SO) accounts 
not covered under the Predetermined Amortization Schedule System (PASS). 
Loans on PASS will be administered under 7 CFR part 3560, subpart I. 
Cases involving unauthorized assistance will be serviced under Subparts 
L and N of this part. Cases involving graduation of borrowers to other 
sources of credit will be serviced under Subpart F of this part. This 
subpart does not apply to Water and Waste Programs of the Rural 
Utilities Service, Watershed loans, or Resource Conservation and 
Development loans, which are serviced under part 1782 of this title. In 
addition, this subpart is inapplicable to Farm Service Agency, Farm Loan 
Programs.

[52 FR 26134, July 13, 1987, as amended at 69 FR 69105, Nov. 26, 2004; 
72 FR 55017, Sept. 28, 2007; 72 FR 64122, Nov. 15, 2007]



Sec. 1951.2  Policy.

    Borrowers are expected to pay their debts to the Farmers Home 
Administration or its successor agency under

[[Page 13]]

Public Law 103-354 (FmHA or its successor agency under Public Law 103-
354) in accordance with their agreements and ability to pay. They will 
be encouraged to pay ahead of schedule, consistent with sound financial 
management. When borrowers have acted in good faith and have exercised 
due diligence in an effort to pay their indebtedness but cannot pay on 
schedule because of circumstances beyond their control, servicing 
actions will be consistent with the best interests of the borrower and 
the Government. It is the policy of this agency to service borrower loan 
account without regard to race, color, religion, sex, marital status, 
national origin, age, physical or mental handicap (borrower must possess 
the capacity to enter into a legal contract for services).



Sec. 1951.3  Authorities and responsibilities.

    County Supervisors and District Directors are responsible for 
servicing all FmHA or its successor agency under Public Law 103-354 
accounts serviced by the County and District Offices as prescribed by 
this subpart under the general guidance and supervision of District 
Directors and State Office personnel. Full use will be made of the 
County Office Management System in account servicing. For the purposes 
of this Subpart, all references to ``County Supervisor'' shall be 
construed to mean ``District Director'' for all loans serviced by the 
District Office.



Sec. Sec. 1951.4-1951.6  [Reserved]



Sec. 1951.7  Accounts of borrowers.

    (a) Accounts of active borrowers. The foundation for proper and 
timely debt payment is sound farm and home planning or budgeting, 
including plans for debt payment, supplemented by effective followup 
management assistance. Account servicing, therefore, must begin with 
initial planning and must be an integral part of analysis and subsequent 
planning, as well as follow-up management assistance.
    (b) Accounts of collection-only borrowers. (1) Collection-only 
borrowers are expected to pay debts to FmHA or its successor agency 
under Public Law 103-354 in accordance with their ability to pay. 
Efforts to collect such debts, including use of collection letters and 
account servicing visits, must be coordinated with other program 
activities. If these borrowers are unable to pay in full, appropriate 
debt settlement policies should be promptly applied.
    (2) Envelopes addressed to collection-only borrowers will bear the 
legend ``DO NOT FORWARD.'' When an envelope is returned indicating the 
borrower has moved, appropriate steps will be taken to determine the 
borrower's correct address.
    (3) Regular County Office employees are generally expected to 
service the collection-only caseload when it is of moderate size. State 
Directors may assign additional employees to County Offices having large 
collection-only caseloads when necessary to service such cases to a 
prompt conclusion. State Directors may inform the National Office of the 
need for employing special collection personnel in urban areas having 
large collection-only caseloads when employees are not available to 
assign to such areas.
    (4) The following actions will be taken in servicing accounts owed 
by collection-only borrowers:
    (i) District Directors will review, yearly, all collection-only 
cases in each County Office with the County Supervisor as early in each 
fiscal year as possible. They will jointly agree on the actions to take 
and will complete Form FmHA or its successor agency under Public Law 
103-354 451-27, ``Review of Collection-Only Accounts.''
    (ii) District Directors will establish with County Supervisors a 
systematic plan for collecting the accounts or initiating appropriate 
debt settlement actions during the year.
    (iii) County Supervisors will include in their monthly calendars 
plans for servicing these accounts.
    (iv) On visits to County Offices, District Directors will review the 
progress being made by County Supervisors to insure that goals will be 
reached.
    (v) For collection-only accounts in District Offices, the State 
Director will review the accounts as required in paragraphs (b)(4)(i) 
through (b)(4)(iv) of this section and the District Director will 
service the account.

[[Page 14]]

    (c) Notifying borrowers of payments. County Supervisors will notify 
borrowers of the dates and amounts of payments that have been agreed on 
for all types of accounts. Form FmHA or its successor agency under 
Public Law 103-354 451-3, ``Reminder of Payment to be Made,'' or similar 
form approved by the State Director, will be used. The form will not 
contain any language indicating that an account is delinquent. These 
notices will be timed to reach borrowers immediately before the receipt 
of the income from which the payments should be made or before the 
installment due date on the note, as appropriate, and may include other 
pertinent information such as a reference to agreements reached during 
the year and sources of income from which the payment was planned. Such 
notices need not be sent when frequent payments are scheduled and the 
borrower customarily makes the payments when due.
    (d) Subsequent servicing. (1) When a Farmer Program borrower fails 
to make a payment as agreed, the County Supervisor will notify the 
borrower in accordance with subpart S of part 1951 of this chapter.
    (2) When a borrower other than a Farmer Program borrower fails to 
make a payment as agreed, the County Supervisor will contact the 
borrower to discuss the reasons why the payment was not made and to 
develop specific plans, for making the payment. Form FmHA or its 
successor agency under Public Law 103-354 451-32, ``Notice of Payment 
Due,'' may be used to notify borrowers who make payments directly to the 
Finance Office that their payment has not been received. Form FmHA or 
its successor agency under Public Law 103-354 450-13, ``Request for 
Assignment of Income From Trust Property,'' may be used when other 
methods of loan collection fail and debt repayment is possible from 
trust income. In the event the borrower refuses to make the payment when 
income is available, or if it is determined that income will not be 
available to make the payment within a reasonable length of time and 
will not be available to make future payments, action will be taken to 
protect the Government's interest in accordance with applicable 
regulations. Followup actions of subsequent servicing will be noted on 
appropriate Management System Cards.
    (e) Maintaining records of accounts in County Offices. Records of 
the accounts of FmHA or its successor agency under Public Law 103-354 
borrowers will be maintained in the County Office on Forms FmHA or its 
successor agency under Public Law 103-354 1905-1, FmHA or its successor 
agency under Public Law 103-354 1905-5, FmHA or its successor agency 
under Public Law 103-354 1905-10, ``Management System Card-
Association,'' as provided in FmHA or its successor agency under Public 
Law 103-354 Instruction 1905-A (available in any FmHA or its successor 
agency under Public Law 103-354 office).
    (f) Inquiry for Multiple Family Housing (MFH) loans. Inquiry for all 
RRH, RCH, LH, RHS and SO loans and grants will be made through field 
terminals using procedures in the ``MFH Users Procedures'' manual or by 
contacting the MFH Unit in the Finance Office.
    (g) Inquiry for other than Multiple Family Housing (MFH) loans. 
Inquiry for these loan programs will be made through field terminals 
using procedures in the ``Automated Discrepancy Processing System 
(ADPS)'' manuals.
    (h) Loan Summary Statements. Upon request of a borrower, FmHA or its 
successor agency under Public Law 103-354 issues a loan summary 
statement that shows the account activity for each loan made or insured 
under the Consolidated Farm and Rural Development Act. The field office 
will post on the bulletin board a notice informing the borrower of the 
availability of the loan summary statement. See Exhibit A for a sample 
of the required notice.
    (1) The loan summary statement period is from January 1 through 
December 31. The Finance Office forwards a copy of Form FmHA or its 
successor agency under Public Law 103-354 1951-9, ``Annual Statement of 
Loan Account,'' to field offices to be retained in borrower files as a 
permanent record of borrower activity for the year.
    (2) Quarterly Forms FmHA or its successor agency under Public Law 
103-354 1951-9 are retained in the Finance Office on microfiche. These 
quarterly statements reflect cumulative data from the beginning of the 
current year

[[Page 15]]

through the end of the most recent quarter. If a borrower requests a 
loan summary statement with data through the most recent quarter, county 
supervisors may request copies of these quarterly or annual statements 
by sending Form FmHA or its successor agency under Public Law 103-354 
1951-57, ``Request for Loan Summary Statement,'' to the Finance Office.
    (3) When a loan summary statement is requested by the borrower, the 
field office will copy the applicable annual or quarterly Forms FmHA or 
its successor agency under Public Law 103-354 1951-9. A copy(ies) of 
Form FmHA or its successor agency under Public Law 103-354 1951-9; a 
copy of Form FmHA or its successor agency under Public Law 103-354 1951-
58, ``Basis for Loan Account Payment Application for Farmer Program 
Loans;'' and a copy of the promissory note showing borrower installments 
will constitute the loan summary statement provided to the borrower.

[50 FR 45764, Nov. 1, 1985, as amended at 52 FR 11457, Apr. 9, 1987; 53 
FR 35716, Sept. 14, 1988; 54 FR 10269, Mar. 13, 1989]



Sec. 1951.8  Types of payments.

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

[50 FR 45764, Nov. 1. 1985, as amended at 51 FR 4137, Feb. 3, 1986; 53 
FR 35717, Sept. 14, 1988; 58 FR 52646, Oct. 12, 1993]



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

    ``Distribution'' means dividing a payment into parts according to 
the rules set out in this section. This section only applies after the 
County Supervisor determines the amount of proceeds that will be 
released for other purposes in accordance with the annual plan (Form 
FmHA or its successor agency under Public Law 103-354 431-2, ``Farm and 
Home Plan'') and Form FmHA or its successor agency under Public Law 103-
354 1962-1, ``Agreement for the Use of Proceeds/Release of Chattel 
Security.''
    (a) Distribution of regular payments. (1) When a borrower owes more 
than one type of FmHA or its successor agency under Public Law 103-354 
loan, regular payments received from each crop

[[Page 16]]

year's income will be distributed in accordance with the following 
priorities:
    (i) First, to an amount equal to any advances made by FmHA or its 
successor agency under Public Law 103-354 for the crop year's living and 
operating expenses. If no advances were made, distribute the payment 
according to paragraph (a)(1)(ii) of this section. If the amount of the 
payment was greater than the amount of any advances, the excess should 
be distributed according to paragraph (a)(1)(ii) of this section.
    (ii) Second, to FmHA or its successor agency under Public Law 103-
354 loans in proportion to the approximate amounts due on each for the 
year. In determining the amounts due for the year, deduct an amount 
equal to any advances for the year's living and operating expenses. If 
the amount of the payment exceeds the amount of any advances plus the 
amount due on each loan for the year, the excess should be distributed 
according to paragraph (a)(1)(iii) of this section.
    (iii) Third, to FmHA or its successor agency under Public Law 103-
354 loans in proportion to the delinquencies existing on each. If the 
amount of the payment exceeds the amount of any advances plus the amount 
due on each loan for the year plus any delinquencies, the excess should 
be distributed according to paragraph (a)(1)(iv) of this section.
    (iv) Fourth, as advance payments on FmHA or its successor agency 
under Public Law 103-354 loans. In making such distribution consider the 
principal balance outstanding on each loan, the security position of the 
liens securing each loan, the borrower's request, and related 
circumstances.
    (2) When the County Supervisor determines it is reasonable to expect 
that the income which will be available for payment on FmHA or its 
successor agency under Public Law 103-354 debts will be sufficient to 
pay the installments scheduled for the year under the first and second 
priorities, collections may be distributed so as to avoid unnecessary 
delinquencies, and regular payments derived from rental or lease of real 
estate security after approval of foreclosure or voluntary conveyance 
will be distributed to the real estate lien of the highest priority.
    (3) Payments will be distributed differently than the priorities 
provided in this section if accounts are out of balance or a different 
distribution is needed to protect the government's interest.
    (4) Any income received from the sale of softwood timber on marginal 
land converted to the production of softwood timber must be applied on 
the ST loan(s).
    (b) Distribution of extra payments. Extra payments will be 
distributed first to the FmHA or its successor agency under Public Law 
103-354 loan having highest priority of lien on the security from which 
the payment was derived. When the payment is in excess of the unpaid 
balance of the FmHA or its successor agency under Public Law 103-354 
lien having the highest priority, the balance of such payment will be 
distributed to the FmHA or its successor agency under Public Law 103-354 
loan having the next highest priority.
    (c) Application of payments. After the decision is reached as to the 
amount of each payment that is to be distributed to the different loan 
types, application of the payment will be governed by Sec. Sec. 1951.10 
or 1951.11 of this subpart as appropriate.

[50 FR 45764, Nov. 1, 1985, as amended at 52 FR 26134, July 13, 1987; 53 
FR 35717, Sept. 14, 1988]



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

    Employees receiving payments on OL, EO, SW codes ``24,'' EM for 
subtitle B purposes, EE operating-type, and other production-type loan 
accounts will select, in accordance with the provisions of this section, 
the account(s) to which such payment will be applied. All payments on OL 
and EM loans approved on or before December 31, 1971, will be credited 
first to any administrative costs, then to noncapitalized interest, then 
to the amount of accrued deferred interest, and then to principal. All 
payments on all other loans including OL and EM loans approved after 
December 31, 1971, will be credited first to any administrative costs, 
then to noncapitalized interest, then to the amount of accrued deferred 
interest, then to interest accrued to the date of the payment and then 
to principal, in

[[Page 17]]

accordance with the terms of the note. This section only applies after 
the County Supervisor determines the amount of proceeds that will be 
released for other purposes in accordance with the annual plan (Form 
FmHA or its successor agency under Public Law 103-354 431-2) and Form 
FmHA or its successor agency under Public Law 103-354 1962-1.
    (a) Rules for selection of accounts. The following rules will govern 
the selection of accounts and installments to which payments will be 
applied. As used in this section, ``recoverable costs'' are those which 
the loan agreement documents say the borrower is primarily responsible 
for paying and which the government can charge to the borrower's 
account.
    (1) Payments from farm income or from assignments of income will be 
applied first to accounts with small balances, including recoverable 
costs, to remove such accounts from the records. Any balance will be 
applied on debts secured by the lien in the following order:
    (i) To amounts due or falling due on loans made in connection with 
the current year's operations, except:
    (A) When funds loaned for the purchase of capital goods were used to 
meet the current year's operating expenses, payments will be applied 
first to the final unpaid installments to the extent of the loan funds 
so used. These payments will be treated as extra payments.
    (B) When installments on loans previously made fall due before the 
installment on the loan for the current year's operations or when such 
loans are delinquent and it is anticipated that sufficient income will 
be received to meet the installment on the current year's operations 
when due, collections may be applied first to installments on loans made 
in previous years.
    (ii) To accounts having the oldest delinquencies, or if no 
delinquencies, to the oldest unpaid account, except that the amount 
available for payment on OL and EM loan accounts will be prorated 
between the two accounts on the basis of:
    (A) The delinquent amount owed on each, or
    (B) The total amount owed on each if there are no delinquencies.
    (2) Non-farm income and payments derived from the sale of real 
estate security, will be applied to the earliest account secured by the 
earliest lien covering such security. The amount to be applied to 
principal will be applied to the final unpaid installment(s).
    (3) On partial refunds of loan advances, the amount to be applied to 
the principal will be applied to the final unpaid installment on the 
note which evidences such advance; however, a refund of an advance for 
current farm and home expenses repayable within the year may be applied 
to the principal on the first unpaid installment on such note as a 
regular payment.
    (4) Total refunds of loan advances will be applied to the notes 
which evidence such advances.
    (5) In applying payments from sources other than those in paragraphs 
(a)(2), (3), and (4) of this section the borrower has the right to 
select the loan account or accounts on which such payments will be 
applied. In the absence of the borrower's selection, such payments 
generally will be applied in the following order:
    (i) To accounts with small balances, including recoverable costs.
    (ii) To accounts with the oldest unsecured note(s).
    (iii) To accounts with the oldest delinquencies.
    (iv) To accounts with the oldest secured note or notes.
    (6) Employees receiving collections are authorized to make 
exceptions to paragraphs (a)(1), (2), and (6) of this section when it is 
necessary to apply a part of a payment to delinquent accounts to prevent 
the Federal Statute of Limitations from being asserted as a defense in 
suits on FmHA or its successor agency under Public Law 103-354 claims.
    (b) Payments in full. Errors of a significant amount in computation 
or collection will be called to the attention of the collection official 
by the Finance Office. The borrower's note will not be returned until 
the balance on the loan account is paid in full. Claims by or on behalf 
of the borrowers that the amounts owed have been computed

[[Page 18]]

incorrectly will be referred to the Finance Office.

[50 FR 45764, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988; 
54 FR 46844, Nov. 8, 1989; 57 FR 18680, Apr. 30, 1992]



Sec. 1951.11  Application of payments on real estate accounts.

    (a) Regular payments. If a borrower owes more than one type of real 
estate loan, or has received initial and subsequent real estate loans on 
which separate accounts are maintained, payments on such accounts should 
be applied so as to maintain the note accounts approximately in balance 
at the end of the year with respect to installments due on the notes, 
other charges, and delinquencies.
    (b) Refunds and extra payments. (1) Refunds will be applied to the 
note representing the loan from which the advance was made.
    (2) Extra payments will be applied to the note secured by the 
earliest mortgage on the property from which the extra payment was 
obtained.
    (3) Funds remaining from an RH grant or a combination loan and 
grant, after completion of development, will be refunded. If the 
borrower received a combination loan and grant, the remaining funds up 
to the amount of the grant are considered to be grant funds.
    (c) County Office actions. (1) The collecting official will complete 
Form FmHA or its successor agency under Public Law 103-354 451-1, 
``Acknowledgment of Cash Payment,'' in accordance with the FMI when cash 
or money orders are received as a payment.
    (2) The collection official will complete Form FmHA or its successor 
agency under Public Law 103-354 451-2, ``Schedule of Remittances,'' in 
accordance with the FMI.
    (d) Finance Office handling. (1) Regular payment will be handled as 
follows.
    (i) Payments will be applied first to satisfy any administrative 
costs such as a charge for an uncollectible check. (The amounts of any 
such charges are available from any FmHA or its successor agency under 
Public Law 103-354 office.)
    (ii) Amounts paid on direct loan accounts will be credited to the 
borrower's account as of the date of Form FmHA or its successor agency 
under Public Law 103-354 451-2 or for direct payments the date payment 
is received in the Finance Office, and will be applied first to a 
portion of any interest which accrues during the deferral period, second 
to interest accrued to the date received and third to principal, in 
accordance with the terms of the note.
    (iii) Amounts paid on insured loan accounts will be credited to the 
borrower's account as of the date of Form FmHA or its successor agency 
under Public Law 103-354 451-2 or for direct payments the date payment 
is received in the Finance Office, and will be applied in the following 
order:
    (A) Advances from the insurance funds as shown on the latest Form 
FmHA or its successor agency under Public Law 103-354 389-404, 
``Analysis of Accounts Maturing.'' (If the collection is intended for 
final payment of the loan, or to pay the insurance account in connection 
with an assumption agreement, the collection will be applied first to 
the interest accrued on the advance to the date of the payment.)
    (B) Principal advanced from the insurance fund.
    (C) Unamortized costs.
    (D) Amount due for amortized costs for taxes and insurance.
    (E) Unpaid loan insurance charges, including the current year's 
charge, when applicable.
    (F) First to a portion of any interest which accrues during the 
deferral period, second to accrued interest to the date of the payment 
on the note account and then to the principal balance of the note 
account in accordance with the terms of the note.
    (2) Extra payments and refunds will be credited to the borrower's 
note account as of the date of Form FmHA or its successor agency under 
Public Law 103-354 451-2 and will be applied first to a portion of any 
interest which accures during the deferral period, second to interest 
accrued to the date of the receipt and third to principal in accordance 
with the terms of the note. The amount to be applied to principal will 
be applied to the final unpaid installment(s). Extra payments and 
refunds will not affect the schedule status of a

[[Page 19]]

borrower except indirectly in connection with the amortization of a 
direct loan.
    (3) The Finance Office will remit final payments promptly to 
lenders. Other collections (regular, extra, and refunds) applied to a 
borrower's insured note will be accumulated until the annual installment 
due date, and will be remitted along with any advances from the 
insurance fund to the lender within 30 days after the installment due 
date. All payments to a lender will be credited first to interest to the 
date of the Treasury check and then to principal. Since the application 
of a payment to a borrower's account with the Government and the 
Government's account with a lender is of a different effective date, the 
balance owed by a borrower to the government and by the Government to a 
lender ordinarily will not be the same.

[50 FR 45764, Nov. 1, 1985, as amended at 54 FR 46845, Nov. 8, 1989]



Sec. 1951.12  Changes in the application of loan payments.

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

[50 FR 45764, Nov. 1, 1985, as amended at 54 FR 18883, May 3, 1989]



Sec. 1951.13  Overpayments and refunds.

    (a) The Finance Office will mail any overpayment refund check to the 
County Supervisor, who will verify that the refund is due before 
delivering the check.
    (b) Borrower requests for overpayment refunds must be in writing. 
Borrowers will be discouraged from requesting refunds when the County 
Office records show that a refund is not due, however, the County 
Supervisor will forward any request to the Finance Office. Finance 
Office computations will control in determining the amount of any 
refund.
    (c) Underpayments or overpayments of less than $10 will not be 
collected or refunded (except as provided in paragraph (b) of this 
section) since the expense of processing the action would be more than 
the amount involved.



Sec. 1951.14  Recoverable and nonrecoverable cost charges.

    (a) The County Supervisor will:
    (1) Prepare vouchers for recoverable and nonrecoverable cost charges 
according to the applicable instruction for the type of advance being 
made. (``Recoverable costs'' is defined in Sec. 1951.10(a) of this 
subpart).
    (2) If a recoverable cost, show on the voucher the fund code to 
which the advance is to be charged.
    (3) If the cost item relates to security for more than one type of 
account,

[[Page 20]]

show the code for the loan secured by the earliest promissory note (if 
lien secures more than one note).
    (b) The Finance Office will forward Form FmHA or its successor 
agency under Public Law 103-354 451-26, to the County Office when the 
recoverable cost charge is processed.



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

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

[50 FR 45764, Nov. 1, 1985, as amended at 51 FR 45432, Dec. 18, 1986; 53 
FR 13100, Apr. 21, 1988; 56 FR 10147, Mar. 11, 1991]



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

    (a) Installment on note and other charges--(1) Direct loan accounts. 
For a borrower with a direct loan, the term ``installation on note and 
other charges,'' as used in this Subpart, will be the sum of the 
following:
    (i) Annual installment for the year as provided in the promissory 
note(s).
    (ii) Any recoverable cost charges paid for the borrower during the 
year.

[[Page 21]]

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



Sec. Sec. 1951.17-1951.24  [Reserved]



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

    (a) Frequency of reviews. OL, FO, and SW loans will be reviewed each 
year at the time the analysis is conducted in accordance with subpart B 
of part 1924 of this chapter and any time a servicing action such as 
consolidation, rescheduling, reamortization or deferral is taken. The 
interest rate may not be changed more often than quarterly.
    (b) Method of review. (1) Each loan will be considered on its own 
merit.
    (2) The County Supervisor should consider:
    (i) The borrower's income and repayment record during the preceding 
years;
    (ii) The projections shown on the most recent Farm and Home Plan or 
other similar plan or operation acceptable to FmHA or its successor 
agency under Public Law 103-354, in light of the previous year's 
projected figures and actual figures; (See subpart B of part 1924 of 
this chapter)
    (iii) Whether improved production practices have been or need to be 
implemented;
    (iv) The borrower's progress as a farmer; and
    (v) All other factors which the County Supervisor believes should be 
considered.
    (3) The Farm and Home Plan projections for the coming year must show 
that the ``balance available to pay debts'' exceeds the amount needed to 
pay debts by at least 10 percent before an increase in interest rate is 
put into effect. Borrowers that continually purchase unplanned items 
without the County Supervisor's approval will have the interest rate on 
their loans increased to the current rate for that loan type. Borrowers 
that fail to provide the County Supervisor with the information needed 
to conduct the analysis required in subpart B of part

[[Page 22]]

1924 of this chapter will have their interest rate on their loan 
increased to the current rate for the OL, FO, or SW loan as applicable. 
The rate may increase in increments of whole numbers to the current 
regular interest rate for borrowers. In the borrower's case file, the 
County Supervisor must document the unplanned purchases and the failure 
to provide information in a timely manner. The County Supervisor must 
write the borrower a letter which sets out the facts documented in the 
case file and advises the borrower that the interest rate will be 
increased unless the unplanned purchases cease or unless the borrower 
provides information in a timely manner. Whenever it appears that the 
borrower has a substantial increase in income and repayment ability or 
ceases farming, either the interest rate may be increased to the current 
rate for FO, OL or SW loans, as applicable, or the borrower will be 
graduated from the program as provided in subpart F of this part.
    (4) The County Office will be responsible for scheduling and 
completing the reviews.
    (5) Borrowers who have received a deferral under Subpart S of this 
part will not have the interest rate increased on their limited resource 
loans during the deferral period.
    (c) Processing. (1) If, after the review, the interest rate is to 
remain the same, no further action needs to be taken.
    (2) When the interest rate is increased to the current rate, the 
loan will be recorded as a regular loan and will no longer be considered 
a limited resource loan. The borrower must be notified in writing at 
least 30 days prior to the date of the change. Exhibit B of this subpart 
may be used as a guide. The effective date of the change in interest 
rate will be the effective date on Exhibit B. The borrower must be 
informed of the following for each loan:
    (i) The authorization for the change,
    (ii) Reason for change (repayment ability, etc.),
    (iii) The effective date and rate of the increase in interest,
    (iv) Amount of the new installments and dates due,
    (v) Right to appeal.
    (3) It is not necessary to obtain a new promissory note for this 
change in interest rate.

[50 FR 45764, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988; 
56 FR 3395, Jan. 30, 1991; 58 FR 15074, Mar. 19, 1993]



Sec. Sec. 1951.26-1951.49  [Reserved]



Sec. 1951.50  OMB control number.

    The collection of information requirements in Subpart A of part 1951 
have been approved by the Office of Management and Budget and assigned 
OMB control number 0575-0075.

[52 FR 26137, July 13, 1987]



    Sec. Exhibit A to Subpart A of Part 1951--Notice to FmHA or its 
           successor agency under Public Law 103-354 Borrowers

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

[54 FR 10270, Mar. 13, 1989]



 Sec. Exhibit B to Subpart A of Part 1951--Notice of Change in Interest 
                                  Rate

                              (insert date)

                    Notice of Change in Interest Rate

________________________________________________________________________

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


[[Page 23]]


    [squ] Increase in repayment ability as per Farm and Home Plan dated 
------.
    [squ] (insert reason if other than above for increase in interest 
rate).

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

[56 FR 3396, Jan. 30, 1991]

Subpart B [Reserved]



     Subpart C_Offsets of Federal Payments to USDA Agency Borrowers



Sec. 1951.101  General.

    Federal debt collection statutes provide for the use of 
administrative, salary, and Internal Revenue Service (IRS) offsets by 
government agencies, including the Farm Service Agency (FSA), Rural 
Housing Service (RHS) for its community facility program, and Rural 
Business-Cooperative Service (RBS), herein referred to collectively as 
``United States Department of Agriculture (USDA) Agency,'' to collect 
delinquent debts. Any money that is or may become payable from the 
United States to an individual or entity indebted to a USDA Agency may 
be subject to offset for the collection of a debt owed to a USDA Agency. 
In addition, money may be collected from the debtor's retirement 
payments for delinquent amounts owed to the USDA Agency if the debtor is 
an employee or retiree of a Federal agency, the U.S. Postal Service, the 
Postal Rate Commission, or a member of the U.S. Armed Forces or the 
Reserve. Amounts collected will be processed as regular payments and 
credited to the borrower's account. USDA Agencies will process requests 
by other Federal agencies for offset in accordance with Sec. 1951.102 
of this subpart. This subpart does not apply to direct single family 
housing loans, direct multi-family housing loans, and the Rural 
Utilities Service. Section 1951.136 of this subpart only applies to RHS 
for its community facility program and RBS for the offset of Federal 
payments. Nothing in this subpart affects the common law right of set 
off available to USDA Agencies.

[67 FR 69671, Nov. 19, 2002]



Sec. 1951.102  Administrative offset.

    (a) General. Collections of delinquent debts through administrative 
offset will be taken in accordance with 7 CFR part 3, subpart B and 
Sec. 1951.106.
    (b) Definitions. In this subpart:
    (1) Agency means Farm Service Agency, Farm Loan Programs; Rural 
Housing Service, except direct Single Family Housing loans and direct 
Multi-Family Housing loans; and Rural Business-Cooperative Service, or 
any successor agency.
    (2) Contracting officer is any person who, by appointment in 
accordance with applicable regulations, has the authority to enter into 
and administer contracts and make determinations and findings with 
respect thereto. The term also includes the authorized representative of 
the contracting officer, acting within the limits of the 
representative's authority.
    (3) County Committee means the local committee elected by farmers in 
the county, as authorized by the Soil Conservation and Domestic 
Allotment Act and the Department of Agriculture Reorganization Act of 
1994, to administer FSA programs approved for the county as appropriate.
    (4) Creditor agency means a Federal agency to whom a debtor owes a 
monetary debt. It need not be the same agency that effects the offset.
    (5) Debt management officer means an agency employee responsible for 
collection by administrative offset of debts owed the United States.
    (6) Delinquent or past-due means a payment that was not made by the 
due date.
    (7) Entity means a corporation, joint stock company, association, 
general partnership, limited partnership, limited liability company, 
irrevocable trust, revocable trust, estate, charitable organization, or 
other similar organization participating in the farming operation.
    (8) FP means Farm Programs.
    (9) FLP means Farm Loan Programs.
    (10) FSA means Farm Service Agency.

[[Page 24]]

    (11) National Appeals Division means the organization within the 
Department of Agriculture that conducts appeals of adverse decisions for 
program participants under the purview of 7 CFR part 11.
    (12) Offsetting agency means an agency that withholds from its 
payment to a debtor an amount owed by the debtor to a creditor agency, 
and transfers the funds to the creditor agency for application to the 
debt.
    (13) Propriety means the offset is feasible. It includes offsetting 
a debtor's payments due any entity in which the debtor participates 
either directly or indirectly equal to the debtor's interest in the 
entity. To be feasible the debt must exist and be 90 days past due or 
the borrower must be in default of other obligations to the Agency, 
which can be cured by the payment.
    (14) Reviewing officer means an agency employee responsible for 
conducting a hearing or documentary review on the existence of debt and 
the propriety of administrative offset in accordance with 7 CFR 3.29. 
FSA District Directors or other State Executive Director designees are 
designated to conduct the hearings or reviews.

[65 FR 50602, Aug. 21, 2000, as amended at 67 FR 69671, Nov. 19, 2002; 
69 FR 5267, Feb. 4, 2004]



Sec. Sec. 1951.103-1951.105  [Reserved]



Sec. 1951.106  Offset of payments to entities related to debtors.

    (a) General. Collections of delinquent debts through administrative 
offset will be in accordance with 7 CFR part 3, subpart B, and 
paragraphs (b) and (c) of this section.
    (b) Offsetting entities. Collections of delinquent debts through 
administrative offset may be taken against a debtor's pro rata share of 
payments due any entity in which the debtor participates when:
    (1) It is determined that FSA has a legally enforceable right under 
state law or Federal law, including program regulations at 7 CFR 
792.7(l) and 1403.7(q), to pursue the entity payment;
    (2) A debtor has created a shell corporation before receiving a 
loan, or after receiving a loan, established an entity, or has 
reorganized, transferred ownership of, or otherwise changed in some 
manner the debtor's operation or the operation of a related entity for 
the purpose of avoiding payment of the FSA, FLP debt or otherwise 
circumventing Agency regulations;
    (3) Assets used in the entity's operation include assets pledged as 
security to the Agency which have been transferred to the entity without 
payment to the Agency of the value of the security or Agency consent to 
transfer of the assets;
    (4) A corporation to which a payment is due is the alter ego of a 
debtor; or
    (5) A debtor participates in, either directly or indirectly, the 
entity as determined by FSA.
    (c) Other remedies. Nothing in this section shall be deemed to limit 
remedies otherwise available to the Agency under other applicable law.

[65 FR 50603, Aug. 21, 2000]



Sec. Sec. 1951.107-1951.110  [Reserved]



Sec. 1951.111  Salary offset.

    Salary offset may be used to collect debts arising from delinquent 
USDA Agency loans and other debts which arise through such activities as 
theft, embezzlement, fraud, salary overpayments, under withholding of 
amounts payable for life and health insurance, and any amount owed by 
former employees from loss of federal funds through negligence and other 
matters. Salary offset may also be used by other Federal agencies to 
collect delinquent debts owed to them by employees of the USDA Agency, 
excluding county committee members. Administrative offset, rather than 
salary offset, will be used to collect money from Federal employee 
retirement benefits. For delinquent Farm Loan Programs direct loans, 
salary offset will not begin until the borrower has been notified of 
servicing options in accordance with 7 CFR part 766. In addition, for 
Farm Loan Programs direct loans, salary offset will not be instituted if 
the Federal salary has been considered on the farm operating plan, and 
it was determined the funds were to be used for another purpose other 
than payment on the USDA Agency loan. For Farm Loan Programs guaranteed 
debtors, salary offset can not begin until a final loss

[[Page 25]]

claim has been paid. When salary offset is used, payment for the debt 
will be deducted from the employee's pay and sent directly to the 
creditor agency. Not more than 15 percent of the employee's disposable 
pay can be offset per pay period, unless the employee agrees to a larger 
amount. The debt does not have to be reduced to judgment or be 
undisputed, and the payment does not have to be covered by a security 
instrument. This section describes the procedures which must be followed 
before the USDA Agency can ask a Federal agency to offset any amount 
against an employee's salary.
    (a) Authorities. The following authorities are granted to USDA 
Agency employees in order that they may initiate and implement salary 
offset:
    (1) Certifying Officials are authorized to certify to the debtor's 
employing agency that the debt exists, the amount of the delinquency or 
debt, that the procedures in USDA Agency and United States Department of 
Agriculture's (USDA's) regulations regarding salary offsets have been 
followed, that the actions required by the Debt Collection Act have been 
taken; and to request that salary offset be initiated by the debtor's 
employing agency. This authority may not be redelegated.
    (2) Certifying Officials are authorized to advise the Finance Office 
to establish employee defalcation accounts and non-cash credits to 
borrower accounts in cases involving other debts, such as those arising 
from theft, fraud, embezzlement, loss of funds through negligence, and 
similar actions involving USDA Agency employees.
    (3) The Finance Office is authorized to establish defalcation 
accounts and non-cash credits to borrower accounts upon receipt of 
requests from the Certifying Officials.
    (b) Definitions--(1) Certifying Officials--State Directors; State 
Executive Directors; the Assistant Administrator; Finance Office; 
Financial Management Director; Financial Management Division, and the 
Deputy Administrator for Management, National Office.
    (2) Debt or debts. A term that refers to one or both of the 
following:
    (i) Delinquent debts. A past due amount owed to the United States 
from sources which include, but are not limited to, insured or 
guaranteed loans, fees, leases, rents, royalties, services, sales of 
real or personal property, overpayments, penalties, damages, interest, 
fines and forfeitures (except those arising under the Uniform Code of 
Military Justice).
    (ii) Other debts. An amount owed to the United States by an employee 
for pecuniary losses where the employee has been determined to be liable 
due to the employee's negligent, willful, unauthorized or illegal acts, 
including but not limited to:
    (A) Theft, misuse, or loss of Government funds;
    (B) False claims for services and travel;
    (C) Illegal, unauthorized obligations and expenditures of Government 
appropriations;
    (D) Using or authorizing the use of Government owned or leased 
equipment, facilities supplies, and services for other than official or 
approved purposes;
    (E) Lost, stolen, damaged, or destroyed Government property;
    (F) Erroneous entries on accounting record or reports; and,
    (G) Deliberate failure to provide physical security and control 
procedures for accountable officers, if such failure is determined to be 
the proximate cause for a loss of Government funds.
    (3) Defalcation account. An account established in the Finance 
Office for other debts owed the Federal government in the amount missing 
due to the action of an employee or former employee.
    (4) Disposable pay. Pay due an employee that remains after required 
deductions for Federal, State and local income taxes; Social Security 
taxes, including Medicare taxes; Federal retirement programs; premiums 
for life and health insurance benefits, and such other deductions 
required by law to be withheld.
    (5) Hearing Officer. An Administrative Law Judge of the USDA or 
another individual not under the supervision or control of the USDA, 
designated by the Certifying Official to review the determination of the 
alleged debt.

[[Page 26]]

    (6) Non-cash credit. The accounting action taken by the Finance 
Office to credit and make a borrower's account whole for funds paid by 
the borrower but missing due to an employee's or former employee's 
actions.
    (7) Salary Offset. The collection of a debt due to the U.S. by 
deducting a portion of the disposable pay of a Federal employee without 
the employee's consent.
    (c) Feasibility of salary offset. The first step the Certifying 
Official must take to use this offset procedure is to decide, on a case 
by case basis, whether offset is feasible. If an offset is feasible, the 
directions in the following paragraphs of this section will be used to 
collect by salary offset. If the official making this determination 
decides that salary offset is not feasible, the reasons supporting this 
decision will be documented in the borrower's running case record in the 
case of delinquent debts, or the ``For Official Use Only'' file in cases 
of other debts. Ordinarily, and where possible, debts should be 
collected in one lump-sum; but payments may be made in installments. 
Installment deductions can be made over a period not greater than the 
anticipated period of employment. However, the amount deducted for a pay 
period will not exceed 15 percent of the disposable pay from which the 
deduction is made. If possible, the installment payment will be 
sufficient in size and frequency to liquidate the debt in approximately 
3 years. Based on the Comptroller General's decisions, other debts by 
employees cannot be forgiven. If the employee retires or resigns, or if 
employment ends before collection of the debt is completed, final salary 
payment, lump-sum leave, etc. may be offset to the extent necessary to 
liquidate the debt. Salary offset is feasible if:
    (1) The cost to the Government of collecting salary offset does not 
exceed the amount of the debt. County Committee members are exempt from 
salary offset because the amount collected by salary offset would be so 
small as to be impractical.
    (2) There are not any legal restrictions to the debt, such as the 
debtor being under the jurisdiction of a bankruptcy court, or the 
statute of limitations having expired. The Debt Collection Act of 1982 
permits offset of claims that have not been outstanding for more than 10 
years.
    (d) Notice to debtor. (1) After the Certifying Official determines 
that collection by salary offset is feasible, the debtor should be 
notified within 15 calendar days after the salary offset determination. 
This notice will notify the debtor of intended salary offset at least 30 
days before the salary offset begins. For Farm Loan Programs direct 
loans, this notice will be sent after the borrower is over 90 days past 
due and immediately after sending notification of servicing rights in 
accordance with 7 CFR part 766. For Farm Loan Programs guaranteed 
debtors, this notice will be sent after a final loss claim has been 
paid. The salary offset determination notice will be delivered to the 
debtor by regular mail.
    (2) The Debt Collection Act of 1982 requires that the hearing 
officer issue a written decision not later than 60 days after the filing 
of the petition requesting the hearing; thus, the evidence upon which 
the decision to notify the debtor is based, to the extent possible, 
should be sufficient for FmHA or its successor agency under Public Law 
103-354 to proceed at a hearing, should the debtor request a hearing 
under paragraph (f) of this section.
    (e) Notice requirement before salary offset. Salary offset will not 
be made unless the employee receives 30 calendar days written notice. 
This Notice of Intent (FmHA or its successor agency under Public Law 
103-354 Guide Letter 1951-C-4) will be addressed to the debtor or the 
debtor's representative. The Notice of Intent must be modified if it is 
addressed to the debtor's representative. In either case, the Notice of 
Intent will state:
    (1) It has been determined that the debt is owed, the amount of the 
debt, and the facts giving rise to the debt;
    (2) The cost to the Government of collecting salary offset does not 
exceed the amount of the debt;
    (3) There are not any legal restrictions that would bar collecting 
the debt;
    (4) The debt will be collected by means of deduction of not more 
than 15 percent from the employee's current

[[Page 27]]

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

[[Page 28]]

for a hearing on FmHA or its successor agency under Public Law 103-354's 
determination that a debt exists and/or is due, or on the percentage of 
net pay to be deducted each pay period, the Certifying Official will 
notify the debtor in accordance with paragraph (g)(3) of this section 
and request the debtor's case file or the ``For Official Use Only'' 
file.
    (4) If a debtor is willing to have more than 15 percent of the 
disposable pay sent to FmHA or its successor agency under Public Law 
103-354, a letter prepared and signed by the debtor clearly stating this 
must be placed in the debtor's case file or the ``For Official Use 
Only'' file.
    (5) If a debtor who is an FmHA or its successor agency under Public 
Law 103-354 borrower requests debt settlement, the account must be in 
collection-only status or be an inactive account for which there is no 
security. The Certifying Official must inform the borrower of how to 
apply for debt settlement. Any application will be considered 
independently of the salary offset. A salary offset should not be 
delayed because the borrower applied for debt settlement.
    (6) The time limits set in FmHA or its successor agency under Public 
Law 103-354 Guide Letter 1951-C-4 and in paragraphs (f) (1), (2), and 
(3) of this section run concurrently. In other words, if a debtor asks 
to review the FmHA or its successor agency under Public Law 103-354 file 
and offers to repay the debt, the debtor cannot take 30 days to ask to 
review the file and then take another 30 days to offer to repay. The 
request to review the file and the offer to repay must both be made 
within 30 days of the date the debtor receives the notification letter.
    (7) If an employee is included in a bargaining unit which has a 
negotiated grievance procedure that does not specifically exclude salary 
offset proceedings, the employee must grieve the matter in accordance 
with the negotiated procedure. Employees who are not covered by a 
negotiated procedure must utilize the salary offset proceedings as 
outlined in FmHA or its successor agency under Public Law 103-354 Guide 
Letter 1951-C-4. The employee must be informed, in writing, which 
procedure to follow and, as appropriate, reference should be made to the 
appropriate sections of the negotiated agreement.
    (g) Hearings. (1) A hearing officer must be a USDA Administrative 
Law Judge or a person who is not a USDA employee. In order to ensure 
that a hearing officer will be available promptly when needed, 
Certifying Officials need to make appropriate arrangements with 
officials of nearby federal agencies for the use of each other's 
employees as hearing officers.
    (2) Not later than 30 days from the date the debtor receives the 
Notice of Intent (FmHA or its successor agency under Public Law 103-354 
Guide Letter 1951-C-4), the employee must file with the Certifying 
Official issuing the notice, a written petition establishing his/her 
desire for a hearing on the existence and amount of the debt or the 
proposed offset schedule. The employee's petition must fully identify 
and explain all the information and evidence that supports his/her 
position. In addition, the petition must bear the employee's original 
signature and be dated upon receipt by the Certifying Official.
    (3) Certifying Officials are responsible for determining if the 
employee's petition for a hearing has been submitted in a timely 
fashion. Petitions received from employees after the 30-day time 
limitation expires will be accepted only if the employee can show the 
delay was because of circumstances beyond his/her control or because of 
failure to receive notice of the time limitation. Certifying Officials 
are required to provide written notification to the employee of the 
acceptance or non-acceptance of the employee's petition for hearing.
    (4) For those petitions accepted, FmHA or its successor agency under 
Public Law 103-354 will arrange for a hearing officer and notify the 
employee of the time and place of the hearing. The hearing location 
should be convenient to all parties involved. The employee will also be 
notified that the acceptance of the petition for hearing

[[Page 29]]

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

[[Page 30]]

the employee has agreed in writing to the deduction of a greater amount. 
Installment payments of less than $25 per pay period or $50 a month will 
be accepted only in the most unusual circumstances.
    (2) Deductions will be made only from basic pay, incentive pay, 
retainer pay, or, in the case of an employee not entitled to basic pay, 
other authorized pay. If there is more than one salary offset, the 
maximum deduction for all salary offsets against an employee's 
disposable pay is 15 percent unless the employee has agreed in writing 
to a greater amount.
    (j) Agency/NFC responsibility for other debts. (1) FmHA or its 
successor agency under Public Law 103-354 will inform NFC about other 
indebtedness by transmitting to NFC an AD-343. NFC will process the 
documents through the Payroll/Personnel System, calculate the net amount 
of the adjustment and generate a salary offset notice. This notice will 
be sent to the employee's employing office along with a duplicate copy 
for the FmHA or its successor agency under Public Law 103-354's records. 
FmHA or its successor agency under Public Law 103-354 is responsible for 
completing the necessary information and forwarding the employee's 
notice to the employee.
    (2) Other indebtedness falls into two categories:
    (i) An agency-initiated indebtedness (i.e. personal telephone calls, 
property damages, etc.).
    (ii) An NFC-initiated indebtedness (i.e. duplicate salary payments, 
etc.). NFC will send the salary offset notice to the employing office.
    (k) Establishing employees or former employees defalcation accounts 
and non-cash credits to borrower accounts. In cases where a borrower 
made a payment on an FmHA or its successor agency under Public Law 103-
354 account(s) and, due to theft, embezzlement, fraud, negligence, or 
some other action on the part of an FmHA or its successor agency under 
Public Law 103-354 employee or employees, the payment is not transmitted 
to the Finance Office for application to the borrower's account(s), 
certain accounting actions must be taken by the Finance Office to 
establish non-cash credits to the borrower's account and an employee 
defalcation account.
    (1) The Certifying Official will advise the Assistant Administrator, 
Finance Office by memorandum to establish a defalcation account. The 
memorandum must state the following information:
    (i) Employee's name (or former),
    (ii) Social Security Number,
    (iii) Present or last known address,
    (iv) Date of Payment, and
    (v) Amount of the defalcation account.
    (2) If a non-cash credit to a borrower's account(s) is required, the 
letter to the Finance Office will include:
    (i) Borrower's name and case number,
    (ii) Fund Code and Loan Code,
    (iii) Date and amount of missing payment,
    (iv) Copy of receipt issued for the missing payment, and
    (v) Name of employee who last had custody of the missing funds.
    (3) To assist and assure proper accounting for defalcation accounts 
and non-cash credits, the request should be made at the same time. 
Should requests be made separately, be sure to identify appropriately.
    (4) The Certifying Official shall furnish a copy of the memorandum 
and supporting documentation for paragraphs (k) (1) and (2) of this 
section to the Deputy Administrator for Management for distribution to 
the Financial and Management Analysis Staff (FMAS) and Employee 
Relations Branch, Personnel Division.
    (l) Application of payments, refunds and overpayments. (1) If a 
debtor is delinquent or indebted on more than one FmHA or its successor 
agency under Public Law 103-354 loan or debt, amounts collected by 
offset will be applied as specified on Form AD-343, based on the 
advantage to agency or debtor. The check date will be used as the date 
of credit in applying payments to the borrower's accounts.
    (2) If a court or agency orders FmHA or its successor agency under 
Public Law 103-354 to refund the amount obtained by salary offset, a 
refund will be requested promptly by the Certifying Official in 
accordance with the order by sending FmHA or its successor agency under 
Public Law 103-354 Form Letter 1951-5 to the Finance Office.

[[Page 31]]

Processing FmHA or its successor agency under Public Law 103-354 Form 
Letter 1951-5 in the Finance Office will cause a refund to be sent to 
the debtor through the county office or other appropriate FmHA or its 
successor agency under Public Law 103-354 office. The debtor is not 
entitled to any payment of interest, on the refunded amount.
    (3) If a debtor does not request a hearing within the required time 
and it is later determined that the delay was due to circumstances 
beyond the debtor's control, any amount collected before the hearing 
decision is made will be refunded promptly by the Certifying Official in 
accordance with paragraphs (l) (1) and (2) of this section.
    (4) If FmHA or its successor agency under Public Law 103-354 
receives money through an offset but the debtor is not delinquent or 
indebted at the time or the amount received is in excess of the 
delinquency or indebtedness, the entire amount or the amount in excess 
of the delinquency or indebtedness will be refunded promptly to the 
debtor by the Certifying Official in accordance with paragraphs (l) (1) 
and (2) of this section.
    (m) Cancellation of offset. If a debtor's name has been submitted to 
another agency for offset and the debtor's account is brought current or 
otherwise satisfied, the Certifying Official will complete Form AD-343 
and send it to the National Office, FMAS. FMAS will notify the paying 
agency with Form AD-343 that the debtor is no longer delinquent or 
indebted and to cancel the offset. A copy of the cancellation document 
will be sent to the debtor and the Finance Office, Attn: Account 
Settlement Unit.
    (n) Intra-departmental transfer. When an FmHA or its successor 
agency under Public Law 103-354 employee who is indebted to one agency 
in USDA transfers to another agency within USDA, a copy of the repayment 
schedule should be forwarded by the agency personnel office to the new 
employing agency. The NFC will continue to make deductions until full 
recovery is effected.
    (o) Liquidation from final checks. Upon the determination that an 
employee owing a debt to FmHA or its successor agency under Public Law 
103-354 is to retire, resign, or employment otherwise ends, the 
Certifying Official should forward a telegram with the appropriate 
employee identification and amount of the debt to the NFC. The telegram 
should request that the debt be collected from final salary/lump sum 
leave or other funds due the employee, and, if necessary, to put a hold 
on the retirement funds. The telegram information should be confirmed by 
completion of Form AD-343. Collection from retirement funds will be in 
accordance with Departmental Administrative Offset procedures (7 CFR 
Part 3, Subpart B, Sec. 3.32).
    (p) Coordination with other agencies. (1) If FmHA or its successor 
agency under Public Law 103-354 is the creditor agency but not the 
paying agency, the Certifying Official will submit Form AD-343 to the 
National Office, FMAS, to begin salary offset against an indebted 
employee. The request will include a certification as to the 
determination of indebtedness, and that FmHA or its successor agency 
under Public Law 103-354 has complied with applicable regulations and 
instruction for submitting the funds to the Finance Office. (See FmHA or 
its successor agency under Public Law 103-354 Form Letter 1951-6).
    (2) When an employee of FmHA or its successor agency under Public 
Law 103-354 owes a debt to another Federal agency, salary offset may be 
used only when the Federal agency certifies that the person owes the 
debt and that the Federal agency has complied with its regulations. The 
request must include the creditor agency's certification as to the 
indebtedness, including the amount, and that the employee has been given 
the due process entitlements guaranteed by the Debt Collection Act of 
1982. When a request for offset is received, FmHA or its successor 
agency under Public Law 103-354 will notify the employee and NFC and 
arrange for offset. (See FmHA or its successor agency under Public Law 
103-354 Form Letter 1951-7).
    (q) Deductions by the National Finance Center (NFC). The NFC will 
automatically deduct the full amount of the delinquency or indebtedness 
if less than

[[Page 32]]

15 percent of disposable pay or 15 percent of disposable pay if the 
delinquency or indebtedness exceeds 15 percent, unless the creditor 
agency advises otherwise. Deductions will begin the second pay period 
after the 30-day notification period has expired unless FmHA or its 
successor agency under Public Law 103-354 issues the notice. If FmHA or 
its successor agency under Public Law 103-354 issues the notice, the NFC 
will begin deductions on the first pay period after receipt of the Form 
AD-343.
    (r) Interest, penalties and administrative costs. Interest and 
administrative costs will normally be assessed on outstanding claims 
being collected by salary offset. However, penalties should not be 
charged routinely on debts being collected in installments by salary 
offsets, since it is not to be construed as a failure to pay within a 
given time period. Additional interest, penalties, and administrative 
costs will not be assessed on delinquent loans until FmHA or its 
successor agency under Public Law 103-354 publishes regulations 
permitting such charges.
    (s) Adjustment in rate of repayment. (1) When an employee who is 
indebted receives a reduction in basic pay that would cause the current 
deductions to exceed 15 percent of disposable pay, and the employee has 
not consented in writing to a greater amount, FmHA or its successor 
agency under Public Law 103-354 must take action to reduce the amount of 
the deductions to 15 percent of the new amount of disposable pay. Upon 
an increase in basic pay which results in the current deductions to be 
less than the specified percentage, FmHA or its successor agency under 
Public Law 103-354 may increase the amount of the deductions 
accordingly. In either case, when a change is made the employee will be 
notified in writing.
    (2) When an employee has an existing reduced repayment schedule 
because of financial hardship, the creditor agency may arrange for a new 
repayment schedule.

