[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2020 Edition]
[From the U.S. Government Publishing Office]



[[Page i]]

          

                                      Title 7

                                   Agriculture
                             ________________________

                                   Part 1950 to 1999

                         Revised as of January 1, 2020

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2020
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

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                            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........................     297
      Alphabetical List of Agencies Appearing in the CFR......     317
      List of CFR Sections Affected...........................     327

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

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 7 CFR 1950.101 
                       refers to title 7, part 
                       1950, section 101.

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

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                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
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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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[[Page vi]]

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[[Page vii]]

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    Oliver A. Potts,
    Director,
    Office of the Federal Register
    January 1, 2020.







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                               THIS TITLE

    Title 7--Agriculture is composed of fifteen volumes. The parts in 
these volumes are arranged in the following order: Parts 1-26, 27-52, 
53-209, 210-299, 300-399, 400-699, 700-899, 900-999, 1000-1199, 1200-
1599, 1600-1759, 1760-1939, 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, 2020.

    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 was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of John 
Hyrum Martinez, assisted by Stephen J. Frattini.

[[Page 1]]



                          TITLE 7--AGRICULTURE




                 (This book contains parts 1950 to 1999)

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

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

                                                                    Part

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

[[Page 3]]

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

[[Page 5]]



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




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


  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.........................          69
1956            Debt settlement.............................         143
1957            Asset sales.................................         166
1962            Personal property...........................         167
1965            Real property...............................         203
1970            Environmental policies and procedures.......         203
1980            General.....................................         229
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 Rural Development loans which are secured by 
          chattels.
1950.104 Borrower owing Rural Development 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 Rural Development 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 Rural Development 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; 
80 FR 9890, Feb. 24, 2015]



Sec.1950.102  General.

    (a) Rural Development 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 of Rural 
Development 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, as amended at 80 FR 9890, Feb. 24, 2015]



Sec.1950.103  Borrower owing Rural Development 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 government loan indebtedness. The borrower will be permitted to 
retain the chattel security if arrangements can be worked out which are 
satisfactory to the borrower and Rural Development. 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

[[Page 8]]

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 RD 450-10, ``Advice of Borrower's Change of 
Address, Name, Case Number, or Loan Number'' 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 RD 450-5, ``Application to Move Security Property and 
Verification of Address,'' and Form RD 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; 80 FR 9890, Feb. 24, 
2015]



Sec.1950.104  Borrower owing Rural Development loans which are secured
by real estate.

    County Supervisors, to the greatest extent possible, should keep 
themselves informed of the plans of borrowers with Rural Development 
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

[[Page 9]]

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 Rural Development 
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, Rural Development 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 Rural Development 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 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

[[Page 10]]

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 RD 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; 80 FR 9890, Feb. 24, 
2015]



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 Rural Development 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; 80 FR 9890, Feb. 24, 2015]



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]
1951.7 Accounts of borrowers.
1951.8 Types of payments.
1951.9 Distribution of payments when a borrower owes more than one type 
          of Rural Development 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.

[[Page 11]]


Exhibit A to Subpart A of Part 1951--Notice to Agency Borrowers
Exhibit B to Subpart A of Part 1951--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 of Part 1951 [Note]

      Subpart F_Analyzing Credit Needs and Graduation of Borrowers

1951.251 Purpose.
1951.252 Definitions.
1951.253 Objectives.
1951.254 [Reserved]
1951.255 Nondiscrimination.
1951.256-1951.261 [Reserved]
1951.262 Farm Credit Programs-graduation of borrowers.
1951.263 Graduation on non-Farm Credit programs borrowers.
1951.264 Action when borrower fails to cooperate, respond or graduate.
1951.265 Application for subsequent loan, subordination, or consent to 
          additional 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 of Part 1951 [Reserved]
Exhibit B to Subpart F of Part 1951--Suggested Outline for Seeking 
          Information From Lenders on Credit Criteria for Graduation of 
          Single Family Housing Loans

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.

[[Page 12]]

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.
1951.853-1951.858 [Reserved]
1951.859 Terms of loans.
1951.860-1951.865 [Reserved]
1951.866 Security.
1951.867-1951.871 [Reserved]
1951.872 Other regulatory requirements.
1951.873-1951.880 [Reserved]
1951.881 Loan servicing.
1951.882 [Reserved]
1951.883 Reporting requirements.
1951.884 Revolved 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 Notes: 1. Some of the exhibits referenced in this part 
1951 are not published in the Code of Federal Regulations. Exhibits are 
available in any Rural Development office.

    2. Nomenclature changes to part 1951 appear at 80 FR 9890-9894, Feb. 
24, 2015.



                  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 
servicingaccounts. 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 Agency 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

[[Page 13]]

Agency 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 the Agency 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 RD 451-27, ``Review of Collection-Only 
Accounts.''
    (ii) District Directors will establish with County Supervisors a 
systematic plan for collecting the accounts or initiating appropriate 
debt settlement actions during the year.
    (iii) County Supervisors will include in their monthly calendars 
plans for servicing these accounts.
    (iv) On visits to County Offices, District Directors will review the 
progress being made by County Supervisors to insure that goals will be 
reached.
    (v) For collection-only accounts in District Offices, the State 
Director will review the accounts as required in paragraphs (b)(4)(i) 
through (b)(4)(iv) of this section and the District Director will 
service the account.
    (c) Notifying borrowers of payments. County Supervisors will notify 
borrowers of the dates and amounts of payments that have been agreed on 
for all types of accounts. Form RD, ``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.

[[Page 14]]

    (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 RD, ``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 RD 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 Agency borrowers will be maintained in the County Office 
as provided in RD Instruction 1905-A (available in any Agency 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, Rural 
Development 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 RD 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 RD 1951-9 are retained in the Finance Office on 
microfiche. These quarterly statements reflect cumulative data from the 
beginning of the current year through the end of the most recent 
quarter. If a borrower requests a loan summary statement with data 
through the most recent quarter, county supervisors may request copies 
of these quarterly or annual statements by sending Form RD 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 RD 1951-
9. A copy(ies) of Form RD 1951-9 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

[[Page 15]]

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 (RD 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 Agency 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 RD 
431-2, ``Farm and Home Plan'') and Form RD 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 Agency loan, regular payments received from each crop 
year's income will be distributed in accordance with the following 
priorities:
    (i) First, to an amount equal to any advances made by RD 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 Agency 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 Agency 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 Agency 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 Agency 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

[[Page 16]]

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 Agency 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 Rural Development lien having the 
highest priority, the balance of such payment will be distributed to the 
Rural Development loan having the next highest priority.
    (c) Application of payments. After the decision is reached as to the 
amount of each payment that is to be distributed to the different loan 
types, application of the payment will be governed by Sec. Sec.1951.10 
or 1951.11 of this subpart as appropriate.

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



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

    Employees receiving payments on OL, EO, SW codes ``24,'' EM for 
subtitle B purposes, EE operating-type, and other production-type loan 
accounts will select, in accordance with the provisions of this section, 
the account(s) to which such payment will be applied. All payments on OL 
and EM loans approved on or before December 31, 1971, will be credited 
first to any administrative costs, then to noncapitalized interest, then 
to the amount of accrued deferred interest, and then to principal. All 
payments on all other loans including OL and EM loans approved after 
December 31, 1971, will be credited first to any administrative costs, 
then to noncapitalized interest, then to the amount of accrued deferred 
interest, then to interest accrued to the date of the payment and then 
to principal, in accordance with the terms of the note. This section 
only applies after the County Supervisor determines the amount of 
proceeds that will be released for other purposes in accordance with the 
annual plan (Form RD 431-2) and Form RD 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

[[Page 17]]

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 Agency claims.
    (b) Payments in full. Errors of a significant amount in computation 
or collection will be called to the attention of the collection official 
by the Finance Office. The borrower's note will not be returned until 
the balance on the loan account is paid in full. Claims by or on behalf 
of the borrowers that the amounts owed have been computed incorrectly 
will be referred to the Finance Office.

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



Sec.1951.11  Application of payments on real estate accounts.

    (a) Regular payments. If a borrower owes more than one type of real 
estate loan, or has received initial and subsequent real estate loans on 
which separate accounts are maintained, payments on such accounts should 
be applied so as to maintain the note accounts approximately in balance 
at the end of the year with respect to installments due on the notes, 
other charges, and delinquencies.
    (b) Refunds and extra payments. (1) Refunds will be applied to the 
note representing the loan from which the advance was made.
    (2) Extra payments will be applied to the note secured by the 
earliest mortgage on the property from which the extra payment was 
obtained.
    (3) Funds remaining from an RH grant or a combination loan and 
grant, after completion of development, will be refunded. If the 
borrower received a combination loan and grant, the remaining funds up 
to the amount of the grant are considered to be grant funds.
    (c) County Office actions. (1) The collecting official will complete 
Form RD 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 RD, ``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 Rural Development office.)
    (ii) Amounts paid on direct loan accounts will be credited to the 
borrower's account as of the date of Form RD 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 RD 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 RD 
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

[[Page 18]]

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 RD 451-2 and will be applied first 
to a portion of any interest which accrues during the deferral period, 
second to interest accrued to the date of the receipt and third to 
principal in accordance with the terms of the note. The amount to be 
applied to principal will be applied to the final unpaid installment(s). 
Extra payments and refunds will not affect the schedule status of a 
borrower except indirectly in connection with the amortization of a 
direct loan.
    (3) The Finance Office will remit final payments promptly to 
lenders. Other collections (regular, extra, and refunds) applied to a 
borrower's insured note will be accumulated until the annual installment 
due date, and will be remitted along with any advances from the 
insurance fund to the lender within 30 days after the installment due 
date. All payments to a lender will be credited first to interest to the 
date of the Treasury check and then to principal. Since the application 
of a payment to a borrower's account with the Government and the 
Government's account with a lender is of a different effective date, the 
balance owed by a borrower to the government and by the Government to a 
lender ordinarily will not be the same.

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



Sec.1951.12  Changes in the application of loan payments.

    (a) Authority to change payments. County Supervisors and Assistant 
County Supervisors are hereby authorized to approve requests for changes 
in the application of payments between loan accounts when payments have 
been applied in error and such requests conform to the policies 
expressed in this Subpart. However, no change will be made if the 
payment applied in error resulted in the payment in full of any Agency 
loan and the canceled note or notes have been returned to the borrower.
    (b) Form RD 1951-7, ``Request for Change in Application.'' Requests 
for changes in application of payments will be made on Form RD 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 RD 1951-7 and forward it to 
the Finance Office. The Finance Office will send Form RD 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 RD 
451-8, ``Journal Voucher for Loan Account Adjustments,'' will be 
prepared. Form RD 451-26 will be forwarded to the County Office to show 
the reapplication.
    (2) When necessary, the Finance Office will correct Form RD 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

[[Page 19]]

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



Sec.1951.14  Recoverable and nonrecoverable cost charges.

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

[[Page 20]]

    (2) If a promissory note is lost in the County Office and it is 
needed for servicing a case, the State Director may authorize the County 
Supervisor to execute an appropriate affidavit regarding the lost note. 
The form of such an affidavit will be provided by OGC.

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



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

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



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 RD, in light of the 
previous year's projected figures and actual figures; (See subpart B of 
part 1924 of this chapter)

[[Page 21]]

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

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



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 Agency Borrowers

    Agency borrowers with 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 
Rural Development office.

[80 FR 9891, Feb. 24, 2015]



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

                              (insert date)

                    Notice of Change in Interest Rate

________________________________________________________________________


[[Page 22]]

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

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

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

[56 FR 3396, Jan. 30, 1991]

Subpart B [Reserved]



     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.

[[Page 23]]

    (5) Debt management officer means an agency employee responsible for 
collection by administrative offset of debts owed the United States.
    (6) Delinquent or past-due means a payment that was not made by the 
due date.
    (7) Entity means a corporation, joint stock company, association, 
general partnership, limited partnership, limited liability company, 
irrevocable trust, revocable trust, estate, charitable organization, or 
other similar organization participating in the farming operation.
    (8) FP means Farm Programs.
    (9) FLP means Farm Loan Programs.
    (10) FSA means Farm Service Agency.
    (11) National Appeals Division means the organization within the 
Department of Agriculture that conducts appeals of adverse decisions for 
program participants under the purview of 7 CFR part 11.
    (12) Offsetting agency means an agency that withholds from its 
payment to a debtor an amount owed by the debtor to a creditor agency, 
and transfers the funds to the creditor agency for application to the 
debt.
    (13) Propriety means the offset is feasible. It includes offsetting 
a debtor's payments due any entity in which the debtor participates 
either directly or 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

[[Page 24]]

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 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

[[Page 25]]

other debts owed the Federal government in the amount missing due to the 
action of an employee or former employee.
    (4) Disposable pay. Pay due an employee that remains after required 
deductions for Federal, State and local income taxes; Social Security 
taxes, including Medicare taxes; Federal retirement programs; premiums 
for life and health insurance benefits, and such other deductions 
required by law to be withheld.
    (5) Hearing Officer. An Administrative Law Judge of the USDA or 
another individual not under the supervision or control of the USDA, 
designated by the Certifying Official to review the determination of the 
alleged debt.
    (6) Non-cash credit. The accounting action taken by the Finance 
Office to credit and make a borrower's account whole for funds paid by 
the borrower but missing due to an employee's or former employee's 
actions.
    (7) Salary Offset. The collection of a debt due to the U.S. by 
deducting a portion of the disposable pay of a Federal employee without 
the employee's consent.
    (c) Feasibility of salary offset. The first step the Certifying 
Official must take to use this offset procedure is to decide, on a case 
by case basis, whether offset is feasible. If an offset is feasible, the 
directions in the following paragraphs of this section will be used to 
collect by salary offset. If the official making this determination 
decides that salary offset is not feasible, the reasons supporting this 
decision will be documented in the borrower's running case record in the 
case of delinquent debts, or the ``For Official Use Only'' file in cases 
of other debts. Ordinarily, and where possible, debts should be 
collected in one lump-sum; but payments may be made in installments. 
Installment deductions can be made over a period not greater than the 
anticipated period of employment. However, the amount deducted for a pay 
period will not exceed 15 percent of the disposable pay from which the 
deduction is made. If possible, the installment payment will be 
sufficient in size and frequency to liquidate the debt in approximately 
3 years. Based on the Comptroller General's decisions, other debts by 
employees cannot be forgiven. If the employee retires or resigns, or if 
employment ends before collection of the debt is completed, final salary 
payment, lump-sum leave, etc. may be offset to the extent necessary to 
liquidate the debt. Salary offset is feasible if:
    (1) The cost to the Government of collecting salary offset does not 
exceed the amount of the debt. County Committee members are exempt from 
salary offset because the amount collected by salary offset would be so 
small as to be impractical.
    (2) There are not any legal restrictions to the debt, such as the 
debtor being under the jurisdiction of a bankruptcy court, or the 
statute of limitations having expired. The Debt Collection Act of 1982 
permits offset of claims that have not been outstanding for more than 10 
years.
    (d) Notice to debtor. (1) After the Certifying Official determines 
that collection by salary offset is feasible, 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 Rural Development 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 (RD Guide Letter 1951-C-4) will be addressed to 
the debtor or the debtor's representative. The Notice of Intent

[[Page 26]]

must be modified if it is addressed to the debtor's representative. In 
either case, the Notice of Intent will state:
    (1) It has been determined that the debt is owed, the amount of the 
debt, and the facts giving rise to the debt;
    (2) The cost to the Government of collecting salary offset does not 
exceed the amount of the debt;
    (3) There are not any legal restrictions that would bar collecting 
the debt;
    (4) The debt will be collected by means of deduction of not more 
than 15 percent from the employee's current disposable pay until the 
debt and all accumulated interest are paid in full;
    (5) The amount, frequency, approximate beginning date, and duration 
of the intended deductions;
    (6) An explanation of the requirements concerning interest, 
penalties and administrative costs, unless such payments are waived;
    (7) The employee's right to inspect and request a copy of records 
relating to the debt;
    (8) The employee's right to voluntarily enter into a written 
agreement for a repayment schedule with the agency different from that 
proposed by Rural Development, 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 Rural 
Development;
    (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 RD Guide Letter 1951-C-4 by asking to review and copy 
Rural Development'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 Rural Development 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 Rural Development copy the records, a copy will be 
made within 30 days of the request.
    (2) If a debtor responds to RD 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. RD Form Letter 1951-
8 will be used if a repayment offer for an Rural Development 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

[[Page 27]]

servicing regulations for the type of loan(s) involved.
    (3) If a debtor responds to RD Guide Letter 1951-C-4 by asking for a 
hearing on Rural Development'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 Rural Development, 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 Rural Development 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 RD 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 Rural Development 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 RD 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 (RD 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, Rural Development will arrange for 
a hearing officer and notify the employee of the time and place of the 
hearing. The hearing location should be convenient to all parties 
involved. The employee will also be notified that the acceptance of the 
petition for hearing will stay the commencement of collection 
proceedings. Any payments collected in error due to untimely or delayed 
filing beyond the employee's control will be refunded unless there are 
applicable contractual or statutory provisions to the contrary.
    (5) The hearing will be based on written submissions and 
documentation provided by the debtor and Rural Development unless:

[[Page 28]]

    (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 Rural Development 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 RD 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 RD Guide Letter 1951-C-4 within 
30 days.
    (ii) The borrower responds to RD 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 Rural Development 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 Rural Development, a copy of the debtor's 
letter (RD Form Letter 1951-8) authorizing this must be attached to Form 
AD-343.
    (5) Field offices will be notified of payments received from salary 
offset by receipt of a transaction record from the Finance Office.
    (i) Deduction percentage. (1) Generally, installment deductions will 
be made over a period not greater than the anticipated period of 
employment. If possible, the installment payment will be sufficient in 
size and frequency to liquidate the debt in approximately 3 years. The 
size and frequency of installment deductions will bear a reasonable 
relation to the size of the debt and the employee's ability to pay. 
Certifying Officials are responsible for determining the size and 
frequency of the deductions. However, the amount deducted for any period 
will not exceed 15 percent of the disposable pay from which the 
deduction is made, unless the employee has agreed in writing to the 
deduction of a greater amount. Installment payments of less than $25 per 
pay period or $50 a month will be accepted only in the most unusual 
circumstances.
    (2) Deductions will be made only from basic pay, incentive pay, 
retainer pay, or, in the case of an employee not entitled to basic pay, 
other authorized pay. If there is more than one salary offset, the 
maximum deduction for all salary offsets against an employee's 
disposable pay is 15 percent unless the employee has agreed in writing 
to a greater amount.
    (j) Agency/NFC responsibility for other debts. (1) Rural Development 
will inform NFC about other indebtedness by transmitting to NFC an AD-
343. NFC

[[Page 29]]

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 Rural Development's records. Rural 
Development 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 Rural Development account(s) and, due to theft, 
embezzlement, fraud, negligence, or some other action on the part of an 
Rural Development 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 Rural Development 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 Rural Development 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 RD Form 
Letter 1951-5 to the Finance Office. Processing RD 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 Rural Development 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 Rural Development 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.

[[Page 30]]

    (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 Rural Development 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 Rural Development 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 Rural Development 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 Rural 
Development has complied with applicable regulations and instruction for 
submitting the funds to the Finance Office. (See RD Form Letter 1951-6).
    (2) When an employee of Rural Development 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, Rural Development will notify the employee and NFC and arrange 
for offset. (See RD Form Letter 1951-7).
    (q) Deductions by the National Finance Center (NFC). The NFC will 
automatically deduct the full amount of the delinquency or indebtedness 
if less than 15 percent of disposable pay or 15 percent of disposable 
pay if the delinquency or indebtedness exceeds 15 percent, unless the 
creditor agency advises otherwise. Deductions will begin the second pay 
period after the 30-day notification period has expired unless Rural 
Development issues the notice. If Rural Development 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 Rural Development 
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, Rural Development 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, Rural Development may increase

[[Page 31]]

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; 80 FR 
9891, Feb. 24, 2015]



Sec. Sec.1951.112-1951.132  [Reserved]



Sec.1951.133  Establishment of Federal Debt.

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

[69 FR 3000, Jan. 22, 2004]



Sec. Sec.1951.134-1951.135  [Reserved]



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

    (a) The National Offices of the Rural Housing Service (RHS), 
Community Facilities (CF) and the Rural Business-Cooperative Service 
(RBS) will refer past due, legally enforceable debts which are over 180 
days delinquent to the Secretary of the Treasury for collection by 
centralized administrative offset (TOP), Internal Revenue Service offset 
administered through TOP and Treasury's Cross-Servicing (Cross-
Servicing) Program, which centralizes all Government debt collection 
actions. A borrower with a workout agreement in place, in bankruptcy or 
litigation, or meeting other exclusion criteria, may be excluded from 
TOP or Cross-Servicing.
    (b) A 60 day due process notice will be sent to borrowers subject to 
TOP or Cross-Servicing. The borrower will be given 60 days to resolve 
any delinquency before the debt is reported to Treasury. The notice will 
include:
    (1) The nature and amount of the debt, the intention of the Agency 
to collect the debt through TOP or Cross-Servicing, and an explanation 
of the debtor's rights;
    (2) An opportunity to inspect and copy the records related to the 
debt from the Agency;
    (3) An opportunity to review the matter within the Agency or the 
National Appeals Division, if there has not been a previous opportunity 
to appeal the offset; and
    (4) An opportunity to enter into a written repayment agreement.
    (c) In referring debt to the Department of Treasury the Agency will 
certify that:
    (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

[[Page 32]]

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 
theRural 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 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, RD 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. RD 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:

[[Page 33]]

    (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 RD 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. RD 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 RD (available in any Rural Development office).
    (c) Delivery of satisfaction, notes, and other documents. When the 
remittance which paid an account in full has been processed by RD, the 
paid note and satisfied mortgage may be returned to the borrower. If 
other provisions exist, the mortgage will not be satisfied until the 
total indebtedness secured by the mortgage is paid. For instance, in a 
situation where a rural housing loan is paid-in-full and there is a 
subsidy recapture receivable balance that the borrower elects to delay 
repaying, the amount of recapture to be repaid will be determined when 
the principal and interest balance is paid. The mortgage securing the 
RHS, RBS, RUS, and/or FSA or its successor agency under Public Law 103-
354 debt will not be released of record until the total amount owed the 
Government is repaid. To permit graduation or refinancing by the 
borrower, the mortgage securing the recapture owed may be subordinated.
    (1) If RD 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 RD to be 
financially responsible, the mortgage and paid note will not be released 
until after a 30-day waiting period. If other indebtedness to RD is not 
secured by the mortgage, RD will execute the satisfaction or release. 
When the stamped note is delivered to the borrower, RD 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 RD to be responsible. RD will not accept 
payment in the form of foreign currency, foreign checks or sight drafts. 
RD will execute the satisfaction or release (unless other indebtedness 
to RD 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, RD 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

[[Page 34]]

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, 
FD may release the mortgage interest in the insurance policy as provided 
in subpart A of part 1806 of this chapter (RD Instruction 426.1).
    (h) [Reserved]
    (i) Outstanding Loan Balance(s). RD will attempt to collect any 
account balance(s) that may result from an error by RD 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 Business Enterprise/
Television Demonstration grants; Association Recreation 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 
Rural Housing Service 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.



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 Rural Development's 
financial interest. Supervision by Rural Development 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

[[Page 35]]

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 Rural Development services rendered in the 
processing of a transfer and assumption.

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



Sec.1951.204  Nondiscrimination.

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

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



Sec.1951.205  Redelegation of authority.

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



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 Rural Development 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 actions as defined in Sec.1970.6 of this chapter are 
part of the financial assistance already provided and do not require 
additional NEPA review. Actions such as lien subordinations, sale or 
lease of Agency-owned real property, or approval of a substantial change 
in the scope of a project, as defined in Sec.1970.8, must comply with 
the environmental review requirements in accordance with 7 CFR part 
1970.

[81 FR 11032, Mar. 2, 2016]



Sec.1951.211  Refinancing requirements.

    In accordance with the CONACT, Rural Development 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]

[[Page 36]]



Sec.1951.212  Unauthorized financial assistance.

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



Sec.1951.213  Debt settlement.

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



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

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

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



Sec.1951.215  Grants.

    No monitoring action by Rural Development 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 Rural Development 
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 
Rural Development 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 2 CFR parts 200, 
400, 415, 417, 418, and 421.
    (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 Rural Development 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.
    (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; 79 
FR 76012, Dec. 19, 2014]



Sec.1951.216  Nonprogram (NP) loans.

    Borrowers with NP loans are not eligible for any program benefits, 
including appeal rights. However, Rural Development 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

[[Page 37]]

under this subpart must have prior concurrence of the National Office.



Sec.1951.217  Public bodies.

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



Sec.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.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 Rural Development's interest in insurance policies 
according to applicable provisions of subpart A of part 1806 (RD 
Instruction 426.1).
    (3) Release Rural Development's interest in any other security as 
appropriate, consulting with OGC if necessary.
    (b) Loan summary statements. Upon request of a borrower, Rural 
Development 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 
RD 1951-9, ``Annual Statement of Loan Account,''

[[Page 38]]

to be retained in borrower files as a permanent record of account 
activity for the year.
    (2) Quarterly Form RD 1951-9 are retained in the Finance Office on 
microfiche. These statements reflect cumulative data from the beginning 
of the current year through the end of the most recent quarter. 
Servicing offices may request copies of these quarterly or annual 
statements by sending Form RD 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 RD 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. Rural Development 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 (RD 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 Rural Development'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 Rural Development 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

[[Page 39]]

assigned to and held by Rural Development as additional security. In 
other cases the borrower's note may be endorsed by individuals. The 
liability instruments will be serviced in a manner indicated by their 
contents and the advice of OGC to adequately protect Rural Development'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 
Rural Development 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 Rural 
Development 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 Rural Development's 
security.
    (i) Distribution of such payments is made as follows:
    (A) First, to the Rural Development 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 Rural Development 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 Rural Development loans. In making 
such distributions, consider the principal balance outstanding on each 
loan, the security position of the liens securing each loan, the 
borrower's request, and related circumstances.
    (ii) Unless otherwise established by the debt instrument, regular 
payments will be applied as follows:
    (A) For amortized loans, first to interest accrued (as of the date 
of receipt of the payment), and then to principal.
    (B) For principal-plus-interest loans, first to the interest due 
through the date of the next scheduled installment

[[Page 40]]

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 RD 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 Rural Development 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 Rural Development 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 Rural Development 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 
Rural Development debt in accordance with subpart F of part 1951 of this 
chapter.
    (3) The transaction will further the purposes for which the Rural 
Development loan was made, not adversely affect the borrower's debt-
paying ability, and result in the Rural Development 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 Rural Development will 
obtain a mortgage on the purchased land.
    (8) When the transaction involves more than $10,000 or the approval 
official considers it necessary, a present market value appraisal report 
will be obtained. However, a new report need not be obtained if there is 
an appraisal report not over one year old which permits a proper 
determination of the present market value of the total property after 
the transaction.
    (9) The proposed action must not change the nature of the borrower's 
activities so as to make it ineligible for Rural Development 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

[[Page 41]]

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 RD 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 RD 
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 RD 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 Rural Development 
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. Rural Development's consent on Form RD 
465-1 will be signed concurrently with Form RD 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 RD 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 1951-33, ``Reamortization Request,'' completed in 
accordance with Sec.1951.223(c)(3) of this subpart, when applicable; 
and
    (5) Any other necessary supporting information.
    (c) Processing. When legally permissible and administratively 
acceptable, the total outstanding principal and interest balances will 
be reamortized rather than only the delinquent amount. Accrued interest 
will be at the rate currently reflected in Finance Office records.
    (1) Reamortizations will be perfected in accordance with OGC closing 
instructions.
    (2) When debt instruments are being modified or new debt instruments 
executed, bond counsel or local counsel, as appropriate, must provide an 
opinion indicating any effect on Rural Development's security position. 
The Rural Development's approval official must determine that the 
government's interest will remain adequately protected if the security 
position will be affected.
    (3) Notes. Except as provided in Sec.1951.223(c)(4), loans 
evidenced by notes

[[Page 42]]

will be reamortized through a new evidence of debt unless OGC recommends 
that the terms of the existing document be modified. Form RD 1951-33 may 
be used to effect such modifications, if legally adequate, or other 
forms may be used if acceptable to Rural Development. 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 Rural Development. Loans evidenced by bonds, or by notes with other 
than real or chattel security pledged to Rural Development, 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 Rural Development 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 Rural 
Development 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 
Rural Development office authorized to store such documents. If State 
statutes require release of existing bonds, the exchange will be 
accomplished by the District Director, and the new bond and/or agreement 
will be retained in the appropriate office.
    (5) New debt instruments or agreements. (i) A copy will be sent to 
the Finance Office after execution, except that if serial bonds are 
used, the original bond(s) will be submitted to the Finance Office.
    (ii) Any agreement used will contain:
    (A) The amount delinquent, which must equal the total delinquency on 
the account and net advances (the unpaid principal on any advance and 
the accrued interest on any advance through the date of reamortization, 
less interest payments credited on the advance account);
    (B) The effective date of the reamortization;
    (C) The number of years over which the delinquency will be 
amortized;
    (D) The repayment schedule; and
    (E) The interest rate.
    (iii) A payment will be due on the next scheduled due date. 
Deferment of interest and/or principal payments is not authorized.
    (iv) A separate new instrument will be required for each loan being 
reamortized.
    (v) If amortized payments are not used, the schedule of principal 
installments developed will be such that combined payments of principal 
and interest closely approximate an amortized payment.
    (d) Reamortization with interest rate adjustment--Water and waste 
borrowers only. A borrower that is seriously delinquent in loan payments 
may be eligible for loan reamortization with interest rate adjustment. 
The purpose of loan reamortization with interest rate adjustment is to 
provide relief for a borrower that is unable to service the outstanding 
loan in accordance with its existing terms and to enhance recovery on 
the loan. A borrower must meet the conditions of this subpart to be 
considered eligible for this provision.
    (1) Eligibility determination. The State Director, Rural 
Development, may submit to the Administrator for approval an adjustment 
in the rate of interest charged on outstanding loans only for those 
borrowers who meet the following requirements:

[[Page 43]]

    (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; 73 FR 8008, Feb. 12, 
2008]



Sec.1951.224  Third party agreements.

    The State Director may authorize all or part of a facility to be 
operated, maintained or managed by a third party under a contract, 
management agreement, written lease, or other third party agreement as 
follows:
    (a) Leases--(1) Lease of all or part of a facility (except when 
liquidation action is pending). The State Director may consent to the 
leasing of all or a portion of security property when:
    (i) Leasing is the only feasible way to provide the service and is 
the customary practice as required under Sec.1942.17(b)(4) of subpart 
A of part 1942 of this chapter;
    (ii) The borrower retains ultimate responsibility for operating, 
maintaining, and managing the facility and for its continued 
availability and use at reasonable rates and terms as required under 
Sec.1942.17(b)(4) of subpart A of part 1942 of this chapter. The lease 
agreement must clearly reflect sufficient control by the borrower over 
the operation, maintenance, and management of the facility to assure 
that the borrower maintains this responsibility;
    (iii) The lease agreement contains provisions prohibiting any 
amendments to the lease or any subleasing arrangements without prior 
written approval from Rural Development;
    (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 Rural 
Development is a lienholder on the subject facility and, as such, the 
lease is subordinate to the rights and claims of Rural Development 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

[[Page 44]]

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 Rural Development 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 Rural Development 
or the prior lienholder by the use of Form FD 443-16, ``Assignment of 
Income from Real Estate Security,'' or other appropriate instrument;
    (2) Royalty payments are adequate and are assigned to Rural 
Development on Form RD 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 RD 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 Rural Development consent is required, the borrower submits 
a completed Form RD 465-1. The form will include the terms of the 
proposed agreement and specify the use of all proceeds, including any to 
be released to the borrower.
    (c) Management agreements. Management agreements should contain the 
minimum suggested contents contained in Guide 24 of part 1942, subpart A 
of this chapter (available in any Rural Development 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:

[[Page 45]]

    (1) A copy of the proposed agreement;
    (2) Exhibit A of this subpart (available in any Rural Development 
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 Rural Development 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 Rural Development 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 Rural Development 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 Rural Development's security 
position;
    (4) If the property to be sold or exchanged is to be used for the 
same or similar purposes for which the loan or grant was made, the 
purchaser will:
    (i) Execute Form RD 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 Rural Development 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 Rural Development 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 Rural Development's advantage.
    (ii) To purchase or acquire through exchange property more suited to 
the borrower's needs, if the Rural Development 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 Rural 
Development 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

[[Page 46]]

subpart (available in any Rural Development office), appropriately 
completed;
    (ii) The appraisal report, if appropriate;
    (iii) Name of purchaser, anticipated sales price, and proposed terms 
and conditions;
    (iv) Form RD 1965-8, ``Release from Personal Liability,'' including 
the County Committee memorandum and the State Director's 
recommendations;
    (v) An executed Form RD 400-4, if applicable;
    (vi) An executed Form RD 465-1, if applicable;
    (vii) Form RD 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 RD 460-1, ``Partial Release,'' or Form RD 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 RD 465-1. Partial release of real 
estate security may be made by use of Form RD 460-1 or other form 
approved by OGC.
    (3) Rural Development liens will not be released until the sale 
proceeds are received for application on the Government's claim. In 
states where it is necessary to obtain the insured note from the lender 
to present to the recorder before releasing a portion of the land from 
the mortgage, the borrower must pay any cost for postage and insurance 
of the note while in transit. The District Director will advise the 
borrower when it requests a partial release that it must pay these 
costs. If the borrower is unable to pay the costs from its own funds, 
the amounts shown on the statement of actual costs furnished by the 
insured lender may be deducted from the sale proceeds.
    (d) Release from liability. (1) When an Rural Development debt is 
paid in full from the proceeds of a sale, the borrower will be released 
from liability by use of Form RD 1965-8.
    (2) When sale proceeds are not sufficient to pay the Rural 
Development 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 RD 
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 Rural Development if the debt instrument provides that Rural 
Development 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

[[Page 47]]

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 RD Instruction 2024-A (available in any Rural Development 
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 Rural Development 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 Rural Development's security position or the 
Rural Development program in the area.
    (3) Transfers to eligible applicants will receive preference over 
transfers to ineligible applicants if recovery to Rural Development is 
not less than it would be if the transfer were to an ineligible 
applicant.
    (4) If the Rural Development debt(s) exceed the present market value 
of the security as determined by the State Director, the transferee will 
assume an amount at least equal to the present value.
    (5) If the transfer and assumption is to one or more members of the 
borrower's organization, there must not be a loss to the government.
    (6) Rural Development 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 RD 400-4 to continue nondiscrimination covenants and 
provide to Rural Development 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 Rural Development debt is 
assumed. However, equity payments will not be made on more favorable 
terms than those on which the balance of the Rural Development debt will 
be paid.
    (9) Transferees must have the ability to pay the Rural Development 
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 RD 442-3, ``Balance Sheet,'' and budget and cash flow 
information using Form RD 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

[[Page 48]]

when the full debt is not being assumed.
    (12) There must be no lien, judgment, or similar claims of other 
parties against the Rural Development security being transferred unless 
the transferee is willing to accept such claims and the Rural 
Development approval official determines that they will not prevent the 
transferee from repaying the Rural Development 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 Rural Development loans in accordance with 
the provisions of paragraphs (c) and (d) of this section, except for the 
following, which require prior approval of the Administrator:
    (1) Proposals which will involve a loss to the Government;
    (2) Proposals involving a transfer to one or more members of the 
present borrower's organization;
    (3) Proposals involving rates and terms which are more liberal than 
those set forth in Sec.1951.230(c) of this subpart;
    (4) Proposals involving a cash payment to the present borrower which 
exceeds the actual sales expenses;
    (5) The transferee refuses to assume all terms of the Grant 
Agreement for a project financed in part with Rural Development 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 Rural Development 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 RD 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 Rural Development 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

[[Page 49]]

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 Rural Development 
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-Rural Development personnel will be handled in accordance with RD 
Instruction 2024-A (available in any Rural Development 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 RD 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 Rural Development 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 RD 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 RD 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 RD 
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 RD Instruction 
2033-A (available in any Rural Development 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 Rural Development 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

[[Page 50]]

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 RD 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 
Rural Development and OGC.
    (6) Accrued interest to be entered in either Table 1 of Form RD 
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 RD 1951-15 or other appropriate assumption agreement;
    (ii) A conformed copy of Form RD 1965-8.
    (8) If an Rural Development 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 Rural Development 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 RD 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 Rural Development. 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 
Rural Development office), appropriately completed, and a cover 
memorandum which denotes any unusual circumstances.
    (15) The District Director must review Form RD 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 RD 1951-15 executed by the proposed new member;

[[Page 51]]

    (ii) Statement of the current amount of the indebtedness involved;
    (iii) A description and statement of the value of the security 
property;
    (iv) A memorandum to justify the transaction;
    (v) Form RD 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 Rural Development 
office), executed by the remaining members of the association, the 
proposed new member, and the withdrawing member; and
    (vii) Form RD 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 RD 1951-15.
    (3) Upon completion of the above actions, the State Director may 
release the outgoing member from personal liability using Form RD 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 RD 1951-15 and, if applicable, Form RD 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 Rural Development as well as any other 
debts. Exhibit C of this subpart, ``Agreement for Withdrawal of Member 
(Without New Member),'' (available in any Rural Development office), may 
be used by the cooperative. Rural Development 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 RD 1951-15.
    (4) Form RD 1951-15 will be forwarded immediately 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 RD 442-24, 
``Operating Agreement,'' (now obsolete) was executed by recipients of 
these loans. Paragraph 10 of that form provides that in case of the 
death of any member, the heirs or personal representative of the 
deceased member shall take the deceased member's place in the 
association. This provision also covers sale of the decedent's interest 
in the association if the sale is necessary to pay debts of the estate.
    (1) If the heirs or personal representative do not wish to continue 
membership in the association, the remaining members may be permitted to 
continue to operate the property if Rural Development's financial 
interest will not be jeopardized. The remaining members

[[Page 52]]

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 Rural Development 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 Rural Development debt in full; or
    (2) The urban community or another entity may accept a transfer of 
the Rural Development 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 Rural Development borrower will:
    (i) Meet its debt service and reserve account requirements to Rural 
Development;
    (ii) Retain its corporate existence until Rural Development has been 
paid in full; and
    (iii) If agreed upon by both parties, convey title to the facility 
to the urban community when the Rural Development debt has been paid in 
full.
    (d) Processing. (1) Sale of a borrower's assets will be handled in 
accordance with Sec.1951.226 of this subpart.
    (2) Transfer and assumption of a borrower's assets and indebtedness 
will be handled in accordance with Sec.1951.230 of this subpart.
    (3) Lease-operation-to-purchase arrangements are not permitted.
    (4) When a lease-purchase arrangement is proposed, the State 
Director will obtain a proposed agreement drafted by either the borrower 
or the urban community. The following will be forwarded to the 
Administrator, Attention: Water and Waste Disposal Division, for review 
and approval authorization:
    (i) A copy of the proposed agreement;
    (ii) Exhibit A of this subpart (available in any Rural Development 
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]

[[Page 53]]



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 Rural Development 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 Rural Development, 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 Rural Development 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 Rural Development 
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 Rural Development 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 Rural Development grant funds 
associated with such loans shall be set in the amount based on the 
interest rate in effect at the time of loan approval. Loans closed 
October 1, 1981, through October 25, 1985, were closed at the interest 
rate in effect at the time of loan approval and that interest rate is 
reflected in the borrower's debt instrument. For community facility and 
water and waste disposal loans closed on or after October 1, 1981, and 
for which the interest rate in effect at the time of loan closing is 
lower than the interest rate in effect at the time of loan approval, the 
borrower may request to be charged the lower interest rate. The loan 
closing interest rate will be determined by Rural Development based upon 
requirements in effect at the date of loan closing. Exhibit E of this 
subpart (available in any Rural Development office) contains a summary 
of interest rate requirements for specific time periods. Exhibit C of 
Subpart O of this part (available in any Rural Development 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

[[Page 54]]

Rural Development 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 
Rural Development 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) Rural Development 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 Rural Development 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 Rural Development. The effect of the 
change on the loan account will also be fully explained to the borrower.
    (2) Borrowers must notify Rural Development within 90 calendar days 
of the date of Rural Development 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, Rural Development 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 Rural Development 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 Rural 
Development loan of the same type. In those cases the amount will be 
applied to the delinquent amount owed, with any balance refunded to the 
borrower.
    (3) The Finance Office will administratively change the interest 
rate on a borrower's account in accordance with notification from the 
servicing official. The installment schedule set forth in each 
borrower's debt instrument will not change. The original principal 
schedule for principal-plus-interest accounts where principal only is 
stipulated will continue to be used for payment calculation by the 
Finance Office. Amortized accounts will adhere to the original payment 
schedule and amount. The last scheduled principal installment will be 
reduced by the amount of the balance previously generated by the 
reversal and reapplication of payments.
    (4) When Rural Development 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.

