[Federal Register Volume 59, Number 90 (Wednesday, May 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11311]


[[Page Unknown]]

[Federal Register: May 11, 1994]


                                                    VOL. 59, NO. 90

                                            Wednesday, May 11, 1994

DEPARTMENT OF AGRICULTURE

Farmers Home Administration

7 CFR Part 1927

RIN 0575-AB52

 

Real Estate Title Clearance and Loan Closing

Agency: Farmers Home Administration, USDA.

Action: Proposed rule.

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SUMMARY: The Farmers Home Administration (FmHA) proposes to amend its 
Real Estate Title Clearance and Loan Closing regulation. This action is 
necessary to make the FmHA loan closing procedure consistent with the 
private sector for commercial loans and to make loan closing 
requirements consistent with local laws and procedures that are typical 
in the area. The effect will be to provide the public with easy access 
to FmHA programs.

DATES: Comments must be received on or before July 11, 1994.

ADDRESSES: Submit written comments, in duplicate, to the Office of the 
Chief, Regulations Analysis and Control Branch, Farmers Home 
Administration, U.S. Department of Agriculture, SW, Washington, DC 
20250. All written comments will be available for public inspection at 
the above address during regular working hours.

FOR FURTHER INFORMATION CONTACT: Walter B. Patton, Senior Loan 
Specialist, Farmers Home Administration, USDA, room 5334, South 
Agriculture Building, 14th and Independence Ave. SW., Washington, DC 
20250, Telephone (202) 720-0099.

SUPPLEMENTARY INFORMATION:

Classification

    We are issuing this proposed rule in conformance with Executive 
Order 12866, and the Office of Management and Budget (OMB) has 
determined that it is a ``significant regulatory action.''

Regulatory Flexibility Act

    The undersigned has determined that this action will not have a 
significant economic impact on a substantial number of small entities 
because the regulatory changes affect FmHA processing, real estate 
title clearance, and loan closing.

Paperwork Reduction Act

    The information collection requirements contained in this proposed 
rule will be submitted to the Office of Management and Budget (OMB) for 
review under section 3504 (h) of the Paperwork Reduction Act of 1980 
(44 U.S.C. 3501). Public reporting for the collection of information is 
estimated to vary from five minutes to 1.5 hours per response, with an 
average of .38 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. Please send written comments to the Office 
of Information and Regulatory Affairs, OMB, Attention: Desk Officer for 
USDA, Washington, DC 20503. Please send a copy of your comments to Jack 
Holston, Agency Clearance Officer, USDA, FmHA, Ag Box 0743, Washington, 
DC 20250.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR Part 1940, 
subpart G, ``Environmental Program.'' It is the determination of FmHA 
that this action does not constitute a major Federal action 
significantly affecting the quality of the human environment, and in 
accordance with the National Environmental Policy Act of 1969, Public 
Law 91-190, an Environmental Impact Statement is not required.

Intergovernmental Consultation

    Programs listed in the Catalog of Federal Domestic Assistance are 
as follows: Catalog Nos. 10.405, Farm Labor Housing Loans and Grants; 
10.415, Rural Rental Housing Loans; and 10.416, Soil and Water Loans, 
are subject to the provisions of Executive Order 12372, which require 
intergovernmental consultation with State and local officials (7 CFR 
part 3015, subpart V, 48 FR 29112, June 24, 1983), and FmHA Instruction 
1940-J. Catalog Nos. 10.404, Emergency Loans; 10.406, Farm Operating 
Loans; 10.407, Farm Ownership Loans; 10.410, Low Income Housing Loans, 
and nonprogram loans are excluded from the scope of Executive Order 
12372.

Civil Justice Reform

    This document has been reviewed in accordance with Executive Order 
(EO) 12778. It is the determination of FmHA that this action does not 
unduly burden the Federal Court Systems in that it meets all applicable 
standards provided in Section 2 of the EO.