[52 FR 18544, May 18, 1987, as amended at 53 FR 44178, Nov. 2, 1988; 54 
FR 26945, June 27, 1989; 62 FR 41799, Aug. 1, 1997; 65 FR 50603, Aug. 
21, 2000; 67 FR 69671, Nov. 19, 2002; 72 FR 64122, Nov. 15, 2007]



Sec. Sec. 1951.112-1951.132  [Reserved]



Sec. 1951.133  Establishment of Federal Debt.

    Any amounts paid by RBS on account of liabilities of a business and 
industry (B&I) program guaranteed loan borrower will constitute a 
Federal debt owing to RBS by the B&I guaranteed loan borrower. In such 
case, the RBS may use all remedies available to it, including offset 
under the Debt Collection Improvement Act of 1996 (DCIA), to collect the 
debt from the borrower. Interest charges will be established at the note 
rate of the guaranteed loan on the date a loss claim is paid. RBS may, 
at its option, refer such debt in all or part to the Department of the 
Treasury, before a final loss claim is determined.

[69 FR 3000, Jan. 22, 2004]



Sec. Sec. 1951.134-1951.135  [Reserved]



Sec. 1951.136  Procedures for Department of Treasury offset and cross-servicing for the Rural Housing Service (Community Facility Program only) and the Rural 
          Business-Cooperative Service.

    (a) The National Offices of the Rural Housing Service (RHS), 
Community Facilities (CF) and the Rural Business-Cooperative Service 
(RBS) will refer past due, legally enforceable debts which are over 180 
days delinquent to the Secretary of the Treasury for collection by 
centralized administrative offset (TOP), Internal Revenue Service offset 
administered through TOP and Treasury's Cross-Servicing (Cross-
Servicing) Program, which centralizes all Government debt collection 
actions. A borrower with a workout agreement in place, in bankruptcy or 
litigation, or meeting other exclusion criteria, may be excluded from 
TOP or Cross-Servicing.
    (b) A 60 day due process notice will be sent to borrowers subject to 
TOP or Cross-Servicing. The borrower will be given 60 days to resolve 
any delinquency before the debt is reported to Treasury. The notice will 
include:
    (1) The nature and amount of the debt, the intention of the Agency 
to collect the debt through TOP or Cross-

[[Page 33]]

Servicing, and an explanation of the debtor's rights;
    (2) An opportunity to inspect and copy the records related to the 
debt from the Agency;
    (3) An opportunity to review the matter within the Agency or the 
National Appeals Division, if there has not been a previous opportunity 
to appeal the offset; and
    (4) An opportunity to enter into a written repayment agreement.
    (c) In referring debt to the Department of Treasury the Agency will 
certify that:
    (1) The debt is past due and legally enforceable in the amount 
submitted and the Agency will ensure that collections are properly 
credited to the debt;
    (2) Except in the case of a judgment debt or as otherwise allowed by 
law, the debt is referred for offset within 10 years after the Agency's 
right of action accrues;
    (3) The Agency has made reasonable efforts to obtain payment; and
    (4) Payments that are prohibited by law from being offset are exempt 
from centralized administrative offset.

[67 FR 69672, Nov. 19, 2002]



Sec. 1951.137  Procedures for Treasury offset and cross-servicing for the Farm Service Agency (FSA) farm loan programs.

    (a) The Farm Service Agency, Farm Loan Programs, will refer past 
due, legally enforceable debts which are over 180 days delinquent to the 
Secretary of the Treasury for collection by centralized administrative 
offset (TOP), Internal Revenue Service offset administered through TOP 
and Treasury's Cross-Servicing (Cross-Servicing) Program, which 
centralizes all Government debt collection actions. A borrower with a 
workout agreement in place, in bankruptcy or litigation, or meeting 
other exclusion criteria, may be excluded from TOP or Cross-Servicing. 
Guaranteed debtors will only be referred to TOP upon confirmation of 
payment on a final loss claim.
    (b) A 60 day due process notice will be sent to borrowers subject to 
TOP or Cross-Servicing by the Director of Kansas City Finance Office. 
The borrower will be given 60 days to resolve any delinquency before the 
debt is reported to Treasury. The notice will include:
    (1) The nature and amount of the debt, the intention of the Agency 
to collect the debt through TOP or Cross-Servicing, and an explanation 
of the debtor's rights;
    (2) An opportunity to inspect and copy the records related to the 
debt, from the Agency;
    (3) An opportunity to review the matter within the Agency; and
    (4) An opportunity to enter into a written repayment agreement.
    (c) In referring debt to the Department of Treasury the Agency will 
certify that:
    (1) The debt is past due and legally enforceable in the amount 
submitted and the Agency will ensure that collections are properly 
credited to the debt;
    (2) Except in the case of a judgment debt or as otherwise allowed by 
law, the debt is referred for offset within 10 years after the Agency's 
right of action accrues;
    (3) The Agency has made reasonable efforts to obtain payment; and
    (4) Payments that are prohibited by law from being offset are exempt 
from centralized administrative offset.

[67 FR 69672, Nov. 19, 2002]



Sec. Sec. 1951.138-1951.149  [Reserved]



Sec. 1951.150  OMB control number.

    The collection of information requirements in this regulation have 
been approved by the Office of Management and Budget and assigned OMB 
control number 0575-0119.

[51 FR 42821, Nov. 26, 1986]



                    Subpart D_Final Payment on Loans

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



Sec. 1951.151  Purpose.

    This subpart prescribes authorizations, policies, and procedures of 
the Rural Housing Service (RHS), and Rural Business-Cooperative Service 
(RBS), herein referred to as ``Agency,'' for processing final payment on 
all loans. This subpart does not apply to

[[Page 34]]

Direct Single Family Housing customers or to the Rural Rental Housing, 
Rural Cooperative Housing, or Farm Labor Housing Program of the RHS. 
This subpart does not apply to Water and Waste Programs of the Rural 
Utilities Service, Watershed loans, and Resource Conservation and 
Development loans, which are serviced under part 1782 of this title. In 
addition, this subpart is inapplicable to Farm Service Agency, Farm Loan 
Programs.

[72 FR 55018, Sept. 28, 2007, as amended at 72 FR 64123, Nov. 15, 2007]



Sec. 1951.152  Definition.

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



Sec. 1951.153  Chattel security or note-only cases.

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



Sec. 1951.154  Satisfaction and release of documents.

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



Sec. 1951.155  County and/or District Office actions.

    (a) Funds remaining in supervised bank accounts. When a borrower is 
ready to pay an insured or direct loan in full, any funds remaining in a 
supervised bank account will be withdrawn and remitted for application 
to the borrower's account. If the entire principal of the loan is 
refunded after the loan is closed, the borrower will be required to pay 
interest from the date of the note to the date of receipt of the refund.
    (b) Determining amount to be collected. FmHA or its successor agency 
under Public Law 103-354 will compute and verify the amount to be 
collected for payment of an account in full. Requests for payoff 
balances on all accounts will be furnished in writing in a format 
specified by FmHA or its successor agency under Public Law 103-354 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (c) Delivery of satisfaction, notes, and other documents. When the 
remittance which paid an account in full has been processed by FmHA or 
its successor agency under Public Law 103-354, the paid note and 
satisfied mortgage may be returned to the borrower. If other provisions 
exist, the mortgage will not be satisfied until the total indebtedness 
secured by the mortgage is paid. For instance, in a situation where a 
rural housing loan is paid-in-full and there is a subsidy recapture 
receivable balance that the borrower elects to delay repaying, the 
amount of recapture to be repaid will be determined when the principal 
and interest balance is paid. The mortgage securing the RHS, RBS, RUS, 
and/or FSA or its successor agency under Public Law 103-354 debt will 
not be released of record until the total amount owed the Government

[[Page 35]]

is repaid. To permit graduation or refinancing by the borrower, the 
mortgage securing the recapture owed may be subordinated.
    (1) If FmHA or its successor agency under Public Law 103-354 
receives final payments in a form other than cash, U.S. Treasury check, 
cashier's check, certified check, money order, bank draft, or check 
issued by an institution determined by FmHA or its successor agency 
under Public Law 103-354 to be financially responsible, the mortgage and 
paid note will not be released until after a 30-day waiting period. If 
other indebtedness to FmHA or its successor agency under Public Law 103-
354 is not secured by the mortgage, FmHA or its successor agency under 
Public Law 103-354 will execute the satisfaction or release. When the 
stamped note is delivered to the borrower, FmHA or its successor agency 
under Public Law 103-354 will also deliver the real estate mortgage and 
related title papers such as title opinions, title insurance binders, 
certificates of title, and abstracts which are the property of the 
borrower. Any water stock certificates or other securities that are the 
property of the borrower will be returned to the borrower. Also, any 
assignments of income will be terminated as provided in the assignment 
forms.
    (2) Delivery of documents at the time of final payment will be made 
when payment is in the form of cash, U.S. Treasury check, cashier's 
check, certified check, money order, bank draft, or check issued by an 
institution determined by FmHA or its successor agency under Public Law 
103-354 to be responsible. FmHA or its successor agency under Public Law 
103-354 will not accept payment in the form of foreign currency, foreign 
checks or sight drafts. FmHA or its successor agency under Public Law 
103-354 will execute the satisfaction or release (unless other 
indebtedness to FmHA or its successor agency under Public Law 103-354 is 
covered by the mortgage) and mark the original note with a paid-in-full 
legend based upon receipt of the full payment balance of the borrower's 
account(s), computed as of the date final payment is received. In 
unusual cases where an insured promissory note is held by a private 
holder, FmHA or its successor agency under Public Law 103-354 can 
release the mortgage and deliver the note when it is received.
    (d)-(e) [Reserved]
    (f) Cost of recording or filing of satisfaction. The satisfaction or 
release will be delivered to the borrower for recording and the 
recording costs will be paid by the borrower, except when State law 
requires the mortgagee to record or file satisfactions or release and 
pay the recording costs.
    (g) Property insurance. When the borrower's loan has been paid-in-
full and the satisfaction or release of the mortgage has been executed, 
FmHA or its successor agency under Public Law 103-354 may release the 
mortgage interest in the insurance policy as provided in subpart A of 
part 1806 of this chapter (FmHA or its successor agency under Public Law 
103-354 Instruction 426.1).
    (h) [Reserved]
    (i) Outstanding Loan Balance(s). FmHA or its successor agency under 
Public Law 103-354 will attempt to collect any account balance(s) that 
may result from an error by FmHA or its successor agency under Public 
Law 103-354 in handling final payments according to paragraph 
1951.155(b) of this section. If collection cannot be made, the debt will 
be settled according to subpart B of part 1956 of this chapter or 
reclassified to collection-only. A deficiency judgment may be considered 
if the balance is a significant amount ($1,000 or more) and the borrower 
has known assets.

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



Sec. Sec. 1951.156-1951.200  [Reserved]



Subpart E_Servicing of Community and Direct Business Programs Loans and 
                                 Grants

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



Sec. 1951.201  Purposes.

    This subpart prescribes the Rural Development mission area policies, 
authorizations, and procedures for servicing the following programs: 
Community Facility loans and grants, Rural

[[Page 36]]

Business Enterprise/Television Demonstration grants; loans for Grazing 
and other shift-in-land-use projects; Association Recreation loans; 
Association Irrigation and Drainage loans; Direct Business loans; 
Economic Opportunity Cooperative loans; Rural Renewal loans; Energy 
Impacted Area Development Assistance Program grants; National Nonprofit 
Corporation grants; System for Delivery of Certain Rural Development 
Programs panel grants; in part 4284 of this title, Rural and Cooperative 
Development Grants, Value-Added Producer Grants, and Agriculture 
Innovation Center Grants. Rural Development State Offices act on behalf 
of the Rural Business-Cooperative Service and the Farm Service Agency as 
to loan and grant programs formerly administered by the Farmers Home 
Administration and the Rural Development Administration. Loans sold 
without insurance to the private sector will be serviced in the private 
sector and will not be serviced under this subpart. The provisions of 
this subpart are not applicable to such loans. Future changes to this 
subpart will not be made applicable to such loans. This subpart does not 
apply to Water and Waste Programs of the Rural Utilities Service, 
Watershed loans, and Resource Conservation and Development Loans, which 
are serviced under part 1782 of this title.

[72 FR 55018, Sept. 28, 2007]



Sec. 1951.202  Objectives.

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



Sec. 1951.203  Definitions.

    (a) Approval official. An official who has been delegated loan and/
or grant approval authorities within applicable programs.
    (b) Assumption of debt. The agreement by one party to legally bind 
itself to pay the debt incurred by another.
    (c) CONACT. The Consolidated Farm and Rural Development Act, as 
amended.
    (d) Eligible applicant. An entity that would be legally qualified 
for financial assistance under the loan or grant program involved in the 
servicing action.
    (e) Ineligible applicant. An entity or individual that would not be 
considered eligible for financial assistance under the loan or grant 
program involved in the servicing action.
    (f) Nonprogram (NP) loan. An NP loan exists when credit is extended 
to an ineligible applicant and/or transferee in connection with loan 
assumptions or sale of inventory property; any recipient in cases of 
unauthorized assistance; or a recipient whose legal organization has 
changed as set forth in Sec. 1951.220(e) of this subpart resulting in 
the borrower being ineligible for program benefits.
    (g) Servicing office. The State, District, or County Office 
responsible for immediate servicing functions for the borrower or 
grantee.
    (h) Transfer fee. A one-time nonrefundable application fee, charged 
to ineligible applicants for FmHA or its successor agency under Public 
Law 103-354 services rendered in the processing of a transfer and 
assumption.

[55 FR 4399, Feb. 8, 1990, as amended at 69 FR 70884, Dec. 8, 2004]



Sec. 1951.204  Nondiscrimination.

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

    The property described herein was obtained or improved with Federal 
financial assistance and is subject to the nondiscrimination provisions 
of title VI of the Civil Rights Act of 1964, title IX of the Education 
Amendments of 1972, section 504 of the Rehabilitation Act of 1973, and 
other similarly worded Federal statutes, and the regulations issued 
pursuant thereto that prohibit

[[Page 37]]

discrimination on the basis of race, color, national origin, handicap, 
religion, age, or sex in programs or activities receiving Federal 
financial assistance. Such provisions apply for as long as the property 
continues to be used for the same or similar purposes for which the 
Federal assistance was extended, for so long as the purchaser owns it, 
whichever is later.



Sec. 1951.205  Redelegation of authority.

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



Sec. 1951.206  Forms.

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



Sec. 1951.207  State supplements.

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



Sec. Sec. 1951.208-1951.209  [Reserved]



Sec. 1951.210  Environmental requirements.

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



Sec. 1951.211  Refinancing requirements.

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

[55 FR 4399, Feb. 8, 1990, as amended at 63 FR 16089, Apr. 2, 1998]



Sec. 1951.212  Unauthorized financial assistance.

    Subpart O of part 1951 of this chapter prescribes policies for 
servicing the loans and grants covered under this subpart when it is 
determined that a borrower or grantee was not eligible for all or part 
of the financial assistance received in the form of a loan, grant, 
subsidy, or any other direct financial assistance.



Sec. 1951.213  Debt settlement.

    Subpart C of part 1956 of this chapter prescribes policies and 
procedures for debt settlement actions for loans covered under this 
subpart when it is determined that a debt is eligible for settlement 
except as provided in Sec. Sec. 1951.216 and 1951.231.



Sec. 1951.214  Care, management, and disposal of acquired property.

    Property acquired by Government or its successor agency under Public 
Law 103-354 will be handled according to subparts B and C of part 1955 
of this chapter.

[55 FR 4399, Feb. 8, 1990, as amended at 63 FR 16089, Apr. 2, 1998]

[[Page 38]]



Sec. 1951.215  Grants.

    No monitoring action by FmHA or its successor agency under Public 
Law 103-354 is required after grant closeout. Grant closeout is when all 
required work is completed, administrative actions relating to the 
completion of work and expenditure of funds have been accomplished, and 
FmHA or its successor agency under Public Law 103-354 accepts final 
expenditure information. However, grantees remain responsible in 
accordance with the terms of the grant for property acquired with grant 
funds.
    (a) Applicability of requirements. Servicing actions relating to 
FmHA or its successor agency under Public Law 103-354 grants are 
governed by the provisions of this subpart, the terms of the Grant 
Agreement and, if applicable, the provisions of 7 CFR parts 3015, 3016, 
and 3017.
    (1) Servicing actions will be carried out in accordance with the 
terms of the ``Association Water or Sewer System Grant Agreement,'' and 
RUS Bulletin 1780-12, ``Water and Waste Grant Agreement'' (available 
from any USDA/Rural Development office or the Rural Utilities Service, 
United States Department of Agriculture, Washington, DC 20250-1500). 
Grant agreements with a revision date on or after January 29, 1979, 
require that the grantee request disposition instructions from the 
Agency before disposing of property which is no longer needed for 
original grant purposes.
    (2) When facilities financed in part by FmHA or its successor agency 
under Public Law 103-354 grants are transferred or sold, repayment of 
all or a portion of the grant is not required if the facility will be 
used for the same purposes and the new owner provides a written 
agreement to abide by the terms of the grant agreement.
    (3) 7 CFR 3015 first became effective on November 10, 1981; 7 CFR 
parts 3016 on October 1, 1988; and 7 CFR 3017 on March 18, 1989. Grants 
made on or after those dates are subject to the provisions of those 
regulations except to the extent of the express provisions of the Grant 
Agreement.
    (b) Authorities. Subject to the requirements of Sec. 1951.215(a), 
authority to approve servicing actions is as follows:
    (1) For water and waste disposal grants, the State Director is 
authorized to approve any servicing actions needed, except that prior 
approval of the Administrator is required when property acquired with 
grant funds is disposed of in accordance with Sec. Sec. 1951.226, 
1951.230, or 1951.232 of this subpart and the buyer or transferee 
refuses to assume all terms of the grant agreement.
    (2) All other grants will be serviced in accordance with the Grant 
Agreement and this subpart. Prior approval of the Administrator is 
required except for actions covered in the preceding paragraph.

[55 FR 4399, Feb. 8, 1990, as amended at 63 FR 16089, Apr. 2, 1998]



Sec. 1951.216  Nonprogram (NP) loans.

    Borrowers with NP loans are not eligible for any program benefits, 
including appeal rights. However, FmHA or its successor agency under 
Public Law 103-354 may use any servicing tool under this subpart 
necessary to protect the Government's security interest, including 
reamortization or rescheduling. The refinancing requirements of subpart 
F of part 1951 of this chapter do not apply to NP loans. Debt settlement 
actions relating to NP loans must be handled under the Federal Claims 
Collection Act; proposals will be submitted to the National Office for 
review and approval. Any exception to the servicing requirements of NP 
loans under this subpart must have prior concurrence of the National 
Office.



Sec. 1951.217  Public bodies.

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

[[Page 39]]



Sec. 1951.218  Use of Rural Development loans and grants for other purposes.

    (a) If, after making a loan or a grant, the Administrator determines 
that the circumstances under which the loan or grant was made have 
sufficiently changed to make the project or activity for which the loan 
or grant was made available no longer appropriate, the Administrator may 
allow the loan borrower or grant recipient to use property (real and 
personal) purchased or improved with the loan or grant funds, or 
proceeds from the sale of property (real and personal) purchased with 
such funds, for another project or activity that:
    (1) Will be carried out in the same area as the original project or 
activity;
    (2) Meets the criteria for a loan or grant described in section 
381E(d) of the Consolidated Farm and Rural Development Act, as amended; 
and
    (3) Satisfies such additional requirements as are established by the 
Administrator.
    (b) For the purpose of this section, Administrator means the 
Administrator of the Rural Housing Service or Rural Business-Cooperative 
Service that has the delegated authority to administer the loan or grant 
program that covers the property or the proceeds from the sale of 
property proposed to be used in another way.
    (c) If the new use of the property is under the authority of another 
Administrator, the other Administrator will be consulted on whether the 
new use will meet the criteria of the other program. Since the new 
project or activity must be carried out in the same area as the original 
project or activity, a new rural area determination will not be 
necessary.
    (d) Borrowers and grantees that wish to take advantage of this 
option may make their request through the appropriate Rural Development 
State Office. Permission to use this option will be exercised on a case-
by-case-basis on applications submitted through the State Office to the 
Administrator for consideration. If the proposal is approved, the 
Administrator will issue a memorandum to the State Director outlining 
the conditions necessary to complete the transaction.

[72 FR 55018, Sept. 28, 2007]



Sec. Sec. 1951.219  [Reserved]



Sec. 1951.220  General servicing actions.

    (a) Payment in full. Payment in full of a loan is handled according 
to subpart D of part 1951 of this chapter. When a loan is paid in full, 
the servicing official will:
    (1) Notify the company providing fidelity bond coverage in writing 
that the government no longer has an interest in the bond if the 
government is named co-obligee on the bond.
    (2) Release FmHA or its successor agency under Public Law 103-354's 
interest in insurance policies according to applicable provisions of 
subpart A of part 1806 (FmHA or its successor agency under Public Law 
103-354 Instruction 426.1).
    (3) Release FmHA or its successor agency under Public Law 103-354's 
interest in any other security as appropriate, consulting with OGC if 
necessary.
    (b) Loan summary statements. Upon request of a borrower, FmHA or its 
successor agency under Public Law 103-354 will issue a loan summary 
statement showing account activity for each loan made or insured under 
the CONACT. Field offices will post a notice on the bulletin board 
informing borrowers of the availability of loan summary statements. See 
exhibit A of subpart A of this part for a sample of the required notice.
    (1) The loan summary statement period is from January 1 through 
December 31. The Finance Office forwards to field offices a copy of Form 
FmHA or its successor agency under Public Law 103-354 1951-9, ``Annual 
Statement of Loan Account,'' to be retained in borrower files as a 
permanent record of account activity for the year.
    (2) Quarterly Forms FmHA or its successor agency under Public Law 
103-354 1951-9 are retained in the Finance Office on microfiche. These 
statements reflect cumulative data from the beginning of the current 
year through the end of the most recent quarter. Servicing offices may 
request copies of these quarterly or annual statements

[[Page 40]]

by sending Form FmHA or its successor agency under Public Law 103-354 
1951-57, ``Request for Loan Summary Statement,'' to the Finance Office.
    (3) The servicing office will provide a copy of the applicable loan 
summary statement to the borrower on request. A copy of Form FmHA or its 
successor agency under Public Law 103-354 1951-9 and, for loans with 
unamortized installments, a printout of future installments owed 
obtained using the borrower status screen option in the Automated 
Discrepancy Processing System (ADPS), will constitute the loan summary 
statement to be provided to the borrower.
    (c) Insurance. FmHA or its successor agency under Public Law 103-354 
borrowers shall maintain insurance coverage as follows:
    (1) Community and Insured Business Programs borrowers shall 
continuously maintain adequate insurance coverage as required by the 
loan agreement and Sec. 1942.17(j)(3) of subpart A of part 1942 of this 
chapter. Insurance coverage must be monitored in accordance with the 
above-referenced section to determine that adequate policies and bonds 
are in force.
    (2) For all other types of loans covered by this subpart, property 
insurance will be serviced according to subpart A of part 1806 of this 
chapter (FmHA or its successor agency under Public Law 103-354 
Instruction 426.1) in real estate mortgage cases, and according to the 
loan agreement in other cases.
    (d) Property taxes. Real property taxes are serviced according to 
Subpart A of part 1925 of this chapter. If State statutes permit a 
personal property tax lien to have priority over FmHA or its successor 
agency under Public Law 103-354's lien, such taxes are serviced 
according to Sec. Sec. 1925.3 and 1925.4 of subpart A of part 1925 of 
this chapter.
    (e) Changes in borrower's legal organization. (1) The State Director 
may approve, with OGC's concurrence, changes in a recipient's legal 
organization, including revisions of articles of incorporation or 
charter and bylaws, when:
    (i) The change does not provide for a sole member type of 
organization;
    (ii) The borrower retains control over its assets and the operation, 
management, and maintenance of the facility, and continues to carry out 
its responsibilities as set forth in Sec. 1942.17(b)(4) of subpart A of 
part 1942 of this chapter; and
    (iii) The borrower retains significant local ties with the rural 
community.
    (2) The State Director may approve, with prior concurrence of the 
Administrator, changes in a recipient's legal organization which result 
in a sole member type of organization, or any other change which results 
in a recipient's loss of control over its assets and/or the operation, 
management and maintenance of the facility, provided all of the 
following have been or will be met:
    (i) The change is in the best interest of the Government;
    (ii) The State Director determines and documents that other 
servicing options under this subpart, such as sale or transfer and 
assumption, have been explored and are not feasible;
    (iii) The loan is classified as a nonprogram loan;
    (iv) The borrower is notified that it is no longer eligible for any 
program benefits, but will remain responsible under the loan agreement; 
and
    (v) Prior concurrence of the Administrator is obtained. Requests 
will be forwarded to the Administrator: Attention (appropriate program 
division), and will include the case file; Exhibit A of this subpart 
(available in any FmHA or its successor agency under Public Law 103-354 
office), appropriately completed; the proposed changes; OGC comments; 
and any other necessary supporting information.
    (f) Membership liability. As a loan approval requirement, some 
borrowers may have special agreements with members of the purchase of 
shares of stock or for payment of a pro rata share of the loan in the 
event of default, or they may have authority in their corporate 
instruments to make special assessments in that event. Such agreements 
may be referred to as individual liability agreements and may be 
assigned to and held by FmHA or its successor agency under Public Law 
103-354 as additional security. In other

[[Page 41]]

cases the borrower's note may be endorsed by individuals. The liability 
instruments will be serviced in a manner indicated by their contents and 
the advice of OGC to adequately protect FmHA or its successor agency 
under Public Law 103-354's interest. Servicing actions necessary due to 
such provisions will be tracked in the Multi-Family Housing Information 
System (MFIS).
    (g) Other security. Other security such as collateral assignments, 
water stock certificates, notices of lienholder interest (Bureau of Land 
Management grazing permits) and waivers of grazing privileges (Forest 
Service grazing permits) will be serviced to protect the interest of 
FmHA or its successor agency under Public Law 103-354, and in compliance 
with any special servicing actions developed by the State Director with 
OGC assistance. Evidence of the security will be filed in the servicing 
office case file. Necessary servicing actions will be noted in MFIS.
    (h) Correcting errors in security instruments. Land, buildings, or 
chattels included in a mortgage through mutual mistake may be released 
from the mortgage by the State Director when substantiated by the 
factual situation. The release is contingent on the State Director 
determining, with OGC advice, that the property was included due to 
mutual error.
    (i) Present market value determination. For purposes of this 
subpart, the value of security is determined by the approval official as 
follows:
    (1) Security representing a relatively small portion of the total 
value of the security property. The approval official will determine 
that the real estate and chattels are disposed of at a reasonable price. 
A current appraisal report may be required.
    (2) Security representing a relatively large portion of the total 
value of the security property. The approval official will require a 
current appraisal report, and the sale prices of the real estate and 
chattels disposed of will at least equal the present market value as 
determined by this appraisal.
    (3) Appraisal report. If required, a current appraisal report will 
be completed in accordance with Sec. 1942.3 of subpart A of part 1942 
of this chapter. The appraisal will be completed by a qualified FmHA or 
its successor agency under Public Law 103-354 employee or an independent 
appraiser as determined appropriate by the approval official.

[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 775, Jan. 9, 1992; 57 FR 
21199, May 19, 1992; 57 FR 36591, Aug. 14, 1992; 69 FR 69105, Nov. 26, 
2004]



Sec. 1951.221  Collections, payments and refunds.

    Payments and refunds are handled in accordance with the following:
    (a) Community and Insured Business Programs. (1) Field offices can 
obtain data on principal installments due for Community and Insured 
Business Programs loans with unamortized installments using the borrower 
status screen option in the ADPS.
    (2) Regular payments for Community and Insured Business Programs 
borrowers are all payments other than extra payments and refunds. Such 
payments are usually derived from facility revenues, and do not include 
proceeds from the sale of security. They also include payments derived 
from sources which do not decrease the value of FmHA or its successor 
agency under Public Law 103-354's security.
    (i) Distribution of such payments is made as follows:
    (A) First, to the FmHA or its successor agency under Public Law 103-
354 loan(s) in proportion to the delinquency existing on each. Any 
excess will be distributed in accordance with paragraphs (a)(2)(i) (B) 
and (C) of this section.
    (B) Second, to the FmHA or its successor agency under Public Law 
103-354 loan or loans in proportion to the approximate amounts due on 
each. Any excess will be distributed according to paragraph (a)(2)(i)(C) 
of this section.
    (C) Third, as advance payments on FmHA or its successor agency under 
Public Law 103-354 loans. In making such distributions, consider the 
principal balance outstanding on each loan, the security position of the 
liens securing each loan, the borrower's request, and related 
circumstances.
    (ii) Unless otherwise established by the debt instrument, regular 
payments will be applied as follows:

[[Page 42]]

    (A) For amortized loans, first to interest accrued (as of the date 
of receipt of the payment), and then to principal.
    (B) For principal-plus-interest loans, first to the interest due 
through the date of the next scheduled installment of principal and 
interest and then to principal due, with any balance applied to the next 
scheduled principal installment.
    (3) Extra payments are derived from sale of basic chattel or real 
estate security; refund of unused loan funds; cash proceeds of property 
insurance as provided in Sec. 1806.5(b) of subpart A of part 1806 
(paragraph V B of FmHA or its successor agency under Public Law 103-354 
Instruction 426.1); and similar actions which reduce the value of basic 
security. At the option of the borrower, regular facility revenue may 
also be used as extra payments when regular payments are current. Unless 
otherwise established in the note or bond, extra payments will be 
distributed and applied as follows:
    (i) First to the account secured by the lowest priority of lien on 
the property from which the extra payment was obtained. Any balance will 
be applied to other FmHA or its successor agency under Public Law 103-
354 loans in ascending order of priority.
    (ii) For amortized loans, first to interest accrued to the date 
payment is received, and then to principal. For debt instruments with 
installments of principal plus interest, such payments will be applied 
to the final unpaid principal installment.
    (b) Soil and Water Conservation Loans. (1) Regular payments for such 
loans are defined in Sec. 1951.8(a) of subpart A of part 1951 of this 
chapter, and are distributed according to Sec. 1951.9(a) of that 
subpart unless otherwise established by the note or bond.
    (2) Extra payments are defined in Sec. 1951.8(b) of subpart A of 
part 1951 of this chapter, and are distributed according to Sec. 
1951.9(b) of that subpart.

[55 FR 4399, Feb. 8, 1990, as amended at 66 FR 1569, Jan. 9, 2001; 68 FR 
61331, Oct. 28, 2003; 68 FR 69952, Dec. 16, 2003]



Sec. 1951.222  Subordination of security.

    When a borrower requests FmHA or its successor agency under Public 
Law 103-354 to subordinate a security instrument so that another 
creditor or lender can refinance, extend, reamortize, or increase the 
amount of a prior lien; be on parity with; or place a lien ahead of the 
FmHA or its successor agency under Public Law 103-354 lien, it will 
submit a written request to the servicing office as provided below. For 
purposes of this subpart, subordination is defined to include cases 
where a parity security position is being considered.
    (a) General. The following requirements must normally be met:
    (1) The request must be for subordination of a specific amount of 
the Rural Development indebtedness.
    (2) It must be determined that the borrower cannot refinance its 
FmHA or its successor agency under Public Law 103-354 debt in accordance 
with subpart F of part 1951 of this chapter.
    (3) The transaction will further the purposes for which the FmHA or 
its successor agency under Public Law 103-354 loan was made, not 
adversely affect the borrower's debt-paying ability, and result in the 
FmHA or its successor agency under Public Law 103-354 debt being 
adequately secured.
    (4) The terms and conditions of the prior lien will be such that the 
borrower can reasonably be expected to meet them as well as the 
requirements of all other debts.
    (5) Any proposed development work will be planned and performed 
according to Sec. 1942.18 of subpart A of part 1942 of this chapter or 
in a manner directed by the creditor which reasonably attains the 
objectives of that section.
    (6) All contracts, pay estimates, and change orders will be reviewed 
and concurred in by the State Director.
    (7) In cases involving land purchase, the FmHA or its successor 
agency under Public Law 103-354 will obtain a mortgage on the purchased 
land.
    (8) When the transaction involves more than $10,000 or the approval 
official considers it necessary, a present market value appraisal report 
will be obtained. However, a new report need not be obtained if there is 
an appraisal report not over one year old which permits a proper 
determination of the present market value of the total property after 
the transaction.

[[Page 43]]

    (9) The proposed action must not change the nature of the borrower's 
activities so as to make it ineligible for FmHA or its successor agency 
under Public Law 103-354 loan assistance.
    (10) Necessary consent and subordination of all other outstanding 
security interests must be obtained.
    (b) Authorities. Proposals not meeting one or more of the above 
requirements will be submitted to the Administrator, Attention 
(appropriate program division) for prior concurrence. All other 
proposals may be approved by the official with loan approval authority 
under subpart A of part 1901 of this chapter.
    (c) Processing. The case file is to include:
    (1) The borrower's written request on Form FmHA or its successor 
agency under Public Law 103-354 465-1, ``Application for Partial 
Release, Subordination, or Consent,'' if appropriate, or in other 
acceptable format. The request must contain the purpose of the 
subordination; exact amount of money or property involved; description 
of security property involved; type of security instrument; name, 
address, line of business and other general information pertaining to 
the party in favor of which the request is made; and other pertinent 
information to evaluate the need for the request;
    (2) Current balance sheet;
    (3) If development work is involved, an operating budget on Form 
FmHA or its successor agency under Public Law 103-354 442-7, ``Operating 
Budget,'' or similar form which projects income and expenses through the 
first full year of operation following completion of planned 
improvements; or if no development work is involved, an income statement 
and budget on Form FmHA or its successor agency under Public Law 103-354 
442-2, ``Statement of Budget, Income, and Equity,'' schedules 1 and 2, 
or similar form;
    (4) Copy of proposed security instrument;
    (5) Appraisal report, when applicable;
    (6) OGC opinion on the request;
    (7) Exhibit A of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office), appropriately 
completed;
    (8) Appropriate environmental review; and
    (9) Any other necessary supporting information.
    (d) Closing. All requests for subordination will be closed according 
to instructions from OGC except those which affect only chattel liens 
other than pledges of revenue. FmHA or its successor agency under Public 
Law 103-354's consent on Form FmHA or its successor agency under Public 
Law 103-354 465-1 will be signed concurrently with Form FmHA or its 
successor agency under Public Law 103-354 460-2, ``Subordination by the 
Government,'' when applicable.

[55 FR 4399, Feb. 8, 1990, as amended at 66 FR 1569, Jan. 9, 2001; 69 FR 
70884, Dec. 8, 2004]



Sec. 1951.223  Reamortization.

    (a) State Director authorization. The State Director is authorized 
to approve reamortization of loans under the following conditions:
    (1) The account is delinquent and cannot be brought current within 
one year while maintaining a reasonable reserve;
    (2) The borrower has demonstrated for at least one year by actual 
performance or has presented a budget which clearly indicates that it is 
able to meet the proposed payment schedule;
    (3) The amount being reamortized is within the State Director's loan 
approval authorization; and
    (4) There is no extension of the final maturity date.
    (b) Requests requiring National Office approval. Reamortizations not 
meeting the above conditions require prior National Office approval. 
Requests will be forwarded to the National Office with the case file, 
including:
    (1) Current budget and cash flow prepared on Form FmHA or its 
successor agency under Public Law 103-354 442-2, schedules 1 and 2, or 
similar form;
    (2) Current balance sheet and income statement;
    (3) Exhibit A of this subpart, appropriately completed;
    (4) Form RD 3560-15, ``Reamortization Request,'' completed in 
accordance with Sec. 1951.223(c)(3) of this subpart, when applicable; 
and
    (5) Any other necessary supporting information.

[[Page 44]]

    (c) Processing. When legally permissible and administratively 
acceptable, the total outstanding principal and interest balances will 
be reamortized rather than only the delinquent amount. Accrued interest 
will be at the rate currently reflected in Finance Office records.
    (1) Reamortizations will be perfected in accordance with OGC closing 
instructions.
    (2) When debt instruments are being modified or new debt instruments 
executed, bond counsel or local counsel, as appropriate, must provide an 
opinion indicating any effect on FmHA or its successor agency under 
Public Law 103-354's security position. The FmHA or its successor agency 
under Public Law 103-354 approval official must determine that the 
government's interest will remain adequately protected if the security 
position will be affected.
    (3) Notes. Except as provided in Sec. 1951.223(c)(4), loans 
evidenced by notes will be reamortized through a new evidence of debt 
unless OGC recommends that the terms of the existing document be 
modified. Form RD 3560-15 may be used to effect such modifications, if 
legally adequate, or other forms may be used if acceptable to FmHA or 
its successor agency under Public Law 103-354. The original of a new 
note or any endorsement required by OGC is to be attached to the 
existing note, filed in the servicing office, and retained until the 
account is paid in full or otherwise satisfied. A copy will be forwarded 
to the Finance Office.
    (4) Bonds and notes with other than real or chattel security pledged 
to FmHA or its successor agency under Public Law 103-354. Loans 
evidenced by bonds, or by notes with other than real or chattel security 
pledged to FmHA or its successor agency under Public Law 103-354, may be 
reamortized using procedures acceptable to the State Director and 
legally permissible under State statutes in the opinion of the 
borrower's counsel and the OGC.
    (i) The procedure may consist of a new debt instrument or agreement 
for the total FmHA or its successor agency under Public Law 103-354 
indebtedness, including the delinquency, or a new instrument or 
agreement whereby the borrower agrees to repay the delinquency plus 
interest. If a new instrument or agreement for only the delinquent 
amount is used, a new loan number will be assigned to the delinquent 
amount, and the borrower will be required to pay the amounts due under 
both the original and the new instruments.
    (ii) When a delinquent or problem loan cannot be reamortized by 
issuing a new debt instrument due to State statutes, or the cost of 
preparation and closing is prohibitive, the rescheduling agreement 
provided as Exhibit H of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office), may be used.
    (iii) Section 1942.19 of subpart A of part 1942 of this chapter 
applies to any new bonds issued unless precluded by State statutes or an 
exception is approved by the National Office.
    (iv) If State statutes do not require the release of existing bonds, 
they will be retained with the new bond instrument or agreement in the 
FmHA or its successor agency under Public Law 103-354 office authorized 
to store such documents. If State statutes require release of existing 
bonds, the exchange will be accomplished by the District Director, and 
the new bond and/or agreement will be retained in the appropriate 
office.
    (5) New debt instruments or agreements. (i) A copy will be sent to 
the Finance Office after execution, except that if serial bonds are 
used, the original bond(s) will be submitted to the Finance Office.
    (ii) Any agreement used will contain:
    (A) The amount delinquent, which must equal the total delinquency on 
the account and net advances (the unpaid principal on any advance and 
the accrued interest on any advance through the date of reamortization, 
less interest payments credited on the advance account);
    (B) The effective date of the reamortization;
    (C) The number of years over which the delinquency will be 
amortized;
    (D) The repayment schedule; and
    (E) The interest rate.
    (iii) A payment will be due on the next scheduled due date. 
Deferment of interest and/or principal payments is not authorized.

[[Page 45]]

    (iv) A separate new instrument will be required for each loan being 
reamortized.
    (v) If amortized payments are not used, the schedule of principal 
installments developed will be such that combined payments of principal 
and interest closely approximate an amortized payment.
    (d) Reamortization with interest rate adjustment--Water and waste 
borrowers only. A borrower that is seriously delinquent in loan payments 
may be eligible for loan reamortization with interest rate adjustment. 
The purpose of loan reamortization with interest rate adjustment is to 
provide relief for a borrower that is unable to service the outstanding 
loan in accordance with its existing terms and to enhance recovery on 
the loan. A borrower must meet the conditions of this subpart to be 
considered eligible for this provision.
    (1) Eligibility determination. The State Director, Rural 
Development, may submit to the Administrator for approval an adjustment 
in the rate of interest charged on outstanding loans only for those 
borrowers who meet the following requirements:
    (i) The borrower has exhausted all other servicing provisions 
contained in this subpart;
    (ii) The borrower is experiencing severe financial problems;
    (iii) Any management deficiencies must have been corrected or the 
borrower must submit a plan acceptable to the State Office to correct 
any deficiencies before an interest rate adjustment may be considered;
    (iv) Borrower user rates must be comparable to similar systems. In 
addition, the operating expenses reported by the borrower must appear 
reasonable in relation to similar system expenses;
    (v) The borrower has cooperated with Rural Development in exploring 
alternative servicing options and has acted in good faith with regard to 
eliminating the delinquency and complying with its loan agreements and 
agency regulations; and
    (vi) The borrower's account must be delinquent at least one annual 
debt payment for 180 days.
    (2) Conditions of approval. All borrowers approved for an adjustment 
in the rate of interest by the Administrator shall agree to the 
following conditions:
    (i) The borrower shall agree not to maintain cash or cash reserves 
beyond what is reasonable at the time of interest rate adjustment to 
meet debt service, operating, and reserve requirements.
    (ii) A review of the borrower's management and business operations 
may be required at the discretion of the State Director. This review 
shall be performed by an independent expert who has been recommended by 
the State Director and approved by the National Office. The borrower 
must agree to implement all recommendations made by the State Director 
as a result of the review.
    (iii) If requested, a copy of the latest audited financial 
statements or management report must be submitted to the Administrator.
    (3) Reamortization. At the discretion of the Administrator, the 
interest rate charged on outstanding loans of eligible borrowers may be 
adjusted to no less than the poverty interest rate and the term of the 
loans may be extended up to a new 40 year term or the remaining useful 
life of the facility, whichever is less.

[55 FR 4399, Feb. 8, 1990, as amended at 56 FR 25351, June 4, 1991; 63 
FR 41714, Aug. 5, 1998; 69 FR 69105, Nov. 26, 2004]



Sec. 1951.224  Third party agreements.

    The State Director may authorize all or part of a facility to be 
operated, maintained or managed by a third party under a contract, 
management agreement, written lease, or other third party agreement as 
follows:
    (a) Leases--(1) Lease of all or part of a facility (except when 
liquidation action is pending). The State Director may consent to the 
leasing of all or a portion of security property when:
    (i) Leasing is the only feasible way to provide the service and is 
the customary practice as required under Sec. 1942.17(b)(4) of subpart 
A of part 1942 of this chapter;
    (ii) The borrower retains ultimate responsibility for operating, 
maintaining, and managing the facility and for

[[Page 46]]

its continued availability and use at reasonable rates and terms as 
required under Sec. 1942.17(b)(4) of subpart A of part 1942 of this 
chapter. The lease agreement must clearly reflect sufficient control by 
the borrower over the operation, maintenance, and management of the 
facility to assure that the borrower maintains this responsibility;
    (iii) The lease agreement contains provisions prohibiting any 
amendments to the lease or any subleasing arrangements without prior 
written approval from FmHA or its successor agency under Public Law 103-
354;
    (iv) The lease document contains nondiscrimination requirements as 
set forth in Sec. 1951.204 of this subpart;
    (v) The lease contains a provision which recognizes that FmHA or its 
successor agency under Public Law 103-354 is a lienholder on the subject 
facility and, as such, the lease is subordinate to the rights and claims 
of FmHA or its successor agency under Public Law 103-354 as lienholder; 
and
    (vi) The lease does not constitute a lease/purchase arrangement, 
unless permitted under Sec. 1951.232 of this subpart.
    (2) Lease of all or part of a facility (pending liquidation action). 
The State Director may consent to the leasing of all or a portion of 
security property when:
    (i) The lease will not adversely affect the repayment of the loan or 
the Government's rights under the security or other instruments;
    (ii) The State Director has determined that liquidation will likely 
be necessary and the lease is necessary until liquidation can be 
accomplished;
    (iii) Leasing is not an alternative to, or means of delaying, 
liquidation action;
    (iv) The lease and use of any proceeds from the lease will further 
the objective of the loan;
    (v) Rental income is assigned to FmHA or its successor agency under 
Public Law 103-354 in an amount sufficient to make regular payments on 
the loan and operate and maintain the facility unless such payments are 
otherwise adequately secured;
    (vi) The lease is advantageous to the borrower and is not 
disadvantageous to the Government;
    (vii) If foreclosure action has been approved and the case has been 
submitted to OGC, consent to lease and use of proceeds will be granted 
only with OGC's concurrence; and
    (viii) The lease does not exceed a one-year period. The property may 
not be under lease more than two consecutive years without authorization 
from the National Office. Long-term leases may be approved, with prior 
authorization from the National Office, if necessary to ensure the 
continuation of services for which the loan was made and if other 
servicing options contained in this subpart have been determined 
inappropriate for servicing the loan.
    (b) Mineral leases. Unless liquidation is pending, the State 
Director is authorized to approve mineral leases when:
    (1) The lessee agrees, or is liable without any agreement, to pay 
adequate compensation for any damage to the real estate surface and 
improvements. Damage compensation will be assigned to FmHA or its 
successor agency under Public Law 103-354 or the prior lienholder by the 
use of Form FmHA or its successor agency under Public Law 103-354 443-
16, ``Assignment of Income from Real Estate Security,'' or other 
appropriate instrument;
    (2) Royalty payments are adequate and are assigned to FmHA or its 
successor agency under Public Law 103-354 on Form FmHA or its successor 
agency under Public Law 103-354 443-16 in an amount determined by the 
State Director to be adequate to protect the Government's interest;
    (3) All or a portion of delay rentals and bonus payments may be 
assigned on Form FmHA or its successor agency under Public Law 103-354 
443-16 if needed for protection of the Government's interest;
    (4) The lease, subordination, or consent form is acceptable to OGC;
    (5) The lease will not interfere with the purpose for which the loan 
or grant was made; and
    (6) When FmHA or its successor agency under Public Law 103-354 
consent is required, the borrower submits a completed Form FmHA or its 
successor agency under Public Law 103-354 465-1. The form will include 
the terms of the proposed agreement and specify the use

[[Page 47]]

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

[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 21199, May 19, 1992]



Sec. 1951.225  Liquidation of security.

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



Sec. 1951.226  Sale or exchange of security property.

    A cash sale of all or a portion of a borrower's assets or an 
exchange of security property may be approved subject to the conditions 
set forth below.
    (a) Authorities. (1) The District Director is authorized to approve 
actions under this section involving only chattels.
    (2) The State Director is authorized to approve real estate 
transactions except as noted in the following paragraph.
    (3) Approval of the Administrator must be obtained when a 
substantial loss to the Government will result from a sale; one or more 
members of the borrower's organization proposes to purchase the 
property; it is proposed to sell the property for less than the 
appraised value; or the buyer refuses to assume all the terms of the 
Grant Agreement. It is not FmHA or its successor agency under Public Law 
103-354 policy to sell security property to one or more members of the 
borrower's organization at a price which will result in a loss to the 
Government.
    (b) General. Approval may be given when the approval official 
determines and documents that:
    (1) The consideration is adequate;
    (2) The release will not prevent carrying out the purpose of the 
loan;
    (3) The remaining property is adequate security for the loan or the 
transaction will not adversely affect FmHA or its successor agency under 
Public Law 103-354's security position;
    (4) If the property to be sold or exchanged is to be used for the 
same or

[[Page 48]]

similar purposes for which the loan or grant was made, the purchaser 
will:
    (i) Execute Form FmHA or its successor agency under Public Law 103-
354 400-4, ``Assurance Agreement.'' The covenants involved will remain 
in effect as long as the property continues to be used for the same or 
similar purposes for which the loan or grant was made. The instrument of 
conveyance will contain the covenant referenced in Sec. 1951.204 of 
this subpart; and
    (ii) Provide to FmHA or its successor agency under Public Law 103-
354 a written agreement assuming all rights and obligations of the 
original grantee if grant funds were provided. See Sec. 1951.215 of 
this subpart for additional guidance on grant agreements.
    (5) The proceeds remaining after paying any reasonable and necessary 
selling expenses are used for one or more of the following purposes:
    (i) To pay on FmHA or its successor agency under Public Law 103-354 
debts according to Sec. 1951.221 of this subpart; on debts secured by a 
prior lien; and on debts secured by a subsequent lien if it is to FmHA 
or its successor agency under Public Law 103-354's advantage.
    (ii) To purchase or acquire through exchange property more suited to 
the borrower's needs, if the FmHA or its successor agency under Public 
Law 103-354 debt will be as well secured after the transaction as 
before.
    (iii) To develop or enlarge the facility if necessary to improve the 
borrower's debt-paying ability; place the operation on a sounder basis; 
or otherwise further the loan objectives and purposes.
    (6) Disposition of property acquired in whole or part with FmHA or 
its successor agency under Public Law 103-354 grant funds will be 
handled in accordance with the grant agreement.
    (c) Processing. (1) The case file will contain the following:
    (i) Except for actions approved by the District Director, Exhibit A 
of this subpart (available in any FmHA or its successor agency under 
Public Law 103-354 office), appropriately completed;
    (ii) The appraisal report, if appropriate;
    (iii) Name of purchaser, anticipated sales price, and proposed terms 
and conditions;
    (iv) Form FmHA or its successor agency under Public Law 103-354 
1965-8, ``Release from Personal Liability,'' including the County 
Committee memorandum and the State Director's recommendations;
    (v) An executed Form FmHA or its successor agency under Public Law 
103-354 400-4, if applicable;
    (vi) An executed Form FmHA or its successor agency under Public Law 
103-354 465-1, if applicable;
    (vii) Form FmHA or its successor agency under Public Law 103-354 
460-4, ``Satisfaction,'' if a debt has been paid in full or satisfied by 
debt settlement action. For cases involving real estate, a similar form 
may be used if approved by OGC; and
    (viii) Written approval of the Administrator when required under 
Sec. 1951.226(a)(3) of this subpart;
    (2) Releasing security. (i) The District Director is authorized to 
satisfy or terminate chattel security instruments when Sec. 1951.226(b) 
of this subpart and Sec. 1962.17 and Sec. 1962.27 of subpart A of part 
1962 of this chapter have been complied with. Partial release may be 
made by using Form FmHA or its successor agency under Public Law 103-354 
460-1, ``Partial Release,'' or Form FmHA or its successor agency under 
Public Law 103-354 462-12, ``Statements of Continuation, Partial 
Release, Assignment, Etc.''
    (ii) Subject to Sec. 1951.226(b) of this subpart, the State 
Director is authorized to release part or all of an interest in real 
estate security by approving Form FmHA or its successor agency under 
Public Law 103-354 465-1. Partial release of real estate security may be 
made by use of Form FmHA or its successor agency under Public Law 103-
354 460-1 or other form approved by OGC.
    (3) FmHA or its successor agency under Public Law 103-354 liens will 
not be released until the sale proceeds are received for application on 
the Government's claim. In states where it is necessary to obtain the 
insured note from the lender to present to the recorder before releasing 
a portion of the land from the mortgage, the borrower must pay any cost 
for postage and insurance of the note while in transit. The District 
Director will advise the borrower when it requests a partial release 
that

[[Page 49]]

it must pay these costs. If the borrower is unable to pay the costs from 
its own funds, the amounts shown on the statement of actual costs 
furnished by the insured lender may be deducted from the sale proceeds.
    (d) Release from liability. (1) When an FmHA or its successor agency 
under Public Law 103-354 debt is paid in full from the proceeds of a 
sale, the borrower will be released from liability by use of Form FmHA 
or its successor agency under Public Law 103-354 1965-8.
    (2) When sale proceeds are not sufficient to pay the FmHA or its 
successor agency under Public Law 103-354 debt in full, any balance 
remaining will be handled in accordance with procedures for debt 
settlement actions set forth in subpart C of part 1956 of this chapter.
    (i) In determining whether a borrower should be released from 
liability, the State Director will consider the borrower's debt-paying 
ability based on its assets and income at the time of the sale.
    (ii) Release from liability will be accomplished by using Form FmHA 
or its successor agency under Public Law 103-354 1965-8 and obtaining 
from the County Committee a memorandum recommending the release which 
contains the following statement:

    ---------------- in our opinion does not have reasonable debt-paying 
ability to pay the balance of the debt after considering its assets and 
income at the time of the sale. The borrower has cooperated in good 
faith, used due diligence to maintain the security against loss, and 
otherwise fulfilled the covenants incident to the loan to the best of 
its ability. Therefore, we recommend that the borrower be released from 
liability upon the completion of the sale.