[[Page 55]]

    (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, Note

    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 theRural 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

[[Page 56]]

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:
    (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

[[Page 57]]

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;
    (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

[[Page 58]]

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- 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:___________________________________________________________
    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? ______


[[Page 59]]


    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 RD 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 Rural 
Development.

[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 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

[[Page 60]]

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;
    (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

[[Page 61]]

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, 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

[[Page 62]]

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.



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 or other assistance made by the Rural Business-Cooperative Service 
or its successor agency under the IRP and the RMAP. All debt settlement 
cases under this subpart will be settled in accordance with the debt 
settlement provisions set forth in 7 CFR part 1956, subpart C. 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) These regulations do not negate contractual arrangements that 
were previously made by the HHS, Office of

[[Page 63]]

Community Services (OCS), or the intermediaries operating relending 
programs that have already been entered into with ultimate recipients 
under previous regulations.
    (d) The loan program is administered by the Rural Development 
National Office. The Director, Business and Industry Division, is the 
point of contact for servicing activities unless otherwise delegated by 
the Administrator.

[53 FR 30656, Aug. 15, 1988, as amended at 79 FR 31847, June 3, 2014; 80 
FR 13201, Mar. 13, 2015]



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 Rural Development 
loan funds for relending to ultimate recipients. Rural Development 
becomes an intermediary in the event it takes over loan servicing and/or 
liquidation.
    (2) Loan Agreement. The signed agreement between Rural Development 
and the intermediary setting forth the terms and conditions of the loan.
    (3) Low-income. The level of income of a person or family which is 
at or below the Poverty Guidelines as defined in section 673(2) of the 
Community Services Block Grant Act (42 U.S.C. 9902(2)).
    (4) Market value. The most probable price which property should 
bring, as of a specific date in a competitive and open market, assuming 
the buyer and seller are prudent and knowledgeable, and the price is not 
affected by undue stimulus such as forced sale or loan interest subsidy.
    (5) Principals of intermediary. Includes members, officers, 
directors, and other entities directly involved in the operation and 
management of an intermediary organization.
    (6) Ultimate recipient. The entity receiving financial assistance 
from the intermediary. This may be interchangeable with the term 
``subrecipient'' in some documents previously issued by HHS.
    (7) Rural area. Includes all territory of a State that is not within 
the outer boundary of any city having a population of twenty-five 
thousand or more.
    (8) State. Any of the fifty States, the Commonwealth of Puerto Rico, 
the Virgin Islands of the United States, Guam, American Samoa, and the 
Commonwealth of the Northern Mariana Islands.
    (9) Technical assistance or service. Technical assistance or service 
is any function unreimbursed by Rural Development 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. Sec.1951.853-1951.858  [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. Sec.1951.860-1951.865  [Reserved]



Sec.1951.866  Security.

    (a) Loans from RDLF intermediaries to ultimate recipients. Security 
requirements for loans from intermediaries to

[[Page 64]]

ultimate recipients will be negotiated between the intermediaries and 
ultimate recipients. Rural Development 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 Rural Development.
    (b) Additional security. The Rural Development 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. Sec.1951.867-1951.871  [Reserved]



Sec.1951.872  Other regulatory requirements.

    Intergovernmental 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 Rural Development'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 the requirements set forth in U.S. Department of 
Agriculture regulations 2 CFR part 415, subpart C, and RD Instruction 
1970-I, 'Intergovernmental Review,' available in any Agency office or on 
the Agency's Web site.

[79 FR 76012, Dec. 19, 2014]



Sec. Sec.1951.873-1951.880  [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. Pre-
existing 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. Other than 7 CFR 
1951.709(d)(1)(B)(iv), intermediaries receiving an unauthorized loan or 
using their revolving fund for unauthorized purposes will be serviced in 
accordance with 7 CFR part 1951, subpart O.
    (b) Each intermediary will be monitored by Rural Development 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 Rural Development Finance Office 
approximately 15 days in advance of the due date of the payments. A copy 
of the notice will be sent to the Rural Development Under Secretary or 
designee.
    (e) If the scheduled payment is not made by the intermediary within 
30 days after the due date of the payment, the Finance Office will send 
a past due notice to the intermediary. The notice will show the late 
charge amount, if applicable, and the interest amount past due. The late 
charge amount, if

[[Page 65]]

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 Rural Development 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.
    (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.

[[Page 66]]

    (12) Review intermediary's plans, cash flow projections, balance 
sheets, and operating statements.

[53 FR 30656, Aug. 15, 1988, as amended at 79 FR 31847, June 3, 2014]



Sec.1951.882  [Reserved]



Sec.1951.883  Reporting requirements.

    (a) Intermediaries are to provide Rural Development with reports as 
required in their respective loan agreements, applicable statutes and as 
required by Rural Development. 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. Rural 
Development 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 Rural Development may require from time to 
time.
    (b) Intermediaries shall report to Rural Development 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  Revolved funds.

    For ultimate recipients assisted by the intermediary with Rural 
Development, revolved funds derived from IRP 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 Rural Development portfolio will 
be classified by Rural Development 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

[[Page 67]]

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 Rural Development. 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 Rural Development 
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 Rural Development 
regulations, and are not considered to pose a credit risk to Rural 
Development. 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 Rural Development to a sufficient 
degree of risk to warrant a Substandard classification but do possess 
credit deficiencies deserving Rural Development'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 Rural Development 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 Rural Development will 
sustain some loss.
    (e) Doubtful classification. This classification includes those 
loans which have all the weaknesses inherent in those classified 
Substandard with the added characteristic that the weaknesses make 
collection or liquidation in full, based on currently known facts, 
conditions and values, highly questionable and improbable.
    (f) Loss classification. This classification includes those loans 
which are considered uncollectible and of such little value that their 
continuance as loans is not warranted. Even though partial recovery may 
be effected in the future, it is not practical or desirable to defer 
writing off these basically worthless loans.



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 Rural Development. 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.

[[Page 68]]

    (4) Less than total indebtedness may be transferred to another 
eligible intermediary on different terms.
    (c) The transferor will prepare the transfer document for Rural 
Development's review prior to the transfer and assumption.
    (d) The transferee will provide Rural Development 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 Rural Development deems 
necessary for its review.
    (e) The assumption agreement will contain the Rural Development 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, Rural Development will 
refer the case to the appropriate Regional Inspector General for 
Investigations, OIG, USDA, in accordance with RD Instruction 2012-B 
(available in any Rural Development office) for criminal investigation. 
Any questions as to whether a matter should be referred will be resolved 
through consultation with OIG and Rural Development 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, Rural Development staff must 
coordinate with OIG in advance regarding routine servicing actions on 
existing loans.



Sec.1951.891  Liquidation; default.

    (a) In the event that Rural Development takes over the servicing of 
the ultimate recipient of an intermediary, those loans will be serviced 
by this regulation and in accordance with the contractual arrangement 
between the intermediary and the ultimate recipient. Should Rural 
Development determine that it is necessary or desirable to take action 
to protect or further the interests of Rural Development in connection 
with any default or breach of conditions under any loan made hereunder, 
the Rural Development 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 Rural Development shall determine to be reasonable, any 
evidence of debt, contract, claim, personal or real property or security 
assigned to or held by the Rural Development 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 Rural Development 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 Rural Development 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

[[Page 69]]

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 Rural Development 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, Rural Development 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 
bankruptcy. These expenses must be considered by Rural Development 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 
subpart C of part 1956 of this chapter.

[80 FR 13201, Mar. 13, 2015]



Sec.1951.895  [Reserved]



Sec.1951.896  Appeals.

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



Sec.1951.897  Exception authority.

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



Sec. Sec.1951.898-1951.899  [Reserved]



Sec.1951.900  OMB control number.

    The information collection requirement obtained for this part is 
pending OMB approval at the time of this rule's publication in the 
Federal Register.

[81 FR 11032, Mar. 2, 2016]



PART 1955_PROPERTY MANAGEMENT--Table of Contents



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

Sec.
1955.1 Purpose.
1955.2 Policy.
1955.3 Definitions.
1955.4 Redelegation of authority.
1955.5 General actions.
1955.6-1955.8 [Reserved]
1955.9 Requirements for voluntary conveyance of real property located 
          within a federally recognized Indian reservation owned by a 
          Native American borrower-owner.
1955.10 Voluntary conveyance of real property by the borrower to the 
          Government.
1955.11 Conveyance of property to Rural Development by trustee in 
          bankruptcy.
1955.12 Acquisition of property which served as security for a loan 
          guaranteed by Rural Development 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.

[[Page 70]]

1955.23-1955.49 [Reserved]
1955.50 OMB control number.

Exhibits A-F to Subpart A of Part 1955 [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 of Part 1955--Memorandum of Understanding Between 
          the Federal Emergency Management Agency and Rural Development 
          [Note]
Exhibit B to Subpart B of Part 1955--Notification of Tribe of 
          Availablity of Farm Property for Purchase
Exhibit C to Subpart B of Part 1955--Cooperative Agreement (Example) 
          [Note]
Exhibit D to Subpart B of Part 1955--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.
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 review requirements.
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]

[[Page 71]]

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 of Part 1955--Notice of Flood, Mudslide Hazard, 
          or Wetland Area

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

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

    Editorial Note: Nomenclature changes to part 1955 appear at 80 FR 
9895, Feb. 24, 2015.



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 Rural Development 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 Rural Development in accordance with 
applicable portions of Sec.1955.10 of this subpart. Nonprogram (NP) 
loans, except for Community and Business Programs, will be liquidated as 
provided in subpart J of part 1951 of this chapter, unless specifically 
referenced in this subpart.

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



Sec.1955.3  Definitions.

    As used in this subpart, the following definitions apply:
    Closing agent. An attorney or title insurance company which is 
approved as a loan closing agent in accordance with subpart B of part 
1927 of this chapter.
    CONACT or CONACT property. Property acquired or sold pursuant to the 
Consolidated Farm and Rural Development Act. Within this subpart, it 
shall also be construed to cover property which secured loans made 
pursuant to the Agriculture Credit Act of 1978; the Emergency 
Agricultural Credit Adjustment Act of 1978; the Emergency Agricultural 
Credit Act of 1984; the Food Security Act of 1985; and other statutes 
giving agricultural lending authority to the government.
    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).

[[Page 72]]

    Government. The United States of America acting through the RBS, 
RHS, and RUS of the U.S. Department of Agriculture;
    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 Rural 
Development security instrument(s) as well as real estate taxes or 
assessments which are or will become a lien against the property which 
is superior to Rural Development'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

[[Page 73]]

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

[[Page 74]]

    (d) Payment of costs. Costs related to liquidation of a loan or 
acquisition of property will be paid according to RD Instruction 2024-A 
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.
    (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

[[Page 75]]

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. Rural Development will not 
make a demand on a borrower to voluntarily convey. If there is equity in 
the property. Rural Development should advise the borrower, in writing, 
that there is equity in the property before accepting an offer to 
voluntarily convey. If Rural Development 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. Rural 
Development should refuse the voluntary conveyance, if the Rural 
Development lien has neither present nor prospective value or recovery 
of the value would be unlikely or uneconomical. Instead, for loans to 
individuals, Rural Development should release its lien as valueless in 
accordance with Sec.1965.25(d) of subpart A of part 1965 of this 
chapter or Sec.1965.118(c) of subpart C of this chapter, as 
appropriate. For non-FP borrowers, a voluntary conveyance should only be 
considered after all available servicing actions outlined in the 
respective servicing regulations have been used or considered and it is 
determined that the borrower will not be successful. For FP borrowers, 
if the borrower has not received exhibit A with attachments 1 and 2 of 
subpart S of part 1951 of this chapter, a voluntary conveyance should be 
accepted only after the borrower has been sent exhibit A with 
attachments 1 and 2 of subpart S of 1951 of this chapter; all available 
servicing actions outlined in the respective program servicing 
regulations have been used or considered; and it will be in the 
Government's best financial interest to accept the FP voluntary 
conveyance. Exhibit G of this subpart will be used to determine whether 
or not to accept an FP voluntary conveyance. In determining if the 
acceptance of the FP voluntary conveyance is in the best financial 
interest of the Government, the County Supervisor will determine if the 
borrower has exhausted all possibilities of restructuring the loan to 
where a feasible plan of operation may be developed, the borrower has 
acted in good faith in trying to service the debt and Rural Development 
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

[[Page 76]]

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 
part 1970 of this chapter and Sec.1955.137 of this part. 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 RD Instruction 1901-
A (available in any Rural Development office).
    (iii) Offers to convey property securing loans other than those 
outlined in paragraphs (a)(2)(i) and (ii) of this section will be 
submitted to the Administrator for approval prior to acceptance of the 
conveyance offer. Submissions will include the case file; OGC's opinion 
on settling any other liens involved; a statement of essential facts; 
and recommendations of the State Director and Program Chief. Submissions 
are to be addressed to the Administrator, ATTN: (appropriate program 
division.)
    (b) Forms and documents. All forms and documents in connection with 
voluntary conveyance will be prepared and distributed in accordance with 
the respective FMI or applicable OGC instructions. For loans to 
individuals when the County Supervisor has approval authority, the facts 
will be documented in the running record of the borrower's case file. 
For all other loans, the servicing official will submit the voluntary 
conveyance offer, the case file and a narrative report to the 
appropriate approval official.
    (c) Liens against the property other than Rural Development 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.

[[Page 77]]

    (2) Junior liens. The borrower must satisfy junior liens on the 
property (except Rural Development 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 Rural Development 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 Rural Development 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 RD 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 
RD 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 RD 410-1, ``Application for Rural 
Development Services'' or RD 442-3, ``Balance Sheet,'' and information 
on present income and potential earning ability. Exception for SFH 
loans: Rural Development requires a budget and/or financial statement 
and, if necessary to discover suspected undisclosed assets, a search of 
public records, only when the value of the security property may be less 
than the debt.
    (4) For organization borrowers, a duly-adopted Resolution by the 
governing body authorizing the conveyance and certified by the attesting 
official with the corporate seal affixed. The Resolution will indicate 
which officials are authorized to execute the offer to convey and the 
deed on behalf of the borrower. If shareholder approval is necessary, 
the Resolution will specifically recite that shareholder approval has 
been obtained.
    (5) If water rights, mineral rights, development rights, or other 
use rights are not fully covered in the deed, the advice of OGC will be 
obtained and appropriate documents to transfer rights to the Government 
will be obtained before the voluntary conveyance is accepted. The 
documents will be recorded, if necessary, in connection with closing the 
conveyance.
    (6) If property is under lease, an assignment of the lease to the 
Government will be obtained with the effective date being the date the 
voluntary conveyance is closed. If an oral lease is in force, it will be 
reduced to writing and assigned to the Government.
    (7) The borrower may be required to provide a title insurance policy 
or a final title opinion from a designated attorney when the State 
Director determines it is necessary to protect the Government's 
interest. Such title insurance policy or final title opinion will show 
title vested to the Government subject only to exceptions and liens 
approved by the County Supervisor.

[[Page 78]]

    (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 Rural Development, an appraisal of the property 
will be made to establish the current market value of the property. If a 
qualified Rural Development 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 Rural Development in 
accordance with RD Instruction 2024-A (available in any Rural 
Development office). For property securing MFH, prior authorization must 
be obtained by the Assistant Administrator, Housing, to secure an 
appraisal from a source outside Rural Development. 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 Rural 
Development. 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. Rural Development does not solicit or encourage 
conveyance of SFH security property to the Government and will consider 
a borrower's offer to convey by deed in lieu of foreclosure only after 
the debt is accelerated and when it is in the Government's interest. 
Upon receipt of an offer to convey, the servicing official will remind 
the borrower of provisions for voluntary liquidation under 7 CFR part 
3550,and the consequences of a conveyance by deed in lieu of foreclosure 
as follows: All costs related to the conveyance which Rural Development 
pays will be added to the debt; a credit equal to the market value of 
the property, as determined by Rural Development, 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 Rural Development lien(s);
    (B) Prior liens when Rural Development 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

[[Page 79]]

    (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 Rural Development with the lienholder's name, 
amount of lien, date recorded, and the recording information (recording 
office, book and page), return the unrecorded deed to Rural Development, 
and await further instructions from Rural Development. 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 Rural Development after recordation of the deed. A 
certification of title in a statement that fee title is vested in the 
Government subject only to the Rural Development lien(s) and prior liens 
previously approved by Rural Development. After receipt of the 
certification of title, the County Supervisor will notify the borrower 
that the conveyance has been accepted in accordance with Sec.
1955.10(g) of this subpart.
    (2) Consolidated Farm and Rural Development Act (CONACT) loans to 
individuals. If the Agency indebtedness plus any prior liens exceeds the 
market value of the property, the indebtedness cannot be satisfied but a 
credit can be given equal to the market value less prior liens. Debt 
settlement will be considered in accordance with subpart B of part 1956 
of this chapter.
    (i) Crediting accounts. The Agency will credit an account by an 
amount equal to the market value less prior liens, unless the borrower 
is Native American. Native American borrower-owners will be credited 
with the fair market value or the Agency debt against the property, 
whichever is greater, provided:
    (A) The borrower-owner is a member of a tribe or the tribe, and
    (B) The property is located within the confines of a federally 
recognized Indian reservation.
    (ii) Agency approval. The same procedure outlined in paragraphs 
(f)(1)(i) through (f)(1)(iii) of this section will be followed for 
approving the voluntary conveyance. The conveyance will be accepted in 
full satisfaction of the indebtedness unless the market value of the 
property to be conveyed is less than the total of Government 
indebtedness and prior liens, and the borrower has agreed to accept a 
credit in the amount of the market value of the security property less 
prior liens, if any.
    (3) Loans to organizations. When an offer of voluntary conveyance is 
received from an organization borrower, and the market value of the 
property being conveyed (less prior liens, if any) is less than the 
Government debt, full consideration must be given to the borrower's 
present situation and future prospects for paying all or a part of the 
debt.
    (g) Closing of conveyance. (1) The conveyance to the Government will 
be considered closed when the recorded deed has been returned to Rural 
Development, a certification of title is received from the closing agent 
that title is vested in the Government with no outstanding encumbrances 
other than the Rural Development 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 Rural 
Development account is satisfied, the note(s)

[[Page 80]]

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 Rural Development account is not satisfied and the 
borrower is not released from liability, the note(s) will be retained by 
Rural Development.
    (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 RD 1955-1 showing acceptance by the Government; or
    (ii) If borrower is not released from liability, a copy of Form RD 
1955-1 showing acceptance by the Government.
    (5) When the Rural Development 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 Rural 
Development office).
    (6) For MFH loans, the State Director will cancel any interest 
credit and suspend any rental assistance. These actions will be 
accomplished by notifying the Finance Office unit which handles MFH 
accounts. In the interm the tenants will continue rental payments in 
accordance with their lease. Tenants will be informed of the pending 
liquidation action and the possible consequences of the action. If the 
project is to be removed from the Rural Development program, a minimum 
of 180 days' notice to the tenants is required. Letters of Priority 
Entitlement must be made available to any tenants that will be 
displaced.
    (7) Actions outlined in Sec.1955.18 of this subpart will be taken, 
as applicable.

[50 FR 23904, June 7, 1985, as amended at 50 FR 45782, Nov. 1, 1985; 69 
FR 69105, Nov. 26, 2004; 82 FR 19319, Apr. 27, 2017]



Sec.1955.11  Conveyance of property to Rural Development 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 Rural 
Development debt; and
    (3) Rural Development will acquire title free of all liens and 
encumbrances except Rural Development iens.
    (b) Fees and deed. (1) Rural Development 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 Rural Development 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]

[[Page 81]]



Sec.1955.12  Acquisition of property which served as security for
a loan guarantee by Rural Development or at sale by another
lienholder, bankruptcy trustee, or taxing authority.
          

    When the servicing regulations for the type of loan(s) involved 
permit Rural Development to acquire property by one of these methods, 
the acquisition will be reported in accordance with Sec.1955.18(a) of 
this subpart.



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

    When the Government did not protect its interest in security 
property in a foreclosure by another lienholder, and if the Government 
has redemption rights, the State Director will determine whether to 
redeem the property. This determination will be based on all pertinent 
factors including the value of the property after the sale, and costs 
which may be incurred in acquiring and reselling the property. For 
Farmer Program loans, the County Supervisor will document the 
determination on exhibit G of this subpart. The decision must be made 
far enough in advance of expiration of the redemption period to permit 
exercise of the Government's rights. If the property is to be redeemed, 
complete information documenting the basis for not acquiring the 
property at the sale and factors which justify redemption of the 
property will be included in the case file. The assistance of OGC will 
be obtained in effecting the redemption. If the State Director decides 
not to redeem the property, the Government's right of redemption 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 Rural Development 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 Rural 
Development 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 RD 1955-2 for Farmer Program or SFH 
loans, exhibit A to this subpart for MFH loans, or exhibit A of RD 
Instruction 1951-E (available in any Rural Development office) for other 
organization loans. If chattel security is also involved, Forms RD 455-
1, ``Request for Legal Action''; 455-

[[Page 82]]

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 Rural Development loan servicing 
regulations have been taken and all required notices given to the 
borrower.
    (1) Appraisal. The market value of the property may be estimated in 
completing the problem case report unless there are one or more prior 
liens other than current-year real estate taxes. Where such prior liens 
are involved, an appraisal report reflecting market value in existing 
condition will be included in the case file as a basis for determining 
the Government's prospects for financial recovery through foreclosure.
    (2) Recommendation for deficiency judgment. If the debt will not be 
satisfied by the foreclosure, the borrower's financial situation will be 
assessed to determine if there is a possibility of further recovery on 
the account through a deficiency judgment. A summary of these 
determinations will be fully documented and appropriate recommendations 
made concerning deficiency judgment in the applicable problem case 
report.
    (3) Historic preservation. If it is likely that Rural Development 
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 Rural Development will 
give the prior lienholder the opportunity to foreclose; join in the 
action if the prior lienholder wishes to foreclose; or foreclose the 
Rural Development 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

[[Page 83]]

through a designee, will contact the prior lienholder to outline Rural 
Development'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 Rural Development 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, Guide Letters 1955-A-1 
or 1955-A-2 (available in any Rural Development 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 Rural Development 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 Rural Development 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

[[Page 84]]

SFH loan(s) may be accelerated as follows:
    (A) When the borrower's dwelling is financed with an SFH loan(s) is 
secured by and located on the same farm real estate as the Farmer 
Program loan(s) (dwelling located on the farm), the SFH loan(s) will be 
serviced in accordance with Sec.1965.26(c)(1) of subpart A of part 
1965 of this chapter.
    (B) When the borrower's dwelling is financed with an SFH loan(s) and 
is located on a nonfarm tract which also serves as additional security 
for the Farmer Program loan(s), the loans(s) will be serviced in 
accordance with Sec.1965.26 (c)(2) of subpart A of part 1965 of this 
chapter.
    (C) When the borrower's dwelling is financed with an SFH loan(s) and 
is on a non-farm tract which does not serve as additional security for 
the Farmer Program loan(s), it will NOT be accelerated simultaneously 
with sending out attachments 5 and 6, or 5-A and 6-A, or attachment 9 
and 10, or 9-A and 10-A, of exhibit A of subpart S of part 1951 of this 
chapter, as applicable, unless it is subject to liquidation based on 
provisions of 7 CFR part 3550, taking into consideration the prospects 
for success that may evolve when the borrower's livelihood is from a 
source other than the farming operation. If the SFH loan is in default 
and subject to liquidation based on provisions of 7 CFR part 3550, the 
SFH loan(s) must be accelerated at the same time the borrower is sent 
attachment 5 and 6, or 5-A and 6-A, or attachments 9 and 10, or 9-A and 
10-A, to exhibit A of subpart S of part 1951 of this chapter, as 
applicable. For those borrowers who are in non-monetary default on their 
Farmer Programs loans and fail to return attachment 4 of exhibit A of 
subpart S of part 1951 of this chapter, the Farmer Programs loans and 
SFH loans will be accelerated at the same time. If the borrower appeals, 
one appeal hearing and one review will be held for both adverse actions.
    (D) If a borrower's FP loan(s) were accelerated prior to May 7, 
1987, and the SFH loan(s) is not accelerated, the SFH loan will be 
accelerated at the same time the borrower is sent attachments 5 and 6, 
or 5-A and 6-A, or attachments 7 and 8 to exhibit A of subpart S of 1951 
of this chapter, as applicable, unless the requirements of Sec.1965.26 
of subpart A of part 1965 of this chapter are met or the liquidation of 
the SFH loan is based on provisions of 7 CFR part 3550. If the borrower 
is sent attachments 5 and 6, or 5-A and 6-A to exhibit A of subpart S of 
1951 of this chapter, as applicable, and requests an appeal, one hearing 
and one review will be held for both the adverse action on the FP loan 
restructuring request and SFH acceleration notices. If the borrower is 
sent attachments 7 and 8 to exhibit A of subpart S of 1951 of this 
chapter, there are no further appeals on the FP loans; but, the borrower 
is entitled to a hearing and a review on the SFH acceleration notice.
    (v) For MFH loans, the acceleration notice will advise the borrower 
of all applicable prepayment requirements, in accordance with 7 CFR part 
3560, subpart N. The requirements include the application of 
restrictive-use provisions to loans made on or after December 21, 1979, 
prepaid in response to acceleration notices and all tenant and agency 
notifications. The acceleration notice will also remind borrowers that 
rent levels cannot be raised during the acceleration without Rural 
Development 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 Rural Development 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 Rural Development 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

[[Page 85]]

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

[[Page 86]]

    (B) If an interest credit agreement was not in effect when the 
account was accelerated, the effective date will be the date foreclosure 
action was withdrawn.
    (C) For MFH loans with rental assistance, after acceleration and 
after any appeal or review has been concluded, rental assistance will be 
suspended if foreclosure is to continue. If the account is reinstated, 
the rental assistance will be reinstated retroactively to the date of 
suspension. In the interim, the tenants will continue rental payments in 
accordance with their leases, and all rental rates and lease renewals 
and provisions will be continued as if acceleration had not taken place.
    (4) Statement of account. If a statement of account is required for 
foreclosure proceedings, Form RD 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 Rural Development 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 RD 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

[[Page 87]]

similar to the following: ``The property described herein was purchased 
or improved with Federal financial assistance and is subject to the 
nondiscrimination provisions of title VI of the Civil Rights Act of 
1964, section 504 of the Rehabilitation Act of 1973 and other similarly 
worded Federal statutes and regulations issued pursuant thereto that 
prohibit discrimination on the basis of race, color, national origin, 
handicap, religion, age or sex in programs or activities receiving 
Federal financial assistance, for as long as the property continues to 
be used for the same or similar purposes for which the Federal 
assistance was extended or for so long as the purchaser owns it, 
whichever is later.'' At least 30 days before the foreclosure sale, the 
County Supervisor will notify, in writing, the Indian tribe which has 
jurisdiction over the reservation, and in which the real property is 
owned by a Native American member of said tribe that a foreclosure sale 
will be conducted to resolve this account, and will provide:
    (A) Projected sale date and location;
    (B) Fair market value of property;
    (C) Amount Rural Development will bid on the property; and
    (D) Amount of Rural Development debt against the property.
    (ii) The purchaser will be required to sign Form RD 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 RD Instruction 
2024-A (available in any Rural Development office).
    (4) Notice of judgment. In states with judicial foreclosure, as soon 
as the foreclosure judgment is obtained, Form RD 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 Rural 
Development 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 Rural 
Development.
    (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 Rural Development 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 Rural Development'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 Rural Development 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 Rural Development debt against 
the property, unless Rural Development determines that, because of the 
presence of hazardous substances on the property, it is not in the best 
interest of the Government to bid such amount, in which case there may 
be a deduction from the bid for the costs for hazardous material 
assessment and/or mitigation. For FP loans, except as modified by 
paragraph (f)(7)(ii) of this

[[Page 88]]

section, the Government's bid will be the amount of Rural Development'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 Rural Development 
appraiser is not available, the State Director may authorize an 
appraisal to be obtained by contract from a source outside Rural 
Development in accordance with RD Instruction 2024-A (available in any 
Rural Development 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 Rural 
Development employee to enter the Government's bid. When the State 
Director determines attendance of an Rural Development 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 Rural Development is the senior lienholder, only one bid 
will be entered, and that will be for the amount authorized by the State 
Director.
    (ii) When Rural Development is not the senior lienholder and OGC 
advises that the borrower has no redemption rights or if a deficiency 
judgment will be obtained, the State Director may authorize the person 
who will bid for the Government to make incremental bids in competition 
with other bidders. If incremental bidding is desired, the State 
Director's instructions to the bidder will state the initial bid, 
bidding increments, and the maximum bid.
    (g) Reports on sale and finalizing foreclosure. Immediately after a 
foreclosure sale at which the State Director has designated a person to 
bid on behalf of the Government, the servicing official will furnish the 
State Director a report on the sale. The State Director will forward a 
copy of this report to OGC and, for MFH loans, to the National Office. 
Based on OGC's instructions, a State supplement will provide a detailed 
outline of actions necessary to complete the foreclosure.

[50 FR 23904, June 7, 1985, as amended at 80 FR 9895, Feb. 24, 2015]

    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 at www.govinfo.gov.



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 Rural Development acquired the 
property, the account will be satisfied unless:
    (i) In a voluntary conveyance case where the debt exceeds the market 
value of the property and the borrower is not released from liability, 
in which case the account credit will be the market value (less 
outstanding liens if any); or
    (ii) In a foreclosure where the bid is less than the account balance 
and a deficiency judgment will be sought for the difference, in which 
case the account credit will be the amount of Rural Development's bid.
    (2) For all types of accounts other than SFH. When Rural Development 
acquired the property, the account credit will be as follows:
    (i) In a voluntary conveyance case:

[[Page 89]]

    (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 
Rural Development'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 Rural Development 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 Rural Development.
    (4) In cases where Rural Development 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 Rural Development 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) Rural Development 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 RD 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 Rural Development in order to accept voluntary 
conveyance of chattels is not authorized. Before a voluntary conveyance 
from a Farmer Program loan borrower can be accepted, the borrower must 
be sent Exhibit A with Attachments 1 and 2 of subpart S of part 1951 of 
this chapter.
    (1) Offer. The borrower's offer of voluntary conveyance will be made 
on Form RD 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 Rural Development, 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

[[Page 90]]

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 Rural Development office). Form RD 
1955-1 will be executed by the servicing official showing acceptance by 
the Government, and the satisfied note(s) and a copy of Form RD 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 RD 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 Rural Development 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 RD 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 Rural Development by contract 
in accordance with Rural Development Instruction 2024-A (available in 
any Rural Development 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 Rural 
Development employee might pose physical danger, a written bid may be 
submitted to the party holding the sale. The bid(s) will be the lesser 
of:
    (i) The market value of the item(s) less the estimated costs 
involved in the acquisition, care, and sale of the item(s) of security; 
or
    (ii) The unpaid balance of the borrower's secured Rural Development 
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 
Rural Development 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 Rural 
Development to satisfy the Rural Development debt; prior liens, and cost 
of the sale.
    (iii) When the sale is being conducted by a lienholder junior to 
Rural Development.
    (iv) At a private sale.
    (v) When the sale is being conducted under the terms of Form RD 455-
3, ``Agreement for Sale by Borrower (Chattels and/or Real Estate)''.
    (g) Payment of costs. Costs to be paid by Rural Development in 
connection with acquisition of chattel property

[[Page 91]]

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 RD 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 Rural Development officials. 
State supplements will be submitted to the National Office for post 
approval in accordance with RD Instruction 2006-B (available in any 
Rural Development office).



Sec. Sec.1955.23-1955.49  [Reserved]



Sec.1955.50  OMB control number.

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

[57 FR 1372, Jan. 14, 1992]



         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) andherein 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

[[Page 92]]

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 Rural Development will be maintained 
so that they are not a detriment to the surrounding area and they comply 
with State and local codes. Generally, Rural Development 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 Rural Development.
    Contracting Officer (CO). CO means a person with the authority to 
enter into, administer, and/or terminate contracts and make related 
determinations and findings. The term includes authorized 
representatives of the CO acting within the limits of their authority as 
delegated by the CO.
    Custodial property. Borrower-owned real property and improvements 
which serve as security for an Rural Development loan, have been 
abandoned by the borrower, and of which the respective Agency 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 
respective agency, 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

[[Page 93]]

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 
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

[[Page 94]]

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 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 Rural Development 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 
Rural Development 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

[[Page 95]]

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 RD Instruction 
2024-A (available in any Rural Development 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 Rural Development official 
who takes custody of abandoned property shall take the actions necessary 
to secure, maintain, preserve, lease, manage, or operate the property.
    (1) Nonsecurity personal property on premises. If a property has 
been abandoned by a borrower who left nonsecurity personal property on 
the premises, the personal property will not be removed and disposed of 
before the real property is acquired by the Government. If the premises 
are in a condition which presents a fire, health or safety hazard, but 
also contains items of value, only the trash and debris presenting the 
hazard will be removed. The servicing official may request advice from 
the State Director as necessary. The servicing official shall check for 
liens on nonsecurity personal property left on abandoned premises. If 
there is a known lienholder(s), the lienholder(s) will be notified by 
certified mail, return receipt requested, that the borrower has 
abandoned the property and that Rural Development has taken the real 
property into custody.
    Actions by Rural Development must not damage or jeopardize 
livestock, growing crops, stored agricultural products, or any other 
personal property which is not Rural Development 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 Rural Development to protect 
custodial, security or inventory property

[[Page 96]]

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 Rural 
Development procurement or cooperative agreement. However, if Rural 
Development is obtaining a service or product for itself only, it must 
be a procurement and any such actions will be in accordance with RD 
Instruction 2024-A (available in any Rural Development office). Funding 
will come from the appropriate insurance fund.
    (1) Conditions for procurement. Such expenditures may be made only 
when all of the following conditions are met:
    (i) A determination is made that failure to procure work would 
likely result in a property loss greater than the expenditure;
    (ii) There are no other feasible means (including cooperative 
agreements) to accomplish the same result;
    (iii) The recovery of such advance(s) is not authorized by security 
instruments in the case of security or custodial property (no such 
limitation exists for inventory property);
    (iv) Written documentation supporting subparagraphs (i), (ii) and 
(iii) has been obtained from the authorized program official;
    (v) Approval has been obtained from the appropriate Assistant 
Administrator.
    (2) Direct procurement action. Where direct procurement action is 
contemplated, an opinion must be obtained from the Regional Attorney 
that:
    (i) Rural Development 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 Rural Development 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 Rural 
Development 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 
Rural Development 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

[[Page 97]]

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, Rural 
Development must report certain underground storage tanks to the State 
agency identified by the Environmental Protection Agency (EPA) to 
receive such reports. Notification will be accomplished by completing an 
appropriate EPA or alternate State form, if approved by EPA. A State 
supplement will be issued providing the appropriate forms required by 
EPA and instructions on processing same.
    (a) Underground storage tanks which meet the following criteria must 
be reported:
    (1) It is a tank, or combination of tanks (including pipes which are 
connected thereto) the volume of which is 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 Rural Development 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

[[Page 98]]

forwarded to and maintained in the State Office by program area.
    (d) Prospective purchasers of Rural Development inventory property 
with a reportable underground storage tank will be informed of the 
reporting requirement, and provided a copy of the form filed by Rural 
Development.
    (e) In a State which has promulgated additional underground storage 
tank reporting requirements, Rural DevelopmentRural Development 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 Rural Development 
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 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, Rural 
Development 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.



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 Rural Development 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 Rural Development 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 Rural Development official 
having custody of the property may request advice from the State Office 
staff as necessary. Actions to effect removal of

[[Page 99]]

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 Rural Development 
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 Rural Development unless it is removed within 7 
days from the date of the letter. If no address can be determined, a 
copy of the letter should be posted on the front door of the property 
and documentation entered in the running record of the Rural Development 
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 Rural Development 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 RD Instruction 
2024-A (available in any Rural Development office) for guidance.
    (c) Payment of costs. Upon payment of all expenses incurred by the 
Government in connection with the personal property, Rural Development 
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

[[Page 100]]

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 part 1970 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, 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; 82 FR 
19319, Apr. 27, 2017]



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

[[Page 101]]

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. 
Custodial property may be managed in the same manner as inventory 
property except that it may be leased only if it is habitable without 
repairs in excess of those authorized in Sec.1955.55(c) of this 
subpart. Farm or organization property, such as rental housing and 
community facilities, may be operated under a management contract if the 
State Director has determined it is approporiate to have the property in 
operation. In any case, the primary consideration in selecting the 
method of management to be used is to protect the Government's interest. 
If property to be operated or leased under a management contract is 
located in an area identified by the Federal Insurance Administration as 
a special flood or mudslide hazard area, lessees or tenants must be 
notified to that effect in 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 RD 
Instruction 2024-A (available in any Rural Development 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 Rural Development 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 Rural 
Development'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 RD Instruction 2024-Q (available in any Rural Development 
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 RD 
Instruction 2024-A (available in any Rural Development 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 RD Instruction 2024-A (available in 
any Rural Development 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 RD 
Instruction 2024-A (available in any Rural Development office).
    (iv) If a proposed management contract will exceed the contracting 
authority for State Office staff within a

[[Page 102]]

short time, a request for contract action will be forwarded to the 
Administrator, to the attention of the appropriate program division.
    (3) Specification of services. All management contracts will provide 
for termination by either the contractor or the Government upon 30 days 
written 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 RD Instruction 2024-A (available in any Rural 
Development 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 RD Instruction 2024-A 
(available in any Rural Development 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 part 1970 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 103]]

    (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) 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.
    (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

[[Page 104]]

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.
    (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

[[Page 105]]

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; 82 FR 19319, 
Apr. 27, 2017]



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. 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. 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 Rural Development officials. 
State supplements applicable to MFH must have

[[Page 106]]

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 Rural Development

    Editorial Note: Exhibit A is not published in the Code of Federal 
Regulations. It is available in any Rural Development County Office.

[53 FR 35765, Sept. 14, 1988, as amended at 80 FR 9897, Feb. 24, 2015]



   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 Rural Development 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 Rural Development 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

[[Page 107]]

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]



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 the applicable 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 Rural Development 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 Rural Development 
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

[[Page 108]]

county where the property is located. If the farm is located in more 
than one county, the average farm acreage of the county where the 
applicant's residence is located will be used in the calculation. If the 
applicant's residence is not located on the farm or if the applicant is 
an entity, the average farm acreage of the county where the major 
portion of the farm is located will be used. The average county farm or 
ranch acreage will be determined from the most recent Census of 
Agriculture developed by the U.S. Department of Commerce, Bureau of the 
Census. State Directors will publish State supplements containing the 
average farm or ranch acreage by county.
    (6) Demonstrates that the available resources of the applicant and 
spouse (if any) are not sufficient to enable the applicant to enter or 
continue farming or ranching on a viable scale.
    (7) In the case of an entity:
    (i) All the members are related by blood or marriage.
    (ii) All the stockholders in a corporation are qualified beginning 
farmers or ranchers.
    Borrower. An individual or entity which has outstanding obligations 
to the Rural Development under any Farmer Programs loan(s), without 
regard to whether the loan has been accelerated. A borrower includes all 
parties liable for the Rural Development 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 Rural Development 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 the respective Agency.
    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 Rural Development 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 Rural Development 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

[[Page 109]]

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 Rural Development'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 a Rural Development loan 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 
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 Rural Development'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 Rural Development.
    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.

[[Page 110]]

    Program terms. Credit terms for SFH or MFH property sales, 
prescribed in Rural Development program regulations for its various loan 
programs; available only to persons/entities meeting eligibility 
requirements set forth for the respective loan program. For property 
sales other than SFH and MFH, see the definition of ``Eligible terms.''
    Regular Agency sale. Sale made by Rural Deveopment employees or real 
estate brokers other than by sealed bid, auction, or negotiation.
    Regular sale. Sale by Rural Development 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. Real property that could be used to carry out the 
objectives of Rural Development's loan programs with financing provided 
through that program.
    Surplus property. 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 at www.govinfo.gov.



Sec.1955.104  Authorities and responsibilities.

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

[[Page 111]]

their supervision and for monitoring County Office compliance with Rural 
Development 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 Rural Development 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 RD 410-1, 
``Application for RD 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 
Rural Development farm inventory properties will have a detrimental 
effect on the value of farms within these areas. Such analysis will be 
carried out in January of each year and as often throughout the year as 
necessary to reflect changing farm real estate conditions. If the 
analyses of farm real estate conditions indicate that such sales would 
put downward pressure on farm real estate values in any area, all farm 
properties within the area affected will be withheld from the market and 
managed in accordance with the provisions of Subpart B of this Part 
until such time that a subsequent analysis indicates otherwise. The 
State Director will notify, in writing, the County Supervisor(s) 
servicing those areas that are restricted from selling farm inventory 
property. State Directors in consultation with other lenders, real 
estate agents, auctioneers, and others in the community will analyze all 
available information such as:
    (1) The number of farms and acres that Rural Development 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 Rural Development 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.