Discussion

    FmHA recognizes the need to make Real Estate Title Clearance and 
Loan Closing procedures more consistent with the laws and generally 
accepted loan closing practices of individual States. Some proposed 
changes in this rule will allow FmHA State Directors the authority to 
establish loan closing procedures that are applicable to the laws and 
customs of that particular State.
    The significant proposed changes are listed below in general order 
of appearance in the regulation.
    Several new definitions are added to help clarify certain issues. 
They include Closing Protection Letter, General Warranty Deed, 
Indemnification Agreement, Issuing Agent and Special Warranty Deed.
    Due to differences in State laws regarding the use of title 
insurance and in the standard insurance coverage for errors and 
omission insurance and fidelity bond coverage, this proposed rule will 
allow FmHA State Directors to decide (with OGC approval) on the loan 
closing procedures and level of insurance coverage.
    The requirement that Title Insurance Companies will provide an 
Indemnification Agreement (Closing Protection Letter) is added because 
it will greatly increase the insurance protection provided to the 
United States Government. This is a practice that Title Insurance 
Companies are familiar with and they understand our needs. An 
Indemnification Agreement can be provided for approved attorneys so the 
need for errors and omissions insurance and a fidelity bond can be 
eliminated. The agreement will provide loss coverage for the entire 
amount of the transaction with no deductible. The Indemnification 
Agreement will give FmHA protection from losses resulting from 
negligence or fraud caused by the closing agent or their employees. 
Indemnification Agreements give FmHA greater protection against 
malpractice and fiduciary risks than the insurance policies required by 
our current regulations. There is no additional cost incurred by 
requiring an Indemnification Agreement.
    This instruction suggests the use of Title Insurance for all loan 
closings. Approved attorneys can provide title insurance coverage as an 
agent for a Title Insurance Company and therefore not be excluded from 
being a closing agent. The advantages of Title Insurance are the 
Indemnification Agreement can be issued by the Title Insurance Company, 
addressed to FmHA, to protect FmHA against losses caused by the 
negligence of closing agents or employees. It will eliminate the need 
for errors and omissions insurance and a fidelity bond. The 
Indemnification Agreement will protect FmHA for 100 percent of the loan 
transaction, not a limited insured amount.
    An attorney's opinion would provide limited coverage because the 
statute of limitations on an attorney's liability runs from 2 years to 
8 years, depending on the State, from the date of the opinion. If the 
attorney's practice is interrupted, the means for correcting problems 
or collecting damages may become an issue.

List of Subjects for 7 CFR Part 1927

    Loan programs--agriculture, Loan programs--housing and community 
development, Mortgages.

    Therefore, chapter XVIII, title 7, Code of Federal Regulations is 
amended as follows:

PART 1927--TITLE CLEARANCE AND LOAN CLOSING

    1. The authority citation for part 1927 continues to read as 
follows:


    Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 5 U.S.C. 301; 7 CFR 
2.23; 7 CFR 2.70.


    2. Subpart B of part 1927 is revised to read as follows:

Subpart B--Real Estate Title Clearance and Loan Closing

Sec.
1927.51  General.
1927.52  Definitions.
1927.53   Costs of title clearance and closings of transactions.
1927.54  Requirements for closing agents.
1927.55  Title clearance services.
1927.56  Scheduling loan closing.
1927.57  Preparation of closing documents.
1927.58  Closing the transaction.
1927.59  Subsequent loans and/or transfers with assumptions.
1927.60  1927.61 [Reserved]
1927.62  Voluntary conveyances.
1927.63  1927.64 [Reserved]
1927.65  Additional requirements in connection with loans to 
homestead entrymen, contract purchasers of farm units from the 
Bureau of Reclamation, and certain American Indians.
1927.66  Cancellation of loan, assumption, or credit sale.
1927.67-1927.89  [Reserved]
1927.90  State supplements.
1927.91  Exception authority.
1927.92-1927.99  [Reserved]
1927.100  OMB control number.

Subpart B--Real Estate Title Clearance and Loan Closing


Sec. 1927.51  General.