[55 FR 4399, Feb. 8, 1990, as amended at 69 FR 70884, Dec. 8, 2004]



Sec. 1951.227  Protective advances.

    The State Director is authorized to approve, without regard to any 
loan or total indebtedness limitation, vouchers to pay costs, including 
insurance and real estate taxes, to preserve and protect the security, 
the lien, or the priority of the lien securing the debt owed to or 
insured by FmHA or its successor agency under Public Law 103-354 if the 
debt instrument provides that FmHA or its successor agency under Public 
Law 103-354 may voucher the account to protect its lien or security. The 
State Director must determine that authorizing a protective advance is 
in the best interest of the government. For insurance, factors such as 
the amount of advance, occupancy of the structure, vulnerability to 
damage and present value of the structure and contents will be 
considered.
    (a) Protective advances are considered due and payable when 
advanced. Advances bear interest at the rate specified in the most 
recent debt instrument authorizing such an advance.
    (b) Protective advances are not to be used as a substitute for a 
loan.
    (c) Vouchers are prepared in accordance with applicable procedures 
set forth in FmHA or its successor agency under Public Law 103-354 
Instruction 2024-A (available in any FmHA or its successor agency under 
Public Law 103-354 office).

[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 36591, Aug. 14, 1992]



Sec. Sec. 1951.228-1951.229  [Reserved]



Sec. 1951.230  Transfer of security and assumption of loans.

    (a) General. It is FmHA or its successor agency under Public Law 
103-354 policy to approve transfers and assumptions to transferees which 
will continue the original purpose of the loan in accordance with the 
following and specific requirements relating to eligible and ineligible 
borrowers set forth below:
    (1) The present borrower is unable or unwilling to accomplish the 
objectives of the loan.
    (2) The transfer will not be disadvantageous to the Government or 
adversely affect either FmHA or its successor agency under Public Law 
103-354's security position or the FmHA or its successor agency under 
Public Law 103-354 program in the area.
    (3) Transfers to eligible applicants will receive preference over 
transfers to ineligible applicants if recovery to FmHA or its successor 
agency under Public Law 103-354 is not less than it would be if the 
transfer were to an ineligible applicant.
    (4) If the FmHA or its successor agency under Public Law 103-354 
debt(s) exceed the present market value of the

[[Page 50]]

security as determined by the State Director, the transferee will assume 
an amount at least equal to the present value.
    (5) If the transfer and assumption is to one or more members of the 
borrower's organization, there must not be a loss to the government.
    (6) FmHA or its successor agency under Public Law 103-354 concurs in 
plans for disposition of funds in the transferor's debt service, 
reserve, operation and maintenance, and any other project account, 
including supervised bank accounts.
    (7) When the property to be transferred is to be used for the same 
or similar purposes for which the loan was made, the transferee will 
execute Form FmHA or its successor agency under Public Law 103-354 400-4 
to continue nondiscrimination covenants and provide to FmHA or its 
successor agency under Public Law 103-354 a written certification 
assuming all terms of the Grant Agreement executed by the transferor. 
All instruments of conveyance will contain the covenant referenced in 
Sec. 1951.204 of this subpart.
    (8) This subpart does not preclude the transferor from receiving 
equity payments when the full account of the FmHA or its successor 
agency under Public Law 103-354 debt is assumed. However, equity 
payments will not be made on more favorable terms than those on which 
the balance of the FmHA or its successor agency under Public Law 103-354 
debt will be paid.
    (9) Transferees must have the ability to pay the FmHA or its 
successor agency under Public Law 103-354 debt as provided in the 
assumption agreement and the legal capacity to enter into the contract. 
The applicant will submit a current balanced sheet using Form FmHA or 
its successor agency under Public Law 103-354 442-3, ``Balance Sheet,'' 
and budget and cash flow information using Form FmHA or its successor 
agency under Public Law 103-354 442-2, or similar forms. For ineligible 
applicants, such information may be supplemented by a credit report from 
an independent source or verified by an independent certified public 
accountant.
    (10) For purposes of this subpart, transfers to eligible applicants 
will include mergers and consolidations. Mergers occur when two or more 
corporations combine in such a manner that only one remains in 
existence. In a consolidation, two or more corporations combine to form 
a new, consolidated corporation, with all of the original corporations 
ceasing to exist. In both mergers and consolidations, the surviving or 
emerging corporation takes the assets and assumes the liabilities of the 
corporation(s) which ceased to exist. Such transactions must be 
distinguished from transfers and assumptions, in which a transferor will 
not necessarily go out of existence and the transferee will not always 
take all assets or assume all liabilities of the transferor.
    (11) A current appraisal report to establish the present market 
value of the security will be completed in accordance with Sec. 
1951.220(i) of this subpart when the full debt is not being assumed.
    (12) There must be no lien, judgment, or similar claims of other 
parties against the FmHA or its successor agency under Public Law 103-
354 security being transferred unless the transferee is willing to 
accept such claims and the FmHA or its successor agency under Public Law 
103-354 approval official determines that they will not prevent the 
transferee from repaying the FmHA or its successor agency under Public 
Law 103-354 debt, meeting all operating and maintenance costs, and 
maintaining required reserves. The written consent of any other 
lienholder will be obtained where required.
    (b) Authorities. The State Director is authorized to approve 
transfers and assumptions of FmHA or its successor agency under Public 
Law 103-354 loans in accordance with the provisions of paragraphs (c) 
and (d) of this section, except for the following, which require prior 
approval of the Administrator:
    (1) Proposals which will involve a loss to the Government;
    (2) Proposals involving a transfer to one or more members of the 
present borrower's organization;
    (3) Proposals involving rates and terms which are more liberal than 
those set forth in Sec. 1951.230(c) of this subpart;

[[Page 51]]

    (4) Proposals involving a cash payment to the present borrower which 
exceeds the actual sales expenses;
    (5) The transferee refuses to assume all terms of the Grant 
Agreement for a project financed in part with FmHA or its successor 
agency under Public Law 103-354 grant funds; and
    (6) Proposed transfers to ineligible applicants when there is no 
significant downpayment and/or the repayment period is to exceed 25 
years.
    (c) Eligible applicants. Except as noted in Sec. 1951.230(b) of 
this subpart, the State Director is authorized to approve transfers of 
security property to and assumptions of FmHA or its successor agency 
under Public Law 103-354 debts by transferees who would be eligible for 
financial assistance under the loan program involved for the type of 
loan being transferred. The State Director must determine and document 
that eligibility requirements have been satisfied.
    (1) If a loan is evidenced and secured by a note and lien on real or 
chattel property, Form FmHA or its successor agency under Public Law 
103-354 1951-15, ``Community Programs Assumption Agreement,'' will be 
executed by the transferee. When the terms of the loan are changed, the 
new repayment period may not exceed the lesser of the repayment period 
for a new loan of the type involved or the expected life of the 
facility. Interest will accrue at the rate currently reflected in 
Finance Office records.
    (2) If the loan is evidenced and secured by a bond, procedures will 
be followed which are acceptable to the State Director and legally 
permissible under State law in the opinion of the borrower's counsel and 
OGC. The interest rate will be the rate currently reflected in Finance 
Office records. Any new repayment period provided may not exceed the 
lesser of the repayment period for a new loan of the type involved or 
the expected life of the facility.
    (3) Loans being transferred and assumed may be combined when the 
security is the same, new terms are being provided, a new debt 
instrument will be issued, and the loans have the same interest rate and 
are for the same purpose. If applicable, Sec. 1942.19(h)(11) will 
govern the preparation of any new debt instruments required.
    (4) A loan may be made in connection with a transfer if the 
transferee meets all eligibility and other requirements for the kind of 
loan being made. Such a loan will be considered as a separate loan, and 
must be evidenced by a separate debt instrument. However, it is 
permissible to have one authorizing loan resolution or ordinance if 
permitted by State statutes.
    (5) Any development funds remaining in a supervised bank account 
which are not to be refunded to FmHA or its successor agency under 
Public Law 103-354 will be transferred to a supervised bank account for 
the transferee simultaneously with the closing of the transfer for use 
in completing planned development.
    (d) Ineligible applicants. Except as noted in Sec. 1951.230(b) of 
this subpart, the State Director is authorized to approve transfer and 
assumptions to transferees who would not be eligible for financial 
assistance under the loan program involved for the type of loan being 
transferred. However, the State Director is authorized to approve all 
transfers of incorporated Economic Opportunity Cooperative loans to 
ineligible applicants without regard to the requirements set forth in 
Sec. 1951.230(b). Such transfers are considered only when an eligible 
transferee is not available or when the recovery to FmHA or its 
successor agency under Public Law 103-354 from a transfer to an 
available eligible transferee would be less. Transfers are not to be 
considered as a means by which members of the transferor's governing 
body can obtain an equity or as a method of providing a source of easy 
credit for purchasers.
    (1) Ineligible applicants must pay a one-time nonrefundable transfer 
fee when they submit an application or proposal.
    (i) The National Office will issue a directive annually advising the 
field of the amount of the fee. Any cost for appraisals performed by 
non-FmHA or its successor agency under Public Law 103-354 personnel will 
be handled in accordance with FmHA or its successor agency under Public 
Law 103-354 Instruction 2024-A (available in any FmHA or

[[Page 52]]

its successor agency under Public Law 103-354 office), and will be added 
to the basic fee.
    (ii) Transfer fees will be deposited in accordance with current 
instructions governing the handling of collections. The fees will be 
identified as transfer fees on Form FmHA or its successor agency under 
Public Law 103-354 451-2, ``Schedule of Remittances,'' and will be 
included on the Daily Activity Report. The amount will be credited to 
the Rural Development Insurance Fund.
    (iii) If the State Director determines waiver of the transfer fee is 
in the best interest of the government, he or she will request prior 
approval by submitting the transfer case file established in accordance 
with processing requirements set forth below to the National Office, 
Attention (appropriate program division).
    (2) Any funds remaining in a supervised bank account will be 
refunded to FmHA or its successor agency under Public Law 103-354 and 
applied to the debt as a condition of transfer.
    (3) The interest rate will be the greater of the rate specified for 
the note in current Finance Office records or the market rate for 
Community Programs as of the transfer closing date.
    (4) The transferred loan will be identified as an NP loan and 
serviced in accordance with Sec. 1951.216 of this subpart.
    (5) Form FmHA or its successor agency under Public Law 103-354 465-
5, ``Transfer of Real Estate Security,'' will be used, and will be 
modified as appropriate before execution.
    (6) Consideration will be given to obtaining individual liability 
agreements from members of the transferee organization.
    (e) Release from liability. Except when nonprogram loans or Economic 
Opportunity Cooperative loans are involved, transferors may be released 
from liability in accordance with the following:
    (1) If the full amount of the debt is assumed, the State Director 
may approve the release from liability by use of Form FmHA or its 
successor agency under Public Law 103-354 1965-8.
    (2) If less than the full amount of the debt is assumed, any balance 
remaining will be handled in accordance with procedures for debt 
settlement actions set forth in subpart C of part 1956 of this chapter.
    (i) In determining whether a borrower should be released from 
liability, the State Director will consider the borrower's debt-paying 
ability based on its assets and income at the time of the sale.
    (ii) Release from liability will be accomplished by using Form FmHA 
or its successor agency under Public Law 103-354 1965-8 and obtaining 
from the County Committee a memorandum recommending the release which 
contains the statement set forth in Sec. 1951.226(d)(2)(ii) of this 
subpart.
    (f) Processing. Transfers and assumptions will be processed in 
accordance with the following:
    (1) A transfer case file organized in accordance with FmHA or its 
successor agency under Public Law 103-354 Instruction 2033-A (available 
in any FmHA or its successor agency under Public Law 103-354 office) 
will be established, and will contain all documents and correspondence 
relating to the transfer. The forms utilized for transfers and 
assumptions are listed in Exhibit D (available in any FmHA or its 
successor agency under Public Law 103-354 office). All forms listed must 
be completed and included in the case file unless inappropriate for the 
particular situation.
    (2) A letter of conditions establishing requirements to be met in 
connection with the transfer and assumption will be issued, and the 
transferee will be required to execute an Agency approved form, ``Letter 
of Intent to Meet Conditions,'' prior to the closing of the transfer.
    (3) Both the transferee and transferor are responsible for obtaining 
the legal services necessary to accomplish the transfer.
    (4) Transfers will be closed in accordance with instructions 
provided by OGC.
    (5) When the transferee is a public body and Form FmHA or its 
successor agency under Public Law 103-354 1951-15 is not suitable, the 
transferee's attorney will prepare the documents necessary to effect the 
transfer and assumption and submit them for approval by FmHA or its 
successor agency under Public Law 103-354 and OGC.

[[Page 53]]

    (6) Accrued interest to be entered in either Table 1 of Form FmHA or 
its successor agency under Public Law 103-354 1951-15 or other 
appropriate assumption agreement is to be obtained using the status 
screen option in ADPS.
    (7) The following forms, if utilized, will be sent immediately to 
the Finance Office:
    (i) Form FmHA or its successor agency under Public Law 103-354 1951-
15 or other appropriate assumption agreement;
    (ii) A conformed copy of Form FmHA or its successor agency under 
Public Law 103-354 1965-8.
    (8) If an FmHA or its successor agency under Public Law 103-354 
grant was made in conjunction with the loan being transferred, the 
transferee must agree in writing to assume all rights and obligations of 
the original grantee. See Sec. 1951.215 for additional guidance on 
grant agreements.
    (9) The transferee will obtain insurance according to requirements 
for the loan(s) being transferred unless the approval official requires 
additional insurance. When the entire FmHA or its successor agency under 
Public Law 103-354 debt is being assumed and an amount has been advanced 
for insurance premiums or any other purposes, the transfer will not be 
completed until the Finance Office has charged the advance to the 
transferor's account.
    (10) Rates and terms. (i) If the transfer will be closed at the same 
rates and terms, the transferee will be informed of the amount needed to 
be on schedule by the next installment due date.
    (ii) If the transfer will be closed at new rates and terms, the 
transferee will be informed of the amount of principal and interest owed 
based on information obtained using the ADPS status screen option.
    (11) The effective date of a transfer is the actual date the 
transfer is closed, which is the same date Form FmHA or its successor 
agency under Public Law 103-354 1951-15 or other appropriate assumption 
agreement is signed.
    (12) Title to all assets will be conveyed from the transferor to the 
transferee unless other arrangements are agreed upon by all parties 
concerned, including FmHA or its successor agency under Public Law 103-
354. All instruments of conveyance will contain the covenant referenced 
in Sec. 1951.204 of this subpart.
    (13) If an insured loan being held by an investor is involved, the 
Finance Office will have to repurchase the note prior to processing the 
assumption agreement.
    (14) When National Office approval is required, the transfer case 
file will be submitted to the Administrator, Attention: (appropriate 
program division), with Exhibit A of this subpart (available in any FmHA 
or its successor agency under Public Law 103-354 office), appropriately 
completed, and a cover memorandum which denotes any unusual 
circumstances.
    (15) The District Director must review Form FmHA or its successor 
agency under Public Law 103-354 1910-11, ``Applicant Certification, 
Federal Collection Policies for Consumer or Commercial Debts,'' with the 
applicant, and the form must be signed by the applicant and included in 
the file.

[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 36590, Aug. 14, 1992; 66 
FR 1569, Jan. 9, 2001; 69 FR 70884, Dec. 8, 2004]



Sec. 1951.231  Special provisions applicable to Economic Opportunity (EO) Cooperative Loans.

    (a) Withdrawal of member and transfer to and assumption by new 
members of Unincorporated Cooperatives. (1) Withdrawal of a member who 
is no longer utilizing the services of an association and transfer of 
withdrawing member interest in the association to a new member who will 
assume the entire unpaid balance of the indebtedness of the withdrawing 
member may be permitted, if the remaining members agree to accept the 
new member and the transfer will not adversely affect collection of the 
loan. The servicing office will submit to the State Office the borrow 
case file and the following:
    (i) Form FmHA or its successor agency under Public Law 103-354 1951-
15 executed by the proposed new member;
    (ii) Statement of the current amount of the indebtedness involved;
    (iii) A description and statement of the value of the security 
property;
    (iv) A memorandum to justify the transaction;

[[Page 54]]

    (v) Form FmHA or its successor agency under Public Law 103-354 440-
2, ``County Committee Certification or Recommendation;''
    (vi) Exhibit B of this subpart, ``Agreement for New Member (With or 
Without Withdrawing Member),'' (available in any FmHA or its successor 
agency under Public Law 103-354 office), executed by the remaining 
members of the association, the proposed new member, and the withdrawing 
member; and
    (vii) Form FmHA or its successor agency under Public Law 103-354 
450-12, ``Bill of Sale (Transfer by Withdrawing Member),'' executed by 
the withdrawing member.
    (2) If the State Director determines after review of the above 
information that the proposed new member is eligible and the transfer is 
justified, the State Director may approve the transfer and assumption by 
executing Form FmHA or its successor agency under Public Law 103-354 
1951-15.
    (3) Upon completion of the above actions, the State Director may 
release the outgoing member from personal liability using Form FmHA or 
its successor agency under Public Law 103-354 1965-8.
    (4) If Finance Office records must be changed due to changes in 
borrower name, address and/or case number, necessary documents, 
including Form FmHA or its successor agency under Public Law 103-354 
1951-15 and, if applicable, Form FmHA or its successor agency under 
Public Law 103-354 1965-8, will be forwarded to the Finance Office 
immediately with a memorandum indicating that the purpose of the 
submission is only to establish liability for a new member and release 
an old member from liability.
    (b) Withdrawal of members from Unincorporated Cooperatives when new 
member not available. Withdrawal of a member who no longer utilizes the 
services of an association may be permitted even though a new member is 
not available, provided:
    (1) The State Director determines that the remaining members have 
sufficient need for the property, and that the withdrawal of the member 
will not adversely affect collection of the loan; and
    (2) The remaining members obtain from the outgoing member an 
agreement conveying his or her interest in the cooperative property to 
them. They may also wish to agree to protect the outgoing member against 
liability on the debt owed to FmHA or its successor agency under Public 
Law 103-354 as well as any other debts. Exhibit C of this subpart, 
``Agreement for Withdrawal of Member (Without New Member),'' (available 
in any FmHA or its successor agency under Public Law 103-354 office), 
may be used by the cooperative. FmHA or its successor agency under 
Public Law 103-354 will not be a party to the agreement.
    (c) Addition of new members (no withdrawing member or transfer 
involved) for both Incorporated and Unincorporated Cooperatives. (1) A 
new member may be admitted to the association even though there is no 
withdrawing member, if:
    (i) The members of the association agree to accept the proposed new 
member, and
    (ii) The State Director determines that the association owns 
adequate facilities to provide service to the new member.
    (2) The servicing office will submit to the State Office the case 
file and items (i) through (vi) of Sec. 1951.231(a)(1).
    (3) If the State Director determines after the review of the above 
information that the proposed new member is eligible and the transaction 
is justified, the State Director may approve the transaction by 
executing Form FmHA or its successor agency under Public Law 103-354 
1951-15.
    (4) Form FmHA or its successor agency under Public Law 103-354 1951-
15 will be forwarded immediatly to the Finance Office with a memorandum 
indicating that the form is intended only to establish liability for a 
new member.
    (d) Deceased members of Unincorporated Cooperatives. Form FmHA or 
its successor agency under Public Law 103-354 442-24, ``Operating 
Agreement,'' (now obsolete) was executed by recipients of these loans. 
Paragraph 10 of that form provides that in case of the death of any 
member, the heirs or personal representative of the deceased

[[Page 55]]

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



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

    A water and/or waste disposal system serving an area which was 
formerly a rural area as defined in Sec. 1942.17(b)(2)(iii) and (iv) of 
subpart A of part 1942 of this chapter, but which has become in its 
entirety part of an urban area, will be serviced in accordance with this 
section.
    (a) Curtailment or limitation of service. Service may not be 
curtailed or limited by the inclusion of a system within an urban area.
    (b) Sale or transfer and assumption. (1) The urban community or 
another entity may purchase the facility involved and immediately pay 
the FmHA or its successor agency under Public Law 103-354 debt in full; 
or
    (2) The urban community or another entity may accept a transfer of 
the FmHA or its successor agency under Public Law 103-354 debt on an 
ineligible applicant basis.
    (3) When a grant is involved, the entity will agree in writing to 
assume all rights and obligations of the original grantee. See Sec. 
1951.215 for additional guidance on grant agreements.
    (c) Lease-purchase arrangement. If Sec. 1951.232(b) (l) and (2) of 
this section are not practicable, the urban community may, with prior 
approval of the National Office, operate and maintain the system under a 
lease-purchase arrangement which provides that:
    (1) The urban community will:
    (i) Assume responsibility for operation and maintenance of the 
facility, subject to nondiscrimination and all other requirements which 
are applicable to the borrower, which are to be specified in the 
agreement between the parties; and
    (ii) Pay the association annually an amount sufficient to enable it 
to meet all its obligations, including reserve account requirements.
    (2) The FmHA or its successor agency under Public Law 103-354 
borrower will:
    (i) Meet its debt service and reserve account requirements to FmHA 
or its successor agency under Public Law 103-354;
    (ii) Retain its corporate existence until FmHA or its successor 
agency under Public Law 103-354 has been paid in full; and
    (iii) If agreed upon by both parties, convey title to the facility 
to the urban community when the FmHA or its successor agency under 
Public Law 103-354 debt has been paid in full.
    (d) Processing. (1) Sale of a borrower's assets will be handled in 
accordance with Sec. 1951.226 of this subpart.
    (2) Transfer and assumption of a borrower's assets and indebtedness 
will be handled in accordance with Sec. 1951.230 of this subpart.
    (3) Lease-operation-to-purchase arrangements are not permitted.

[[Page 56]]

    (4) When a lease-purchase arrangement is proposed, the State 
Director will obtain a proposed agreement drafted by either the borrower 
or the urban community. The following will be forwarded to the 
Administrator, Attention: Water and Waste Disposal Division, for review 
and approval authorization:
    (i) A copy of the proposed agreement;
    (ii) Exhibit A of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office), appropriately 
completed;
    (iii) OGC comments;
    (iv) The case file, including all documentation appropriate for the 
type of servicing action involved.

[55 FR 4399, Feb. 8, 1992, as amended at 57 FR 21199, May 19, 1992]



Sec. Sec. 1951.233-1951.239  [Reserved]



Sec. 1951.240  State Director's additional authorizations and guidance.

    (a) Promote financing purposes and improve or maintain 
collectibility. The State Director is authorized to perform the 
following functions when the action is determined likely to promote the 
loan or grant purposes without jeopardizing collectibility of the loan 
or imparing the adequacy of the security; will strengthen the security; 
or will facilitate, improve, or maintain the orderly collection of the 
loan:
    (1) Approve requests for permission to modify bylaws, articles of 
incorporation, or other rules and regulations of recipients, including 
changes in rate or fee schedules. Changes affecting the recipient's 
legal organizational structure must be approved by OGC.
    (2) Consent to requests by the recipient to incur additional 
indebtedness, subject to applicable FmHA or its successor agency under 
Public Law 103-354 instructions and covenants in the loan or grant 
agreement.
    (3) Renew existing security instruments.
    (4) Approve the extension or expansion of facilities and services.
    (5) Require additional security when:
    (i) Existing security is inadequate and the loan or security 
instruments obligate the borrower to give additional security; or
    (ii) The loan is in default and additional security is acceptable in 
lieu of other servicing actions.
    (6) Release properties being sold by the borrower from mortgages 
securing Rural Renewal loans if the amount of the notes and mortgages 
given by the purchaser to the borrower equal the present market value 
and are assigned and pledged to FmHA or its successor agency under 
Public Law 103-354, and any money payable to the borrower is applied as 
an extra payment on the Rural Renewal loan.
    (7) Approve requests for rights-of-way and easements and any 
subordination necessary in connection with such requests.
    (b) Referrals to National Office. All proposed servicing actions 
which the State Director is not authorized by this subpart to approve 
will be referred to the National Office.
    (c) Defeasance of FmHA or its successor agency under Public Law 103-
354 indebtedness. Defeasance is the use of invested proceeds from a new 
bond issue to repay outstanding bonds in accordance with the repayment 
schedule of the outstanding bonds. The new issue supersedes the 
contractual agreements the borrower agreed to in the prior issue. 
Defeasance, or amending outstanding loan instruments and agreements to 
permit defeasance, of FmHA or its successor agency under Public Law 103-
354 debt instruments is not authorized, since defeasance limits, or 
eliminates entirely, the borrower's ability to comply with statutory 
refinancing requirements implemented by subpart F of part 1951 of this 
chapter.



Sec. 1951.241  Special provision for interest rate change.

    (a) General. Effective October 1, 1981, and thereafter, upon request 
of the borrower, the interest rate charged by FmHA or its successor 
agency under Public Law 103-354 to water and waste disposal and 
community facility borrowers shall be the lower of the rates in effect 
at either the time of loan approval or loan closing. Pub. L. 99-88 
provides that any FmHA or its successor agency under Public Law 103-354 
grant funds associated with such loans shall be set in the amount based 
on the interest rate in effect at the time of

[[Page 57]]

loan approval. Loans closed October 1, 1981, through October 25, 1985, 
were closed at the interest rate in effect at the time of loan approval 
and that interest rate is reflected in the borrower's debt instrument. 
For community facility and water and waste disposal loans closed on or 
after October 1, 1981, and for which the interest rate in effect at the 
time of loan closing is lower than the interest rate in effect at the 
time of loan approval, the borrower may request to be charged the lower 
interest rate. The loan closing interest rate will be determined by FmHA 
or its successor agency under Public Law 103-354 based upon requirements 
in effect at the date of loan closing. Exhibit E of this subpart 
(available in any FmHA or its successor agency under Public Law 103-354 
office) contains a summary of interest rate requirements for specific 
time periods. Exhibit C of Subpart O of this part (available in any FmHA 
or its successor agency under Public Law 103-354 office) will be used to 
determine the interest rate and effective dates by category of poverty, 
intermediate, and market rates. Exhibit F of this subpart (available in 
any FmHA or its successor agency under Public Law 103-354 office) 
contains the instructions on how to process a change of interest rate. 
Loans meeting the criteria of this section that have been paid in full 
are eligible for the borrower to request the lower interest rate. For 
loan(s) that involved multiple advances of FmHA or its successor agency 
under Public Law 103-354 funds using temporary debt instruments, wherein 
the borrower requests the interest rate in effect at loan closing, the 
interest rate charged shall be the rate in effect on the date when the 
first temporary debt instrument was issued.
    (b) Notification to borrower and borrower selection of interest 
rate. (1) FmHA or its successor agency under Public Law 103-354 
servicing officials will notify each borrower meeting the provisions of 
this section of the availability of a choice of interest rate. The 
notification will be made in writing at the earliest possible date, 
utilizing Exhibit G of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office), and sent by certified 
mail, return receipt requested. Borrowers will be advised at the time of 
notification that if a change of interest rate is requested, the change 
will be accomplished administratively by FmHA or its successor agency 
under Public Law 103-354. The effect of the change on the loan account 
will also be fully explained to the borrower.
    (2) Borrowers must notify FmHA or its successor agency under Public 
Law 103-354 within 90 calendar days of the date of FmHA or its successor 
agency under Public Law 103-354 notification indicating their election 
to retain the rate in effect at loan approval or to change the rate to 
the rate in effect at the time of loan closing. If the borrower does not 
respond within the 90-day period, FmHA or its successor agency under 
Public Law 103-354 will not consider a future request for a lower 
interest rate under the provisions of this subpart.
    (3) The borrower is responsible for assuring that the official 
executing the letter requesting the change of interest rate is duly 
authorized and any action(s) necessary for this authorization have been 
taken as required. Any costs associated with a change of interest rate 
will be the responsibility of the borrower.
    (c) Processing loan interest rate change. The State Director is 
authorized to approve loan interest rate changes which meet the 
requirements of this section. Loan interest rate changes will be 
accomplished as follows:
    (1) All loan payments already applied to the account(s) will be 
reversed and reapplied by FmHA or its successor agency under Public Law 
103-354 utilizing the changed interest rate. The balance remaining after 
the completion of the reversal and reapplication procedures will be 
applied first to any delinquency on the account and then to principal.
    (2) For paid-in-full accounts which meet the criteria of Sec. 
1951.241(a) of this subpart, the balance of loan payments after 
completion of the reversal and reapplication procedures will be returned 
to the borrower unless the borrower is delinquent on another FmHA or its 
successor agency under Public Law 103-354 loan of the same type. In 
those cases the amount will be applied to the

[[Page 58]]

delinquent amount owed, with any balance refunded to the borrower.
    (3) The Finance Office will administratively change the interest 
rate on a borrower's account in accordance with notification from the 
servicing official. The installment schedule set forth in each 
borrower's debt instrument will not change. The original principal 
schedule for principal-plus-interest accounts where principal only is 
stipulated will continue to be used for payment calculation by the 
Finance Office. Amortized accounts will adhere to the original payment 
schedule and amount. The last scheduled principal installment will be 
reduced by the amount of the balance previously generated by the 
reversal and reapplication of payments.
    (4) When FmHA or its successor agency under Public Law 103-354 has 
processed a change of interest rate for an amortized loan and a 
reduction in installment amounts is needed to provide for a sound 
operation, the borrower may request reamortization in accordance with 
Sec. 1951.223 of this subpart.
    (5) The borrower will be notified in writing of the new interest 
rate as changed.



Sec. 1951.242  Servicing delinquent Community Facility loans.

    (a) For the purpose of this section, a loan is delinquent when a 
borrower fails to make all or part of a payment by the due date.
    (b) The delinquent loan borrower and the Agency, at its discretion, 
may enter into a written workout agreement.
    (c) For loans that are delinquent, the borrower must provide, 
monthly comparative financial statements in a format that is acceptable 
to the Agency by the 15th day of the following month. The Agency may 
waive this requirement if it would cause a hardship for the borrower or 
the borrower is actively marketing the security property.

[69 FR 70884, Dec. 8, 2004]



Sec. Sec. 1951.243-1951.249  [Reserved]



Sec. 1951.250  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget and 
have been assigned OMB Control Number 0575-0066. Public reporting burden 
for this collection of information is estimated to vary from fifteen 
minutes to three hours per response including time for reviewing 
instructions, searching existing data sources, gathering and maintaining 
the data needed, and completing and reviewing the collection of 
information.

[55 FR 4399, Feb. 8, 1990, as amended at 69 FR 70884, Dec. 8, 2004]



                 Sec. Exhibits to Subpart E of Part 1951

    Editorial Note: Exhibits A through H are not published in the Code 
of Federal Regulations.
Exhibit A--Report on Servicing Action
Exhibit B--Agreement for New Member (With or Without Withdrawing Member)
Exhibit C--Agreement for Withdrawal of Member (Without New Member)
Exhibit D--Items to be Included in Transfer and Assumption Dockets (if 
applicable)
Exhibit E--Interest Rate Requirements and Effective Dates
Exhibit F--Instruction to FmHA or Its Successor Agency Under Public Law 
103-354 Personnel To Implement Public Law 100-233
Exhibit G--Letter to Borrower Notifying of Choice of Interest Rate
Exhibit H--Rescheduling Agreement--Public Bodies



      Subpart F_Analyzing Credit Needs and Graduation of Borrowers

    Source: 61 FR 35927, July 9, 1996, unless otherwise noted.



Sec. 1951.251  Purpose.

    This subpart prescribes the policies to be followed when analyzing a 
direct borrower's need for continued Agency supervision, further credit, 
and graduation. All loan accounts will be reviewed for graduation in 
accordance with this subpart, with the exception of Guaranteed, Rural 
Development Loan Funds, and Rural Rental Housing loans made to build or 
acquire new units pursuant to contracts entered into on or after 
December 15, 1989, and Intermediary Relending Program loans. The term 
``Agency'' used in this subpart refers to

[[Page 59]]

the Rural Housing Service (RHS), or Rural Business-Cooperative Service 
(RBS), depending upon the loan program discussed herein. This subpart 
does not apply to Farm Service Agency, Farm Loan Programs and to RHS 
direct single family housing (SFH) customers. In addition, this subpart 
does not apply to Water and Waste Programs of the Rural Utilities 
Service, Watershed loans, Resource Conservation and Development loans, 
which are serviced under part 1782 of this title.

[72 FR 55018, Sept. 28, 2007, as amended at 72 FR 64123, Nov. 15, 2007]



Sec. 1951.252  Definitions.

    Commercial classified. The Agency's highest quality Farm Credit 
Programs (FCP) accounts. The financial condition of the borrowers is 
strong enough to enable them to absorb the normal adversities of 
agricultural production and marketing. There is ample security for all 
loans, there is sufficient cash flow to meet the expenses of the 
agricultural enterprise and the financial needs of the family, and to 
service debts. The account is of such quality that commercial lenders 
would likely view the loans as a profitable investment.
    Farm Credit Programs (FCP) loans. FSA Farm Ownership (FO), Operating 
(OL), Soil and Water (SW), Recreation (RL), Emergency (EM), Economic 
Emergency (EE), Economic Opportunity (EO), Special Livestock (SL), 
Softwood Timber (ST) loans, and Rural Housing loans for farm service 
buildings (RHF).
    Graduation, FCP. The payment in full of all FCP loans or all FCP 
loans of one type (i.e., all loans made for chattel purposes or all 
loans made for real estate purposes) by refinancing with other credit 
sources either with or without an Agency loan guarantee. A loan made for 
both chattel and real estate purposes, for example an EM loan, will be 
classified according to how the majority of the loan's funds were 
expended. Borrowers must continue with their farming operations to be 
considered as graduated.
    Graduation, other programs. The payment in full of any direct loan 
for Community and Business Programs, and all direct loans for housing 
programs, before maturity by refinancing with other credit sources. 
Graduated housing borrowers must continue to hold title to the property. 
Graduation, for other than FCP, does not include credit which is 
guaranteed by the United States.
    Prospectus, FCP. Consists of a transmittal letter with a current 
balance sheet and projected year's budget attached. The applicant's or 
borrower's name and address need not be withheld from the lender. The 
prospectus is used to determine lender interest in financing or 
refinancing specific Agency direct loan applicants and borrowers. The 
prospectus will provide information regarding the availability of an 
Agency loan guarantee and interest assistance.
    Reasonable rates and terms. Those commercial rates and terms which 
borrowers are expected to meet when borrowing for similar purposes and 
similar periods of time. The ``similar periods of time'' of available 
commercial loans will be measured against, but need not be the same as, 
the remaining or original term of the loan. In the case of Multi-Family 
Housing (MFH) loans, ``reasonable rates and terms'' would be considered 
to mean financing that would allow the units to be offered to eligible 
tenants at rates consistent with other multi-family housing.
    Servicing official. The district or county office official 
responsible for the immediate servicing functions of the borrower.
    Standard classified. These loan accounts are fully acceptable by 
Agency standards. Loan risk and potential loan servicing costs are 
higher than would be acceptable to other lenders, but all loans are 
adequately secured. Repayment ability is adequate, and there is a high 
probability that all loans will be repaid as scheduled and in full.



Sec. 1951.253  Objectives.

    (a) [Reserved]
    (b) Borrowers must graduate to other credit at reasonable rates and 
terms when they are able to do so.
    (c) If a borrower refuses to graduate, the account will be 
liquidated under the following conditions:

[[Page 60]]

    (1) The borrower has the legal capacity and financial ability to 
obtain other credit.
    (2) Other credit is available from a commercial lender at reasonable 
rates and terms. In the case of Labor Housing (LH), Rural Rental Housing 
(RRH), and Rural Cooperative Housing (RCH) Programs, reasonable rates 
and terms must also permit the borrowers to continue providing housing 
for low and moderate income persons at rental rates tenants can afford 
considering the loss of any subsidy which will be canceled when the loan 
is paid in full.
    (d) The Agency will enforce borrower graduation.



Sec. 1951.254  [Reserved]



Sec. 1951.255  Nondiscrimination.

    All loan servicing actions described in this subpart will be 
conducted without regard to race, color, religion, sex, familial status, 
national origin, age, or physical or mental handicap.



Sec. Sec. 1951.256-1951.261  [Reserved]



Sec. 1951.262  Farm Credit Programs--graduation of borrowers.

    (a)-(d) [Reserved]
    (e) Graduation candidates. Borrowers who are classified 
``commercial'' or ``standard'' are graduation candidates. At least every 
2 years, all borrowers who have a current classification of commercial 
or standard must submit a year-end balance sheet, actual financial 
performance information for the most recent year, and a projected budget 
for the current year to enable the Agency to reclassify their status and 
determine their ability to graduate.
    (f) Sending prospectus information to lenders. (1) The Agency will 
distribute a borrower's prospectus to local lenders for possible 
refinancing. The borrower's permission is not required, however, the 
borrower must be notified of this action.
    (2) The borrower is responsible for any application fees. The 
borrower has 30 days from the date the borrower is notified of lender 
interest in refinancing to make application, if required by the lender, 
and refinance the FLP loan. For good cause, the borrower may be granted 
a reasonable amount of additional time by the Agency.

[61 FR 35927, July 9, 1996, as amended at 62 FR 10120, Mar. 5, 1997]



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

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

[[Page 61]]

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



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

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



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

    (a) Any borrower who appears to meet the local commercial lending 
standards, taking into consideration the Agency's loan guarantee 
program, will not be considered for a subsequent loan, subordination, or 
consent to additional indebtedness until the borrower's ability or 
inability to graduate has been confirmed. An exception may be made where 
the proposed action is needed to alleviate an emergency situation, such 
as meeting applicable health or sanitary standards which require 
immediate attention.
    (b) If the borrower has been requested to graduate and has also been 
denied a request for a subsequent loan, subordination, or consent to 
additional indebtedness, the borrower may appeal both issues.



Sec. 1951.266  Special requirements for MFH borrowers.

    All requirements of 7 CFR part 3560, subpart K must be met prior to 
graduation and acceptance of the full payment from an MFH borrower.

[69 FR 69105, Nov. 26, 2004]



Sec. Sec. 1951.267-1951.299  [Reserved]



Sec. 1951.300  OMB control number.

    The reporting requirements contained in this regulation have been 
approved by the Office of Management and Budget (OMB) and have been 
assigned OMB control number 0575-0093.



           Sec. Exhibit A to Subpart F of Part 1951 [Reserved]



Sec. Exhibit B to Subpart F of Part 1951--Suggested Outline for Seeking 
  Information From Lenders on Credit Criteria for Graduation of Single 
                          Family Housing Loans

Date:___________________________________________________________________
Name of Lender:_________________________________________________________
Title:__________________________________________________________________
Address:________________________________________________________________
Name of County Supervisor:______________________________________________
Service Area:___________________________________________________________

[[Page 62]]

    1. Is the lender interested in making loans to refinance rural 
housing borrowers? Yes:----; No:----.
If later, when?_________________________________________________________

    How much credit does the lender expect to have available in the next 
three to four months for making such loans? $------------
    In the next twelve (12) months? $------------

    2. What are the loan terms? ------------

    3. What is the current interest rate? ------------ [squ] Variable 
rate. [squ] Fixed rate.
    If variable, how is it determined? ------------

    4. Is a risk differential used in establishing interest rates 
charged for new customers? Yes: ----; No: ----.
If yes, explain:________________________________________________________
    5. What can a typical loan applicant be expected to pay for:

------------------------------------------------------------------------
                                              Dollars       Or percent
------------------------------------------------------------------------
a. Filing an application................  ..............  ..............
b. Real estate appraisal................  ..............  ..............
c. Credit report........................  ..............  ..............
d. Loan orgination fee..................  ..............  ..............
e. Loan closing costs...................  ..............  ..............
------------------------------------------------------------------------

    6. Is mortgage guarantee insurance required? Yes: ----; No: ----. If 
yes, how many years? ----. Cost? ------------.

    7. Is there a minimum or maximum loan size policy? Yes: ----; No: --
--.
If yes, explain:________________________________________________________
    8. Is there a minimum and maximum home value the lender will loan 
on? Yes: ----; No: ----. If yes, minimum: $------------; maximum: $----
--------.

    9. Does the lender use a loan to market value ratio? ------------

    10. Is there a minimum net and gross income criteria? Yes: ----; No: 
----. If yes, net: $------------; gross: $------------.

    11. Does the lender use a minimum loan or home value to income 
ratio? Yes: ----; No: ----. If yes, loan to income ratio: ------------ 
Value to income ratio: ------------

    12. Is there a percentage of gross income a typical applicant should 
have available to pay housing costs? ------------

    a. To pay for principal, interest, taxes and insurance (PITI)? ----
%.

    b. To pay for the total housing costs and other credit obligations? 
----%.

    13. Are there any age of home, housing type, site size, and/or 
geographic restriction policies? Yes: ----; No: ----.
If yes, List:___________________________________________________________
 14. Other Comments:____________________________________________________
    15. For the purpose of reducing the number of inappropriate 
referrals, would the lender like the opportunity to review specific 
borrower financial information prior to the borrower being asked to file 
a formal application? Yes: ----; No: ----. If the answer is yes, only 
those borrowers who are listed on Form FmHA or its successor agency 
under Public Law 103-354 1951-24 will be referred to the bank. The 
lenders should be advised, however, the information supplied to them 
will not include the borrower's name, social security number, exact 
address, or place of employment that could be used to link a specific 
borrower to the information being provided by FmHA or its successor 
agency under Public Law 103-354.

[48 FR 40203, Sept. 6, 1983; 48 FR 41142, Sept. 14, 1983]

Subparts G-N [Reserved]



Subpart O_Servicing Cases Where Unauthorized Loan(s) or Other Financial 
    Assistance Was Received_Community and Insured Business Programs.

    Source: 71 FR 75852, Dec. 19, 2006, unless otherwise noted.



Sec. 1951.701  Purpose.

    This subpart prescribes the policies and procedures for servicing 
Community and Business Program loans and/or grants made by Rural 
Development when it is determined that the borrower or grantee was not 
eligible for all or part of the financial assistance received in the 
form of a loan, grant, or subsidy granted, or any other direct financial 
assistance. It does not apply to guaranteed loans. Loans sold without 
insurance by Rural Development to the private sector will be serviced in 
the private sector and will not be serviced under this subpart. The 
provisions of this subpart are not applicable to such loans. Future 
changes to this subpart will not be made applicable to such loans. This 
subpart does not apply to Water and Waste Programs of the Rural 
Utilities Service, Watershed loans, and Resource Conservation and 
Development Loans, which are serviced under part 1782 of this title.

[72 FR 55018, Sept. 28, 2007]



Sec. 1951.702  Definitions.

    As used in this subpart, the following definitions apply:
    Active borrower. A borrower who has an outstanding account in the 
records

[[Page 63]]

of the Office of the Deputy Chief Financial Officer (ODCFO), including 
collection-only or an unsatisfied account balance where a voluntary 
conveyance was accepted without release from liability of foreclosure 
did not satisfy the indebtedness.
    Assistance. Finance assistance in the form of a loan, grant, or 
subsidy received.
    Debt instrument. Used as a collective term to include promissory 
note, assumption agreement, grant agreement, or bond.
    False information. Information, known to be incorrect, provided with 
the intent to obtain benefits which would not have been obtainable based 
on correct information.
    Inaccurate information. Incorrect information provided inadvertently 
without intent to obtain benefits fraudulently.
    Inactive borrower. A former borrower whose loan(s) has been paid in 
full or assumed by another party(ies) and who does not have an 
outstanding account in the records of the ODCFO.
    Recipient. ``Recipient'' refers to an individual or entity that 
received a loan, or portion of a loan, an interest subsidy, a grant, or 
a portion of a grant which was unauthorized.
    Rural Development. A mission area within the U.S. Department of 
Agriculture consisting of the Office of the Under Secretary for Rural 
Development, Office of Community Development, Rural Business-Cooperative 
Service, Rural Housing Service, and Rural Utilities Service and their 
successors.
    Unauthorized assistance. Any loan, interest subsidy, grant, or 
portion thereof received by a recipient for which there was no 
regulatory authorization or for which the recipient was not eligible. 
Interest subsidy includes subsidy benefits received because a loan was 
closed at a lower interest rate than that to which the recipient was 
entitled, whether the incorrect interest rate was selected erroneously 
by the approval official or the documents were prepared in error.



Sec. 1951.703  Policy.

    When unauthorized assistance has been received, an expeditious 
effort must be made to collect from the recipient the sum which is 
determined to be unauthorized, regardless of amount.



Sec. Sec. 1951.704-1951.705  [Reserved]



Sec. 1951.706  Initial determination that unauthorized assistance was received.

    Unauthorized assistance may be identified through audits conducted 
by the USDA Office of Inspector General (OIG), through reviews made by 
Rural Development personnel, or through other means such as information 
provided by a private citizen who documents that unauthorized assistance 
has been received by a recipient of Rural Development assistance.



Sec. 1951.707  Determination of the amount of unauthorized assistance.

    (a) Unauthorized loan amount. The unauthorized loan amount will be 
the unauthorized principal plus any interest accruing on the 
unauthorized principal at the note interest rate until the date paid 
unless otherwise agreed in writing by Rural Development.
    (b) Unauthorized grant amount. The unauthorized amount will be the 
unauthorized grant amount actually expended under the grant agreement 
plus interest accrued beginning on the date of the demand letter at the 
interest rate stipulated in the applicable grant agreement, or, if none 
is stated, the default rate established by the U.S. Department of the 
Treasury, until the date paid unless otherwise agreed in writing by 
Rural Development.



Sec. 1951.708  Notification to recipient.

    (a) Upon determination that unauthorized assistance was received, 
Rural Development will send a demand letter to the recipient that:
    (1) Specifies the amount of unauthorized assistance, including any 
accrued interest to be repaid, and the standards for imposing accrued 
interest;
    (2) States the amount of penalties and administrative costs to be 
paid, the standards for imposing them, and the date on which they will 
begin to accrue;
    (3) Provides detailed reason(s) why the assistance was determined to 
be unauthorized;

[[Page 64]]

    (4) States the amount is immediately due and payable to Rural 
Development;
    (5) Describes the rights the recipient has for seeking review of 
Rural Development's determination pursuant to 7 CFR part 11;
    (6) Describes the Agency's available remedies regarding enforced 
collection, including referral of debt delinquent more than 180 days for 
Federal salary, benefit, and tax offset under the Department of Treasury 
Offset Program (TOP); and
    (7) Provides an opportunity for the recipient to meet with Rural 
Development to provide facts, figures, written records, or other 
information which might refute Rural Development's determination.
    (b) If the recipient meets with Rural Development, Rural Development 
will outline to the recipient why the assistance was determined to be 
unauthorized. The recipient will be given an opportunity to provide 
information to refute Rural Development's findings. When requested by 
the recipient, Rural Development may grant additional time for the 
recipient to assemble documentation. Such extension of time for payment 
will be valid only if Rural Development documents the extension in 
writing and specifies the period in days during which period the payment 
obligation created by the demand letter (but not the ongoing accrual of 
interest) will be suspended. Interest and other charges will continue to 
accrue pursuant to the demand letter during any extension period unless 
the terms of the demand letter are modified in writing by Rural 
Development.
    (c) Unless Rural Development modifies the original demand, it will 
remain in full force and effect.



Sec. 1951.709  Decision on servicing actions.

    (a) Payment in full. If the recipient agrees with Rural 
Development's determination or will pay the amount in question, Rural 
Development may allow a reasonable period of time (usually not to exceed 
90 days) for the recipient to arrange for repayment. The amount due will 
be determined according to Sec. 1951.707.
    (b) Continuation with recipient. If the recipient agrees with Rural 
Development's determination or is willing to pay the amount in question 
but cannot repay the unauthorized assistance within a reasonable period 
of time, continuation is authorized and servicing actions outlined in 
Sec. 1951.711 may be taken provided all of the following conditions are 
met:
    (1) The recipient did not provide false information as defined in 
Sec. 1951.702.
    (2) It would be highly inequitable to require prompt repayment of 
the unauthorized assistance.
    (3) Failure to collect the unauthorized assistance in full will not 
adversely affect Rural Development's financial interest.
    (c) Appeals. Appeals resulting from the letter prescribed in Sec. 
1951.708 will be handled according to 7 CFR Part 11. All appeal 
provisions will be concluded before proceeding with further actions.
    (d) Liquidation of loan(s) or legal action to enforce collection. 
When a case cannot be handled according to the provisions of paragraph 
(a) or (b) of this section, or if the recipient refuses to execute the 
documents necessary to establish an obligation to repay the unauthorized 
assistance as provided in Sec. 1951.711, one or more of the following 
actions will be taken:
    (1) Active borrower with a secured loan. (i) Rural Development will 
attempt to have the recipient liquidate voluntarily. If the recipient 
does not agree to voluntary liquidation, or agrees but it cannot be 
accomplished within a reasonable period of time (usually not more than 
90 days), forced liquidation action will be initiated in accordance with 
applicable provisions of subpart A of part 1955 of this chapter unless:
    (A) The amount of unauthorized assistance outstanding, including 
principal, accrued interest, and any recoverable costs charged to the 
account, is less than $1,000; or
    (B) It would not be in the best financial interest of the Government 
to force liquidation.
    (ii) When all of the conditions of paragraph (a) or (b) of this 
section are met, but the recipient does not repay or refuses to execute 
documents to effect necessary account adjustments according of the 
provisions of Sec. 1951.711,

[[Page 65]]

forced liquidation action will be initiated as provided in paragraph 
(d)(1)(i) of this section.
    (iii) When forced liquidation would be initiated, except that the 
loan is being handled in accordance with paragraph (d)(1)(i)(A) or 
(d)(1)(i)(B) of this section, continuation with the loan on existing 
terms may be provided.
    (iv) If the debt is not otherwise resolved, Rural Development will 
take appropriate debt collection actions in accordance with 7 CFR Part 
3, subparts B and C, and the Federal Claims Collection Standards at 31 
CFR Chapter IX, Parts 900-904.
    (2) Grantee, inactive borrower, or active borrower with unsecured 
loan (such as collection-only, or unsatisfied balance after 
liquidation). Rural Development may pursue all reasonable legal 
remedies.



Sec. 1951.710  [Reserved]



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

    When the conditions outlined in Sec. 1951.709(b) are met, the 
servicing options outlined in this section will be considered.
    (a) Continuation on modified terms. When the recipient has the legal 
and financial capabilities, the case will be serviced according to one 
of the following, as appropriate.
    (1) Unauthorized loan. A loan for the unauthorized amount determined 
according to Sec. 1951.707(a) will remain accelerated per the demand 
letter sent in accordance with Sec. 1951.708 unless modified terms are 
timely reached with the recipient and accrued at the interest rate 
specified in the outstanding debt instrument or at the present market 
interest rate, whichever is greater, for the respective Community and 
Business program area. The loan will be amortized per a repayment 
schedule satisfactory to Rural Development, but in no event may the 
revised repayment schedule exceed a period of fifteen (15) years, the 
remaining term of the original loan, or the remaining useful life of the 
facility, whichever is shorter.
    (2) Unauthorized grant. The unauthorized grant amount determined 
according to Sec. 1951.707(b) will be converted to an account 
receivable, with interest payable at the market interest rate for the 
respective Community Facilities or Business and Industry Program area in 
effect on the date the financial assistance was provided. In all cases, 
the receivable will be amortized per a repayment schedule satisfactory 
to Rural Development, but in no event may the amortization period exceed 
fifteen (15) years. The recipient will be required to execute a debt 
instrument to evidence this receivable, and the best security position 
available to adequately protect Rural Development's interest during the 
repayment period will be taken as security.
    (3) Unauthorized subsidy benefits received. When the recipient was 
eligible for the loan but should have been charged a higher interest 
rate than that in the debt instrument, which resulted in the receipt of 
unauthorized subsidy benefits, the case will be handled as follows:
    (i) The recipient will be given the option to submit a written 
request that the interest rate be corrected to the lower of the rate for 
which they were eligible that was in effect at the date of loan approval 
or loan closing.
    (ii) Any accrued unauthorized subsidy will be handled in accordance 
with Sec. 1951.709.
    (b) Continuation on existing terms. When the recipient does not have 
the legal and/or financial capabilities for the options outlined in 
paragraph (a)(1), (a)(2), or (a)(3) of this section, the recipient may 
be allowed to continue to meet the loan obligations outlined in the 
existing loan instruments. Rural Development will not continue with 
unauthorized grants on existing terms.