[[Page 112]]

    (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 
Rural Development 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 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

[[Page 113]]

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. All 
prospective buyers will be notified in writing as a part of the property 
advertisement of the presence of highly erodible land and wetlands on 
inventory property.
    (b) Surplus property and suitable property not sold to a beginning 
farmer or rancher. Except where a lessee is exercising the option to 
purchase under the Homestead Protection provision of subpart S of part 
1951 of this chapter, surplus property will be offered for public sale 
by sealed bid or auction within 15 days from the date of acquisition in 
accordance with Sec.1955.147 or Sec.1955.148. 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

[[Page 114]]

(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; 82 FR 19320, Apr. 27, 2017]



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

    Program officials will immediately contact the National Office 
whenever they acquire real property to obtain further instructions on 
the time frames and procedures for advertising and disposing of such 
property.

[62 FR 44401, Aug. 21, 1997]



Sec.1955.109  Processing and closing (CONACT).

    (a) Determining repayment ability and creditworthiness. If a credit 
sale is involved, the applicant must furnish necessary financial 
information to assist in determining repayment ability and 
creditworthiness. 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,

[[Page 115]]

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 RD 
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 RD 1910-11, ``Applicant Certification, Federal Collection 
Policies for Consumer or Commercial Debts.'' The County Supervisor or 
District Director must review Form RD 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 Rural Development . Sales customarily will be made by 
Rural Development 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. No earnest money will be collected in connection with sales by 
Rural Development. 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 Rural 
Development. When broker services for SFH are utilized, the Rural 
Development office will not conduct direct sales, but will refer 
inquiries to the broker or list of participating brokers. However, if 
Rural Development has been approached by a potential buyer desiring to 
purchase a specific property

[[Page 116]]

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.
    (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

[[Page 117]]

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 Rural Development 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 Rural Development 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 Rural Development office) 
which outlines chronologically the sales steps for program property.
    (1) The following provisions apply to all offers to purchase SFH 
inventory property:
    (i) Program property will be available for purchase only by program 
applicants for the first 45 days from the date of the initial offering 
or listing, and for the first 45 days following the date of any 
reduction in price. During these 45-day period(s), offers from others 
may be received and held until the first business day following the 45-
day period (the 46th day) when any such offer(s) will be considered as 
received on the 46th day along with offers received on that same (46th) 
day. After the expiration of each 45-day exclusive period for program 
applicants, program property may be purchased by offerors requesting 
credit on program terms, nonprogram (NP) terms or for cash in the order 
of priority set forth in paragraph (a)(3) of this section.
    (ii) In regular sales, an acceptable offer must be for at least the 
sale price. No offer for less than the sale price will be considered, 
accepted or held. Offers will be considered as acceptable or 
unacceptable independent of any accompanying credit request (on program 
or NP terms).
    (iii) All offers will be date-stamped when received. Selection of 
equally acceptable offers, considering offers in the category order 
outlined in paragraph (a)(3) of this section, received on the same 
business day will be made by lot by placing the names in a receptacle 
and drawing names sequentially. Drawn offers will be numbered and those 
drawn after the first drawn offer will be held as back-up offers pending 
sale to the successful offeror, unless the offeror has specifically 
noted on the offer that it may not be held as a back-up offer.
    (iv) An offer may be submitted any time after the effective date the 
property is available for sale or any price 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

[[Page 118]]

on the 6th day, at the same time as any offer received on the 6th day.
    (v) If an offer subject to Rural Development 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 RD 1955-43 unless Rural 
Development 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 RD 
Instruction 440.1 (available in any Rural Development office).
    (iii) Offers with requests for credit on NP terms in descending 
order from highest to lowest, for more than the sale price. An offer 
with a request for credit in excess of the market value of the property 
will not be accepted. If an offer of this type is received, the offeror 
will be given the opportunity to reduce the credit request to the market 
value (or lower) with no change to be made in the offered price.
    (iv) Offers with requests for credit on NP terms for the sale price.
    (4) Back-up offers and notification to offerors. Back-up offers will 
be taken in accordance with paragraph (a)(1)(iii) of this section. 
County offices utilizing the services of real estate brokers will advise 
the brokers of changes in the status of the property. County offices not 
utilizing real estate brokers will advise offerors of changes in the 
status of the property utilizing exhibit E of this subpart (available in 
any Rural Development 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

[[Page 119]]

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 by Rural Development 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 Rural 
Development 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 RD 1955-40, or another appropriate form designated for MFH 
property, will be used and the property sold to the first eligible 
program applicant. Any other method of sale must receive prior written 
authorization from the Assistant Administrator, Housing. Cash sales of 
program property will remain subject to restrictive-use provisions 
determined needed and included in the advertisement. The deed will 
contain the applicable restrictive-use provisions. Tenants and 
prospective tenants will receive the applicable protections for the 
specific restrictive-use provision contained in 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 Rural Development 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

[[Page 120]]

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 Rural Development 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 Rural Development 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 RD 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 Rural Development 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 Rural 
Development office) which outlines chronologically the sales steps for 
NP properties.
    (1) Sale by sealed bid or auction. If a NP property has not sold 
within 150 days after being offered for sale, the inventory case file 
with documentation of marketing efforts will be submitted to the State 
Director. The State Director will authorize sale by sealed bid or 
auction in accordance with Sec.1955.112(c) of this subpart unless 
additional sales methods appear more prudent. Use of the sealed bid or 
auction method may be considered as an initial sales effort under 
special or unusual circumstances such as, but not limited to, structures 
which have been substantially destroyed by fire or other causes.
    (2) Sale as chattel. If efforts to sell NP property by sealed bid or 
auction prove unsuccessful, the structure(s) may be sold as chattel (for 
chattel or salvage value, as appropriate) when authorized by the State 
Director. When the structure is to be sold as chattel (exclusive of 
land) further guidance is provided in 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, Rural Development 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 Rural Development Instruction 2024-A 
(available in any Rural Development office).
    (3) Sale of vacant land. When Rural Development 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.

[[Page 121]]

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 Rural Development 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 following language which is contained in Form 
RD 1955-44, ``Notice of Residential Occupancy Restriction'':

    This property contains a dwelling unit or units which Rural 
Development 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 
Rural Development (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 RD 1955-44 must be attached to Forms RD 1955-45 
or RD1955-46, 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 RD 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 Rural Development 
(the ``Grantor'' herein) that

[[Page 122]]

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 Rural 
Development or the unit(s) has been completely razed, upon application 
to Rural Development 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, Rural Development will 
inspect the property to ensure that the repairs/renovations outlined in 
the restrictive covenant have been properly completed or the 
structure(s) razed. A State Supplement outlining the procedure for 
releasing the restrictive covenant will be issued with the advice of 
OGC.

[53 FR 27834, July 25, 1988]



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

    The following provisions apply to all credit sales on program terms:
    (a) Offers. Form RD 1955-45 will be used to document the offer and 
acceptance for regular Rural Development sales. The contract is accepted 
prior to processing Form RD 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. Rural Development 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 RD 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 Rural Development 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 Rural 
Development 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

[[Page 123]]

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.
    (b) Credit sales. The following provisions apply to MFH credit sales 
on NP terms:
    (1) Offers. Form RD 1955-45 or RD 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 RD Instruction 440.1 (available in any Rural 
Development 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 Rural Development 
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

[[Page 124]]

customarily paid by the seller will be paid by Rural Development from 
the downpayment.
    (iii) The County Supervisor or District Director will provide the 
closing agent with the necessary information for closing the sale. The 
assistance of OGC will be requested to provide closing instructions for 
all MFH sales.
    (iv) When more than one property is bought by the same buyer and the 
transactions are closed at the same time, a separate promissory note 
will be prepared for each property, but one mortgage will cover all the 
properties.
    (9) Reporting. After the sale is closed, it will be reported 
according to Sec.1955.142 of this subpart.
    (10) Classification. MFH credit sales on NP terms will be classified 
as NP loans and serviced accordingly.
    (11) Form RD 1910-11, ``Applicant Certification, Federal Collection 
Policies for Consumer or Commercial Debts.'' The County Supervisor or 
District Director must review Form RD 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, Rural Development 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, Rural Development 
will withdraw the property from the market for a period not to exceed 30 
days to provide the organization sufficient time to execute Form RD 
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, Rural 
Development will repair it to meet those standards, including thermal 
performance standards, unless Rural Development 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 RD 1955-44, itemizing the required repairs and 
Rural Developments agreement to complete them before closing will be 
made a part of Form RD 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-Rural Development 
loan, the County Supervisor may authorize

[[Page 125]]

the payment by Rural Development of not more than three points. The 
payment must be a customary requirement of the lender for the seller 
within the community where the property is located. Terms of payment 
will be incorporated in Form RD 1955-45 and will be fixed as of the date 
the form is signed by the appropriate Rural Development 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 Rural Development 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 Rural Development 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 Rural Development 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 Rural Development. Rural Development 
Form Letter 1955-C-1 will be used to notify applicants/borrowers of the 
availability of farm equipment in Rural Development 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 Rural Development 
employees at market value to program applicants. Form RD 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 Rural 
Development employees or fee auctioneers, are suitable for on-premises 
sales, for sale of dissimilar chattels, and for the sale of chattels in 
conjunction with the auction of real property. A minimum of 5 days 
public notice will be given prior to the date of auction.
    (d) Sealed bid sales. Section 1955.147 of this subpart provides 
detailed guidance on sealed bid sales applicable to the sale of 
chattels. When it is believed that financing will have to be provided 
through a credit sale, this method has advantages over auction sales. It 
requires, however, additional steps in the event any established minimum 
price is not obtained. Preference will be given to a cash offer which is 
at least __* percent of the highest offer requiring credit.

    [* Refer to exhibit B of RD Instruction 440.1 (available in any 
Rural Development office) for the current percentage.]


[[Page 126]]


    (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 Rural Development 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 RD 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 RD Instruction 1951-B (available in any Rural Development 
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) Credit sales. Although cash sales are preferred in the sale of 
chattel, credit sales may be used advantageously in the sale of chattels 
to eligible purchasers and to facilitate sales of high-priced chattels. 
Credit sales to eligible purchasers will be in accordance with the 
provisions of this chapter for the appropriate program for which a loan 
would otherwise be made including eligibility determinations. Preference 
will be given to a cash offer that is at least * percent of the higher 
offer requiring credit. [*Refer to exhibit B of RD Instruction 440.1 
(available in any Rural Development 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 of C&BP chattel will be the current ineligible interest rate 
for C&BP property set forth in Exhibit B of RD Instruction 440.1 
(available in any Rural Development office). District Directors and 
State Directors are authorized to approve or disapprove sale of C&BP 
chattel on ineligible terms in accordance with the respective type of 
program approval authorities in Exhibit E of Subpart A of Part 1901 of 
this chapter (available in any Rural Development office). For other than 
C&BP, credit sales to NP purchasers will be handled in accordance with 
Subpart J of Part 1951 of this chapter.
    (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; 80 FR 9899, Feb. 24, 
2015]



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

    Inventory chattel property may be sold with inventory real estate if 
a

[[Page 127]]

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 RD 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 
RD 1955-45 or Form RD 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. 
RD Instruction 2024-A (available in any Rural Development 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 Rural Development 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 Rural Development 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 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 RD Instruction 2024-A (available in any Rural 
Development 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

[[Page 128]]

selection of one broker by competitive negotiation who will be the only 
authorized broker for the Rural Development 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 
Rural Development 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 RD 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 Rural 
Development 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 Rural Development 
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 Rural Development office is 
responsible for ensuring that adequate advertising is performed to 
effectively market the property.
    (b) Listing notices. Forms RD 1955-40 or RD 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 offer from among equally acceptable offers within each 
category will be determined by lot by Rural Development. 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 Rural 
Development. When a contract is cancelled because Rural Development 
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 RD 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. Rural 
Development may not set the commission rate in an exclusive broker 
solicitation/contract. The rate of commission will be one of

[[Page 129]]

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 Rural Development 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 Rural 
Development 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 Rural Development official by 
completing Form AD-838 and processing Form RD 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 
Rural Development shall certify to nondiscrimination practices as 
provided in Form RD 1955-42. In addition, all brokers participating in 
the sale of property shall sign the nondiscrimination certification on 
Form RD 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 RD Instruction 2024-A (available in any Rural Development 
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. Rural Development 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 Rural Development official completing Form AD-
838 and

[[Page 130]]

processing Form RD 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.

    Rural Development 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 Rural Development 
employees or by contract with individuals, organizations or other 
entities. Prior to initiation of a pilot project, Rural Development will 
publish notice in the Federal Register of its nature, scope, and 
duration.

[55 FR 3943, Feb. 6, 1990]



Sec.1955.133  Nondiscrimination.

    (a) Title VI provisions. If the inventory real property to be sold 
secured a loan that was subject to Title VI of the Civil Rights Act of 
1964, and the property will be used for its original or similar purpose, 
or if Rural Development extends credit and the property then becomes 
subject to Title VI, the buyer will sign Form RD 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 Rural Development 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 Rural Development 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 Rural Development 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 Rural Development, 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 Rural 
Development will accept from the purchaser. However, if the actual loss 
based on the reduction in market value of the property as determined by 
Rural Development 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. Rural Development 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 Rural Development owned property is subject to taxation, taxes 
and assessment installments will be

[[Page 131]]

prorated between Rural Development and the purchaser as of the date the 
title is conveyed in accordance with the conditions of Forms RD 1955-45 
or RD 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 Rural Development for inventory 
property. At the closing, payment of taxes and assessment installments 
due to be paid by Rural Development will be paid from cash proceeds 
Rural Development 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 Rural Development credit and required 
to escrow, Rural Development'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 review requirements.

    (a) Prior to a final decision on some disposal actions, the action 
must comply with the environmental review requirements in accordance 
with the agency's environmental policies and procedures found in 7 CFR 
part 1970.
    (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 Rural Development 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.

[50 FR 23904, June 7, 1985, as amended at 81 FR 11032, Mar. 2, 2016; 81 
FR 26667, May 4, 2016; 82 FR 19320, Apr. 27, 2017]



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

[[Page 132]]

Agency office). A listing of all restrictions will be included in the 
notices required in paragraph (a)(2) of this section.
    (2) Notice of hazards. Acquired real property located in an 
identified special flood or mudslide hazard area as defined in, subpart 
B of part 1806 of this chapter will not be sold for residential purposes 
unless determined by the county official or district director to be safe 
(that is, any hazard that exists would not likely endanger the safety of 
dwelling occupants).
    (3) Limitations placed on financial assistance. (i) Financial 
assistance is limited to property located in areas where flood insurance 
is available. Flood insurance must be provided at closing of loans on 
program-eligible and non-program (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 7 CFR part 1970 for Rural 
Development programs.
    (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

[[Page 133]]

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 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

[[Page 134]]

SHPO in order to develop any necessary restrictions on the use of the 
property so that the future use will be compatible with preservation 
objectives and which does not result in an unreasonable economic burden 
to public or private interest. The Advisory Council on Historic 
Preservation must be consulted by the State Director or State Executive 
Director after the discussions with the SHPO are concluded regardless of 
whether or not an agreement is reached.
    (4) Any restrictions that are developed on the use of the property 
as a result of the above consultations must be made known to a potential 
bidder or purchaser through a notice procedure similar to that in Sec.
1955.13(a)(2) of this subpart.
    (d) Highly erodible farmland. (1) The FSA county official will 
determine if any inventory property contains highly erodible land as 
defined by the NRCS and, if so, what specific conservation practices 
will be made a condition of a sale of the property.
    (2) If the county official does not concur in the need for a 
conservation practice recommended by NRCS, any differences shall be 
discussed with the recommending NRCS office. Failure to reach an 
agreement at that level shall require the State Executive Director to 
make a final decision after consultation with the NRCS State 
Conservationist.
    (3) Whenever NRCS technical assistance is requested in implementing 
these requirements and NRCS responds that it cannot provide such 
assistance within a time frame compatible with the proposed sale, the 
sale arrangements will go forward. The sale will proceed, conditioned on 
the requirement that a purchaser will immediately contact (NRCS) have a 
conservation plan developed and comply with this plan. The county 
official will monitor the borrower's compliance with the recommendations 
in the conservation plan. If problems occur in obtaining NRCS 
assistance, the State Executive Director should consult with the NRCS 
State Conservationist.
    (e) Notification to purchasers of inventory property with reportable 
underground storage tanks. If the Agency is selling inventory property 
containing a storage tank which was reported to the Environmental 
Protection Agency (EPA) pursuant to the provisions of Sec.1955.57 of 
subpart B of this part, the potential purchaser will be informed of the 
reporting requirement and provided a copy of the report filed by the 
Agency.
    (f) Real property that is unsafe. If the Agency has in inventory, 
real property, exclusive of any improvements, that is unsafe, that is it 
does not meet the definition of ``safe'' as contained in Sec.1955.103 
of this subpart and which cannot be feasibly made safe, the State 
Director or State Executive Director will submit the case file, together 
with documentation of the hazard and a recommended course of action to 
the National Office, ATTN: appropriate Deputy Administrator, for review 
and guidance.
    (g) Real property containing hazardous waste contamination. All 
inventory property must be inspected for hazardous waste contamination 
either through the use of a preliminary hazardous waste site survey or 
Transaction Screen Questionnaire. If possible contamination is noted, a 
Phase I or II environmental assessment will be completed per the advice 
of the State Environmental Coordinator.

[62 FR 44401, Aug. 21, 1997, as amended at 68 FR 7700, Feb. 18, 2003; 81 
FR 11032, Mar. 2, 2016; 82 FR 19320, Apr. 27, 2017]



Sec.1955.138  Property subject to redemption rights.

    If, under State law, Rural Development'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

[[Page 135]]

    (2) If the property is redeemed, ownership and possession of the 
property would revert to the previous owner and likely result in loss of 
any additional investment in the property not recoverable under the 
State's provisions of redemption.
    (c) The signed original statement will be filed in the purchaser's 
County or District Office case file.
    (d) If real estate brokers or auctioneers are engaged to sell the 
property, the County Supervisor or District Director will inform them of 
the redemption rights of the borrower and the conditions under which the 
property may be sold.
    (e) The State Director, with prior approval of OGC, will issue a 
State supplement incorporating the requirements of this section and 
providing additional guidance appropriate for the State.

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



Sec.1955.139  Disposition of real property rights and title to real
property.

    (a) Easements, rights-of-way, development rights, restrictions or 
the equivalent thereof. The State Director is authorized to convey these 
rights for conservation purposes, roads, utilities, and other purposes 
as follows:
    (1) Except as provided in paragraph (a)(3) of this section, 
easements or rights-of-way may be conveyed to public bodies or utilities 
if the conveyance is in the public interest and will not adversely 
affect the value of the real estate. The consideration must be adequate 
for the inventory property being released or for a purpose which will 
enhance the value of the real estate. If there is to be an assessment as 
a result of the conveyance, relative values must be considered, 
including any appropriate adjustment to the property's market value, and 
adequate consideration must be received for any reduction in value.
    (2) Except as provided in paragraph (a)(3) of this section easements 
or rights-of-way may be sold by negotiation for market value to any 
purchaser for cash without giving public notice if the conveyance would 
not change the classification from program/suitable to NP or surplus, 
nor decrease the value by more than the price received.
    (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 Rural 
Development's financial interest, the State Director will submit the 
proposal to the Administrator for approval unless the State Director has

[[Page 136]]

been delegated approval authority in writing from the Administrator to 
approve such transactions based upon demonstrated capability and 
experience in processing such conveyances. Factors to be addressed in 
formulating such a request include the intended conservation purpose(s) 
and the environmental importance of the affected property, the impact to 
the Government's financial interest, the financial resources of the 
potential purchaser or grantee and its normal method of acquiring 
similar property rights, the likely impact to environment should the 
property interest not be sold or granted and any other relevant factors 
or concerns prompting the State Director's request.
    (iv) Property interests under this paragraph may be conveyed by 
negotiation with any eligible recipient without giving public notice if 
the conveyance would not change program/suitable property to NP or 
surplus. 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 Rural Development, and 
any person or government entity designated by the Rural Development, 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 Rural Development 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 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 Rural Development 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.

[[Page 137]]

    (3) The value of such rights, interests or leases will be considered 
when the property is appraised.
    (c) Transfer of FSA inventory property for conservation purposes. 
(1) In accordance with the provisions of this paragraph, FSA may 
transfer, to a Federal or State agency for conservation purposes (as 
defined in paragraph (a)(3)(i) of this section), inventory property, or 
an interest therein, meeting any one of the following three criteria and 
subject only to the homestead protection rights of all previous owners 
having been met.
    (i) A predominance of the land being transferred has marginal value 
for agricultural production. This is land that NRCS has determined to be 
either highly erodible or generally not used for cultivation, such as 
soils in classes IV, V, VII or VIII of NRCS's Land Capability 
Classification, or
    (ii) A predominance of land is environmentally sensitive. This is 
land that meets any of the following criteria:
    (A) Wetlands, as defined in Executive Order 11990 and USDA 
Regulation 9500.
    (B) Riparian zones and floodplains as they pertain to Executive 
Order 11988.
    (C) Coastal barriers and zones as they pertain to the Coastal 
Barrier Resources Act or Coastal Zone Management Act.
    (D) Areas supporting endangered and threatened wildlife and plants 
(including proposed and candidate species), critical habitat, or 
potential habitat for recovery pertaining to the Endangered Species Act.
    (E) Fish and wildlife habitats of local, regional, State or Federal 
importance on lands that provide or have the potential to provide 
habitat value to species of Federal trust responsibility (e.g., 
Migratory Bird Treaty Act, Anadromous Fish Conservation Act).
    (F) Aquifer recharges areas of local, regional, State or Federal 
importance.
    (G) Areas of high water quality or scenic value.
    (H) Areas containing historic or cultural property; or
    (iii) A predominance of land with special management importance. 
This is land that meets the following criteria:
    (A) Lands that are in holdings, lie adjacent to, or occur in 
proximity to, Federally or State-owned lands or interest in lands.
    (B) Lands that would contribute to the regulation of ingress or 
egress of persons or equipment to existing Federally or State-owned 
conservation lands.
    (C) Lands that would provide a necessary buffer to development if 
such development would adversely affect the existing Federally or State-
owned lands.
    (D) Lands that would contribute to boundary identification and 
control of existing conservation lands.
    (2) When a State or Federal agency requests title to inventory 
property, the State Executive Director will make a preliminary 
determination as to whether the property can be transferred.
    (3) If a decision is made by the State Executive Director to deny a 
transfer request by a Federal or State agency, the requesting agency 
will be informed of the decision in writing and informed that they may 
request a review of the decision by the FSA Administrator.
    (4) When a State or Federal agency requests title to inventory 
property and the State Executive Director determines that the property 
is suited for transfer, the following actions must be taken prior to 
approval of the transfer:
    (i) At least two public notices must be provided. These notices will 
be published in a newspaper with a wide circulation in the area in which 
the requested property is located. The notice 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

[[Page 138]]

in which the property is located. The notification should provide 
information on the request and solicit any comments regarding the 
proposed transfer. All procedural requirements in paragraph (c) (3) of 
this section must be completed in 75 days.
    (5) Determining priorities for transfer or inventory lands.
    (i) A Federal entity will be selected over a State entity.
    (ii) If two Federal agencies request the same land tract, priority 
will be given to the Federal agency that owns or controls property 
adjacent to the property in question or if this is not the case, to the 
Federal agency whose mission or expertise best matches the conservation 
purposes for which the transfer would be established.
    (iii) In selecting between State agencies, priority will be given to 
the State agency that owns or controls property adjacent to the property 
in question or if that is not the case, to the State agency whose 
mission or expertise best matches the conservation purpose(s) for which 
the transfer would be established.
    (6) In cases where land transfer is requested for conservation 
purposes that would contribute directly to the furtherance of 
International Treaties or Plans (e.g., Migratory Bird Treaty Act or 
North American Waterfowl Management Plan), to the recovery of a listed 
endangered species, or to a habitat of National importance (e.g., 
wetlands as addressed in the Emergency Wetlands Resources Act), priority 
consideration will be given to land transfer for conservation purposes, 
without reimbursement, over other land disposal alternatives.
    (7) An individual property may be subdivided into parcels and a 
parcel can be transferred under the requirements of this paragraph as 
long as the remaining parcels to be sold make up a viable sales unit, 
suitable or surplus.

[50 FR 23904, June 7, 1985, as amended at 51 FR 13479, Apr. 21, 1986; 53 
FR 27838, July 25, 1988; 53 FR 35781, Sept. 14, 1988; 57 FR 36592, Aug. 
14, 1992; 62 FR 44403, Aug. 21, 1997; 68 FR 61332, Oct. 28, 2003; 82 FR 
19320, Apr. 27, 2017]



Sec.1955.140  Sale in parcels.

    (a) Individual property subdivided. An individual property, other 
than Farm Loan 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. 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 review requirements must comply with 7 CFR part 1970. 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, as amended at 81 FR 11032, Mar. 2, 2016; 82 
FR 19320, Apr. 27, 2017]



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

[[Page 139]]

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]



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 Rural 
Development 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 Rural Development 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

[[Page 140]]

of additional land at a price not in excess of its market value.
    (c) Easements or rights-of-way. The State Director may authorize the 
acquisition of easements, rights-of-way or other interests in land to 
cure title defects, encroachments or in order to make NP property a 
program property, if economically feasible.

[53 FR 27839, July 25, 1988]



Sec.1955.146  Advertising.

    (a) General. When property is being sold by Rural Development 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 RD Instruction 2024-F (available in 
any Rural Development office), public notice using Form RD 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 1955-40 or 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 Rural DevelopmentFmHA or its successor agency under 
Public Law 103-354 personnel are not available to perform these 
services, Rural Development may contract for such services in accordance 
with Rural Development Instruction 2024-A (available in any Rural 
Development 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 Rural Development 
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 
Rural Development will consider bids on an individual property or a 
group of properties and Rural Development will accept the bid or bids 
which are in the

[[Page 141]]

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 RD 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 Rural Development. 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 Rural Development 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 Rural Development 
office. The County Supervisor, District Director, or State Director or 
his/her designee will open the bids with at least one other Rural 
Development 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 RD Instruction 440.1 (available in any Rural 
Development 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 Rural Development 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 Rural 
Development notice is an element of the offer and Rural Development 
disapproves the credit application, then the bid deposit will be 
returned to the otherwise successful bidder. Upon determination that the 
successful bidder will not close, the State Director may authorize 
either another sealed bid or auction sale of direct negotiations with 
the next highest bidder, all available unsuccessful bidders, or other 
interested parties.
    (f) No acceptable bid. Where no acceptable bid is received although 
adequate competition is evident, the State Director may authorize a 
negotiated sale

[[Page 142]]

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.
    (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

[[Page 143]]

Instruction to provide guidance to Rural Development 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]
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.

[[Page 144]]

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 Rural Development records.
1956.146-1956.147 [Reserved]
1956.148 Exception authority.
1956.149 [Reserved]
1956.150 OMB control number.

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

    Source: 51 FR 45434, Dec. 18, 1986, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 1956 appear at 80 FR 
9901, Feb. 24, 2015.

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. 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

[[Page 145]]

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 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.

[[Page 146]]

    (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 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

[[Page 147]]

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.
    (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.

[[Page 148]]

    (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.
    (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

[[Page 149]]

    (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
    (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

[[Page 150]]

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 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

[[Page 151]]

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 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

[[Page 152]]

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 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

[[Page 153]]

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; Rural Development Loan Fund loans; Intermediary Relending Program 
loans; and the Rural Microentrepreneur Assistance Program (RMAP) loans 
and repayable portions of RMAP grants; 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, 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, 31 CFR parts 900 through 904, inclusive. 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.

[80 FR 13201, Mar. 13, 2015]



Sec.1956.102  Application of policies.

    (a) General. If a debt is eligible for settlement, the debt 
settlement authorities of the government 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, Rural Development 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 Rural Development. The term ``settlement'' 
is used for convenience in referring to compromise, adjustment, 
cancellation, or chargeoff actions, individually or collectively.
    (b) Compromise. The satisfaction of a debt, including a release of 
liability, by the acceptance of a lump-sum payment of less than the 
total amount owed on the debt.
    (c) Adjustment. The satisfaction of a debt, including a release of 
liability,

[[Page 154]]

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 Rural 
Development programs specified in Sec.1956.101.
    (g) Security. All that serves as collateral for Rural Development 
loan(s), including, but not limited to, revenues, tax levies, municipal 
bonds, and real and chattel property.
    (h) Servicing official. The Rural Development 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; 80 FR 9901, Feb. 24, 2015]



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 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

[[Page 155]]

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 RD 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 RD 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 RD 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.

    Rural Development 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 Rural Development, the State Director will obtain the advice of 
the Administrator before providing OGC with a recommendation on 
acceptance or rejection of this plan.
    (b) The United States Attorney will advise the State Director, 
through OGC, as to approval or rejection of the debtor's reorganization 
plan. The State Director will then notify the Finance Office by 
memorandum of the terms and conditions of the bankruptcy reorganization 
plan, including any adjustment of the debt.



Sec.1956.112  Debts ineligible for settlement.

    Debts will not be settled:
    (a) If referral to the Office of Inspector General (OIG) and/or to 
the OGC is contemplated or pending because of suspected criminal 
violation, or
    (b) If civil action to protect the interests of the Government is 
contemplated or pending, or
    (c) If an investigation for suspected fiscal irregularity is 
contemplated or pending, or
    (d) When a claim has been referred to or a judgment has been 
obtained by the United States Attorney and the debtor 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, Rural Devlopment 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.

[[Page 156]]



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 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.

[[Page 157]]

    (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:
    (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 RD 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

[[Page 158]]

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 RD 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 RD 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
    (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

[[Page 159]]

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 RD 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 RD 1956-1 in the State Office and 
return case files and copies of Form RD 1956-1 to the servicing 
official.
    (3) Request the Finance Office to return any adjustment or 
compromise payment held by the Finance Office to the borrower, in care 
of the servicing official.
    (4) Return any adjustment or compromise payment held by the State 
Office to the borrower, in care of the servicing official.
    (5) Notify the debtor in writing of the reasons for the rejection 
for compromise and adjustment offers under Sec.1956.124 and 
cancellations with application under Sec.1956.130(a) of this subpart.
    (d) Appeal rights. In accordance with subpart B of part 1900 of this 
chapter, the debtor will be given the right to appeal the rejection of 
any debt settlement offer made by the debtor under this subpart.



Sec.1956.139  Collections.

    (a) When the debtor offers a lump-sum payment in compromise or an 
initial payment on an adjustment offer, that payment will accompany the 
settlement application at the time the application is filed with the 
servicing official.
    (b) [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 RD 451-2, ``Schedule of 
Remittances,'' bearing the legend ``Compromise Offer--Rural 
Development'' or ``Adjustment Offer--Rural Development,'' 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 RD 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.

[[Page 160]]

    (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 RD 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 and to the servicing official. Upon receipt, the Finance 
Office will return the original Form RD 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 Rural 
Development 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 Rural Development 
payments. That is, one full annual installment or the equivalent for 
monthly, quarterly, or semiannual installments.

[[Page 161]]

    Eligibility. Applicants must be delinquent due to circumstances 
beyond their control and have acted in good faith by trying to fulfill 
the agreements with Rural Development 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 Rural Development'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, Rural Development 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. Rural Development will consider the 
following criteria for selection: past experience in health care 
facility analysis, a familiarity with the problems of rural health care 
facilities, a knowledge of the particular area currently served by the 
facility in question, and a willingness to work with both Rural 
Development 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 Rural Development 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 Rural Development 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

[[Page 162]]

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 Rural Development 
reserve account for the next 3 years;
    (7) A discussion of Rural Development's analysis and calculation 
process; and
    (8) A paragraph identifying the Rural Development 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 Rural Development Instruction 2024-A (available in any 
Rural DevelopmentRural Development 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 Rural Development within 60 days of the award date.
    (2) Contract for an appraisal to be performed by an independent, 
qualified fee appraiser. Note: To the extent possible, the appraisal 
should be scheduled for completion no later than the completion date of 
the operations review.
    (3) Complete an analysis of the operations review, appraisal, and 
other documented information, and make an eligibility determination.
    (i) Eligibility determination. The State Director must conclude that 
the debtor is eligible for debt restructuring consideration. This 
conclusion will be clearly documented in the casefile based on a review 
of the following:
    (A) The debtor acted in good faith with regard to the delinquent 
loan. The casefile must reflect the debtor's cooperation in exploring 
servicing alternatives. The casefile should contain no evidence of 
fraud, waste, or conversion by the debtor, and no evidence that the 
debtor violated the loan agreement or Rural Development 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 Rural Development Instruction 440.1, exhibit B 
(available in any Rural Development 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.

[[Page 163]]

    (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 Rural Development writedown. However, failure of these 
creditors to agree to participate in the plan shall not preclude the use 
of principal and interest writedown by Rural Development 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 Rural Development's restructured debt 
and reserve account requirements are to be clearly indicated on the 
projected statements. Also, operating statistics including number of 
beds, patient days of care, outpatient visits, occupancy percentage, 
etc., for the same periods of time must be included.
    (C) Copies of the operations review, developed for the particular 
loan, and appraisal.
    (D) Calculations of the net recovery value.
    (E) Debt restructuring calculations including a listing of the 
various servicing combinations used in these calculations as contained 
in paragraph (c)(3)(ii) of this section. For example:
    (1) Interest rate reduced from the applicant's current rate on all 
loans to the poverty line rate as determined by Rural Development 
instruction 440.1, exhibit B (available in any Rural Development 
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 RD 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 Rural Development 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 RD 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.

[[Page 164]]

    (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 Rural Development Office) and 
including the following paragraphs:
    (i) An introductory paragraph indicating that Rural Development has 
concluded its consideration of the debtor's request;
    (ii) A paragraph indicating Rural Development's approval of the debt 
restructuring request and that acceptance must be received by Rural 
Development 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 Rural Development 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 Rural Development Office), will be sent to the debtor 
that includes the following paragraphs:
    (i) An introductory paragraph indicating that Rural Development has 
concluded its consideration of the debtor's request;
    (ii) Paragraphs indicating that:
    (A) The debtor may pay Rural Development the net recovery value of 
the loan. The debtor will be given 30 days from receipt of this letter 
to inform Rural Development of its intent, 90 days to finalize the 
payoff, and will be notified that an election to pay off Rural 
Development 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 Rural Development Office); or
    (B) If the debt is not paid off at the net recovery value, Rural 
Development 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 Rural Development'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, Rural Development 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 Rural 
Development Office). The original of Form RD 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 Rural Development Office). The original of Form RD 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

[[Page 165]]

transaction will be sent to the Finance Office in one single complete 
package.
    (g) Collection and processing of recapture. (1) When Rural 
Development 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 Rural Development 
Office) or a Shared Appreciation Agreement (Guide 4 of this subpart 
available in any Rural Development Office) outstanding and a 
determination is made that a recapture is appropriate, Rural Development 
will notify the debtor of the following:
    (i) Date and amount of recapture due; and
    (ii) Rural Development action to be taken if debtor does not respond 
within the designated timeframe with the amount of recapture due.
    (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 RD 1965-8, ``Release from Personal Liability,'' modified as 
appropriate.
    (h) No recapture due. If Rural Development determines there is no 
recapture due, the Net Recovery Buy Out Recapture Agreement (Guide 5 of 
this subpart available in any Rural Development Office) or Shared 
Appreciation Agreement (Guide 4 of this subpart available in any Rural 
Development 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 Rural Development records.

    RD Instruction 2033-A (available in any Rural Development office) 
identifies an ``essential Rural Development record'' as the original of 
any document or record which provides evidence of indebtedness or 
obligation to RD 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 Rural Development 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 Rural Development records evidencing debts cancelled 
without application will be placed in the debtor's case folder and 
disposed of pursuant to RD Instruction 2033-A (available in any Rural 
Development office). However, if the debtor requests the document(s), 
they must be stamped ``Satisfied by Approved Cancellation'' and 
returned.
    (c) Essential Rural Development 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 RD Instruction 2033-A (available in any Rural Development 
office).

[80 FR 9902, Feb. 24, 2015]



Sec. Sec.1956.146-1956.147  [Reserved]



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

[[Page 166]]

documented on Form RD 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 Rural Housing Service (RHS) 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 RHS 
except for certain provisions providing for RHS'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 RHS regulations. The sale documents to Rural Housing Trust 
1987-1 recognize that the RHS loans were assigned subject to rights 
provided to these borrowers under documentation to recognize the rights 
of RHS borrowers under regulations of RHS as they may exist from time to 
time and to service the loans in accordance with then current RHS 
regulations. In addition, as provided in Sec.1957.6 of this subpart, 
RHS has retained review, but not hearing authority under the RHS Appeal 
Procedure, 7 CFR part 1900, Subpart B. Failure of private servicers to 
comply with RHS regulations in servicing loans sold to the Rural Housing 
Trust 1987-1 may be redressed in the review process under the Appeal 
Procedure.



Sec.1957.2  Transfer with assumptions.

    RHS 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 
RHS Sec.502 loan will be given the same priority by RHS as a 
transferee of a Sec.502 loan if the property is then suitable for the 
RHS 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 RHS 
loan servicing benefits under RHS regulations.



Sec.1957.3  [Reserved]



Sec.1957.4  Graduation.

    Borrowers will not be required to graduate to other credit.

[[Page 167]]



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 RHS and be conducted by the Agency's National Appeal Staff, 
Washington, DC, under the RHS 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 of Part 1962--Memorandum of Understanding Between 
          Commodity Credit Corporation and Farmers Home Administration 
          or its successor agency under Public Law 103-354
Exhibit B to Subpart A of Part 1962--Memorandum of Understanding and 
          Blanket Commodity Lien Waiver
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
Exhibits D--D-1 to Subpart A of Part 1962 [Reserved]
Exhibit E to Subpart A of Part 1962--Releasing Security Sales Proceeds 
          and Determining ``Essential'' Family Living and Farm Operating 
          Expenses
Exhibit F to Subpart A of Part 1962 [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.

    Editorial Note: Nomenclature changes to part 1962 appear at 80 FR 
9902, Feb. 24, 2015.



         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 Rural Development 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]

[[Page 168]]



Sec.1962.2  Policy.

    Chattel security, EO property and note only loans will be serviced 
to accomplish the loan objectives and protect Rural Development'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) Rural Development 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 Rural Development for all 
chattel security, and complying with all other requirements specified in 
promissory notes, security instruments, and related documents.
    (c) Exception authority. The Administrator may, in individual cases, 
make an exception to any requirement or provision of this subpart which 
is not inconsistent with the authorizing statute or other applicable law 
if the Administrator determines that application of the requirement or 
provision would adversely affect the Government's interest. The 
Administrator will exercise this auhority only at the request of the 
State Director and on the recommendation of the appropriate program 
Assistant Administrator. Requests for exceptions must be made in writing 
by the State Director and supported with documentation to explain the 
adverse effect on the Government's interest, propose alternative courses 
of action, and show how the adverse effect will be eliminated or 
minimized if the exception is granted.
    (d) Farms in more than one jurisdiction. If the farm is situated in 
more than one State, County, or Parish, the loan will be serviced by the 
County Office serving the County in which the borrower's residence is 
located. If the borrower is a corporation, cooperative, partnership or 
joint operation is the borrower's residence is not on the farm, the loan 
will be serviced by the County Office serving the County in which the 
farm or a major portion of the farm is located.

[50 FR 45783, Nov. 1, 1985, as amended at 51 FR 13480, Apr. 21, 1986]



Sec.1962.4  Definitions.

    As used in this subpart, the following definitions apply:
    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 
the government 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 
Rural Development 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 Rural Development. 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.

[[Page 169]]

    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 Rural Development'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 Rural Development;
    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 Rural 
Development matters. To establish that a criminal act was committed by 
selling EO property, it is necessary to show that the borrower, at the 
time the loan agreement or the check on the supervised bank account was 
signed, intended to sell the property in violation of the loan 
agreement. The Federal criminal statute of limitations bars institution 
of criminal action 5 years after the date the act was committed. 
Unauthorized disposition of even minor items by the borrower will be 
considered criminal violations.
    Default. Failure of the borrower to observe the agreements with 
Rural Development 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 Rural Development, 
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

[[Page 170]]

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).
    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 
Rural Development; 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 Rural Development 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 Rural Development'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

[[Page 171]]

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 RD 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 RD 1962-1.

[61 FR 35929, July 9, 1996]



Sec.1962.7  Securing unpaid balances on unsecured loans.

    The County Supervisor will take a lien on a borrower's chattel 
property in accordance with Sec.1962.6 of this subpart if it is 
necessary to rely on such property for the collection of the borrower's 
unsecured indebtedness, or if it will assist in accomplishing loan 
objectives.



Sec.1962.8  Liens on real estate for additional security.

    The County Supervisor may take the best lien obtainable on any real 
estate 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 Rural Development interests, and the borrower has substantial 
equity in the real estate to be mortgaged, and taking such mortgage will 
not prevent making a Rural Development 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.