    (a) Types of loans covered by this subpart. This subpart sets forth 
the authorities, policies, and procedures for real estate title 
clearance and closing of loans, assumptions, voluntary conveyances and 
credit sales in connection with the following types of Farmers Home 
Administration (FmHA) loans: Farm Ownership (FO), Nonfarm Enterprise 
(FO-NFE), Emergency (EM), Operating (OL), Rural Housing (RH), Farm 
Labor Housing (LH), Rural Rental Housing (RRH), Rural Cooperative 
Housing (RCH), Soil and Water (SW), Indian Land acquisition loans 
involving nontrust property, and NonProgram (NP) loans. This subpart 
does not apply to guaranteed loans.
    (b) Programs not covered by this subpart. Title clearance and 
closing for all other types of FmHA loans and assumptions will be 
handled as provided in the applicable program instructions or as 
provided in special authorizations from the National Office.
    (c) Review by the Office of the General Counsel (OGC). When 
required by applicable program regulations, such as for multi-family 
housing (MFH) organizations or other complex cases as determined by the 
State Director, the State Director will request OGC to review the 
docket and issue closing instructions.


Sec. 1927.52  Definitions.

    Approval official. The FmHA employee who has been delegated the 
authority to approve, close, and service the particular kind of loan 
will approve an attorney or title company as closing agent to close 
these loans. If a loan must be approved at a higher level because of 
the dollar amount or for other reasons, the initiating office may 
approve the closing agent.
    Approved attorney. A duly licensed attorney who provides title 
opinions directly to FmHA and the borrower or upon whose certification 
of title an approved title insurance company issues a policy of title 
insurance. Approved attorneys also close loans, assumptions, credit 
sales, and voluntary conveyances, and disburse funds in connection with 
FmHA loans.
    Approved title insurance company. A title insurance company 
(including its local representatives, employees, agents, and attorneys) 
that issues a policy of title insurance. Depending on the local 
practice, an approved title insurance company may also close loans, 
assumptions, credit sales, and voluntary conveyances, and disburse 
funds in connection with FmHA loans. If the approved title insurance 
company does not close the loan itself, the loan closing functions may 
be performed by approved attorneys or closing agents authorized by the 
approved title insurance company.
    Borrower. The party(ies) indebted after the loan, assumption, or 
credit sale is closed.
    Certificate of Title. A certified statement as to land ownership, 
based upon examination of record title.
    Closed loan. A loan is considered to be closed when the mortgage is 
filed for record.
    Closing agent. The approved attorney or title company selected by 
the applicant and approved by FmHA to provide closing services for the 
proposed loan. Unless a title insurance company also provides loan 
closing services, the term ``title company'' does not include ``title 
insurance company.''
    Closing protection letter. An agreement issued by an approved title 
insurance company which is an American Land Title Association (ALTA) 
form Closing Protection Letter (Rev. 3/27/87) or is otherwise 
acceptable to FmHA and which protects FmHA against damage, loss, or 
injury as a result or negligence by the issuing agent, approved 
attorney, or title company when title clearance is done by means of a 
policy of title insurance. Depending on the area, Closing Protection 
Letters may also be known as ``Insured Closing Letters,'' 
``Indemnification Agreements,'' ``Insured Closing Service Agreements,'' 
or ``Statements of Settlement Service Responsibilities.''
    Cosigner. A party who joins in the execution of a promissory note 
or assumption agreement to guarantee repayment of the debt.
    Credit sale. A sale in which FmHA provides credit to the 
purchaser(s) of FmHA inventory property. Title clearance and closing of 
a credit sale are the same as for an initial loan except the property 
is conveyed by quitclaim deed.
    Exceptions. Exceptions include but are not limited to recorded 
covenants, conditions, restrictions, reservations, liens, encumbrances, 
easements, rights-of-way, leases, mineral, oil, gas and geothermal 
rights (with or without the right of surface entry), timber and water 
rights, judgments, pending court proceedings, probate proceedings and 