Sec. Sec. 1951.712-1951.716  [Reserved]



Sec. 1951.717  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this subpart, provided that any such 
exception is not inconsistent with any applicable law or opinion of the 
Comptroller General, and provided further, the Administrator determines 
that the application of the requirement or provision would adversely 
affect the Government's interest.

[[Page 66]]



Sec. Sec. 1951.718-1951.750  [Reserved]

Subparts P-Q [Reserved]



               Subpart R_Rural Development Loan Servicing

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



Sec. 1951.851  Introduction.

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



Sec. 1951.852  Definitions and abbreviations.

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

[[Page 67]]

function unreimbursed by FmHA or its successor agency under Public Law 
103-354 performed by the intermediary for the benefit of the ultimate 
recipient.
    (10) Working capital. The excess of current assets over current 
liabilities. It identifies the liquid portion of total enterprise 
capital which constitutes a margin or buffer for meeting obligations 
within the ordinary operating cycle of the business.
    (b) Abbreviations. The following abbreviations are applicable:
    B&I--Business and Industry
    CSA--Community Services Administration
    EIS--Environmental Impact Statement
    HHS--U.S. Department of Health and Human Services
    IRP--Intermediary Relending Program
    OCS--Office of Community Services
    OIG--Office of Inspector General
    OGC--Office of the General Counsel
    RDLF--Rural Development Loan Fund
    USDA--United States Department of Agriculture

[53 FR 30656, Aug. 15, 1988, as amended at 63 FR 6052, Feb. 6, 1998]



Sec. 1951.853  Loan purposes for undisbursed RDLF loan funds from HHS.

    (a) RDLF Intermediaries. Rural Development Loan funds will be used 
by the RDLF intermediary to provide loans to ultimate recipients in 
accordance with paragraph (b) of this section. Interest income, service 
fees, and other authorized financing charges received by RDLF 
intermediaries operating relending programs may be used to pay for: The 
costs of administering the RDLF relending program, the provision of 
technical assistance to borrowers, the absorption of bad debts 
associated with RDLF loans, and repayment of debt. All proceeds in 
excess of those needed to cover authorized expenses, as described above, 
must be returned to the Agency.
    (b) Ultimate recipients.(1) Financial assistance from the 
intermediary to the ultimate recipient must be for business facilities 
and community development projects in rural areas.
    (2) Financial assistance involving Rural Development Loan funds from 
the intermediary to the ultimate recipient may include but not be 
limited to:
    (i) Business acquisitions, construction, conversion, enlargement, 
repair, modernization, or development cost.
    (ii) Purchasing and development of land, easements, rights-of-way, 
building, facilities, leases, or materials.
    (iii) Purchasing of equipment, leasehold improvements, machinery or 
supplies.
    (iv) Pollution control and abatement.
    (v) Transportation services.
    (vi) Startup operating costs and working capital.
    (vii) Interest (including interest on interim financing) during the 
period before the facility becomes income producing, but not to exceed 3 
years.
    (viii) Feasibility studies.
    (ix) Reasonable fees and charges only as specifically listed in this 
subparagraph. Authorized fees include loan packaging fees, environmental 
data collection fees, and other professional fees rendered by 
professionals generally licensed by individual State or accreditation 
associations, such as engineers, architects, lawyers, accountants, and 
appraisers. The amount of fee will be what is reasonable and customary 
in the community or region where the project is located. Any such fees 
are to be fully documented and justified.
    (x) Aquaculture including conservation, development, and utilization 
of water for aquaculture. Aquaculture means the culture or husbandry of 
aquatic animals or plants by private industry for commercial purposes 
including the culture and growing of fish by private industry for the 
purpose of granting or augmenting publicly-owned or regulated stock of 
fish.

[53 FR 30656, Aug. 15, 1988, as amended at 63 FR 6053, Feb. 6, 1998]



Sec. 1951.854  Ineligible assistance purposes.

    (a) RDLF Intermediaries. RDLF loans may not be used by the 
intermediary:
    (1) For payment of the intermediary's own administrative costs or 
expenses.

[[Page 68]]

    (2) To purchase goods or services or render assistance in excess of 
what is needed to accomplish the purpose of the ultimate recipient 
project.
    (3) For distribution or payment to the owner, partners, 
shareholders, or beneficiaries of the ultimate recipient or members of 
their families when such persons will retain any portion of their equity 
in the ultimate recipient.
    (4) For charitable and educational institutions, churches, 
organizations affiliated with or sponsored by churches, and fraternal 
organizations.
    (5) For assistance to government employees, military personnel, or 
principals or employees of the intermediary who are directors, officers 
or have major ownership (20 percent or more) in the ultimate recipient.
    (6) For relending in a city with a population of twenty-five 
thousand or more as determined by the latest decennial census.
    (7) For a loan to an ultimate recipient which has applied or 
received a loan from another intermediary unless FmHA or its successor 
agency under Public Law 103-354 provides prior written approval for such 
loan.
    (8) For any line of credit.
    (9) To finance more than 75 percent of the total cost of a project 
by the ultimate recipient. The total amount of RDLF loan funds requested 
by the ultimate recipient plus the outstanding balance of any existing 
RDLF loan(s) will not exceed $150,000. Other loans, grants, and/or 
intermediary or ultimate recipient contributions or funds from other 
sources must be used to make up the difference between the total cost 
and the assistance provided with RDLF funds.
    (10) For any investments in securities or certificates of deposit of 
over 30-day duration without the concurrence of FmHA or its successor 
agency under Public Law 103-354. If the RDLF funds have been unused to 
make loans to ultimate recipients for 6 months or more, those funds will 
be returned to FmHA or its successor agency under Public Law 103-354 
unless FmHA or its successor agency under Public Law 103-354 provides an 
exception to the RDLF intermediary. Any exception would be based on 
evidence satisfactory to FmHA or its successor agency under Public Law 
103-354 that every effort is being made by the intermediary to utilize 
the RDLF funding in conformance with program objectives.
    (b) Ultimate recipients. Ultimate recipients may not use assistance 
received from RDLF intermediaries involving RDLF funds:
    (1) For agricultural production, which means the cultivation, 
production (growing), harvesting, either directly or through integrated 
operations, of agricultural products (crops, animals, birds and marine 
life, either for fiber or food for human consumption, and disposal or 
marketing thereof, the raising, housing, feeding, breeding, hatching, 
control and/or management of farm and domestic animals). Exceptions to 
this definition are:
    (i) Aquaculture as identified under eligible purposes.
    (ii) Commercial nurseries primarily engaged in the production of 
ornamental plants and trees and other nursery products such as bulbs, 
florists' greens, flowers, shrubbery, flower and vegetable seeds, sod, 
the growing of vegetables from seed to the transplant stage.
    (iii) Forestry, which includes establishments primarily engaged in 
the operation of timber tracts, tree farms, forest nurseries, and 
related activities such as reforestation.
    (iv) Financial assistance for livestock and poultry processing as 
identified under eligible purposes.
    (v) The growing of mushrooms or hydroponics.
    (2) For the transfer of ownership unless the loan will keep the 
business from closing, or prevent the loss of employment opportunities 
in the area, or provide expanded job opportunities.
    (3) For community antenna television services or facilities.
    (4) For any legitimate business activity when more than 10 percent 
of the annual gross revenue is derived from legalized gambling activity.
    (5) For any illegal activity.
    (6) For any otherwise eligible project that is in violation of 
either a Federal, State or local environmental protection law or 
regulation or an enforceable land use restriction unless the financial 
assistance required will result in curing or removing the violation.

[[Page 69]]

    (7) For any hotels, motels, tourist homes, or convention centers.
    (8) For any tourist, recreation, or amusement centers.



Sec. Sec. 1951.855-1951.858  [Reserved]



Sec. 1951.859  Term of loans.

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



Sec. 1951.860  Interest on loans.

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

[[Page 70]]



Sec. Sec. 1951.861-1951.865  [Reserved]



Sec. 1951.866  Security.

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



Sec. 1951.867  Conflict of interest.

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



Sec. Sec. 1951.868-1951.870  [Reserved]



Sec. 1951.871  Post award requirements.

    (a) RDLF intermediaries with undisbursed RDLF loan funds shall be 
governed by these regulations, the loan agreement, the approved work 
program, security interests, and other conditions which FmHA or its 
successor agency under Public Law 103-354 may require in awarding a 
loan.
    (b) Unless otherwise specifically agreed to in writing by the FmHA 
or its successor agency under Public Law 103-354, any loan funds held by 
an intermediary and any funds obtained from loaning FmHA or its 
successor agency under Public Law 103-354-derived funds and recollecting 
them that are not immediately needed by the intermediary for an ultimate 
recipient should be deposited in an interest-bearing account in a bank 
or other financial institution which will be covered by a form of 
Federal deposit insurance. Any interest or income earned as a result of 
such deposits shall be used by the intermediary only for purposes 
authorized by FmHA or its successor agency under Public Law 103-354.
    (c) Intermediaries operating relending programs must maintain 
separate ledgers and segregated accounts for RDLF funds at all times.
    (d) Reporting requirements shall be those delineated in the loan 
agreement between the United States and the intermediary and such 
subsequent requirements as FmHA or its successor agency under Public Law 
103-354 deems appropriate. The intermediaries must document periodically 
the extent to which increased employment, income and ownership 
opportunities are provided to rural residents for each loan made by such 
intermediary.
    (e) No intermediary may make a loan to an ultimate recipient who has 
applied for or received a loan from another intermediary unless FmHA or 
its successor agency under Public Law 103-

[[Page 71]]

354 provides prior written approval for such loan.
    (f) All loan payments that are due on RDLF loans will be made 
payable to the Farmers Home Administration or its successor agency under 
Public Law 103-354, using the number assigned, and mailed directly to: 
Farmers Home Administration or its successor agency under Public Law 
103-354, Finance Office, FC 35, 1520 Market Street, St. Louis, Missouri 
63103.



Sec. 1951.872  Other regulatory requirements.

    (a) Intergovenmental consultation. The RDLF program is subject to 
the provisions of Executive Order 12372 which requires intergovernmental 
consultation with State and local officials. For each ultimate recipient 
to be assisted with a loan under this subpart and for which the State in 
which the ultimate recipient is to be located has elected to review the 
program under their intergovernmental review process, the State Point of 
Contact must be notified. Notification, in the form of a project 
description, can be initiated by the intermediary or the ultimate 
recipient. Any comments from the State must be included with the 
intermediary's request to use the loan funds for the ultimate recipient. 
Prior to FmHA or its successor agency under Public Law 103-354's 
decision on the request, compliance with the requirements of 
intergovernmental consultation must be demonstrated for each ultimate 
recipient. These requirements should be carried out in accordance with 
FmHA or its successor agency under Public Law 103-354 Instruction 1940-
J, ``Intergovernmental Review of Farmers Home Administration or its 
successor agency under Public Law 103-354 Programs and Activities,'' 
available in any FmHA or its successor agency under Public Law 103-354 
office.
    (b) Environmental requirements. (1) Unless specifically modified by 
this section, the requirements of subpart G of part 1940 of this chapter 
apply to this subpart. FmHA or its successor agency under Public Law 
103-354 will give particular emphasis to ensuring compliance with the 
environmental policies contained in Sec. Sec. 1940.303 and 1940.304 in 
subpart G of part 1940 of this chapter. Intermediaries and ultimate 
recipients of loans must consider the potential environmental impacts of 
their projects at the earliest planning stages and develop plans to 
minimize the potential to adversely impact the environment.
    (2) As part of the intermediary's request to FmHA or its successor 
agency under Public Law 103-354 for concurrence to make a loan to an 
ultimate recipient, the intermediary will include for the ultimate 
recipient a properly completed Form FmHA or its successor agency under 
Public Law 103-354 1940-20, ``Request for Environmental Information,'' 
if it is classified as a Class I or Class II action. FmHA or its 
successor agency under Public Law 103-354 will complete the 
environmental review required by subpart G of part 1940 of this chapter. 
The results of this review will be used by FmHA or its successor agency 
under Public Law 103-354 in making its decision on the request.
    (c) Equal opportunity and nondiscrimination requirements.(1) In 
accordance with Title V of Pub. L. 93-495, the Equal Credit Opportunity 
Act, neither the intermediary nor FmHA or its successor agency under 
Public Law 103-354 will discriminate against any applicant on the basis 
of race, color, religion, national origin, age, physical or mental 
handicap (provided that the applicant has the capacity to enter into a 
binding contract), sex or marital status with respect to any aspect of a 
credit transaction anytime Federal funds are involved.
    (2) The regulations contained in part 1901, subpart E of this 
chapter apply to loans made under this program.
    (3) The Administrator will assure that equal opportunity and 
nondiscrimination requirements are met in accordance with Title VI of 
the Civil Rights Act of 1964, ``Nondiscrimination in Federally Assisted 
Programs,'' 42 U.S.C. 2000d-2000d-4. If there is indication of 
noncompliance with these requirements, such facts will be reported in 
writing to the Administrator, ATTN: Equal Opportunity Officer.

[[Page 72]]



Sec. Sec. 1951.873-1951.876  [Reserved]



Sec. 1951.877  Loan agreements.

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



Sec. Sec. 1951.878-1951.880  [Reserved]



Sec. 1951.881  Loan servicing.

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

[[Page 73]]

the Finance Office will send a past due notice to the intermediary. The 
notice will show the late charge amount, if applicable, and the interest 
amount past due. The late charge amount, if applicable, and the interest 
past due amount will be capitalized as principal due 30 days after the 
due date of the monthly payment unless existing loan documents prior to 
this regulation state otherwise. If the loan documents state when late 
charge amounts or interest accruals are to be capitalized, the loan 
documents will prevail.
    (1) A per diem amount will be shown on the late notice sent to the 
intermediary. The Finance Office will send this notice to the 
Administrator or designee 30 days after the past due notice has been 
sent to the intermediary and the account remains delinquent. Thereafter, 
further notices by FmHA or its successor agency under Public Law 103-354 
designee will be sent to the intermediary on the late payments or any 
further payments until the account is in a current status.
    (2) The Finance Office will notify the Administrator or designee on 
any payments due from the delinquent intermediary. It will be the 
responsibility of the Administrator or designee to follow up on 
delinquent payments to bring the account to a current status.
    (3) A copy of any correspondence or notice generated by the 
Administrator or designee on any delinquent loan will be sent to the 
Finance Office.
    (4) Interest will be computed on a 365-day basis unless legal 
documents state otherwise.
    (f) It is the responsibility of the Finance Office to maintain 
complete accounting records for each intermediary. The Finance Office 
will:
    (1) Coordinate with the Administrator or designee to assure that 
interest and principal payments received are in accordance with the 
promissory notes and its companion documents, and the effective 
amortization schedule. If the payments received appear to be incorrect, 
the Finance Office will advise the Administrator or designee. The 
Administrator or designee will take the necessary action to clear the 
issue and promptly advise the Finance Office of the proper accounting 
procedure.
    (2) Send monthly statements to the National Office reflecting all 
payments received to date on each borrower.
    (3) Send to the Administrator or designee a monthly summary of all 
intermediary loans as follows:
    (i) Number and amount of all loans.
    (ii) Total advanced on all loans.
    (iii) Total interest and principal received on the loans.
    (iv) Total outstanding balance on all loans.
    (4) Prepare reamortization schedules needed as a result of 
restructuring any loans and send to the Administrator or designee.
    (5) Furnish in writing to the Administrator or designee a per diem 
amount on the actual interest amount due when requested by the 
Administrator.
    (g) It is the responsibility of the Administrator or designee to:
    (1) Review and analyze the semiannual report of the intermediaries 
and reconcile same to the annual audits.
    (2) Review the annual audits of intermediaries.
    (3) Review the semiannual reports of the intermediaries and take 
appropriate action when necessary.
    (4) Follow up on delinquent intermediaries to bring the account 
current.
    (5) Notify the Finance Office in writing when a loan is determined 
to be uncollectible in order for the Finance Office to make provisions 
for an appropriate timely entry to the loss account.
    (6) Furnish to the Finance Office the necessary information to 
produce reamortization schedules.
    (7) Provide the Finance Office a copy of any correspondence in 
regard to the restructuring of the loans.
    (8) Review reamortization schedules, the schedule will then be 
forwarded to the intermediary.
    (9) Confirm account balances. Payment history of loans and any other 
related matter will be furnished to the requesting party, (i.e. third 
party auditing firms) if warranted and proper. If there are 
discrepancies in any loan balances being confirmed, the Finance Office 
should be consulted before the Administrator or designee writes the 
requested parties.

[[Page 74]]

    (10) Furnish upon request by the Finance Office, the information 
necessary to help reconcile account balances, obtain evidence of 
payments made by the borrower, and any other related data necessary to 
keep the financial records correct and in balance.
    (11) Answer Congressional and other correspondence.
    (12) Review intermediary's plans, cash flow projections, balance 
sheets, and operating statements.



Sec. 1951.882  [Reserved]



Sec. 1951.883  Reporting requirements.

    (a) Intermediaries are to provide FmHA or its successor agency under 
Public Law 103-354 with reports as required in their respective loan 
agreements, applicable statutes and as required by FmHA or its successor 
agency under Public Law 103-354. The report shall include the following:
    (1) An annual audit; dates of audit report period need not 
necessarily coincide with other reports on the RDLF/IRP. Audits shall be 
due 90 days following the audit period. Audits must cover all of the 
intermediary's activities. Audits will be performed by an independent 
certified public accountant or by an independent public accountant 
licensed and certified on or before December 31, 1970, by a regulatory 
authority of a State or other political subdivision of the United 
States. An acceptable audit will be performed in accordance with 
generally accepted auditing standards and include such tests of the 
accounting records as the auditor considers necessary in order to 
express an opinion on the financial condition of the intermediary. FmHA 
or its successor agency under Public Law 103-354 does not require an 
unqualified audit opinion as a result of the audit. Compilations or 
reviews do not satisfy the audit requirement.
    (2) Quarterly or semiannual reports (due 30 days after the end of 
the period).
    (i) Reports will be required quarterly during the first year after 
loan closing and, if all loan funds are not utilized during the first 
year, quarterly reports will be continued until at least 90 percent of 
the Agency IRP loan funds have been advanced to ultimate recipients. 
Thereafter, reports will be required semiannually. Also, the Agency may 
require quarterly reports if the intermediary becomes delinquent in 
repayment of its loan or otherwise fails to fully comply with the 
provisions of its work plan or Loan Agreement, or the Agency determines 
that the intermediary's IRP revolving fund is not adequately protected 
by the current sound worth and paying capacity of the ultimate 
recipients.
    (ii) These reports shall contain only information on the IRP 
revolving loan fund, or if other funds are included, the IRP loan 
program portion shall be segregated from the others; and in the case 
where the intermediary has more than one IRP revolving fund from the 
Agency a separate report shall be made for each of the IRP revolving 
funds.
    (iii) The reports will include, on a form provided by the Agency, 
information on the intermediary's lending activity, income and expenses, 
financial condition, and a summary of names and characteristics of the 
ultimate recipients the intermediary has financed.
    (3) An annual report on the extent to which increased employment 
income and ownership opportunities are provided to low-income persons, 
farm families, and displaced farm families for each loan made by such 
intermediary.
    (4) Proposed budget for the following year.
    (5) Other reports as FmHA or its successor agency under Public Law 
103-354 may require from time to time.
    (b) Intermediaries shall report to FmHA or its successor agency 
under Public Law 103-354 whenever an ultimate recipient is more than 90 
days in arrears in the repayment of principal or interest.

[53 FR 30656, Aug. 15, 1988, as amended at 63 FR 6053, Feb. 6, 1998]



Sec. 1951.884  Non-Federal funds.

    Once all the FmHA or its successor agency under Public Law 103-354-
derived loan funds have been utilized by the intermediary for assistance 
to ultimate recipients according to the provisions of these regulations 
and the loan agreement, assistance to new ultimate recipients financed 
thereafter from the intermediary's revolving loan fund shall not be 
considered as being derived

[[Page 75]]

from Federal funds and the requirements of these regulations will not be 
imposed on those new ultimate recipients. Ultimate recipients assisted 
by the intermediary with FmHA or its successor agency under Public Law 
103-354-derived loan funds shall be required to comply with the 
provisions of these regulations and/or loan agreement.



Sec. 1951.885  Loan classifications.

    All loans to intermediaries in the FmHA or its successor agency 
under Public Law 103-354 portfolio will be classified by FmHA or its 
successor agency under Public Law 103-354 at loan closing and again 
whenever there is a change in the loan which would impact on the 
original classification. No one classification should be viewed as more 
important than others. The uncollectibility aspect of Doubtful and Loss 
classifications is of obvious importance. However, the function of the 
Substandard classification is to indicate those loans that are unduly 
risky which may result in future losses. Substandard, Doubtful and Loss 
are adverse classifications. The special mention classification is for 
loans which are not adversely classified but which require the attention 
and followup of FmHA or its successor agency under Public Law 103-354. 
The loans will be classified as follows:
    (a) Seasoned loan classification. To be classified as a seasoned 
loan, a loan must:
    (1) Have a remaining principal loan balance of two-thirds or less of 
the original aggregate of all existing loans made to that intermediary.
    (2) Be in compliance with all loan conditions and FmHA or its 
successor agency under Public Law 103-354 regulations.
    (3) Have been current on the loan(s) payments for 24 consecutive 
months.
    (4) Be secured by collateral which is determined to be adequate to 
ensure there will be no loss on the loan.
    (b) Current non-problem classification. This classification includes 
those loans which have been current for less than 24 consecutive months 
and are in compliance with the loan conditions and FmHA or its successor 
agency under Public Law 103-354 regulations, and are not considered to 
pose a credit risk to FmHA or its successor agency under Public Law 103-
354. These loans would be classified as seasoned but for the ``24 
months'' and ``two-thirds'' requirements for seasoned loans.
    (c) Special mention classification. This classification includes 
loans which do not presently expose FmHA or its successor agency under 
Public Law 103-354 to a sufficient degree of risk to warrant a 
Substandard classification but do possess credit deficiencies deserving 
FmHA or its successor agency under Public Law 103-354's close attention 
because the failure to correct these deficiencies could result in 
greater risk in the future. This classification would include loans that 
may be high quality, but which FmHA or its successor agency under Public 
Law 103-354 is unable to supervise properly because of an inadequate 
loan agreement, the condition or lack of control over the collateral, 
failure to obtain proper documentation or any other deviations from 
prudent lending practices. Adverse trends in the intermediary's 
operation or an imbalanced position in the balance sheet which has not 
reached a point that jeopardizes the repayment of the loan should be 
assigned to this classification. Loans in which actual, not potential, 
weaknesses are evident and significant should be considered for a 
Substandard classification.
    (d) Substandard classification. This classification includes loans 
which are inadequately protected by the current sound worth and paying 
capacity of the obligor or of the collateral pledged, if any. Loans in 
this classification must have a well defined weakness or weaknesses that 
jeopardize the payment in full of the debt. If the deficiencies are not 
corrected, there is a distinct possibility that FmHA or its successor 
agency under Public Law 103-354 will sustain some loss.
    (e) Doubtful classification. This classification includes those 
loans which have all the weaknesses inherent in those classified 
Substandard with the added characteristic that the weaknesses make 
collection or liquidation in full, based on currently known facts, 
conditions and values, highly questionable and improbable.

[[Page 76]]

    (f) Loss classification. This classification includes those loans 
which are considered uncollectible and of such little value that their 
continuance as loans is not warranted. Even though partial recovery may 
be effected in the future, it is not practical or desirable to defer 
writing off these basically worthless loans.



Sec. Sec. 1951.886-1951.888  [Reserved]



Sec. 1951.889  Transfer and assumption.

    (a) All transfers and assumptions must be approved in advance in 
writing by FmHA or its successor agency under Public Law 103-354. Such 
transfers and assumptions must be to an eligible intermediary.
    (b) Available transfer and assumption options to eligible 
intermediaries include the following:
    (1) The total indebtedness may be transferred to another eligible 
intermediary on the same terms.
    (2) The total indebtedness may be transferred to another eligible 
intermediary on different terms not to exceed those terms for which an 
initial loan can be made to an organization that would have been 
eligible originally.
    (3) Less than total indebtedness may be transferred to another 
eligible intermediary on the same terms.
    (4) Less than total indebtedness may be transferred to another 
eligible intermediary on different terms.
    (c) The transferor will prepare the transfer document for FmHA or 
its successor agency under Public Law 103-354's review prior to the 
transfer and assumption.
    (d) The transferee will provide FmHA or its successor agency under 
Public Law 103-354 with a copy of its latest financial statement and a 
copy of its annual financial statement for the past 3 years if 
available; its Federal Tax Identification number; organizational 
charter; minutes from the Board of Directors authorizing the 
transaction; certification of good standing from the Secretary of State 
or whatever regulatory agency oversees nonprofit corporations for that 
State or Commonwealth where the entity is headquartered; and any other 
information that FmHA or its successor agency under Public Law 103-354 
deems necessary for its review.
    (e) The assumption agreement will contain the FmHA or its successor 
agency under Public Law 103-354 case nunber of the transferor and 
transferee.
    (f) When the transferee makes a cash downpayment in connection with 
the transfer and assumption, any proceeds received by the transferor 
will be credited on the transferor's loan debt in inverse order of 
maturity.
    (g) The Administrator or designee will approve or decline all 
transfers and assumptions.



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

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



Sec. 1951.891  Liquidation; default.

    (a) In the event that FmHA or its successor agency under Public Law 
103-354 takes over the servicing of the ultimate recipient of an 
intermediary, those loans will be serviced by this regulation and in 
accordance with the contractual arrangement between the

[[Page 77]]

intermediary and the ultimate recipient. Should the FmHA or its 
successor agency under Public Law 103-354 determine that it is necessary 
or desirable to take action to protect or further the interests of FmHA 
or its successor agency under Public Law 103-354 in connection with any 
default or breach of conditions under any loan made hereunder, the FmHA 
or its successor agency under Public Law 103-354 may:
    (1) Declare that the loan is immediately due and payable.
    (2) Assign or sell at public or private sale, or otherwise dispose 
of for cash or credit at its discretion and upon such terms and 
conditions as FmHA or its successor agency under Public Law 103-354 
shall determine to be reasonable, any evidence of debt, contract, claim, 
personal or real property or security assigned to or held by the FmHA or 
its successor agency under Public Law 103-354 in connection with 
financial assistance extended hereunder.
    (3) Adjust interest rates, use fixed or variable rates, grant 
moratoriums on repayment of principal and interest, collect or 
compromise any obligations held by FmHA or its successor agency under 
Public Law 103-354 and take such actions in respect to such loans as are 
necessary or appropriate, consistent with the purpose of the program and 
this subpart. The Administrator will notify the FmHA or its successor 
agency under Public Law 103-354 Finance Office of any change in payment 
terms, such as reamortizations or interest rate adjustments, and 
effective dates of any changes resulting from servicing actions.
    (b) Failure by an ultimate recipient to comply with the provisions 
of these regulations and/or loan agreement shall constitute grounds for 
a declaration of default and the demand for immediate and full repayment 
of its loan.
    (c) Failure by an intermediary to comply with the provisions of 
these regulations or to relend funds in accordance with an approved work 
plan or loan agreement shall constitute grounds for a declaration of 
default and the demand for immediate and full repayment of the loan.
    (d) In the event of default, the intermediary will promptly be 
informed in writing of the consequences of failing to comply with loan 
covenant(s).
    (e) Protective advances to the intermediary will not be made in lieu 
of additional loans, in particular working capital loans. Protective 
advances are advances made by FmHA or its successor agency under Public 
Law 103-354 for the purpose of preserving and protecting the collateral 
where the intermediary has failed to and will not or cannot meet its 
obligations. The Administrator or designee must approve in writing all 
protective advances.
    (f) In the event of bankruptcy by the intermediary and/or ultimate 
recipient, FmHA or its successor agency under Public Law 103-354 is 
responsible for protecting the interests of the Government. All 
bankruptcy cases should be reported immediately to the Regional 
Attorney. The Administrator must approve in advance and in writing the 
estimated liquidation expenses on loans in liquidation backruptcy. These 
expenses must be considered by FmHA or its successor agency under Public 
Law 103-354 to be reasonable and customary.
    (g) Liquidation, management, and disposal of inventory property will 
be handled in accordance with subparts A, B, and C of part 1955 of this 
chapter.



Sec. Sec. 1951.892-1951.893  [Reserved]



Sec. 1951.894  Debt settlement.

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



Sec. 1951.895  [Reserved]



Sec. 1951.896  Appeals.

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



Sec. 1951.897  Exception authority.

    The Administrator may, in individual cases, grant an exception to 
any requirement or provision of this subpart which is not inconsistent 
with an

[[Page 78]]

applicable law or opinion of the Comptroller General, provided the 
Administrator determines that application of the requirement or 
provision would adversely affect the Government's interest. The basis 
for this exception will be fully documented. The documentation will: 
demonstrate the adverse impact; identify the particular requirement 
involved; and show how the adverse impact will be eliminated.



Sec. Sec. 1951.898-1951.899  [Reserved]



Sec. 1951.900  OMB control number.

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

----------------------------------------------------------------------------------------------------------------
                                                                                  Total      Est. No.     Est.
                                                    Estimated                     annual     of man-     total
     Sect. of          Title  (B)    Form No. (if     No. of     Report filed   responses    hrs. per   manhours
 regulations  (A)                      any)  (C)   respondents  annually  (E)   (d) x (e)    response  (f) x (g)
                                                        (D)                        (F)         (G)         (H)
----------------------------------------------------------------------------------------------------------------
Reporting Requirements--No Forms
----------------------------------------------------------------------------------------------------------------
1951.860(a)(3)(i)   Weighted         Written                12  1                       12        3.0         36
                     average
                     interest
                     calculation
1951.877(a)(7)(i)   Insurance        Assignment             36  On occasion            100        1.0        100
1951.882(a)         Intermediary     Meeting                36  1                       36        4.5        162
                     visitations
1951.882(b)         Audited          Written                36  1                       36         .5         18
                     financial
                     statement
1951.883(a)(2)(ii)  Program          Written
                     narrative
                    IRP borrower     ............           10  4                       40        4.0        160
                    RDLF borrower    ............           26  2                       52        4.0        208
1951.833(a)(2)(iii  Employment/      Written                36  1                       36        1.5         54
 )                   income
                     narrative
1951.883(a)(2)(iv)  Proposed budget  Written                36  1                       36        2.5         90
1951.883(c)         Intermediary's   Written                36  On occasion             50        1.0         50
                     report of
                     loans 90 days
                     in arrears
1951.889(c)         Assumption       Written                 2  1                        2        3.5          7
                     Agreement
1951.889(d)         Transferee       Written                 2  1                        2         .5          1
                     financial
                     statement
----------------------------------------------------------------------------------------------------------------
Form Approved with this Docket
----------------------------------------------------------------------------------------------------------------
1951.883(a)(2)      IRP Lending      1951-4
                     Activity
                     Report
                    IRP borrower     ............           10  4                       40         20        800
                    RDLF borrower    ............           26  2                       52         20       1040
----------------------------------------------------------------------------------------------------------------
Reporting Requirements Under Other Numbers
----------------------------------------------------------------------------------------------------------------
1951.872(b)         Request for      1940-20
                     Environmental    (0575-0094)
                     Information
                                                   ...........                      \1\494  .........   \2\2,726
----------------------------------------------------------------------------------------------------------------
\1\ Docket totals.
\2\ Total hours.



PART 1955_PROPERTY MANAGEMENT--Table of Contents




Subpart A_Liquidation of Loans Secured by Real Estate and Acquisition of 
                        Real and Chattel Property

Sec.
1955.1 Purpose.
1955.2 Policy.
1955.3 Definitions.
1955.4 Redelegation of authority.
1955.5 General actions.
1955.6-1955.8 [Reserved]
1955.9 Requirements for voluntary conveyance of real property located 
          within a federally recognized Indian reservation owned by a 
          Native American borrower-owner.
1955.10 Voluntary conveyance of real property by the borrower to the 
          Government.

[[Page 79]]

1955.11 Conveyance of property to FmHA or its successor agency under 
          Public Law 103-354 by trustee in bankruptcy.
1955.12 Acquisition of property which served as security for a loan 
          guaranteed by FmHA or its successor agency under Public Law 
          103-354 or at sale by another lienholder, bankruptcy trustee, 
          or taxing authority.
1955.13 Acquisition of property by exercise of Government redemption 
          rights.
1955.14 [Reserved]
1955.15 Foreclosure by the Government of loans secured by real estate.
1955.16-1955.17 [Reserved]
1955.18 Actions required after acquisition of property.
1955.19 [Reserved]
1955.20 Acquisition of chattel property.
1955.21 Exception authority.
1955.22 State supplements.
1955.23-1955.49 [Reserved]
1955.50 OMB control number.

Exhibits A-F to Subpart A [Reserved]

                    Subpart B_Management of Property

1955.51 Purpose.
1955.52 Policy.
1955.53 Definitions.
1955.54 Redelegation of authority.
1955.55 Taking abandoned real or chattel property into custody and 
          related actions.
1955.56 Real property located in Coastal Barrier Resources System 
          (CBRS).
1955.57 Real property containing underground storage tanks.
1955.58-1955.59 [Reserved]
1955.60 Inventory property subject to redemption by the borrower.
1955.61 Eviction of persons occupying inventory real property or 
          dispossession of persons in possession of chattel property.
1955.62 Removal and disposition of nonsecurity personal property from 
          inventory real property.
1955.63 Suitability determination.
1955.64 [Reserved]
1955.65 Management of inventory and/or custodial real property.
1955.66 Lease of real property.
1955.67-1955.71 [Reserved]
1955.72 Utilization of inventory housing by Federal Emergency Management 
          Agency (FEMA) or under a Memorandum of Understanding between 
          the Agency and the Department of Health and Human Services 
          (HHS) for transitional housing for the homeless.
1955.73-1955.80 [Reserved]
1955.81 Exception authority.
1955.82 State supplements.
1955.83-1955.99 [Reserved]
1955.100 OMB control number.

Exhibit A to Subpart B--Memorandum of Understanding Between the Federal 
          Emergency Management Agency and the Farmers Home 
          Administration or Its Successor Agency Under Public Law 103-
          354 [Note]
Exhibit B to Subpart B--Notification of Tribe of Availablity of Farm 
          Property for Purchase
Exhibit C to Subpart B--Cooperative Agreement (Example) [Note]
Exhibit D to Subpart B--Fact Sheet--The Federal Interagency Task Force 
          on Food and Shelter for the Homeless [Note]

                Subpart C_Disposal of Inventory Property

                              Introduction

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

   Consolidated Farm and Rural Development Act (CONACT) Real Property

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

                    Rural Housing (RH) Real Property

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

                            Chattel Property

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

           Use of Contractors To Dispose of Inventory Property

1955.127 Selection and use of contractors to dispose of inventory 
          property.
1955.128 Appraisers.
1955.129 Business brokers.

[[Page 80]]

1955.130 Real estate brokers.
1955.131 Auctioneers.

                                 General

1955.132 Pilot projects.
1955.133 Nondiscrimination.
1955.134 Loss, damage, or existing defects in inventory real property.
1955.135 Taxes on inventory real property.
1955.136 Environmental Assessment (EA) and Environmental Impact 
          Statement (EIS).
1955.137 Real property located in special areas or having special 
          characteristics.
1955.138 Property subject to redemption rights.
1955.139 Disposition of real property rights and title to real property.
1955.140 Sale in parcels.
1955.141 Transferring title.
1955.142-1955.143 [Reserved]
1955.144 Disposal of NP or surplus property to, through, or acquisition 
          from other agencies.
1955.145 Land acquisition to effect sale.
1955.146 Advertising.
1955.147 Sealed bid sales.
1955.148 Auction sales.
1955.149 Exception authority.
1955.150 State supplements.

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

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

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



Subpart A_Liquidation of Loans Secured by Real Estate and Acquisition of 
                        Real and Chattel Property



Sec. 1955.1  Purpose.

    This subpart delegates authority and prescribes procedures for the 
liquidation of loans to individuals and to organizations as identified 
in Sec. 1955.3 of this subpart. It pertains to the Multi-Family Housing 
(MFH) and Community Facility (CF) programs of the Rural Housing Service 
(RHS), and direct programs of the Rural Business-Cooperative Service 
(RBS). Guaranteed RBS loans are liquidated upon direction from the 
Deputy Administrator, Business Programs, RBS. This subpart does not 
apply to Farm Service Agency, Farm Loan Programs, to RHS single family 
housing loans, or to CF loans sold without insurance in the private 
sector. These CF loans will be serviced in the private sector, and 
future revisions to this subpart no longer apply to such loans. This 
subpart does not apply to the Rural Rental Housing, Rural Cooperative 
Housing, or Farm Labor Housing Programs of RHS. In addition, this 
subpart does not apply to Water and Waste Programs of the Rural 
Utilities Service, Watershed loans, and Resource Conservation and 
Development loans, which are serviced under part 1782 of this title.

[72 FR 55019, Sept. 28, 2007, as amended at 72 FR 64123, Nov. 15, 2007]



Sec. 1955.2  Policy.

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

[51 FR 4138, Feb. 3, 1986, as amended at 53 FR 27826, July 25, 1988; 58 
FR 52652, Oct. 12, 1993]



Sec. 1955.3  Definitions.

    As used in this subpart, the following definitions apply:
    Closing agent. An attorney or title insurance company which is 
approved as a loan closing agent in accordance with subpart B of part 
1927 of this chapter.
    CONACT or CONACT property. Property acquired or sold pursuant to the 
Consolidated Farm and Rural Development Act. Within this subpart, it 
shall also be construed to cover property which secured loans made 
pursuant to

[[Page 81]]

the Agriculture Credit Act of 1978; the Emergency Agricultural Credit 
Adjustment Act of 1978; the Emergency Agricultural Credit Act of 1984; 
the Food Security Act of 1985; and other statutes giving agricultural 
lending authority to FmHA or its successor agency under Public Law 103-
354.
    Farmer Programs loans. The term ``Farmer Program loans'' (FP) refers 
to the following types of loans: Farm Ownership (FO), Soil and Water 
(SW), Recreation (RL), Economic Opportunity (EO), Operating (OL), 
Emergency (EM), Economic Emergency (EE), Softwood Timber (ST), and Rural 
Housing Loans for farm service buildings (RHF).
    Government. The United States of America acting through the Farmers 
Home Administration or its successor agency under Public Law 103-354 
(FmHA or its successor agency under Public Law 103-354), U.S. Department 
of Agriculture; used interchangeably herein with ``FmHA or its successor 
agency under Public Law 103-354.''
    Homestead protection. The Farmer Programs borrower-owner's right to 
lease with an option to purchase the principal residence located on or 
off the farm and up to 10 acres of adjoining land possessed and occupied 
by the borrower-owner, including a reasonable number of farm 
outbuildings located on the adjoining land that are useful to the 
occupants of the homestead.
    Interest credit. The terms ``interest credit'' and ``interest credit 
assistance,'' as they relate to Single Family Housing (SFH) loans, are 
interchangeable with the term ``payment assistance.'' Payment assistance 
is the generic term for the subsidy provided to eligible SFH borrowers 
to reduce mortgage payments.
    Loans to individuals. Farm Ownership (FO), Soil and Water (SW), 
Recreation (RL), Special Livestock (SL), Economic Opportunity (EO), 
Operating (OL), Emergency (EM), Economic Emergency (EE), Softwood Timber 
(ST), and Rural Housing loans for farm service buildings (RHF), whether 
to individuals or entities, referred to in this subpart as Farmer 
Programs (FP) loans; and Land Conservation and Development (LCD); and 
Single-Family Housing (SFH), including both Section 502 and 504 loans.
    Loans to Native Americans. Farmer Program loans secured by real 
estate located within the boundaries of a federally recognized Indian 
reservation. The Native American borrower-owner is defined as the party 
who pledged real estate as collateral for an FP loan and is the tribe or 
a member of the tribe with control over the reservation.
    Loans to organizations. Community Facility (CF); Water and Waste 
Disposal (WWD); Association Recreation; Watershed (WS); Resource 
Conservation and Development (RC&D); insured Business and Industrial 
(B&I) both to individuals and groups; Rural Development Loan Fund 
(RDLF); Intermediary Relending Program (IRP); Nonprofit National 
Corporations (NNC); loans to associations for Irrigation and Drainage 
(I&D) and other Soil and Water conservation measures; loans to Indian 
Tribes and Tribal Corporations; Shift-In-Land Use (Grazing Association); 
Economic Opportunity Cooperative (EOC); Rural Housing Site (RHS); Rural 
Cooperative Housing (RCH); Rural Rental Housing (RRH) and Labor Housing 
(LH) to both individuals and groups. The housing-type organization loans 
identified here are referred to in this subpart collectively as 
Multiple-family Housing (MFH) loans.
    Market value. The most probable price which property should bring, 
as of a specific date, in a competitive and open market, assuming the 
buyer and seller are prudent and knowledgeable, and the price is not 
affected by undue stimulus such as forced sale or loan interest subsidy.
    Nonrecoverable cost is a contractual or noncontractual program loan 
cost expense not chargeable to a borrower, property account, or part of 
the loan subsidy.
    OGC. The Office of the General Counsel, U.S. Department of 
Agriculture; refers to the Regional Attorney or Attorney-in-Charge in an 
OGC field office unless otherwise indicated.
    Prior lien. A security instrument (such as a mortgage or deed of 
trust) or a judgment which was of public record before the FmHA or its 
successor agency under Public Law 103-354 security instrument(s) as well 
as real estate

[[Page 82]]

taxes or assessments which are or will become a lien against the 
property which is superior to FmHA or its successor agency under Public 
Law 103-354's security instrument(s).
    Recoverable cost is a contractual or noncontractual program loan 
cost expense chargeable to a borrower, property account, or part of the 
loan subsidy.
    Servicing official. For loans to individuals as defined in paragraph 
(d) of this section, the servicing official is the County Supervisor. 
For insured B&I loans, the servicing official is the State Director. For 
RDLF and IRP, the servicing official is the Director, Business and 
Industry Division. For NNC, the servicing official is the Director, 
Community Facility Division. For all other types of loans, the servicing 
official is the District Director.

[50 FR 23904, June 7, 1985, as amended at 50 FR 45782, Nov. 1, 1985; 52 
FR 26138, July 13, 1987; 53 FR 27826, July 25, 1988; 53 FR 30664, Aug. 
15, 1988; 53 FR 35762, Sept. 14, 1988; 56 FR 15821, Apr. 18, 1991; 56 FR 
29402, June 27, 1991; 56 FR 67484, Dec. 31, 1991; 58 FR 68723, Dec. 29, 
1993; 60 FR 55147, Oct. 27, 1995; 62 FR 44395, Aug. 21, 1997; 63 FR 
41716, Aug. 5, 1998]



Sec. 1955.4  Redelegation of authority.

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

[53 FR 27826, July 25, 1988, as amended at 54 FR 6875, Feb. 15, 1989; 59 
FR 43441, Aug. 24, 1994; 62 FR 44395, Aug. 21, 1997]



Sec. 1955.5  General actions.

    (a) Assignment of notes to FmHA or its successor agency under Public 
Law 103-354. When liquidation action is approved and the insured note is 
not held in the County or District Office, the approval official will 
request the Finance Office to purchase the note and forward it to the 
appropriate office. Voluntary conveyance may be closed pending receipt 
of the note(s), and foreclosure may also be processed pending receipt of 
the note(s), unless the original note is required in connection with the 
foreclosure action.
    (b) Execution of documents. (1) After liquidation of loans to 
individuals has been approved by the appropriate official, the County 
Supervisor is authorized to execute all necessary forms and documents 
except notices of acceleration required to complete transactions covered 
by this subpart.

[[Page 83]]

    (2) After liquidation of loans to organizations has been approved by 
the appropriate official, the District Director is authorized to execute 
all forms and documents for completion of the liquidation except:
    (i) Notice of acceleration; or
    (ii) Other form or document which specifically required State or 
National Office approval because of monetary limits or policy statement 
established elsewhere in this subpart.
    (c) Unused loan funds. (1) Funds remaining in a supervised bank 
account will be handed in accordance with Sec. 1902.15 of subpart A of 
part 1902 of this chapter before a voluntary conveyance or foreclosure 
is processed.
    (2) Funds remaining in a construction or other account will be 
applied to the borrower's FmHA or its successor agency under Public Law 
103-354 accounts.
    (d) Payment of costs. Costs related to liquidation of a loan or 
acquisition of property will be paid according to FmHA or its successor 
agency under Public Law 103-354 Instruction 2024-A (available in any 
FmHA or its successor agency under Public Law 103-354 office) as either 
a recoverable or nonrecoverable cost as defined in Sec. 1955.3 of this 
subpart.
    (e) Escrow funds. Any funds remaining in the borrower's escrow 
account at the time of liquidation by voluntary conveyance or 
foreclosure are nonrefundable and will be credited to the borrower's 
loan account.

[50 FR 23904, June 7, 1985, as amended at 56 FR 6953, Feb. 21, 1991, 57 
FR 36590, Aug. 14, 1992]



Sec. Sec. 1955.6-1955.8  [Reserved]



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

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

[[Page 84]]

    (B) The assumed loan shall be for the lesser of the outstanding 
principal and interest of the loan or the fair market value of the 
property as determined by an appraisal.
    (C) The assumed loan shall be treated as though it is a regular 
Indian Land Acquisition Loan made in accordance with subpart N of part 
1823 of this chapter.
    (3) If a Native American borrower-owner does not voluntarily convey 
the real property to FSA, not less than 30 days before a foreclosure 
sale of the property, FSA will provide written notice to the Indian 
tribe that has jurisdiction over the reservation in which the real 
property is located of the following:
    (i) The sale;
    (ii) The fair market value of the property; and
    (iii) The ability of the Native American borrower-owner to require 
the assignment of the loan and security instruments either to the 
Secretary of the Interior or the tribe (and the consequences of either 
action) as provided in Sec. 1955.9(c)(2).
    (4) FSA will accept the offer of voluntary conveyance of the 
property unless a hazardous substance, as defined in the Comprehensive 
Environmental Response, Compensation, and Liability Act of 1980, is 
located on the property which will require FSA to take remedial action 
to protect human health or the environment if the property is taken into 
inventory. In this case, a voluntary conveyance will be accepted only if 
FSA determines that it is in the best interests of the Government to 
acquire title to the property.
    (d) When determining whether to accept a voluntary conveyance of a 
Native American borrower-owner's real property, the county official must 
consider:
    (1) The cost of cleaning or mitigating the effects if a hazardous 
substance is found on the property. A deduction equal to the amount of 
the cost of a hazardous waste clean-up will be made to the fair market 
value of the property to determine if it is in the best interest of the 
Government to accept title to the property. FSA will accept the property 
if clear title can be obtained and if the value of the property after 
removal of hazardous substances exceeds the cost of hazardous waste 
clean-up.
    (2) If the property is located within the boundaries of a federally 
recognized Indian reservation, and is owned by a member of the tribe 
with jurisdiction over the reservation, FSA will credit the Native 
American borrower-owner's account based on the fair market value of the 
property or the FSA debt against the property, whichever is greater.