[[Page 172]]

    (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 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 RD 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 RD or its successor agency under Form RD 
1962-1, and on the file copy of the security agreement or chattel 
mortgage. The original security instrument must not

[[Page 173]]

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 RD 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 RD 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 RD 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 RD 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 RD 1962-1 in the file, the County Supervisor will 
immediately contact the borrower to develop one.
    (3) If the borrower requests a change(s) to Form RD 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 RD 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 RD 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 RD 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 RD 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 RD 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 RD 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:

[[Page 174]]

    (i) The Form RD 1962-1 must provide for releases of normal income 
security so that the borrower can pay essential family living and farm 
operating expenses. However, proceeds from the sale of basic security 
will not be used to pay essential family living or farm operating 
expenses.
    (ii) Essential expenses are those which are basic, crucial or 
indispensable. The following items are guidelines of what normally may 
be considered essential family living and farm operating expenses:

Household operating
Food, including lunches
Clothing and personal care
Health and medical expenses, including medical insurance
House repair and sanitation
School, church, recreation
Personal insurance
Transportation
Furniture
Hired labor
Machinery repair
Farm building and fence repair
Interest on loans and credit or purchase agreement
Rent on equipment, land, and buildings
Feed for animals
Seed
Fertilizer
Pesticides, herbicides, and spray materials
Farm supplies not included above
Livestock expenses, including medical supplies, artificial insemination, 
and veterinarian bills
Machinery hire
Fuel and oil
Personal property tax
Real estate taxes
Water charges
Property and crop insurance
Auto and truck expenses
Utilities payments
Payments on contracts or loans secured by farmland, necessary farm 
equipment, livestock, or other chattels
Essential farm machinery. An item of essential farm machinery which is 
beyond repair may be replaced when the County Supervisor determines that 
replacement is a better choice than alternatives such as the lease of a 
similar piece of machinery or the hiring of the service.

    (iii) All of the items in paragraph (b)(2)(ii) of this section may 
not always be considered essential for every family and farming 
operation. County Supervisors must consider the individual borrower's 
operation, what is typical for that type of operation in the area 
administered by the County Supervisor, and what would be an efficient 
method of production considering the borrower's resources. County 
Supervisors will refer to exhibit E of this 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

[[Page 175]]

(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 RD 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 RD 1962-1, the borrower will immediately notify the County 
Supervisor. If the borrower sells security to a purchaser not listed on 
the Form RD 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 RD 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 RD 1962-1, the 
borrower must obtain the Agency consent before the disposition or before 
the proceeds are used. The Agency must give consent for the release of 
normal income security if the change is necessary for the borrower to 
meet essential family living and farm operating expenses. The Agency 
must also give consent if the conditions set out on the form and in 
paragraph (b)(2) of this section are met. The borrower may obtain prior 
consent by telephoning the county office, by letter, by visiting the 
county office, or by any other method the borrower chooses. When 
revisions are agreed to over the telephone, the County Supervisor must 
revise the Form RD 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 RD 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 RD 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

[[Page 176]]

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 RD462-12, 
``Statements of Continuation, Partial Release, Assignments, etc.,'' Form 
RD 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 RD 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 RD 
1962-1.
    (i) When it is necessary to temporarily amend Form RD 441-18, 
``Consent to Payment of Proceeds From Sale of Farm Products,'' or Form 
RD 441-25, ``Assignment of Proceeds From the Sale of Dairy Products and 
Release of Security Interest,'' Form RD 462-9, ``Temporary Amendment of 
Consent to Payment of Proceeds From Sale of Farm Products,'' will be 
used. All amendments of assignment agreements will be made on forms 
approved by OGC. The State Director will issue a State Supplement with 
the advice of OGC and prior approval of the National Office on the use 
of other forms. The original form after completion will be forwarded 
directly to the person or firm making the payment 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 RD 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:

    Rural Development 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 RD 462-4, ``Assignment, 
Acceptance, and Release.'' Since Form RD 462-4 is not a binding 
agreement until

[[Page 177]]

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 RD 441-18 is in effect 
under the UCC, the notice to the purchaser will be made on Form RD 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 
the applicable Agency form or becomes aware of the misuse of proceeds by 
a borrower, corrective action must be taken to protect the Government's 
interest.
    (b) Notice to borrowers. When a borrower has not properly accounted 
for the use of proceeds from the sale of chattel security, the County 
Supervisor must request restitution by use of a letter similar to Guide 
Letter 1962-A-5.
    (1) If the borrower makes restitution or provides sufficient 
information to enable the County Supervisor to post-approve the 
transaction on the applicable Agency form, 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 RD 431-2, or 
other similar plan of operation acceptable to Rural Development, 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 Rural Development (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 
Rural Development holds a prior lien, and when the proceeds, or an 
agreed amount from them, are not remitted to Rural Development to apply 
against the producer's indebtedness to Rural Development . 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

[[Page 178]]

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 RD 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 
Rural Development's interest with respect to the commodity if CCC is 
repaid.
    (b) State Office action. (1) The State Director, on receipt of 
reports and recommendations from the County Supervisor, will:
    (i) If in agreement with the County Supervisor's recommendation not 
to file a claim against CCC or if notice is received that the 
indebtedness has been paid, forward notice to CCC.
    (ii) If in agreement with the County Supervisor's recommendation to 
file a claim against CCC, refer the case to OGC with a statement of 
facts.
    (iii) If OGC determines that Rural Development 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 Rural 
Development '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, Rural Development 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 RD 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 
RD 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) Rural Development has a financing statement or other lien 
instrument which describes the real estate upon which crops are located 
but neither the borrower non Rural Development 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

[[Page 179]]

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 RD or its successor agency under 
Public Law 103-354 462-12 if provided by a State supplement. (1) Under 
UCC provisions if Rural Development fails to give a termination 
statement to the borrower within 10 days after written demand, it will 
be liable to the borrower for $100 and, in addition, for any loss caused 
to the borrower by such failure unless otherwise provided by a State 
supplement. In the absence of demand for a termination statement by the 
borrower, a termination statement will be delivered to the borrower when 
the notes have been paid in full.
    (2) However, if Rural Development 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 RD 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 RD 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 RD 460-4 will not be prepared but a 
notation of the satisfaction will be made on the copy of Form RD 451-1, 
``Acknowledgment of Cash Payment,'' or Form RD 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 Rural Development 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 RD 460-4 or other approved form or to effect the 
satisfaction by marginal release, or a termination on Form RD 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

[[Page 180]]

filing or recording financing statements or other security instruments 
(including Form RD 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 Rural Development employees to pay these fees, Form RD 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 Rural Development, the County Supervisor may pay 
them as a petty purchase or as the bill of a creditor of Rural 
Development in accordance with Rural Development Instructions 2024-E, 
copies of which are available in any Rural Development 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 Rural Development to pay them.
    (3) Notary fees. Rural Development will pay fees for notary service 
for executing releases, subordinations, and related documents for and on 
behalf of Rural Development 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 Rural Development Instruction 2024-A (available in any 
Rural Development 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 Rural Development'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

[[Page 181]]

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 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
    (6) 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, as amended at 82 FR 19320, Apr. 27, 2017]



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 Rural 
Development 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 RD 410-1, ``Application for RD 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 
Rural Development debts or that portion of the outstanding balance equal 
to the

[[Page 182]]

present market value of the chattel security or EO property, less any 
prior liens, if the property is worth less than the entire debt.
    (2) Generally the debts assumed will be paid in accordance with the 
rates and terms of the existing notes or assumption agreements. Form RD 
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 RD 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 Rural Development 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 RD Instruction 440.1 (available in any RD 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.
    (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 value of the security is assumed. 
However, no such release will be granted to

[[Page 183]]

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 at www.govinfo.gov.



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, with the advice of the District Director, 
determines that continued servicing of the loan will not accomplish

[[Page 184]]

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.
    (ii) Premiums on insurance essential to protect Rural Development's 
interest, and

[[Page 185]]

    (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 RD 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 RD 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 RD 1962-1.
    (e) Unpaid debt. If the sale of all security results in less than 
full payment of the debt, the borrower may request debt settlement of 
the remaining debt. The servicing official will consult with the County 
Committee before determining if the borrower's account can

[[Page 186]]

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 Form AD-838. 
Use of property by the contractor is not authorized.
    (3) Crops. Form AD-838 will be used for obtaining services for the 
custody,

[[Page 187]]

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 Rural Development at 
public or private sale for cash under Form RD 455-4, ``Agreement for 
Voluntary Liquidation of Chattel Security,'' Form RD 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 RD 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 
Rural Development 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. Rural Development will sell perishable property 
such as fresh fruits and vegetables for the best price obtainable. Rural 
Development 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 RD 455-4, other than perishable 
property and staple crops, will not be sold for less than the minimum 
price in the agreement. Rural Development will sell other property, 
including that sold when the borrower executes Form RD 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 Rural Develoment real state loans and will be sold or 
transferred with the real estate. However, a State Supplement will be 
issued for any State having a time limit within which such items must be 
sold along with or as a part of the real estate.
    (5) Notice. (i) Notice of public or private sale of repossessed 
property when required will be given to the borrower and to any party 
who has filed a financing statement or who is known by the County 
Supervisor to have a security interest in the property, except as set 
forth below. The notice will be delivered or mailed so that it will 
reach the borrower and any lienholder at least 5 days (or longer time if 
specified by a State supplement) before the time of any public sale or 
the time after which any private sale will be held. Form RD 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 RD 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 RD 455-11.

[[Page 188]]

    (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 RD 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 Rural Development 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 RD 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 RD 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 RD Instruction 2024-A (available in any RD office). The 
amount of the voucher will be charged to the borrower's account, except 
as limited by State law in a State Supplement. No costs in the 
repossession and sale of security should be incurred unless they can be 
charged to the borrower's account, and in no event will the Government 
pay them. However, if costs are legally chargeable to the borrower, they 
may be paid as provided in this subpart, and charged to an account set 
up for the officials or other persons found responsible for them.
    (8) Bill of sale or transfer of title. If a purchaser requests a 
written conveyance of repossessed property sold by Rural Development at 
public or private sale, the County Supervisior will execute and deliver 
to the purchaser Form RD 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 Rural 
Development. 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

[[Page 189]]

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 a Rural Developmnet 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 RD 
455-4, Form RD 455-3, or Form RD 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 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

[[Page 190]]

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; 80 
FR 9903, Feb. 24, 2015]



Sec.1962.45  Reporting sales.

    Form RD 1955-3, ``Advice of Property Acquired,'' will be prepared 
and distributed according to the FMI when property is acquired by Rural 
Development.

[50 FR 45783, Nov. 1, 1985, as amended at 80 FR 9904, Feb. 24, 2015]



Sec.1962.46  Deceased borrowers.

    Immediately on learning of the death of any person liable to the 
Agency, the County Supervisor will prepare Form RD 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 RD 455-17, any additional 
information which may affect the State Director's decision will be sent 
as soon as available on a supplemental Form RD 455-17 or in a 
memorandum.):
    (1) Probate or other administration proceedings have been started or 
are contemplated.
    (2) The debts owed to the Agency are inadequately secured and the 
state has other assets from which collection could be made.
    (3) The Agency's security has a value in excess of the indebtedness 
it secures and the deceased obligor owes other debts to the Agency which 
are unsecured or inadequately secured.
    (4) The County Supervisor recommends continuation with a survivor 
who is not liable for the indebtedness or recommends transfer to, and 
assumption by, another party.
    (5) The County Supervisor recommends, but does not have authority to 
approve liquidation.
    (6) The County Supervisor wants advice on servicing the case.
    (b) Probate or administration proceedings. Generally, probate or 
administration proceedings are started by relatives or heirs of the 
deceased or by other creditors. Ordinarily, the Agency will not start 
these proceedings because of the problems of designating an 
administrator or other similar official, posting bond, and paying costs. 
If probate or administration proceedings are started by other parties or 
at the Agency's request, and any security is to be liquidated by the 
Agency instead of by the administrator or executor or other similar 
official, it will be liquidated in accordance with the advice of OGC. 
The State Director may request OGC to recommend that the U.S. Attorney 
bring probate or administration proceedings when it appears that:
    (1) Such proceedings will not be started by other parties;
    (2) The Agency's interests could best be protected by filing a proof 
of claim in such proceedings, and
    (3) Public administrators or other similar officials or private 
parties, including banks and trust companies, are

[[Page 191]]

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 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

[[Page 192]]

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:
    (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.

[[Page 193]]

    (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 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; 80 FR 
9903, Feb. 24, 2015]



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

[[Page 194]]

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 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.

[[Page 195]]

    (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 
Rural Development 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 RD Instruction 2012-B 
(available in any Rural Development 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, Rural Development 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 
Rural Development '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 RD 455-
22, ``Information for Litigation.'' This is because delay in submitting 
cases in emergency situations may affect the financial interests of 
Rural Development 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

[[Page 196]]

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) Rural Development 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 Rural Development '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 Rural Development, 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 Rural 
Development 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 Rural 
Development holds a first lien usually will be liquidated before demand 
is made, or civil action to recover from third-party purchasers.
    (i) When the County Supervisor determines that full collection 
cannot be made from the borrower and that it will be necessary to 
collect the full value of the security purchased by a converter, a 
demand (see Guide Letter 1962-A-1, a copy of which is available in any 
Rural Development 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 Rural Development 
county office) that Rural Development 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, Rural Development 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 Rural 
Development will take no adverse action (see Guide Letter 1962-A-3, a 
copy of which is available in any Rural Development 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

[[Page 197]]

of which is available in any Rural Development 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 Rural 
Development 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 RD 455-1, ``Request for Legal 
Action,'' and RD 455-22 will be prepared. Form RD 455-2, ``Evidence of 
Conversion,'' will be prepared for each unauthorized disposal. The 
original and two copies of Forms RD 455-1 and RD 455-22 and, wh = n 
applicable, Rural Development 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 RD 455-1. 
Appropriate recommendations regarding civil actions will be made on 
Forms RD 455-1 and RD 455-22 against the borrower or others. When a case 
is referred to the State Office the County Supervisor will keep that 
office informed of any future developments in the case. If Attachments 
l, 2 and other appropriate attachments to exhibit A of subpart S of part 
1951 of this chapter have not been sent, they will now be sent to the 
borrower and any other obligor(s) on the note. Any appeal must be 
concluded before a civil action can be filed.
    (2) District Office actions. Exhibits D, E, or E-1 of subpart A of 
part 1955 of this chapter will be prepared and sent after any appeal is 
concluded.
    (3) State Office actions. (i) upon receipt of Form RD 455-1 and, 
when applicable, Form RD 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 RD 455-1 and 455-2. The State 
Director may assign any qualified Rural Development employee to help a 
County Supervisor obtain the information necessary to complete the 
reports. After diligent efforts, if Rural Development 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 RD 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 RD 455-
1.
    (A) When cases are referred to OGC, the County Office case file, 
Form RD 455-1, and, when appropriate, Form RD 455-2 will be transmitted. 
In addition, when the institution of civil court proceedings by Rural 
Development is recommended, the notes, financing statements, security 
agreements, loan agreements, other legal instruments and copies thereof, 
as required by OGC,

[[Page 198]]

and Form RD 451-11, ``Statement of Account,'' and Form RD 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 Rural Development's interest by 
permitting the diversion or dissipation of assets which otherwise could 
be expected as a source of payment, the Finance Office, upon the request 
of the State Director, will forward such material or documents directly 
to OGC or (at the State Director's direction) to the U.S. Attorney.
    (d) Actions on cases referred to OGC. When a civil case is referred 
to OGC, the State Director will notify the County Supervisor of the 
referral and will return the County Office case file when it is no 
longer needed. The State Director will also prepare and distribute Form 
RD 1951-6 according to the FMI. The Rural Development field office will 
process the descriptive code via the Rural Development 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 RD 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 RD 1962-
20, ``Notice of Judgment,'' in accordance with the FMI. The Rural 
Development field office will process the judgment or the third party 
judgment via the Rural Development 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 Rural Development by 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 Rural Development 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, Rural Development 
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

[[Page 199]]

or money order payable to the Treasurer of the United States.
    (ii) Collection items received through the mail from the debtor or 
from other sources by the County Office to be applied to such accounts 
will be forwarded by the County Supervisor through OGC to the 
appropriate U.S. Attorney. Likewise, collections received by the 
District Director or the State Office will be forwarded through OGC to 
the appropriate U.S. Attorney. Such items will be forwarded in the form 
received except that cash will be converted into money orders made 
payable to the Treasurer of the United States. The money order receipts 
will remain attached to the money orders. Form FmHA or its successor 
agency under Public Law 103-354 451-1 will not be issued in any such 
case. The debtor will be informed in writing by the County Supervisor of 
the disposition of the amount received.
    (3) When the U.S. Attorney has returned a judgment case to Rural 
Development, 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; 80 FR 
9904, Feb. 24, 2015]



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

[[Page 200]]

loan, CCC shall notify the FHA State director of the demand.
    3. If the CCC loan is repaid, whether prior to or after the receipt 
by CCC of the notice from FHA, the FHA State Director shall be notified 
immediately, at which time CCC will have discharged its responsibility 
under this agreement.
    4. FHA shall, in each case in which the CCC loan is not repaid or 
the commodity has been sold to CCC, endeavor to collect from the 
borrower the amount due on the FHA loan. Such collection efforts shall 
include the making of demand on the borrower and the following of FHA's 
normal administrative policies with respect to the collection of debts, 
but shall not include the making of demand for payment upon the area 
peanut producer cooperative marketing associations through which CCC 
makes price support available to producers. If collection efforts are 
not successful, the FHA County Supervisor shall make a complete report 
on the matter to his State Director. If the State Director determines 
that the amount due on the FHA lien is not collectible 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

[[Page 201]]

agency under Public Law 103-354 and CCC in securing lien waivers on such 
commodities.
    Now, therefore, it is agreed as follows:
    (1) Upon request of an official of a State ASCS office, the FmHA or 
its successor agency under Public Law 103-354 State Director in such 
State shall furnish designated county ASCS offices with the names of 
producers in the trade area from whom FmHA or its successor agency under 
Public Law 103-354 holds currently effective liens on commodities with 
respect to which CCC conducts price support programs. FmHA or its 
successor agency under Public Law 103-354 will try to furnish a complete 
and current list of the names of such producers; however, FmHA or its 
successor agency under Public Law 103-354's liens with respect to any 
commodity will not be affected by an error in or omission from such 
lists.
    (2) For a loan disbursed by a county ASCS office, CCC will issue a 
draft in the amount (Iess fees and charges due under CCC program 
regulations) of the loan on, or purchase price of, the commodity payable 
jointly to FmHA or its successor agency under Public Law 103-354 and the 
producer if (a) his name is on the Iist furnished by FmHA or its 
successor agency under Public Law 103-354, or (b) he names FmHA or its 
successor agency under Public Law 103-354 as lienholder. The draft will 
indicate the commodity covered by the loan or purchase.
    (3) On issuance of the draft, the security interest of FmHA or its 
successor agency under Public Law 103-354 shall be subordinated to the 
rights of CCC in the commodity with respect to which the loan or 
purchase is made. The word ``subordinated'' means that, in the case of a 
loan, CCC's security interest in the commodity shall be superior and 
prior in right to that of FmHA or its successor agency under Public Law 
103-354 and that, on purchase of a commodity by CCC or its acquisition 
by CCC in satisfaction of a loan, the security interest of FmHA or its 
successor agency under Public Law 103-354 in such commodity shall 
terminate.
    (4) Nothing contained in this Memorandum of Understanding shall be 
construed to affect the rights and obligations of the parties except as 
specifically provided herein.
    (5) This agreement may be terminated by either party on 30 days' 
written notice to the other party.

    Dated: July 20, 1980.


                                                     Ray V. Fitzzerald, 
                                         Executive Vice President. CCC. 

    Dated: July 14, 1980.

                                                      Gordon Cavanaugh, 
  Administrator, FmHA or its successor agency under Public Law 103-354. 

[53 FR 35787, Sept. 14, 1988]



 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

[[Page 202]]

crop grain shall be subordinated to the security interest of CCC in such 
grain and the security interest of CCC in the original crop grain shall 
be subordinated to the security interest of FmHA or its successor agency 
under Public Law 103-354 in such grain. At that point in time it will be 
the responsibility of each agency and the borrower to account for their 
respective interests in the grain crops and/or proceeds from the sale of 
the grain. The crop rotation and subordination of liens will only 
involve the amount of grain that has been specifically provided for in 
the memorandum from ASCS.
    (3) If there is an intervening third party lien and it is impossible 
for FmHA or its successor agency under Public Law 103-354 or CCC to have 
a first lien on their respective grain crops, the request of the 
producer to rotate crops will not be granted.
    (4) Nothing contained in this Memorandum of Understanding shall be 
construed to affect the rights and obligations of the parties except as 
specifically provided herein.
    (5) This agreement may be terminated by either party on 30 days 
written notice to the other party.

[44 FR 4437, Jan. 22, 1979]



        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

[[Page 203]]

is not essential if the borrower plans to use it to grow corn which can 
be purchased for less than the cost of production. Paying outstanding 
bills is essential if a supplier is refusing to provide additional 
credit but not if the supplier is willing to carry a balance due. Of 
course, the long term goal of any farming operation is to pay all of its 
expenses, but when this is not possible, FmHA or its successor agency 
under Public Law 103-354 and the borrower must work together to decide 
which farm operating expenses are essential and demand immediate 
attention and cannot be neglected. These are the essential expenses.
    We absolutely must release to pay for essential family living and 
farm operating expenses; there are no exceptions to this. When deciding 
whether an expense is essential and when deciding how much to release, 
the choices we make must be rational, reasonable, fair and not extreme. 
They must be based on sound judgment, supported by facts, and explained 
to the borrower. Following these rules will help us avoid disagreements 
with borrowers.

[56 FR 15829, Apr. 18, 1991]



           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 1970_ENVIRONMENTAL POLICIES AND PROCEDURES--Table of Contents



                    Subpart A_Environmental Policies

Sec.
1970.1 Purpose, applicability, and scope.
1970.2 [Reserved]
1970.3 Authority.
1970.4 Policies.
1970.5 Responsible parties.
1970.6 Definitions and acronyms.
1970.7 [Reserved]
1970.8 Actions requiring environmental review.
1970.9 Levels of environmental review.
1970.10 Raising the level of environmental review.
1970.11 Timing of the environmental review process.
1970.12 Limitations on actions during the NEPA process.
1970.13 Consideration of alternatives.
1970.14 Public involvement.
1970.15 Interagency cooperation.
1970.16 Mitigation.
1970.17 Programmatic analysis and tiering.
1970.18 Emergencies.
1970.19-1970.50 [Reserved]

                  Subpart B_NEPA Categorical Exclusions

1970.51 Applying CEs.
1970.52 Extraordinary circumstances.
1970.53 CEs involving no or minimal disturbance without an environmental 
          report.
1970.54 CEs involving small-scale development with an environmental 
          report.
1970.55 CEs for multi-tier actions.
1970.56-1970.100 [Reserved]

                Subpart C_NEPA Environmental Assessments

1970.101 General.
1970.102 Preparation of EAs.
1970.103 Supplementing EAs.
1970.104 Finding of No Significant Impact.
1970.105-1970.150 [Reserved]

             Subpart D_NEPA Environmental Impact Statements

1970.151 General.
1970.152 EIS funding and professional services.
1970.153 Notice of Intent and scoping.
1970.154 Preparation of the EIS.
1970.155 Supplementing EISs.
1970.156 Record of decision.
1970.157-1970.200 [Reserved]

    Authority: 7 U.S.C. 6941 et seq., 42 U.S.C. 4241 et seq.; 40 CFR 
parts 1500-1508; 5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1480.

    Source: 81 FR 11032, Mar. 2, 2016, unless otherwise noted.



                    Subpart A_Environmental Policies



Sec.1970.1  Purpose, applicability, and scope.

    (a) Purpose. The purpose of this part is to ensure that the Agency 
complies with the National Environmental Policy Act of 1969, as amended 
(NEPA) (42 U.S.C. 4321, et seq.), and other applicable environmental 
requirements in order to make better decisions based on an understanding 
of the environmental consequences of proposed actions, and take actions 
that protect, restore, and enhance the quality of the human environment.
    (b) Applicability. The environmental policies and procedures 
contained in this part are applicable to programs administered by the 
Rural Business-Cooperative Service (RBS), Rural Housing

[[Page 204]]

Service (RHS), and Rural Utilities Service (RUS); herein referred to as 
``the Agency.''
    (c) Scope. This part integrates NEPA with other planning, 
environmental review processes, and consultation procedures required by 
other Federal laws, regulations, and Executive Orders applicable to 
Agency programs. This part also supplements the Council on Environmental 
Quality (CEQ) regulations implementing the procedural provisions of 
NEPA, 40 CFR parts 1500 through 1508. To the extent appropriate, the 
Agency will take into account CEQ guidance and memoranda. This part also 
incorporates and complies with the procedures of Section 106 (36 CFR 
part 800) of the National Historic Preservation Act (NHPA) and Section 7 
(50 CFR part 402) of the Endangered Species Act (ESA).



Sec.1970.2  [Reserved]



Sec.1970.3  Authority.

    This part derives its authority from a number of statutes, Executive 
Orders, and regulations, including but not limited to those listed in 
this section. Both the Agency and the applicant, as appropriate, must 
comply with these statutes, Executive Orders, and regulations, as well 
as any future statutes, Executive Orders, and regulations that affect 
the Agency's implementation of this part.
    (a) National Environmental Policy Act of 1969 (42 U.S.C. 4321 et 
seq.);
    (b) Council on Environmental Quality Regulations Implementing the 
Procedural Provisions of the National Environmental Policy Act (40 CFR 
parts 1500 through 1508);
    (c) U. S. Department of Agriculture, NEPA Policies and Procedures (7 
CFR part 1b).
    (d) Department of Agriculture, Enhancement, Protection and 
Management of the Cultural Environment (7 CFR parts 3100 through 3199);
    (e) Archaeological and Historic Preservation Act of 1960, as 
amended, (16 U.S.C. 469 et seq.);
    (f) Archaeological Resources Protection Act of 1979 (16 U.S.C. 470aa 
et seq.);
    (g) Bald and Golden Eagle Protection Act (16 U.S.C. 668 et seq.);
    (h) Clean Air Act (42 U.S.C. 7401 et seq.);
    (i) Clean Water Act (Federal Water Pollution Control Act, 33 U.S.C. 
1251 et seq.);
    (j) Coastal Barrier Resources Act (16 U.S.C. 3501 et seq.);
    (k) Coastal Barrier Improvement Act (42 U.S.C. 4028 et seq.);
    (l) Coastal Zone Management Act (16 U.S.C. 1456);
    (m) Comprehensive Environmental Response, Compensation, and 
Liability Act (42 U.S.C. 103) (CERCLA);
    (n) Consolidated Farm and Rural Development Act, Sections 
307(a)(6)(A) (7 U.S.C. 1927(a)(6)(A)) and 363 (7 U.S.C. 2006e);
    (o) Endangered Species Act of 1973 (16 U.S.C. 1531 et seq.);
    (p) Farmland Protection Policy Act (7 U.S.C. 4201 et seq.);
    (q) Historic Sites, Buildings and Antiquities Act (16 U.S.C. 461 et 
seq.);
    (r) Housing and Community Development Act of 1992 (42 U.S.C. 
542(c)(9));
    (s) Migratory Bird Treaty Act (16 U.S.C. 703-711);
    (t) National Historic Preservation Act (16 U.S.C. 470 et seq.);
    (u) National Trails System Act (16 U.S.C. 1241 et seq.);
    (v) Native American Graves Protection and Repatriation Act (25 
U.S.C. 3001 et seq.);
    (w) Noise Control Act (42 U.S.C. 4901 et seq.);
    (x) Pollution Prevention Act of 1990 (42 U.S.C. 13101 et seq.);
    (y) Resource Conservation and Recovery Act (42 U.S.C. 6901);
    (z) Safe Drinking Water Act--(42 U.S.C. 300f et seq.);
    (aa) Wild and Scenic Rivers Act (16 U.S.C. 1271 et seq.);
    (bb) Wilderness Act (16 U.S.C. 1131 et seq.);
    (cc) Compact of Free Association between the United States and the 
Republic of the Marshall Islands and between the United States and the 
Federated States of Micronesia (Public Law 108-188);
    (dd) Compact of Free Association between the United States and the 
Republic of Palau (Public Law 99-658);
    (ee) Executive Order 11514, Protection and Enhancement of 
Environmental Quality;

[[Page 205]]

    (ff) Executive Order 11593, Protection and Enhancement of the 
Cultural Environment;
    (gg) Executive Order 11988, Floodplain Management;
    (hh) Executive Order 11990, Protection of Wetlands;
    (ii) Executive Order 12898, Federal Actions to Address Environmental 
Justice in Minority Populations and Low Income Populations;
    (jj) Executive Order 12372, Intergovernmental Review;
    (kk) Executive Order 13112, Invasive Species;
    (ll) Executive Order 13175, Consultation and Coordination with 
Indian Tribal Governments;
    (mm) Executive Order 13287, Preserve America;
    (nn) Executive Order 13016, Federal Support of Community Efforts 
along American Heritage Rivers;
    (oo) Executive Order 13352, Facilitation of Cooperative 
Conservation;
    (pp) Executive Order 13423, Strengthening Federal Environmental, 
Energy, and Transportation Management;
    (qq) Executive Order 13653, Preparing the United States for the 
Impacts of Climate Change;
    (rr) Executive Order 13690, Establishing a Federal Flood Risk 
Management Standard and a Process for Further Soliciting and Considering 
Stakeholder Input;
    (ss) Executive Order 13693, Planning for Federal Sustainability in 
the Next Decade;
    (tt) Agriculture Departmental Regulation (DR) 5600-2, Environmental 
Justice;
    (uu) Agriculture Departmental Regulation (DR) 9500-3, Land Use 
Policy;
    (vv) Agriculture Departmental Regulation (DR) 9500-4, Fish and 
Wildlife Policy;
    (ww) Agriculture Departmental Regulation (DR) 1070-001, U.S. 
Department of Agriculture (USDA) Policy Statement on Climate Change 
Adaptation; and
    (xx) Agriculture Departmental Manual (DM) 5600-001, Environmental 
Pollution Prevention, Control, and Abatement Manual.



Sec.1970.4  Policies.

    (a) Applicants' proposals must, whenever practicable, avoid or 
minimize adverse environmental impacts; avoid or minimize conversion of 
wetlands or important farmlands (as defined in the Farmland Protection 
Policy Act and its implementing regulations issued by the USDA Natural 
Resources Conservation Service) when practicable alternatives exist to 
meet development needs; avoid unwarranted alterations or encroachment on 
floodplains when practicable alternatives exist to meet developmental 
needs; and avoid or minimize potentially disproportionate and adverse 
impacts to minority or low-income populations within the proposed 
action's area of impact. Avoiding development in floodplains includes 
avoiding development in the 500-year floodplain, as shown on the Federal 
Emergency Management Agency's (FEMA) Flood Insurance Rate Maps, where 
the proposed actions and facilities are defined as critical actions in 
Sec.1970.6. The Agency shall not fund the proposal unless there is a 
demonstrated, significant need for the proposal and no practicable 
alternative exists to the proposed conversion of the above resources.
    (b) The Agency encourages the reuse of real property defined as 
brownfields per Section 101 of the Comprehensive Environmental Response, 
Compensation, and Liability Act (CERCLA) where the reuse of such 
property is complicated by the presence or potential presence of a 
hazardous substance, pollutant, or other contaminant, provided that the 
level of such presence does not threaten human health and the 
environment for the proposed land use. The Agency will defer to the 
agency with regulatory authority under the appropriate law in 
determining the appropriate level of contaminant for a specific proposed 
land use. The Agency will evaluate the risk based upon the applicable 
regulatory agency's review and concurrence with the proposal.
    (c) The Agency and applicant will involve other Federal agencies 
with jurisdiction by law or special expertise, state and local 
governments, Indian tribes and Alaska Native organizations, Native 
Hawaiian organizations, and the public, early in the Agency's

[[Page 206]]

environmental review process to the fullest extent practicable. To 
accomplish this objective, the Agency and applicant will:
    (1) Ensure that environmental amenities and values be given 
appropriate consideration in decision making along with economic and 
technical considerations;
    (2) At the earliest possible time, advise interested parties of the 
Agency's environmental policies and procedures and required 
environmental impact analyses during early project planning and design; 
and
    (3) Make environmental assessments (EA) and environmental impact 
statements (EIS) available to the public for review and comment in a 
timely manner.
    (d) The Agency and applicant will ensure the completion of the 
environmental review process prior to the irreversible and irretrievable 
commitment of Agency resources in accordance with Sec.1970.11. The 
environmental review process is concluded when the Agency approves the 
applicability of a Categorical Exclusion (CE), issues a Finding of No 
Significant Impact (FONSI), or issues a Record of Decision (ROD).
    (e) If an applicant's proposal does not comply with Agency 
environmental policies and procedures, the Agency will defer further 
consideration of the application until compliance can be demonstrated, 
or the application may be rejected. Any applicant that is directly and 
adversely affected by an administrative decision made by the Agency 
under this part may appeal that decision, to the extent permissible 
under 7 CFR part 11.
    (f) The Agency recognizes the worldwide and long-range character of 
environmental problems and, where consistent with the foreign policy of 
the United States, will lend appropriate support to initiatives, 
resolutions, and programs designed to maximize international cooperation 
in anticipating and preventing a decline in the quality of humankind's 
world environment in accordance with NEPA, 42 U.S.C. 4321 et seq.
    (g) The Agency will use the NEPA process, to the maximum extent 
feasible, to identify and encourage opportunities to reduce greenhouse 
gas (GHG) emissions caused by proposed Federal actions that would 
otherwise result in the emission of substantial quantities of GHG.



Sec.1970.5  Responsible parties.

    (a) Agency. The following paragraphs identify the general 
responsibilities of the Agency.
    (1) The Agency is responsible for all environmental decisions and 
findings related to its actions and will encourage applicants to design 
proposals to protect, restore, and enhance the environment.
    (2) If the Agency requires an applicant to submit environmental 
information, the Agency will outline the types of information and 
analyses required in guidance documents. This guidance is available on 
the Agency's Web site. The Agency will independently evaluate the 
information submitted.
    (3) The Agency will advise applicants and applicable lenders of 
their responsibilities to consider environmental issues during early 
project planning and that specific actions listed in Sec.1970.12, such 
as initiation of construction, cannot occur prior to completion of the 
environmental review process or it could result in a denial of financial 
assistance.
    (4) The Agency may act as either a lead agency or a cooperating 
agency in the preparation of an environmental review document. If the 
Agency acts as a cooperating agency, the Agency will fulfill the 
cooperating agency responsibilities outlined in 40 CFR 1501.6.
    (5) Mitigation measures described in the environmental review and 
decision documents must be included as conditions in Agency financial 
commitment documents, such as a conditional commitment letter.
    (6) The Agency, guaranteed lender, or multi-tier recipients will 
monitor and track the implementation, maintenance, and effectiveness of 
any required mitigation measures.
    (b) Applicants. Applicants must comply with provisions found in 
paragraphs (b)(1) through (8) of this section.
    (1) Consult with Agency staff to determine the appropriate level of 
environmental review and to obtain publicly available resources at the 
earliest

[[Page 207]]

possible time for guidance in identifying all relevant environmental 
issues that must be addressed and considered during early project 
planning and design throughout the process.
    (2) Where appropriate, contact state and Federal agencies to 
initiate consultation on matters affected by this part. This part 
authorizes applicants to coordinate with state and Federal agencies on 
behalf of the Agency. However, applicants are not authorized to initiate 
consultation in accordance with Section 106 of the National Historic 
Preservation Act with Indian tribes on behalf of the Agency. In those 
cases, applicants need the express written authority of the Agency and 
consent of Indian tribes in order to initiate consultation.
    (3) Provide information to the Agency that the Agency deems 
necessary to evaluate the proposal's potential environmental impacts and 
alternatives.
    (i) Applicants must ensure that all required materials are current, 
sufficiently detailed and complete, and are submitted directly to the 
Agency office processing the application. Incomplete materials or 
delayed submittals may jeopardize consideration of the applicant's 
proposal by the Agency and may result in no award of financial 
assistance.
    (ii) Applicants must clearly define the purpose and need for the 
proposal and inform the Agency promptly if any other Federal, state, or 
local agencies are involved in financing, permitting, or approving the 
proposal, so that the Agency may coordinate and consider participation 
in joint environmental reviews.
    (iii) As necessary, applicants must develop and document reasonable 
alternatives that meet their purpose and need while improving 
environmental outcomes.
    (iv) Applicants must prepare environmental review documents 
according to the format and standards provided by the Agency. The Agency 
will independently evaluate the final documents submitted. All 
environmental review documents must be objective, complete, and accurate 
in order for them to be finally accepted by the Agency. Applicants may 
employ a design or environmental professional or technical service 
provider to assist them in the preparation of their environmental review 
documents.
    (A) Applicants are not generally required to prepare environmental 
documentation for proposals that involve Agency activities with no or 
minimal disturbance listed in Sec.1970.53. However, the Agency may 
request additional environmental documentation from the applicant at any 
time, specifically if the Agency determines that extraordinary 
circumstances may exist.
    (B) For CEs listed in Sec.1970.54, applicants must prepare 
environmental documentation as required by the Agency; the environmental 
documentation required for CEs is referred to as an environmental 
report(ER).
    (C) When an EA is required, the applicant must prepare an EA that 
meets the requirements in subpart C of this part, including, but not 
limited to, information and data collection and public involvement 
activities. When the applicant prepares the EA, the Agency will make its 
own independent evaluation of the environmental issues and take 
responsibility for the scope and content of the EA.
    (D) Applicants must cooperate with and assist the Agency in all 
aspects of preparing an EIS that meets the requirements specified in 
subpart D of this part, including, but not limited to, information and 
data collection and public involvement activities. Once authorized by 
the Agency in writing, applicants are responsible for funding all third-
party contractors used to prepare the EIS.
    (4) Applicants must provide any additional studies, data, and 
document revisions requested by the Agency during the environmental 
review and decision-making process. The studies, data, and documents 
required will vary depending upon the specific project and its impacts. 
Examples of studies that the Agency may require an applicant to provide 
are biological assessments under the ESA, archeological surveys under 
the NHPA, wetland delineations, surveys to determine the floodplain 
elevation on a site, air quality conformity analysis, or other such 
information needed to adequately assess impacts.

[[Page 208]]

    (5) Applicants must ensure that no actions are taken (such as any 
demolition, land clearing, initiation of construction, or advance of 
interim construction funds from a guaranteed lender), including 
incurring any obligations with respect to their proposal, that may have 
an adverse impact on the quality of the human environment or that may 
limit the choice of reasonable alternatives during the environmental 
review process. Limitations on actions by an applicant prior to the 
completion of the Agency environmental review process are defined in CEQ 
regulations at 40 CFR 1506.1 and 7 CFR 1970.12.
    (6) Applicants must promptly notify the Agency processing official 
when changes are made to their proposal so that the environmental review 
and documentation may be supplemented or otherwise revised as necessary.
    (7) Applicants must incorporate any mitigation measures identified 
and any required monitoring in the environmental review process into the 
plans and specifications and construction contracts for the proposals. 
Applicants must provide such mitigation measures to consultants 
responsible for preparing design and construction documents, or provide 
other mitigation action plans. Applicants must maintain, as applicable, 
mitigation measures for the life of the loans or refund term for grants.
    (8) Applicants must cooperate with the Agency on achieving 
environmental policy goals. If an applicant is unwilling to cooperate 
with the Agency on environmental compliance, the Agency will deny the 
requested financial assistance.



Sec.1970.6  Definitions and acronyms.