agreements which limit or affect the title to the property.
    Fee simple. An estate in land of which the owner has unqualified 
ownership and power of disposition.
    FmHA. The United States of America acting through the Farmers Home 
Administration of the Department of Agriculture.
    General warranty deed. A deed in which the grantor or seller 
warrants or guarantees as a whole that a good quality title is being 
conveyed.
    Indemnification agreement. An agreement that protects FmHA against 
damage, loss, or injury as a result of negligence on behalf of the 
issuing agent, approved attorney, or Title Company. May also be known 
as: (1) Insured closing letter, (2) Closing protection letter, (3) 
Insured closing service agreement, (4) Statement of settlement service 
responsibilities, or letters which provide similar protection.
    Issuing agent. An agent who performs loan closing services and who 
is authorized to issue title insurance for an approved title insurance 
company. This term includes ``title company.''
    Land contract (Contract for Deed). This is a contract between the 
buyer and seller of land in which the buyer has the right to possession 
and use of the land and over a period of time (usually in excess of one 
year) makes periodic payments of a portion of the purchase price to the 
seller. The seller retains legal title to the property until the final 
payment is made, at which time the buyer will receive a deed to the 
land vesting fee title in the buyer. This is a security device whereby 
the seller finances a portion of the purchase price for the buyer.
    Mortgage. Real estate security instrument, includes deed of trust 
and deed to secure debt. Forms FmHA 1927-7 ``Real Estate Mortgage or 
Deed of Trust For ______'' (state), FmHA 1927-11 ``Warranty Deed 
(______)'' (state), and FmHA 1927-12 ``Warranty Deed'' (state) will be 
used to secure a mortgage to FmHA.
    OGC. Refers to the United States Department of Agriculture (USDA) 
Regional Attorney, Associate Regional Attorney, or Assistant Regional 
Attorney, who provides legal counsel to FmHA for loan making and loan 
servicing actions.
    Program regulations. Refers to the FmHA regulations for the 
particular loan program involved (e.g., subpart A of part 1944 for 
rural housing loans).
    Quitclaim deed. A transfer of the grantors' interest in the title, 
without warranties or covenants. This type of deed is used by FmHA to 
convey title to purchasers of inventory property.
    Seller. Individual(s) or other entity(ies) which are conveying 
ownership in real property to an FmHA applicant/buyer.
    Special warranty deed. A deed containing a covenant whereby the 
grantor agrees to protect the grantee against any claims arising during 
the grantor's period of ownership.
    Title clearance. Examination of a title and its exceptions to 
assure FmHA that the loan is legally secured and has the required 
priority.
    Title defects. Any exception or legal claim of ownership (through 
deed, lien, judgement, or other recorded document), on behalf of a 
third party, which would prevent the seller from conveying a clear 
title to the entire property.
    Vendee. The buyer.
    Vendor. The seller.
    Voluntary conveyance. A method of liquidation by which title to 
FmHA security is transferred by a borrower to FmHA by deed in lieu of 
foreclosure.
    Warranty deed. A deed in which the grantor warrants that he/she has 
the right to convey the property, the title is free from encumbrances, 
and the grantor shall take further action necessary to perfect or 
defend the title.


Sec. 1927.53  Costs of title clearance and closings of transactions.

    The borrower or the seller, or both, will be responsible for 
payment of all costs of title clearance and closing of the transaction 
and will arrange for payment before the transaction is closed. In 
voluntary conveyance cases to FmHA, these costs will be paid as 
provided in Sec. 955.10(g) of subpart A of part 1955 of this chapter. 
In a case involving the purchase or sale of real estate, the option or 
sales contract must state who will pay the title clearance and closing 
costs. These costs will include any costs of abstracts of title, land 
surveys, attorney's fees, owner's and lender's policies of title 
insurance, obtaining curative material, notary fees, documentary 
stamps, recordation costs, tax monitoring service, and other expenses 
necessary to complete the transaction.


Sec. 1927.54  Requirements for closing agents.