[62 FR 44395, Aug. 21, 1997]



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

    Voluntary conveyance is a method of liquidation by which title to 
security is transferred to the Government. FmHA or its successor agency 
under Public Law 103-354 will not make a demand on a borrower to 
voluntarily convey. If there is equity in the property. FmHA or its 
successor agency under Public Law 103-354 should advise the borrower, in 
writing, that there is equity in the property before accepting an offer 
to voluntarily convey. If FmHA or its successor agency under Public Law 
103-354 receives an offer of voluntary conveyance, acceptance should 
only be considered when the Government will likely receive a recovery on 
its investment. In cases where there are outstanding liens, a full 
assessment should be made of the debts against the property compared to 
the current market value. FmHA or its successor agency under Public Law 
103-354 should refuse the voluntary conveyance, if the FmHA or its 
successor agency under Public Law 103-354 lien has neither present nor 
prospective value or recovery of the value would be unlikely or 
uneconomical. Instead, for loans to individuals, FmHA or its successor 
agency under Public Law 103-354 should release its lien as valueless in 
accordance with Sec. 1965.25(d) of subpart A of part 1965 of this 
chapter or Sec. 1965.118(c) of subpart C of this chapter, as 
appropriate. For non-FP borrowers, a voluntary conveyance should only be 
considered after all available servicing actions outlined in the 
respective servicing regulations have been used or considered and it is 
determined that the borrower will not be

[[Page 85]]

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

[[Page 86]]

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

[[Page 87]]

budget and/or financial statement and, if necessary to discover 
suspected undisclosed assets, a search of public records, only when the 
value of the security property may be less than the debt.
    (4) For organization borrowers, a duly-adopted Resolution by the 
governing body authorizing the conveyance and certified by the attesting 
official with the corporate seal affixed. The Resolution will indicate 
which officials are authorized to execute the offer to convey and the 
deed on behalf of the borrower. If shareholder approval is necessary, 
the Resolution will specifically recite that shareholder approval has 
been obtained.
    (5) If water rights, mineral rights, development rights, or other 
use rights are not fully covered in the deed, the advice of OGC will be 
obtained and appropriate documents to transfer rights to the Government 
will be obtained before the voluntary conveyance is accepted. The 
documents will be recorded, if necessary, in connection with closing the 
conveyance.
    (6) If property is under lease, an assignment of the lease to the 
Government will be obtained with the effective date being the date the 
voluntary conveyance is closed. If an oral lease is in force, it will be 
reduced to writing and assigned to the Government.
    (7) The borrower may be required to provide a title insurance policy 
or a final title opinion from a designated attorney when the State 
Director determines it is necessary to protect the Government's 
interest. Such title insurance policy or final title opinion will show 
title vested to the Government subject only to exceptions and liens 
approved by the County Supervisor.
    (8) Farmer program loan borrowers who voluntarily convey after 
receiving the appropriate loan servicing notice(s) contained in the 
attachments of exhibit A of subpart S of part 1951 of this chapter, must 
properly complete and return the acknowledgement form sent with the 
notice.
    (9) For MFH loans, assignment of Housing Assistance Payments (HAP) 
Contracts will be obtained. Rental Assistance will be retained until the 
State Director is advised by OGC that the Agency has title to the 
property. After a voluntary conveyance, the Agency may transfer Rental 
Assistance in accordance with 7 CFR part 3560, subpart F.
    (e) Appraisal of property. After an offer of voluntary conveyance, 
but before acceptance by FmHA or its successor agency under Public Law 
103-354, an appraisal of the property will be made to establish the 
current market value of the property. If a qualified FmHA or its 
successor agency under Public Law 103-354 appraiser is not available to 
appraise property securing a loan other than MFH, the State Director may 
obtain an appraisal from a qualified appraiser outside FmHA or its 
successor agency under Public Law 103-354 in accordance with FmHA or its 
successor agency under Public Law 103-354 Instruction 2024-A (available 
in any FmHA or its successor agency under Public Law 103-354 office). 
For property securing MFH, prior authorization must be obtained by the 
Assistant Administrator, Housing, to secure an appraisal from a source 
outside FmHA or its successor agency under Public Law 103-354. For 
property securing FP loan(s), the contract appraiser must complete the 
appraisal in accordance with Sec. 761.7 of this title for FP property, 
or subpart C of part 1922 for Single Family Housing property. Also, the 
appraiser must meet at least one of the following qualifications:
    (1) Certification by a National or State Appraisal Society.
    (2) If a certified appraiser is not available, the appraiser may be 
one who meets the criteria for certification in a National or State 
Appraisal Society.
    (3) The appraiser has recent, relevant documented appraisal 
experience or training, or other factors clearly establishing the 
appraiser's qualifications.
    (f) Processing offer to convey security and acceptance by FmHA or 
its successor agency under Public Law 103-354. If a borrower has both 
SFH and other type loans, the portion of this paragraph dealing with the 
loan(s) other than SFH will be followed.
    (1) SFH loans. FmHA or its successor agency under Public Law 103-354 
does not solicit or encourage conveyance of

[[Page 88]]

SFH security property to the Government and will consider a borrower's 
offer to convey by deed in lieu of foreclosure only after the debt is 
accelerated and when it is in the Government's interest. Upon receipt of 
an offer to convey, the servicing official will remind the borrower of 
provisions for voluntary liquidation under 7 CFR part 3550,and the 
consequences of a conveyance by deed in lieu of foreclosure as follows: 
All costs related to the conveyance which FmHA or its successor agency 
under Public Law 103-354 pays will be added to the debt; a credit equal 
to the market value of the property, as determined by FmHA or its 
successor agency under Public Law 103-354, less prior liens, will be 
applied to the debt; and if the credit does not satisfy the debt, the 
borrower will not automatically be released of liability. The 
unsatisfied debt, after acceleration under Sec. 1955.10(h)(5) of this 
subpart, may be settled according to subpart B of part 1956 of this 
chapter; however, a deficiency judgment will not be pursued when the 
borrower was granted a moratorium if the borrower faithfully tried to 
meet loan obligations. The conveyance is processed as follows:
    (i) Before accepting the offer, the County Supervisor will transmit 
the deed to a closing agent requesting a title search covering the 
period of time since the latest title opinion in the case file. The same 
agent who closed the loan should be used, if possible; otherwise one 
will be selected from the approved list of closing agents, taking care 
that cases are distributed fairly among approved agents. The closing 
agent may be instructed that the County Supervisor considers the 
voluntary conveyance offer conditionally approved, and the closing agent 
may record the deed after the title search if there are no liens against 
the property other than:
    (A) The FmHA or its successor agency under Public Law 103-354 
lien(s);
    (B) Prior liens when FmHA or its successor agency under Public Law 
103-354 has advised the closing agent that title will be taken subject 
to the prior lien(s) or has told the closing agent that the prior 
lien(s) will be handled in accordance with Sec. 1955.10(c)(1) of this 
subpart; and/or
    (C) Real estate taxes and/or assessments which must be paid when 
title to the property is transferred.
    (ii) If junior liens are discovered, the closing agent will be 
requested to provide FmHA or its successor agency under Public Law 103-
354 with the lienholder's name, amount of lien, date recorded, and the 
recording information (recording office, book and page), return the 
unrecorded deed to FmHA or its successor agency under Public Law 103-
354, and await further instructions from FmHA or its successor agency 
under Public Law 103-354. In such cases, the County Supervisor will 
proceed in accordance with Sec. 1955.10(c)(2) of this subpart. If 
agreement has been reached with the lienholder(s) for settling the 
junior lien(s) in order to accept the conveyance, the deed will be 
returned to the closing agent for a title update and recording.
    (iii) The closing agent will be requested to provide a certification 
of title to FmHA or its successor agency under Public Law 103-354 after 
recordation of the deed. A certification of title in a statement that 
fee title is vested in the Government subject only to the FmHA or its 
successor agency under Public Law 103-354 lien(s) and prior liens 
previously approved by FmHA or its successor agency under Public Law 
103-354. After receipt of the certification of title, the County 
Supervisor will notify the borrower that the conveyance has been 
accepted in accordance with Sec. 1955.10(g) of this subpart.
    (2) Consolidated Farm and Rural Development Act (CONACT) loans to 
individuals. If the Agency indebtedness plus any prior liens exceeds the 
market value of the property, the indebtedness cannot be satisfied but a 
credit can be given equal to the market value less prior liens. Debt 
settlement will be considered in accordance with subpart B of part 1956 
of this chapter.
    (i) Crediting accounts. The Agency will credit an account by an 
amount equal to the market value less prior liens, unless the borrower 
is Native American. Native American borrower-owners will be credited 
with the fair market value or the Agency debt against the property, 
whichever is greater, provided:

[[Page 89]]

    (A) The borrower-owner is a member of a tribe or the tribe, and
    (B) The property is located within the confines of a federally 
recognized Indian reservation.
    (ii) Agency approval. The same procedure outlined in paragraphs 
(f)(1)(i) through (f)(1)(iii) of this section will be followed for 
approving the voluntary conveyance. The conveyance will be accepted in 
full satisfaction of the indebtedness unless the market value of the 
property to be conveyed is less than the total of Government 
indebtedness and prior liens, and the borrower has agreed to accept a 
credit in the amount of the market value of the security property less 
prior liens, if any.
    (3) Loans to organizations. When an offer of voluntary conveyance is 
received from an organization borrower, and the market value of the 
property being conveyed (less prior liens, if any) is less than the 
Government debt, full consideration must be given to the borrower's 
present situation and future prospects for paying all or a part of the 
debt.
    (g) Closing of conveyance. (1) The conveyance to the Government will 
be considered closed when the recorded deed has been returned to FmHA or 
its successor agency under Public Law 103-354, a certification of title 
is received from the closing agent that title is vested in the 
Government with no outstanding encumbrances other than the FmHA or its 
successor agency under Public Law 103-354 lien(s) or previously approved 
prior liens, and the borrower is notified of the acceptance of the 
conveyance. For loans to organizations, OGC will be requested to review 
the case to verify that it was closed properly. The property will be 
assigned an ID number and entered into the Acquired Property Tracking 
System through the Automated Discrepancy Processing System (ADPS) 
terminal in the County Office.
    (2) When costs incident to the completion of the transaction are to 
be paid by the Government, the servicing official will prepare and 
process the necessary documents as outlined in Sec. 1955.5(d) of this 
subpart and the costs will be charged to the borrower's account as 
recoverable costs. This includes taxes and assessments, water charges 
which protect the right to receive water, other liens, closing agent's 
fee, and any other costs related to the conveyance.
    (h) Actions to be taken after closing conveyance. (1) When the FmHA 
or its successor agency under Public Law 103-354 account is satisfied, 
the note(s) will be stamped ``Satisfied by Surrender of Security and 
Borrower Released from Liability,'' and the statement must be signed by 
the servicing official.
    (2) When the FmHA or its successor agency under Public Law 103-354 
account is not satisfied and the borrower is not released from 
liability, the note(s) will be retained by FmHA or its successor agency 
under Public Law 103-354.
    (3) The servicing official will release the lien(s) of record, 
indicating that the debt was satisfied by surrender of security or that 
the lien is released but the debt not satisfied, whichever is 
applicable. If the lien is to be released but the debt not satisfied, 
OGC will provide the type of instrument required to comply with 
applicable State laws.
    (4) After release of the lien(s), the servicing official will return 
the following to the borrower:
    (i) If borrower is released from liability, the satisfied note(s) 
and a copy of Form FmHA or its successor agency under Public Law 103-354 
1955-1 showing acceptance by the Government; or
    (ii) If borrower is not released from liability, a copy of Form FmHA 
or its successor agency under Public Law 103-354 1955-1 showing 
acceptance by the Government.
    (5) When the FmHA or its successor agency under Public Law 103-354 
account is not satisfied and the borrower not released from liability, 
the account balance, after deducting the ``as is'' market value and 
prior liens, if any, will be accelerated utilizing exhibit F of this 
subpart (available in any FmHA or its successor agency under Public Law 
103-354 office).
    (6) For MFH loans, the State Director will cancel any interest 
credit and suspend any rental assistance. These actions will be 
accomplished by notifying the Finance Office unit which handles MFH 
accounts. In the interm

[[Page 90]]

the tenants will continue rental payments in accordance with their 
lease. Tenants will be informed of the pending liquidation action and 
the possible consequences of the action. If the project is to be removed 
from the Rural Development program, a minimum of 180 days' notice to the 
tenants is required. Letters of Priority Entitlement must be made 
available to any tenants that will be displaced.
    (7) Actions outlined in Sec. 1955.18 of this subpart will be taken, 
as applicable.

[50 FR 23904, June 7, 1985, as amended at 50 FR 45782, Nov. 1, 1985; 69 
FR 69105, Nov. 26, 2004]



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

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

[50 FR 23904, June 7, 1985, as amended at 53 FR 27827, July 25, 1988]



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

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



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

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

[[Page 91]]

the Government's right of redemption under Federal law (28 U.S.C. 2410) 
may be waived without consideration. If a State law right of redemption 
exists and may be sold, it will not be disposed of for less than its 
value.

[53 FR 35762, Sept. 14, 1988]



Sec. 1955.14  [Reserved]



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

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

[[Page 92]]

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

[[Page 93]]

under Public Law 103-354 Office), as appropriate, to be signed by the 
official who approved the foreclosure. The accounts of borrowers with 
pending Chapter 12 and 13 cases which have not been discharged will be 
accelerated in accordance with instructions from OGC. Upon OGC approval, 
accounts of these borrowers may be accelerated using a notice 
substantially similar to exhibit D of this subpart. Loans secured by 
chattels must be accelerated at the same time as loans secured by real 
estate in accordance with Sec. 1965.26 (c) of subpart A of part 1965 of 
this chapter. The notice will be sent by certified mail, return receipt 
requested, to each obligor individually, addressed to the last known 
address. If different from the property address and/or the address the 
Finance Office uses, a copy of the notice will also be mailed to the 
property address and the address currently used by the Finance Office. 
(In chattel liquidation cases which have been referred for civil action 
under subpart A of part 1962 of this chapter, the Finance Office will be 
sent a copy of exhibits D, E, or E-1 (available in any FmHA or its 
successor agency under Public Law 103-354 office) as applicable. County 
Office and Finance Office loan records will be adjusted to mature the 
entire debt in such cases). If a signed receipt for at least one of 
these acceleration notices sent by certified mail is received, no 
further notice is required. If no receipt is received, a copy of the 
acceleration notice will be sent by regular mail to each address to 
which the certified notices were sent. This type mailing will be 
documented in the file. A State Supplement may be issued if OGC advises 
different or additional language or format is required to comply with 
State laws or if notice and mailing instructions are different from that 
outlined in this paragraph. A conformed copy of the acceleration notice 
will be forwarded to the servicing official. Farmer Program appeals will 
be concluded before acceleration. For MFH loans, a copy of the 
acceleration letter will also be forwarded to the National Office, ATTN: 
MFH Servicing and Property Management Division, for monitoring purposes. 
Accounts may be accelerated as follows:
    (i) Where monetary default is involved, the account may be 
accelerated immediately after approval of foreclosure.
    (ii) Where monetary default is not involved, the account will not be 
accelerated until the concurrence of OGC is obtained.
    (iii) If borrower obtained the loan while a civilian, entered 
military service after the loan was closed, the FmHA or its successor 
agency under Public Law 103-354 has not obtained a waiver of rights 
under the Soldiers and Sailors Relief Act, the account will not be 
accelerated until OGC has reviewed the case and given instructions.
    (iv) If the decision is made to liquidate the farm loan(s) of a 
borrower who also has a SFH loan(s), and the dwelling was used as 
security for the farm loan(s) it will not be necessary to meet the 
requirements of 7 CFR part 3550 prior to accelerating the account. 
Except that, if the borrower is in default on his/her farm loan(s), the 
SFH account must have been considered for interest credit and/or 
moratorium at the time servicing options are being considered for the FP 
loan(s) prior to acceleration. If it is later determined the FP loan(s) 
are to receive additional servicing in lieu of liquidation, the RH loan 
will be reinstated simultaneously with the FP servicing actions and may 
be reamortized in accordance with 7 CFR part 3550. Accounts of a 
borrower who has both Farmer Program and SFH loan(s) may be accelerated 
as follows:
    (A) When the borrower's dwelling is financed with an SFH loan(s) is 
secured by and located on the same farm real estate as the Farmer 
Program loan(s) (dwelling located on the farm), the SFH loan(s) will be 
serviced in accordance with Sec. 1965.26(c)(1) of subpart A of part 
1965 of this chapter.
    (B) When the borrower's dwelling is financed with an SFH loan(s) and 
is located on a nonfarm tract which also serves as additional security 
for the Farmer Program loan(s), the loans(s) will be serviced in 
accordance with Sec. 1965.26 (c)(2) of subpart A of part 1965 of this 
chapter.
    (C) When the borrower's dwelling is financed with an SFH loan(s) and 
is on a non-farm tract which does not serve

[[Page 94]]

as additional security for the Farmer Program loan(s), it will NOT be 
accelerated simultaneously with sending out attachments 5 and 6, or 5-A 
and 6-A, or attachment 9 and 10, or 9-A and 10-A, of exhibit A of 
subpart S of part 1951 of this chapter, as applicable, unless it is 
subject to liquidation based on provisions of 7 CFR part 3550, taking 
into consideration the prospects for success that may evolve when the 
borrower's livelihood is from a source other than the farming operation. 
If the SFH loan is in default and subject to liquidation based on 
provisions of 7 CFR part 3550, the SFH loan(s) must be accelerated at 
the same time the borrower is sent attachment 5 and 6, or 5-A and 6-A, 
or attachments 9 and 10, or 9-A and 10-A, to exhibit A of subpart S of 
part 1951 of this chapter, as applicable. For those borrowers who are in 
non-monetary default on their Farmer Programs loans and fail to return 
attachment 4 of exhibit A of subpart S of part 1951 of this chapter, the 
Farmer Programs loans and SFH loans will be accelerated at the same 
time. If the borrower appeals, one appeal hearing and one review will be 
held for both adverse actions.
    (D) If a borrower's FP loan(s) were accelerated prior to May 7, 
1987, and the SFH loan(s) is not accelerated, the SFH loan will be 
accelerated at the same time the borrower is sent attachments 5 and 6, 
or 5-A and 6-A, or attachments 7 and 8 to exhibit A of subpart S of 1951 
of this chapter, as applicable, unless the requirements of Sec. 1965.26 
of subpart A of part 1965 of this chapter are met or the liquidation of 
the SFH loan is based on provisions of 7 CFR part 3550. If the borrower 
is sent attachments 5 and 6, or 5-A and 6-A to exhibit A of subpart S of 
1951 of this chapter, as applicable, and requests an appeal, one hearing 
and one review will be held for both the adverse action on the FP loan 
restructuring request and SFH acceleration notices. If the borrower is 
sent attachments 7 and 8 to exhibit A of subpart S of 1951 of this 
chapter, there are no further appeals on the FP loans; but, the borrower 
is entitled to a hearing and a review on the SFH acceleration notice.
    (v) For MFH loans, the acceleration notice will advise the borrower 
of all applicable prepayment requirements, in accordance with 7 CFR part 
3560, subpart N. The requirements include the application of 
restrictive-use provisions to loans made on or after December 21, 1979, 
prepaid in response to acceleration notices and all tenant and agency 
notifications. The acceleration notice will also remind borrowers that 
rent levels cannot be raised during the acceleration without FmHA or its 
successor agency under Public Law 103-354 approval, even after subsidies 
are canceled or suspended. Tenants are to be notified of the status of 
the project and of possible consequences of these actions. If the 
borrower wishes to prepay the project in response to the acceleration 
and FmHA or its successor agency under Public Law 103-354 makes a 
determination that the housing is no longer needed, a minimum of 180 
days' notice to tenants is required before the project can be removed 
from the FmHA or its successor agency under Public Law 103-354 program. 
Letters of Priority Entitlement must be made available.
    (3) Offers by borrowers after acceleration of account--(i) Farmers 
Programs (FP) accelerations. This category also includes non-FP loans to 
the same borrower which have been accelerated as part of the same 
action. After the account is accelerated, the borrower will have 30 days 
from the date of the acceleration notice to make payment in full to stop 
the acceleration, unless State or tribal law requires that the 
foreclosure be withdrawn if the account is brought current and a State 
supplement is issued to specify the requirement.
    (A) Payment in full [see exhibit D of this subpart (available in any 
FmHA or its successor agency under Public Law 103-354 office)] may 
consist of the following means of fully satisfying the debt.
    (1) Cash.
    (2) Transfer and assumption.
    (3) Sale of property.
    (4) Voluntary conveyance.
    (B) Payments which do not pay the account in full can be accepted 
subject to the following requirements:
    (1) Payments will be accepted if there is no remaining security for 
the debt (real estate and chattel).

[[Page 95]]

    (2) If the borrower is in the process of selling security or 
nonsecurity, payments may be accepted unless State law would require the 
acceleration to be reversed. In States where payments cannot be accepted 
unless the acceleration is reversed, the payments will not be accepted. 
A State supplement will be issued to address State law on accepting 
payments after acceleration.
    (3) If payments are mistakenly credited to the borrower's account, 
no waiver or prejudice to any rights which the United States may have 
for breach of any promissory note or convenant in the real estate 
instruments will result. Disposition of such payments will be made after 
consulting OGC.
    (4) The servicing official will notify the approval official of any 
other offer. This includes a request by the borrower for an extension of 
time to accomplish voluntary liquidation or a proposal to cure the 
default(s). In all other cases, the approval official will decide 
whether an offer from a borrower will be accepted and servicing of the 
loan reinstated or whether foreclosure will be delayed to give the 
borrower additional time to voluntarily liquidate as authorized in 
servicing regulations for the type loan(s) involved. If an offer is 
received after the case has been referred to OGC, the approval official 
will consult OGC before accepting or rejecting the offer. The denial of 
an offer to stop foreclosure is not appealable. In all cases, the 
approval official will notify the servicing official of the decision 
made.
    (ii) All other accelerations. After the account is accelerated, loan 
servicing ceases. For example, for SFH loans, the renewal or granting of 
interest credit or a moratorium is not authorized. The servicing 
official will accept no payment for less than the unpaid loan balance, 
unless State law requires that foreclosure be withdrawn if the account 
is brought current and a State supplement is issued to specify this 
requirement. If payments are mistakenly accepted and credited to the 
borrower's account, no waiver or prejudice to any rights which the 
United States may have for breach of any promissory note or covenants in 
the real estate instruments will result. Disposition of such payments 
will be made after consultation with OGC. The servicing official will 
notify the approval official of any offer received from the borrower. 
This includes a request by the borrower for an extension of time to 
accomplish voluntary liquidation or a written proposal to cure the 
default(s). The receipt of a payment with no proposal to cure the 
defaults is not considered a viable offer, and such payments will be 
returned to the borrower. The approval official will decide whether an 
offer from a borrower will be accepted and servicing of the loan 
reinstated or whether foreclosure will be delayed to give the borrower 
additional time to voluntarily liquidate as authorized in servicing 
regulations for the type loan involved. If an offer is received after 
the case has been referred to OGC, the approval official will consult 
OGC before accepting or rejecting the offer. The denial of an offer to 
stop foreclosure is not appealable. In all cases, the approval official 
will notify the servicing official of the decision made. For MFH loans, 
the National Office will be notified when foreclosure is withdrawn. When 
an account is reinstated under this section, the servicing official will 
grant or reinstate assistance for which the borrower qualifies, such as 
interest credit on an SFH loan. When granting interest credit in such a 
case:
    (A) If an interest credit agreement expired after the account was 
accelerated, the effective date will be the date the previous agreement 
expired.
    (B) If an interest credit agreement was not in effect when the 
account was accelerated, the effective date will be the date foreclosure 
action was withdrawn.
    (C) For MFH loans with rental assistance, after acceleration and 
after any appeal or review has been concluded, rental assistance will be 
suspended if foreclosure is to continue. If the account is reinstated, 
the rental assistance will be reinstated retroactively to the date of 
suspension. In the interim, the tenants will continue rental payments in 
accordance with their leases, and all rental rates and lease renewals 
and provisions will be continued as if acceleration had not taken place.

[[Page 96]]

    (4) Statement of account. If a statement of account is required for 
foreclosure proceedings, Form FmHA or its successor agency under Public 
Law 103-354 451-10, ``Request for Statement of Account,'' will be 
processed in accordance with the FMI. When an official statement of 
account is not required, account balances and recapture information may 
be obtained from the field office terminal.
    (5) Appeals. All appeals will be handled pursuant to subpart B of 
part 1900 of this chapter. Foreclosure actions will be held in abeyance 
while an appeal is pending. No case will be referred to OGC for 
processing of foreclosure until a borrower's appeal and appeal review 
have been concluded, or until the time has elapsed during which an 
appeal or a request for review may be made. In Farmer Programs cases, 
(except graduation cases under subpart F of part 1951 of this chapter), 
the borrower must have received the appropriate notices and 
consideration for primary loan servicing per subpart S of part 1951 of 
this chapter. Any Farmer Programs cases may be accelerated after all 
primary loan servicing options have been considered and all related 
appeals concluded, but will not be submitted to OGC for foreclosure 
action until all appeals related to any preservation rights have been 
concluded.
    (6) Petition in bankruptcy filed by borrower after acceleration of 
account.(i) When bankruptcy is filed after an account has been 
accelerated, any foreclosure action initiated by FmHA or its successor 
agency under Public Law 103-354 must be suspended until:
    (A) The bankruptcy case is dismissed or closed (a discharge of 
debtor does not close the case);
    (B) An Order lifting the automatic stay is obtained from the 
Bankruptcy Court; or
    (C) The property is no longer property of the bankruptcy estate and 
the borrower has received a discharge.
    (ii) The State Director will request the assistance of OGC in 
obtaining the Order(s) described in paragraph (c)(6)(i)(B) of this 
section.
    (e) Referral of case. If the borrower fails to satisfy the account 
during the period of time specified in the acceleration notice, and no 
appeal is pending, the foreclosure process will continue:
    (1) If the District Director is the approval official, he/she will 
forward the case file with all pertinent documents and information 
concerning the foreclosure action and appeal, if any, to the State 
Director for completion of the foreclosure.
    (2) If the State Director is the approval official, or in cases 
referred by the District Director under paragraph (e)(1) of this 
section, the State Director will forward to OGC the case file and all 
documents needed by OGC to process the foreclosure. A State Supplement 
will be issued, with the advice and assistanced of OGC, to reflect the 
make-up of the foreclosure docket. Since foreclosure processing varies 
widely from State to State, each State Supplement will be explicit in 
outlining step-by-step procedures. At the time indicated by OGC in the 
foreclosure instructions, Form FmHA or its successor agency under Public 
Law 103-354 1951-6, ``Borrower Account Description Flag,'' will be 
processed in accordance with the FMI. After referral to OGC, further 
actions will be in accordance with OGC's instructions for completion of 
the foreclosure. If prior approval of the Administrator is obtained, 
nonjudicial foreclosure for monetary default may be handled as outlined 
in a State Supplement approved by OGC without referral to OGC before 
foreclosure.
    (f) Completion of foreclosure--(1) Foreclosure advertisement for 
organization loans subject to title VI of the Civil Rights Act of 
1964.(i) The advertisement for foreclosure sale of property subject to 
title VI of the Civil Rights Act of 1964 will contain a statement 
substantially similar to the following: ``The property described herein 
was purchased or improved with Federal financial assistance and is 
subject to the nondiscrimination provisions of title VI of the Civil 
Rights Act of 1964, section 504 of the Rehabilitation Act of 1973 and 
other similarly worded Federal statutes and regulations issued pursuant 
thereto that prohibit discrimination on the basis of race, color, 
national origin, handicap, religion, age or sex in programs or 
activities receiving Federal financial assistance, for as long as the

[[Page 97]]

property continues to be used for the same or similar purposes for which 
the Federal assistance was extended or for so long as the purchaser owns 
it, whichever is later.'' At least 30 days before the foreclosure sale, 
the County Supervisor will notify, in writing, the Indian tribe which 
has jurisdiction over the reservation, and in which the real property is 
owned by a Native American member of said tribe that a foreclosure sale 
will be conducted to resolve this account, and will provide:
    (A) Projected sale date and location;
    (B) Fair market value of property;
    (C) Amount FmHA or its successor agency under Public Law 103-354 
will bid on the property; and
    (D) Amount of FmHA or its successor agency under Public Law 103-354 
debt against the property.
    (ii) The purchaser will be required to sign Form FmHA or its 
successor agency under Public Law 103-354 400-4, ``Assurance 
Agreement,'' if the property will be used for its original or similar 
purposes.
    (2) Restrictive-use provisions for MFH loans. For MFH loans, the 
advertisement will state the restrictive-use provisions which will be 
included in any deed used to transfer title.
    (3) Expenses. Expenses which are incurred in connection with 
foreclosure, including legal fees, will be paid at the time recommended 
by OGC by processing the necessary documents as outlined in Sec. 1955.5 
(d) of this subpart. Costs will be charged as outlined in FmHA or its 
successor agency under Public Law 103-354 Instruction 2024-A (available 
in any FmHA or its successor agency under Public Law 103-354 office).
    (4) Notice of judgment. In states with judicial foreclosure, as soon 
as the foreclosure judgment is obtained, Form FmHA or its successor 
agency under Public Law 103-354 1962-20, ``Notice of Judgment,'' will be 
processed in accordance with the FMI. This will establish a judgment 
account to accrue interest at the rate stated in the judgment order so 
that an accurate account balance can be obtained for calculating the 
Government's foreclosure bid.
    (5) Gross investment. The gross investment is the sum of the 
following:
    (i) The unpaid balance of one of the following, as applicable:
    (A) In States with nonjudicial foreclosure, the borrower's FmHA or 
its successor agency under Public Law 103-354 account balance reflecting 
secured loan(s) and advances; and where State law permits, unsecured 
debts; or
    (B) In States with judicial foreclosure, the judgment account 
established as a result of the foreclosure judgment in favor of FmHA or 
its successor agency under Public Law 103-354.
    (ii) All recoverable costs charged (or to be charged) to the 
borrower's account in connection with the foreclosure action and other 
costs which OGC advises must be paid from proceeds of the sale before 
paying the FmHA or its successor agency under Public Law 103-354 secured 
debt, including but not limited to payment of real estate taxes and 
assessments, prior liens, legal fees including U.S. Attorney's and U.S. 
Marshal's, and management fees; and
    (iii) If a SFH loan subject to recapture of interest credit is 
involved, the total amount of subsidy granted and principal reduction 
attributed to subsidy.
    (6) Amount of Government's bid. Except for FP loans and as modified 
by paragraph (f)(7)(ii) of this section, the Government's bid will be 
the amount of FmHA or its successor agency under Public Law 103-354's 
gross investment or the market value of the security, whichever is less. 
For real property located within the confines of a federally recognized 
Indian reservation and which is owned by an FmHA or its successor agency 
under Public Law 103-354 borrower who is a member of the tribe with 
jurisdiction over the reservation, the Government's bid will be the 
greater of the fair market value or the FmHA or its successor agency 
under Public Law 103-354 debt against the property, unless FmHA or its 
successor agency under Public Law 103-354 determines that, because of 
the presence of hazardous substances on the property, it is not in the 
best interest of the Government to bid such amount, in which case there 
may be a deduction from the bid for the costs for hazardous material 
assessment and/or mitigation. For FP

[[Page 98]]

loans, except as modified by paragraph (f)(7)(ii) of this section, the 
Government's bid will be the amount of FmHA or its successor agency 
under Public Law 103-354's gross investment or the amount determined by 
use of exhibit G-1 of this subpart, whichever is less. When the 
foreclosure sale is imminent, the State Director must request the 
servicing official to submit a current appraisal (in existing condition) 
as a basis for determining the Government's bid. Except for MFH 
properties, if an FmHA or its successor agency under Public Law 103-354 
appraiser is not available, the State Director may authorize an 
appraisal to be obtained by contract from a source outside FmHA or its 
successor agency under Public Law 103-354 in accordance with FmHA or its 
successor agency under Public Law 103-354 Instruction 2024-A (available 
in any FmHA or its successor agency under Public Law 103-354 office). 
For MFH properties, prior approval of the Assistant Administrator, 
Housing, is necessary to procure an outside appraisal.
    (7) Bidding. The State Director will designate an individual to bid 
on behalf of the Government unless judicial proceedings or State 
nonjudicial foreclosure law provides for someone other than an FmHA or 
its successor agency under Public Law 103-354 employee to enter the 
Government's bid. When the State Director determines attendance of an 
FmHA or its successor agency under Public Law 103-354 employee at the 
sale might pose physical danger, a written bid may be submitted to the 
Marshal, Sheriff, or other party in charge of holding the sale. The 
Government's bid will be entered when no other party makes a bid or when 
the last bid will result in the property being sold for less than the 
bid authorized in paragraph (f)(6) of this section.
    (i) When FmHA or its successor agency under Public Law 103-354 is 
the senior lienholder, only one bid will be entered, and that will be 
for the amount authorized by the State Director.
    (ii) When FmHA or its successor agency under Public Law 103-354 is 
not the senior lienholder and OGC advises that the borrower has no 
redemption rights or if a deficiency judgment will be obtained, the 
State Director may authorize the person who will bid for the Government 
to make incremental bids in competition with other bidders. If 
incremental bidding is desired, the State Director's instructions to the 
bidder will state the initial bid, bidding increments, and the maximum 
bid.
    (g) Reports on sale and finalizing foreclosure. Immediately after a 
foreclosure sale at which the State Director has designated a person to 
bid on behalf of the Government, the servicing official will furnish the 
State Director a report on the sale. The State Director will forward a 
copy of this report to OGC and, for MFH loans, to the National Office. 
Based on OGC's instructions, a State supplement will provide a detailed 
outline of actions necessary to complete the foreclosure.

[50 FR 23904, June 7, 1985]

    Editorial Note: For Federal Register citations affecting Sec. 
1955.15, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec. Sec. 1955.16-1955.17  [Reserved]



Sec. 1955.18  Actions required after acquisition of property.

    The approval official may employ the services of local designated 
attorneys, of a case by case basis, to process all legal procedures 
necessary to clear the title of foreclosure properties. Such attorneys 
shall be compensated at not more than their usual and customary charges 
for such work. Contracting for such attorneys shall be accomplished 
pursuant to the Federal acquisition regulations and related procurement 
regulations and guidance.
    (a)-(d) [Reserved]
    (e) Credit to the borrower's account or foreclosure judgment 
account--(1) For SFH accounts. When FmHA or its successor agency under 
Public Law 103-354 acquired the property, the account will be satisfied 
unless:
    (i) In a voluntary conveyance case where the debt exceeds the market 
value of the property and the borrower is not released from liability, 
in which case the account credit will be the market value (less 
outstanding liens if any); or

[[Page 99]]

    (ii) In a foreclosure where the bid is less than the account balance 
and a deficiency judgment will be sought for the difference, in which 
case the account credit will be the amount of FmHA or its successor 
agency under Public Law 103-354's bid.
    (2) For all types of accounts other than SFH. When FmHA or its 
successor agency under Public Law 103-354 acquired the property, the 
account credit will be as follows:
    (i) In a voluntary conveyance case:
    (A) Where the market value of the property equals or exceeds the 
debt or where the borrower is released from liability for any 
difference, the account will be satisfied.
    (B) Where the debt exceeds the market value of the property and the 
borrower is not released from liability, the account credit will be the 
market value (less outstanding liens, if any).
    (ii) In a foreclosure, the account credit will be the amount of FmHA 
or its successor agency under Public Law 103-354's bid except when 
incremental bidding as provided for in Sec. 1955.15(f)(7)(ii) of this 
subpart was used, in which case the account credit will be the maximum 
bid that was authorized by the State Director.
    (3) For all types of accounts when FmHA or its successor agency 
under Public Law 103-354 did not acquire the property. The sale proceeds 
will be handled in accordance with applicable State laws with the advice 
and assistance of OGC, including remittance of funds, application of the 
borrower's account credit, and disbursement of any funds in excess of 
the amount due FmHA or its successor agency under Public Law 103-354.
    (4) In cases where FmHA or its successor agency under Public Law 
103-354 acquired security property by means other than voluntary 
conveyance or foreclosure. In these cases, such as conveyance by a 
bankruptcy trustee or by Court Order, the account credit will be as 
follows:
    (i) If the market value of the acquired property equals or exceeds 
the debt, the account will be satisfied.
    (ii) If the debt exceeds the market value of the acquired property, 
the account credit will be the market value.
    (f)-(l) [Reserved]

[50 FR 23904, June 7, 1985, as amended at 52 FR 41957, Nov. 2, 1987; 53 
FR 27827, July 25, 1988; 53 FR 35764 Sept. 14, 1988; 55 FR 35295, Aug. 
29, 1990; 56 FR 10147, Mar. 11, 1991; 56 FR 29402, June 27, 1991; 58 FR 
38927, July 21, 1993; 58 FR 68725, Dec. 29, 1993; 60 FR 34455, July 3, 
1995]



Sec. 1955.19  [Reserved]



Sec. 1955.20  Acquisition of chattel property.

    Every effort will be made to avoid acquiring chattel property by 
having the borrower or FmHA or its successor agency under Public Law 
103-354 liquidate the property according to Subpart A of Part 1962 of 
this chapter and apply the proceeds to the borrower's account(s). 
Methods of acquisition authorized are:
    (a) Purchase at the following types of sale: (1) Execution sale 
conducted by the U.S. Marshal, sheriff or other party acting under Court 
order to satisfy judgment liens.
    (2) FmHA or its successor agency under Public Law 103-354 
foreclosure sale conducted by the U.S. Marshal or sheriff in States 
where a State Supplement provides for sales to be conducted by them.
    (3) Sale by trustee in bankruptcy.
    (4) Public sale by prior lienholder.
    (5) Public sale conducted under the terms of Form FmHA or its 
successor agency under Public Law 103-354 455-4, ``Agreement for 
Voluntary Liquidation of Chattel Security,'' the power of sale in 
security agreements or crop and chattel mortgage, or similar instrument, 
if authorized by State Supplement.
    (b) Voluntary conveyance. Voluntary conveyance of chattels will be 
accepted only when the borrower can convey ownership free of other liens 
and the borrower can be released from liability under the conditions set 
forth in Sec. 1955.10(f)(2) of this subpart. Payment of other 
lienholders' debts by FmHA or its successor agency under Public Law 103-
354 in order to accept voluntary conveyance of chattels is not 
authorized. Before a voluntary conveyance from a Farmer Program loan 
borrower can be accepted, the borrower must be sent Exhibit A with 
Attachments 1 and

[[Page 100]]

2 of Subpart S of Part 1951 of this chapter.
    (1) Offer. The borrower's offer of voluntary conveyance will be made 
on Form FmHA or its successor agency under Public Law 103-354 1955-1. If 
it is determined the conveyance offer can be accepted, the borrower will 
execute a bill of sale itemizing each item of chattel property being 
conveyed and will provide titles to vehicles or other equipment, where 
applicable.
    (2) Acceptance of offer release from liability. Before accepting an 
offer to convey chattels to FmHA or its successor agency under Public 
Law 103-354, the concurrence of the State Director must be obtained. 
When chattel security is voluntarily conveyed to the Government and the 
borrower and cosigner(s), if any, are to be released from liability, the 
servicing official will stamp the note(s) ``Satisfied by Surrender of 
Security and Borrower Released from Liability.'' When the Agency debt 
less the market value and prior liens is $1 million or more (including 
principal, interest and other charges), release of liability must be 
approved by the Administrator or designee; otherwise, the State Director 
must approve the release of liability. All cases requiring a release of 
liability will be submitted in accordance with Exhibit A of Subpart B of 
Part 1956 of this chapter (available in any FmHA or its successor agency 
under Public Law 103-354 office). Form FmHA or its successor agency 
under Public Law 103-354 1955-1 will be executed by the servicing 
official showing acceptance by the Government, and the satisfied note(s) 
and a copy of Form FmHA or its successor agency under Public Law 103-354 
1955-1 will be furnished to the borrower.
    (3) Release of lien(s). When an offer has been accepted as outlined 
in paragraph (b)(2) of this section, the servicing official will release 
any liens of record which secured the satisfied indebtedness.
    (4) Rejection of offer. If it is determined an offer of voluntary 
conveyance will not be accepted, the servicing official will indicate on 
Form FmHA or its successor agency under Public Law 103-354 1955-1 that 
the offer is rejected, execute the form, and furnish a copy to the 
borrower.
    (c) Attending sales. The servicing official will:
    (1) Attend all sales described in paragraph (a)(5) of this section 
unless an exception is authorized by the State Director because of 
physical danger to the FmHA or its successor agency under Public Law 
103-354 employee or adverse publicity would be likely.
    (2) Attend public sales by prior lienholders when the market value 
of the chattel property is significantly more than the amount of the 
prior lien(s).
    (3) Obtain the advice of the State Director on attending sales 
described in paragraphs (a) (1), (2), and (3) of this section.
    (d) Appraising chattel property. Prior to the sale, the servicing 
official will appraise chattel property using Form FmHA or its successor 
agency under Public Law 103-354 440-21, ``Appraisal of Chattel 
Property.'' If a qualified appraiser is not available to appraise 
chattel property, the State Director may obtain an appraisal from a 
qualified source outside FmHA or its successor agency under Public Law 
103-354 by contract in accordance with FmHA or its successor agency 
under Public Law 103-354 Instruction 2024-A (available in any FmHA or 
its successor agency under Public Law 103-354 office).
    (e) Abandonment of security interest. The State Director may 
authorize abandonment of the Government's security interest when chattel 
property, considering costs of moving or rehabilitation, has no market 
value and obtaining title would not be in the best interest of the 
Government.
    (f) Bidding at sale. (1) The servicing official is authorized to bid 
at sales described in paragraph (a) of this section. Ordinarily, only 
one bid will be made on items of chattel security unless the State 
Director authorizes incremental bidding. Bids will be made only when no 
other party bids or when it appears bidding will stop and the property 
will be sold for less than the amount of the Government's authorized 
bid. When the State Director determines attendance of an FmHA or its 
successor agency under Public Law 103-354 employee

[[Page 101]]

might pose physical danger, a written bid may be submitted to the party 
holding the sale. The bid(s) will be the lesser of:
    (i) The market value of the item(s) less the estimated costs 
involved in the acquisition, care, and sale of the item(s) of security; 
or
    (ii) The unpaid balance of the borrower's secured FmHA or its 
successor agency under Public Law 103-354 debt plus prior liens, if any.
    (2) Bids will not be made in the following situations unless 
authorized by the State Director:
    (i) When chattel property under prior lien has a market value which 
is not significantly more than the amount owed the prior lienholder. If 
FmHA or its successor agency under Public Law 103-354 holds a junior 
lien on several items of chattel property, advice should be obtained 
from the State Director on bidding.
    (ii) After sufficient chattel property has been bid in by FmHA or 
its successor agency under Public Law 103-354 to satisfy the FmHA or its 
successor agency under Public Law 103-354 debt; prior liens, and cost of 
the sale.
    (iii) When the sale is being conducted by a lienholder junior to 
FmHA or its successor agency under Public Law 103-354.
    (iv) At a private sale.
    (v) When the sale is being conducted under the terms of Form FmHA or 
its successor agency under Public Law 103-354 455-3, ``Agreement for 
Sale by Borrower (Chattels and/or Real Estate)''.
    (g) Payment of costs. Costs to be paid by FmHA or its successor 
agency under Public Law 103-354 in connection with acquisition of 
chattel property will be paid as outlined in Sec. 1955.5(d) of this 
subpart as recoverable costs.

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

    (h) Reporting acquisition of chattel property. Acquisition of 
chattel property will be reported by use of Form FmHA or its successor 
agency under Public Law 103-354 1955-3 prepared and distributed in 
accordance with the FMI.

[50 FR 23904, June 7, 1985, as amended at 50 FR 45783, Nov. 1, 1985; 51 
FR 45433, Dec. 18, 1986; 53 FR 27828 July 25, 1988; 53 FR 35764, Sept. 
14, 1988; 60 FR 28320, May 31, 1995]



Sec. 1955.21  Exception authority.

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



Sec. 1955.22  State supplements.

    State Supplements will be prepared with the assistance of OGC as 
necessary to comply with State laws or only as specifically authorized 
in this regulation to provide guidance to FmHA or its successor agency 
under Public Law 103-354 officials. State supplements will be submitted 
to the National Office for post approval in accordance with FmHA or its 
successor agency under Public Law 103-354 Instruction 2006-B (available 
in any FmHA or its successor agency under Public Law 103-354 office).



Sec. Sec. 1955.23-1955.49  [Reserved]



Sec. 1955.50  OMB control number.

    The collection of information requirements contained in this 
regulation have been approved by the Office of Management and Budget 
(OMB) and

[[Page 102]]

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

[57 FR 1372, Jan. 14, 1992]



         Sec. Exhibits A-F to Subpart A of Part 1955 [Reserved]



                    Subpart B_Management of Property

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



Sec. 1955.51  Purpose.

    This subpart delegates authority and prescribes policies and 
procedures for the Rural Housing Service (RHS), Rural Business-
Cooperative Service (RBS)and herein referred to as ``Agency.'' This 
subpart does not apply to Farm Service Agency, Farm Loan Programs, or to 
RHS single family housing loans or community program loans sold without 
insurance to the private sector. These community program loans will be 
serviced by the private sector, and future revisions to this subpart no 
longer apply to such loans. This subpart does not apply to the Rural 
Rental Housing, Rural Cooperative Housing, or Farm Labor Housing Program 
of RHS. In addition, this subpart does not apply to Water and Waste 
Programs of the Rural Utilities Service, Watershed loans, and Resource 
Conservation and Development loans, which are serviced under part 1782 
of this title. This subpart covers:
    (a) Management of real property which has been taken into custody by 
the respective Agency after abandonment by the borrower;
    (b) Management of real and chattel property which is in Agency 
inventory; and
    (c) Management of real and chattel property which is security for a 
guaranteed loan liquidated by an Agency (or which the Agency is in the 
process of liquidating).

[61 FR 59778, Nov. 22, 1996, as amended at 69 FR 69106, Nov. 26, 2004; 
72 FR 55019, Sept. 28, 2007; 72 FR 64123, Nov. 15, 2007]



Sec. 1955.52  Policy.

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



Sec. 1955.53  Definitions.

    As used in this subpart, the following definitions apply:
    CONACT or CONACT property. Property acquired or sold pursuant to the 
Consolidated Farm and Rural Development Act (CONACT). Within this 
subpart, it shall also be construed to cover property which secured 
loans made pursuant to the Agriculture Credit Act of 1978; the Emergency 
Agricultural Credit Adjustment Act of 1978; the Emergency Agricultural 
Credit Act of 1984; the Food Security Act of 1985; and other statutes 
giving agricultural lending authority to FmHA or its successor agency 
under Public Law 103-354.
    Contracting Officer (CO). CO means a person with the authority to 
enter into, administer, and/or terminate contracts and make related 
determinations and findings. The term includes authorized 
representatives of the CO

[[Page 103]]

acting within the limits of their authority as delegated by the CO.
    Custodial property. Borrower-owned real property and improvements 
which serve as security for an FmHA or its successor agency under Public 
Law 103-354 loan, have been abandoned by the borrower, and of which FmHA 
or its successor agency under Public Law 103-354 has taken possession.
    Farmer program loans. This includes Farm Ownership (FO), Soil and 
Water (SW), Recreation (RL), Economic Opportunity (EO), Operating (OL), 
Emergency (EM), Economic Emergency (EE), Special Livestock (SL), 
Softwood Timber (ST) loans, and Rural Housing loans for farm service 
buildings (RHF).
    Government. The United States of America, acting through the FmHA or 
its successor agency under Public Law 103-354, U.S. Department of 
Agriculture.
    Indian reservation. All land located within the limits of any Indian 
reservation under the jurisdiction of the United States notwithstanding 
the issuance of any patent, and including rights-of-way running through 
the reservation; trust or restricted land located within the boundaries 
of a former reservation of a federally recognized Indian tribe in the 
State of Oklahoma; or all Indian allotments the Indian titles to which 
have not been extinguished if such allotments are subject to the 
jurisdiction of a federally recognized Indian tribe.
    Inventory property. Real and chattel property and related rights to 
which the Government has acquired title.
    Loans to individuals. Farmer Program loans, as defined above, 
whether to individuals or entities; Land Conservation and Development 
(LCD); and Single-Family Housing (SFH), including both Sections 502 and 
504 loans.
    Loans to organizations. Community Facility (CF), Water and Waste 
Disposal (WWD), Association Recreation, Watershed (WS), Resource 
Conservation and Development (RC&D), loans to associations for 
Irrigation and Drainage and other Soil and Water Conservation measures, 
loans to Indian Tribes and Tribal Corporations, Shift-in-Land-Use 
(Grazing Associations) Business and Industrial (B&I) to both individuals 
and groups, Rural Development Loan Fund (RDLF), Intermediary Relending 
Program (IRP), Nonprofit National Corporation (NNC), Economic 
Opportunity Cooperative (EOC), Rural Housing Site (RHS), Rural 
Cooperative Housing (RCH), and Rural Rental Housing (RRH) and Labor 
Housing (LH) to both individuals and groups. The housing-type loans 
identified here are referred to in this subpart collectively as MFH 
loans.
    Nonprogram (NP) property. SFH and MFH property acquired pursuant to 
the Housing Act of 1949, as amended, that cannot be used by a borrower 
to effectively carry out the objectives of the respective loan program; 
for example, a dwelling that cannot be feasibly repaired to meet the 
requirements for existing housing as described in 7 CFR part 3550. It 
may contain a structure which would meet program standards; however, is 
so remotely located it would not serve as an adequate residential unit 
or an older house which is excessively expensive to heat and/or maintain 
for a very-low or low-income homeowner.
    Nonrecoverable cost is a contractual or noncontractual program loan 
cost expense not chargeable to a borrower, property account, or part of 
the loan subsidy.
    Office of the General Counsel (OGC). The OGC, U.S. Department of 
Agriculture, refers to the Regional Attorney or Attorney-in-Charge in an 
OGC field office unless otherwise indicated.
    Program property. SFH and MFH inventory property that can be used to 
effectively carry out the objectives of their respective loan programs 
with financing through that program. Inventory property located in an 
area where the designation has been changed from rural to nonrural will 
be considered as if it were still in a rural area.
    Recoverable cost is a contractual or noncontractual program loan 
expense chargeable to a borrower, property account, or part of the loan 
subsidy.
    Servicing official. For loans to individuals as defined in this 
section, the servicing official is the County Supervisor. For insured 
B&I loans, the servicing official is the State Director. For Rural 
Development Loan Fund and Intermediary Relending Program loans, the

[[Page 104]]

servicing official is the Director, Business and Industry Division. For 
Nonprofit National Corporations loans, the servicing official is 
Director, Community Facility Division. For all other types of loans, the 
servicing official is the District Director.
    Suitable property. For FSA inventory property, real property that 
can be used for agricultural purposes, including those farm properties 
that may be used as a start up or add-on parcel of farmland. It also 
includes a residence or other off-farm site that could be used as a 
basis for a farming operation. For agencies other than FSA, real 
property that could be used to carry out the objectives of the Agency's 
loan program with financing provided through that program.
    Surplus property. For FSA inventory property, real property that 
cannot be used for agricultural purposes including nonfarm properties. 
For other agencies, property that cannot be used to carry out the 
objectives of financing available through the applicable loan program.

[53 FR 35765, Sept. 14, 1988, as amended at 56 FR 29402, June 27, 1991; 
57 FR 19525, 19528, May 7, 1992; 58 FR 58648, Nov. 3, 1993; 62 FR 44396, 
Aug. 21, 1997; 63 FR 41716, Aug. 5, 1998; 67 FR 78329, Dec. 24, 2002]



Sec. 1955.54  Redelegation of authority.

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



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

    (a) Determination of abandonment. (Multi-family housing type loans 
will be handled in accordance with 7 CFR part 3560, subpart J.) When it 
appears a borrower has abandoned security property, the servicing 
official shall make a diligent attempt to locate the borrower to 
determine what the borrower's intentions are concerning the property. 
This includes making inquiries of neighbors, checking with the Postal 
Service, utility companies, employer(s), if known, and schools, if the 
borrower has children, to see if the borrower's whereabouts can be 
determined and an address obtained. A State supplement may be issued if 
necessary to further define ``abandonment'' based on State law. If the 
borrower is not occupying or is not in possession of the property but 
has it listed for sale with a real estate broker or has made other 
arrangements for its care or sale, it will not be considered abandoned 
so long as it is adequately secured and maintained. Except for borrowers 
with Farmers Program loans, if the borrower has made no effort to sell 
the property and can be located, an opportunity to voluntarily convey 
the property to the Government will be offered the borrower in 
accordance with Sec. 1955.10 of Subpart A of this part. In farmer 
program cases, borrowers must receive Attachments 1 and 2 of Exhibit A 
of Subpart S of Part 1951 of this chapter and any appeal must be 
concluded before any adverse action can be taken. The County Supervisor 
will send

[[Page 105]]

these forms to the borrower's last known address as soon as it is 
determined that the borrower has abandoned security property.
    (b) Taking security property into FmHA or its successor agency under 
Public Law 103-354 custody. When security property is determined to be 
abandoned, the running record in the borrower's file will be fully 
documented with the facts substantiating the determination of 
abandonment, and the servicing official shall proceed as follows without 
delay:
    (1) For loans to individuals (except those with Farmer Program 
loans), if there are no prior liens, or if a prior lienholder will not 
take the measures necessary to protect the property, the County 
Supervisor shall take custody of the property, and a problem case report 
will be prepared recommending foreclosure in accordance with Sec. 
1955.15 of Subpart A of this part, unless the borrower can be located 
and voluntary liquidation accomplished. Farmer Program loan borrowers 
will be sent the forms listed in paragraph (a) of this section and the 
provisions of Sec. 1965.26 of Subpart A of Part 1965 of this chapter 
will be followed.
    (2) For MFH loans, if there are no prior liens, the District 
Director will immediately notify the State Director, who will request 
guidance from OGC and may also request advice from the National Office. 
The State Director, with the advice of OGC, will advise the borrower by 
writing a letter, certified mail, return receipt requested, at the 
address currently used by Finance Office, outlining proposed actions by 
FmHA or its successor agency under Public Law 103-354 to secure, 
maintain, and operate the project.
    (i) If the unpaid loan balance plus recoverable costs do not exceed 
the State Director's loan approval authority, the State Director will 
authorize the District Director to take custody of the property, make 
emergency repairs if necessary to protect the Government's interest, and 
will advise how the property is to be managed in accordance with 7 CFR 
part 3560.
    (ii) If the unpaid loan balance plus recoverable costs exceeds the 
State Director's loan approval authority, the State Director will refer 
the case to the National Office for advice on emergency actions to be 
taken. The docket will be forwarded to the National Office with detailed 
recommendations for immediate review and authorization for further 
action, if requested by the MFH staff.
    (iii) Costs incurred in connection with procurement of such things 
as management services will be handled in accordance with FmHA or its 
successor agency under Public Law 103-354 Instruction 2024-A (available 
in any FmHA or its successor agency under Public Law 103-354 office).
    (iv) The District Director will prepare a problem case report to 
initiate foreclosure in accordance with Sec. 1955.15 of Subpart A of 
this part and submit the report to the State Director along with a 
proposed plan for managing the project while liquidation is pending.
    (3) For organization loans other than MFH, if there are no prior 
liens, the District Director will immediately notify the State Director 
that the property has been abandoned and recommend action which should 
be taken to protect the Government's interest. After obtaining the 
advice of OGC and the appropriate staff in the National Office, the 
State Director may authorize the District Director to take custody of 
the property and give instructions for immediate actions to be taken as 
necessary. The District Director will prepare a Report on Servicing 
Action (Exhibit A of Subpart E of Part 1951 of this chapter) 
recommending that foreclosure be initiated in accordance with Sec. 
1955.15 of Subpart A of this part and submit the report to the State 
Director, along with a proposed plan for management and/or operation of 
the project while liquidation is pending.
    (c) Protecting custodial property. The FmHA or its successor agency 
under Public Law 103-354 official who takes custody of abandoned 
property shall take the actions necessary to secure, maintain, preserve, 
lease, manage, or operate the property.
    (1) Nonsecurity personal property on premises. If a property has 
been abandoned by a borrower who left nonsecurity personal property on 
the premises, the personal property will not be removed and disposed of 
before the real

[[Page 106]]

property is acquired by the Government. If the premises are in a 
condition which presents a fire, health or safety hazard, but also 
contains items of value, only the trash and debris presenting the hazard 
will be removed. The servicing official may request advice from the 
State Director as necessary. The servicing official shall check for 
liens on nonsecurity personal property left on abandoned premises. If 
there is a known lienholder(s), the lienholder(s) will be notified by 
certified mail, return receipt requested, that the borrower has 
abandoned the property and that FmHA or its successor agency under 
Public Law 103-354 has taken the real property into custody.
    Actions by FmHA or its successor agency under Public Law 103-354 
must not damage or jeopardize livestock, growing crops, stored 
agricultural products, or any other personal property which is not FmHA 
or its successor agency under Public Law 103-354 security.
    (2) Repairs to custodial property. Repairs to custodial property 
will be limited to those which are essential to prevent further 
deterioration of the property. Expenditures in excess of an aggregate of 
$1,000 per property must have prior approval of the state Director.
    (d) Emergency advances where liquidation is pending. Although 
security property may not be defined as abandoned in accordance with 
paragraph (a) of this section, if the borrower is not occupying the 
property and refuses or is unable to protect the security property, the 
servicing official is authorized to make expenditures necessary to 
protect the Government's interest. This would include, but is not 
limited to, securing or winterizing the property or making emergency 
repairs to prevent deterioration. Expenditures will be handled in 
accordance with paragraph (e) of this section. Situations where this 
authority may be used include, but are not limited to, where a borrower 
has a sale pending or when a voluntary conveyance is in process.
    (e) Income and costs. Income received from the property will be 
applied to the borrower's account as an extra payment. Expenditures will 
be charged to the borrower's account as a recoverable cost.
    (f) Off-site procurements. Circumstances may require off-site 
procurement action(s) to be taken by FmHA or its successor agency under 
Public Law 103-354 to protect custodial, security or inventory property 
from damage or destruction and/or protect the Government's investment in 
the property. Such procurements may include, but are not limited to 
construction or reconstruction of roads, sewers, drainage work or 
utility lines. This type work may be accomplished either through FmHA or 
its successor agency under Public Law 103-354 procurement or cooperative 
agreement. However, if FmHA or its successor agency under Public Law 
103-354 is obtaining a service or product for itself only, it must be a 
procurement and any such actions will be in accordance with FmHA or its 
successor agency under Public Law 103-354 Instruction 2024-A (available 
in any FmHA or its successor agency under Public Law 103-354 office). 
Funding will come from the appropriate insurance fund.
    (1) Conditions for procurement. Such expenditures may be made only 
when all of the following conditions are met:
    (i) A determination is made that failure to procure work would 
likely result in a property loss greater than the expenditure;
    (ii) There are no other feasible means (including cooperative 
agreements) to accomplish the same result;
    (iii) The recovery of such advance(s) is not authorized by security 
instruments in the case of security or custodial property (no such 
limitation exists for inventory property);
    (iv) Written documentation supporting subparagraphs (i), (ii) and 
(iii) has been obtained from the authorized program official;
    (v) Approval has been obtained from the appropriate Assistant 
Administrator.
    (2) Direct procurement action. Where direct procurement action is 
contemplated, an opinion must be obtained from the Regional Attorney 
that:

[[Page 107]]

    (i) FmHA or its successor agency under Public Law 103-354 has the 
authority to enter the off-site property to accomplish the contemplated 
work, or
    (ii) A specific legal entity has authority to grant an easement 
(right-of-way) to FmHA or its successor agency under Public Law 103-354 
for the contemplated work and such an easement, in a form approved by 
the Regional Attorney, has been obtained.
    (3) Cooperative agreements. Cooperative agreements between FmHA or 
its successor agency under Public Law 103-354 and other entities may be 
made to accomplish the requirement where the principal purpose is to 
provide money, property, services or items of value to state or local 
governments or other recipients to accomplish a public purpose. Exhibit 
C of this subpart (available in any FmHA or its successor agency under 
Public Law 103-354 office) is an example of a typical cooperative 
agreement. A USDA handbook providing detailed guidance for all parties 
is available from the USDA--Office of Operations and Finance. Although 
cooperative agreements are not a contracting action, the authority, 
responsibility and administration of these agreements will be handled 
consistent with contracting actions.
    (4) Consideration of maintenance agreements. Maintenance 
requirements must be considered in evaluating the economic benefits of 
off-site procurements. Where feasible, arrangements or agreements should 
be made with state, local governments or other entities to ensure 
continued maintenance by dedication or acceptance, letter agreements, or 
other applicable statutes.