    (a) Definitions. Terms used in this part are defined in 40 CFR part 
1508, 36 CFR 800.16, and this section. If a term is defined in this 
section and in one or both of the other referenced regulations, such 
term will have the meaning as defined in this subpart.
    Agency. USDA Rural Development, which includes RBS, RHS, and RUS, 
and any successor agencies.
    Applicant. An individual or entity requesting financial assistance 
including but not limited to loan recipients, grantees, guaranteed 
lenders, or licensees.
    Average megawatt. The equivalent capacity rating of a generating 
facility based on the gross energy output generated over a 12-month 
period or one year.
    Construction work plan. An engineering planning study that is used 
in the Electric Program to determine and document a borrower's 2- to 4-
year capital construction investments that are needed to provide and 
maintain adequate and reliable electric service to a borrower's new and 
existing members.
    Cooperative agreement. For the purposes of this part, a cooperative 
agreement is a form of financial assistance in which the Agency provides 
funding that is authorized by public statute, not to be repaid, and for 
a purpose that includes substantial involvement and a mutual interest of 
both the Agency and the cooperator.
    Critical action. Any activity for which even a slight chance of 
flooding would be hazardous as determined by the Agency. Critical 
actions include activities that create, maintain, or extend the useful 
life of structures or facilities that produce, use, or store highly 
volatile, flammable, explosive, toxic, or water-reactive materials; 
maintain irreplaceable records; or provide essential utility or 
emergency services (such as data storage centers, electric generating 
facilities, water treatment facilities, wastewater treatment facilities, 
large pump stations, emergency operations centers including fire and 
police stations, and roadways providing sole egress from flood-prone 
areas); or facilities that are likely to contain occupants who may not 
be sufficiently mobile to avoid death or serious injury in a flood.
    Design professional. An engineer or architect providing professional 
design services to applicants during the planning, design, and 
construction phases of proposals submitted to the Agency for financial 
assistance.
    Distributed resources. Sources of electrical power that are not 
directly connected to a bulk power transmission system, having an 
installed capacity of not more than 10 Mega volt-amperes (MVA), 
connected to an electric power system through a point of common

[[Page 209]]

coupling. Distributed resources include both generators (distributed 
generation) and energy storage technologies.
    Emergency. A disaster or a situation that involves an immediate or 
imminent threat to public health or safety as determined by the Agency.
    Environmental report. The environmental documentation that is 
required of applicants for proposed actions eligible for a CE under 
Sec.1970.54.
    Environmental review. Any or all of the levels of environmental 
analysis described under this part.
    Financial assistance. A loan, grant, cooperative agreement, or loan 
guarantee that provides financial assistance, provided by the Agency to 
an applicant. In accordance with 40 CFR 1505.1(b), the Agency defines 
the major decision point at which NEPA must be complete, as the approval 
of financial assistance.
    Grant. A form of financial assistance for a specified purpose 
without scheduled repayment.
    Guaranteed lender. The organization making, servicing, or collecting 
the loan which is guaranteed by the Agency under applicable regulations, 
excluding the Federal Financing Bank.
    Historic property. Any prehistoric or historic district, site, 
building, structure, or object included in, or eligible for inclusion 
in, the National Register of Historic Places maintained by the Secretary 
of the Interior. This term includes artifacts, records, and remains that 
are related to and located within such properties. The term includes 
properties of traditional religious and cultural importance to an Indian 
tribe or Native Hawaiian organization and that meet the National 
Register criteria. (See 36 CFR 800.16(l)).
    Indian tribe. An Indian tribe, band, nation, or other organized 
group or community, including a native village, regional corporation or 
village corporation, as those terms are defined in Section 3 of the 
Alaska Native Claims Settlement Act (43 U.S.C. 1602), which is 
recognized as eligible for the special programs and services provided by 
the United States to Indians because of their status as Indians (see 36 
CFR 800.16(m)).
    Lien sharing. Agreement to pro rata payment on shared secured 
collateral without priority preference.
    Lien subordination. The circumstance in which the Agency, as a first 
lien holder, provides a creditor with a priority security interest in 
secured collateral.
    Loan. The provision of funds by the Agency directly to an applicant 
in exchange for repayment with interest and collateral to secure 
repayment.
    Loan guarantee. The circumstance in which the Agency guarantees all 
or a portion of payment of a debt obligation to a lender.
    Loan/System design. An engineering study, prepared to support a loan 
application under this part, demonstrating that a system design provides 
telecommunication services most efficiently to proposed subscribers in a 
proposed service area, in accordance with the Telecommunications Program 
guidance.
    Multi-tier action. Financial assistance provided by specific 
programs administered by the Agency, that provides financial assistance 
to eligible recipients, including but not limited to: Intermediaries; 
community-based organizations, such as housing or community development 
non-profit organizations; rural electric cooperatives; or other 
organizations with similar financial arrangements who, in turn, provide 
financial assistance to eligible recipients. The entities or 
organizations receiving the initial Agency financial assistance are 
considered ``primary recipients.'' As the direct recipient of this 
financial assistance, ``primary recipients'' provide the financial 
assistance to other parties, referred to as ``secondary recipients'' or 
``ultimate recipients.'' The multi-tier action programs include Housing 
Preservation Grants (42 U.S.C. 1490m), Multi-Family Housing Preservation 
Revolving Loan Fund (7 CFR part 3560), Intermediary Relending Program (7 
U.S.C. 1932 note and 42 U.S.C. 9812), Rural Business Development Grant 
Program (7 U.S.C. 940c and 7 U.S.C. 1932(c)), Rural Economic Development 
Loan and Grant Program (7 U.S.C. 940c), Rural Microentrepreneur 
Assistance Program (7

[[Page 210]]

U.S.C. 1989(a), 7 U.S.C. 2008s), Household Water Well System Grant 
Program (7 U.S.C. 1926e), Revolving Funds for Financing Water and 
Wastewater Projects (Revolving Fund Program) (7 U.S.C. 1926(a)(2)(B)), 
Energy Efficiency and Conservation Loan Program (7 U.S.C. 901), Section 
313A, Guarantees for Bonds and Notes Issued for Electrification or 
Telephone Purposes (7 U.S.C. 940c-1), Rural Energy Savings Program (7 
U.S.C. 8107a), and any other such programs or similar financial 
assistance actions to primary recipients as described above.
    No action alternative. An alternative that describes the reasonably 
foreseeable future environment in the event a proposed Federal action is 
not taken. This forms the baseline condition against which the impacts 
of the proposed action and other alternatives are compared and 
evaluated.
    Preliminary Architectural/Engineering Report. Documents prepared by 
the applicant's design professional in accordance with applicable Agency 
guidance for Preliminary Architectural Reports for housing, business, 
and community facilities proposals and for Preliminary Engineering 
Reports for water and wastewater proposals.
    Previously disturbed or developed land. Land that has been changed 
such that its functioning ecological processes have been and remain 
altered by human activity. The phrase encompasses areas that have been 
transformed from natural cover to non-native species or a managed state, 
including, but not limited to, utility and electric power transmission 
corridors and rights-of-way, and other areas where active utilities and 
currently used roads are readily available.
    Servicing actions. All routine, ministerial, or administrative 
actions for Agency-provided financial assistance that do not involve new 
financial assistance, including, but not limited to:
    (1) Advancing of funds, billing, processing payments, transfers, 
assumptions, refinancing involving only a change in an interest rate, 
and accepting prepayments;
    (2) Monitoring collateral; foreclosure; compromising, adjusting, 
reducing, or charging off debts or claims; and modifying or releasing 
the terms of security instruments, leases, contracts, and agreements; 
and
    (3) Consents or approvals provided pursuant to loan contracts, 
agreements, and security instruments.
    Substantial improvement. Any repair, reconstruction or other 
improvement of a structure or facility, which has been damaged in excess 
of, or the cost of which equals or exceeds, 50% of the market value of 
the structure or replacement cost of the facility (including all 
``public facilities'' as defined in the Disaster Relief Act of 1974) 
before the repair or improvement is started, or, if the structure or 
facility has been damaged and is proposed to be restored, before the 
damage occurred. If a facility is an essential link in a larger system, 
the percentage of damage will be based on the relative cost of repairing 
the damaged facility to the replacement cost of the portion of the 
system which is operationally dependent on the facility. The term 
``substantial improvement'' does not include any alteration of a 
structure or facility listed on the National Register of Historic Places 
or a State Inventory of Historic Places. (See 44 CFR 59.1.)
    Third-party contractor. Contractors for the preparation of EISs, 
under the Agency's direction, and paid by the applicant. Under the 
Agency's direction and in compliance with 40 CFR 1506.5(c), the 
applicant may undertake the necessary paperwork for the solicitation of 
a field of candidates. Federal procurement requirements do not apply to 
the Agency because it incurs no obligations or costs under the contract, 
nor does the Agency procure anything under the contract.
    (b) Acronyms.

aMW--Average megawatt
CE--Categorical Exclusion
CERCLA--Comprehensive Environmental Response, Compensation, and 
    Liability Act
CEQ--Council on Environmental Quality
EA--Environmental Assessment
ER--Environmental Report
EIS--Environmental Impact Statement
EPA--United States Environmental Protection Agency
ESA--Endangered Species Act

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FEMA--Federal Emergency Management Agency
FONSI--Finding of No Significant Impact
GHG--Greenhouse Gas
kV--kilovolt (kV)
kW--kilowatt (kW)
MW--megawatt
MVA--Mega volt-amperes
NEPA--National Environmental Policy Act
NHPA--National Historic Preservation Act
NOI--Notice of Intent
RBIC--Rural Business Investment Company
RBS--Rural Business-Cooperative Service
RHS--Rural Housing Service
RUS--Rural Utilities Service
ROD--Record of Decision
SEPA--State Environmental Policy Act
USDA--United States Department of Agriculture
USGS--United States Geological Survey



Sec.1970.7  [Reserved]



Sec.1970.8  Actions requiring environmental review.

    (a) The Agency must comply with the requirements of NEPA for all 
Federal actions within the:
    (1) United States borders and any other commonwealth, territory or 
possession of the United States such as Guam, American Samoa, U.S. 
Virgin Islands, the Commonwealth of the Northern Mariana Islands, and 
the Commonwealth of Puerto Rico; and
    (2) Republic of the Marshall Islands, the Federated States of 
Micronesia and the Republic of Palau, subject to applicable Compacts of 
Free Association.
    (b) Except as provided in paragraphs (c), (d), and (e) of this 
section, the provisions of this part apply to administrative actions by 
the Agency with regard to the following to be Federal actions:
    (1) Providing financial assistance;
    (2) Certain post-financial assistance actions with the potential to 
have an effect on the environment, including:
    (i) The sale or lease of Agency-owned real property;
    (ii) Lien subordination; and
    (iii) Approval of a substantial change in the scope of a project 
receiving financial assistance not previously considered.
    (3) Promulgation of procedures or regulations for new or 
significantly revised programs; and
    (4) Legislative proposals (see 40 CFR 1506.8).
    (c) For environmental review purposes, the Agency has identified and 
established categories of proposed actions (Sec. Sec.1970.53 through 
1970.55, 1970.101, and 1970.151). An applicant may propose to 
participate with other parties in the ownership of a project. In such a 
case, the Agency will determine whether the applicant participants have 
sufficient control and responsibility to alter the development of the 
proposed project prior to determining its classification. Only if there 
is such control and responsibility as described below will the Agency 
consider its action with regard to the project to be a Federal action 
for purposes of this part. Where the applicant proposes to participate 
with other parties in the ownership of a proposed project and all 
applicants cumulatively own:
    (1) Five percent (5%) or less, the project is not considered a 
Federal action subject to this part;
    (2) Thirty-three and one-third percent (33\1/3\%) or more, the 
project shall be considered a Federal action subject to this part;
    (3) More than five percent (5%) but less than thirty-three and one-
third percent (33\1/3\%), the Agency will determine whether the 
applicant participants have sufficient control and responsibility to 
alter the development of the proposal such that the Agency's action will 
be considered a Federal action subject to this part. In making this 
determination, the Agency will consider such factors as:
    (i) Whether construction would be completed regardless of the 
Agency's financial assistance or approval;
    (ii) The stage of planning and construction;
    (iii) Total participation of the applicant;
    (iv) Participation percentage of each participant; and
    (v) Managerial arrangements and contractual provisions.

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    (d) Lien sharing is not an action for the purposes of this part.
    (e) Servicing actions are directly related to financial assistance 
already provided, do not require separate NEPA review, and are not 
actions for the purposes of this part.



Sec.1970.9  Levels of environmental review.

    (a) The Agency has identified classes of actions and the level of 
environmental review required for applicant proposals and Agency actions 
in subparts B (CEs), C (EAs), and D (EISs) of this part. An applicant 
seeking financial assistance from the Agency must sufficiently describe 
its proposal so that the Agency can properly classify the proposal for 
the purposes of this part.
    (b) If an action is not identified in the classes of actions listed 
in subparts B, C, or D of this part, the Agency will determine what 
level of environmental review is appropriate.
    (c) A single environmental document will evaluate an applicant's 
proposal and any other activities that are connected, interdependent, or 
likely to have significant cumulative effects. When a proposal 
represents one segment of a larger interdependent proposal being funded 
jointly by various entities, the level of environmental review will 
normally include the entire proposal.
    (d) Upon submission of multi-year planning documents, such as 
Telecommunications Program Loan/System Designs or multi-year Electric 
Program Construction Work Plans, the Agency will identify the 
appropriate classification for all proposals listed in the applicable 
design or work plan and may request any additional environmental 
information prior to the time of loan approval.



Sec.1970.10  Raising the level of environmental review.

    Environmental conditions, scientific controversy, or other 
characteristics unique to a specific proposal can trigger the need for a 
higher level of environmental review than described in subparts B or C 
of this part. As appropriate, the Agency will determine whether 
extraordinary circumstances (see Sec.1970.52) or the potential for 
significant environmental impacts warrant a higher level of review. The 
Agency is solely responsible for determining the level of environmental 
review to be conducted and the adequacy of environmental review that has 
been performed.



Sec.1970.11  Timing of the environmental review process.

    (a) Once an applicant decides to request Agency financial 
assistance, the applicant must initiate the environmental review process 
at the earliest possible time to ensure that planning, design, and other 
decisions reflect environmental policies and values, avoid delays, and 
minimize potential conflicts. This includes early coordination with the 
Agency, all funding partners, and regulatory agencies, in order to 
minimize duplication of effort.
    (b) The environmental review process must be concluded before the 
obligation of funds; except for infrastructure projects where the 
assurance that funds will be available for community health, safety, or 
economic development has been determined as necessary by the Agency 
Administrator. At the discretion of the Agency Administrator, funds may 
be obligated contingent upon the conclusion of the environmental review 
process prior to any action that would have an adverse effect on the 
environment or limit the choices of any reasonable alternatives. Funds 
so obligated shall be rescinded if the Agency cannot conclude the 
environmental review process before the end of the fiscal year after the 
year in which the funds were obligated, or if the Agency determines that 
it cannot proceed with approval based on findings in the environmental 
review process. For the purposes of this section, infrastructure 
projects shall include projects such as broadband, telecommunications, 
electric, energy efficiency, smart grid, water, sewer, transportation, 
and energy capital investments in physical plant and equipment, but not 
investments authorized in the Housing Act of 1949.
    (c) The environmental review process is formally concluded when all 
of the following have occurred:

[[Page 213]]

    (1) The Agency has reviewed the appropriate environmental review 
document for completeness;
    (2) All required public notices have been published and public 
comment periods have elapsed;
    (3) All comments received during any established comment period have 
been considered and addressed, as appropriate by the Agency;
    (4) The environmental review documents have been approved by the 
Agency; and
    (5) The appropriate environmental decision document has been 
executed by the Agency after paragraphs (c)(1) through (4) of this 
section have been concluded.
    (d) For proposed actions listed in Sec.1970.151 and to ensure 
Agency compliance with the conflict of interest provisions in 40 CFR 
1506.5(c), the Agency is responsible for selecting any third-party EIS 
contractor and participating in the EIS preparation. For more 
information regarding acquisition of professional services and funding 
of a third-party contractor, refer to Sec.1970.152.

[81 FR 11032, Mar. 2, 2016, as amended at 83 FR 59271, Nov. 23, 2018; 84 
FR 49648, Sept. 23, 2019]



Sec.1970.12  Limitations on actions during the NEPA process.

    (a) Limitations on actions. Applicants must not take actions 
concerning a proposal that may potentially have an environmental impact 
or would otherwise limit or affect the Agency's decision until the 
Agency's environmental review process is concluded. If such actions are 
taken prior to the conclusion of the environmental review process, the 
Agency may deny the request for financial assistance.
    (b) Anticipatory demolition. If the Agency determines that an 
applicant has intentionally significantly adversely affected a historic 
property with the intent to avoid the requirements of Section 106 of the 
NHPA (such as demolition or removal of all or part of the property) the 
Agency may deny the request for financial assistance in accordance with 
section 110(k) of the NHPA.
    (c) Recent construction. When construction is in progress or has 
recently been completed by applicants who can demonstrate no prior 
intent to seek Agency assistance at the time of application submittal to 
the Agency, the following requirements apply:
    (1) In cases where construction commenced within 6 months prior to 
the date of application, the Agency will determine and document whether 
the applicant initiated construction to avoid environmental compliance 
requirements. If any evidence to that effect exists, the Agency may deny 
the request for financial assistance.
    (2) If there is no evidence that an applicant is attempting to avoid 
environmental compliance requirements, the application is subject to the 
following additional requirements:
    (i) The Agency will promptly provide written notice to the applicant 
that the applicant must halt construction if it is ongoing and fulfill 
all environmental compliance responsibilities before the requested 
financing will be provided;
    (ii) The applicant must take immediate steps to identify any 
environmental resources affected by the construction and protect the 
affected resources; and
    (iii) With assistance from the applicant and to the extent 
practicable, the Agency will determine whether environmental resources 
have been adversely affected by any construction and this information 
will be included in the environmental document.
    (d) Minimal expenditures. In accordance with 40 CFR 1506.1(d), the 
Agency will not be precluded from approving minimal expenditures by the 
applicant not affecting the environment (e.g., long lead-time equipment, 
purchase options, or environmental or technical documentation needed for 
Agency environmental review). To be minimal, the expenditure must not 
exceed the amount of loss which the applicant could absorb without 
jeopardizing the Government's security interest in the event the 
proposed action is not approved by the Agency, and must not compromise 
the objectivity of the Agency's environmental review process.

[[Page 214]]



Sec.1970.13  Consideration of alternatives.

    The purpose of considering alternatives to a proposed action is to 
explore and evaluate whether there may be reasonable alternatives to 
that action that may have fewer or less significant negative 
environmental impacts. When considering whether the alternatives are 
reasonable, the Agency will take into account factors such as economic 
and technical feasibility. The extent of the analysis on each 
alternative will depend on the nature and complexity of the proposal. 
Environmental review documents must discuss the consideration of 
alternatives as follows:
    (a) For proposals subject to subpart C of this part, the 
environmental effects of the ``No Action'' alternative must be 
evaluated. All EAs must evaluate other reasonable alternatives whenever 
the proposal involves potential adverse effects to environmental 
resources.
    (b) For proposals subject to subpart D of this part, the Agency will 
follow the requirements in 40 CFR part 1502.



Sec.1970.14  Public involvement.

    (a) Goal. The goal of public involvement is to engage affected or 
interested parties and share information and solicit input regarding 
environmental impacts of proposals. This helps the Agency to better 
identify potential environmental impacts and mitigation measures and 
allows the public to review and comment on proposals under consideration 
by the Agency. The nature and extent of public involvement will depend 
upon the public interest and the complexity, sensitivity, and potential 
for significant environmental impacts of the proposal.
    (b) Responsibility to involve the public. The Agency will require 
applicant assistance throughout the environmental review process, as 
appropriate, to involve the public as required under 40 CFR 1506.6. 
These activities may include, but are not limited to:
    (1) Coordination with Federal, state, and local agencies; Federally 
recognized American Indian tribes; Alaska Native organizations; Native 
Hawaiian organizations; and the public;
    (2) Providing meaningful opportunities for involvement of affected 
minority or low-income populations, which may include special outreach 
efforts, so that potential disproportionate effects on minority or low-
income populations are reduced to the maximum extent practicable;
    (3) Publication of notices;
    (4) Organizing and conducting meetings; and
    (5) Providing translators, posting information on electronic media, 
or any other additional means needed that will successfully inform the 
public.
    (c) Scoping. In accordance with 40 CFR 1501.7, scoping is an early 
and open process to identify significant environmental issues deserving 
of study, de-emphasize insignificant issues, and determine the scope of 
the environmental review process.
    (1) Public scoping meetings allow the public to obtain information 
about a proposal and to express their concerns directly to the parties 
involved and help determine what issues are to be addressed and what 
kinds of expertise, analysis, and consultation are needed. For proposals 
classified in Sec. Sec.1970.101 and 1970.151, scoping meetings may be 
required at the Agency's discretion. The Agency may require a scoping 
meeting whenever the proposal has substantial controversy, scale, or 
complexity.
    (2) If required, scoping meetings will be held at reasonable times, 
in accessible locations, and in the geographical area of the proposal at 
a location the Agency determines would best afford an opportunity for 
public involvement.
    (3) When held, applicants must attend and participate in all scoping 
meetings. When requested by the Agency, the applicant must organize and 
arrange meeting locations, publish public notices, provide translation, 
provide for any equipment needs such as those needed to allow for remote 
participation, present information on their proposal, and fulfill any 
related activities.
    (d) Public notices. (1) The Agency is responsible for meeting the 
public notice requirements in 40 CFR 1506.6, but will require the 
applicant to provide public notices of the availability of environmental 
documents and of public meetings so as to inform those persons and 
agencies who may be interested in or affected by an applicant's 
proposal. The Agency will provide applicants

[[Page 215]]

with guidance as to specific notice content, publication frequencies, 
and distribution requirements. Public notices issued by the Agency or 
the applicant must describe the nature, location, and extent of the 
applicant's proposal and the Agency's proposed action; notices must also 
indicate the availability and location of pertinent information.
    (2) Notices generally must be published in a newspaper(s) of general 
circulation (both in print and online) within the proposal's affected 
areas and other places as determined by the Agency. The notice must be 
published in the non-classified section of the newspaper. If the 
affected area is largely non-English speaking or bilingual, the notice 
must be published in both English and non-English language newspapers 
serving the affected area, if both are available. The Agency will 
determine the use of other distribution methods for communicating 
information to affected individuals and communities if those are more 
likely to be effective. The applicant must obtain an ``affidavit of 
publication'' or other such evidence from all publications (or 
equivalent verification if other distribution methods were used) and 
must submit such evidence to the Agency to be made a part of the 
Agency's Administrative Record.
    (3) The number of times notices regarding EAs must be published is 
specified in Sec.1970.102(b)(6)(ii). Other distribution methods may be 
used in special circumstances when a newspaper notice is not available 
or is not adequate. Additional distribution methods may include, but are 
not limited to, direct public notices to adjacent property owners or 
occupants, mass mailings, radio broadcasts, internet postings, posters, 
or some other combination of public announcements.
    (4) Formal notices required for EIS-level proposals pursuant to 40 
CFR part 1500 will be published by the Agency in the Federal Register.
    (e) Public availability. Documents associated with the environmental 
review process will be made available to the public at convenient 
locations specified in public notices and, where appropriate, on the 
Agency's internet site. Environmental documents that are voluminous or 
contain hard-to-reproduce graphics or maps should be made available for 
viewing at one or more locations, such as an Agency field office, public 
library, or the applicant's place of business. Upon request, the Agency 
will promptly provide interested parties copies of environmental review 
documents without charge to the extent practicable, or at a fee not to 
exceed the cost of reproducing and shipping the copies.
    (f) Public comments. All comments should be directed to the Agency. 
Comments received by applicants must be forwarded to the Agency in a 
timely manner. The Agency will assess and consider all comments 
received.



Sec.1970.15  Interagency cooperation.

    In order to reduce delay and paperwork, the Agency will, when 
practicable, eliminate duplication of Federal, state, and local 
procedures by participating in joint environmental document preparation, 
adopting appropriate environmental documents prepared for or by other 
Federal agencies, and incorporating by reference other environmental 
documents in accordance with 40 CFR 1506.2 and 1506.3.
    (a) Coordination with other Federal agencies. When other Federal 
agencies are involved in an Agency action listed in Sec.1970.101 or 
Sec.1970.151, the Agency will coordinate with these agencies to 
determine cooperating agency relationships as appropriate in the 
preparation of a joint environmental review document. The criteria for 
making this determination can be found at 40 CFR 1501.5.
    (b) Adoption of documents prepared for or by other Federal agencies. 
The Agency may adopt EAs or EISs prepared for or by other Federal 
agencies if the proposed actions and site conditions addressed in the 
environmental document are substantially the same as those associated 
with the proposal being considered by the Agency. The Agency will 
consider age, location, and other reasonable factors in determining the 
usefulness of the other Federal documents. The Agency will complete an 
independent evaluation of the environmental document to ensure it meets 
the requirements of this part. If any environmental document does not 
meet

[[Page 216]]

all Agency requirements, it will be supplemented prior to adoption. 
Where there is a conflict in the two agencies' classes of action, the 
Agency may adopt the document provided that it meets the Agency's 
requirements.
    (c) Cooperation with state and local governments. In accordance with 
40 CFR 1500.5 and 1506.2, the Agency will cooperate with state and local 
agencies to the fullest extent possible to reduce delay and duplication 
between NEPA and comparable state and local requirements.
    (1) Joint environmental documents. To the extent practicable, the 
Agency will participate in the preparation of a joint document to ensure 
that all of the requirements of this part are met. Applicants that 
request Agency assistance for specific proposals must contact the Agency 
at the earliest possible date to determine if joint environmental 
documents can be effectively prepared. In order to prepare joint 
documents the following conditions must be met:
    (i) Applicants must also be seeking financial, technical, or other 
assistance such as permitting or approvals from a state or local agency 
that has responsibility to complete an environmental review for the 
applicant's proposal; and
    (ii) The Agency and the state or local agency may agree to be joint 
lead agencies where practicable. When state laws or local ordinances 
have environmental requirements in addition to, but not in conflict with 
those of the Agency, the Agency will cooperate in fulfilling these 
requirements.
    (2) Incorporating other documents. The Agency cannot adopt a non-
Federal environmental document under NEPA. However, if an environmental 
document is not jointly prepared as described in paragraph (c)(1) of 
this section (e.g., prepared in accordance with a state environmental 
policy act [SEPA]), the Agency will evaluate the document as reference 
or supporting material for the Agency's environmental document.



Sec.1970.16  Mitigation.

    (a) The goal of mitigation is to avoid, minimize, rectify, reduce, 
or compensate for the adverse environmental impacts of an action. The 
Agency will seek to mitigate potential adverse environmental impacts 
resulting from Agency actions. All mitigation measures will be included 
in Agency commitment or decision documents.
    (b) Mitigation measures, where necessary for a FONSI or a ROD, will 
be discussed with the applicant and with any other relevant agency and, 
to the extent practicable, incorporated into Agency commitment 
documents, plans and specifications, and construction contracts so as to 
be legally binding.
    (c) The Agency, applicable lenders, or any intermediaries will 
monitor implementation of all mitigation measures during development of 
design, final plans, inspections during the construction phase of 
projects, as well as in future servicing visits. The Agency will direct 
applicants to take necessary measures to bring the project into 
compliance. If the applicant fails to achieve compliance, all 
advancement of funds and the approval of cost reimbursements will be 
suspended. Other measures may be taken by the Agency to redress the 
failed mitigation as appropriate.



Sec.1970.17  Programmatic analyses and tiering.

    In accordance with 40 CFR 1502.20 and to foster better decision 
making, the Agency may consider preparing programmatic-level NEPA 
analyses and tiering to eliminate repetitive discussions of the same 
issues and to focus on the actual issues ripe for decision at each level 
of environmental review.



Sec.1970.18  Emergencies.

    When an emergency exists and the Agency determines that it is 
necessary to take emergency action before preparing a NEPA analysis and 
any required documentation, the provisions of this section apply.
    (a) Urgent response. The Agency and the applicant, as appropriate, 
may take actions necessary to control the immediate impacts of an 
emergency (see Sec.1970.53(e)). Emergency actions include those that 
are urgently needed to restore services and to mitigate harm to life, 
property, or important natural or cultural resources. When taking such 
actions, the Agency and the applicant,

[[Page 217]]

when applicable, will take into account the probable environmental 
consequences of the emergency action and mitigate foreseeable adverse 
environmental effects to the extent practicable.
    (b) CE- and EA-level actions. If the Agency proposes longer-term 
emergency actions other than those actions described in paragraph (a) of 
this section, and such actions are not likely to have significant 
environmental impacts, the Agency will document that determination in a 
finding for a CE or in a FONSI for an EA prepared in accordance with 
this part. If the Agency finds that the nature and scope of proposed 
emergency actions are such that they must be undertaken prior to 
preparing any NEPA analysis and documentation associated with a CE or 
EA, the Agency will identify alternative arrangements for compliance 
with this part with the appropriate agencies.
    (1) Alternative arrangements for environmental compliance are 
limited to actions necessary to control the immediate impacts of the 
emergency.
    (2) Alternative arrangements will, to the extent practicable, 
attempt to achieve the substantive requirements of this part.
    (c) EIS-level actions. If the Agency proposes emergency actions 
other than those actions described in paragraphs (a) or (b) of this 
section and such actions are likely to have significant environmental 
impacts, then the Agency will consult with the CEQ about alternative 
arrangements in accordance with CEQ regulations at 40 CFR 1506.11 as 
soon as possible.



Sec. Sec.1970.19-1970.50  [Reserved]



                  Subpart B_NEPA Categorical Exclusions



Sec.1970.51  Applying CEs.

    (a) The actions listed in Sec. Sec.1970.53 through 1970.55 are 
classes of actions that the Agency has determined do not individually or 
cumulatively have a significant effect on the human environment 
(referred to as ``categorical exclusions'' or CEs).
    (1) Actions listed in Sec.1970.53 do not normally require 
applicants to submit environmental documentation with their 
applications. However, these applicants may be required to provide 
environmental information at the Agency's request.
    (2) Actions listed in Sec.1970.54 normally require the submission 
of an environmental report (ER) by an applicant to allow the Agency to 
determine whether extraordinary circumstances (as defined in Sec.
1970.52(a)) exist. When the Agency determines that extraordinary 
circumstances exist, an EA or EIS, as appropriate, will be required and, 
in such instances, applicants may be required to provide additional 
environmental information later at the Agency's request.
    (3) Actions listed in Sec.1970.55 relate to financial assistance 
whereby the applicant is a primary recipient of a multi-tier program 
providing financial assistance to secondary or ultimate recipients 
without specifying the use of such funds for eligible actions at the 
time of initial application and approval. The decision to approve or 
fund such initial proposals has no discernible environmental effects and 
is therefore categorically excluded provided the primary recipient 
enters into an agreement with the Agency for future reviews. The primary 
recipient is limited to making the Agency's financial assistance 
available to secondary recipients for the types of projects specified in 
the primary recipient's application. Second-tier funding of proposals to 
secondary or ultimate recipients will be screened for extraordinary 
circumstances by the primary recipient and monitored by the Agency. If 
the primary recipient determines that extraordinary circumstances exist 
on any second-tier proposal, it must be referred to the Agency for the 
appropriate level of review under this part in accordance with subparts 
C and D.
    (b) To find that a proposal is categorically excluded, the Agency 
must determine the following:
    (1) The proposal fits within a class of actions that is listed in 
Sec. Sec.1970.53 through 1970.55;
    (2) There are no extraordinary circumstances related to the proposal 
(see Sec.1970.52); and
    (3) The proposal is not ``connected'' to other actions with 
potentially significant impacts (see 40 CFR

[[Page 218]]

1508.25(a)(1)) or is not considered a ``cumulative action'' (see 40 CFR 
1508.25(a)(2)), and is not precluded by 40 CFR 1506.1.
    (c) A proposal that consists of more than one action may be 
categorically excluded only if all components of the proposed action are 
eligible for a CE.
    (d) If, at any time during the environmental review process, the 
Agency determines that the proposal does not meet the criteria listed in 
Sec. Sec.1970.53 through 1970.55, an EA or EIS, as appropriate, will 
be required.
    (e) Failure to achieve compliance with this part will postpone 
further consideration of an applicant's proposal until such compliance 
is achieved or the applicant withdraws the proposal. If compliance is 
not achieved, the Agency will deny the request for financial assistance.



Sec.1970.52  Extraordinary circumstances.

    (a) Extraordinary circumstances are unique situations presented by 
specific proposals, such as characteristics of the geographic area 
affected by the proposal, scientific controversy about the environmental 
effects of the proposal, uncertain effects or effects involving unique 
or unknown risks, and unresolved conflicts concerning alternate uses of 
available resources within the meaning of section 102(2)(E) of NEPA. In 
the event of extraordinary circumstances, a normally excluded action 
will be the subject of an additional environmental review by the Agency 
to determine the potential of the Agency action to cause any significant 
adverse environmental effect, and could, at the Agency's sole 
discretion, require an EA or an EIS, prepared in accordance with 
subparts C or D of this part, respectively.
    (b) Significant adverse environmental effects that the Agency 
considers to be extraordinary circumstances include, but are not limited 
to:
    (1) Any violation of applicable Federal, state, or local statutory, 
regulatory, or permit requirements for environment, safety, and health.
    (2) Siting, construction, or major expansion of Resource 
Conservation and Recovery Act permitted waste storage, disposal, 
recovery, or treatment facilities (including incinerators), even if the 
proposal includes categorically excluded waste storage, disposal, 
recovery, or treatment actions.
    (3) Any proposal that is likely to cause uncontrolled or unpermitted 
releases of hazardous substances, pollutants, contaminants, or petroleum 
and natural gas products.
    (4) An adverse effect on the following environmental resources:
    (i) Historic properties;
    (ii) Federally listed threatened or endangered species, critical 
habitat, Federally proposed or candidate species;
    (iii) Wetlands (Those actions that propose to convert or propose new 
construction in wetlands will require consideration of alternatives to 
avoid adverse effects and unwarranted conversions of wetlands. For 
actions involving linear utility infrastructure where utilities are 
proposed to be installed in existing, previously disturbed rights-of-way 
or that are authorized under applicable Clean Water Act, Section 404 
nationwide permits will not require the consideration of alternatives. 
Those actions that require Section 404 individual permits would create 
an extraordinary circumstance);
    (iv) Floodplains (those actions that introduce fill or structures 
into a floodplain or propose substantial improvements to structures 
within a floodplain will require consideration of alternatives to avoid 
adverse effects and incompatible development in floodplains. Actions 
that do not adversely affect the hydrologic character of a floodplain, 
such as buried utility lines or subsurface pump stations, would not 
create an extraordinary circumstance; or purchase of existing structures 
within the floodplain will not create an extraordinary circumstance but 
may require consideration of alternatives to avoid adverse effects and 
incompatible development in floodplains when determined appropriate by 
the Agency);
    (v) Areas having formal Federal or state designations such as 
wilderness areas, parks, or wildlife refuges; wild and scenic rivers; or 
marine sanctuaries;

[[Page 219]]

    (vi) Special sources of water (such as sole source aquifers, 
wellhead protection areas, and other water sources that are vital in a 
region);
    (vii) Coastal barrier resources or, unless exempt, coastal zone 
management areas; and
    (viii) Coral reefs.
    (5) The existence of controversy based on effects to the human 
environment brought to the Agency's attention by a Federal, tribal, 
state, or local government agency.



Sec.1970.53  CEs involving no or minimal disturbance without an 
environmental report.

    The CEs in this section are for proposals for financial assistance 
that involve no or minimal alterations in the physical environment and 
typically occur on previously disturbed land. These actions normally do 
not require an applicant to submit environmental documentation with the 
application. However, based on the review of the project description, 
the Agency may request additional environmental documentation from the 
applicant at any time, specifically if the Agency determines that 
extraordinary circumstances may exist. In accordance with Section 106 of 
the National Historic Preservation Act (54 U.S.C. 300101 et seq.) and 
its implementing regulations under 36 CFR 800.3(a), the Agency has 
determined that the actions in this section are undertakings, and in 
accordance with 36 CFR 800.3(a)(1) has identified those undertakings for 
which no further review under 36 CFR part 800 is required because they 
have no potential to cause effects to historic properties. In accordance 
with section 7 of the Endangered Species Act (16 U.S.C. 1531 et seq.) 
and its implementing regulations at 50 CFR part 402, the Agency has 
determined that the actions in this section are actions for purposes of 
the Endangered Species Act, and in accordance with 50 CFR 402.06 has 
identified those actions for which no further review under 50 CFR part 
402 is required because they will have no effect to listed threatened 
and endangered species.
    (a) Routine financial actions. The following are routine financial 
actions and, as such, are classified as categorical exclusions 
identified in paragraphs (a)(1) through (7) of this section.
    (1) Financial assistance for the purchase, transfer, lease, or other 
acquisition of real property when no or minimal change in use is 
reasonably foreseeable.
    (i) Real property includes land and any existing permanent or 
affixed structures.
    (ii) ``No or minimal change in use is reasonably foreseeable'' means 
no or only a small change in use, capacity, purpose, operation, or 
design is expected where the foreseeable type and magnitude of impacts 
would remain essentially the same.
    (2) Financial assistance for the purchase, transfer, or lease of 
personal property or fixtures where no or minimal change in operations 
is reasonably foreseeable. These include:
    (i) Approval of minimal expenditures not affecting the environment 
such as contracts for long lead-time equipment and purchase options by 
applicants under the terms of 40 CFR 1506.1(d) and 7 CFR 1970.12;
    (ii) Acquisition of end-user equipment and programming for 
telecommunication distance learning;
    (iii) Purchase, replacement, or installation of equipment necessary 
for the operation of an existing facility (such as Supervisory Control 
and Data Acquisition Systems (SCADA), energy management or efficiency 
improvement systems (including heat rate efficiency), replacement or 
conversion to enable use of renewable fuels, standby internal combustion 
electric generators, battery energy storage systems, and associated 
facilities for the primary purpose of providing emergency power);
    (iv) Purchase of vehicles (such as those used in business, utility, 
community, or emergency services operations);
    (v) Purchase of existing water rights where no associated 
construction is involved;
    (vi) Purchase of livestock and essential farm equipment, including 
crop storing and drying equipment; and
    (vii) Purchase of stock in an existing enterprise to obtain an 
ownership interest in that enterprise.