    (a) Form of Title Certification. The State Director will, with OGC 
approval, issue a state instruction specifying whether title insurance 
will be required at loan closing for some or all loans in the state or 
if, in some or all cases, a title opinion from an approved attorney 
will be sufficient. Title insurance is the recommended method for 
protecting FmHA interests. State Directors are authorized to require 
title insurance for all loan closings or some loan closings based on 
the type of loan and/or the geographical area of the state. If title 
insurance is used, State Directors are authorized to require a closing 
protection letter issued by an approved title insurance company to 
cover the closing agent, if such closing protection letters are 
customarily provided by title insurance companies in the state. The 
State Director's determination to require the use of title insurance 
will be based on the commercial and residential loan closing practices 
of the state and the economic and legal feasibility of obtaining title 
insurance.
    (b) General. An attorney or title company may act as a closing 
agent and close FmHA real estate loans, provide necessary title 
clearance, and perform such other duties as are set forth in this 
subpart. A closing agent will be responsible for closing FmHA loans and 
disbursing both FmHA loan funds and funds provided by the borrower in 
connection with the FmHA loan. The borrower will select his or her 
closing agent. FmHA employees will not recommend the use of any 
particular closing agent or title insurance company, although as 
provided in Sec. 927.54(a) the borrower may be required by a state 
instruction to provide title clearance with either a title insurance 
policy or an attorney's opinion. If title clearance is by an attorney's 
opinion, the approval official will approve the attorney who will 
perform the closing on a case-by-case basis in accordance with 
Sec. 927.54(c) prior to loan closing. In such cases the attorney will 
be approved after submitting Form FmHA 1927-19, ``Certification of 
Attorney.'' If title certification will be by means of a policy of 
title insurance, the title company which will issue the policy must 
have been approved in accordance with Sec. 927.54(d).
    (c) Approval of attorneys. Any attorney selected by an FmHA 
applicant, who will be providing title clearance where the 
certification of title is based on an attorney's opinion, must submit a 
completed Form FmHA 1927-19 certifying to professional liability 
insurance coverage and fidelity coverage of the attorney and the 
attorney's employees. The approval official will approve on a case-by-
case basis any attorney who is duly licensed to practice law in the 
state where the real estate security is located and who complies with 
the bonding and insurance requirements in this section. If the 
certification of title will be by means of title insurance, any 
attorney or closing agent designated as an approved attorney or closing 
agent by the approved title insurance company which will issue the 
policy of title insurance will be acceptable, and when covered by a 
closing protection letter, will not be required to obtain professional 
liability insurance or a fidelity bond, if the closing protection 
letter is the ALTA form Closing Protection Letter or provides at least 
equivalent protection to FmHA as the professional liability and 
fidelity insurance required in paragraphs (c) (1) and (2) of this 
section. Each approved title insurance company may provide a master 
list of their approved attorneys and closing agents, addressed to the 
FmHA State Director, that are covered by its closing protection 
letters.
    (1) An attorney issuing an attorney's title opinion must have in 
full force and effect an acceptable professional liability insurance 
policy for errors and omissions. The State Director will determine the 
appropriate level of such insurance and what level of deductible is 
permissible according to what is customary in the area and necessary 
for the protection of FmHA. The State Director will issue a State 
Instruction specifying this coverage. Required insurance will, as a 
minimum, cover the amount of the loan to be closed.
    (2) An attorney that is issuing an attorney's title opinion or, if 
title insurance is being obtained, an attorney or closing agent that is 
not covered by a closing protection letter must have in full force and 
effect a fidelity type bond. If partners, associates, or members of the 
staff of the attorney or closing agent have access to the funds in the 
escrow account, each such individual must either have a separate 
fidelity type bond to cover any fraudulent or dishonest act or such 
person(s) may be covered by a blanket fidelity bond. While it is 
recommended that $50,000 of protection be maintained for each 
individual person, the State Director will determine the appropriate 