[53 FR 35765, Sept. 14, 1988, as amended at 54 FR 20521, May 12, 1989; 
57 FR 36591, Aug. 14, 1992; 68 FR 61331, Oct. 28, 2003; 69 FR 69106, 
Nov. 26, 2004]



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

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



Sec. 1955.57  Real property containing underground storage tanks.

    Within 30 days of acquisition of real property into inventory, FmHA 
or its successor agency under Public Law 103-354 must report certain 
underground

[[Page 108]]

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



Sec. Sec. 1955.58-1955.59  [Reserved]



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

    If inventory property is subject to redemption rights, the State 
Director, with prior approval of OGC, will issue a State Supplement 
giving guidance concerning the former borrower's rights, whether or not 
the property may be

[[Page 109]]

leased or sold by the Government, payment of taxes, maintenance, and any 
other items OGC deems necessary to comply with State laws. Routine care 
and maintenance will be provided according to Sec. 1955.64 of this 
subpart to preserve and protect the property. Repairs are limited to 
those essential to prevent further deterioration of the property or to 
remove a health or safety hazard to the community in accordance with 
Sec. 1955.64(a) of this subpart unless State law permits full recovery 
of cost of repairs in which case usual policy on repairs is applicable. 
If the former borrower with redemption rights has possession of the 
property or has a right to lease proceeds, FmHA or its successor agency 
under Public Law 103-354 will not rent the property until the redemption 
period has expired unless the State Director obtains prior authorization 
from OGC. Further guidance on sale subject to redemption rights is set 
forth in Sec. 1955.138 of Subpart C of this part.

[54 FR 20522, May 12, 1989]



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

    Advice and assistance will be obtained from OGC where eviction from 
realty or dispossession of chattel property is necessary. Where OGC has 
given written authorization, eviction may be effected through State 
courts rather than Federal courts when the former borrower is involved, 
or through local courts instead of Federal/State courts when the party 
occupying/possessing the FmHA or its successor agency under Public Law 
103-354 property is not the former borrower. In those cases, a State 
Supplement will be issued to provide explicit instructions. For MFH, 
eviction of tenants will be handled in accordance with 7 CFR part 3560, 
subpart D and with the terms of the tenant's lease. If no written lease 
exists, the State Director will obtain advice from OGC.

[54 FR 20522, May 12, 1989, as amended at 69 FR 69106, Nov. 26, 2004]



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

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

[[Page 110]]

the FmHA or its successor agency under Public Law 103-354 file.
    (b) Disposal of unclaimed personal property. If the property is not 
removed by the former borrower or a lienholder after notification as 
outlined in paragraphs (a)(1) and (a)(2) of this section, the servicing 
official shall list the items with clear description, estimated value, 
and indication of which are covered by a lien, if any, and submit the 
list to the State Director with a request for authorization to have the 
items removed and disposed of. Based on advice from OGC, the State 
Director will give authorization and provide instructions for removal 
and disposal of the personal property. If approved by OGC, the property 
may be disposed of as follows:
    (1) If a reasonable amount can likely be realized by the agency from 
sale of the personal property, it may be sold at public sale. Items 
under lien will be sold first and the proceeds up to the amount of the 
lien paid to the lienholders less a pro rata share of the sale expenses. 
Proceeds from sale of items not under lien and proceeds in excess of the 
amount due a lienholder will be remitted and applied in the following 
order:
    (i) To the inventory account up to the amount of expenses incurred 
by the Government in connection with sale of the personal property (such 
as advertising and auctioneer, if used).
    (ii) To an unsatisfied balance on the FmHA or its successor agency 
under Public Law 103-354 loan account, if any.
    (iii) To the borrower, if whereabouts are known.
    (2) If personal property is not sold, a mover or hauler may be 
authorized to take the items for moving costs. Refer to FmHA or its 
successor agency under Public Law 103-354 Instruction 2024-A (available 
in any FmHA or its successor agency under Public Law 103-354 office) for 
guidance.
    (c) Payment of costs. Upon payment of all expenses incurred by the 
Government in connection with the personal property, FmHA or its 
successor agency under Public Law 103-354 will allow the former borrower 
or a lienholder access to the property to reclaim the personal property 
at any time prior to its disposal.
    (d) Removal of abandoned motor vehicles from inventory property. 
Since State laws vary concerning disposal of abandoned motor vehicles, 
the State Director shall, with the advice of OGC, issue a State 
supplement outlining the method to be followed which will comply with 
applicable State laws.

[53 FR 35765, Sept. 14, 1988, as amended at 68 FR 61332, Oct. 28, 2003]



Sec. 1955.63  Suitability determination.

    As soon as real property is acquired, a determination must be made 
as to whether or not the property can be used for program purposes. The 
suitability determination will be recorded in the running record of the 
case file.
    (a) Determination. The Agency will classify property that secured 
loans or was acquired under the CONACT as ``suitable property'' or 
``surplus property'' in accordance with the definitions found in Sec. 
1955.53.
    (b) Grouping and subdividing farm properties. To the maximum extent 
practicable, the Agency will maximize the opportunity for beginning 
farmers and ranchers to purchase inventory properties. Farm properties 
may be subdivided or grouped according to Sec. 1955.140, as feasible, 
to carry out the objectives of the applicable loan program. Properties 
may also be subdivided to facilitate the granting or selling of a 
conservation easement or the fee title transfer of portions of a 
property for conservation purposes. The environmental effects of such 
actions will be considered pursuant to subpart G of part 1940 of this 
chapter.
    (c) Housing property. Property which secured housing loans will be 
classified as ``program'' or ``nonprogram (NP).'' After a determination 
of whether the property is suited for retention in the respective 
program, the repair policy outlined in Sec. 1955.64(a) of this subpart 
will be followed. In determining whether a property is suited for 
retention in the program, items such as size, design, possible health 
and/or safety hazards and obsolescence due to functional, economic, or 
locational conditions must carefully be considered. Generally, program 
property will meet, or can be realistically repaired to meet,

[[Page 111]]

the standards for existing housing outlined in Subpart A of Part 1944 of 
this chapter provided the property is typical of modest homes in the 
area. The cost of repairs will generally not be considered in 
determining suitability. Since houses, sites and locations vary widely 
throughout the country, discretion and sound judgment must be used in 
determining suitability. The majority of houses RHS acquires will be 
suited for retention and classified as program property. In some 
instances, property will not be suited for retention in the program and 
will be classified as ``nonprogram (NP)'' property. Situations of this 
type include, but are not limited to:
    (1) A dwelling which has been enlarged or improved to the point 
where it is clearly above modest.
    (2) When a determination is made that the property should not have 
been financed originally.
    (3) A dwelling brought into the program as an existing dwelling 
which met program standards at the time it was originally financed by 
the Agency but which does not conform to current policies. This includes 
older and/or larger houses of a type which have proven to create 
excessive energy and/or maintenance costs to very-low and low-income 
borrowers.
    (4) A dwelling which is obsolete due to location, design, 
construction or age.
    (5) A dwelling which requires major redesign/renovation to be 
brought to program standards.
    (d) [Reserved]

[53 FR 35765, Sept. 14, 1988, as amended at 54 FR 20522, May 12, 1989; 
58 FR 58648, Nov. 3, 1993; 60 FR 34455, July 3, 1995; 60 FR 55147, Oct. 
27, 1995; 62 FR 44396, Aug. 21, 1997; 68 FR 7700, Feb. 18, 2003]



Sec. 1955.64  [Reserved]



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

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

[[Page 112]]

to be operated or leased under a management contract is located in an 
area identified by the Federal Insurance Administration as a special 
flood or mudslide hazard area, lessees or tenants must be notified to 
that effect in accordance with Sec. 1955.66(e) of this subpart. A 
management contract which covers property in such a hazard area may 
provide for the contractor to issue the required notices.
    (c) Obtaining services for management and/or operation of 
properties. Services for management, repair, and/or operation of 
properties will be obtained by contract in accordance with FmHA or its 
successor agency under Public Law 103-354 Instruction 2024-A (available 
in any FmHA or its successor agency under Public Law 103-354 office).
    (1) Management contracts. Management contracts are flexible 
instruments which may be tailored to meet the specific needs of almost 
any situation involving custodial or inventory property. This type of 
contract may be used to manage and maintain SFH properties, farms, and 
any other type of facility for which FmHA or its successor agency under 
Public Law 103-354 is responsible. Organization-type properties will be 
secured, maintained, repaired, and operated if authorized, in accordance 
with a management plan prepared by the District Director and approved by 
the State Director if the amount of total debt does not exceed the State 
Director's loan approval authority, or by the Administrator. For MFH 
projects, tenant occupancy and selection will be in accordance with the 
occupancy standards set forth in 7 CFR part 3560, subpart D. Tenants 
will be required to sign a written lease if one does not exist when the 
property is acquired or taken into custody. If a contract involves 
management of an MFH project with 5 or more units, or 5 or more single-
family dwellings located in the same subdivision, the contractor must 
furnish Form HUD 935.2, ``Affirmative Fair Housing Marketing Plan,'' 
subject to FmHA or its successor agency under Public Law 103-354's 
approval. Contracts for management of farm inventory property will be 
offered on a competitive bid basis, giving preference to persons who 
live in, and own and operate qualified small businesses in the area 
where the property is located in accordance with the provisions in FmHA 
or its successor agency under Public Law 103-354 Instruction 2024-Q 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (2) Authority to enter into management contracts. (i) The County 
Supervisor may enter into a management contract for basic services 
involving farms or not more than 25 single-family dwellings; however, 
the aggregate amount paid under a contract may not exceed the 
contracting authority limitation for County Supervisors outlined in FmHA 
or its successor agency under Public Law 103-354 Instruction 2024-A 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (ii) A District Director may enter into a management contract for 
basic maintenance and management services for an MFH project within the 
contracting authority outlined in FmHA or its successor agency under 
Public Law 103-354 Instruction 2024-A (available in any FmHA or its 
successor agency under Public Law 103-354 office). The aggregate amount 
of any contract may not exceed that contracting authority.
    (iii) A CO in the State Office may enter into a management contract 
for basic services involving more than 25 single-family dwellings, a 
more complex management contract for SFH property, or an appropriate 
contract for management or operation of farm or organization-type 
property. The aggregate amount paid under a contract may not exceed the 
contracting authority limitation for State Office staff outlined in FmHA 
or its successor agency under Public Law 103-354 Instruction 2024-A 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (iv) If a proposed management contract will exceed the contracting 
authority for State Office staff within a short time, a request for 
contract action will be forwarded to the Administrator, to the attention 
of the appropriate program division.
    (3) Specification of services. All management contracts will provide 
for termination by either the contractor or

[[Page 113]]

the Government upon 30 days written notice. Contracts providing for 
management of multiple properties will also provide for properties to be 
added or removed from the contractor's assignment whenever necessary, 
such as when a property is acquired or taken into custody during the 
period of a contract or when a property is sold from inventory. If a 
contractor prepares repair specifications, that contractor will be 
excluded from the solicitation for making the repairs to avoid a 
conflict of interest.
    If a management contract calls for specification writing services, a 
clause must be inserted in the contract prohibiting the preparer or his/
her associates from doing the repair work.
    (4) Costs. Costs incurred with the management of property will be 
paid according to FmHA or its successor agency under Public Law 103-354 
Instruction 2024-A (available in any FmHA or its successor agency under 
Public Law 103-354 office). For management of custodial property, costs 
will be charged to the borrower's account as recoverable; and for 
management of inventory property as nonrecoverable. Except for 
management fees, costs of managing MFH inventory property when tenants 
are still in residence will be paid to the extent possible with rental 
income. Management fees will be paid to the manager in accordance with 
FmHA or its successor agency under Public Law 103-354 Instruction 2024-A 
(available in any FmHA or its successor agency under Public Law 103-354 
Office).
    (d) Additional management services. Additional types of management 
services and supplies for which the State Director may authorize 
acquisition include: Appraisal services (except for MFH), security 
services, newspaper copy preparation services, market data and 
comparable list acquisition, and tax data acquisition. If the State 
Director believes there is a need to acquire other services not listed 
in this paragraph or authorized elsewhere in this subpart, the State 
Director should make a written request to the Assistant Administrator 
(appropriate program) for consideration and/or authorization.

[53 FR 35765, Sept. 14, 1988, as amended at 57 FR 36591, Aug. 14, 1992; 
69 FR 69106, Nov. 26, 2004; 70 FR 20704, Apr. 21, 2005]



Sec. 1955.66  Lease of real property.

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

[[Page 114]]

    (ii) MFH. MFH projects will generally not be leased, although 
individual living units may be leased under a management agreement. 
After the property is placed under a management contract, the contractor 
will be responsible for leasing the individual units in accordance with 
7 CFR part 3560. In cases where an acceptable management contract cannot 
be obtained, the District Director may execute individual leases.
    (iii) Farm property. (A) Any property which secures an insured loan 
made under the CONACT and which contains a dwelling (whether located on 
or off the farm) that is possessed and occupied as a principal residence 
by a prior owner who was personally liable for a Farm Credit Programs 
loan must first be considered for Homestead Protection in accordance 
with subpart S of part 1951 of this chapter.
    (B) Other than for Homestead Protection and except as provided in 
paragraph (c), the county official may only approve the lease of farm 
property to a beginning farmer or rancher who was selected through the 
random selection process to purchase the property but is not able to 
complete the purchase due to the lack of Agency funding.
    (C) When the servicing official determines it is impossible to sell 
farm property after advertising the property for sale and negotiating 
with interested parties in accordance with Sec. 1955.107 of subpart C 
of this part, farm property may be leased, upon the approval of the 
Administrator, on a case-by-case basis. This authority cannot be 
delegated. Any lease under this paragraph shall be for 1 year only, and 
not subject to renewal or extension. If the servicing official 
determines that the prospective lessee may be interested in purchasing 
the property, the lease may contain an option to purchase.
    (D) When a lease with an option to purchase is signed, the lessee 
should be advised that FSA cannot make a commitment to finance the 
purchase of the property.
    (E) Chattel property will not normally be leased unless it is 
attached to the real estate as a fixture or would normally pass with the 
land.
    (F) The property may not be used for any purpose that will 
contribute to excessive erosion of highly erodible land or to conversion 
of wetlands to produce an agricultural commodity. See Exhibit M of 
subpart G of part 1940 of this chapter. All prospective lessees of 
inventory property will be notified in writing of the presence of highly 
erodible land, converted wetlands and wetland and other important 
resources such as threatened or endangered species. This notification 
will include a copy of the completed and signed Form SCS-CPA-26, 
``Highly Erodible Land and Wetland Conservation Determination,'' which 
identifies whether the property contains wetland or converted wetlands 
or highly erodible land. The notification will also state that the lease 
will contain a restriction on the use of such property and that the 
Agency's compliance requirements for wetlands, converted wetlands, and 
highly erodible lands are contained in Exhibit M of subpart G of part 
1940 of this chapter. Additionally, a copy of the completed and signed 
Form SCS-CPA-26 will be attached to the lease and the lease will contain 
a special stipulation as provided on the FMI to Form RD 1955-20, ``Lease 
of Real Property,'' prohibiting the use of the property as specified 
above.
    (iv) Organization property other than MFH. Only the State Director, 
with the advice of appropriate National Office staff, may approve the 
lease of organization property other than MFH, such as community 
facilities, recreation projects, and businesses. A lease of utilities 
may require approval by State regulatory agencies.
    (b) Selection of lessees for other than farm property. When the 
property to be leased is residential, a special effort will be made to 
reach prospective lessees who might not otherwise apply because of 
existing community patterns. A lessee will be selected considering the 
potential as a program applicant for purchase of the property (if 
property is suited for program purposes) and ability to preserve the 
property. The leasing official may require verification of income or a 
credit report (to be paid for by the prospective lessee) as he or she 
deems necessary to assure payment ability and creditworthiness of the 
prospective lessee.

[[Page 115]]

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

[[Page 116]]

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

[62 FR 44397, Aug. 21, 1997, as amended at 64 FR 62568, Nov. 17, 1999; 
68 FR 61332, Oct. 28, 2003; 69 FR 69106, Nov. 26, 2004]

[[Page 117]]



Sec. Sec. 1955.67-1955.71  [Reserved]



Sec. 1955.72  Utilization of inventory housing by Federal Emergency Management 

Agency (FEMA) or under a Memorandum of Understanding between the Agency and the 
          Department of Health and Human Services (HHS) for transitional 
          housing for the homeless.

    (a) FEMA. By a Memorandum of Understanding between the Agency and 
FEMA, inventory housing property not under lease or sales agreement may 
be made available to shelter victims in an area designated as a major 
disaster area by the President. See Exhibit A of this subpart (available 
in any FmHA or its successor agency under Public Law 103-354 office). 
Authority is hereby delegated to the State Director to implement this 
Memorandum of Understanding; and the State Director may redelegate this 
authority to County Supervisors or District Directors.
    (b) HHS. By a Memorandum of Understanding between the Agency and 
HHS, inventory housing property not under lease or sales agreement may 
be made available by lease to public bodies and nonprofit organizations 
to provide transitional housing for the homeless. See Exhibit D of this 
subpart (available in any FmHA or its successor agency under Public Law 
103-354 office). Authority is hereby delegated to the State Director to 
implement this Memorandum of Understanding; and the State Director may 
redelegate this authority to County Supervisors or District Directors. 
Copies of all executed leases and/or questions regarding this program 
should be referred by State Offices to the Single Family Housing 
Servicing and Property Management (SFH/SPM) Division in the National 
Office.

[54 FR 20523, May 12, 1989, as amended at 60 FR 34455, July 3, 1995]



Sec. Sec. 1955.73-1955.80  [Reserved]



Sec. 1955.81  Exception authority.

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

[53 FR 35765, Sept. 14, 1988, as amended at 58 FR 58649, Nov. 3, 1993]



Sec. 1955.82  State supplements.

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



Sec. Sec. 1955.83-1955.99  [Reserved]



Sec. 1955.100  OMB control number.

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



 Sec. Exhibit A to Subpart B of Part 1955--Memorandum of Understanding 
  Between the Federal Emergency Management Agency and the Farmers Home 
     Administration or Its Successor Agency under Public Law 103-354

    Editorial Note: Exhibit A is not published in the Code of Federal 
Regulations. It is available in any FmHA or its successor agency under 
Public Law 103-354 County Office.

[[Page 118]]



   Sec. Exhibit B to Subpart B of Part 1955--Notification of Tribe of 
               Availability of Farm Property for Purchase

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

From: County official
To: (Name of Tribe and address)
Subject: Availability of Farm Property for Purchase
    [To be Used within 90 days of acquisition]
    Recently the Farm Service Agency (FSA) acquired title to -------- 
acres of farm real property located within the boundaries of your 
Reservation. The previous owner of this property was --------. The 
property is available for purchase by persons who are members of your 
tribe, an Indian Corporate entity, or the tribe itself. Our regulations 
provide for those three distinct priority categories which may be 
eligible; however, you may revise the order of the priority categories 
and may restrict the eligibility to one or any combination of 
categories. Following is a more detailed description of these 
categories:
    1. Persons who are members of your Tribe. Individuals so selected 
must be able to meet the eligibility criteria for the purchase of 
Government inventory property and be able to carry on a family farming 
operation. Those persons not eligible for FSA's regular programs may 
also purchase this property as a Non-Program loan on ineligible rates 
and terms.
    2. Indian corporate entities. You may restrict eligible Indian 
corporate entities to those authorized by your Tribe to purchase lands 
within the boundaries of your Reservation. These entities also must meet 
the basic eligibility criteria established for the type of assistance 
granted.
    3. The Tribe itself is also considered eligible to exercise their 
right to purchase the property. If available, Indian Land Acquisition 
funds may be used or the property financed as a Non-Program loan on 
ineligible rates and terms.
    We are requesting that you notify the local FSA county office of 
your selection or intentions within 45 days of receipt of this letter, 
regarding the purchase of this real estate. If you have questions 
regarding eligibility for any of the groups mentioned above, please 
contact our office. If the Tribe wishes to purchase the property, but is 
unable to do so at this time, contact with the FSA county office should 
be made.

                               Sincerely,

                             County official

[62 FR 44399, Aug. 21, 1997]



    Sec. Exhibit C to Subpart B of Part 1955--Cooperative Agreement 
                                (Example)

    Editorial Note: Exhibit C is not published in the Code of Federal 
Regulations. It is available in any FmHA or its successor agency under 
Public Law 103-354 County Office.



   Sec. Exhibit D to Subpart B of Part 1955--Fact Sheet--The Federal 
       Interagency Task Force on Food and Shelter for the Homeless

    Editorial Note: Exhibit D is not published in the Code of Federal 
Regulations. It is available in any FmHA or its successor agency under 
Public Law 103-354 County Office.



                Subpart C_Disposal of Inventory Property

                              Introduction



Sec. 1955.101  Purpose.

    This subpart delegates program authority and prescribes policies and 
procedures for the sale of inventory property including real estate, 
related real estate rights, and chattels. It also covers the granting of 
easements and rights-of-way on inventory property. Credit sales of 
inventory property to ineligible (non-program (NP)) purchasers will be 
handled in accordance with Subpart J of Part 1951 of this chapter, 
except Community and Business Programs (C&BP) and Multi-Family Housing 
(MFH) which will be handled in accordance with this Subpart. In 
addition, credit sales of Single Family Housing (SFH) properties 
converted to MFH will be handled in accordance with this Subpart. This 
subpart does not apply to Farm Service Agency, Farm Loan Programs, 
Single Family Housing (SFH) inventory property, or to the Rural Rental 
Housing, Rural Cooperative Housing, and Farm Labor Housing Programs. In 
addition, this subpart does not apply to Water and Waste Programs of the 
Rural Utilities Service, Watershed loans, and Resource Conservation and 
Development loans, which are serviced under part 1782 of this title.

[72 FR 55019, Sept. 28, 2007, as amended at 72 FR 64123, Nov. 15, 2007]

[[Page 119]]



Sec. 1955.102  Policy.

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

[53 FR 35776, Sept. 14, 1988, as amended at 58 FR 52652, Oct. 12, 1993; 
62 FR 44399, Aug. 21, 1997]



Sec. 1955.103  Definitions.

    As used in this subpart, the following apply:
    Approval official. The FmHA or its successor agency under Public Law 
103-354 official having loan and grant approval authority auhorized 
under Subpart A of Part 1901 of this chapter.
    Auction sale. A public sale in which property is sold to the highest 
bidder in open verbal competition.
    Beginning farmer or rancher. A beginning farmer or rancher is an 
individual or entity who:
    (1) Is an eligible applicant for FO loan assistance in accordance 
with Sec. 1943.12 of subpart A of part 1943 of this chapter or Sec. 
1980.180 of subpart B of part 1980 of this chapter.
    (2) Has not operated a farm or ranch, or who has operated a farm or 
ranch for not more than 10 years. This requirement applies to all 
members of an entity.
    (3) Will materially and substantially participate in the operation 
of the farm or ranch.
    (i) In the case of a loan made to an individual, individually or 
with the immediate family, material and substantial participation 
requires that the individual provide substantial day-to-day labor and 
management of the farm or ranch, consistent with the practices in the 
county or State where the farm is located.
    (ii) In the case of a loan made to an entity, all members must 
materially and substantially participate in the operation of the farm or 
ranch. Material and substantial participation requires that the 
individual provides some amount of the management, or labor and 
management necessary for day-to-day activities, such that if the 
individual did not provide these inputs, operation of the farm or ranch 
would be seriously impaired.
    (4) Agrees to participate in any loan assessment, borrower training, 
and financial management programs required by FmHA or its successor 
agency under Public Law 103-354 regulations.
    (5) Does not own real farm or ranch property or who, directly or 
through interests in family farm entities, owns real farm or ranch 
property, the aggregate acreage of which does not exceed 30 percent of 
the average farm or ranch acreage of the farms or ranches in the county 
where the property is located. If the farm is located in more than one 
county, the average farm acreage of the county where the applicant's 
residence is located will be used in the calculation. If the applicant's 
residence is not located on the farm or if the applicant is an entity, 
the average farm acreage of the county where the major portion of the 
farm is located will be used. The average county farm or ranch acreage 
will be determined from the most recent Census of Agriculture developed 
by the U.S. Department of Commerce, Bureau of the Census. State 
Directors will publish State supplements containing the average farm or 
ranch acreage by county.

[[Page 120]]

    (6) Demonstrates that the available resources of the applicant and 
spouse (if any) are not sufficient to enable the applicant to enter or 
continue farming or ranching on a viable scale.
    (7) In the case of an entity:
    (i) All the members are related by blood or marriage.
    (ii) All the stockholders in a corporation are qualified beginning 
farmers or ranchers.
    Borrower. An individual or entity which has outstanding obligations 
to the FmHA or its successor agency under Public Law 103-354 under any 
Farmer Programs loan(s), without regard to whether the loan has been 
accelerated. A borrower includes all parties liable for the FmHA or its 
successor agency under Public Law 103-354 debt, including collection-
only borrowers, except for debtors whose total loans and accounts have 
been voluntarily or involuntarily foreclosed or liquidated, or who have 
been discharged of all FmHA or its successor agency under Public Law 
103-354 debt.
    Capitalization value. The value determined in accordance with 
subpart E of part 1922 of this chapter.
    Closing agent. An attorney or title insurance company which is 
approved as a loan closing agent in accordance with subpart B of part 
1927 of this chapter.
    CONACT or CONACT property, Property acquired or sold pursuant to the 
Consolidated Farm and Rural Development Act (CONACT). Within this 
subpart, it shall also be construed to cover property which secured 
loans made pursuant to the Emergency Agricultural Credit Act of 1984; 
the Food Security Act of 1985; and other statutes giving agricultural 
lending authority to FmHA or its successor agency under Public Law 103-
354.
    Credit sale. A sale in which financing is provided to an applicant 
for the purchase of inventory property.
    Decent, safe and sanitary (DSS) housing. Standards required for the 
sale of Government acquired SFH, MFH and LH structures acquired pursuant 
to the Housing Act of 1949, as amended. ``DSS'' housing unit(s) are 
structures which meet the requirements of FmHA or its successor agency 
under Public Law 103-354 as described in Subpart A of Part 1924 of this 
chapter for existing construction or if not meeting the requirements:
    (1) Are structurally sound and habitable,
    (2) Have a potable water supply,
    (3) Have functionally adequate, safe and operable heating, plumbing, 
electrical and sewage disposal systems,
    (4) Meet the Thermal Performance Standards as outlined in exhibit D 
of subpart A of part 1924 of this chapter, and
    (5) Are safe; that is, a hazard does not exist that would endanger 
the safety of dwelling occupants.
    Eligible terms. Credit terms, for other than SFH or MFH property 
sales, prescribed in FmHA or its successor agency under Public Law 103-
354 program regulations for its various loan programs; available only to 
persons/entities meeting eligibility requirements set forth for the 
respective loan program. For SFH and MFH properties, see the definition 
of ``Program terms.''
    Farmer program loans. This includes Farm Ownership (FO), Soil and 
Water (SW), Recreation (RL), Economic Opportunity (EO), Operating (OL), 
Emergency (EM), Economic Emergency (EE), Special Livestock (SL), 
Softwood Timber (ST) and Rural Housing loans for farm service buildings 
(RHF).
    Homestead protection (FP only). The program which permits former 
Farmer Program borrowers to lease their former principal residence with 
an option to buy. See subpart S of part 1951 of this chapter.
    Indian Reservation. All land located within the limits of any Indian 
reservation under the jurisdiction of the United States notwithstanding 
the issuance of any patent and including rights-of-way running through 
the reservation; trust or restricted land located within the boundaries 
of a former reservation of a federally recognized Indian Tribe in the 
State of Oklahoma; or all Indian allotments the Indian titles to which 
have not been extinguished if such allotments are subject to the 
jurisdiction of a federally recognized Indian Tribe.
    Ineligible terms. Credit terms, for other than SFH or MFH property 
sales, offered for the convenience of the Government to facilitate 
sales; more stringent than terms offered under FmHA

[[Page 121]]

or its successor agency under Public Law 103-354's loan programs. 
Applicable when the purchaser does not meet program eligibility 
requirements or when the property is classified as surplus. Loans made 
on ineligible terms are classified as Nonprogram (NP) loans and are 
serviced accordingly. For SFH and MFH properties, see the definition of 
``Nonprogram (NP) terms.''
    Inventory property. Property for which title is vested in the 
Government and which secured an FmHA or its successor agency under 
Public Law 103-354 loan or which was acquired from another Agency for 
program purposes.
    Market value. The most probable price which property should bring, 
as of a specific date, in a competitive and open market, assuming the 
buyer and seller are prudent and knowledgeable, and the price is not 
affected by undue stimulus such as forced sale or loan interest subsidy.
    Negotiated sale. A sale in which there is a bargaining of price and/
or terms.
    Nonprogram (NP) property. SFH and MFH property acquired pursuant to 
the Housing Act of 1949, as amended, that cannot be used by a borrower 
to effectively carry out the objectives of the respective loan program; 
for example, a dwelling that cannot be feasibly repaired to meet the 
FmHA or its successor agency under Public Law 103-354 requirements for 
existing housing as described in subpart A of part 1944 of this chapter. 
It may contain a structure which would meet program standards, however 
is so remotely located it would not serve as an adequate residential 
unit or be an older house which is excessively expensive to heat and/or 
maintain for a very-low or low-income homeowner.
    Nonprogram (NP) terms. Credit terms for SFH or MFH property sales, 
offered for the convenience of the Government to facilitate sales; more 
stringent than terms offered under FmHA or its successor agency under 
Public Law 103-354's loan programs. Applicable when the purchaser does 
not meet program eligibility requirements or when the property is 
classified as nonprogram (NP). Loans made on NP terms are classified as 
NP loans and are serviced accordingly. For property other than SFH and 
MFH, see the definition of ``Ineligible terms.''
    Organization property. Property for which the following loans were 
made is considered organization property. Community Facility (CF); Water 
and Waste Disposal (WWD); Association Recreation; Watershed (WS); 
Resource Conservation and Development (RC&D); loans to associations for 
Shift-In-Land Use (Grazing Association); loans to associations for 
Irrigation and Drainage and other soil and water conservation measures; 
loans to Indian Tribes and Tribal corporations; Rural Rental Housing 
(RRH) to both groups and individuals; Rural Cooperative Housing (RCH); 
Rural Housing Site (RHS); Labor Housing (LH) to both groups and 
individuals; Business and Industry (B&I) to both individuals and groups 
or corporations; Rural Development Loan Fund (RDLF); Intermediary 
Relending Program (IRP); Nonprofit National Corporations (NNC); and 
Economic Opportunity Cooperative (EOC). Housing-type (RHS, RCH, RRH and 
LH) organization property is referred to collectively in this subpart as 
Multiple Family Housing (MFH) property.
    Owner. An individual or an entity which owned the farm but who may 
or may not have been operating the farm at the time the farm was taken 
into inventory.
    Participating broker. A duly licensed real estate broker who has 
executed a listing agreement with FmHA or its successor agency under 
Public Law 103-354.
    Program property. SFH and MFH inventory property that can be used to 
effectively carry out the objectives of their respective loan programs 
with financing through that program. Inventory property located in an 
area where the designation has been changed from rural to nonrural will 
be considered as if it were still in a rural area.
    Program terms. Credit terms for SFH or MFH property sales, 
prescribed in FmHA or its successor agency under Public Law 103-354 
program regulations for its various loan programs; available only to 
persons/entities meeting eligibility requirements set forth for the 
respective loan program. For property sales other than SFH and MFH, see 
the definition of ``Eligible terms.''

[[Page 122]]

    Regular FmHA or its successor agency under Public Law 103-354 sale. 
Sale made by other than sealed bid, auction, or negotiation by FmHA or 
its successor agency under Public Law 103-354 employees or real estate 
brokers.
    Regular sale. Sale by FmHA or its successor agency under Public Law 
103-354 employees or real estate brokers other than by sealed bid, 
auction or negotiation.
    Safe. No hazard exists on property which would likely endanger the 
health or safety of occupants or users.
    Sealed bid sale. A public sale in which property is offered to the 
highest bidder by prior written bid submitted in a sealed envelope.
    Servicing official. For loans to individuals, as defined in Sec. 
1955.53 of subpart B of part 1955 of this chapter, the servicing 
official is the County Supervisor. For all other loans, excluding 
insured B&I, the servicing official is the District Director. For 
insured B&I loans, the servicing official is the State Director.
    Socially disadvantaged applicant (SDA). An applicant who is a member 
of a socially disadvantaged group whose members have been subjected to 
racial, ethnic, or gender prejudice because of their identity as a 
member of a group, without regard to their individual qualities. For 
entity SDA applicants, the majority interest in the entity must be held 
by socially disadvantaged individuals. The Agency has identified 
socially disadvantaged groups as Women, Blacks, American Indians, 
Alaskan Natives, Hispanics, Asians, and Pacific Islanders.
    Suitable property. For FSA inventory property, real property that 
can be used for agricultural purposes, including those farm properties 
that may be used as a start-up or add-on parcel of farmland. It would 
also include a residence or other off-farm site that could be used as a 
basis for a farming operation. For Agencies other than FSA, real 
property that could be used to carry out the objectives of the Agency's 
loan programs with financing provided through that program.
    Surplus property. For FSA inventory property, real property that 
cannot be used for agricultural purposes including nonfarm properties. 
For other agencies, property that cannot be used to carry out the 
objectives of financing available through the applicable loan program.

[50 FR 23904, June 7, 1985]

    Editorial Note: For Federal Register citations affecting Sec. 
1955.103, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec. 1955.104  Authorities and responsibilities.

    (a) Redelegation of authority. FmHA or its successor agency under 
Public Law 103-354 officials will redelegate authorities to the maximum 
extent possible, consistent with program objectives and available 
resources.
    (1) Any authority in this subpart which is specifically provided to 
the Administrator or to an Assistant Administrator may only be delegated 
to a State Director. The State Director cannot redelegate such 
authority.
    (2) Except as provided in paragraph (a)(1) of this section, the 
State Director may redelegate, in writing, any authority delegated to 
the State Director in this subpart, unless specifically excluded, to a 
Program Chief, Program Specialist, or Property Management Specialist on 
the State Office staff.
    (3) The District Director may redelegate, in writing, any authority 
delegated to the District Director in this subpart to an Assistant 
District Director or District Loan Specialist. Authority of District 
Directors in this subpart applies to Area Loan Specialists in Alaska and 
the Director for the Western Pacific Territories.
    (4) The County Supervisor may redelegate, in writing, any authority 
delegated to the County Supervisor in this subpart to an Assistant 
County Supervisor, GS-7 or above, who is determined by the County 
Supervisor to be qualified. Authority of County Supervisors in this 
subpart applies to Area Loan Specialists in Alaska, Island Directors in 
Hawaii, the Director for the Western Pacific Territories, and Area 
Supervisors in the Western Pacific Territories and American Samoa.
    (b) Responsibility. (1) National Office program directors are 
responsible for reviewing and providing guidance to

[[Page 123]]

State, District and County Offices in disposing of inventory property.
    (2) The State Director is responsible for establishing an effective 
program and insuring compliance with FmHA or its successor agency under 
Public Law 103-354 regulations.
    (3) District Directors are responsible for disposal actions for 
programs under their supervision and for monitoring County Office 
compliance with FmHA or its successor agency under Public Law 103-354 
regulations and State Supplements.
    (4) County Supervisors are responsible for timely disposal of 
inventory property for programs under their supervision.

[53 FR 27830, July 25, 1988, as amended at 66 FR 7568, Jan. 24, 2001]

   Consolidated Farm and Rural Development Act (CONACT) Real Property



Sec. 1955.105  Real property affected (CONACT).

    (a) Loan types. Sections 1955.106-1955.109 of this subpart prescribe 
procedures for the sale of inventory real property which secured any of 
the following type of loans (referred to as CONACT property in this 
subpart): Farm Ownership (FO); Recreation (RL); Soil and Water (SW); 
Operating (OL); Emergency (EM); Economic Opportunity (EO); Economic 
Emergency (EE); Softwood Timber (ST); Community Facility (CF); Water and 
Waste Disposal (WWD); Reserve Conservation and Development (RC&D); 
Watershed (WS); Association Recreation; EOC: Rural Renewal; Water 
Facility; Business and Industry (B&I); Rural Development Loan Fund 
(RDLF); Intermediary Relending Program (IRP); Nonprofit National 
Corporation (NNC); Irrigation and Drainage; Shift-in-Land Use (Grazing 
Association); and loans to Indian Tribes and Tribal Corporations. 
Homestead Protection, as set forth in Subpart S of Part 1951 of this 
chapter, is only applicable to Farmer Program loans as defined in Sec. 
1955.103 of this subpart.
    (b) Controlled substance conviction. In accordance with the Food 
Security Act of 1985 (Pub. L. 99-198), after December 23, 1985, if an 
individual or any member, stockholder, partner, or joint operator of an 
entity is convicted under Federal or State law of planting, cultivating, 
growing, producing, harvesting, or storing a controlled substance (see 
21 CFR Part 1308, which is Exhibit C to Subpart A of Part 1941 of this 
chapter and is available in any FmHA or its successor agency under 
Public Law 103-354 office, for the definition of ``controlled 
substance'') prior to a credit sale approval in any crop year, the 
individual or entity shall be ineligible for a credit sale for the crop 
year in which the individual or member, stockholder, partner, or joint 
operator of the entity was convicted and the four succeeding crop years. 
Applicants will attest on Form FmHA or its successor agency under Public 
Law 103-354 410-1, ``Application for FmHA or its successor agency under 
Public Law 103-354 Services,'' that as individuals or that its members, 
if an entity, have not been convicted of such crime after December 23, 
1985.
    (c) Effects of farm property sales on farm values. State Directors 
will analyze farm real estate market conditions within the geographic 
areas of their jurisdiction and determine whether or not the sale of the 
FmHA or its successor agency under Public Law 103-354 farm inventory 
properties will have a detrimental effect on the value of farms within 
these areas. Such analysis will be carried out in January of each year 
and as often throughout the year as necessary to reflect changing farm 
real estate conditions. If the analyses of farm real estate conditions 
indicate that such sales would put downward pressure on farm real estate 
values in any area, all farm properties within the area affected will be 
withheld from the market and managed in accordance with the provisions 
of Subpart B of this Part until such time that a subsequent analysis 
indicates otherwise. The State Director will notify, in writing, the 
County Supervisor(s) servicing those areas that are restricted from 
selling farm inventory property. State Directors in consultation with 
other lenders, real estate agents, auctioneers, and others in the 
community will analyze all available information such as:

[[Page 124]]

    (1) The number of farms and acres that FmHA or its successor agency 
under Public Law 103-354 expects to acquire in inventory.
    (2) The number of farms and acres other lenders expect to acquire in 
inventory.
    (3) The number of farms and acres that FmHA or its successor agency 
under Public Law 103-354 currently has in inventory.
    (4) The number of farms and acres other lenders currently have in 
inventory.
    (5) The number of farms not included in paragraphs (c)(3) and (c)(4) 
of this section which are currently listed for sale.
    (6) Published real estate values and trend reports such as those 
available from the Economic Research Service or professional appraisal 
organizations.
    (d) Highly erodible land. If farm inventory property contains 
``highly erodible land,'' as determined by the SCS, the lease must 
include conservation practices specified by the SCS and approved by FmHA 
or its successor agency under Public Law 103-354 as a condition for 
leasing. Refer to Sec. 1955.137(d) of this subpart for implementation 
requirements.

[53 FR 35777, Sept. 14, 1988, as amended at 57 FR 19528, May 7, 1992; 58 
FR 58649, Nov. 3, 1993; 62 FR 44399, Aug. 21, 1997]



Sec. 1955.106  Disposition of farm property.

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

[53 FR 35777, Sept. 14, 1988, as amended at 58 FR 58649, Nov. 3, 1993; 
62 FR 44399, Aug. 21, 1997]



Sec. 1955.107  Sale of FSA property (CONACT).

    FSA inventory property will be advertised for sale in accordance 
with the provisions of this subpart. If a request is received from a 
Federal or State agency for transfer of a property for conservation 
purposes, the advertisement should be conditional on that possibility. 
Real property will be managed in accordance with the provisions of 
subpart B of this part until sold.
    (a) Suitable Property. Not later than 15 days from the date of 
acquisition, the Agency will advertise suitable property for sale. For 
properties currently under a lease, except leases to beginning farmers 
and ranchers under Sec. 1955.66(a)(2)(iii) of subpart B of this part, 
the property will be advertised for sale not later than 60 days after 
the lease expires or is terminated. There will be a preference for 
beginning farmers or ranchers. The advertisement will contain a 
provision to lease the property to a beginning farmer or rancher for up 
to 18 months should FSA credit assistance not be available at the time 
of sale. The first advertisement will not be required to contain the 
sales price but it should inform potential beginning farmer or rancher 
applicants that applications will be accepted pending completion of the 
advertisement process. When possible, the sale of suitable FSA property 
should be handled by county officials. Farm property will be advertised 
for sale by publishing, as a minimum, two weekly advertisements in at 
least two newspapers that are widely circulated in the area in which the 
farm is located. Consideration will be given to advertising inventory 
properties in major farm

[[Page 125]]

publications. Either Form RD 1955-40 or Form RD 1955-41, ``Notice of 
Sale,'' will be posted in a prominent place in the county. Maximum 
publicity should be given to the sale under guidance provided by Sec. 
1955.146 of this subpart and care should be taken to spell out 
eligibility criteria. Tribal Councils or other recognized Indian 
governing bodies having jurisdiction over Indian reservations (see Sec. 
1955.103 of this subpart) shall be responsible for notifying those 
parties in Sec. 1955.66(d)(2) of subpart B of this part.
    (1) Price. Property will be advertised for sale for its appraised 
market value based on the condition of the property at the time it is 
made available for sale. The market value will be determined by an 
appraisal made in accordance with Sec. 761.7 of this title. Property 
contaminated with hazardous waste will be appraised ``as improved'' 
which will be used as the sale price for advertisement to beginning 
farmers or ranchers.
    (2) Selection of purchaser. After homestead protection rights have 
expired, suitable farmland must be sold in the priority outlined in this 
paragraph. When farm inventory property is larger than family size, the 
property will be subdivided into suitable family size farms pursuant to 
Sec. 1955.140 of this subpart.
    (i) Sale to beginning farmers/ranchers. Not later than 135 days from 
the date of acquisition, FSA will sell suitable farm property, with a 
priority given to applicants who are classified as beginning farmers or 
ranchers, as defined in Sec. 1955.103, as of the time of sale.
    (ii) Random selection. The county official will first determine 
whether applicants meet the eligibility requirements of a beginning 
farmer or rancher. For applicants who are not determined to be beginning 
farmers or ranchers, they may request that the State Executive Director 
provide an expedited review and determination of whether the applicant 
is a beginning farmer or rancher for the purpose of acquiring inventory 
property. This review shall take place not later than 30 days after 
denial of the application. The State Executive Director's review 
decision shall be final and is not administratively appealable. When 
there is more than one beginning farmer or rancher applicant, the Agency 
will select by lot by placing the names in a receptacle and drawing 
names sequentially. Drawn offers will be numbered and those drawn after 
the first drawn name will be held in suspense pending sale to the 
successful applicant. The random selection drawing will be open to the 
public, and applicants will be advised of the time and place.
    (iii) Notification of applicants not selected to purchase suitable 
farmland. When the Agency selects an applicant to purchase suitable 
farmland, in accordance with this paragraph, all applicants not selected 
will be notified in writing that they were not selected. The outcome of 
the random selection by lot is not appealable if such selection is 
conducted in accordance with this subpart.
    (3) Credit sale procedure. Subject to the availability of funds, 
credit sale to program applicants will be processed as follows:
    (i) The interest rate charged by the Agency will be the lower of the 
interest rates in effect at the time of loan approval or closing.
    (ii) The loan limits for the requested type of assistance are 
applicable to a credit sale to an eligible applicant.
    (iii) Title clearance and loan closing for a credit sale and any 
subsequent loan to be closed simultaneously must be the same as for an 
initial loan except that:
    (A) Form RD 1955-49, ``Quitclaim Deed,'' or other form of 
nonwarranty deed approved by the Office of the General Counsel (OGC) 
will be used.
    (B) The buyer will pay attorney's fees and title insurance costs, 
recording fees, and other customary fees unless they are included in a 
subsequent loan. A subsequent loan may not be made for the primary 
purpose of paying closing costs and fees.
    (iv) Property sold on credit sale may not be used for any purpose 
that will contribute to excessive erosion of highly erodible land or to 
the conversion of wetlands to produce an agricultural commodity, see 
Exhibit M of subpart G of part 1940 of this chapter. All prospective 
buyers will be notified in writing as a part of the property 
advertisement

[[Page 126]]

of the presence of highly erodible land and wetlands on inventory 
property.
    (b) Surplus property and suitable property not sold to a beginning 
farmer or rancher. Except where a lessee is exercising the option to 
purchase under the Homestead Protection provision of subpart S of part 
1951 of this chapter, surplus property will be offered for public sale 
by sealed bid or auction within 15 days from the date of acquisition in 
accordance with Sec. 1955.147 or Sec. 1955.148. Suitable farm property 
which has been advertised for sale to a beginning farmer or rancher in 
accordance with paragraph (a) of this section, but has not sold within 
135 days from the date of acquisition will be offered for public sale by 
sealed bid or auction to the highest bidder as provided in paragraph 
(b)(1) of this section. All prospective buyers will be notified in 
writing as part of the property advertisement of the presence of any 
highly erodible land, converted wetlands, floodplains, wetlands, or 
other special characteristics of the property that may limit its use or 
cause an easement to be placed on the property.
    (1) Advertising surplus property. FSA will advertise surplus 
property for sale by sealed bid or auction within 15 days from the date 
of acquisition or, for those suitable properties not sold to beginning 
farmers or ranchers in accordance with this section, within 135 days of 
the date of acquisition.
    (2) Sale by sealed bid or auction. Surplus real estate must be 
offered for public sale by sealed bid or auction and must be sold no 
later than 165 days from the date of acquisition to the highest bidder. 
Preference will be given to a cash offer which is at least *percent of 
the highest offer requiring credit. (*Refer to Exhibit B of RD 
Instruction 440.1 (available in any Agency office) for the current 
percentage.) Equally acceptable sealed bid offers will be decided by 
lot.
    (3) Negotiated sale. If no acceptable bid is received through the 
sealed bid or auction process, the State Executive Director will sell 
surplus property at the maximum price obtainable without further public 
notice by negotiation with interested parties, including all previous 
bidders. The rates and terms offered for a credit sale through 
negotiation will be within the limitations established in paragraph (b) 
(4) of this section. A sale made through negotiation will require a bid 
deposit of not less than 10 percent of the negotiated price in the form 
of a cashier's check, certified check, postal or bank money order, or 
bank draft payable to FSA. Preference will be given to a cash offer 
which is at least * percent of the highest offer requiring credit. 
[*Refer to Exhibit B of RD Instruction 440.1 (available in any Agency 
office) for the current percentage.] Equally acceptable offers will be 
decided by lot.
    (4) Rates and terms. Subject to the availability of funds, rates and 
terms for Homestead Protection will be in accordance with subpart S of 
part 1951 of this chapter. Sales of suitable property offered to program 
eligible applicants will be on rates and terms provided in subpart A of 
part 1943 of this chapter. Surplus property and suitable property which 
has not been sold to program eligible applicants will be offered for 
cash or on ineligible terms in accordance with subpart J of part 1951 of 
this chapter. The State Executive Director will determine the loan terms 
for surplus property within these limitations. A credit sale made on 
ineligible terms will be closed at the interest rate in effect at the 
time the credit sale was approved. After extensive sales efforts where 
no acceptable offer has been received, the State Executive Director may 
request the Administrator to permit offering surplus property for sale 
on more favorable rates and terms; however, the terms may not be more 
favorable than those legally permissible for eligible borrowers. Surplus 
property will be offered for sale for cash or terms that will provide 
the best net return for the Government. The term of financing extended 
may not be longer than the period for which the property will serve as 
adequate security. All credit sales on ineligible terms will be 
identified as NP loans.

[62 FR 44399, Aug. 21, 1997, as amended at 64 FR 62569, Nov. 17, 1999; 
68 FR 7700, Feb. 18, 2003]



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

    Program officials will immediately contact the National Office 
whenever

[[Page 127]]

they acquire real property to obtain further instructions on the time 
frames and procedures for advertising and disposing of such property.

