[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
[[Page ii]]
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[[Page iii]]
Table of Contents
Page
Explanation................................................. v
Title 7:
SUBTITLE B--Regulations of the Department of Agriculture
(Continued)
Chapter XVIII--Rural Housing Service, Rural
Business-Cooperative Service, Rural Utilities
Service, and Farm Service Agency, Department of
Agriculture (Continued) 5
Finding Aids:
Table of CFR Titles and Chapters........................ 297
Alphabetical List of Agencies Appearing in the CFR...... 317
List of CFR Sections Affected........................... 327
[[Page iv]]
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Cite this Code: CFR
To cite the regulations in
this volume use title,
part and section number.
Thus, 7 CFR 1950.101
refers to title 7, part
1950, section 101.
----------------------------
[[Page v]]
EXPLANATION
The Code of Federal Regulations is a codification of the general and
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parts covering specific regulatory areas.
Each volume of the Code is revised at least once each calendar year
and issued on a quarterly basis approximately as follows:
Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1
The appropriate revision date is printed on the cover of each
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collection request.
[[Page vi]]
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[[Page vii]]
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Oliver A. Potts,
Director,
Office of the Federal Register
January 1, 2020.
[[Page ix]]
THIS TITLE
Title 7--Agriculture is composed of fifteen volumes. The parts in
these volumes are arranged in the following order: Parts 1-26, 27-52,
53-209, 210-299, 300-399, 400-699, 700-899, 900-999, 1000-1199, 1200-
1599, 1600-1759, 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)
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SUBTITLE B--Regulations of the Department of Agriculture (Continued)
Part
chapter xviii--Rural Housing Service, Rural Business-
Cooperative Service, Rural Utilities Service, and Farm
Service Agency, Department of Agriculture (Continued)..... 1950
[[Page 3]]
Subtitle B--Regulations of the Department of Agriculture (Continued)
[[Page 5]]
CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS-COOPERATIVE
SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT OF
AGRICULTURE (CONTINUED)
--------------------------------------------------------------------
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]
[[Page 7]]
SUBCHAPTER H_PROGRAM REGULATIONS (CONTINUED)
PART 1950_GENERAL--Table of Contents
Subparts A-B [Reserved]
Subpart C_Servicing Accounts of Borrowers Entering the Armed Forces
Sec.
1950.101 Purpose.
1950.102 General.
1950.103 Borrower owing 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]