level of insurance according to what is customary in the area and 
necessary for the protection of FmHA. The State Director will approve 
the form of the bond although Form FmHA 1927-18, ``Fidelity Bond for 
Loan Closing Attorneys,'' is an optional form that is acceptable to 
FmHA and may be used.
    (d) Approval of title companies. FmHA will approve any title 
insurance company which issues policies of title insurance in the state 
where the security property is located if the:
    (1) Form of the owner's and lender's policies of title insurance to 
be used in closing FmHA loans are acceptable to the State Director, and 
will contain only standard types of exceptions and exclusions approved 
in advance by the approval official with the advice of OGC.
    (2) Title insurance company is licensed to do business in the state 
(if a license is required) and is not Federally debarred or suspended.
    (3) Title insurance company submits copies of audited financial 
statements, Form 9 financial statements, or other approved financial 
statements satisfactory to the State Director, which indicate that the 
company has financial ability to cover losses arising out of its 
activities as a title insurance company and under any closing 
protection letters issued by the title insurance company. The financial 
statements must also demonstrate that the title insurance company has 
sufficient resources to reimburse FmHA for any losses caused by fraud 
or dishonesty by the company and its authorized agents, or failure of 
the company or its authorized agents to follow or comply with FmHA's 
written closing instructions.
    (4) Title insurance company agrees that the title insurance company 
employee or closing agent who supervises the closing of the transaction 
will be authorized to receive funds and give receipts for the company's 
charges.
    (5) Above listed approval process will be repeated at least every 5 
years, or more often if adverse information becomes available, to 
insure continued compliance by the title insurance company.
    (e) Responsibility of approval official. In addition to approving 
closing agents, the approval official will inform all closing agents 
used in connection with FmHA closing of their duties and 
responsibilities under this subpart, applicable state supplements, and 
any changes or additional requirements which may be imposed. A package 
containing a copy of this subpart, applicable forms, state supplements, 
and other pertinent material will be provided to the closing agent as 
needed.
    (f) Conflict of interest. A closing agent who has, or whose spouse, 
children, or business associates have, a financial interest in the real 
estate which will secure the FmHA debt cannot be involved in the title 
clearance or loan closing process. Financial interest includes having 
either an equity, creditor, or debtor interest in any corporation, 
trust, or partnership with a financial interest in the real estate 
which will secure the FmHA debt.
    (g) Debarment or suspension. No attorney, title company, title 
insurance company, or closing agent, which has been debarred or 
suspended from participating in Federal programs, may participate in 
any aspect of the FmHA loan closing and title clearance process, in 
accordance with FmHA Instruction 1940-M.
    (h) Special provisions. Closing agents are responsible for having 
current knowledge of the requirements of state laws in connection with 
loan closing and title clearance and should advise the State Director 
of any changes in state laws which necessitate changes in state 
mortgage forms and/or state supplements.
    (i) Rejecting closing agents or title insurance companies. If the 
approval official (or the State Director for title insurance companies) 
cannot approve the closing agent selected by the applicant in 
accordance with paragraphs (c) or (d) of this section, the following 
actions will be taken:
    (1) The attorney or closing agent will be notified within 5 
business days of the specific reasons for rejection. No appeal rights 
will be given as the closing agent/attorney is not the direct recipient 
of program benefits.
    (2) The applicant will be notified within 5 business days of the 
rejection. It is the applicant's responsibility to decide whether to 
continue with the rejected closing agent/attorney, if the reasons for 
rejection can be removed before any legal costs are incurred, or if 
another closing agent/attorney will be selected.
    (3) If a title insurance company has requested approval, the title 
insurance company will be notified within 30 days after all relevant 
information requested by the State Director in connection with the 
approval decision has been received. If the title insurance company is 
rejected, it will be notified at that time of the specific reasons for 
rejection. No appeal rights will be given as the title insurance 
company is not the direct recipient of program benefits.