[62 FR 44401, Aug. 21, 1997]



Sec. 1955.109  Processing and closing (CONACT).

    (a) Determining repayment ability and creditworthiness. If a credit 
sale is involved, the applicant must furnish necessary financial 
information to assist in determining repayment ability and 
creditworthiness. Form FmHA or its successor agency under Public Law 
103-354 431-2, ``Farm and Home Plan,'' should be used for all eligible 
FSA applicants unless the applicant has furnished all required 
information in another acceptable format. Information regarding 
eligibility, planned development and total operations will be provided 
the same as for the respective type of FSA loan. Purchasers requesting 
credit on ineligible terms, except for C&BP, will be handled in 
accordance with subpart J of part 1951 of this chapter. For C&BP, 
information will be provided which is similar to an application 
including financial information required for the respective loan program 
to establish financial stability, creditworthiness and repayment 
ability.
    (b) [Reserved]
    (c) Form of payment. Payments at closing will be in the form of 
cash, cashier's check, certified check, postal or bank money order, or 
bank draft made payable to the Agency.
    (d)-(e) [Reserved]
    (f) Earnest money. Earnest money, if any, will be used to pay 
purchaser's closing costs with any balance of the costs being paid by 
the purchaser. Any excess earnest money will be credited to the purchase 
price or recognized as a part of the purchaser's downpayment.
    (g) Closing and reporting sales. Title clearance, loan closing and 
property insurance requirements for a credit sale will be the same as 
for a program loan, except the property will be conveyed by Form FmHA or 
its successor agency under Public Law 103-354 1955-49, in accordance 
with Sec. 1955.141(a) of this subpart.
    (h) Classification. Credit sales on ineligible terms for C&BP will 
be classified as NP loans and serviced accordingly.
    (i) [Reserved]
    (j) Form FmHA or its successor agency under Public Law 103-354 1910-
11, ``Applicant Certification, Federal Collection Policies for Consumer 
or Commercial Debts.'' The County Supervisor or District Director must 
review Form FmHA or its successor agency under Public Law 103-354 1910-
11 ``Applicant Certification, Federal Collection Policies for Consumer 
or Commercial Debts,'' with the applicant, and the form must be signed 
by the applicant.

[53 FR 35780, Sept. 14, 1988, as amended at 54 FR 29333, July 12, 1989; 
58 FR 52652, Oct. 12, 1993; 60 FR 34455, July 3, 1995; 62 FR 44401, Aug. 
21, 1997; 68 FR 61332, Oct. 28, 2003]

                    Rural Housing (RH) Real Property



Sec. 1955.110  [Reserved]



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

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

[55 FR 3942, Feb. 6, 1990]



Sec. 1955.112  Method of sale (housing).

    (a) Sales by FmHA or its successor agency under Public Law 103-354. 
Sales customarily will be made by FmHA or its successor agency under 
Public Law 103-354 personnel in accordance with Sec. Sec. 1955.114 and 
1955.115 of this subpart (as appropriate) when staffing and workload 
permit and inventory levels do not exceed those outlined in paragraph 
(b) of this section. Adequate and timely advertising in accordance with 
Sec. 1955.146 of this subpart is of utmost importance when this method 
is used.

[[Page 128]]

No earnest money will be collected in connection with sales by FmHA or 
its successor agency under Public Law 103-354. For MFH, this method will 
always be used unless another method is authorized by the Assistant 
Administrator, Housing.
    (b) Real estate brokers. The County Office will utilize the services 
of real estate brokers for regular sales when there are five or more 
properties in inventory at any one time during the calendar year. When 
real estate brokers are used, first consideration will be given to 
utilizing such services under an exclusive broker contract as provided 
for in Sec. 1955.130 of this subpart. Only when it is determined that 
an exclusive broker contract is not practicable, will the services of 
real estate brokers under an open listing agreement be utilized. The use 
of real estate brokers in offices having less than five properties in 
inventory at any one time during the calendar year is optional provided 
staffing and workload permit diligent and timely sales by FmHA or its 
successor agency under Public Law 103-354. When broker services for SFH 
are utilized, the FmHA or its successor agency under Public Law 103-354 
office will not conduct direct sales, but will refer inquiries to the 
broker or list of participating brokers. However, if FmHA or its 
successor agency under Public Law 103-354 has been approached by a 
potential buyer desiring to purchase a specific property and a sales 
contract has been accepted, the property will not be listed for sale 
with real estate brokers. Earnest money held by real estate brokers will 
be used to pay the purchaser's closing costs with any balance of the 
costs to be paid by the purchaser. Any required earnest money deposit is 
exclusive of any required credit report fee. Brokers may only be used 
for MFH with authorization of the Assistant Administrator, Housing.
    (c) Sealed bid or auction. The use of sealed bids or auctions is an 
effective method by which to sell inventory property. If the State 
Director determines that NP SFH property has been given adequate market 
exposure and that diligent sales efforts have not produced buyers, or 
under unusual circumstances as outlined in Sec. 1955.115(a)(1) of this 
subpart, he/she will authorize sale by sealed bid or auction unless 
additional sales methods appear more prudent. Program SFH property will 
be sold by regular sale only, unless the Assistant Administrator, 
Housing, authorizes sale by sealed bid or auction. The State Director 
will request such authorization when all reasonable marketing efforts 
fail to produce buyers and the conditions of Sec. 1955.114(a)(6) of 
this subpart have been met. The case file, including documentation of 
all marketing efforts, will be forwarded to the Assistant Administrator, 
Housing, ATTN: Single Family Housing Servicing and Property Management 
(SFH/SPM) Division, to request authority to sell program property by 
sealed bid or auction. The decision to utilize a sealed bid or auction 
must be carefully weighed when the property is located in a subdivision, 
since the resultant sale may have an adverse effect on surrounding 
property values. Detailed guidance for conducting sealed bid sales is 
provided in Sec. 1955.147 of this subpart and for conducting auction 
sales in Sec. Sec. 1955.131 and 1955.148 of this subpart.

[53 FR 27831, July 25, 1988]



Sec. 1955.113  Price (housing).

    Real property will be offered or listed for its present market 
value, as adjusted by any administrative price reductions provided for 
in this section. Market value will be based upon the condition of the 
property at the time it is made available for sale. However, when a 
section 515 RRH credit sale is being made to a nonprofit organization or 
public body to utilize former single family dwellings as a rental or 
cooperative project for very-low-income residents, the price will be the 
lesser of the Government's investment or market value, less 
administrative price reductions, if any. Market value for multi-family 
housing projects will be determined through an appraisal conducted in 
accordance with subpart B to part 1922 of this chapter. Multi-family 
housing appraisals conducted shall reflect the impact of any 
restrictive-use provisions attached to the project as part of the credit 
sale.

[[Page 129]]

    (a) SFH price reduction. SFH property will be appraised at any time 
additional market data indicates this action is warranted. If SFH 
inventory has not sold after being actively marketed, the price will be 
administratively reduced. An administrative price reduction will be made 
without changing the SFH appraisal. For ease in computing dates for 
administrative price reductions, each month is assumed to have thirty 
days. The following schedule of administrative price reductions will be 
followed:
    (1) Program property. If program property has not sold after being 
actively marketed at the current appraised value for 45 days during 
which time program applicants have exclusive rights to purchase the 
property, plus an additional 30 days to any offeror, the price will be 
administratively reduced by 10 percent of the appraised value. During 
the first 45 days after the price reduction, the property will be 
actively marketed with program applicants having exclusive rights to 
purchase the property, and at the expiration of this 45-day period, the 
property may be sold to any offeror. If at the end of this 75-day period 
the property remains unsold, a second price reduction of 10 percent of 
the appraised value will be made. During the first 45 days after the 
second price reduction, the property will be actively marketed with 
program applicants having exclusive rights to purchase the property, and 
at the expiration of this 45-day period, the property may be sold to any 
offeror. If the property does not sell within 75 days of the second 
price reduction, further guidance is provided in Sec. 1955.114(a)(6) 
and Exhibit D (available in any FmHA or its successor agency under 
Public Law 103-354 office) of this subpart.
    (2) Nonprogram (NP) property. If NP property has not been sold after 
being actively marketed for 45 days, the price will be administratively 
reduced by 10 percent of the appraised value. If the property remains 
unsold after an additional 45-day period of active marketing, one 
further price reduction of 10 percent of the appraised value will be 
made. If the property does not sell within 45 days of the second price 
reduction, further guidance is provided in Sec. 1955.115(a)(1) and 
Exhibit D (available in any FmHA or its successor agency under Public 
Law 103-354 office) of this subpart.
    (b) MFH price reduction. For multiple-family property, the sale 
price will only be reduced to the extent that the market value has 
decreased as shown in a current market appraisal. The District Director 
will not reduce the price without the prior written approval of the 
State Director. The State Director must request National Office 
authorization on reductions in price for multiple-family property if the 
inventory value at the time of acquisition exceeded the State Director's 
loan approval authority.

[53 FR 27831, July 25, 1988; 54 FR 6875, Feb. 15, 1989, as amended at 58 
FR 38927, July 21, 1993]



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

    Program property will be sold by regular sale unless the Assistant 
Administrator, Housing, authorizes another method. If the State Director 
determines that program property has been given adequate market exposure 
and that diligent sales efforts including the use of real estate brokers 
has not produced purchasers, the State Director may request the 
Assistant Administrator, Housing, to authorize sale by sealed bid or 
public auction as specified in Sec. 1955.112(c) of this subpart.
    (a) Single family housing (SFH). Sale prices will be established in 
accordance with Sec. 1955.113 of this subpart. The County Supervisor 
will either offer the property or list it with real estate brokers for 
regular sale under the provisions of Sec. 1955.112 of this subpart. See 
Exhibit D of this subpart (available in any FmHA or its successor agency 
under Public Law 103-354 office) which outlines chronologically the 
sales steps for program property.
    (1) The following provisions apply to all offers to purchase SFH 
inventory property:
    (i) Program property will be available for purchase only by program 
applicants for the first 45 days from the date of the initial offering 
or listing, and for the first 45 days following the date of any 
reduction in price. During these 45-day period(s), offers from others 
may be received and held until the

[[Page 130]]

first business day following the 45-day period (the 46th day) when any 
such offer(s) will be considered as received on the 46th day along with 
offers received on that same (46th) day. After the expiration of each 
45-day exclusive period for program applicants, program property may be 
purchased by offerors requesting credit on program terms, nonprogram 
(NP) terms or for cash in the order of priority set forth in paragraph 
(a)(3) of this section.
    (ii) In regular sales, an acceptable offer must be for at least the 
sale price. No offer for less than the sale price will be considered, 
accepted or held. Offers will be considered as acceptable or 
unacceptable independent of any accompanying credit request (on program 
or NP terms).
    (iii) All offers will be date-stamped when received. Selection of 
equally acceptable offers, considering offers in the category order 
outlined in paragraph (a)(3) of this section, received on the same 
business day will be made by lot by placing the names in a receptacle 
and drawing names sequentially. Drawn offers will be numbered and those 
drawn after the first drawn offer will be held as back-up offers pending 
sale to the successful offeror, unless the offeror has specifically 
noted on the offer that it may not be held as a back-up offer.
    (iv) An offer may be submitted any time after the effective date the 
property is available for sale or any price reduction; however, it is 
not considered until five business days after the effective date. An 
offer received during the five business day period is considered on the 
6th day, at the same time as any offer received on the 6th day.
    (v) If an offer subject to FmHA or its successor agency under Public 
Law 103-354 financing is accepted, and the offeror's credit request is 
later denied, the next offer (if any) will be accepted regardless of 
whether the rejected applicant appeals the adverse decision (NP 
applicants do not receive appeal rights). In cases involving program 
property, if no back-up offers are on hand, the property will be 
reoffered/relisted for sale utilizing the balance of any outstanding 
retention period. Property will not be held off the market pending the 
outcome of an appeal.
    (2) Effective date and method of offering. When ready for sale, each 
property will be offered for sale by use of Form FmHA or its successor 
agency under Public Law 103-354 1955-43 unless FmHA or its successor 
agency under Public Law 103-354 has on hand a signed offer from a 
program applicant to purchase a specific program property or an offer 
from any offeror to purchase a specific NP property. The date the form 
is posted or mailed to real estate brokers is the effective date the 
offer for sale has begun.
    Listings will provide for sales on program and NP terms, as 
appropriate.
    (3) Priority of offers. For program properties, acceptable offers 
received after the 45-day retention period specified in paragraph 
(a)(1)(i) of this section have priority in the order given in paragraphs 
(a)(3) (i), (ii), (iii) and (iv) of this section. For NP properties, 
acceptable offers have priority in the order given in paragraphs (a)(3) 
(ii), (iii) and (iv) of this section. Program applicants may purchase NP 
property, however, credit may only be extended on NP terms.
    (i) Offers with requests for credit on program terms. An offer from 
an applicant requesting credit on program terms in excess of the sale 
price will be considered as equally acceptable with other acceptable 
offers from program applicants and will be sold for the sale price.
    (ii) Cash offers, in descending order from highest to lowest, 
provided the cash offer is higher than any other offer which falls into 
the parameters of paragraph (a)(3)(iii) of this section multiplied by 
the current cash preference percentage listed in exhibit B of FmHA or 
its successor agency under Public Law 103-354 Instruction 440.1 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (iii) Offers with requests for credit on NP terms in descending 
order from highest to lowest, for more than the sale price. An offer 
with a request for credit in excess of the market value of the property 
will not be accepted. If an offer of this type is received, the offeror 
will be given the opportunity to reduce the credit request to the market

[[Page 131]]

value (or lower) with no change to be made in the offered price.
    (iv) Offers with requests for credit on NP terms for the sale price.
    (4) Back-up offers and notification to offerors. Back-up offers will 
be taken in accordance with paragraph (a)(1)(iii) of this section. 
County offices utilizing the services of real estate brokers will advise 
the brokers of changes in the status of the property. County offices not 
utilizing real estate brokers will advise offerors of changes in the 
status of the property utilizing exhibit E of this subpart (available in 
any FmHA or its successor agency under Public Law 103-354 office) or 
similar format. Use of exhibit E is optional in offices utilizing real 
estate brokers.
    (5) Finalizing sales. Credit sales on program terms will be made in 
accordance with Sec. 1955.117 of this subpart and 7 CFR part 3550. Cash 
sales will be handled in accordance with Sec. 1955.118 of this subpart 
and credit sales on NP terms will be made in accordance with subpart J 
of part 1951 of this chapter.
    (6) Unsold property. If program property remains unsold after eight 
months of active marketing, the case file, with documentation of all 
marketing efforts, will be forwarded to the State Office for review with 
a recommendation of future sales efforts. The State Director will 
determine whether a request should be made to the Assistant 
Administrator, Housing, to sell the property by sealed bid or auction, 
or whether additional guidance such as, but not limited to advertising, 
reappraisal, offering a special effort sales bonus, or 20-year 
amortization factor (with balloon after 10 years) on NP financing may 
facilitate a sale.
    (b) Multiple family housing. The sale price will be established in 
accordance with Sec. 1955.113 of this subpart. Notification of known 
interested prospective offerors and advertising should be handled as set 
forth in Sec. 1955.146 of this subpart. The sale information will 
include a sale price, any restrictive-use provisions the project will be 
subject to and made part of the title, a date/time/location when offers 
will be drawn, and require all offerors to submit an application package 
comparable to that required by the respective loan program, which will 
be reviewed by the State Director or designee. The sale/time/location 
will be established by the District Director and will allow adequate 
time for advertising and review of applications to determine eligibility 
in accordance with MFH program requirements. Offerors whose applications 
are rejected by FmHA or its successor agency under Public Law 103-354 
will be notified in writing by the approval official, and for program 
applicants, given appeal rights in accordance with subpart B of part 
1900 of this chapter. If an application is rejected, the sale will 
continue regardless of whether the rejected applicant appeals the 
adverse decision. Property will not be held pending the outcome of an 
appeal. An offeror may withdraw an offer prior to the sale date, but not 
on the sale date. All offers from applicants determined eligible for the 
type loan being offered will be considered. The District Director, or 
delegate, and one other FmHA or its successor agency under Public Law 
103-354 employee will conduct the drawing at which time the public may 
be present. Offers will be placed in a receptacle and drawn 
sequentially. Drawn offers will be numbered and those drawn after the 
first drawn will be held as back-up offers, unless the offeror has 
indicated that the offer may not be held as back-up. Award will be made 
to the first offer drawn provided the offer is acceptable as to the 
terms and conditions set forth in the sale notice. The successful 
offeror will be notified immediately in writing by the approval 
official, return receipt requested, that the successful offeror's offer 
has been accepted even if the successful offeror was present at the 
sale. The remaining offerors will each be notified by letter, return 
receipt requested, that their offer was not successful, but will be held 
as a back-up offer. The selection of the offeror was by lot and is 
therefore not appealable. If an unsuccessful offeror was not present at 
the sale and requests the name of the successful offeror, the name may 
be released. If the MFH property has been listed with real estate 
brokers after receiving authorization from the Assistant Administrator, 
Housing, Form FmHA or its successor agency under Public Law 103-354 
1955-

[[Page 132]]

40, or another appropriate form designated for MFH property, will be 
used and the property sold to the first eligible program applicant. Any 
other method of sale must receive prior written authorization from the 
Assistant Administrator, Housing. Cash sales of program property will 
remain subject to restrictive-use provisions determined needed and 
included in the advertisement. The deed will contain the applicable 
restrictive-use provisions. Tenants and prospective tenants will receive 
the applicable protections for the specific restrictive-use provision 
contained in 7 CFR part 3560, subpart N.
    (c) Single family inventory converted to MFH. Written offers by 
nonprofit organizations, public bodies or for-profit entities, which 
have good records of providing low income housing under section 515, 
will be considered by FmHA or its successor agency under Public Law 103-
354 for the purchase of multiple SFH units for conversion to MFH. 
Section 514 credit sale mortgages may contain repayment terms up to 33 
years and section 515 credit sale mortgage terms may be up to 50 years.
    (1) The price provisions of Sec. 1955.113 and the processing 
provisions for MFH in Sec. 1955.117 of this subpart apply to such a 
conversion.
    (2) The provisions of Sec. 1955.130 of this subpart pertaining to 
real estate brokers apply, as applicable, and a commission will be due 
in the normal manner on units which were listed with the broker(s).
    (3) Prior approval of the National Office is required before 
issuance of Form AD-622, ``Notice of Preapplication Review Action.'' A 
preapplication with documentation as required by the Agency, along with 
the State Director's recommendation, will be forwarded to the National 
Office, Attention: Assistant Administrator, Housing, for a determination 
and further guidance.
    (4) A credit sale for this purpose will be made according to the 
provisions of 7 CFR part 3560, as modified by Sec. 1955.117 of this 
subpart, except the units need not be contiguous, but they must be 
located in close enough proximity so that management costs are not 
increased nor management capabilities diminished because of distance.
    (5) An additional loan may be made simultaneously with the credit 
sale, or later, only when the property involved meets the requirements 
of 7 CFR part 3560, subpart K.
    (d) CONACT residential property suitable for the SFH program. When a 
single family house acquired under the CONACT is determined to be suited 
for the SFH program, it may be offered for sale as a SHF unit as though 
it had been acquired under the SFH program. It may, however, be sold in 
this manner to a program RH applicant on program terms only--not for 
cash or on NP terms. When a house is offered for sale under this 
paragraph, the listing notices and any advertising (whether being sold 
by FmHA or its successor agency under Public Law 103-354 or through real 
estate brokers) must state this restriction.

[53 FR 27832, July 25, 1988, as amended at 55 FR 3942, Feb. 6, 1990; 56 
FR 2257, Jan. 22, 1991; 58 FR 38927, July 21, 1993; 58 FR 38949, July 
21, 1993; 58 FR 52652, Oct. 12, 1993; 67 FR 78329, Dec. 24, 2002; 69 FR 
69106, Nov. 26, 2004]



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

    The appropriate FmHA or its successor agency under Public Law 103-
354 office will take the following steps after repairs, if economically 
feasible, are completed. The appraisal will be updated to reflect 
changes in market conditions, repairs and improvements, if any. Form 
FmHA or its successor agency under Public Law 103-354 1955-43 for SFH 
and 1955-40 for MFH will be completed to offer the property for sale. 
The advertising requirements and deed restrictions in Sec. 1955.116 of 
this subpart apply if the property does not meet FmHA or its successor 
agency under Public Law 103-354 DSS standards.
    (a) Single Family Housing. Sales steps will be the same as for 
program properties as provided in Sec. 1955.114(a) of this subpart, 
except that sales must be for cash in accordance with Sec. 1955.118 or 
credit on NP terms as provided in subpart J of part 1951 of this 
chapter. See exhibit D of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office) which

[[Page 133]]

outlines chronologically the sales steps for NP properties.
    (1) Sale by sealed bid or auction. If a NP property has not sold 
within 150 days after being offered for sale, the inventory case file 
with documentation of marketing efforts will be submitted to the State 
Director. The State Director will authorize sale by sealed bid or 
auction in accordance with Sec. 1955.112(c) of this subpart unless 
additional sales methods appear more prudent. Use of the sealed bid or 
auction method may be considered as an initial sales effort under 
special or unusual circumstances such as, but not limited to, structures 
which have been substantially destroyed by fire or other causes.
    (2) Sale as chattel. If efforts to sell NP property by sealed bid or 
auction prove unsuccessful, the structure(s) may be sold as chattel (for 
chattel or salvage value, as appropriate) when authorized by the State 
Director. When the structure is to be sold as chattel (exclusive of 
land) further guidance is provided in Sec. Sec. 1955.121, 1955.122 and 
1955.141(b) of this subpart. If no offer is received, the structure(s) 
may be demolished and removed from the site and then the site offered 
for sale. If this method is utilized, FmHA or its successor agency under 
Public Law 103-354 will attempt to have the structure removed in 
exchange for the salvageable materials by contract, otherwise, will 
solicit for contracts to have the structure removed in accordance with 
FmHA or its successor agency under Public Law 103-354 Instruction 2024-A 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (3) Sale of vacant land. When FmHA or its successor agency under 
Public Law 103-354 has vacant land in inventory which was security for 
an SFH loan, the land will be sold in accordance with this subparagraph. 
When the lot meets the requirements of 7 CFR part 3550, and a program 
applicant desires to purchase the lot and construct a dwelling, a credit 
sale will not be made. Instead, one section 502 loan will be made which 
will include funds for the purchase of the lot and construction of a 
dwelling. Otherwise, the lot will be sold for cash or on NP terms with a 
loan not to exceed ten years in term and amortization.
    (b) Multiple family housing. Sales steps will be the same as for 
program MFH property as provided in Sec. 1955.114(b) of this subpart 
except that sales must be for cash or on NP terms as set forth in Sec. 
1955.118 of this subpart. Additionally, if cash offers are received, 
they will be given first preference by drawing from the cash offers 
only. If the State Director determines an auction sale should be used to 
sell NP MFH property, authority to use that method of sale must be 
requested from the Assistant Administrator, Housing. Inventory files, 
including information on the acquisition, marketing efforts made, 
management of the property, other pertinent information, a memorandum 
covering the facts of the case, and recommendations of the State 
Director must be submitted for review. If the housing is sold out of the 
FmHA or its successor agency under Public Law 103-354 program as NP 
property, the closing of the sale may not take place until tenants have 
received all notifications and benefits afforded to tenants in prepaying 
projects in accordance with 7 CFR part 3560, subpart N.

[53 FR 27833, July 25, 1988, as amended at 58 FR 38928, July 21, 1993; 
58 FR 52652, Oct. 12, 1993; 67 FR 78329, Dec. 24, 2002; 69 FR 69106, 
Nov. 26, 2004]



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

    For real property (exclusive of improvements) which is unsafe, refer 
to Sec. 1955.137(e) of this subpart for further guidance. For all other 
housing inventory property which does not meet decent, safe and sanitary 
(DSS) standards, the provisions of this section apply.
    (a) Notices and advertising. If the inventory property has a single 
family dwelling or MFH unit thereon which does not meet DSS standards as 
defined in Sec. 1955.103 of this subpart, but which could meet such 
standards through the repair or renovation activities of the future 
owner, any ``Notice of Real Property For Sale,'' ``Notice of Sale,'' or 
other advertisement used in conjunction with advertising the property 
for sale must include the

[[Page 134]]

following language which is contained in Form FmHA or its successor 
agency under Public Law 103-354 1955-44, ``Notice of Residential 
Occupancy Restriction'':

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

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

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

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

[53 FR 27834, July 25, 1988]

[[Page 135]]



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

    The following provisions apply to all credit sales on program terms:
    (a) Offers. Form FmHA or its successor agency under Public Law 103-
354 1955-45 will be used to document the offer and acceptance for 
regular FmHA or its successor agency under Public Law 103-354 sales. The 
contract is accepted prior to processing Form FmHA or its successor 
agency under Public Law 103-354 410-4, ``Application for Rural Housing 
Assistance (Non-Farm Tract),'' for SFH property with the provision that 
acceptance is subject to program approval. MFH property sales require an 
application package comparable to that submitted for the respective loan 
program application.
    (b) Processing. The FmHA or its successor agency under Public Law 
103-354 regulations pertaining to the type of credit being extended will 
be followed in making credit sales on program terms except as modified 
by the provisions of this section. All MFH credit sales may be made for 
up to 100 percent of the current market value of the security, less any 
prior lien. However, if a profit or limited profit applicant desires to 
earn a return, the applicant will be required to contribute at least 3 
percent of the purchase price as a cash downpayment. All credit sales of 
RRH, RCH, and LH properties will be subject to prepayment and 
restrictive-use provisions specified by the respective program 
requirements.
    (c) Approval. Forms FmHA or its successor agency under Public Law 
103-354 1940-1 or RD 3560-51, as appropriate, will be used to approve a 
credit sale even though no obligation of funds is required.
    (d) Downpayment. When a downpayment is made, it will be collected at 
closing.
    (e) Interest rate. Upon request of the applicant, the interest rate 
charged by FmHA or its successor agency under Public Law 103-354 will be 
the lower of the interest rate in effect at the time of loan approval or 
closing. If the applicant does not indicate a choice, the loan will be 
closed at the rate in effect at the time of loan approval.
    (f) Closing costs. MFH purchasers will pay closing costs from their 
own funds. Where necessary, SFH purchasers who qualify may be made a 
subsequent loan to pay closing costs in an amount not to exceed 1 
percent of the sale price of the dwelling. Any closing costs which are 
legally or customarily paid by the seller will be paid by FmHA or its 
successor agency under Public Law 103-354 and charged to the inventory 
account as a nonrecoverable cost items.
    (g) Closing sale. Title clearance, loan closing and property 
insurance requirements for a credit sale, and any loan closed 
simultaneously with the credit sale, are the same as for a program loan 
of the same type except:
    (1) The property will be conveyed in accordance with Sec. 
1955.141(a) of this subpart.
    (2) Earnest money, if any, will be used to pay purchaser's closing 
costs with any balance of closing costs being paid from the purchaser's 
personal funds except as provided in paragraph (f) of this section. For 
SFH credit sales and MFH credit sales to nonprofit organizations or 
public bodies, any excess deposit will be refunded to the purchaser. For 
MFH credit sales to profit or limited profit buyers, any excess earnest 
money deposit will be credited to the purchase price and recognized as a 
part of the purchaser's initial investment.
    (3) The County Supervisor or District Director will provide the 
closing agent with the necessary information for closing the sale. The 
assistance of OGC will be requested to provide closing instructions in 
exceptional or complex cases and for all MFH sales.
    (h) Reporting. After the sale is closed, it will be reported 
according to Sec. 1955.142 of this subpart.

[53 FR 27834, July 25, 1988; 54 FR 6875, Feb. 15, 1989, as amended at 58 
FR 38928, July 21, 1993; 68 FR 61332, Oct. 28, 2003; 69 FR 69106, Nov. 
26, 2004]



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

    (a) Cash sales. Cash sales will be closed by the servicing official 
collecting the purchase price (less any earnest money deposit or bid 
deposit) and delivering the deed to the purchaser.

[[Page 136]]

    (b) Credit sales. The following provisions apply to MFH credit sales 
on NP terms:
    (1) Offers. Form FmHA or its successor agency under Public Law 103-
354 1955-45 or FmHA or its successor agency under Public Law 103-354 
1955-46, as appropriate, will be used to document the offer and 
acceptance. Contract acceptance is made prior to processing a request 
for credit on NP terms.
    (2) Processing. Purchasers requesting credit on NP terms will be 
required to submit documentation to establish financial stability, 
repayment ability, and creditworthiness. Standard forms used to process 
program applications may be utilized or comparable documentation may be 
accepted from the purchaser with the servicing official having the 
discretion to determine what information is required to support loan 
approval for the type property involved. Individual credit reports will 
be ordered for each individual applicant and each principal within an 
applicant entity in accordance with subpart B of part 1910 of this 
chapter. Commercial credit reports will be ordered for profit 
corporations and partnerships, and organizations with a substantial 
interest in the applicant entity in accordance with subpart C of part 
1910 of this chapter.
    (3) Approval. Form RD 3560-51 will be used to approve a credit sale 
even though no obligation of funds is involved. Special instructions on 
the FMI pertaining to NP credit sales will be followed.
    (4) Downpayment. A downpayment of not less than 10 percent of the 
purchase price is required at closing.
    (5) Interest rate. The Section 515 RRH interest rate plus \1/2\ 
percent will be charged on all types of housing credit sales, except 
SFH. Refer to exhibit B of FmHA or its successor agency under Public Law 
103-354 Instruction 440.1 (available in any FmHA or its successor agency 
under Public Law 103-354 office) for interest rates. Loans made on NP 
terms will be closed at the interest rate which was in effect at the 
time the loan was approved.
    (6) Term of note. The note amount will be amortized over a period 
not to exceed 10 years. If the State Director determines more favorable 
terms are necessary to facilitate the sale, the note amount may be 
amortized using a 30-year factor with payment in full (balloon payment) 
due not later than 10 years from the date of closing. In no case will 
the term be longer than the period for which the property will serve as 
adequate security.
    (7) Modification of security instruments. If applicable to the type 
property being sold, modification of security instruments may be made. 
On the promissory note and/or security instrument (mortgage or deed of 
trust) any covenants relating to graduation to other credit, 
restrictive-use provisions on MFH projects, personal occupancy, 
inability to secure other financing, and restrictions on leasing may be 
deleted. Deletions are made by lining through only the specific 
inapplicable language with both the NP borrower and FmHA or its 
successor agency under Public Law 103-354 initialing the changes.
    (8) Closing sale. Title clearance, loan closing and property 
insurance requirements for a credit sale are the same as for a program 
loan except:
    (i) The property will be conveyed in accordance with Sec. 
1955.141(a) of this subpart.
    (ii) The purchaser will pay his/her own closing costs. Earnest 
money, if any, will be used to pay purchaser's closing costs with any 
balance of closing costs being paid by the purchaser. Any closing costs 
which are legally or customarily paid by the seller will be paid by FmHA 
or its successor agency under Public Law 103-354 from the downpayment.
    (iii) The County Supervisor or District Director will provide the 
closing agent with the necessary information for closing the sale. The 
assistance of OGC will be requested to provide closing instructions for 
all MFH sales.
    (iv) When more than one property is bought by the same buyer and the 
transactions are closed at the same time, a separate promissory note 
will be prepared for each property, but one mortgage will cover all the 
properties.
    (9) Reporting. After the sale is closed, it will be reported 
according to Sec. 1955.142 of this subpart.
    (10) Classification. MFH credit sales on NP terms will be classified 
as NP loans and serviced accordingly.

[[Page 137]]

    (11) Form FmHA or its successor agency under Public Law 103-354 
1910-11, ``Applicant Certification, Federal Collection Policies for 
Consumer or Commercial Debts.'' The County Supervisor or District 
Director must review Form FmHA or its successor agency under Public Law 
103-354 1910-11, ``Applicant Certification, Federal Collection Policies 
for Consumer or Commercial Debts,'' with the applicant, and the form 
must be signed by the applicant.

[53 FR 27835, July 25, 1988, as amended at 54 FR 29333, July 12, 1989; 
55 FR 3942, Feb. 6, 1990; 58 FR 38928, July 21, 1993; 58 FR 52653, Oct. 
12, 1993; 68 FR 61332, Oct. 28, 2003; 69 FR 69106, Nov. 26, 2004]



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

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

[55 FR 3942, Feb. 6, 1990, as amended at 58 FR 52653, Oct. 12, 1993]



Sec. 1955.120  Payment of points (housing).

    To effect regular sale of inventory SFH property to a purchaser who 
is financing the purchase of the property with a non-FmHA or its 
successor agency under Public Law 103-354 loan, the County Supervisor 
may authorize the payment by FmHA or its successor agency under Public 
Law 103-354 of not more than three points. The payment must be a 
customary requirement of the lender for the seller within the

[[Page 138]]

community where the property is located. Terms of payment will be 
incorporated in Form FmHA or its successor agency under Public Law 103-
354 1955-45 and will be fixed as of the date the form is signed by the 
appropriate FmHA or its successor agency under Public Law 103-354 
official. Points will not be paid to reduce the purchaser's interest 
rate. The payment will be deducted from the funds to be received by FmHA 
or its successor agency under Public Law 103-354 at closing.

[53 FR 27836, July 25, 1988. Redesignated at 55 FR 3942, Feb. 6, 1990, 
as amended at 58 FR 52653, Oct. 12, 1993; 68 FR 61332, Oct. 28, 2003]

                            Chattel Property



Sec. 1955.121  Sale of acquired chattels (chattel).

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



Sec. 1955.122  Method of sale (chattel).

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

[[Page 139]]

given to a cash offer which is at least ----* percent of the highest 
offer requiring credit.

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

    (e) Negotiated sale. Perishable acquired items and crops (except 
timber) and chattels for which no acceptable bid was received from 
auction or sealed bid methods may be sold by direct negotiation for the 
best price obtainable. No public notice is required to negotiate with 
interested parties including prior bidders. Justification for the use of 
this method of sale will be documented.
    (f) Notification. In many States the original owner of the chattel 
property must personally be notified of the sale date and method of sale 
within a certain time prior to the sale. The State Director then will 
issue a State supplement clearly stating what notices are to be sent, if 
any. County Supervisor will review State supplements to determine what 
notices must be sent to the previous owner of the chattel property prior 
to FmHA or its successor agency under Public Law 103-354 taking action 
to sell the property.

No public notice is required to negotiate with interested parties 
including prior bidders. Justification for the use of this method of 
sale will be documented. A copy of the sale instrument (Form FmHA or its 
successor agency under Public Law 103-354 1955-47, ``Bill of Sale `A'--
Sale of Government Property'') will be kept in the County or District 
Office inventory file. Sale proceeds will be remitted according to FmHA 
or its successor agency under Public Law 103-354 Instruction 1951-B 
(available in any FmHA or its successor agency under Public Law 103-354 
office). A State Supplement, when needed, will be prepared with the 
assistance of OGC to provide additional guidance on negotiated sales and 
to insure compliance with State laws.

[50 FR 23904, June 7, 1985, as amended at 53 FR 35780, Sept. 14, 1988; 
58 FR 48290, Sept. 15, 1993; 58 FR 58650, Nov. 3, 1993; 62 FR 44401, 
Aug. 21, 1997; 68 FR 61332, Oct. 28, 2003]



Sec. 1955.123  Sale procedures (chattel).

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

[[Page 140]]

program approval authorities in exhibit E of FmHA or its successor 
agency under Public Law 103-354 Instruction 1901-A (available in any 
FmHA or its successor agency under Public Law 103-354 office.)
    (b) Receipt of payment. Payment will be by cashier's check, 
certified check, postal or bank money order or personal check (not in 
excess of $500) made payable to the agency. Cash may be accepted if it 
is not possible for one of these forms of payment to be used. Third 
party checks are not acceptable. If full payment is not received at the 
time of sale, the offer will be documented by Form RD 1955-45 or Form RD 
1955-46 where the chattel is sold jointly with real estate by regular 
sale.
    (c) Transfer of title. Title will be transferred to a purchaser in 
accordance with Sec. 1955.141(b) of this subpart.
    (d) Reporting sale. Sales will be reported in accordance with Sec. 
1955.142 of this subpart.
    (e) Reporting and disposal of inventory property not sold. Refer to 
Sec. Sec. 1955.143 and 1955.144 of this subpart for additional guidance 
in disposing of problem property.

[50 FR 23904, June 7, 1985, as amended at 58 FR 52653, Oct. 12, 1993; 58 
FR 58650, Nov. 3, 1993; 68 FR 61332, Oct. 28, 2003]



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

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



Sec. Sec. 1955.125-1955.126  [Reserved]

           Use of Contractors To Dispose of Inventory Property



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

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

[53 FR 27836, July 25, 1988]



Sec. 1955.128  Appraisers.

    (a) Real property. The State Director may authorize the County 
Supervisor or District Director to procure fee appraisals of inventory 
property, except MFH properties, to expedite the sale of inventory real 
or chattel property. (Fee appraisals of MFH properties will only be 
authorized by the Assistant Administrator, Housing, when unusual 
circumstances preclude the use of a qualified FmHA or its successor 
agency under Public Law 103-354 MFH appraiser.) The decision will be 
based on the availability of comparables, the capability and 
availability of personnel, and the number and type of properties (such 
as large farms and business property) requiring valuation. For Farmer 
Programs real estate properties, all contract (fee) appraisers should 
include the sales comparison, income (when applicable), and the cost 
approach to value. All FmHA or its successor agency under Public Law 
103-354 real estate contract appraisers must be certified as State-
Certified General Appraisers.
    (b) Chattel property. For Farmer Programs chattel appraisals, the 
contractor/appraiser completing the report must meet at least one of the 
following qualifications:
    (1) Certification by a National or State appraisal society.
    (2) If the contractor is not a certified appraiser and a certified 
appraiser is not available, the contractor may qualify or may use other 
qualified appraisers, if the contractor can establish that

[[Page 141]]

he/she or that the appraiser meets the criteria for a certification in a 
National or State appraisal society.
    (3) The appraiser has recent, relevant, documented appraisal 
experience or training, or other factors clearly establish the 
appraiser's qualifications.

[58 FR 58650, Nov. 3, 1993]



Sec. 1955.129  Business brokers.

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



Sec. 1955.130  Real estate brokers.

    Contracting authority for the use of real estate brokers is 
prescribed in Exhibit D of FmHA or its successor agency under Public Law 
103-354 Instruction 2024-A (available in any FmHA or its successor 
agency under Public Law 103-354 office). Brokers who are managing 
custodial or inventory property may also participate in sales activities 
under the same conditions offered other brokers. Brokers must be 
properly licensed in the State in which they do business.
    (a) Type of listings. The State Director may authorize use of 
exclusive listings during any calendar year. Since the Agency receives 
many more marketing services for its commission dollar and saves time 
listing the property with only one broker, it is strongly recommended 
that all County Offices be authorized the use of exclusive brokers.
    (1) Exclusive broker contract. An exclusive broker contract provides 
for the selection of one broker by competitive negotiation who will be 
the only authorized broker for the FmHA or its successor agency under 
Public Law 103-354 office awarding the contract within a defined area 
and for specific property or type of property. Criteria will be 
specified in the solicitation together with a numerical weighting system 
to be used (usually 1-100). Responses will be calculated on the basis of 
the criteria such as personal qualifications, membership in Multiple 
Listing Service (MLS), previous experience with FmHA or its successor 
agency under Public Law 103-354 sales, advertising plans, proposed 
innovative promotion methods, and financial capability. The 
responsibilities of the broker under an exclusive broker contract exceed 
those of the open listing agreement and therefore, an exclusive broker 
contract is the preferred method of listing properties.
    (2) Open listing. Open listing agreements provide for any licensed 
real estate broker to provide sales services for any property listed 
under the terms and conditions of Form FmHA or its successor agency 
under Public Law 103-354 1955-42, ``Open Real Property Master Listing 
Agreement.'' If this method is used, a newspaper advertisement will be 
published at least once yearly, or a notice sent to all real estate 
brokers in the counties served by the FmHA or its successor agency under 
Public Law 103-354 office, informing brokers that sales services are 
being requested. The advertising will be substantially similar to the 
example given in Exhibit B of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office). An open listing 
agreement may be executed at any time during the year, but must be 
effective prior to the broker showing the property. When this method is 
used, the FmHA or its successor agency under Public Law 103-354 office 
is responsible for ensuring that adequate advertising is performed to 
effectively market the property.
    (b) Listing notices. Forms FmHA or its successor agency under Public 
Law 103-354 1955-40 or FmHA or its successor agency under Public Law 
103-354 1955-43, as appropriate, will be used to provide brokers with 
notice of initial listing, withdrawal, price change, terms change, 
relisting, sale cancellation, restrictions on sale, etc.
    (c) Priority of offers. All offers received during the same business 
day will be considered as having been received at the same time. The 
successful

[[Page 142]]

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

[[Page 143]]

FmHA or its successor agency under Public Law 103-354 credit. If credit 
is not being extended in these instances (a cash sale), a commission 
will be paid. Under an exclusive broker contract, if a cooperating 
broker purchases the property and is receiving FmHA or its successor 
agency under Public Law 103-354 credit, one-half the respective 
commission will be paid to the exclusive broker. Commissions will be 
paid at closing if sufficient cash to cover the commission is paid by 
the purchaser. Otherwise, the commission will be paid by the appropriate 
FmHA or its successor agency under Public Law 103-354 official by 
completing Form AD-838 and processing Form FmHA or its successor agency 
under Public Law 103-354 838-B for payment in accordance with the 
respective FMI's, and charged to the inventory account as a 
nonrecoverable cost.
    (g) Nondiscrimination. Brokers who execute listing agreements with 
FmHA or its successor agency under Public Law 103-354 shall certify to 
nondiscrimination practices as provided in Form FmHA or its successor 
agency under Public Law 103-354 1955-42. In addition, all brokers 
participating in the sale of property shall sign the nondiscrimination 
certification on Form FmHA or its successor agency under Public Law 103-
354 1955-45.

[53 FR 27836, July 25, 1988, as amended at 55 FR 3943, Feb. 6, 1990; 62 
FR 44401, Aug. 21, 1997; 68 FR 61332, Oct. 28, 2003]



Sec. 1955.131  Auctioneers.

    The services of licensed auctioneers, if required, may be used to 
conduct auction sales as described in Sec. 1955.148 of this subpart and 
procured by competitive negotiation under the contracting authority of 
Exhibit C to FmHA or its successor agency under Public Law 103-354 
Instruction 2024-A (available in any FmHA or its successor agency under 
Public Law 103-354 office).
    (a) Selection criteria. The auctioneer should be selected by 
evaluating criteria such as proposed sales dates, location, advertising, 
broker cooperation, innovations, mechanics of sale, sample advertising, 
personal qualifications, financial capability, private sector financing 
and license/bonding.
    (b) Commission. FmHA or its successor agency under Public Law 103-
354 may not set the commission rate in an auctioneer solicitation/
contract. The rate of commission will be one of the evaluation criteria 
in the solicitation. However, any offeror that submits an offer with a 
commission rate lower than the typical rate for such services in the 
area must include documentation that they have successfully sold 
properties at the lower rate with no compromise in services. The 
solicitation/contract will explicitly detail this policy. Commissions 
will be paid at closing if sufficient cash to cover the commission is 
paid by the purchaser. Otherwise, the commission will be paid by the 
appropriate FmHA or its successor agency under Public Law 103-354 
official completing Form AD-838 and processing Form FmHA or its 
successor agency under Public Law 103-354 838-B for payment in 
accordance with the respective FMI's, and charged to the inventory 
account as a nonrecoverable cost.
    (c) Auctioneer restriction. The auctioneer, his/her sales agents, 
cooperating brokers or persons living in his, her or their immediate 
household are restricted from bidding or from subsequent purchase of any 
property sold or offered at the auctioneer's sale for a period of one 
year from the auction date.

[50 FR 23904, June 7, 1985, as amended at 53 FR 27837, July 25, 1988]

                                 General



Sec. 1955.132  Pilot projects.

    FmHA or its successor agency under Public Law 103-354 may conduct 
pilot projects to test policies and procedures for the management and 
disposition of inventory property which deviate from the provisions of 
this subpart, but are not inconsistent with the provisions of the 
authorizing statute or other applicable Acts. A pilot project may be 
conducted by FmHA or its successor agency under Public Law 103-354 
employees or by contract with individuals, organizations or other 
entities. Prior to initiation of a pilot project, FmHA or its successor 
agency under Public Law 103-354 will publish notice in the Federal

[[Page 144]]

Register of its nature, scope, and duration.

[55 FR 3943, Feb. 6, 1990]



Sec. 1955.133  Nondiscrimination.

    (a) Title VI provisions. If the inventory real property to be sold 
secured a loan that was subject to Title VI of the Civil Rights Act of 
1964, and the property will be used for its original or similar purpose, 
or if FmHA or its successor agency under Public Law 103-354 extends 
credit and the property then becomes subject to Title VI, the buyer will 
sign Form FmHA or its successor agency under Public Law 103-354 400-4. 
``Assurance Agreement.'' The instrument of conveyance will contain the 
following statement:

    The property described herein was obtained or improved through 
Federal financial assistance. This property is subject to the provisions 
of Title VI of the Civil Rights Act of 1964 and the regulations issued 
pursuant thereto for so long as the property continues to be used for 
the same or similar purposes for which the Federal financial assistance 
was extended.

    (b) Affirmative Fair Housing Marketing Plan. Exclusive listing 
brokers or auctioneers selling SFH properties having 5 or more 
properties in the same subdivision listed or offered for sale at the 
same time will prepare and submit to FmHA or its successor agency under 
Public Law 103-354 an acceptable Form HUD 935.2, ``Affirmative Fair 
Housing Marketing Plan,'' for each such subdivision in accordance with 
Sec. 1901.203(c) of Subpart E of Part 1901 of this chapter.
    (c) Equal Housing Opportunity logo. All FmHA or its successor agency 
under Public Law 103-354 and contractor sale advertisements will contain 
the Equal Housing Opportunity logo.



Sec. 1955.134  Loss, damage, or existing defects in inventory real property.

    (a) Property under contract. If a bid or offer has been accepted by 
the FmHA or its successor agency under Public Law 103-354 and through no 
fault of either party, the property is lost or damaged as a result of 
fire, vandalism, or an act of God between the time of acceptance of the 
bid or offer and the time the title of the property is conveyed by FmHA 
or its successor agency under Public Law 103-354, FmHA or its successor 
agency under Public Law 103-354 will reappraise the property. The 
reappraised value of the property will serve as the amount FmHA or its 
successor agency under Public Law 103-354 will accept from the 
purchaser. However, if the actual loss based on the reduction in market 
value of the property as determined by FmHA or its successor agency 
under Public Law 103-354 is less than $500, payment of the full purchase 
price is required. In the event the two parties cannot agree upon an 
adjusted price, either party, by mailing notice in writing to the other, 
may terminate the contract of sale, and the bid deposit or earnest 
money, if any, will be returned to the offeror.
    (b) Existing defects. FmHA or its successor agency under Public Law 
103-354 does not provide any warranty on property sold from inventory. 
Subsequent loans may be made, in accordance with applicable loan making 
regulations for the respective loan program, to correct defects.

[50 FR 23904, June 7, 1985, as amended at 53 FR 27837, July 25, 1988]



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 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,

[[Page 145]]

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 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).

[[Page 146]]

    (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 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, FSA will 
review the determination for each inventory property and determine if 
any of the wetlands or converted wetlands identified by NRCS were 
considered cropland

[[Page 147]]

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 FSA has completed the 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 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.

[[Page 148]]

    (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, as amended at 68 FR 7700, Feb. 18, 2003]



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 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

[[Page 149]]

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.
    (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 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

[[Page 150]]

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. 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 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)

[[Page 151]]

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 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.

[[Page 152]]

    (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; 68 FR 61332, Oct. 28, 2003]



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]
    (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. 7 CFR part 
3560, subpart E 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 7 CFR 
part 3560, subpart F.

[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; 69 FR 69106, Nov. 
26, 2004]

[[Page 153]]



Sec. Sec. 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.
    (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

[[Page 154]]

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 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

[[Page 155]]

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 of cashier'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.
    (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. 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

[[Page 156]]

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; 68 FR 61332, Oct. 28, 
2003]



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 the predetermined minimum.

[62 FR 44404, Aug. 21, 1997, as amended at 68 FR 61332, Oct. 28, 2003]



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.

[[Page 157]]

    (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.



  Sec. Exhibit A to Subpart C of Part 1955--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)

* 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]

[[Page 158]]

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 [Reserved]
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, RHS NP loans secured by 
SFH property, or to the Rural Rental Housing, Rural Cooperative Housing, 
and Farm Labor Housing programs.

[61 FR 59779, Nov. 22, 1996, as amended at 69 FR 69106, Nov. 26, 2004]



Sec. Sec. 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 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 7 CFR part 766, 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.

[[Page 159]]

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; 72 FR 64123, Nov. 15, 2007]



Sec. Sec. 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 
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

[[Page 160]]

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) [Reserved]
    (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 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

[[Page 161]]

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; 68 FR 7700, Feb. 18, 2003]



Sec. Sec. 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 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.

[[Page 162]]

    (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 103-354 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.

[[Page 163]]

    (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 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

[[Page 164]]

    (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 cancelled by use of 
the appropriate Agency form with the attachments noted below. No attempt 
will be made to obtain the debtor's signature. 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 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.

[56 FR 10147, Mar. 11, 1991, as amended at 68 FR 7700, Feb. 18, 2003]



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]



Sec. Sec. 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

[[Page 165]]

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 plan has discharged the 
debtor(s) of liability on the unsecured part of the debt.



Sec. Sec. 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 7 CFR part 11.

[58 FR 21345, Apr. 21, 1993, as amended at 68 FR 7700, Feb. 18, 2003]



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) [Reserved]
    (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,'' 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 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

[[Page 166]]

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; 
68 FR 61332, Oct. 28, 2003; 69 FR 69106, Nov. 26, 2004]



Sec. Sec. 1956.86-1956.95  [Reserved]



Sec. 1956.96  Delinquent adjustment agreements.

    A 90-day extension for making the payments may be given by the 
Agency when the circumstances of the case justify an extension. A 
decision not to extend the time for making payments is not appealable. 
If the debtor is delinquent under the terms of the adjustment agreement 
and is likely to be financially unable to meet the terms of the 
agreement, the Agency 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. The 
cancellation of an adjustment agreement 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 agreement.

[68 FR 7700, Feb. 18, 2003]



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

[[Page 167]]

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.



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  Purpose.

    This subpart delegates authority and prescribes policies and 
procedures for debt settlement of Community Facility loans; Association 
Recreation loans; Rural Renewal loans; direct Business and Industry 
loans; and Shift-in-land-use loans. Settlement of Economic Opportunity 
Cooperative loans, Claims Against Third Party Converters, Non-program 
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. In addition, this subpart 
does not apply to Water and Waste Programs of the Rural Utilities 
Service, Watershed loans, and Resource Conservation and Development 
loans, which are serviced under part 1782 of this title.

[72 FR 55019, Sept. 28, 2007]



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]



Sec. Sec. 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

[[Page 168]]

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 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.

[53 FR 13100, Apr. 21, 1988, as amended at 54 FR 47510, Nov. 15, 1989; 
66 FR 1569, Jan. 9, 2001]



Sec. Sec. 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

[[Page 169]]

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 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.

[[Page 170]]



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 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.



Sec. Sec. 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.



Sec. Sec. 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

[[Page 171]]

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, 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.



Sec. Sec. 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:

[[Page 172]]

    (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.
    (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 any 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.



Sec. Sec. 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

[[Page 173]]

    (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:
    (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  [Reserved]



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,

[[Page 174]]

that payment will accompany the settlement application at the time the 
application is filed with the servicing official.
    (b) [Reserved]
    (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 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.

[53 FR 13100, Apr. 21, 1988, as amended at 68 FR 61332, Oct. 28, 2003]



Sec. Sec. 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

[[Page 175]]

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 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

[[Page 176]]

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 
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.

[[Page 177]]

    (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 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

[[Page 178]]

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.
    (G) If debt restructuring is proposed:
    (1) A draft of Form RD 3560-15, 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

[[Page 179]]

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.
    (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.