[[Page 220]]

    (3) Financial assistance for operating (working) capital for an 
existing operation to support day-to-day expenses.
    (4) Sale or lease of Agency-owned real property, if the sale or 
lease of Agency-owned real property will have no or minimal construction 
or change in current operations in the foreseeable future.
    (5) The provision of additional financial assistance for cost 
overruns where the purpose, operation, location, and design of the 
proposal as originally approved has not been substantially changed.
    (6) Rural Business Investment Program (7 U.S.C. 1989 and 2009cc et 
seq.) actions as follows:
    (i) Non-leveraged program actions that include licensing by USDA of 
Rural Business Investment Companies (RBIC); or
    (ii) Leveraged program actions that include licensing by USDA of 
RBIC and Federal financial assistance in the form of technical grants or 
guarantees of debentures of an RBIC, unless such Federal assistance is 
used to finance construction or development of land.
    (7) A guarantee provided to a guaranteed lender for the sole purpose 
of refinancing outstanding bonds or notes or a guarantee provided to the 
Federal Financing Bank pursuant to Section 313A(a) of the Rural 
Electrification Act of 1936 for the purpose of:
    (i) Refinancing existing debt instruments of a lender organized on a 
not-for-profit basis; or
    (ii) Prepaying outstanding notes or bonds made to or guaranteed by 
the Agency.
    (b) Information gathering and technical assistance. The following 
are CEs for financial assistance, identified in paragraphs (b)(1) 
through (3) of this section.
    (1) Information gathering, data analysis, document preparation, real 
estate appraisals, environmental site assessments, and information 
dissemination. Examples of these actions are:
    (i) Information gathering such as research, literature surveys, 
inventories, and audits;
    (ii) Data analysis such as computer modeling;
    (iii) Document preparation such as strategic plans; conceptual 
designs; management, economic, planning, or feasibility studies; energy 
audits or assessments; environmental analyses; and survey and analyses 
of accounts and business practices; and
    (iv) Information dissemination such as document mailings, 
publication, and distribution; and classroom training and informational 
programs.
    (2) Technical advice, training, planning assistance, and capacity 
building. Examples of these actions are:
    (i) Technical advice, training, planning assistance such as guidance 
for cooperatives and self-help housing group planning; and
    (ii) Capacity building such as leadership training, strategic 
planning, and community development training.
    (3) Site characterization, environmental testing, and monitoring 
where no significant alteration of existing ambient conditions would 
occur. This includes, but is not limited to, air, surface water, 
groundwater, wind, soil, or rock core sampling; installation of 
monitoring wells; and installation of small-scale air, water, or weather 
monitoring equipment.
    (c) Minor construction proposals. The following are CEs that apply 
to financial assistance for minor construction proposals:
    (1) Minor amendments or revisions to previously approved projects 
provided such activities do not alter the purpose, operation, geographic 
scope, or design of the project as originally approved;
    (2) Repair, upgrade, or replacement of equipment in existing 
structures for such purposes as improving habitability, energy 
efficiency (including heat rate efficiency), replacement or conversion 
to enable use of renewable fuels, pollution prevention, or pollution 
control;
    (3) Any internal modification or minimal external modification, 
restoration, renovation, maintenance, and replacement in-kind to an 
existing facility or structure;
    (4) Construction of or substantial improvement to a single-family 
dwelling, or a Rural Housing Site Loan project or multi-family housing 
project serving up to four families and affecting less than 10 acres of 
land;
    (5) Siting, construction, and operation of new or additional water 
supply

[[Page 221]]

wells for residential, farm, or livestock use;
    (6) Replacement of existing water and sewer lines within the 
existing right-of-way and as long as the size of pipe is either no 
larger than the inner diameter of the existing pipe or is an increased 
diameter as required by Federal or state requirements. If a larger pipe 
size is required, applicants must provide a copy of written 
administrative requirements mandating a minimum pipe diameter from the 
regulatory agency with jurisdiction;
    (7) Modifications of an existing water supply well to restore 
production in existing commercial well fields, if there would be no 
drawdown other than in the immediate vicinity of the pumping well, no 
resulting long-term decline of the water table, and no degradation of 
the aquifer from the replacement well;
    (8) New utility service connections to individual users or 
construction of utility lines or associated components where the 
applicant has no control over the placement of the utility facilities; 
and
    (9) Conversion of land in agricultural production to pastureland or 
forests, or conversion of pastureland to forest.
    (d) Energy or telecommunication proposals. The following are CEs 
that apply to financial assistance for energy or telecommunication 
proposals:
    (1) Upgrading or rebuilding existing telecommunication facilities 
(both wired and wireless) or addition of aerial cables for communication 
purposes to electric power lines that would not affect the environment 
beyond the previously-developed, existing rights-of-way;
    (2) Burying new facilities for communication purposes in previously 
developed, existing rights-of-way and in areas already in or committed 
to urbanized development or rural settlements whether incorporated or 
unincorporated that are characterized by high human densities and within 
contiguous, highly disturbed environments with human-built features. 
Covered actions include associated vaults and pulling and tensioning 
sites outside rights-of-way in nearby previously disturbed or developed 
land;
    (3) Changes to electric transmission lines that involve pole 
replacement or structural components only where either the same or 
substantially equivalent support structures at the approximate existing 
support structure locations are used;
    (4) Phase or voltage conversions, reconductoring, upgrading, or 
rebuilding of existing electric distribution lines that would not affect 
the environment beyond the previously developed, existing rights-of-way. 
Includes pole replacements but does not include overhead-to-underground 
conversions;
    (5) Collocation of telecommunications equipment on existing 
infrastructure and deployment of distributed antenna systems and small 
cell networks provided the latter technologies are not attached to and 
will not cause adverse effects to historic properties;
    (6) Siting, construction, and operation of small, ground source heat 
pump systems that would be located on previously developed land;
    (7) Siting, construction, and operation of small solar electric 
projects or solar thermal projects to be installed on or adjacent to an 
existing structure and that would not affect the environment beyond the 
previously developed facility area and are not attached to and will not 
cause adverse effects to historic properties;
    (8) Siting, construction, and operation of small biomass projects, 
such as animal waste anaerobic digesters or gasifiers, that would use 
feedstock produced on site (such as a farm where the site has been 
previously disturbed) and supply gas or electricity for the site's own 
energy needs with no or only incidental export of energy;
    (9) Construction of small standby electric generating facilities 
with a rating of one average megawatt (MW) or less, and associated 
facilities, for the purpose of providing emergency power for or startup 
of an existing facility;
    (10) Additions or modifications to electric transmission facilities 
that would not affect the environment beyond the previously developed 
facility area including, but not limited to, switchyard rock, grounding 
upgrades, secondary containment projects, paving projects, seismic 
upgrading, tower modifications, changing insulators, and

[[Page 222]]

replacement of poles, circuit breakers, conductors, transformers, and 
crossarms; and
    (11) Safety, environmental, or energy efficiency (including heat 
rate efficiency) improvements within an existing electric generation 
facility, including addition, replacement, or upgrade of facility 
components (such as precipitator, baghouse, or scrubber installations), 
that do not result in a change to the design capacity or function of the 
facility and do not result in an increase in pollutant emissions, 
effluent discharges, or waste products.
    (e) Emergency situations. Repairs made because of an emergency 
situation to return to service damaged facilities of an applicant's 
utility system or other actions necessary to preserve life and control 
the immediate impacts of the emergency.
    (f) Promulgation of rules or formal notices. The promulgation of 
rules or formal notices for policies or programs that are administrative 
or financial procedures for implementing Agency assistance activities.
    (g) Agency proposals for legislation. Agency proposals for 
legislation that have no potential for significant environmental impacts 
because they would allow for no or minimal construction or change in 
operations.
    (h) Administrative actions. Agency procurement activities for goods 
and services; routine facility operations; personnel actions, including 
but not limited to, reduction in force or employee transfers resulting 
from workload adjustments, and reduced personnel or funding levels; and 
other such management actions related to the operation of the Agency.



Sec.1970.54  CEs involving small-scale development with an 
environmental report.

    The CEs in this section are for proposals for financial assistance 
that require an applicant to submit an ER with their application to 
facilitate Agency determination of extraordinary circumstances. At a 
minimum, the ER will include a complete description of all components of 
the applicant's proposal and any connected actions, including its 
specific location on detailed site plans as well as location maps 
equivalent to a U.S. Geological Survey (USGS) quadrangle map; and 
information from authoritative sources acceptable to the Agency 
confirming the presence or absence of sensitive environmental resources 
in the area that could be affected by the applicant's proposal. The ER 
submitted must be accurate, complete, and capable of verification. The 
Agency may request additional information as needed to make an 
environmental determination. Failure to submit the required 
environmental report will postpone further consideration of the 
applicant's proposal until the ER is submitted, or the Agency may deny 
the request for financial assistance. The Agency will review the ER and 
determine if extraordinary circumstances exist. The Agency's review may 
determine that classification as an EA or an EIS is more appropriate 
than a CE classification.
    (a) Small-scale site-specific development. The following CEs apply 
to proposals where site development activities (including construction, 
expansion, repair, rehabilitation, or other improvements) for rural 
development purposes would impact not more than 10 acres of real 
property and would not cause a substantial increase in traffic. These 
CEs are identified in paragraphs (a)(1) through (a)(9) of this section. 
This paragraph does not apply to new industrial proposals (such as 
ethanol and biodiesel production facilities) or those classes of action 
listed in Sec. Sec.1970.53, 1970.101, or 1970.151.
    (1) Multi-family housing and Rural Housing Site Loans.
    (2) Business development.
    (3) Community facilities such as municipal buildings, libraries, 
security services, fire protection, schools, and health and recreation 
facilities.
    (4) Infrastructure to support utility systems such as water or 
wastewater facilities; headquarters, maintenance, equipment storage, or 
microwave facilities; and energy management systems. This does not 
include proposals that either create a new or relocate an existing 
discharge to or a withdrawal from surface or ground waters, or cause 
substantial increase in a withdrawal or discharge at an existing site.
    (5) Installation of new, commercial-scale water supply wells and 
associated

[[Page 223]]

pipelines or water storage facilities that are required by a regulatory 
authority or standard engineering practice as a backup to existing 
production well(s) or as reserve for fire protection.
    (6) Construction of telecommunications towers and associated 
facilities, if the towers and associated facilities are 450 feet or less 
in height and would not be in or visible from an area of documented 
scenic value.
    (7) Repair, rehabilitation, or restoration of water control, flood 
control, or water impoundment facilities, such as dams, dikes, levees, 
detention reservoirs, and drainage ditches, with minimal change in use, 
size, capacity, purpose, operation, location, or design from the 
original facility.
    (8) Installation or enlargement of irrigation facilities on an 
applicant's land, including storage reservoirs, diversion dams, wells, 
pumping plants, canals, pipelines, and sprinklers designed to irrigate 
less than 80 acres.
    (9) Replacement or restoration of irrigation facilities, including 
storage reservoirs, diversion dams, wells, pumping plants, canals, 
pipelines, and sprinklers, with no or minimal change in use, size, 
capacity, or location from the original facility(s).
    (10) Vegetative biomass harvesting operations of no more than 15 
acres, provided any amount of land involved in harvesting is to be 
conducted managed on a sustainable basis and according to a Federal, 
state, or other governmental unit approved management plan.
    (b) Small-scale corridor development. The following CEs apply to 
financial assistance for:
    (1) Construction or repair of roads, streets, and sidewalks, 
including related structures such as curbs, gutters, storm drains, and 
bridges, in an existing right-of-way with minimal change in use, size, 
capacity, purpose, or location from the original infrastructure;
    (2) Improvement and expansion of existing water, waste water, and 
gas utility systems:
    (i) Within one mile of currently served areas irrespective of the 
percent of increase in new capacity, or
    (ii) Increasing capacity not more than 30 percent of the existing 
user population;
    (3) Replacement of utility lines where road reconstruction 
undertaken by non-Agency applicants requires the relocation of lines 
either within or immediately adjacent to the new road easement or right-
of-way; and
    (4) Installation of new linear telecommunications facilities and 
related equipment and infrastructure.
    (c) Small-scale energy proposals. The following CEs apply to 
financial assistance for:
    (1) Construction of electric power substations (including switching 
stations and support facilities) or modification of existing 
substations, switchyards, and support facilities;
    (2) Construction of electric power lines and associated facilities 
designed for or capable of operation at a nominal voltage of either:
    (i) Less than 69 kilovolts (kV);
    (ii) Less than 230 kV if no more than 25 miles of line are involved; 
or
    (iii) 230 kV or greater involving no more than three miles of line, 
but not for the integration of major new generation resources into a 
bulk transmission system;
    (3) Reconstruction (upgrading or rebuilding) or minor relocation of 
existing electric transmission lines (230 kV or less) 25 miles in length 
or less to enhance environmental and land use values or to improve 
reliability or access. Such actions include relocations to avoid right-
of-way encroachments, resolve conflict with property development, 
accommodate road/highway construction, allow for the construction of 
facilities such as canals and pipelines, or reduce existing impacts to 
environmentally sensitive areas;
    (4) Repowering or uprating modifications or expansion of an existing 
unit(s) up to a rating of 50 average MW at electric generating 
facilities in order to maintain or improve the efficiency, capacity, or 
energy output of the facility. Any air emissions from such activities 
must be within the limits of an existing air permit;
    (5) Installation of new generating units or replacement of existing 
generating units at an existing hydroelectric facility or dam which 
results in no change in the normal maximum surface area or normal 
maximum surface elevation of the existing impoundment.

[[Page 224]]

All supporting facilities and new related electric transmission lines 10 
miles in length or less are included;
    (6) Installation of a heat recovery steam generator and steam 
turbine with a rating of 200 average MW or less on an existing electric 
generation site for the purpose of combined cycle operations. All 
supporting facilities and new related electric transmission lines 10 
miles in length or less are included;
    (7) Construction of small electric generating facilities (except 
geothermal and solar electric projects), including those fueled with 
wind or biomass, with a rating of 10 average MW or less. All supporting 
facilities and new related electric transmission lines 10 miles in 
length or less are included;
    (8) Siting, construction, and operation of small biomass projects 
(except small electric generating facilities projects fueled with 
biomass) producing not more than 3 million gallons of liquid fuel or 
300,000 million british thermal units annually, developed on up 10 acres 
of land;
    (9) Geothermal electric power projects or geothermal heating or 
cooling projects developed on up to 10 acres of land and including 
installation of one geothermal well for the production of geothermal 
fluids for direct use application (such as space or water heating/
cooling) or for power generation. All supporting facilities and new 
related electric transmission lines 10 miles in length or less are 
included;
    (10) Solar electric projects or solar thermal projects developed on 
up to 10 acres of land including all supporting facilities and new 
related electric transmission lines 10 miles in length or less;
    (11) Distributed resources of any capacity located at or adjacent to 
an existing landfill site or wastewater treatment facility that is 
powered by refuse-derived fuel. All supporting facilities and new 
related electric transmission lines 10 miles in length or less are 
included;
    (12) Small conduit hydroelectric facilities having a total installed 
capacity of not more than 5 average MW using an existing conduit such as 
an irrigation ditch or a pipe into which a turbine would be placed for 
the purpose of electric generation. All supporting facilities and new 
related electric transmission lines 10 miles in length or less are 
included; and
    (13) Modifications or enhancements to existing facilities or 
structures that would not substantially change the footprint or function 
of the facility or structure and that are undertaken for the purpose of 
improving energy efficiency (including heat rate efficiency), promoting 
pollution prevention or control, safety, reliability, or security. This 
includes, but is not limited to, retrofitting existing facilities to 
produce biofuels and replacing fossil fuels used to produce heat or 
power in biorefineries with renewable biomass. This also includes 
installation of fuel blender pumps and associated changes within an 
existing fuel facility.



Sec.1970.55  CEs for multi-tier actions.

    The CEs in this section apply solely to providing financial 
assistance to primary recipients in multi-tier action programs.
    (a) The Agency's approval of financial assistance to a primary 
recipient in a multi-tier action program is categorically excluded under 
this section only if the primary recipient agrees in writing to:
    (1) Conduct a screening of all proposed uses of funds to determine 
whether each proposal that would be funded or financed falls within 
Sec.1970.53 or Sec.1970.54 as a categorical exclusion;
    (2) Obtain sufficient information to make an evaluation of those 
proposals listed in Sec.1970.53 and prepare an ER for proposals under 
Sec.1970.54 to determine if extraordinary circumstances (as described 
in Sec.1970.52) are present;
    (3) Document and maintain its conclusions regarding the 
applicability of a CE in its official records for Agency verification; 
and
    (4) Refer all proposals that do not meet listed CEs in Sec.1970.53 
or Sec.1970.54, and proposals that may have extraordinary 
circumstances (as described in Sec.1970.52) to the Agency for further 
review in accordance with this part.
    (b) The primary recipient's compliance with this section will be 
monitored and verified in Agency compliance reviews and other required 
audits. Failure by a primary recipient to meet the requirements of this 
section will

[[Page 225]]

result in penalties that may include written warnings, withdrawal of 
Agency financial assistance, suspension from participation in Agency 
programs, or other appropriate action.
    (c) Nothing in this section is intended to delegate the Agency's 
responsibility for compliance with this part. The Agency will continue 
to maintain ultimate responsibility for and control over the 
environmental review process in accordance with this part.



Sec. Sec.1970.56-1970.100  [Reserved]



                Subpart C_NEPA Environmental Assessments



Sec.1970.101  General.

    (a) An EA is a concise public document used by the Agency to 
determine whether to issue a FONSI or prepare an EIS, as specified in 
subpart D of this part. If, at any point during the preparation of an 
EA, it is determined that the proposal will have a potentially 
significant impact on the quality of the human environment, an EIS will 
be prepared.
    (b) Unless otherwise determined by the Agency, EAs will be prepared 
for all ``Federal actions'' as described in Sec.1970.8, unless such 
actions are categorically excluded, as determined under subpart B of 
this part, or require an EIS, as provided under subpart D of this part;
    (c) Preparation of an EA will begin as soon as the Agency has 
determined the proper classification of the applicant's proposal. 
Applicants should consult as early as possible with the Agency to 
determine the environmental review requirements of their proposals. The 
EA must be prepared concurrently with the early planning and design 
phase of the proposal. The EA will not be considered complete until it 
is in compliance with this part.
    (d) Failure to achieve compliance with this part will postpone 
further consideration of the applicant's proposal until such compliance 
is achieved or the applicant withdraws the application. If compliance is 
not achieved, the Agency will deny the request for financial assistance.



Sec.1970.102  Preparation of EAs.

    The EA must focus on resources that might be affected and any 
environmental issues that are of public concern.
    (a) The amount of information and level of analysis provided in the 
EA should be commensurate with the magnitude of the proposal's 
activities and its potential to affect the quality of the human 
environment. At a minimum, the EA must discuss the following:
    (1) The purpose and need for the proposed action;
    (2) The affected environment, including baseline conditions that may 
be impacted by the proposed action and alternatives;
    (3) The environmental impacts of the proposed action including the 
No Action alternative, and, if a specific project element is likely to 
adversely affect a resource, at least one alternative to that project 
element;
    (4) Any applicable environmental laws and Executive Orders;
    (5) Any required coordination undertaken with any Federal, state, or 
local agencies or Indian tribes regarding compliance with applicable 
laws and Executive Orders;
    (6) Mitigation measures considered, including those measures that 
must be adopted to ensure the action will not have significant impacts;
    (7) Any documents incorporated by reference, if appropriate, 
including information provided by the applicant for the proposed action; 
and
    (8) A listing of persons and agencies consulted.
    (b) The following describes the normal processing of an EA under 
this subpart:
    (1) The Agency advises the applicant of its responsibilities as 
described in subpart A of this part. These responsibilities include 
preparation of the EA as discussed in Sec.1970.5(b)(3)(iv)(B).
    (2) The applicant provides a detailed project description including 
connected actions.
    (3) The Agency verifies that the applicant's proposal should be the 
subject of an EA under Sec.1970.101. In addition, the Agency 
identifies any unique environmental requirements associated with the 
applicant's proposal.

[[Page 226]]

    (4) The Agency or the applicant, as appropriate, coordinates with 
Federal, state, and local agencies with jurisdiction by law or special 
expertise; tribes; and interested parties during EA preparation.
    (5) Upon receipt of the EA from the applicant, the Agency evaluates 
the completeness and accuracy of the documentation. If necessary, the 
Agency will require the applicant to correct any deficiencies and 
resubmit the EA prior to its review.
    (6) The Agency reviews the EA and supporting documentation to 
determine whether the environmental review is acceptable.
    (i) If the Agency finds the EA unacceptable, the Agency will notify 
the applicant, as necessary, and work to resolve any outstanding issues.
    (ii) If the Agency finds the EA acceptable, the Agency will prepare 
or review a ``Notice of Availability of the EA'' and direct the 
applicant to publish the notice in local newspapers or through other 
distribution methods as approved by the Agency. The notice must be 
published for three consecutive issues (including online) in a daily 
newspaper, or two consecutive weeks in a weekly newspaper. If other 
distribution methods are approved, the Agency will identify equivalent 
requirements. The public review and comment period will begin on the day 
of the first publication date or equivalent if other distribution 
methods are used. A 14- to 30-day public review and comment period, as 
determined by the Agency, will be provided for all Agency EAs.
    (7) After reviewing and evaluating all public comments, the Agency 
determines whether to modify the EA, prepare a FONSI, or prepare an EIS 
that conforms with subpart D of this part.
    (8) If the Agency determines that a FONSI is appropriate, and after 
preparation of the FONSI, the Agency will prepare or review a public 
notice announcing the availability of the FONSI and direct the applicant 
to publish the public notice in a newspaper(s) of general circulation, 
as described in Sec.1970.14(d)(2). In such case, the applicant must 
obtain an ``affidavit of publication'' or other such proof from all 
publications (or equivalent verification if other media were used) and 
must submit the affidavits and verifications to the Agency.



Sec.1970.103  Supplementing EAs.

    If the applicant makes substantial changes to a proposal or if new 
relevant environmental information is brought to the attention of the 
Agency after the issuance of an EA or FONSI, supplementing an EA may be 
necessary before the action has been implemented. Depending on the 
nature of the changes, the EA will be supplemented by revising the 
applicable section(s) or by appending the information to address 
potential impacts not previously considered. If an EA is supplemented, 
public notification will be required in accordance with Sec.
1970.102(b)(7) and (8).



Sec.1970.104  Finding of No Significant Impact.

    The Agency may issue a FONSI or a revised FONSI only if the EA or 
supplemental EA supports the finding that the proposed action will not 
have a significant effect on the human environment. If the EA does not 
support a FONSI, the Agency will follow the requirements of subpart D of 
this part before taking action on the proposal.
    (a) A FONSI must include:
    (1) A summary of the supporting EA consisting of a brief description 
of the proposed action, the alternatives considered, and the proposal's 
impacts;
    (2) A notation of any other EAs or EISs that are being or will be 
prepared and that are related to the EA;
    (3) A brief discussion of why there would be no significant impacts;
    (4) Any mitigation essential to finding that the impacts of the 
proposed action would not be significant;
    (5) The date issued; and
    (6) The signature of the appropriate Agency approval official.
    (b) The Agency must ensure that the applicant has committed to any 
mitigation that is necessary to support a FONSI and possesses the 
authority and ability to fulfill those commitments. The Agency must 
ensure that mitigation, and, if appropriate, a mitigation plan that is 
necessary to support a FONSI, is made a condition of financial 
assistance.

[[Page 227]]

    (c) The Agency must make a FONSI available to the public as provided 
at 40 CFR 1501.4(e) and 1506.6.
    (d) The Agency may revise a FONSI at any time provided that the 
revision is supported by an EA or a supplemental EA. A revised FONSI is 
subject to all provisions of this section.



Sec. Sec.1970.105-1970.150  [Reserved]



             Subpart D_NEPA Environmental Impact Statements



Sec.1970.151  General.

    (a) The purpose of an EIS is to provide a full and fair discussion 
of significant environmental impacts and to inform the appropriate 
Agency decision maker and the public of reasonable alternatives to the 
applicant's proposal, the Agency's proposed action, and any measures 
that would avoid or minimize adverse impacts.
    (b) Agency actions for which an EIS is required include, but are not 
limited to:
    (1) Proposals for which an EA was initially prepared and that may 
result in significant impacts that cannot be mitigated;
    (2) Siting, construction (or expansion), and decommissioning of 
major treatment, storage, and disposal facilities for hazardous wastes 
as designated in 40 CFR part 261;
    (3) Proposals that change or convert the land use of an area greater 
than 640 contiguous acres;
    (4) New electric generating facilities, other than gas-fired prime 
movers (gas-fired turbines and gas engines) or renewable systems (solar, 
wind, geothermal), with a rating greater than 50 average MW, and all new 
associated electric transmission facilities;
    (5) New mining operations when the applicant has effective control 
(i.e., applicant's dedicated mine or purchase of a substantial portion 
of the mining equipment); and
    (6) Agency proposals for legislation that may have a significant 
environmental impact.
    (c) Failure to achieve compliance with this part will postpone 
further consideration of the applicant's proposal until the Agency 
determines that such compliance has been achieved or the applicant 
withdraws the application. If compliance is not achieved, the Agency 
will deny the request for financial assistance.



Sec.1970.152  EIS funding and professional services.

    (a) Funding for EISs. Unless otherwise approved by the Agency, an 
applicant must fund an EIS and any supplemental documentation prepared 
in support of an applicant's proposal.
    (b) Acquisition of professional services. Applicants shall solicit 
and procure professional services in accordance with and through the 
third-party contractor methods specified in 40 CFR 1506.5(c), and in 
compliance with applicable state or local laws or regulations. 
Applicants and their officers, employees, or agents shall not engage in 
contract awards or contract administration if there is a conflict of 
interest or receipt of gratuities, favors or any form of monetary value 
from contractors, subcontractors, potential contractors or 
subcontractors, or other parties performing or to perform work on an 
EIS. To avoid any conflicts of interest, the Agency is responsible for 
selecting the EIS contractor and the applicant must not initiate any 
procurement of professional services to prepare an EIS without prior 
written approval from the Agency. The Agency reserves the right to 
consider alternate procurement methods.
    (c) EIS scope and content. The Agency will prepare the scope of work 
for the preparation of the EIS and will be responsible for the scope, 
content and development of the EIS prepared by the contractor(s) hired 
or selected by the Agency.
    (d) Agreement Outlining Party Roles and Responsibilities. For each 
EIS, an agreement will be executed by the Agency, the applicant, and 
each third-party contractor, which describes each party's roles and 
responsibilities during the EIS process.
    (e) Disclosure statement. The Agency will ensure that a disclosure 
statement is executed by each EIS contractor. The disclosure statement 
will specify that the contractor has no financial or other interest in 
the outcome of the proposal.

[[Page 228]]



Sec.1970.153  Notice of Intent and scoping.

    (a) Notice of Intent. The Agency will publish a Notice of Intent 
(NOI) in the Federal Register that an EIS will be prepared and, if 
public scoping meetings are required, the notice will be published at 
least 14 days prior to the public scoping meeting(s).
    (1) The NOI will include a description of the following: the 
applicant's proposal and possible alternatives; the Agency's scoping 
process including plans for possible public scoping meetings with time 
and locations; background information if available; and contact 
information for Agency staff who can answer questions regarding the 
proposal and the EIS.
    (2) The applicant must publish a notice similar to the NOI, as 
directed and approved by the Agency, in one or more newspapers of local 
circulation, or provide similar information through other distribution 
methods as approved by the Agency. If public scoping meetings are 
required, such notices must be published at least 14 days prior to each 
public scoping meeting.
    (b) Scoping. In addition to the Agency and applicant 
responsibilities for public involvement identified in Sec.1970.14 and 
as part of early planning for the proposal, the Agency and the applicant 
must invite affected Federal, state, and local agencies and tribes to 
inform them of the proposal and identify the permits and approvals that 
must be obtained and the administrative procedures that must be 
followed.
    (c) Significant issues. For each scoping meeting held, the Agency 
will determine, as soon as practicable after the meeting, the 
significant issues to be analyzed in depth and identify and eliminate 
from detailed study the issues that are not significant, have been 
covered by prior environmental review, or are not determined to be 
reasonable alternatives.



Sec.1970.154  Preparation of the EIS.

    (a) The EIS must be prepared in accordance with the format outlined 
at 40 CFR 1502.10.
    (b) The EIS must be prepared using an interdisciplinary approach 
that will ensure the integrated use of the natural and social sciences 
and the environmental design arts. The disciplines of the preparers must 
be appropriate to address the potential environmental impacts associated 
with the proposal. This can be accomplished both in the information 
collection stage and the analysis stage by communication and 
coordination with environmental experts such as those at universities; 
local, state, and Federal agencies; and Indian tribes.
    (c) The Agency will file the draft and final EIS with the U. S. 
Environmental Protection Agency's (EPA) Office of Federal Activities.
    (d) The Agency will publish in the Federal Register a Notice of 
Availability announcing that either the draft or final EIS is available 
for review and comment. The applicant must concurrently publish a 
similar announcement using one or more distribution methods as approved 
by the Agency in accordance with Sec.1970.14.
    (e) Minimum public comment time periods are calculated from the date 
on which EPA's Notice of Availability is published in the Federal 
Register. The Agency has the discretion to extend any public review and 
comment period if warranted. Notification of any extensions will occur 
through the Federal Register and other media outlets.
    (f) When comments are received on a draft EIS, the Agency will 
assess and consider comments both individually and collectively. With 
support from the third-party contractor and the applicant, the Agency 
will develop responses to the comments received. Possible responses to 
public comments include: Modifying the alternatives considered; 
negotiating with the applicant to modify or mitigate specific project 
elements of the original proposal; developing and evaluating 
alternatives not previously given serious consideration; supplementing 
or modifying the analysis; making factual corrections; or explaining why 
the comments do not warrant further response.
    (g) If the final EIS requires only minor changes from the draft EIS, 
the Agency may document and incorporate such minor changes through 
errata sheets, insertion pages, or revised sections to be incorporated 
into the draft

[[Page 229]]

EIS. In such cases, the Agency will circulate such changes together with 
comments on the draft EIS, responses to comments, and other appropriate 
information as the final EIS. The Agency will not circulate the draft 
EIS again; although, if requested, a copy of the draft EIS may be 
provided in a timely fashion to any interested party.



Sec.1970.155  Supplementing EISs.

    (a) A supplement to a draft or final EIS will be announced, 
prepared, and circulated in the same manner (exclusive of meetings held 
during the scoping process) as a draft and final EIS (see 7 CFR 
1970.154). Supplements to a draft or final EIS will be prepared if:
    (1) There are substantial changes in the proposed action that are 
relevant to environmental concerns; or
    (2) Significant new circumstances or information pertaining to the 
proposal arise which are relevant to environmental concerns and the 
proposal or its impacts.
    (b) The Agency will publish an NOI to prepare a supplement to a 
draft or final EIS.
    (c) The Agency, at its discretion, may issue an information 
supplement to a final EIS where the Agency determines that the purposes 
of NEPA are furthered by doing so even though such supplement is not 
required by 40 CFR 1502.9(c)(1). The Agency and the applicant must 
concurrently have separate notices of availability published. The notice 
requirements must be the same as for a final EIS and the information 
supplement must be circulated in the same manner as a final EIS. The 
Agency will take no final action on any proposed modification discussed 
in the information supplement until 30 days after the Agency's notice of 
availability or the applicant's notice is published, whichever occurs 
later.



Sec.1970.156  Record of Decision.

    (a) The ROD is a concise public record of the Agency's decision. The 
required information and format of the ROD will be consistent with 40 
CFR 1505.2.
    (b) Once a ROD has been executed by the Agency, the Agency will 
issue a Federal Register notice indicating its availability to the 
public.
    (c) The ROD may be signed no sooner than 30 days after the 
publication of EPA's Notice of Availability of the final EIS in the 
Federal Register.



Sec. Sec.1970.157-1970.200  [Reserved]



PART 1980_GENERAL--Table of Contents



Subparts A-D [Reserved]

             Subpart E_Business and Industrial Loan Program

Sec.
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.
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 Rural Development 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.

[[Page 230]]

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 RD ve 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 of Part 1980--Form FmHA 449-1, Application for 
          Loan and Guarantee
Appendix B to Subpart E of Part 1980--Certificate of Incumbency and 
          Signature
Appendix C to Subpart E of Part 1980--Guidelines for Loan Guarantees for 
          Alcohol Fuel Production Facilities
Appendix D to Subpart E of Part 1980--Alcohol Production Facilities 
          Planning, Performing, Development and Project Control
Appendix E to Subpart E of Part 1980--Environmental Assessment 
          Guidelines
Appendix F to Subpart E of Part 1980--Conditional Commitment for 
          Guarantee
Appendix G to Subpart E of Part 1980 [Reserved]
Appendix H to Subpart E of Part 1980--Suggested Format for the Opinion 
          of the Lender's Legal Counsel
Appendix I to Subpart E of Part 1980--Instructions for Loan Guarantees 
          for Drought and Disaster Relief
Appendix J to Subpart E of Part 1980 [Reserved]
Appendix K to Subpart E of Part 1980--Regulations for Loan Guarantees 
          for Disaster Assistance for Rural Business Enterprises
Exhibit G to Subpart E of Part 1980 [Note]

Subparts F-I [Reserved]

         Subpart K_Strategic Economic and Community Development

1980.1001 Purpose.
1980.1002 Programs.
1980.1003 Applicability of Program Regulations.
1980.1004 Funding.
1980.1005 Definitions.
1980.1006-1980.1009 [Reserved]
1980.1010 Project eligibility.
1980.1011-1980.114 [Reserved]
1980.1015 Applications.
1980.1016-1980.1019 [Reserved]
1980.1020 Scoring.
1980.1021-1980.1024 [Reserved]
1980.1025 Award process.
1980.1026 Evaluation of Project information.
1980.1027-1980.1100 [Reserved]

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

    Editorial Note: Nomenclature changes to part 1980 appear at 80 FR 
9905, Feb. 24, 2015.

Subparts A-D [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

[[Page 231]]

by section 331 of the Disaster Assistance Act of 1988 (Pub. L. 100-387) 
and section 401 of the Disaster Assistance Act of 1989 (Pub. L. 101-82). 
D&D loans must be to alleviate distress caused to rural business 
entities, directly or indirectly, by drought, hail, excessive moisture, 
or related conditions occurring in 1988, or to provide for the guarantee 
of loans to such rural business entities that refinance or restructure 
debt as a result of losses incurred, directly or indirectly, because of 
such natural disasters and are limited to a guarantee of principal only. 
DARBE loans must be to alleviate distress caused to rural business 
entities, directly or indirectly, by drought, freeze, storm, excessive 
moisture, earthquake, or related conditions occurring in 1988 or 1989, 
or to provide for the guarantee of loans to such rural business entities 
that refinance or restructure debt as a result of losses incurred, 
directly or indirectly, because of such natural disasters and within 
certain parameters guarantee both principal and interest.
    (d) The B&I loan program is administered by the Administrator 
through a State Director serving each State. The State Director is the 
focal point for the program and the local contact person for processing 
and servicing activities, although this subpart refers in various places 
to the duties and responsibilities of other Rural Development 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

[[Page 232]]

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.
    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

[[Page 233]]

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.
    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

[[Page 234]]

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 city or town that has a 
population of greater than 50,000 inhabitants; and the urbanized area 
contiguous and adjacent to such a city or town, as defined by the U.S. 
Bureau of the Census. For the purpose of this section:
    (a) The population figure is obtained from the most recent decennial 
Census of the United States (decennial Census). If the applicable 
population figure cannot be obtained from the most recent decennial 
Census, RD will determine the applicable population figure based on 
available population data; and
    (b) An urbanized area means a densely populated territory as defined 
in the most recent decennial Census or other Agency-accepted data source 
if not defined in the most recent decennial Census.

[80 FR 9905, Feb. 24, 2015]



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 Rural Development 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.

[[Page 235]]

    (11) Debt refinancing. Lenders and Rural Development 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 
Rural Development that it is necessary to create new or save existing 
jobs. Rural Development 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
    (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 FD 449-1, ``Application for Loan and Guarantee,'' 
or on an addendum to the application at the time the request is 
submitted to Rural Development 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 RD 449-1 
and are subject to Rural Development review and approval before the 
application is presented to the Rural Development State Loan Review 
Board for action. The above approved fees and charges may be funded out 
of loan proceeds.
    (13) Rural Development 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

[[Page 236]]

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 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.

[[Page 237]]

    (n) For any tourist, recreation or amusement facility.
    (o) For any line of credit.

                             Administrative

    Par (c) and (d). The 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 the Agency:
    (1) The guarantee of lease payments.
    (2) The guarantee of loans made by other Federal agencies. This does 
not preclude the guaranteeing of loans made by the Bank for 
Cooperatives, Federal Land Bank, or Production Credit Association.
    (3) The guarantee or making of any B&I loans(s), to any one 
borrower, when the total amount of the B&I loans(s) requested plus the 
outstanding balance of any existing B&I loan(s) is in excess of $10 
million.
    (b) Guaranteeing of loans involved in tax-exempt obligations under 
Sec.1980.23 of subpart A of this part.

                             Administrative

    The State Director will consider the overall State allocations of 
funding authority in 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 RD 449-1 or on an addendum to the application at 
the time the loan request is submitted to Rural Development 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 Rural Development 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 Rural Development 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 Rural Development 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 RD 1980-42. ``Notice of Substitution of 
Lender.''

[[Page 238]]



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 Rural 
Development.
    (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. 
Rural Development informs lenders and borrowers in writing on Form RD 
449-14 of any percentage of guarantee less than proposed by the lender 
and borrower, and the reasons therefore. Rural Development 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.



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 Rural Development review and approval. Should any 
part of the loan(s) be sold by the lender, Rural Development, 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 Rural Development 
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 RD 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 
RD 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 Rural 
Development

[[Page 239]]

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. Rural Development must be notified by the lender, in writing, 
within 10 calendar days of the change. If the guaranteed portion has 
been repurchased by Rural Development, then Rural Development is a 
holder and must affirm or reject interest rate change proposals. When 
Rural Development is a holder, it will concur in such interest rate 
change only when it is demonstrated to Rural Development 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 Rural Development 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 Rural 
Development, 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 RD Instruction 440.1, Exhibit B (available in any Rural 
Development 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 RD 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 Rural 
Development loan file, as well as the attachments to the copy of the 
promissory note in the file, will be documented by the State Director to 
reflect any change in the interest rate.

[52 FR 6501, Mar. 4, 1987, as amended at 54 FR 28022, July 5, 1989]



Sec.1980.424  Term of loan repayment.

    (a) Principal and interest on the loan will be due and payable as 
provided in the promissory note except, any interest accrued as the 
result of the borrower's default on the guaranteed loan(s) over and 
above that which

[[Page 240]]

would have accrued at the normal note rate on the guaranteed loan(s) 
will not be guaranteed by Rural Development. 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 Rural 
Development 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 Rural 
Development insured loan for community facilities will not exceed forty 
(40) years.
    (d) Rural Development 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 RD 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 RD 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: RD 449-14, RD 1940-3, 
``Request for Obligation of Funds--Guaranteed Loans,'' RD 449-35, and RD 
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 RD 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 RD 449-14, 1940-3, 449-35, and 1980-19 are 
required for each loan. If you have two loans, one for working capital 
and another for real estate, then a set of these forms will be required 
for each loan.
    C. Form RD 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]

[[Page 241]]



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. Sec.1980.426-1980.431  [Reserved]



Sec.1980.432  Environmental review requirements.

    [See subpart A, Sec.1980.40 and 7 CFR part 1970.] Administrative
    Loans made under this part must be in compliance with the 
environmental review requirements in accordance with 7 CFR part 1970.

[81 FR 11047, Mar. 3, 2016]



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 [RD 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 Rural Development 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:
    (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.

[[Page 242]]

    (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 Rural Development. Rural Development will thoroughly 
document the justification for the exception to the feasibility study 
for such businesses. An acceptable feasibility study should include but 
not be limited to:
    (a) Economic feasibility. Information related to the project site, 
availability of trained or trainable labor; utilities; rail, air and 
road service to the site; and the overall economic impact of the 
project.
    (b) Market feasibility. Information on the sales organization and 
management, nature and extent of market area, marketing plans for sale 
of projected output, extent of competition and commitments from 
customers or brokers.
    (c) Technical feasibility. Technical feasibility reports shall be 
prepared by individuals who have previous experience in the design and 
analysis of similar facilities and/or processes as are proposed in the 
application. The technical feasibility reports shall address the 
suitability of the selected site for the intended use, including an 
environmental impact analysis. The report shall be based upon verifiable 
data and contain sufficient information and analysis so that a 
determination may be made on the technical feasibility of achieving the 
levels of income and/or production that are projected in the financial 
statements. The report shall also identify any constraints or 
limitations in these financial projections and any other facility or 
design related factors which might affect the success of the enterprise. 
The report shall also identify and estimate project operating and 
development costs and specify the level of accuracy of these estimates 
and the assumptions on which these estimates have been based. For the 
purpose of the technical feasibility reports, the project engineer or 
architect may be considered an independent party provided the principals 
of the firm or any individual of the firm who participates in the 
technical feasibility report does not have a financial interest in the 
project, and provided further that no other individual or firm with the 
expertise necessary to make such a determination is reasonably available 
to perform the function.
    (d) Financial feasibility. An opinion on the reliability of the 
financial projections and the ability of the business to achieve the 
projected income and cash flow. An assessment of the cost accounting 
system, the availability of short-term credit for seasonal business and 
the adequacy of raw material and supplies.

[[Page 243]]

    (e) Management feasibility. Evidence that continuity and adequacy of 
management has been evaluated and documented as being satisfactory.

                             Administrative

    Rural Development 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 Rural 
Development.
    (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 Rural 
Development 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 Rural Development that the release of collateral 
will contribute to the project's success thereby furthering the goals of 
the B&I program to show why the release of collateral will contribute to 
the success of the borrower and repayment of the loan; and
    (B) Rural Development must not be adversely affected by the release 
of collateral; and
    (C) If the release of collateral does not involve a reduction of the 
Rural Development 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 
Rural Development 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 Rural Development.

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    (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 Rural Development 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. Rural 
Development 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 Rural Development 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 Rural 
Development, 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 
Rural Development.
    (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 Rural Development to be insufficient or when the 
borrower's credit does not meet the program's normal requirements or 
anytime the lender deems such security should be taken.
    (7) Guarantors of borrowers will:
    (i) In the case of personal guarantees, provide current financial 
statements (not over 60 days old at time of filing), signed by the 
guarantors, which make a clear disclosure of community or homestead 
property.
    (ii) in the case of corporate guarantees, provide current financial 
statements (not over 90 days old at time of filing), certified by an 
officer of the corporation.
    (iii) When applicable, provide written evidence to Rural Development 
of their inability to provide a guarantee because of existing 
contractual arrangements or legal restrictions.
    (c) Other requirements. (1) The lender will ascertain that no claim 
or liens of laborers, material men, contractors, subcontractors, 
suppliers of machinery and equipment or other parties are against the 
collateral of the borrower, and that no suits are pending or threatened 
that would adversely affect the collateral of the borrower when the 
security instruments are filed.
    (2) Hazard insurance with a standard mortgage clause naming the 
lender as beneficiary will be required on every loan in an amount that 
is at least the lesser of the depreciated replacement value of the 
property being insured or

[[Page 245]]

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). Rural Development'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. Rural Development 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 Rural Development 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 Rural Development for its recommendations 
before having the appraisal made.
    (c) The lender will determine that the fees or charges of appraisers 
are reasonable.
    (d) Independent appraisals will be made in accordance with the 
accepted format of the industry and those prepared by the lender in 
accordance with its policy and procedures. All appraisals will become 
part of the application. (See Sec.1980.541(i)(6) of this subpart.)
    (e) If a subsequent loan request is made within 3 years from the 
date of the most recent borrower's appraisal report, and there is no 
significant change in collateral, then the Rural Development 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

[[Page 246]]

audit must be performed in accordance with generally accepted accounting 
principles (GAAP) and any other 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 2 CFR part 200, subpart F, as codified by 2 CFR 400.1, 
must provide an audit 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 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 required by this paragraph will be considered adequate to 
meet the requirements of this section for that year.



Sec. Sec.1980.446-1980.450  [Reserved]



Sec.1980.451  Filing and processing applications.