Sec. 1927.55  Title clearance services.

    (a) Responsibilities of closing agents. Services to be provided to 
FmHA and the borrower by a closing agent in connection with the 
transaction vary depending whether a title insurance policy, or title 
opinion are being furnished. The closing agent is expected to perform 
these services without unnecessary delay. Delay in providing services 
without justification may be grounds for not approving the closing 
agent in future cases.
    (b) Initial responsibility of approval official. The approval 
official will furnish the closing agent with Form FmHA 1927-4, 
``Transmittal of Title Information,'' all the information and documents 
called for therein (including waivers, easements, and FmHA forms), and 
any information not contained in this subpart regarding FmHA policies 
and procedures applicable to the type of transaction involved.
    (c) Ordering title services. The approval official will notify the 
borrower and seller, if applicable, that an attorney or title company 
must be employed to examine the title and perform other services in 
connection with the closing of the transaction. Application for title 
examination or insurance will be made by the borrower to an attorney or 
title company. Application for mortgage title insurance will be on a 
form which has been approved by the approval official. The mortgagee 
policy will be for at least the amount of the loan. The United States 
of America will be named as the mortgagee insured. Attorney services 
may be requested in the form of FmHA Guide Letter No. 1927-B-1 
(available in any FmHA office).
    (d) Use of title opinion. If a title opinion will be issued, a 
title examination will include searches of the records, or certificates 
from the clerks of the appropriate State courts, Federal Bankruptcy 
courts and United States district courts, for the period determined 
necessary by local custom, to issue a title opinion. A Form FmHA 1927-
9, ``Preliminary Title Opinion,'' Form FmHA 1927-10, ``Final Title 
Opinion,'' or a certificate of title will be issued to the approval 
official. If either form is not legally sufficient in a particular 
state, an OGC approved state form will be used. The closing agent will 
determine:
    (1) The legal description and all owner(s) of record of the real 
property,
    (2) Whether there are any outstanding mortgages, liens, judgments 
or pending suits in Federal or State courts (as disclosed by a lis 
pendens or other similar notice of a pending lawsuit), and advise the 
approval official and borrower of the nature and legal effect of 
outstanding interests or exceptions such as liens, encumbrances, 
leases, easements, covenants, conditions, restrictuions, reservations, 
and rights relating to mineral, oil, gas, geothermal, timber and water 
rights (including the presence or absence of the right of entry by 
holder of such rights), prior sales of part of the property judgments, 
probate proceedings or pending court actions affecting the real 
property or other outstanding exceptions or interests to assist in 
determining:
    (i) Whether the outstanding interests or exceptions affect the 
value of the property or its operation, and
    (ii) Which exceptions must be corrected in order for the 
borrower(s) to obtain good and marketable title of record in accordance 
with prevailing title examination standards, and for FmHA to obtain a 
valid lien of the required priority.
    (3) Whether there are outstanding Federal or State tax claims 
(including taxes which under state law may become a lien superior to a 
previously attaching mortgage lien),
    (4) Whether outstanding judgments of record, bankruptcy, 
insolvency, or probate proceedings involving any part of the property, 
whether already owned by the borrower, or to be acquired by assumption 
or with loan funds, or involving the borrower or the seller exist,
    (5) If a water right is to be included in the security for the 
loan. The closing agent must attach a full legal description of the 
water right,
    (6) If wetlands easements or other conservation easements have been 
placed on the property,
    (7) If there are any liens or recorded claims which would prevent 
FmHA from obtaining an enforceable mortgage lien of the required 
priority on the security property, and
    (8) If there are any exceptions of record.
    (9) What measures are required for preparing, obtaining, or 
approving curative material, conveyances, and security instruments,
    (10) Provide copies of these interests and exceptions as requested 
by the approval official.
    (e) Use of title insurance. When title insurance is to be obtained, 
the approval official will be furnished with a title insurance binder 
disclosing any defects in, and encumbrances against, the title, the 
conditions to be met to make the title insurable, and the curative or 
other actions to be taken before closing of the transaction. The binder 
must include a commitment to issue a mortgagee and owner's title policy 
in an amount at least equal the amount of the loan. In the case of an 
assumption without a subsequent loan, the existing policy may be 
continued if the coverage meets or exceeds the assumption balance and 
the title company agrees in writing to extend coverage in full force 
and effect.
    (f) Approval official's responsibilities after receipt of 
preliminary title opinion or title insurance binder. Upon receipt of 
the preliminary title opinion or title insurance binder, the approval 
official will:
    (1) Check the opinion or binder carefully. If any required 
information is omitted, or if the standard form of opinion or binder is 
amended, the approval official will return it for completion or 
correction. If the closing agent is unable or unwilling to comply, the 
approval official will send the opinion or binder with a full 
explanation to OGC through the State Director for advice.
    (2) Check the legal description of the land, water rights, rights-
of-way, easements, and other security involved, to determine that the 
description covers all of the property rights intended to be taken as 
security.
    (3) Review all exceptions to title shown in the preliminary title 
opinion or title insurance binder. The approval official will determine 
which exceptions must be modified, eliminated or waived, or whether an 
agreement with prior lienholders is necessary or advisable to protect 
FmHA's interests. If prior encumbrance(s) will remain, the approval 
official should obtain and review a copy of each to insure that its 
terms are acceptable to FmHA. If an option or sales contract which 
lists acceptable exceptions is involved, the approval official will 
determine whether the exceptions in the preliminary title opinion or 
title insurance binder are the same as those in the option or sales 
contract and inform the applicant of discrepancies. If the approval 
official has any doubt as to the acceptability or effect of any 
exception, the applicant will be requested to obtain a clarification. 
The approval official will consult with the closing agent and/or the 
State Director when necessary to determine the acceptability of any 
exception. If the approval official determines that any defects cannot 
be corrected, or the effect of certain exceptions on the title, 
suitability, security value, or successful operation of the property is 
not clear, and they cannot be corrected or eliminated without undue 
expense, the approval official will forward the preliminary title 
opinion or title insurance binder to the State Director together with 
comments regarding the objectionable features and copies of the 
exceptions when needed.
    (i) If, with the advice of OGC, the State Director determines that 
the exceptions will not adversely affect the title to the property or 
its suitability, security value, or successful operation, the State 
Director will advise the approval official. The approval official will 
then arrange for closing.
    (ii) If the State Director, with the advice of OGC, finds that 
these exceptions will adversely affect the title to the property, its 
suitability, security value, or successful operation, the State 
Director may waive them conditionally and instruct the approval 
official as to how the conditions may be met, or instruct the approval 
official that the loan cannot be closed because of the defect.