[[Page 180]]

    (2) [Reserved]
    (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 103-354 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, as amended at 68 FR 61332, Oct. 28, 2003; 
69 FR 69106, Nov. 26, 2004]



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

[[Page 181]]

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 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]

[[Page 182]]



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 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 these borrowers 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

[[Page 183]]

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 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.



Sec. Sec. 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 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]

Exhibit A to Subpart A--Memorandum of Understanding Between Commodity 
          Credit Corporation and Farmers Home Administration or its 
          successor agency under Public Law 103-354

[[Page 184]]

Exhibit B to Subpart A--Memorandum of Understanding and Blanket 
          Commodity Lien Waiver
Exhibit C to Subpart A--Memorandum of Understanding Between Farmers Home 
          Administration or its successor agency under Public Law 103-
          354 and Commodity Credit Corporation
Exhibits D to Subpart A--D-1 [Reserved]
Exhibit E to Subpart A--Releasing Security Sales Proceeds and 
          Determining ``Essential'' Family Living and Farm Operating 
          Expenses
Exhibit F to Subpart A [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. This subpart is inapplicable to Farm Service Agency, 
Farm Loan Programs.

[50 FR 45783, Nov. 1, 1985, as amended at 58 FR 52654, Oct. 12, 1993; 72 
FR 64123, Nov. 15, 2007]



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

[[Page 185]]

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:
    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

[[Page 186]]

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:
    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

[[Page 187]]

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 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

[[Page 188]]

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 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]



Sec. Sec. 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 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 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

[[Page 189]]

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. 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 Sec. Sec. 
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 Sec. Sec. 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

[[Page 190]]

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 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 operating expenses. 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

[[Page 191]]

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 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 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

[[Page 192]]

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 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

[[Page 193]]

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 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

[[Page 194]]

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 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.

[[Page 195]]

    (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 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.



Sec. Sec. 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

[[Page 196]]

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 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 State supplements. 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-

[[Page 197]]

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 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 liens on chattel security.

    (a) Purposes. Subject to the limitations set out in paragraph (b) of 
this section, the Agency chattel liens may be subordinated to a lien of 
another creditor in either of the following situations:
    (1) The prior lien will soon mature or has matured and the prior 
lienholder desires to extend or renew the obligation, or the obligation 
can be refinanced. The relative lien position of the Agency must be 
maintained; and
    (2) The subordination will permit another creditor to refinance 
other debt or lend for an authorized direct loan purpose.
    (b) Conditions. Agency chattel liens may be subordinated to a lien 
of another creditor if all of the following conditions are met:
    (1) If the lien is on basic chattel security, the amount of 
subordination is necessary to provide the lender with the security it 
requires to make the loan;
    (2) Approval of a subordination is limited to a specific amount and 
the loan to be secured by the subordination is closed within a 
reasonable time;
    (3) Only one subordination to one creditor may be outstanding at any 
one time in connection with the same security;
    (4) The borrower has not been convicted of planting, cultivating, 
growing, producing, harvesting or storing a controlled substance under 
Federal or state law. ``Borrower'' for purposes of this provision, 
specifically includes an individual or entity borrower and any member 
stockholder, partner, or joint operator, of an entity borrower and any 
member, stockholder, partner, or joint operator of an entity borrower. 
``Controlled substance'' is defined at 21 CFR part 1308. The borrower 
will be ineligible for a subordination for the crop year in which the 
conviction occurred and the four succeeding crop years. Applicants must 
attest on the Agency application form that it and its members, if an 
entity, have not been convicted of such a crime;
    (5) The loan funds will not be used in such a way that will 
contribute to erosion of highly erodible land or conversion of wetlands 
for the production of an agricultural commodity according to subpart G 
of part 1940 of this chapter;
    (6) The borrower can document the ability to repay the total amount 
due under the subordination and pay all other debt payments scheduled 
for the subject operating cycle; and

[[Page 198]]

    (7) The Agency loan is still adequately secured after the 
subordination, or the value of the loan security will be increased by at 
least the amount of the advances to be made under the terms of the 
subordination.
    (c) Subordination to make a guaranteed loan. In addition to the 
requirements of this section, subordinations on chattel security to make 
a guaranteed loan will be approved in accordance with Sec. 1980.108 of 
subpart B of part 1980 of this chapter.
    (d) Forms. Subordinations will be requested and executed on Agency 
forms available in any Agency office or on any other form approved by 
the Agency.
    (e) Rescheduling of existing Agency debts. The Agency may consent to 
rescheduling of an existing Agency debt when a subordination is granted 
to the debt of another lender. The rescheduling will be allowed only 
when the borrower cannot reasonably be expected to meet all currently 
scheduled installments when due and the conditions of subpart S of part 
1951 of this chapter are met.
    (f) Appraisal. The Agency will prepare a chattel appraisal report 
when the existing appraisal report is more than 2 years old or is 
inadequate to make the determination in this section. The Agency may use 
an appraisal submitted by the borrower if it is substantially similar to 
Form RD 440-21, ``Appraisal of Chattel Property,'' and prepared by a 
licensed appraiser.

[63 FR 20297, Apr. 24, 1998]



Sec. Sec. 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

[[Page 199]]

and terms of the existing notes or assumption agreements. Form FmHA or 
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 to the 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/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 200]]

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]

    Editorial Note: For Federal Register citations affecting Sec. 
1962.34, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec. Sec. 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 Sec. Sec. 1962.18 
and 1962.49 of this subpart will be followed. In all other cases, when 
the County Supervisor,

[[Page 201]]

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 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 be paid ahead of the Agency under Sec. 1962.44(a) of this 
subpart.

[[Page 202]]

    (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; 69 FR 5267, Feb. 4, 2004]



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.
    (e) Unpaid debt. If the sale of all security results in less than 
full payment of the debt, the borrower may request

[[Page 203]]

debt settlement of the remaining debt. The servicing official will 
consult with the County Committee before determining if the borrower's 
account can be debt settled in accordance with subpart B of part 1956 of 
this chapter.

[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; 68 FR 7701, Feb. 18, 2003]



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.
    (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

[[Page 204]]

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 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

[[Page 205]]

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.
    (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.

[[Page 206]]

    (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.
    (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

[[Page 207]]

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 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]



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

[[Page 208]]

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 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 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 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

[[Page 209]]

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 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 feasibility requirements 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:

[[Page 210]]

    (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 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 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.
    (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

[[Page 211]]

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; 68 FR 7701, Feb. 18, 2003]



Sec. 1962.47  Bankruptcy and insolvency.

    (a) Borrower files bankruptcy. When the Agency becomes aware that a 
Farm Loan Programs borrower has filed for protection under Title 11 of 
the United States Code (bankruptcy), the borrower and the borrower's 
attorney, if any, will be notified in writing of the borrower's 
remaining servicing options.
    (1) If the borrower wishes to apply for servicing options remaining, 
the borrower, or the borrower's attorney on behalf of the borrower, must 
sign and return the appropriate response form, or similar written 
request for servicing, and any forms or information as requested by the 
Agency, within 60 days from the date the borrower or the borrower's 
attorney received the notification, or the time remaining from a 
previous notification that was suspended when the borrower filed 
bankruptcy, whichever is greater.
    (2) The Agency will consider a request for servicing options to be 
an acknowledgment that the Agency will not be interfering with any 
rights or protections under the Bankruptcy Code and its automatic stay 
provisions.
    (3) The Agency's processing of any request for servicing may include 
consideration of primary and preservation loan servicing options, 
notification of the Agency's decision on the request or application for 
servicing, mediation, and holding of any meetings or appeals requested 
by the borrower.
    (4) If court approval is required for the borrower to exercise these 
servicing rights, it will be the borrower or the borrower's attorney's 
responsibility to obtain that approval.
    (5) If a plan is confirmed before servicing and any appeal is 
completed under 7 CFR part 11, the Agency 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 7 CFR part 
1951, subpart S, as appropriate.
    (6) In chapter 7 cases, the Agency will not provide primary loan 
servicing to a borrower discharged in bankruptcy unless the borrower 
reaffirms the entire Agency debt. If the chapter 7 debtor obtains the 
permission of the court and reaffirms the debt, the loan servicing 
application will be processed in accordance with 7 CFR part 1951, 
subpart S. If the borrower reaffirms the Agency debt in order to be 
considered for restructuring but is later denied restructuring, the 
borrower may revoke the reaffirmation subject to the provisions of the 
Bankruptcy Code. No reaffirmation is necessary for any discharged 
chapter 7 borrower to be eligible for preservation loan servicing in 
accordance with 7 CFR part 1951, subpart S.
    (b) Borrower defaults on plan or bankruptcy is dismissed--(1) 90 
days past due on a reorganization plan while still under court 
jurisdiction.(i) If allowed by the Bankruptcy Code or court, the 
borrower and the borrower's attorney, if any, will be notified of any 
remaining servicing options under 7 CFR part 1951, subpart S, that were 
not exhausted prior to filing bankruptcy or during the bankruptcy 
proceedings according to paragraph (a) of this section.
    (ii) No notices will be sent if the account was previously 
accelerated, such action is inconsistent with the provisions of the 
confirmed bankruptcy plan or the Bankruptcy Code, or the case

[[Page 212]]

has been referred to the Department of Justice.
    (iii) If a borrower operating under a confirmed bankruptcy plan 
desires to apply for loan servicing and qualifies for servicing under 7 
CFR part 1951, subpart S, the borrower must also comply with Bankruptcy 
Code rules and requirements concerning modification of the plan.
    (2) Bankruptcy is dismissed without a confirmed plan. If the 
borrower's bankruptcy is dismissed without a confirmed plan, and the 
borrower is in default on Farm Loan Programs loans, the borrower's 
account will be liquidated after all remaining servicing options under 7 
CFR part 1951, subpart S are exhausted. The borrower will be notified of 
any servicing options remaining according to 7 CFR part 1951, subpart S. 
Notwithstanding the previous sentence, no notices will be sent if the 
account was previously accelerated, the Agency is advised that such an 
act is inconsistent with the confirmed bankruptcy plan or the Bankruptcy 
Code, or the account has been referred to the Department of Justice.
    (3) Bankruptcy is dismissed after a confirmed reorganization plan. 
If a bankruptcy is dismissed after a reorganization plan was confirmed, 
the account will be serviced as follows:
    (i) If the borrower has substantially complied with the plan, but 
later defaults for reasons beyond the borrower's control, (see 7 CFR 
1951.909(c)), the borrower will be notified of loan servicing in 
accordance with 7 CFR 1951.907. No notices will be sent if the account 
was previously accelerated; such action is inconsistent with the 
provisions of the confirmed bankruptcy plan or the Bankruptcy Code; or 
the case has been referred to the Department of Justice.
    (ii) If the borrower failed to make one full payment under the plan, 
or did not comply with the plan for reasons not beyond the borrower's 
control, the borrower will be serviced according to paragraph (b)(2) of 
this section.
    (c) Servicing of bankruptcy loans after the case is closed. In 
chapter 11, 12, or 13 cases after the case is closed and the discharge 
order is issued by the court, if the borrower becomes delinquent after 
performing as agreed under the plan, the borrower will be sent a notice 
explaining the loan servicing options available under 7 CFR part 1951, 
subpart S. The borrower's attorney of record will be sent a courtesy 
copy if the bankruptcy has not been closed for at least 2 years. No 
notices will be sent if the account has been accelerated, such act is 
inconsistent with the provisions of a confirmed bankruptcy plan or other 
provisions of the Bankruptcy Code, or the account has been referred to 
the Department of Justice.
    (d) Liquidation. The account will be liquidated after obtaining any 
necessary relief, if required, from the automatic stay. In chapter 7 
cases after discharge, the account can be liquidated if the debt has not 
been reaffirmed and the property is no longer part of the estate. 
Liquidation can proceed prior to discharge if allowed by the court.
    (1) If the borrower or borrower's attorney was not previously 
notified of any remaining servicing options available under 7 CFR part 
1951, subpart S before or during the course of the bankruptcy 
proceedings, the borrower and the borrower's attorney will be sent the 
notices referenced in paragraph (c) of this section prior to liquidating 
any security property.
    (2) If the borrower or the borrower's attorney had been previously 
notified of loan servicing options remaining, the account will be 
liquidated.

[63 FR 29341, May 29, 1998]



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.
    (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-

[[Page 213]]

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 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

[[Page 214]]

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 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

[[Page 215]]

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 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

[[Page 216]]

(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 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.

[[Page 217]]

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) [Reserved]
    (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; 68 FR 61332, Oct. 28, 2003]



Sec. 1962.50  [Reserved]



 Sec. Exhibit A to Subpart A of Part 1962--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 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

[[Page 218]]

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]



 Sec. Exhibit B to Subpart A of Part 1962--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 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

[[Page 219]]

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]



 Sec. Exhibit C to Subpart A of Part 1962--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--------.''
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.

[[Page 220]]

    (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]



        Sec. Exhibits D--D-1 to Subpart A of Part 1962 [Reserved]



   Sec. Exhibit E to Subpart A of Part 1962--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 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

[[Page 221]]

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]



           Sec. Exhibit F to Subpart A of Part 1962 [Reserved]



PART 1965_REAL PROPERTY--Table of Contents




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

Subparts A-E [Reserved]



PART 1980_GENERAL--Table of Contents




Subparts A-C [Reserved]

                      Subpart D_Rural Housing Loans

Sec.
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.
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 areas.
1980.406-1980.410 [Reserved]
1980.411 Loan purposes.
1980.412 Ineligible loan purposes.
1980.413 Transactions which will not be guaranteed.

[[Page 222]]

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.
1980.455-1980.468 [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.
1980.498 Business and Industry Disaster Loans.
1980.499 [Reserved]
1980.500 OMB control number.

Appendix A to Subpart E--Form FmHA 449-1, Application for Loan and 
          Guarantee
Appendix B to Subpart E--Certificate of Incumbency and Signature
Appendix C to Subpart E--Guidelines for Loan Guarantees for Alcohol Fuel 
          Production Facilities
Appendix D to Subpart E--Alcohol Production Facilities Planning, 
          Performing, Development and Project Control
Appendix E to Subpart E--Environmental Assessment Guidelines
Appendix F to Subpart E--Conditional Commitment for Guarantee
Appendix G to Subpart E [Reserved]
Appendix H to Subpart E--Suggested Format for the Opinion of the 
          Lender's Legal Counsel
Appendix I to Subpart E--Instructions for Loan Guarantees for Drought 
          and Disaster Relief
Appendix J to Subpart E [Reserved]
Appendix K to Subpart E--Regulations for Loan Guarantees for Disaster 
          Assistance for Rural Business Enterprises
Exhibit G to Subpart E [Note]

Subparts F-I [Reserved]

    Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
    Subpart E also issued under 7 U.S.C. 1932(a).

Subparts A-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

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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 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

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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).
    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.

[[Page 225]]

    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 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

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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.



Sec. Sec. 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. 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;

[[Page 227]]

    (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 
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

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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 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.

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    (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)-(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 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

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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 7 CFR part 3550. Current county maps showing ineligible 
areas are available in RHS field offices.

[60 FR 26985, May 22, 1995, as amended at 67 FR 78329, Dec. 24, 2002]



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.
    (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

[[Page 231]]

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 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:

[[Page 232]]

    (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.
    (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,

[[Page 233]]

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 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

[[Page 234]]

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 (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,

[[Page 235]]

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.



Sec. Sec. 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 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

[[Page 236]]

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.



Sec. Sec. 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
    (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

[[Page 237]]

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.



Sec. Sec. 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.
    (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.

[[Page 238]]

    (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 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

[[Page 239]]

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;
    (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

[[Page 240]]

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.
    (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

[[Page 241]]

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.)
    (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

[[Page 242]]

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.



Sec. Sec. 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 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.

[[Page 243]]

    (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.
    (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

[[Page 244]]

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 
acceptable documentation of their status.
    (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.

[60 FR 26985, May 22, 1995, as amended at 67 FR 78329, Dec. 24, 2002]



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.



Sec. Sec. 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 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

[[Page 245]]

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.



Sec. Sec. 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.
    (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

[[Page 246]]

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.
    (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.

[[Page 247]]



Sec. Sec. 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 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.

[[Page 248]]

    (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 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.

[[Page 249]]

    (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 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

[[Page 250]]

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.)
    (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.

[[Page 251]]

    (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.



Sec. Sec. 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.
    (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

[[Page 252]]

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.
    (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 Sec. Sec. 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.

[[Page 253]]

    (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:
    (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

[[Page 254]]

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 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

[[Page 255]]

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 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

[[Page 256]]

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.
    (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

[[Page 257]]

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.



Sec. Sec. 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)-(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 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.

[[Page 258]]

    (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 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

[[Page 259]]

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.

    (a) The following general definitions are applicable to the terms 
used in this subpart. Adjusted tangible net worth. Tangible balance 
sheet equity plus allowed tangible asset appreciation and subordinated 
owner debt.
    Allowed tangible asset appreciation. The difference between the 
current net book value recorded on the financial statements (original 
cost less cumulative depreciation) of real property assets and the 
lesser of their current market value or original cost, where current 
market value is determined using an appraisal satisfactory to the 
Agency.
    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.
    Biogas. Biomass converted to gaseous fuel.
    Biomass. Any organic material that is available on a renewable or 
recurring basis including agricultural crops, trees grown for energy 
production, wood waste and wood residues, plants, including aquatic 
plants and grasses, fibers, animal waste and other waste materials, 
fats, oils, greases, including recycled fats, oils and greases. It does 
not include paper that is commonly recycled or unsegregated solid waste.
    Borrower. A borrower may be a cooperative organization, 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 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.
    Commercially available. Energy projects utilizing technology that 
has a proven operating history, and for which there is an established 
industry for the design, installation, and service (including spare 
parts) of the equipment.

[[Page 260]]

    Community facilities. For the purposes 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, 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.
    Energy projects. Commercially available projects that produce or 
distribute energy or power and/or projects that produce biomass or 
biogas fuel.
    Farmers Home Administration (FmHA). The former agency of USDA that 
previously administered the programs of this Agency. Many Instructions 
and forms of FmHA are still applicable to Agency programs.
    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 Rural Development under 
Public Law 103-354 to a borrower setting forth the conditions under 
which Rural Development 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.
    Qualified Intellectual Property. Trademarks, patents or copyrights 
included on current (within one year) audited balance sheets for which 
an audit opinion has been received that states the financial reports 
fairly represent the values therein and the reported value has been 
arrived at in accordance with GAAP standards for valuing intellectual 
property. The supporting work papers must be satisfactory to the 
Administrator.

[[Page 261]]

    Refinancing loan. A loan, all of the proceeds of which are applied 
to extinguish the entire balance of an outstanding debt.
    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 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 
ensure there will be no loss on the B&I guaranteed loan.
    State. Any of the 50 States, the Commonwealth of Puerto Rico, the 
Virgin Islands of the United States, Guam, American Samoa, the 
Commonwealth of the Northern Mariana Islands, the Republic of Palau, the 
Federated States of Micronesia, and the Republic of the Marshall 
Islands.
    Subordinated owner debt. Debt owed by the borrower to one or more of 
the owner(s) that is subordinated to debt owed by the borrower to the 
Agency or guaranteed by the Agency (aggregate B&I loan exposure) 
pursuant to a subordination agreement satisfactory to the Agency. The 
debt must have been issued in exchange for cash loaned to the borrower 
for the benefit of the borrower's business. The terms of the 
subordination agreement must provide that repayment will not commence 
until the earlier of the date all aggregate B&I loan exposure has been 
repaid or when a period of three consecutive years has passed during 
which the borrower has met all loan covenants and evidenced operating 
profit sufficient to commence partial repayment of this subordinated 
debt after giving effect to the annual debt service requirements of the 
aggregate B&I loan exposure. The partial repayment schedule in the case 
of the latter scenario is subject to annual Agency concurrence and may 
not be more accelerated than the rate of the debt repayment schedule in 
effect for the Agency's aggregate B&I loan exposure.
    Tangible balance sheet equity. Total equity less the value of 
intangible assets recorded on the financial statements, as determined 
from balance sheets prepared in accordance with generally accepted 
accounting principles (GAAP), plus qualified intellectual property.
    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.
    (b) Accounting terms not otherwise defined in this part shall have 
the definition ascribed to them under generally accepted accounting 
principles (GAAP).

[71 FR 33185, June 8, 2006]



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 areas.

    The business financed with a B&I loan must be located in a rural 
area. Loans to borrowers with facilities located in both rural and non-
rural areas will be limited to the amount necessary to finance the 
facility located in the eligible rural area. Cooperatives that are 
headquartered in a non-rural area may be eligible for a B&I loan if the 
loan is used for a project or venture that is located in a rural area. 
Rural areas are any areas other than:
    (a) A city or town that has a population of greater than 50,000 
inhabitants; and
    (b) The urbanized area contiguous and adjacent to such a city or 
town, as

[[Page 262]]

defined by the U.S. Bureau of the Census using the latest decennial 
census of the United States.

[67 FR 78130, Dec. 23, 2002]



Sec. Sec. 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
    (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.
    (iv) It does not refinance subordinated owner debt; or

[[Page 263]]

    (v) (Except where the amount to be refinanced is owed directly to 
the Federal government or is Federally guaranteed) the amount to be 
refinanced by the Agency is a secondary part (less than 50 percent) of 
the overall loan requested.
    (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.
    (16) Energy projects. Commercially available energy projects that 
produce biomass fuel or biogas as an output must have completed two 
operating cycles at design performance levels submitted to the Agency. 
Projects that produce steam or electricity as an output must have met or 
exceeded acceptance test performance criteria submitted to the Agency 
and be successfully interconnected with the purchaser of the output. 
Performance or acceptance test requirements for all other energy 
projects will be determined by the Agency on a case by case basis. 
Financing for energy projects will only be allowed when the facility has 
been constructed according to plans and specifications and is producing 
at the quality and quantity projected in the application.
    (b) Public bodies. See Sec. Sec. 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; 71 FR 33187, June 8, 2006]



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

[[Page 264]]

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 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.

[[Page 265]]

    (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 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 
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 Sec. Sec. 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]



Sec. Sec. 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

[[Page 266]]

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. 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]



Sec. Sec. 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

[[Page 267]]

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 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

[[Page 268]]

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, 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.

[[Page 269]]

    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 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. 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 existing businesses at loan closing. A minimum of 20 
percent tangible balance sheet equity will be required for new 
businesses at loan closing. For energy projects, the minimum tangible 
balance sheet equity requirement range will be between 25 percent and 40 
percent. Criteria for considering the minimum equity required for an 
individual application will be based on: existing businesses with 
successful financial and management history vs. start-up businesses; 
personal/corporate guarantees offered; contractual relationships with 
suppliers and buyers; credit rating; and strength of the business plan/
feasibility study. Where the application is a request to refinance 
outstanding Federal direct or guaranteed loans, without any new 
financing, the equity requirement may be determined using adjusted 
tangible net worth. An application that combines a refinancing loan or 
guarantee request with a new loan or guarantee request is subject to the 
standard, unadjusted, equity requirement except as provided in 
paragraphs (a)(1) or (a)(2) of this section. Increases or decreases in 
the equity requirements may be imposed or granted as follows:

[[Page 270]]

    (1) A reduction in the equity requirement for existing businesses 
may be permitted by the Administrator. In order for a reduction to be 
considered, the borrower must furnish the following:
    (i) Collateralized personal and corporate guarantees, including any 
parent, subsidiary, or affiliated company, when feasible and legally 
permissible, and
    (ii) Pro forma and historical financial statements that indicate the 
business to be financed meets or exceeds the median quartile (as 
identified in the Risk Management Association's Annual Statement Studies 
or similar publication) for the current ratio, quick ratio, debt-to-
worth ratio, debt coverage ratio, and working capital.
    (2) The approval official may require more than the minimum equity 
requirements provided in this paragraph if the official makes a written 
determination that special circumstances necessitate this course of 
action.
    (b) The equity requirement must be met in the form of either cash or 
tangible earning assets contributed to the business and reflected on the 
balance sheet.
    (c) The equity requirement must be determined using balance sheets 
prepared in accordance with GAAP and met upon giving effect to the 
entirety of the loan in the calculation, whether or not the loan itself 
is fully advanced, as of the date the loan is closed; a certification to 
this effect is required of all guaranteed lenders.
    (d) The modified formula for determining whether the equity 
requirement is met, ``adjusted tangible net worth,'' may be used only in 
cases where the guarantee requested is for a loan, the proceeds of which 
are to be used entirely to refinance a debt owed to the Federal 
government or Federally guaranteed debt. In all other situations, the 
equity requirement must be determined using tangible net worth.

[71 FR 33187, June 8, 2006]



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

[[Page 271]]

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]



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

[[Page 272]]

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 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.

[[Page 273]]

    (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 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.

[[Page 274]]

    (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 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]

[[Page 275]]



Sec. Sec. 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 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

[[Page 276]]

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 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

[[Page 277]]

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 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,

[[Page 278]]

``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.
    (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

[[Page 279]]

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.
    (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-

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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 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

[[Page 281]]

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.
    (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                    6
 under Public Law 103-354 400-1.   Agreement.
FmHA or its successor agency      Notice to Contractors                6
 under Public Law 103-354 400-3.   and Applicants.
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                  3
 under Public Law 103-354 410-8.   Letter.

[[Page 282]]

 
FmHA or its successor agency      Statement Required by                3
 under Public Law 103-354 410-9.   the Privacy Act.
FmHA or its successor agency      Privacy Act Statement to             3
 under Public Law 103-354 410-10.  References.
FmHA or its successor agency      Inspection Report.......             6
 under Public Law 103-354 424-12.
FmHA or its successor agency      Request for Obligation               2
 under Public Law 103-354 1940-3.  of Funds--Guaranteed
                                   Loans; Filing Position
                                   2.
FmHA or its successor agency      Environmental Checklist              3
 under Public Law 103-354 1940-    for Categorical
 22.                               Exclusion, or.
FmHA or its successor agency      Environmental Assessment             3
 under Public Law 103-354 1940-    for Class I Action, or.
 21.
Exhibit H, Subpart G of Part      Environmental Assessment             3
 1940.                             for Class II Action.
                                  Environmental Impact                 3
                                   Statement.
FmHA or its successor agency      Acknowledgement of                   2
 under Public Law 103-354 440-57.  Obligated Funds/Check
                                   Request.
FmHA or its successor agency      Application for Loan and             3
 under Public Law 103-354 449-1.   Guarantee.
FmHA or its successor agency      Statement of Collateral.             5
 under Public Law 103-354 449-2.
FmHA or its successor agency      Statement of Personal                3
 under Public Law 103-354 449-4.   History.
FmHA or its successor agency      Request for                          3
 under Public Law 103-354 1940-    Environmental
 20.                               Information.
FmHA or its successor agency      Condition Commitment for             2
 under Public Law 103-354 449-14.  Guarantee.
FmHA or its successor agency      Certification of Non-                3
 under Public Law 103-354 449-22.  relocation and Market
                                   and Capacity
                                   Information Report.
FmHA or its successor agency      Project Summary--                    3
 under Public Law 103-354 449-29.  Business Industrial
                                   Loan Division.
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 103-354 449-36.  Agreement.
FmHA or its successor agency      Guaranteed Loan Closing              2
 under Public Law 103-354 1980-    Report.
 19.
                                  Annual Audit Report.....             1
                                  Borrower Financial                   3
                                   Statements.
                                  Chattel Security                     1
                                   Instruments.
                                  Report--Exhibit B, FmHA              1
                                   or its successor agency
                                   under Public Law 103-
                                   354 Instruction 2015--C.
                                  Borrower's Certification             1
                                   of 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                      3
                                   Information
                                   (feasibility study).
                                  Borrower's and Lender's              3
                                   Preapplication Letters.
                                  Lender's Evaluation and              3
                                   Recommendations.
                                  Cost Estimates and                   6
                                   Forecast for
                                   Contingency Funds.
                                  Dun and Bradstreet                   3
                                   Reports.
                                  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                  3
                                   Revenues and Net
                                   Earnings.
                                  Cash Flow Statements, 3              3
                                   Years with Assumptions.
                                  Appraisal Reports.......             8
                                  Documentation for                    3
                                   Considering Refinancing.
                                  Financial Statements for             3
                                   last 3 years.
                                  Complete Debt Schedule..             3
                                  Interim Financial                    3
                                   Statements.
                                  Aging and Turnover of                3
                                   Receivables and
                                   Inventory.
                                  Credit Reports..........             3
                                  Records of any Pending               3
                                   or Final Regulatory
                                   Litigation.
                                  Comments on any State                3
                                   Development Strategies..
                                  Flood or Mudslide Hazard             3
                                   Area Statement.
                                  National Historic                    3
                                   Preservation Act
                                   Statement.
                                  State Review Board                   3
                                   Minutes.
                                  Certificate of Need                  3
                                   (Health Care
                                   Facilities).

[[Page 283]]

 
                                  Clean Air and Water                  3
                                   Pollution Control Act
                                   Requirements Statement.
                                  Correspondence                       4
                                   (excluding closing
                                   instruments).
                                  Department of Labor                  4
                                   Certification.
                                  Mortgagee Title                      5
                                   Insurance Policy.
                                  Title Opinions..........             5
                                  By-Laws, Resolutions, or             5
                                   Regulations and
                                   Amendments.
                                  Articles of                          5
                                   Incorporation, By-laws
                                   and Regulations or
                                   Charter.
                                  Lender Security                      5
                                   agreements and
                                   Financing Statements.
                                  Lender Mortgages and                 5
                                   Notes.
                                  Advice of Office of                  5
                                   General Counsel from
                                   Review of Docket.
                                  Partnership Agreements..             5
                                  Other Documents used in              5
                                   Loan Closing.
                                  Schedule of Stock                    5
                                   Ownership.
                                  Franchise Agreement.....             5
                                  Construction Contracts               6
                                   and Compliance
                                   Statements.
                                  Lender's Approval of                 6
                                   Plans and
                                   Specifications.
                                  Engineer's Certification             6
                                   of Satisfactory
                                   Completion in
                                   Accordance with Plans
                                   and Specifications.
                                  Lender's Audit of                    6
                                   Expenditures and
                                   Project Costs.
                                  Evidence of Concurrence              6
                                   and compliance with
                                   Construction
                                   Requirements of State,
                                   County, and Municipal
                                   Government (including
                                   building permits).
                                  Lender's Closing                     6
                                   Certification.
                                  Lender's Loan Servicing              6
                                   Plan.
                                  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.)
    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.

[[Page 284]]

    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 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-

[[Page 285]]

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 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

[[Page 286]]

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 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

[[Page 287]]

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 Sec. Sec. 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 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

[[Page 288]]

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]



Sec. Sec. 1980.455-1980.468  [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 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

[[Page 289]]

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 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

[[Page 290]]

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 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

[[Page 291]]

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.
    (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.

[[Page 292]]

    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.
    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.

[[Page 293]]



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 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

[[Page 294]]

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:
    (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

[[Page 295]]

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.
    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

[[Page 296]]

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.
    (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

[[Page 297]]

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:
    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

[[Page 298]]

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.



Sec. Sec. 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]



Sec. Sec. 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.

                             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

[[Page 299]]

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.
    (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

[[Page 300]]

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 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

[[Page 301]]

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:
    (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

[[Page 302]]

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).
    (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 Sec. Sec. 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

[[Page 303]]

will apply to loans made to enterprises engaged in agricultural 
production.

[59 FR 28466, June 2, 1994]



Sec. Sec. 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.
    (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

[[Page 304]]

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;
    (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

[[Page 305]]

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.
    (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.

[[Page 306]]

    (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 
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:

[[Page 307]]

    (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 
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

[[Page 308]]

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 Sec. Sec. 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 reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. Send comments regarding

[[Page 309]]

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]

[[Page 310]]



 Sec. Appendix A to Subpart E of Part 1980--Form FmHA 49-1, Application 
                         for Loan and Guarantee

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Sec. Appendix B to Subpart E of Part 1980--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)_________________________________________________________________



     Sec. Appendix C to Subpart E of Part 1980--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 
under the Drought and

[[Page 320]]

Disaster (D&D) Guaranteed Loan and Disaster Assistance for Rural 
Business Enterprises (DARBE) programs described in this 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]



Sec. Appendix D to Subpart E of Part 1980--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

[[Page 321]]

and facilities to the proposed existing facilities or used equipment. 
Consideration must 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

[[Page 322]]

and approvals of Federal, State and local authorities for the 
construction of such facilities.
    (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

[[Page 323]]

can be completed with the funds available as shown on the Form FmHA or 
its successor 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.



  Sec. Appendix E to Subpart E of Part 1980--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

[[Page 324]]

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, 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

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and their adequacy in terms of the degree of treatment provided. Discuss 
the characteristics and uses of the receiving waters for any 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,

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safety, seismic conditions, fire prone locations, radiation, and 
aesthetic considerations. Cite any discussions with appropriate experts.
    (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

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results of the environmental impact analysis done for any of these 
related activities and/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.



 Sec. Appendix F to Subpart E of Part 1980--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:___________________________________________________________________

[[Page 328]]

FmHA or its successor agency under Public Law 103-354 (Title)___________

                        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]



                 Sec. Appendix G to Subpart E [Reserved]



  Sec. Appendix H to Subpart E of Part 1980--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.

[[Page 329]]

    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 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]



    Sec. Appendix I to Subpart E of Part 1980--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

[[Page 330]]

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 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 Sec. Sec. 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

[[Page 331]]

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.
    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

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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 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

[[Page 333]]

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 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

[[Page 334]]

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 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

[[Page 335]]

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 
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.

[[Page 336]]

    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 
103-354 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

[[Page 337]]

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. 
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

[[Page 338]]

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 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____________________________________________

[[Page 339]]

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 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

[[Page 340]]

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 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.

[[Page 341]]

    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 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

[[Page 342]]

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 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]



          Sec. Appendix J to Subpart E of Part 1980 [Reserved]



    Sec. Appendix K to Subpart E of Part 1980--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

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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 
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

[[Page 344]]

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:
    (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, Sec. Sec. 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

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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 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

[[Page 346]]

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:
    (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

[[Page 347]]

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 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

[[Page 348]]

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.
    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

[[Page 349]]

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 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

[[Page 350]]

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 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.

[[Page 351]]

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 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

[[Page 352]]

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, 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

[[Page 353]]

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 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
________________________________________________________________________

[[Page 354]]

                         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
    (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

[[Page 355]]

flood insurance premiums affecting the collateral, but only to the 
extent that inclusion of such protective advances would not cause 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

[[Page 356]]

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, 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 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 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

[[Page 357]]

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 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

[[Page 358]]

                     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:
________________________________________________________________________
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

[[Page 359]]

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.
    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

[[Page 360]]

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 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]



                Sec. Exhibit G to Subpart E of Part 1980

    Note: The Exhibit is not published in the Code of Federal 
Regulations. It is available

[[Page 361]]

in any FmHA or its successor agency under Public Law 103-354 office.

[54 FR 1599, Jan. 13, 1989]

Subparts F-I [Reserved]

                       PARTS 1981	1999 [RESERVED]


[[Page 363]]



                              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 365]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2008)

                      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--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 100--
                199)
        II  Office of Management and Budget Circulars and Guidance 
                (200--299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300-- 
                399)
        VI  Department of State (Parts 600--699)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
        XI  Department of Defense (Parts 1100--1199)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1880--1899)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
      XXIV  Housing and Urban Development (Parts 2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)
     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
    XXXVII  Peace Corps (Parts 3700--3799)

[[Page 366]]

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--99)

                   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)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Parts 2100--2199)
       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 (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)
      XXVI  Department of Defense (Parts 3600-- 3699)
    XXVIII  Department of Justice (Parts 3800--3899)
      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 (Parts 4300--
                4399)
      XXXV  Office of Personnel Management (Parts 4500--4599)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)

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       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
    LXXIII  Department of Agriculture (Parts 8300--8399)
     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
      XCIX  Department of Defense Human Resources Management and 
                Labor Relations Systems (Department of Defense--
                Office of Personnel Management) (Parts 9900--9999)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 0--99)
         X  Privacy and Civil Liberties Oversight Board (Parts 
                1000--1099)

                         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 Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)

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        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)
       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)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
      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 Policy and New Uses, 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  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    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)

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     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  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 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, 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)
      XIII  Nuclear Waste Technical Review Board (Parts 1303--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      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)

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         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)
      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  Department of the Treasury (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)
        IV  Emergency Steel Guarantee Loan Board, Department of 
                Commerce (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board, 
                Department of Commerce (Parts 500--599)

                    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)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 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)

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        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, 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)
            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  Bureau of Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)

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        IV  Bureau of Immigration and Customs Enforcement, 
                Department of Homeland Security (Parts 400--599)

                     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)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, 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 (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board (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  Millenium Challenge Corporation (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)

[[Page 373]]

        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)

                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)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         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, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)

[[Page 374]]

       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 (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Parts 1200--1299)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       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)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)

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        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            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  Employee Benefits Security 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)

                      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)
       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)

[[Page 376]]

        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)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)

                      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)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       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)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (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)

[[Page 377]]

        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)
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             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)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Parts 1500--
                1599)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                301--399)
        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)

[[Page 378]]

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          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 Service, 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)
       102  Federal Management Regulation (Parts 102-1--102-299)
       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
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

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                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, 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--10010)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (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)
         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)

[[Page 380]]

       XII  Corporation for National and Community Service (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)
     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 Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        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  Defense Acquisition Regulations System, 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  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)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)

[[Page 381]]

        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  Broadcasting Board of Governors (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)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        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 [RESERVED]
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        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  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)

[[Page 382]]

         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)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation [RESERVED]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   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 383]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2008)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            5, LXXIII
  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                               2, IX; 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 Nutrition 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
  Procurement and Property Management, Office of  7, XXXII
  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
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX

[[Page 384]]

Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
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
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
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
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
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
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV, VI
  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, United States      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
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    28, VIII
     for the District of Columbia
Customs and Border Protection Bureau              19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII

[[Page 385]]

  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Acquisition Regulations System          48, II
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 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
District of Columbia, Court Services and          28, VIII
     Offender Supervision Agency for the
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
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
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
Environmental Protection Agency                   2, XV; 5, LIV; 40, I, IV, 
                                                  VII
  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                5, III, LXXVII; 14, VI; 
                                                  48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3

[[Page 386]]

  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           2, XXXV; 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
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
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 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
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
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 Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
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 Nutrition 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 Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102

[[Page 387]]

  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 5, XLV; 45, 
                                                  Subtitle A,
  Centers for Medicare & Medicaid Services        42, IV
  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
  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
Homeland Security, Department of                  6, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection Bureau            19, I
  Federal Emergency Management Agency             44, I
  Immigration and Customs Enforcement Bureau      19, IV
  Immigration and Naturalization                  8, I
  Transportation Security Administration          49, XII
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B, 2, 
                                                  XXIV; 2424
  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
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  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
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII
Immigration and Customs Enforcement Bureau        19, IV
Immigration and Naturalization                    8, I
Immigration Review, Executive Office for          8, V
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
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
   Archives and Records Administration
[[Page 388]]

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
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
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            2, XIV; 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 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                                2, XXVII; 5, XXVIII; 28, 
                                                  I, XI; 40, IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  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
  Employee Benefits Security Administration       29, XXV
  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
  Public Contracts                                41, 50

[[Page 389]]

  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of 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
  Copyright Royalty Board                         37, III
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Millenium Challenge Corporation                   22, XIII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
National Aeronautics and Space Administration     2, XVIII; 5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
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 Intelligence, Office of Director of      32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV, VI
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                       2, XXV; 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
Natural Resources Conservation Service            7, VI

[[Page 390]]

Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
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
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Patent and Trademark Office, United States        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 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
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory 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 Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Privacy and Civil Liberties Oversight Board       6, X
Procurement and Property Management, Office of    7, XXXII
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
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
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                     2, XXVII; 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                                  2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III

[[Page 391]]

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 Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  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
  Federal Motor Carrier Safety Administration     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
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection Bureau            19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  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
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       2, VIII; 38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the 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 393]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations that were 
made by documents published in the Federal Register since January 1, 
2001, 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, 2001, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, 1973-1985, and 1986-2000,'' published in 
11 separate volumes.

                                  2001

7 CFR
                                                                   66 FR
                                                                    Page
Chapter XVIII
1951.201 Amended....................................................1569
    Regulation at 66 FR 1569 eff. date delayed......................8886
1951.221 (b) amended................................................1569
    Regulation at 66 FR 1569 eff. date delayed......................8886
1951.222 (a)(11) removed............................................1569
    Regulation at 66 FR 1569 eff. date delayed......................8886
1951.230 (b)(5) and (6) amended; (b)(7) removed.....................1569
    Regulation at 66 FR 1569 eff. date delayed......................8886
1955.10 (a)(1)(ii) removed..........................................7568
1955.104 (c) removed................................................7568
1956.101 Amended....................................................1569
    Regulation at 66 FR 1569 eff. date delayed......................8886
1956.105 (k) removed................................................1569
    Regulation at 66 FR 1569 eff. date delayed......................8886
1956.137 Removed....................................................1569
    Regulation at 66 FR 1569 eff. date delayed......................8886
1965.13 (e)(1) removed; (e)(2) and (3) redesignated as new (e)(1) 
        and (2).....................................................7568
1965.27 (a) removed.................................................7568
1980.1--1980.100 (Subpart A) Removed...............................23151
1980.801--1980.900 (Subpart I) Removed.............................23151

                                  2002

7 CFR
                                                                   67 FR
                                                                    Page
Chapter XVIII
1950.105 (d) amended; eff. 1-23-03.................................78329
1951 Authority citation revised....................................12458
1951.101 Revised...................................................69671
1951.102 (b)(1) revised............................................69671
1951.111 Introductory text and (d)(1) revised......................69671
1951.136 Added.....................................................69672
1951.137 Added.....................................................69672
1951.882 Removed...................................................19101
1951.901--1951.950 (Subpart S) Heading revised......................7943
1951.901 Amended....................................................7943
1951.909 (e)(2)(vii)(D) revised; (e)(2)(viii)(A) amended............7943
1951.914 (e) revised................................................7943
    1951.901--1951.950 (Subpart S) Exhibit A amended...............12458
1955.10 (f)(1) introductory text amended; eff. 1-23-03.............78329
1955.15 (b)(2), (d)(2)(iv) introductory text, (C) and (D) amended; 
        eff. 1-23-03...............................................78329
1955.53 Amended; eff. 1-23-03......................................78329
1955.114 (a)(5) amended; eff. 1-23-03..............................78329
1955.115 (a)(3) amended; eff. 1-23-03..............................78329
1965.61 (d) and (e)(3) amended; eff. 1-23-03.......................78329
1965.202 Amended; eff. 1-23-03.....................................78329
1980 Authority citation revised....................................78130
1980.312 Amended; eff. 1-23-03.....................................78329

[[Page 394]]

1980.353 (e)(3) amended; eff. 1-23-03..............................78329
1980.402 Amended...................................................78130
1980.405 Revised...................................................78130

                                  2003

7 CFR
                                                                   68 FR
                                                                    Page
Chapter XVIII
1951.6 Removed.....................................................61331
1951.51--1951.55 (Subpart B) Removed...............................61331
1951.201 Amended; eff. 1-15-04.....................................69952
1951.221 Introductory text revised.................................61331
    (b) heading amended; eff. 1-15-04..............................69952
1951.455 (e) amended...............................................61331
1951.463 (e) removed................................................7698
1951.506 (b) and (c) removed.......................................61331
1951.903 Amended....................................................7698
1951.909 (a)(3), (e)(1)(xii), (2)(viii) and (i)(2)(i) revised; 
        (e)(2)(ix) redesignated as (e)(2)(x); new (e)(2)(ix) added
                                                                    7698
1951.909--1951.950 (Subpart S) Exhibit A amended....................7699
1951.951 Amended...................................................55303
1951.952 Revised...................................................55303
1951.953 Revised...................................................55303
1951.954 Revised...................................................55303
    (b)(3) correctly revised.......................................69955
1951.957 (a) and (b)(4) revised....................................55303
1951.1000 Removed..................................................55304
1955.1-1955.50 (Subpart A) Exhibits G and G-1 removed...............7700
1955.10 (f)(2) and (3) revised......................................7699
1955.55 (e) revised................................................61331
1955.62 (b)(1) introductory text revised...........................61332
1955.63 (a) and (b) revised.........................................7700
1955.66 (l) introductory text revised..............................61332
1955.103 Amended...................................................62224
1955.107 (a)(2)(i), (b) introductory text, (b)(1) and (2) revised 
                                                                    7700
1955.109 (c) revised...............................................61332
1955.117 (d) revised...............................................61332
1955.118 (a) and (b)(4) revised....................................61332
1955.120 Amended...................................................61332
1955.122 (e) revised...............................................61332
1955.123 (b) revised...............................................61332
1955.130 (e)(2) revised............................................61332
1955.137 (b)(3)(ii) and (iii) amended...............................7700
1955.139 (a)(2) and (3)(iv) amended................................61332
1955.147 (e) amended...............................................61332
1955.148 Amended...................................................61332
1956.57 (f) removed.................................................7700
1956.70 (b)(3) introductory text revised............................7700
1956.84 (e) revised.................................................7700
1956.85 (a)(2) removed.............................................61332
1956.96 Revised.....................................................7700
1956.139 (b) removed...............................................61332
1956.143 (g)(2) removed............................................61332
1962.41 (f) removed; (e) revised....................................7701
1962.46 (g)(5)(ii) revised..........................................7701
1962.49 (e)(3)(ii) removed.........................................61332
1965.26 (f)(6) and (g) removed; (c)(2)(iv) introductory text and 
        (f)(5) revised..............................................7701
1965.27 (b)(19) and (g)(6) removed; (f) revised; (h) amended........7701
1965.61 (a) revised................................................61332
1980 Authority citation revised....................................61333
1980.461 Removed...................................................61333

                                  2004

7 CFR
                                                                   69 FR
                                                                    Page
Chapter XVIII
1951 Technical correction..........................................75454
1951.1 Amended; interim; eff. 2-24-05..............................69105
    Regulation at 69 FR 69105 comment period extended..............77609
1951.102 (b)(6) revised; (b)(13) amended............................5267
1951.133 Added......................................................3000
1951.151 Amended; interim; eff. 2-24-05............................69105
    Regulation at 69 FR 69105 comment period extended..............77609
1951.201 Revised...................................................23425
1951.203 (a) revised; eff. 1-7-05..................................70884
1951.220 (f) and (g) amended; interim; eff. 2-24-05................69105
    Regulation at 69 FR 69105 comment period extended..............77609
1951.222 (a)(1) revised; eff. 1-7-05...............................70884
1951.223 (b)(4) and (c)(3) amended; interim; eff. 2-24-05..........69105
    Regulation at 69 FR 69105 comment period extended..............77609
1951.226 (b)(4)(ii) amended; eff. 1-7-05...........................70884

[[Page 395]]

1951.230 (f)(2) amended; eff. 1-7-05...............................70884
1951.242 Added; eff. 1-7-05........................................70884
1951.250 Amended; eff. 1-7-05......................................70885
1951.266 Revised; interim; eff. 2-24-05............................69105
    Regulation at 69 FR 69105 comment period extended..............77609
1951.501--1951.550 (Subpart K) Removed; interim; eff. 2-24-05......69105
    Regulation at 69 FR 69105 comment period extended..............77609
1951.651--1951.700 (Subpart N) Removed; interim; eff. 2-24-05......69105
    Regulation at 69 FR 69105 comment period extended..............77609
1951.901 Amended....................................................5263
1951.906 Amended....................................................5267
1951.907 (c) introductory text amended; (e) redesignated as (f); 
        new (e) added...............................................5263
    (c) amended.....................................................5267
1951.909 (c)(6) added; (e)(2) heading revised.......................5263
1951.914 (e) introductory text and (11) revised.....................5263
1955 Technical correction..........................................75454
1955.1 Amended; interim; eff. 2-24-05..............................69105
    Regulation at 69 FR 69105 comment period extended..............77609
1955.10 (d)(9) revised; (h)(6) amended; interim; eff. 2-24-05......69105
    Regulation at 69 FR 69105 comment period extended..............77609
1955.15 (d)(2)(v) amended; interim; eff. 2-24-05...................69106
    Regulation at 69 FR 69106 comment period extended..............77609
1955.51 Introductory text amended; interim; eff. 2-24-05...........69106
    Regulation at 69 FR 69106 comment period extended..............77609
1955.55 (a) and (b)(2)(i) amended; interim; eff. 2-24-05...........69106
    Regulation at 69 FR 69106 comment period extended..............77609
1955.61 Amended; interim; eff. 2-24-05.............................69106
    Regulation at 69 FR 69106 comment period extended..............77609
1955.65 (c)(1) amended; interim; eff. 2-24-05......................69106
    Regulation at 69 FR 69106 comment period extended..............77609
1955.66 (a)(2)(ii) amended; interim; eff. 2-24-05..................69106
    Regulation at 69 FR 69106 comment period extended..............77609
1955.101 Amended; interim; eff. 2-24-05............................69106
    Regulation at 69 FR 69106 comment period extended..............77609
1955.103 Corrected.................................................65520
1955.114 (b), (c)(3), (4) and (5) amended; interim; eff. 2-24-05 
                                                                   69106
    Regulation at 69 FR 69106 comment period extended..............77609
1955.115 (b) amended; interim; eff. 2-24-05........................69106
    Regulation at 69 FR 69106 comment period extended..............77609
1955.117 (c) amended; interim; eff. 2-24-05........................69106
    Regulation at 69 FR 69106 comment period extended..............77609
1955.118 (b)(3) amended; interim; eff. 2-24-05.....................69106
    Regulation at 69 FR 69106 comment period extended..............77609
1955.141 (d) and (e) amended; interim; eff. 2-24-05................69106
    Regulation at 69 FR 69106 comment period extended..............77609
1956 Technical correction..........................................75454
1956.51 Amended; interim; eff. 2-24-05.............................69106
    Regulation at 69 FR 69106 comment period extended..............77609
1956.85 (b)(1) amended; interim; eff. 2-24-05......................69106
    Regulation at 69 FR 69106 comment period extended..............77609
1956.143 (c)(3)(iv)(G)(1) amended; interim; eff. 2-24-05...........69106
    Regulation at 69 FR 69106 comment period extended..............77609
1962.40 (b)(2) amended..............................................5267
1965 Technical correction..........................................75454
1965.13 (d) introductory text revised..............................30999
1965.26 (b)(2) amended..............................................5267
1965.51--1965.100 (Subpart B) Removed; interim; eff. 2-24-05.......69106
    Regulation at 69 FR 69106 comment period extended..............77609
1965.201--1965.250 (Subpart E) Removed; interim; eff. 2-24-05......69106
    Regulation at 69 FR 69106 comment period extended..............77609

[[Page 396]]

                                  2005

7 CFR
                                                                   70 FR
                                                                    Page
Chapter XVIII
1955.65 (c)(3) revised.............................................20704

                                  2006

7 CFR
                                                                   71 FR
                                                                    Page
Chapter XVIII
1951.701--1951.750 (Subpart O) Revised.............................75852
1980 Authority citation revised....................................33185
1980.402 Revised...................................................33185
1980.411 (a)(11)(iv), (v) and (16) added...........................33187
1980.441 Revised...................................................33187

                                  2007

7 CFR
                                                                   72 FR
                                                                    Page
Chapter XVIII
1950.101 Amended...................................................64122
1951.1 Amended..............................................55017, 64122
1951.111 Introductory text and (d)(1) amended......................64122
1951.151 Revised...................................................55018
    Amended........................................................64123
1951.201 Revised...................................................55018
1951.218 Added.....................................................55018
1951.251 Revised...................................................55018
    Amended........................................................64123
1951.451--1951.500 (Subpart J) Removed.............................64123
1951.551--1951.600 (Subpart L) Removed.............................64123
1951.701 Revised...................................................55018
1951.901--1951.950 (Subpart S) Removed.............................64123
1951.951--1951.1000 (Subpart T) Removed............................64123
1955.1 Revised.....................................................55019
    Amended........................................................64123
1955.51 Introductory text revised..................................55019
    Amended........................................................64123
1955.101 Revised...................................................55019
    Amended........................................................64123
1956.54 Amended....................................................64123
1956.101 Revised...................................................55019
1962.1 Amended.....................................................64123
1965.1--1965.50 (Subpart A) Removed................................64123


                                  [all]