    (a) Borrowers' and lenders' contact. Borrowers and lenders desiring 
Rural Developmentassistance 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 Rural Development 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 RD Instruction 2000-Q available in any Rural 
Development office for Memorandum of Understanding between Rural 
Development 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 Rural Development at the time of receipt 
of the preapplication of the availability of such assistance and will be 
encouraged to apply to that agency. (See RD Instruction 2000-P available 
in

[[Page 247]]

any Rural Development office for Memorandum of Understanding between SBA 
and Rural Development).
    (d) Loan Priorities. Applications and preapplications received by 
Rural Development will be considered in the order received; however, for 
the purpose of assigning priorities as described in paragraph (d)(3) of 
this section, Rural Development will compare an application to other 
pending applications.
    (1) Rural Development 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 Rural Development 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 Rural Development assistance. The application and 
supporting information submitted with it will be used to determine an 
eligible proposed project's priority for available funds or guarantee 
authority. The priorities described in this paragraph will be used by 
Rural Development 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

[[Page 248]]

the score for the highest-ranked category in which the project fits. 
First, divide the amount of the Rural Development guaranteed loan by the 
number of jobs created or saved. This will result in the cost per job. 
Count only full-time jobs. Part-time jobs may be reduced to a fraction 
of a full-time job and counted. For example, a 20-hour-per-week job, or 
a job that is full-time for six months per year, is one-half of a job. 
Second, determine the State's nonmetropolitan household income as 
described in Sec.1980.451(d)(3)(vi). Third, divide the cost per job by 
the State's nonmetropolitan household income. For example, if the cost 
per job is $10,000 and the State's nonmetropolitan household income is 
$20,000, the result will be 0.5. The categories, and their point scores 
are:
    (A) Loans on which the result is greater than 1.5 but less than 2.0 
(5 points).
    (B) Loans on which the result is from 1.0 to 1.5 (15 points).
    (C) Loans on which the result is less than 1.0 (25 points).
    If the result exceeds 2.0, a high cost per job in that State, no 
points are received for job cost.
    (iv) Additional Points. There shall be added to the score the points 
indicated for any and all of the following criteria met by the project.
    (A) FmHA or its successor agency under Public Law 103-354 guaranteed 
loan is less than 50 percent of project cost (5 points).
    (B) Percentage of guarantee is 10 or more percentage points less 
than the maximum allowable for a loan of its size (5 points).
    (C) Project will, in addition to any permanent full-time jobs, 
create a significant number of part-time or seasonal jobs that will 
provide additional income to underemployed residents of the project area 
without their having to give up any present part-time or seasonal jobs 
(10 points).
    (v) Administrative Points. The State Director may assign up to 20 
points to an application in addition to those points scored under Sec.
1980.451(d)(3) (i) through (iv). These administrative points are 
intended to be assigned by a State Director only in cases of unforeseen 
exigencies, emergencies, benefits to other FmHA or its successor agency 
under Public Law 103-354-assisted projects (including the limiting of 
financial risks affecting FmHA or its successor agency under Public Law 
103-354 loans and loan guarantees) or the loss of financing if Rural 
Development 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, Rural Development 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, Rural Development.

[[Page 249]]

    (e) Filing preapplications and applications. Borrowers or lenders 
may file preapplications described in paragraph (f) of this section if 
they desire an expression of Rural Development 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 RD 449-22, ``Certification of Non-Relocation and Market and 
Capacity Information Report.''
    (3) Form RD 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 Rural Development. Forms RD 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 Rural Development'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 RD.
    (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 2 CFR part 415, subpart C, ``Intergovernmental Review of 
Department of Agriculture Programs and Activities.''
    (g) Preliminary determination by Rural Development. If preparation 
information indicates the project will not meet Rural Development'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, Rural Development 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, Rural Development will inform the lender and borrower in 
writing and request that they complete the application.
    (h) Department of Labor certifications. Rural Development will 
submit Form RD 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 RD 449-1.
    (2) Form RD 449-2.

[[Page 250]]

    (3) Environmental review documentation as required in accordance 
with 7 CFR part 1970.
    (4) Architectural or engineering plans, if applicable.
    (5) Cost estimates and forecasts of contingency funds to cover 
inflation or project changes.
    (6) Appraisal reports.
    (7) For existing businesses a pro forma balance sheet at startup and 
for at least three additional projected years, indicating the necessary 
startup capital, operating capital and short-term credit based on 
financial statements for the last three years, or more (if available); 
and projected cash flow and earnings statements for at least three years 
supported by a list of assumptions showing the basis for the 
projections. The business should submit a current balance sheet with a 
debt schedule of any debts to be refinanced and an income statement to 
Rural Development, 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 Rural Development 
on the borrower, its principals and parent, affiliate and subsidiary 
firms.
    (10) Form RD 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 RD 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 RD 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 Rural Development.
    (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 Rural Development 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 Rural Development.
    (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.

[[Page 251]]

    (i) If the borrower is acting in a personal capacity and not as an 
entrepreneur for such entities as proprietorships, partnerships, or 
corporations, and Rural Development solicits personal information for 
him/her, the individual will be provided Form RD 410-9, ``Statement 
Required by the Privacy Act.''
    (ii) If Rural Development desires to obtain information concerning 
an individual from any source, Rural Development will provide such 
source with Form RD 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 Rural 
Development 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. Rural Development 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 Rural 
Development 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 RD 
410-9. The individual will sign both copies, retaining one and providing 
Rural Development with the other copy which becomes a part of the loan 
file.
    4. Will provide any source whom Rural Development obtains 
information concerning an individual with two copies of Form Rural 
Development 410-10. The source will sign both copies, retain one and 
provide Rural Development 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 RD 
2033-34, ``Management System Card--Business and Industry,'' in 
accordance with RD Instruction 2033-F.
    6. Will forward immediately to the National Office on all projects.
    (a) Form RD 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 RD 449-22 for such borrower. The lessor(s) will 
also be required to provide Form RD 449-22. Subsequent loan requests 
require resubmission of Form RD 449-22.
    (c) A local, national or regional credit report and Form RD 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 RD 449-22 and RD 449-4 should only be processed if a 
complete preapplication or application has been received.

    B. Miscellaneous Administrative provisions:
    1. Par (f). Preapplications are not to be accepted or processed 
unless a lender has agreed in writing to finance the proposal. The 
preapplication letter is a joint letter prepared by the borrower and 
lender.

[[Page 252]]

    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 RD 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 RD 449-14.
    (d) Copy of Rural Development 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 RD Instruction 2033-A (available in any Rural 
Development 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 Rural Development 
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 Rural 
Development's actions on the cases. Particular attention must be given 
to this requirement on cases that become delinquent or problems in order 
that Rural Development position will be defensible in the event of an 
adverse action.
    6. Par (i), (13), Audit agreements and requirements. Rural 
Development urges the use of a written agreement between the lender and 
borrower to assure that there is no misunderstanding concerning Rural 
Development 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.
RD 400-1...................  Equal Opportunity Agreement               6
RD 400-3...................  Notice to Contractors and                 6
                              Applicants.
RD 400-4...................  Assurance Agreement........               3
RD 400-6...................  Compliance Statement.......               6
RD 410-8...................  Applicant Reference Letter.               3
RD 410-9...................  Statement Required by the                 3
                              Privacy Act.
RD 410-10..................  Privacy Act Statement to                  3
                              References.
RD 424-12..................  Inspection Report..........               6
RD 1940-3..................  Request for Obligation of                 2
                              Funds--Guaranteed Loans;
                              Filing Position 2.
RD 1970-1..................  Environmental Checklist for               3
                              Categorical Exclusions.
                             Environmental Reports......               3
                             Environmental Assessments..               3
                             Environmental Impact                      3
                              Statements.
RD 440-57..................  Acknowledgement of                        2
                              Obligated Funds/Check
                              Request.
RD 449-1...................  Application for Loan and                  3
                              Guarantee.
RD 449-2...................  Statement of Collateral....               5
RD 449-4...................  Statement of Personal                     3
                              History.
                             Loan Closing Opinion of      ..............
                              Lender's Legal Counsel.
------------------------------------------------------------------------


[[Page 253]]


[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; 76 FR 80731, Dec. 27, 2011; 79 FR 
76012, Dec. 19, 2014; 80 FR 9906, Feb. 24, 2015; 81 FR 11047, Mar. 2, 
2016; 81 FR 26667, May 4, 2016]



Sec.1980.452  Rural Development evaluation of application.

    Rural Development 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 Rural 
Development 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 Rural Development is able to guarantee 
the loan, it will provide the lender and the borrower with Form RD 449-
14, listing all requirements for such guarantees. Rural Development 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 RD 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. Rural Development State Directors are the 
only persons authorized to execute Form RD 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.
    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 Rural Development State Loan 
Review Board before execution of Form RD 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 Rural Development 
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-Rural Development 
sources for expertise, such as banker or other lenders, industrial 
development specialists from state commissions, academicians, certified 
public

[[Page 254]]

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 RD Instruction 2036-
A which is available in any Rural Development Office).
    3. The Rural Housing Loan Chief will be a member of the Rural 
Development 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 Rural Development programs, the review 
board will determine whether the making of such loan or guarantee is 
likely to result in embarrassment for Rural Development 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 Rural Development 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 RD 1940-3 for each loan to be obligated. Also, for each initial 
loan, Form RD 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 RD 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 RD 1940-3 and Form RD 449-14 six working days from the date funds 
are reserved, unless an exception is granted by the National Office. The 
State Director or designee will record the actual date of lender 
notification on the original of the RD 1940-3 and retain the original of 
the form as a permanent part of the Rural Development case file. The 
State Director may retain the remaining conformed copy of Form RD 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 RD 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 RD 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 RD 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 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 RD 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 RD 440-57. 
Immediately after notification by telephone of the reservation of 
authority, the State Director

[[Page 255]]

will call the Legislative Affairs and Public Information staff in the 
National Office as required by RD Instruction 2015-C (available in any 
Rural Development office).
    e. See RD Instruction 2015-C (available in any Rural Development 
office) for notification procedures.
    7. State Director notifies the lender and borrower if he/she will 
not issue the Form RD 449-14.

[52 FR 6501, Mar. 4, 1987, as amended at 53 FR 45258, Nov. 9, 1988; 56 
FR 8271, Feb. 28, 1991; 79 FR 55967, Sep. 18, 2014]



Sec.1980.453  Review of requirements.

    (a) Immediately after reviewing the conditions and requirements in 
Form RD 449-14 the lender and applicant should complete and sign the 
``Acceptance of Conditions,'' and return a copy to the Rural Development 
State Director. If certain conditions cannot be met, the lender and 
borrower may propose alternate conditions to Rural Development.
    (b) If the lender indicates in the ``Acceptance of Conditions'' that 
it desires to obtain a Loan Note Guarantee and subsequently decides at 
any time after receiving a conditional commitment that it no longer 
wants a Loan Note Guarantee, the lender will immediately advise the 
Rural Development 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 RD 
449-14. For loans requiring National Office concurrence, a copy of Form 
RD 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 RD 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 
RD 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 Rural 
Development 449-14 has been accepted:
    1. A copy of Form RD 449-29.
    2. A copy of Form RD 449-14 is accepted by the lender and borrower.
    2. A copy of Rural Development 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 RD 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 RD 
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 Rural Development 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 RD 449-14 and the loan 
agreement remains the same. To effect such a substitution, the former 
lender will provide Rural Development 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 RD 449-1. 
If approved by Rural

[[Page 256]]

Development, the State Director will issue a letter or amendment to the 
original Form RD 449-14 reflecting the new lender and the new lender 
will acknowledge acceptance of the letter or amendment in writing.
    (b) Substitution of borrowers. Rural Development will not issue a 
Loan Note Guarantee to the lender who is in receipt of a Form RD 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 RD 449-1, item 15. All requests for exceptions must be 
approved by the Rural Development National Office.
    (c) Changes in terms and conditions in Form RD 449-14. It is the 
intent of Rural Development that once the Form RD 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 RD 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 Rural Development and provide those 
documents and certifications required in Sec. Sec.1980.60 and 1980.61 
of subpart A of this part. Only when the Rural Development 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 Rural Development.
    (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 RD 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 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

[[Page 257]]

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 Rural Development 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 RD 1980-42, Do not deobligate and reobligate the loan if the Form 
RD 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 RD 449-14. The 
State Director will review any request for changes to Form RD 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 Rural Development.

    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 
Rural Development (RD) of any violations in the Lender's Loan Agreement. 
(See Paragraph X of Form Rural DevelopmentRD 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 distinct 
possibility that the lender and Rural Development 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.

[[Page 258]]

    (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 Rural Development. These classifications are:
    (1) Special Mention Classification. Those loans which do not 
presently expose the lender and Rural Development 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 RD Instruction 1980-E, Appendix G, Liquidation and Property 
Management Guide (available in any RD 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 Rural Development 
acquires knowledge of the foregoing. As used herein, the phrase ``use of 
loan funds for unauthorized purposes'' refers to the situation in which 
the lender in fact agrees with the borrower that loan funds are to be so 
used and the phrase ``unauthorized purposes'' means any purpose not 
listed by the Lender in the completed application as approved by Rural 
Development.
    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 Rural 
Development acquires knowledge of the negligent servicing

[[Page 259]]

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 Rural 
Development will consider whether negligent acts of the lender caused a 
loss after the liquidation is complete; and (d) at the time Rural 
Development 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 RD Instruction 2012-B (available 
in any Rural Development 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, Rural Development 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 Rural Development 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 Rural 
Development 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 Rural Development--
and then the lender presented a loss claim to Rural Development 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 Rural Development 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 Rural 
Development can answer these questions before referral to OGC--either on 
its own or by using OIG--than OGC can refer the matter that much more 
quickly to the Justice Department.
    6. There is also a way to bring suit for civil fraud by alleging 
that ``common law'' fraud occurred. This would just involve proving that 
a borrower or a lender falsely represented by their words or actions, a 
matter of fact either by alleging something in a false or misleading 
manner or by concealing something that should have been disclosed; and 
that Rural Development 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

[[Page 260]]

``common law,'' it will return the matter to OGC. Depending on what 
stage the proceedings were in when the matter was first referred, Rural 
Development 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 
Rural Development 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 RD 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 Rural Development 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 RD 449-39 may be used for this purpose. Servicing 
exceptions on the part of the lender which are noted by Rural 
Development will be confirmed by letter to the lender.
    5. The lender performs an adequate analysis of borrower financial 
statements for Rural Development. Rural Development 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 Rural 
Development'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 Rural 
Development to resolve any problems of late payment, etc.
    D. State Director authorities. 1. The State Director may delegate 
authority for the conduct of all functions listed in Sec.1980.469 
Administrative B., except item C. 4. in Administrative B.
    2. The State Director may approve B&I guaranteed loan servicing 
actions as authorized in separate written approval authorities issued in 
accordance with Subpart A of Part 1901 of this chapter.
    3. Servicing actions on loans which exceed the State Director's loan 
approval authority are to be referred together with the State Director's 
recommendations to the Director, Business and Industry Division, for 
prior review and concurrence.

[52 FR 6501, Mar. 4, 1987, as amended at 53 FR 40403, Oct. 17, 1988; 60 
FR 26350, May 17, 1995; 61 FR 18495, Apr. 26, 1996]



Sec.1980.470  Defaults by borrower.

    [See Sec.1980.63 of subpart A, of this part.]

                             Administrative

    Refer to Appendix G of FmHA or its successor agency under Public Law 
103-354 Instruction 1980-E (available in any FmHA or its successor 
agency under Public Law 103-354 Office) for advice on how to interact 
with the lender on liquidations and property management.
    A. In case of any monetary or significant non-monetary default under 
the loan agreement, the lender is responsible for arranging a meeting 
with the State Director, or its designee, and borrower to resolve the 
problem. A memorandum of the meeting, individuals who attend, a summary 
of the problem and

[[Page 261]]

proposed solution will be prepared by the Rural Development 
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 Rural Development.
    B. In considering servicing options, some of which are identified in 
paragraph X. A of Form RD 449-35, the prospects for providing a 
permanent cure without adversely affecting the risks of the Rural 
Development 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 Rural Development. 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 Rural Development 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 Rural Development endorse the 
original Form RD 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 Rural Development 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.

[52 FR 6501, Mar. 4, 1987, as amended as 80 FR 9908, Feb. 24, 2015; 80 
FR 9908, Feb. 24, 2015]

    Editorial Note: At 80 FR 9908, Feb. 24, 2015, Sec.1980.470 was 
amended by removing ``Refer to appendix G of this subpart (available in 
any FmHA or its successor agency under Public Law 103-354 Office)'' from 
the introductory text and adding ``Refer to RD Instruction 1980-E, 
Appendix G, Liquidation and Property Management Guide (available in any 
Rural Development office)'' in its place; however the amendment could 
not be incorporated because the phrase to be replaced could not be 
found.



Sec.1980.471  Liquidation.

    (See Sec.1980.64 of subpart A of this part.)
    Refer to RD Instruction 1980-E, Appendix G, Liquidation and Property 
Management Guide (available in any Rural Development 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 Rural Development on 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 Rural Development.

                             Administrative

    A. The State Director determines which Rural Development personnel 
will attend meetings with the lender.

[[Page 262]]

    B. Introduction to Paragraph XI and Paragraph XI B of the Lender's 
Agreement. Rural Development 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 Rural Development and the lender on the best means of 
liquidation will Rural Development consider conducting the liquidation. 
The State Director has no authority to exercise the option to liquidate 
without National Office approval. When Rural Development 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 RD 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 Rural Development 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 RD 103-354 449-30, ``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 RD 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 Rural Development to assure 
that all collateral for the loan has been properly accounted for and 
liquidation expenses are reasonable and within approved limits. State 
Directors are responsible to see that such reviews are accomplished by 
the State within 30 days and final loss claims in excess of the State 
Director's approval authority are forwarded to be accepted or otherwise 
resolved by the Director, Business and Industry Division within the 60-
day period. Any estimated loss payments made to the lender must be taken 
into consideration when paying a final loss on the Rural Development 
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 RD Instruction 1980-E, Appendix G, Liquidation and Property 
Management Guide (available in any Rural Development

[[Page 263]]

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 RD 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 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) Rural Development 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 Rural Development's opinion, Rural 
Development 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 RD 449-35.

                             Administrative

    Refer to appendix G of this subpart (available in any Rural 
Development 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 
Rural Development is being fully informed by the lender in all 
bankruptcy cases.

[[Page 264]]

    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 Rural Development of the 
completion of the Chapter 11 reorganization plan; however, the Rural 
Development 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 Rural Development servicing office immediately. The Rural 
Development servicing office will then obtain advice from OGC on what 
actions Rural Development 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 subject to being used by the trustee in 
bankruptcy should immediately seek adequate protection of the 
collateral, including petitioning for a super priority.



Sec.1980.476  Transfer and assumptions.

    (a) All transfers and assumptions will be approved in writing by 
Rural Development. 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 Rural Development Form RD 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 
Rural Development 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) Rural Development must determine that the transferor and any 
guarantors have no reasonable debt-paying ability considering their 
assets and income at the time of transfer.

[[Page 265]]

    (2) The Rural Development 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 Rural Development approves the case 
downpayment be released to the transferor. The lender and Rural 
Development 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 Rural Development 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 Rural Development 
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 Rural Development that the 
transaction can be properly transferred and the conveyance instruments 
will be filed, registered, or recorded as appropriate and legally 
permissible.
    (j) Rural Development 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 Rural Development case 
number of the transferor and transferee.
    (m) Loan terms cannot be changed by the Assumption agreement unless 
previously approved in writing by Rural Development, 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 Rural Development a copy of the transfer and assumption 
agreement. Notice must be

[[Page 266]]

given by the lender to Rural Development 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 RD 449-30 to recover its pro rata share of 
the actual loss at that time. In completing Form RD 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 Rural 
Development 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 Rural 
Development file. The State Director will notify the Finance Office of 
all approved transfer and assumption cases on Form RD 1980-7, ``Notice 
of Transfer and Assumption of a Guaranteed Loan,'' and submit Form RD 
1980-50 for all new borrowers and Form RD 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 Rural Development 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 Rural Development 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

[[Page 267]]

Note Guarantee, the lender will furnish Rural Development 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 Rural Development 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 Rural Development of the 
taxability of the proposed bond issue.



Sec.1980.489  [Reserved]



Sec.1980.490  Business and industry buydown loans.

    (a) Introduction. This section contains regulations for the Business 
and Industry Buydown (BIB) loan program. The purpose of this program is 
to provide loan guarantees with reduced interest rates to the borrowers, 
under the authority of Public Law 103-50 (107 Stat. 241). All provisions 
of Subparts A and E of this part apply to BIB loans except as provided 
in this section. All forms used in connection with a BIB loan will be 
those used with other B&I loans, except as provided in this section.
    (b) Location of applicants. Businesses eligible for BIB loans shall 
be located within the area covered by the Presidential disaster 
declaration related to Hurricanes Andrew or Iniki or Typhoon Omar.
    (c) Interest rate. (1) If the interest rate charged by the lender 
(note rate) on a BIB loan is a variable rate in accordance with Sec.
1980.423 of this subpart, the base rate must be the prime rate as 
published in the Wall Street Journal and the note rate must not exceed 
the prime rate as published in the Wall Street Journal by more than 100 
basis points. If the note rate is fixed, it must not exceed by more than 
100 basis points the prime rate as published in the Wall Street Journal 
on the day the Loan Note Guarantee is issued.
    (2) The note rate for a BIB loan must be the same for the entire 
loan, including both the guaranteed and unguaranteed portion.
    (d) Interest rate buydown. (1) To be eligible for a BIB loan, the 
business must provide evidence and the lender and Rural Development 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, Rural Development 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 Rural Development regulations.
    (3) Interest payments by Rural Development 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 Rural Development 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. Rural Development will promptly review the 
material submitted, determine whether the continued interest payments by 
Rural Development 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 Rural Development are terminated because the 
borrower's cash flow is determined to be sufficient to pay the note 
rate, such

[[Page 268]]

payments will not be made in subsequent years even if the cash flow 
decreases.
    (4) This section does not authorize interest payments by Rural 
Development on B&I loans other than those approved under this section. 
To be eligible for interest payments by Rural Development, 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 RD 449-1 or by letter submitted with the Form RD 449-1.
    (2) Rural Development will identify a loan as a BIB loan by notation 
in the top margin of Form RD 449-29 and by the ``type of assistance'' 
code listed on Form RD 1940-3, in accordance with the Forms Manual 
Insert.
    (3) Rural Development 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 Rural 
Development will execute Form RD 1980-48, ``Business and Industry 
Interest Rate Buydown Agreement.''
    (4) The lender will request the interest payment from Rural 
Development by submitting Form RD 1980-23, ``Request for Business and 
Industry Interest Buydown Payment,'' to the Rural Development 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 Rural 
Development servicing office will review each request for consistency 
with Rural Development regulations and the Form RD 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 Rural Development 
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 RD 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

[[Page 269]]

will not apply to BIB loans. Loans, including working capital or debt 
refinancing, may be guaranteed for businesses engaged in meat or poultry 
processing.
    (i) Small Business Administration. Section 1980.451 (c) of this 
subpart will not apply to BIB loans. Applicants eligible for Small 
Business Administration assistance will be advised of the availability 
of that assistance.
    (j) Loan guarantee limits. Notwithstanding the provisions of Sec.
1980.420 of this subpart, the guarantee percentage on any BIB loan will 
not exceed 80 percent.
    (k) Credit quality analysis. In analyzing the credit quality of a 
proposed loan to a business that has lost assets to a natural disaster, 
primary emphasis will be placed on the operating history of the 
business, rather than its current financial condition. If the business 
has a sound, profitable and successful history prior to the disaster and 
there are reasonable projections to ensure it can operate successfully 
in the future, the proposed loan may be approved even if disaster losses 
have caused somewhat less equity and/or collateral than would normally 
be expected for a B&I loan guarantee. If the business appears to have 
had an unprofitable operation or inadequate cash flow prior to the 
disaster, the proposed loan guarantee will not be approved.
    (l) Equity requirements. The equity requirements of Sec.1980.441 
of this subpart do not apply to BIB loans.
    (m) Collateral. Section 1980.443 Administrative A. 2., 3., and 4. of 
this subpart will not apply to BIB loans. Collateral may be considered 
at its current market value without discount. Work-in-process inventory 
may be valued at the estimated market value of the finished product. All 
costs of producing the finished product must be included in the cash 
flow analysis.
    (n) Conditional approval. A Form RD 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 RD 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 RD 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

[[Page 270]]

part referenced in this section are applicable subject to the 
limitations outlined in this section. Several key loan processing and 
loan servicing requirements stipulated in subpart B of this part do not 
apply to loans made to borrowers under this section.
    (2) Type of guarantee. BIB loans will be processed under the Loan 
Note Guarantee option of Sec.1980.101 (e)(1) of subpart B of this part 
Only. No loan will be processed for a Contract of Guarantee (Line of 
Credit) under Sec.1980.101 (e)(2) of subpart B of this part.
    (3) Farm size. Loan guarantees may be made under the BIB program 
without regard to the size of the farming operation.
    (4) Filing and processing preapplications and applications. If the 
applicant has already developed material for an Rural Development 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 RD 1980-25, ``Farmer 
Programs Application,'' or Form RD 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 requirements found 
in 7 CFR part 1970 will apply to loans made

[[Page 271]]

to enterprises engaged in agricultural production.

[52 FR 6501, Mar. 4, 1987, as amended at 81 FR 11048, Mar. 2, 2016]



Sec. Sec.1980.491-1980.494  [Reserved]



Sec.1980.495  RD forms and guides.

    The following RD 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 RD 449-1. ``Application for Loan and Guarantee'' is 
referred to as ``Appendix A,'' or successor form,
    (b) The ``Certificate of Incumbency and Signature'' or successor 
form,
    (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 RD 449-14, ``Conditional Commitment for Guarantee, '' or 
successor form.
    (g) ``Liquidation and Property Management Guide'' as found in RD 
Instruction 1980-E 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 RD 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, or their successor 
forms.
    (j) [Reserved]
    (k) ``Regulations for Loan Guarantees for Disaster Assistance for 
Rural Business Enterprises'' and Forms RD 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'' or their successor forms.

[80 FR 9910, Feb. 24, 2015]



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 RD Instruction 1980-E, Appendix G, Liquidation and Property 
Management Guide (available in any Rural Development 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 Rural 
Development 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 Rural Development 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. Rural Development 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.

[[Page 272]]

    (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 Rural Development'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 Rural 
Development'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 Rural 
Development 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 Rural Development National Office authorizing loan 
guarantee containing conditions (if applicable);
    (2) Form RD 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 RD 449-35.
    (8) Proposed Form RD 449-34.
    (9) Proposed Form RD 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 Rural Development on whether it may issue the LOAN 
NOTE GUARANTEE AFTER THE LOAN IS CLOSED. SUCH ADVICE IS FOR THE benefit 
of RURAL DEVELOPMENT ONLY AND DOES NOT RELIEVE THE LENDER OF ITS 
RESPONSIBILITIES UNDER RURAL DEVELOPMENT 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

[[Page 273]]

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.
    (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.

[[Page 274]]

    (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 RD 449-14, ``Conditional Commitment 
for Guarantee,'' may be issued prior to receipt of specific items needed 
to complete an application package provided:
    (1) The lender and/or borrower demonstrates to the Government's 
satisfaction that it has a need for a prompt indication of the 
availability of the proposed loan guarantee and the conditions under 
which a guarantee are available;
    (2) The specific items missing from the application package will 
take considerable time to obtain;
    (3) The lender requests a commitment prior to providing the items;
    (4) The attachment to Form RD 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 RD 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

[[Page 275]]

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 Rural Development Farmer 
Programs loan or if the financial and production information required by 
Sec.1980.113 of subpart B of part 1980 of this chapter is needed to 
document repayment ability or is required by the lender, Sec.1980.113 
of subpart B of part 1980 of this chapter may apply with the following 
exceptions:
    (i) Lines of credit will not be guaranteed.
    (ii) Timeframes for applicant/lender notification in Sec.1980.113 
of subpart B of part 1980 of this chapter do not apply.
    (iii) If the application is submitted solely for a farm as defined 
in Sec.1980.106(b) of subpart B of part 1980 of this chapter, Form 
RDal Development 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

[[Page 276]]

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 requirements found 
in 7 CFR part 1970 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; 81 FR 11048, Mar. 2, 2016]



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 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]



        Sec. Appendixes A-B to Subpart E of Part 1980 [Reserved]



     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.)

[[Page 277]]

    (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 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 Rural Development (``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 Rural Development, 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,

[[Page 278]]

conversion efficiency, rate of production and fuel consumption and 
product quality under normal operating conditions. The design parameters 
will be mutually agreed upon by the borrower, lender, the State Director 
and the project engineer, and may not be modified without the written 
concurrence of each of these parties. These agreements for engineering 
or design/build services will require, or the borrower will otherwise 
obtain, assurance satisfactory to the State Director that:
    (a) The project engineer will maintain adequate insurance to protect 
the borrower, lender and the Government from incurring expenses 
resulting from errors and omissions of the engineer in performance of 
engineering services.
    (b) The project engineer will certify that only proven equipment and 
processes will be utilized in the proposed development. The State 
Director may request evidence of successful operations of such proven 
equipment and process. If proven equipment or processes are not used in 
the project, the project engineer will identify these items and provide 
the information necessary for acceptance by the Administrator, borrower 
and lender in accordance with paragraph (I)(B)(2) of this appendix.
    (c) If used equipment or existing facilities are incorporated into 
the project, they must be inspected by the project engineer or by 
another qualified engineer of the borrower. This engineer will prepare a 
report describing the proposed facilities or equipment and will comment 
on their suitability for use in the project. The report will also 
identify the modifications necessary for successful integration into the 
project. A cost estimate will also be included comparing new equipment 
and facilities to the proposed existing facilities or used equipment. 
Consideration must 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 
Rural Development.
    (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

[[Page 279]]

will prepare a report identifying the corrective actions including an 
estimate of costs and additional time necessary to meet established 
performance criteria.
    (4) The project must be certified to be substantially complete by an 
independent engineer if any portion of the project has been designed or 
constructed by the borrower or the project engineer has participated in 
any portion of the construction.
    (B) Modification of plans and specifications will not be made 
without the written authorization of the project engineer.
    (C) The Administrator, State Director or their representative's 
acceptance or concurrence in feasibility studies, preliminary 
engineering reports, plans, specifications, contract documents and 
payment estimates will not be construed as a representation of the 
adequacy of same, reliability of cost estimates or quality of 
construction, nor will such acceptance or concurrence be deemed a waiver 
of any of the Government's rights or remedies against any person or 
party. Reviews and construction inspections by the Administrator, State 
Director or their representatives are solely for the benefit of the 
Government and do not relieve the lender or borrower of their obligation 
to conduct project reviews and inspections.
    (III) Project Construction.
    (A) Borrower will not award contracts for the construction of any 
project facilities unless and until:
    (1) The borrower obtains applicable construction permits, right-of-
ways, licenses and approvals of Federal, State and local authorities for 
the construction of such facilities.
    (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 Rural Development 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 Rural 
Development.
    (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 Rural Development.
    (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 Rural Development.

[[Page 280]]

    (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 
Rural Development. 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 Rural Development to mitigate adverse historical 
and environmental impacts.
    (2) Applicable engineering, design/build, construction management, 
inspection and plant start-up service agreements have been obtained and 
accepted by the State Director and lender.
    (3) The project engineer has prepared a detailed cost estimate and 
construction schedule for all facilities related to the project. This 
estimate must indicate that the project can be completed with the funds 
available as shown on the Form RD 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 engineer 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.

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    The environmental reviewer should consult with appropriate experts 
from Federal, State and local agencies, universities and other 
organizations or groups whose views could be helpful in the assessment 
of potential impacts. In so doing, each discussion which is utilized in 
reaching a conclusion with respect to the degree of an impact should be 
summarized in the assessment as accurately as possible and include name, 
title, phone number, and organization of the individual contacted, plus 
the date of contact. Related correspondence should be attached to the 
assessment.
    The Farmers Home Administration or its successor agency under Public 
Law 103-354 assessment should be prepared in the following format; it 
should address the listed items and questions and contain as attachments 
the indicated descriptive materials, as well as the environmental 
information submitted by the applicant.
    These assessment guidelines have been designed to cover the wide 
variety of impacts which may be encountered. Consequently, not every 
issue or potential impact raised in these guildlines may be relevant to 
each project. The purpose of the format is to give the preparer an 
understanding of a standard range of impacts, environmental factors and 
issues which may be encountered. In preparing an assessment, each topic 
heading identified by a roman numeral and each environmental factor 
listed under topic heading IV, 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, Rural Development'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 Rural Development action. Such undertakings are considered 
interdependent parts whenever they either make possible or support the 
Rural Development action or are themselves induced or supported by the 
Rural Development 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

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of compliance with air quality standards within that region. Cite any 
contacts with appropriate experts and agencies which must issue 
necessary permits.
    (2) Water Quality--Discuss, in terms of amounts and types of 
effluents all aspects of the project, including primary beneficiaries' 
operations and known indirect effects which will affect water quality. 
Indicate the existing water quality of surface and/or underground water 
to be affected. Evaluate the impacts of the project on this existing 
water quality. Indicate if an aquifer recharge area is to be adversely 
affected. If the project lies within or will affect a sole source 
aquifer recharge area as designated by the Environmental Protection 
Agency (EPA), contact the appropriate EPA regional office to determine 
if its review is necessary. If it is, attach the results of its review.
    Indicate the source and available supply of raw water and the extent 
to which the additional demand will affect the raw water supply. 
Describe the wastewater treatment system(s) to be used and indicate 
their capacity and their adequacy in terms of the degree of treatment 
provided. Discuss the characteristics and uses of the receiving waters 
for any 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 Rural Development 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

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users of the project area and surrounding areas. Cite contacts with 
appropriate experts.
    (8) Construction--Indicate the potential effects of construction of 
the project on air quality, water quality noise levels, solid waste 
disposal, soil erosion and siltation. Describe the measures that will be 
employed to limit adverse effects. Give particular consideration to 
erosion, stream siltation, and clearing operations.
    (9) Energy Impacts--Indicate the project's and its primary 
beneficiaries' effects on the area's existing energy supplies. This 
discussion should address not only the direct energy utilization, but 
any major indirect utilization resulting from the siting of the project. 
Describe the availability of these supplies to the project site. Discuss 
whether the project will utilize a large share of the remaining capacity 
of an energy supply or will create a shortage of such supply. Discuss 
any steps to be taken to conserve energy.
    (10) Discuss any of the following areas which may be relevant: 
noise, vibrations, safety, seismic conditions, fire prone locations, 
radiation, and aesthetic considerations. Cite any discussions with 
appropriate experts.
    (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

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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 Rural Development to 
include a summary of the results and any objections raised. Indicate any 
other examples of the community's awareness of the project, such as 
newspaper articles or public notifications.
    (XIV) Cumulative impacts. Summarize the cumulative impacts of this 
project and the related activities. Give particular attention to land 
use changes and air and water quality impacts. Summarize the results of 
the environmental impact analysis done for any of these related 
activities and/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 Rural Development 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. Appendixes F-G to Subpart E of Part 1980 [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.
    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

[[Page 285]]

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 Agreement 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 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

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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:
    (1) Form FmHA or its successor agency under Public Law 103-354 1980-
68, ``Lender's Agreement--Drought and Disaster Guaranteed Loans,'' or 
successor form 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,'' or 
successor form 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,'' or successor form 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, Rural Development 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 Rural Developmenton or before September 30, 1991.
    E. Borrower equity requirements. See Sec.1980.441. In lieu of the 
borrower equity requirements in Sec.1980.441, paragraphs (a) and (b), 
the following applies to D&D loans. Tangibles balance sheet equity must 
be positive when the Loan Note Guarantee is issued. Equity must be such 
that, when considered with other credit factors, repayment of the loan 
and the continued success of the business operation are reasonably 
assured. Requirements of Sec.1980.441(c) apply to D&D guaranteed 
loans.
    F. Filing and processing preapplications and applications. See Sec.
1980.451. All requirements of Sec.1980.451 remain in effect. But, in 
addition to the information required as part of a preapplication under 
Sec.1980.451(f), and unless previously submitted, as a part of an 
application under Sec.1980.451(i) evidence is required which 
demonstrates:
    (1) The causal relationship between a 1988 natural disaster and the 
financial distress or loss upon which the preapplication or application 
is based; and,
    (2) That the amount of the loan requested is not greater than the 
amount necessary for curing the problems caused by the natural disaster. 
Financial distress or loss shall be determined on the basis of a 
comparison of financial data for comparable periods of time and need not 
necessarily be based on data at the year's end. Evidence submitted may 
include, but is not limited to, the following:
    (a) Evidence of financial loss or distress (including loss or 
distress caused by business interruption) resulting from physical damage 
caused by natural disaster, or
    (b) Evidence that the financial loss and/or distress of the business 
is the direct or indirect result of loss of sales, business 
interruption, loss of markets, shortage of raw materials, or decline in 
patronage or customers caused by a natural disaster. It must be

[[Page 287]]

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 Rural Development guaranteed loans. Rural Development has 
no authority to make D&D loans directly to borrowers.

[54 FR 5, Jan. 3, 1989, as amended at 54 FR 14792, Apr. 13, 1989; 54 FR 
26946, June 27, 1989; 80 FR 9911, Feb. 24, 2015]

    Editor's Note: At 80 FR 9911, Feb. 24, 2015, appendix I was amended 
by removing ``Form FmHA or its successor agency under Public Law 103-
354'' in paragraphs X.D and X.F and adding ``Form RD'' in its place; 
however the amendment could not be incorporated because the paragraphs 
did not exist. Additionally the appendix was amended by removing ``will 
be used'' in paragraphs IV., and E.1 and 2, and adding ``or successor 
form will be used'' in its place; however, the amendments could not be 
incorporated because the paragraphs did not exist.



          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:
    (1) Form RD 1980-71, ``Lender's Agreement--Disaster Assistance for 
Rural Business Enterprise Guaranteed Loans,'' or successor form will be 
used instead of Form RD 449-35, ``Lender's Agreement.''
    (2) Form RD 1980-72, ``Loan Note Guarantee--Disaster Assistance for 
Rural Business Enterprise Guaranteed Loans,'' or successor form will be 
used instead of Form RD 449-34, ``Loan Note Guarantee.''
    (3) Form RD 1980-73, ``Assignment Guarantee Agreement--Disaster 
Assistance for Rural Business Enterprise Guaranteed Loans,'' or 
successor form will be used instead of Form RD 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 
RD 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

[[Page 288]]

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 RD 
Instruction 1941-A, Sec.1941.4(d).

                       C. Ineligible loan purposes

    RD 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 Rural Development -
type farm loan programs.

              D. Transactions which will not be guaranteed

    In addition to transactions listed in RD Instruction 1980-E, Sec.
1980.413, except for Sec.1980.413(a)(3), Rural Development will not 
make DARBE guaranteed loans if the completed application is not received 
by Rural Development on or before September 30, 1991, nor will Rural 
Development make subsequent DARBE guarantee loans.

                     E. Borrower equity requirements

    See RD 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 RD Instruction 1980-E, Sec.1980.451. All requirements of Sec.
1980.451 remain in effect. In addition to the information required as 
part of a preapplication under Sec.1980.451(f), and unless previously 
submitted as a part of an application under Sec.1980.451(i) evidence 
is required which demonstrates to Rural Development '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 RD 1980-72, ``Loan Note Guarantee DARBE,'' 
(or successor form) 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 RD 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.

[[Page 289]]

               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

    RD 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 
Rural Development guaranteed loans. Rural Development has no authority 
to make DARBE loans directly to borrowers.

                K. Sodbuster and Swampbuster requirements

    The provisions of 7 CFR part 1970 will apply to loans made to rural 
business enterprises engaged in agricultural production.

[54 FR 42483, Oct. 17, 1989, as amended at 55 FR 137, Jan. 3, 1990; 55 
FR 19245, May 8, 1990; 80 FR 9911, Feb. 24, 2015; 81 FR 11048, Mar. 2, 
2016]



                Sec. Exhibit G to Subpart E of Part 1980

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

[54 FR 1599, Jan. 13, 1989, as amended at 80 FR 9911, Feb. 24, 2015]

Subparts F-I [Reserved]



         Subpart K_Strategic Economic and Community Development

    Source: 80 FR 28816, May 20, 2015, unless otherwise noted.



Sec.1980.1001  Purpose.

    The purpose of this subpart is to give priority to Projects that 
support implementation of strategic economic development and community 
development plans on a Multi-jurisdictional basis for applications 
submitted for the programs identified in Sec.1980.1002.



Sec.1980.1002  Programs.

    The Agency may elect to reserve funds from one or more of the 
programs listed in paragraphs (a) through (h) of this section.
    (a) Community Facility Loans (7 CFR part 1942, subpart A).
    (b) Fire and Rescue and Other Small Community Facilities Projects (7 
CFR part 1942, subpart C).
    (c) Community Facilities Grant Program (7 CFR part 3570, subpart B).
    (d) Community Programs Guaranteed Loans (7 CFR part 3575, subpart 
A).
    (e) Water and Waste Disposal Programs Guaranteed Loans (7 CFR part 
1779).
    (f) Water and Waste Loans and Grants (7 CFR part 1780, subparts A, 
B, C, and D).
    (g) Business and Industry Guaranteed Loanmaking and Servicing (7 CFR 
part 4279, subparts A and B; 7 CFR part 4287, subpart B).
    (h) Rural Business Development Grants (7 CFR part 4280, subpart E).



Sec.1980.1003  Applicability of Program Regulations.

    Except as supplemented by this subpart, the provisions of the 
programs identified in Sec.1980.1002 are incorporated into this 
subpart.



Sec.1980.1004  Funding.

    Unless the Agency publishes a notice that indicates otherwise, the 
Agency will reserve funds according to the procedures specified in 
paragraphs (a) through (c) of this section for each of the programs 
identified in Sec.1980.1002 each fiscal year.
    (a) Individual program basis. The Agency will reserve funds on an 
individual program basis.
    (b) Percentage of funds. The Agency will reserve 10 percent of the 
funds made available in a fiscal year to each program identified in 
Sec.1980.1002 unless the Agency specifies a different percentage. If 
the Agency specifies a different percentage, the Agency will publish a 
notice indicating the percentage. The Agency may reserve the same or 
different percentages for each program in a single fiscal year.
    (c) Unobligated funds. If a program's funds reserved under this 
subpart remain unobligated as of June 30 of the fiscal year in which the 
funds are reserved, the Agency will return such remaining funds to that 
program's regular funding account for obligation for all eligible 
Projects in that program.



Sec.1980.1005  Definitions.

    In addition to the definitions found in the regulations for the 
programs identified in Sec.1980.1002, the following definitions apply 
to this subpart. If the

[[Page 290]]

same term is defined in any of the regulations for the programs 
identified in Sec.1980.1002, for purposes of this subpart, that term 
will have the meaning identified in this subpart.
    Adopted means that a Plan has been officially approved for 
implementation by the appropriate entity or entities in the 
Jurisdiction(s) affected by the Plan (for example, a State, Indian 
Tribe, county, city, township, town, borough, etc.).
    Agency means the Rural Business-Cooperative Service, the Rural 
Housing Service, or the Rural Utilities Service, or their successor 
agencies.
    Carried Out Solely in a rural area means either:
    (1) The Project is physically located in a rural area; or
    (2) All of the beneficiaries of the services provided by the Project 
either reside in a rural area (for individuals) or are located in a 
rural area (for businesses).
    Investment means either monetary or non-monetary contributions to 
the implementation of the Plan's objectives.
    Jurisdiction means a unit of government or other entity with similar 
powers. Examples include, but are not limited to: City, county, 
district, special purpose district, township, town, borough, parish, 
village, State, and Indian tribe.
    Multi-Jurisdictional means at least two Jurisdictions.
    Philanthropic organization means an entity whose mission is to 
provide monetary, technical assistance, or other items of value for 
religious, charitable, scientific, literary, or educational purposes.
    Plan means a comprehensive economic development or community 
development strategy that outlines a region's vision for shaping its 
economy, and includes, as appropriate and necessary, consideration of 
such aspects as natural resources, land use, transportation, and 
housing. Such Plans bring together key community stakeholders to create 
a roadmap to diversify and strengthen their communities and to build a 
foundation to create the environment for regional economic prosperity. 
To be acceptable under this subpart, the Plan must be vetted and 
supported by the Jurisdictions affected by the Plan and must contain at 
a minimum the following:
    (1) A summary of the economic conditions of the region;
    (2) An in-depth analysis of the economic and community strengths, 
weaknesses, opportunities, and threats for the region, to include 
consideration of such aspects as the environmental and social 
conditions;
    (3) Strategies and implementation Plan to build upon the region's 
strengths and opportunities and to resolve the weaknesses and threats 
facing the region;
    (4) Performance measures that evaluate the successful implementation 
of the Plan's objectives; and
    (5) Support of key community stakeholders.
    Project means the eligible proposed use(s) for which funds are 
requested as described in the application material submitted to the 
Agency for funding under the underlying program.



Sec. Sec.1980.1006-1980.1009  [Reserved]



Sec.1980.1010  Project eligibility.

    In order to be eligible to receive funds under this subpart, the 
Project must meet the following:
    (a) The Project must meet the Project eligibility criteria of the 
applicable program identified in Sec.1980.1002;
    (b) The Project must be Carried Out Solely in a rural area; and
    (c) The Project must support the implementation of a Plan on a 
Multi-Jurisdictional basis.



Sec. Sec.1980.1011-1980.1014  [Reserved]



Sec.1980.1015  Applications.

    In addition to the application material specific to the applicable 
program identified in Sec.1980.1002, each applicant seeking funding 
under this subpart must provide the information specified in paragraphs 
(a) through (d) of this section.
    (a) Applicant. The applicant must submit:
    (1) Name of the applicant;
    (2) Telephone number of the applicant;
    (3) Email address of the applicant; and

[[Page 291]]

    (4) A statement indicating whether or not the applicant is or 
includes one of the following:
    (i) State government;
    (ii) County government;
    (iii) Municipal government; or
    (iv) Tribal government.
    (b) Plan. Each application must include the following information:
    (1) The name of the Plan the Project supports;
    (2) The date the Plan became effective;
    (3) The dates the Plan is to remain in effect;
    (4) Contact information for the entity(ies) approving the Plan, 
including name(s), telephone number(s), and email address(es);
    (5) As found in the most current version of the Plan, the name and 
description of each objective that the Project will directly support;
    (6) A description of the service area of the Plan;
    (7) Documentation that the Plan was developed through the 
collaboration of multiple stakeholders in the service area of the Plan, 
including the participation of combinations of stakeholders;
    (8) Documentation that the Plan demonstrates an understanding of the 
applicable region's assets that could support the Plan;
    (9) Documentation indicating whether or not the Plan includes 
monetary or non-monetary contributions from Federal agencies other than 
the U.S. Department of Agriculture;
    (10) Documentation indicating whether or not the Plan includes 
monetary or non-monetary contributions from one or more Philanthropic 
organizations.
    (11) Documentation that the Plan contains:
    (i) Clear objectives and
    (ii) The ability to establish measurable performance measures and to 
track progress towards meeting the Plan's objectives; and
    (12) If available, a Web site address link to the Plan.
    (c) Project. Each application must include the following 
information:
    (1) The name of the Project;
    (2) Sufficient detail to allow the Agency to determine that the 
Project has been Carried Out Solely in a rural area as defined in Sec.
1980.1005;
    (3) A detailed description of how the Project directly supports each 
objective identified under paragraph (b)(5) of this section; and
    (4) If the application is from an applicant that includes a State, 
county, municipal, or tribal government, a letter from the appropriate 
entity(ies) indicating that:
    (i) The Project is consistent with the Plan and
    (ii) The Plan has been Adopted.
    (d) Agency coordination. To help ensure coordination among the 
programs included in this subpart, the Agency is requiring applicants 
provide the Agency the information in paragraphs (d)(1) through (3) of 
this section.
    (1) Program areas. Identify the program area(s) (i.e., Community 
Facilities, Water and Waste, Rural Business and Cooperative Development) 
from which funds are being sought.
    (2) Multiple applications. If the applicant is submitting in the 
same fiscal year more than one application for funding under this 
subpart, identify in each application the other application(s) by 
providing:
    (i) The name(s) of the Project(s);
    (ii) The program area(s) for which funds are being sought; and
    (iii) The date that each application was submitted to the Agency.
    (3) Previous applicants. If the applicant has previously submitted 
one or more applications for funding under this subpart, the applicant 
must provide in the current application the following information for 
each previous application:
    (i) The date the application was submitted;
    (ii) The name of the Project;
    (iii) The program area(s) from which funds were sought;
    (iv) Whether or not the Project was selected for funding; and
    (v) If the Project was selected for funding,
    (A) The name(s) of the specific program(s) that provided the 
funding;
    (B) The date and amount of the award; and
    (C) Whether any of the funding came from the funds reserved under 
this subpart.

[[Page 292]]



Sec. Sec.1980.1016-1980.1019  [Reserved]



Sec.1980.1020  Scoring.

    The Agency will score each eligible application seeking funding 
under this subpart as described in this section.
    (a) Underlying program scoring. The Agency will score each 
application using the criteria for the applicable program identified in 
Sec.1980.1002. The maximum number of points an application can receive 
under this paragraph is based on the scoring criteria for the applicable 
underlying program, including any discretionary points that may be 
awarded.
    (b) Section 6025 scoring. The Agency will score each application 
using the criteria identified in paragraphs (b)(1) and (2) of this 
section. The maximum number of points an application can receive under 
this paragraph is 20 points.
    (1) Project's direct support of a Plan's objectives. The Agency will 
score each application on the basis of the number of a Plan's objectives 
the Project directly supports. The maximum score under this paragraph is 
10 points.
    (i) If the Project directly supports implementation of 3 of the 
Plan's objectives, 10 points will be awarded.
    (ii) If the Project directly supports implementation of 2 of the 
Plan's objectives, 5 points will be awarded.
    (iii) If the Project directly supports implementation of less than 2 
of the Plan's objectives, no points will be awarded.
    (2) Characteristics of a Plan. The Agency will score the Plan 
associated with a project based upon the characteristics of the Plan, 
which are identified in paragraphs (b)(2)(i) through (v) of this 
section. Applicants must supply sufficient documentation that 
demonstrates to the Agency the criteria identified in paragraphs 
(b)(2)(i) through (v) of this section. The maximum score under this 
paragraph is 10 points.
    (i) Collaboration. If the Plan was developed through the 
collaboration of multiple stakeholders in the service area of the Plan, 
including the participation of combinations of stakeholders, such as 
State, local, and tribal governments, nonprofit institutions, 
institutions of higher education, and private entities, two points will 
be awarded.
    (ii) Resources. If the Plan demonstrates an understanding of the 
applicable regional assets that could support the Plan, including 
natural resources, human resources, infrastructure, and financial 
resources, two points will be awarded.
    (iii) Other Federal Agency Investments. If the Plan includes 
Investments from Federal agencies other than the U.S. Department of 
Agriculture, two points will be awarded.
    (iv) Philanthropic organization Investments. If the Plan includes 
Investments from Philanthropic organizations, two points will be 
awarded.
    (v) Objectives and performance measures. If the Plan contains clear 
objectives and the ability to establish measurable performance measures 
and to track progress toward meeting the objectives, two points will be 
awarded.
    (c) Total score. The Agency will sum the scores each application 
receives under paragraphs (a) and (b) of this section in order to rank 
applications.



Sec. Sec.1980.1021-1980.1024  [Reserved]



Sec.1980.1025  Award process.

    (a) Unless RD indicates otherwise in a notice, the award process for 
the applicable underlying program will be used to determine which 
Projects receive funding under this subpart.
    (b) In years when funding is made available under this subpart, 
Projects not receiving funding under this subpart are eligible to 
compete for funding under the applicable underlying program. The scores 
for such Projects when competing for underlying program funding will not 
include the score assigned to the application under Sec.1980.1020(b).
    (c) In years when funding is not made available under this subpart, 
Projects are eligible to compete for funding for the applicable 
underlying program. The scores for such Projects when competing for 
underlying program funding will include the score assigned the 
application Sec.1980.1020(b) as described in a notice published in the 
Federal Register.

[[Page 293]]



Sec.1980.1026  Evaluation of Project information.

    To assist the Agency in evaluating the effectiveness of this 
subpart, each applicant that receives funding under this subpart must 
submit to the Agency all measures, metrics, and outcomes of the Project 
that are reported to the entity(ies) who are monitoring Plan 
implementation. This information will be submitted for as long as the 
Plan is in effect.



Sec. Sec.1980.1027-1980.1100  [Reserved]

                       PARTS 1981	1999 [RESERVED]

[[Page 295]]



                              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 297]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2020)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
       III  Administrative Conference of the United States (Parts 
                300--399)
        IV  Miscellaneous Agencies (Parts 400--599)
        VI  National Capital Planning Commission (Parts 600--699)

                    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 2--199)
        II  Office of Management and Budget Guidance (Parts 200--
                299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300--
                399)
        IV  Department of Agriculture (Parts 400--499)
        VI  Department of State (Parts 600--699)
       VII  Agency for International Development (Parts 700--799)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
         X  Department of the Treasury (Parts 1000--1099)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1800--1899)
        XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Department of Housing and Urban Development (Parts 
                2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)

[[Page 298]]

     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)
      XXIX  Department of Labor (Parts 2900--2999)
       XXX  Department of Homeland Security (Parts 3000--3099)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
     XXXIV  Department of Education (Parts 3400--3499)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
     XXXVI  Office of National Drug Control Policy, Executive 
                Office of the President (Parts 3600--3699)
    XXXVII  Peace Corps (Parts 3700--3799)
     LVIII  Election Assistance Commission (Parts 5800--5899)
       LIX  Gulf Coast Ecosystem Restoration Council (Parts 5900--
                5999)

                        Title 3--The President

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

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--199)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
        IV  Office of Personnel Management and Office of the 
                Director of National Intelligence (Parts 1400--
                1499)
         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)
       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)

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    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  U.S. International Development Finance Corporation 
                (Parts 4300--4399)
     XXXIV  Securities and Exchange Commission (Parts 4400--4499)
      XXXV  Office of Personnel Management (Parts 4500--4599)
     XXXVI  Department of Homeland Security (Parts 4600--4699)
    XXXVII  Federal Election Commission (Parts 4700--4799)
        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)
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
         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)
       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)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
       LXX  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 8000--8099)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
    LXXIII  Department of Agriculture (Parts 8300--8399)

[[Page 300]]

     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)
      LXXX  Federal Housing Finance Agency (Parts 9000--9099)
   LXXXIII  Special Inspector General for Afghanistan 
                Reconstruction (Parts 9300--9399)
    LXXXIV  Bureau of Consumer Financial Protection (Parts 9400--
                9499)
    LXXXVI  National Credit Union Administration (Parts 9600--
                9699)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
    XCVIII  Council of the Inspectors General on Integrity and 
                Efficiency (Parts 9800--9899)
      XCIX  Military Compensation and Retirement Modernization 
                Commission (Parts 9900--9999)
         C  National Council on Disability (Parts 10000--10049)
        CI  National Mediation Board (Part 10101)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--199)
         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)
        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  Agricultural Marketing Service (Federal Grain 
                Inspection Service, Fair Trade Practices Program), 
                Department of Agriculture (Parts 800--899)

[[Page 301]]

        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  [Reserved]
      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  [Reserved]
       XXV  Office of Advocacy and Outreach, Department of 
                Agriculture (Parts 2500--2599)
      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  National Institute of Food and Agriculture (Parts 
                3400--3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     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)

[[Page 302]]

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (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  Agricultural Marketing Service (Federal Grain 
                Inspection Service, Fair Trade Practices Program), 
                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 1300--
                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)
        II  Election Assistance Commission (Parts 9400--9499)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  (Parts 600--699) [Reserved]
        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)
         X  Bureau of Consumer Financial Protection (Parts 1000--
                1099)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)
      XIII  Financial Stability Oversight Council (Parts 1300--
                1399)

[[Page 303]]

       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
       XVI  Office of Financial Research (Parts 1600--1699)
      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 (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (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--1199)
         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)
        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  National Technical Information Service, Department of 
                Commerce (Parts 1100--1199)

[[Page 304]]

      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) [Reserved]

                    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  U.S. 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)
        IV  U.S. Immigration and Customs Enforcement, Department 
                of Homeland Security (Parts 400--599) [Reserved]

                     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)

[[Page 305]]

        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Office of Workers' Compensation Programs, 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  Millennium 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)
        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)

[[Page 306]]

        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)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799) [Reserved]
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099) [Reserved]
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

[[Page 307]]

                           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--899)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900--999)
        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--End)

           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)
        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)

[[Page 308]]

        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  Bureau of Safety and Environmental Enforcement, 
                Department of the Interior (Parts 200--299)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
         V  Bureau of Ocean Energy Management, Department of the 
                Interior (Parts 500--599)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)

[[Page 309]]

      VIII  Office of Investment Security, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)
         X  Financial Crimes Enforcement Network, Department of 
                the Treasury (Parts 1000--1099)

                      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  Department of Defense, 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, Department 
                of Defense (Parts 200--399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)

[[Page 310]]

       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Career, Technical and Adult Education, 
                Department of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599) 
                [Reserved]
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799) 
                [Reserved]
            Subtitle C--Regulations Relating to Education
        XI  (Parts 1100--1199) [Reserved]
       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)
        VI  [Reserved]
       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  U.S. Copyright Office, Library of Congress (Parts 
                200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                300--399)
        IV  National Institute of Standards and Technology, 
                Department of Commerce (Parts 400--599)

[[Page 311]]

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--199)
        II  Armed Forces Retirement Home (Parts 200--299)

                       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)
      VIII  Gulf Coast Ecosystem Restoration Council (Parts 1800--
                1899)

          Title 41--Public Contracts and Property Management

            Subtitle A--Federal Procurement Regulations System 
                [Note]
            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)
   62--100  [Reserved]
            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)
  103--104  [Reserved]
       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)
  129--200  [Reserved]
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]

[[Page 312]]

            Subtitle E--Federal Information Resources Management 
                Regulations System [Reserved]
            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)

                        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--699)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1099)

                   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 400--999)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             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)

[[Page 313]]

       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)
        IX  Denali Commission (Parts 900--999)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Administration for Children and Families, 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 of Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Parts 2300--2399)
      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)

[[Page 314]]

        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)
         V  The First Responder Network Authority (Parts 500--599)

           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)
        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) [Reserved]
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399) 
                [Reserved]

[[Page 315]]

        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  Civilian Board of Contract Appeals, General Services 
                Administration (Parts 6100--6199)
        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)
         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 (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation (Parts 1400--1499) 
                [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)

[[Page 316]]

        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

[[Page 317]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2020)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Conference of the United States    1, III
Advisory Council on Historic Preservation         36, VIII
Advocacy and Outreach, Office of                  7, XXV
Afghanistan Reconstruction, Special Inspector     5, LXXXIII
     General for
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              2, VII; 22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, VIII, IX, X, XI; 9, 
                                                  II
Agricultural Research Service                     7, V
Agriculture, Department of                        2, IV; 5, LXXIII
  Advocacy and Outreach, Office of                7, XXV
  Agricultural Marketing Service                  7, I, VIII, IX, X, XI; 9, 
                                                  II
  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
  Economic Research Service                       7, XXXVII
  Energy Policy and New Uses, 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
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  National Institute of Food and Agriculture      7, XXXIV
  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 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 of                          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
Architectural and Transportation Barriers         36, XI
   Compliance Board
[[Page 318]]

Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI; 38, II
Army, Department of                               32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
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
Career, Technical, and Adult Education, Office    34, IV
     of
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chemical Safety and Hazard Investigation Board    40, VI
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X, XIII
Civil Rights, Commission on                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Council of the Inspectors General on Integrity    5, XCVIII
     and Efficiency
Court Services and Offender Supervision Agency    5, LXX
     for the District of Columbia
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce, Department of                           2, XIII; 44, IV; 50, VI
  Census Bureau                                   15, I
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  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; 37, IV
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Technical Information Service          15, XI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Secretary of Commerce, Office of                15, Subtitle A
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 Financial Protection Bureau              5, LXXXIV; 12, X
Consumer Product Safety Commission                5, LXXI; 16, 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    5, LXX; 28, VIII
     for the District of Columbia
Customs and Border Protection                     19, I
Defense Contract Audit Agency                     32, I
Defense, Department of                            2, XI; 5, XXVI; 32, 
                                                  Subtitle A; 40, VII
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III; 
                                                  48, 51

[[Page 319]]

  Defense Acquisition Regulations System          48, 2
  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 of                             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
Denali Commission                                 45, IX
Disability, National Council on                   5, C; 34, XII
District of Columbia, Court Services and          5, LXX; 28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          2, XXXIV; 5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Career, Technical, and Adult Education, Office  34, IV
       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
Educational Research and Improvement, Office of   34, VII
Election Assistance Commission                    2, LVIII; 11, II
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 Policy, National Commission for        1, IV
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             2, IX; 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
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                2, Subtitle A; 5, III, 
                                                  LXXVII; 14, VI; 48, 99
  National Drug Control Policy, Office of         2, XXXVI; 21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II

[[Page 320]]

  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                       5, XXXVII; 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 Agency                    5, LXXX; 12, XII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority                 5, XIV, XLIX; 22, XIV
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
Financial Crimes Enforcement Network              31, X
Financial Research Office                         12, XVI
Financial Stability Oversight Council             12, XIII
Fine Arts, Commission of                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
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

[[Page 321]]

  Federal Management Regulation                   41, 102
  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
Gulf Coast Ecosystem Restoration Council          2, LIX; 40, VIII
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, XIII
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  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                  2, XXX; 5, XXXVI; 6, I; 8, 
                                                  I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection                   19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing and Urban Development, Department of      2, XXIV; 5, LXV; 24, 
                                                  Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  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
Immigration and Customs Enforcement Bureau        19, IV
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Independent Counsel, Offices of                   28, VI
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

[[Page 322]]

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
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII, XV
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior, Department of                           2, XIV
  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
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Natural Resource Revenue, Office of             30, XII
  Ocean Energy Management, Bureau of              30, V
  Reclamation, Bureau of                          43, I
  Safety and Enforcement Bureau, Bureau of        30, II
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Development Finance Corporation,    5, XXXIII; 22, VII
     U.S.
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
Investment Security, Office of                    31, VIII
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 of                            2, XXVIII; 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
  Independent Counsel, Offices of                 28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor, Department of                              2, XXIX; 5, XLII
  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

[[Page 323]]

  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
  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, VII
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Libraries and Information Science, National       45, XVII
     Commission on
Library of Congress                               36, VII
  Copyright Royalty Board                         37, III
  U.S. Copyright Office                           37, II
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
Military Compensation and Retirement              5, XCIX
     Modernization Commission
Millennium Challenge Corporation                  22, XIII
Mine Safety and Health Administration             30, I
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
Museum and Library Services, Institute of         2, XXXI
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   2, XXII; 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, VI
National Counterintelligence Center               32, XVIII
National Credit Union Administration              5, LXXXVI; 12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           2, XXXVI; 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 Geospatial-Intelligence Agency           32, I
National Highway Traffic Safety Administration    23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute of Food and Agriculture        7, XXXIV
National Institute of Standards and Technology    15, II; 37, IV
National Intelligence, Office of Director of      5, IV; 32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          5, CI; 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
[[Page 324]]

National Technical Information Service            15, XI
National Telecommunications and Information       15, XXIII; 47, III, IV, V
     Administration
National Transportation Safety Board              49, VIII
Natural Resources Conservation Service            7, VI
Natural Resource Revenue, Office of               30, XII
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy, Department of                               32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     2, XX; 5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Ocean Energy Management, Bureau of                30, V
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
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                                       2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 5, IV; 45, 
                                                  VIII
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
  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
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 Utilities Service                           7, XVII, XVIII, XLII
Safety and Environmental Enforcement, Bureau of   30, II
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                5, XXXIV; 17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 20, III; 48, 23

[[Page 325]]

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 of                              2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Tennessee Valley Authority                        5, LXIX; 18, XIII
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     2, XII; 5, L
  Commercial Space Transportation                 14, III
  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; 47, IV; 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
  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 of the                       2, X;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                   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
  Financial Crimes Enforcement Network            31, X
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, Office of                  31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
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
U.S. Copyright Office                             37, II
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs, Department of                   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
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I, VII
World Agricultural Outlook Board                  7, XXXVIII

[[Page 327]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations (CFR) that 
were made by documents published in the Federal Register since January 
1, 2015 are enumerated in the following list. Entries indicate the 
nature of the changes effected. Page numbers refer to Federal Register 
pages. The user should consult the entries for chapters, parts and 
subparts as well as sections for revisions.
For changes to this volume of the CFR prior to this listing, consult the 
annual edition of the monthly List of CFR Sections Affected (LSA). The 
LSA is available at www.govinfo.gov. For changes to this volume of the 
CFR prior to 2001, see the ``List of CFR Sections Affected, 1949-1963, 
1964-1972, 1973-1985, and 1986-2000'' published in 11 separate volumes. 
The ``List of CFR Sections Affected 1986-2000'' is available at 
www.govinfo.gov.

                                  2015

7 CFR
                                                                   80 FR
                                                                    Page
Subtitle B
1950.101 Amended....................................................9890
1950.102 (a) amended................................................9890
1950.103 Heading, (a)(1) and (c) amended............................9890
1950.104 Heading, introductory text, (a), (b) introductory text, 
        (1) and (e) amended.........................................9890
1950.105 (b) amended................................................9890
1951 Authority citation revised....................................13200
1951.2 Amended......................................................9890
1951.3 Amended......................................................9890
1951.7 (b)(1), (4)(i), (c), (d)(2), (e), (h) introductory text, 
        (1), (2) and (3) amended....................................9890
1951.8 (b)(3) amended...............................................9891
1951.9 Heading, introductory text, (a)(1) introductory text, (i) 
        through (iv), (2) and (b) amended...........................9891
1951.10 Introductory text and (a)(6) amended........................9891
1951.11 Amended; (d)(1)(i) amended..................................9891
1951.12 (a), (b), (c)(1) and (2) amended............................9891
1951.14 (b) amended.................................................9891
1951.25 (b)(2)(ii) amended..........................................9891
1951.1--1951.50 (Subpart A) Exhibit A revised.......................9891
1951.153 (b) amended................................................9891
1951.154 (a) and (c) amended........................................9891
1951.155 (b), (c) introductory text, (1), (2), (g) and (i) amended
                                                                    9891
1951.201 Amended....................................................9891
1951.202 Amended....................................................9891
1951.203 (h) amended................................................9892
1951.207 Amended....................................................9892
1951.211 Amended....................................................9892
1951.215 Introductory text and (a)(2) amended.......................9892
1951.216 Amended....................................................9892
1951.220 (a)(2), (3), (b) introductory text, (1), (2), (3), (c) 
        introductory text, (2), (d), (e)(2)(v), (f), (g) and 
        (h)(3) amended..............................................9892
1951.221 (a)(2) introductory text, (i)(A), (B), (C), (3) 
        introductory text and (i) amended...........................9892
1951.222 Introductory text, (a)(2), (3), (7), (9), (c)(1), (3), 
        (7) and (d) amended.........................................9892
1951.223 (b)(1), (c)(2), (3), (4) introductory text, (i), (ii) and 
        (iv) amended................................................9892
1951.224 (a)(1)(iii), (v), (2)(v), (b)(1), (2), (3), (6), (c) and 
        (e)(2) amended..............................................9892
1951.225 Amended....................................................9892

[[Page 328]]

1951.226 (a)(3), (b)(3), (4)(i), (ii), (5)(i), (ii), (b)(6), 
        (c)(1)(i), (iv) through (vii), (2)(i), (ii), (3), (d)(1), 
        (2) introductory text and (ii) amended......................9892
1951.227 Introductory text and (c) amended..........................9893
1951.230 (a) introductory text, (2), (3), (4), (6) through (9), 
        (12), (b) introductory text, (5), (c) introductory text, 
        (1), (5), (d) introductory text, (1)(i), (ii), (2), (5), 
        (e)(1), (2)(ii), (f)(1), (5), (6), (7)(i), (ii), (8), (9), 
        (11), (12), (14) and (15) amended...........................9893
1951.231 (a)(1)(i), (v), (vi), (vii), (2), (3), (4), (b)(2), 
        (c)(3), (4), (d) introductory text and (1) amended..........9894
1951.232 Amended....................................................9894
1951.240 Amended....................................................9894
1951.241 Amended....................................................9894
1951.264 (a)(2) amended.............................................9894
1951.251--1951.300 (Subpart F) Exhibit B amended....................9894
1951.851 (a) and (d) amended........................................9894
    (a) revised....................................................13201
1951.852 (a)(1), (2) and (9) amended................................9894
1951.866 Amended....................................................9894
1951.881 (b), (d) and (e)(1) amended................................9894
1951.883 Amended....................................................9894
1951.884 Amended....................................................9894
1951.885 Introductory text, (a)(2), (b), (c) and (d) amended........9894
1951.889 (a), (c), (d) and (e) amended..............................9894
1951.890 Amended....................................................9894
1951.891 (a) introductory text, (2), (3), (e) and (f) amended.......9894
1951.894 Revised...................................................13201
1951.896 Amended....................................................9894
1955.2 Amended......................................................9895
1955.3 Amended......................................................9895
1955.5 (a), (c)(2) and (d) amended..................................9895
1955.10 Introductory text, (a)(2)(ii), (c) heading, (2), (d)(1), 
        (2), (3), (e), (f) introductory text, (1) introductory 
        text, (i)(A), (B), (ii), (iii), (g)(1), (h)(1), (2), 
        (4)(i), (ii) and (5) amended................................9895
1955.11 Amended.....................................................9895
1955.12 Amended.....................................................9895
1955.15 Introductory text, (a)(2)(i), (b) introductory text, (3), 
        (d)(1), (2) introductory text, (v), (3)(i)(A), (4), (6)(i) 
        introductory text, (e)(2), (f)(1)(i)(C), (D), (ii), (3), 
        (4), (5)(i)(A), (B), (ii), (6), (7) introductory text, (i) 
        and (ii) amended............................................9895
1955.18 (e)(1) introductory text, (ii), (2) introductory text, 
        (ii), (3) and (4) introductory text amended.................9896
1955.20 Introductory text, (a)(2), (5), (b) introductory text, 
        (1), (2), (4), (c)(1), (d), (f)(1) introductory text, 
        (ii), (2)(i), (ii), (iii), (v), (g) and (h) amended.........9896
1955.22 Amended.....................................................9896
1955.52 Amended.....................................................9897
1955.53 Amended.....................................................9897
1955.55 (b) introductory text, (2) introductory text, (iii), (c) 
        introductory text, (1), (f) introductory text, (2)(i), 
        (ii) and (3) amended........................................9897
1955.57 Amended.....................................................9897
1955.60 Amended.....................................................9897
1955.61 Amended.....................................................9897
1955.62 introductory text, (a)(1), (2), (b)(1)(ii), (2) and (c) 
        amended.....................................................9897
1955.65 (b), (c) introductory text, (1), (2)(i), (ii), (iii) and 
        (4) amended.................................................9897
1955.72 (a) and (b) amended.........................................9897
1955.82 Amended.....................................................9897
1955.51--1955.100 (Subpart B) Exhibit A amended.....................9897
1955.102 Amended....................................................9897
1955.103 Amended....................................................9897
1955.104 Amended....................................................9898
1955.105 (b), (c) introductory text, (1), (3) and (d) amended.......9898
1955.109 (a), (g) and (j) amended...................................9898
1955.112 Amended....................................................9898
1955.113 Amended....................................................9898
1955.114 (a) introductory text, (1)(v), (2), (3)(ii), (4), (b), 
        (c) introductory text and (d) amended.......................9898
1955.115 Introductory text, (a) introductory text, (2), (3) and 
        (b) amended.................................................9898

[[Page 329]]

1955.116 (a) through (d) amended....................................9898
1955.117 (a), (b), (c), (e) and (f) amended.........................9899
1955.118 (b)(1), (5), (7), (8)(ii) and (11) amended.................9899
1955.119 (a) and (c) amended........................................9899
1955.120 Amended....................................................9899
1955.121 Amended....................................................9898
1955.122 (a), (b), (c)(2), (d), (f) and undesignated text 
        following (f) amended.......................................9899
1955.123 (a) revised................................................9899
1955.124 Amended....................................................9900
1955.127 Amended....................................................9900
1955.128 Amended....................................................9898
1955.130 Introductory text, (a)(1), (2), (b), (c) introductory 
        text, (e) introductory text, (1)(ii), (f)(1)(i), (3) and 
        (g) amended.................................................9900
1955.131 Introductory text and (b) amended..........................9900
1955.132 Amended....................................................9898
1955.133 (a), (b) and (c) amended...................................9900
1955.134 Amended....................................................9898
1955.135 Introductory text and (a) amended..........................9900
1955.136 (a)(2) amended.............................................9898
1955.138 Amended....................................................9900
1955.139 (a)(3)(iii) through (vi) amended...........................9900
1955.144 (b) amended................................................9900
1955.146 (a) amended................................................9900
1955.147 Introductory text, (a), (b), (d) and (e) amended...........9901
1955.150 Amended....................................................9898
1956 Authority citation revised....................................13201
1956.101 Revised...................................................13201
1956.102 (a) amended................................................9901
1956.105 (a), (f), (g) and (h) revised..............................9901
1956.109 (f) amended................................................9901
1956.110 Amended....................................................9901
1956.111 Introductory text and (a) amended..........................9901
1956.112 (d) amended................................................9901
1956.130 Amended....................................................9901
1956.138 Amended....................................................9901
1956.139 (d) introductory text, (1) and (e) amended.................9901
1956.142 (f) amended................................................9901
1956.143 (a), (b) introductory text, (3), (6), (7), (8), (c)(1), 
        (3)(i)(A), (ii)(B), (C), (iv)(B), (1), (E)(1), (G)(2), 
        (d)(2), (e)(1) introductory text, (i), (ii), (A), (iii), 
        (2) introductory text, (i), (ii)(A), (B), (f)(1), (2), 
        (g)(1) introductory text, (ii), (3) and (h) amended.........9901
1956.145 Revised....................................................9902
1956.147 (a)(1), (4), (b) and (c) amended...........................9902
    Heading and introductory text revised..........................13201
    Correctly removed..............................................73647
1956.148 Amended....................................................9901
1957.1 Amended......................................................9902
1957.2 Amended......................................................9902
1957.6 Amended......................................................9902
1962.1 Amended......................................................9902
1962.2 Amended......................................................9902
1962.3 Amended......................................................9902
1962.4 Amended......................................................9902
1962.6 Amended......................................................9903
1962.8 Amended......................................................9903
1962.16 Amended.....................................................9903
1962.17 Amended; (d)(2)(ii) amended.................................9903
1962.18 (a) and (b)(1) amended......................................9903
1962.19 Introductory text, (a)(1)(i), (2), (b)(1)(iii) and (3) 
        amended.....................................................9903
1962.26 Amended.....................................................9903
1962.27 (a)(4), (c) introductory text, (1), (2), (d) and (e) 
        amended.....................................................9903
1962.29 (a)(1), (2), (3), (b) introductory text and (4) amended.....9903
1962.34 Introductory text, (a)(1), (2) and (b)(3) amended...........9903
1962.40 (e)(1)(ii) amended..........................................9904
1962.41 Amended...............................................9903, 9904
1962.42 (b)(2), (3), (c) introductory text, (2), (3), (4)(ii), 
        (5)(i) introductory text, (A), (B), (ii), (6)(i), (ii) 
        introductory text, (A), (7), (8) and (d) amended............9904
1962.44 Amended.....................................................9903
1962.45 Amended.....................................................9904
1962.46 Amended.....................................................9903

[[Page 330]]

1962.49 Introductory text, (a), (b) introductory text, (1)(v), 
        (vi), (2)(i), (ii), (3) introductory text, (i) through 
        (iv), (c) introductory text, (1), (3)(i), (ii) 
        introductory text, (A), (B), (d), (e) introductory text, 
        (1), (2) introductory text, (i), (ii) and (3) introductory 
        text amended................................................9904
1980.401 (d) amended................................................9905
1980.405 Revised....................................................9905
1980.411 (a)(7), (11) introductory text, (12) and (13) amended......9905
1980.412 Amended....................................................9905
1980.413 (a) introductory text amended..............................9905
1980.414 (a) and (b) amended........................................9905
1980.419 Amended....................................................9905
1980.420 Introductory text and (d) introductory text amended........9905
1980.423 (a) introductory text, (2), (3), (5), (6) introductory 
        text, (b)(1), (2) and concluding text amended...............9905
1980.424 (a) through (d) and concluding text amended................9905
1980.432 Amended....................................................9905
1980.433 Amended....................................................9905
1980.434 Amended....................................................9905
1980.442 Amended....................................................9905
1980.443 (a)(1), (4)(i) introductory text, (A)(4), (B), (C), (ii), 
        (b)(1), (2) introductory text, (i), (5), (6), (7)(iii) and 
        concluding text amended.....................................9906
1980.444 (b) and (e) amended........................................9906
1980.451 (a), (b), (c), (d) introductory text, (1), (3) 
        introductory text, (iii) introductory text, (iv)(A), (v), 
        (e) introductory text, (f)(2), (3), (g), (h), (i)(1), (2), 
        (3), (7), (9), (10), (13) introductory text, (viii), (x), 
        (15), (18)(i), (ii), (19), (j), (k) and concluding text 
        amended; (d)(3)(vi) revised.................................9906
1980.452 Heading, introductory text and concluding text amended.....9907
1980.453 (a), (b) and concluding text amended.......................9907
1980.454 (a), (b), (c), (e), (f) and concluding text amended........9908
1980.469 Introductory text, (a)(1), (c) introductory text, (1) and 
        concluding text amended.....................................9908
1980.470 Concluding text amended....................................9908
1980.471 Introductory text, (a)(1), (2) and concluding text 
        amended.....................................................9909
1980.472 Amended....................................................9909
1980.473 Amended....................................................9909
1980.475 (a)(6), (b), (d) and concluding text amended...............9909
1980.476 (a), (c), (e) introductory text, (1), (2), (g)(2)(i), 
        (iii), (h), (i), (j), (l), (m) introductory text, (n), (p) 
        and concluding text amended.................................9909
1980.481 Introductory text amended..................................9910
1980.488 (a), (b) and concluding text amended.......................9910
1980.490 (d)(1) through (4), (f)(1) through (4), (g), (n) 
        introductory text, (4), (5), (p)(4) introductory text, 
        (ii) and (5)(iii) amended...................................9910
1980.495 Revised....................................................9910
1980.497 Introductory text, (a), (b) introductory text, (2) 
        introductory text, (3), (c), (d)(1), (2), (7), (8), (9) 
        and (f) amended.............................................9910
1980.498 (k) introductory text, (4), (5), (m)(5) introductory text 
        and (iii) amended...........................................9910
1980.401--1980.500 (Subpart E) Appendices A, B, and F removed; 
        Appendices D, E, I, and K amended...........................9911
    Exhibit G Note amended..........................................9911
1980.1001--1980.1100 (Subpart K) Added; interim....................28816
    Regulation at 80 FR 28816 eff. date delayed....................34827
    Regulation at 80 FR 28816 comment period reopened..............53457

                                  2016

7 CFR
                                                                   81 FR
                                                                    Page
Subtitle B
Chapter XVIII
1951 Authority citation revised....................................11032
1951.210 Revised...................................................11032
1951.215 Regulation at 79 FR 76012 confirmed........................7696
1951.872 Regulation at 79 FR 76012 confirmed........................7696
1951.900 Revised...................................................11032

[[Page 331]]

1955.136 (a) introductory text revised.............................11032
    Heading and (a) introductory text correctly revised............26667
1955.137 (a)(3)(i) revised.........................................11032
1955.140 (a) revised...............................................11032
1970 Added.........................................................11032
1980.432 Revised...................................................11047
1980.445 Regulation at 79 FR 76012 confirmed........................7696
1980.451 Regulation at 79 FR 76012 confirmed........................7696
    (h)(3) revised; (h)(3) table amended...........................11047
    (i)(3) correctly revised; (i)(3) table correctly amended.......26667
1980.490 (p)(8) revised............................................11048
1980.498 (m)(9) revised............................................11048
1980.401--1980.500 (Subpart E) Appendix K amended..................11048
    Appendix K correctly amended...................................26667

                                  2017

7 CFR
                                                                   82 FR
                                                                    Page
Subtitle B
Chapter XVIII
1955.10 Correctly amended..........................................19319
1955.63 (b) correctly amended......................................19319
1955.66 Introductory text correctly amended; (a)(2)(iii) correctly 
        removed; (a)(2)(iv) correctly redesignated as new 
        (a)(2)(iii)................................................19319
1955.107 (a)(3)(iv) correctly amended..............................19320
1955.136 (a) introductory text correctly revised...................19320
1955.137 (a)(3)(i) correctly revised...............................19320
1955.139 (a)(3)(v) correctly amended...............................19320
1955.140 (a) correctly revised.....................................19320
1962.30 (b)(5) correctly removed; (b)(6) and (7) correctly 
        redesignated as new (b)(5) and (6).........................19320
1962.34 (a)(4) correctly removed; (a)(5) and (6) correctly 
        redesignated as new (a)(4) and (5).........................19320

                                  2018

7 CFR
                                                                   83 FR
                                                                    Page
Subtitle B
Chapter XVIII
1970.11 (b) revised; eff. 1-7-19...................................59271

                                  2019

7 CFR
                                                                   84 FR
                                                                    Page
Subtitle B
Chapter XVIII
1970.11 (b) revised................................................49648


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