Sec. 1927.56  Scheduling loan closing.

    The approval official may arrange a closing when he/she determines 
that exceptions shown in the preliminary title opinion or title 
insurance binder (if any) will not adversely affect the suitability, 
security value, or successful operation of the property.
    (a) The approval official will make sure that all requirements of 
subpart I of part 1940 of this chapter have been met before the loan is 
closed.
    (b) In arranging for loan closing, the approval official will send 
Form FmHA 1927-15, ``Loan Closing Instructions/Loan Closing Statement 
For,'' to the the closing agent. When a title insurance commitment is 
involved, the ``loan closing instructions'' will include any 
corrections required by the commitment. Therefore, the title insurance 
commitment must be received before the final closing instructions are 
transmitted. At the same time, send written notification of loan 
closing to the applicant. For single family housing loans Form FmHA 
1927-16, ``Notification of Loan Closing,'' will be used to notify the 
applicant.


Sec. 1927.57  Preparation of closing documents.

    (a) Preparation of deeds. The closing agent will prepare, complete, 
or approve deeds necessary for title clearance and closing of the 
transaction. FmHA forms will be used whenever possible.
    (1) Types of estates for married borrowers. If the borrowers are 
married, FmHA prefers, but will not require, that title to the real 
estate will be held in such a way that, upon the death of a borrower, 
it will pass to the surviving spouse by law to prevent the real estate 
from being tied up in probate proceedings. Title may be held in any 
manner that permits obtaining the required mortgage.
    (2) Deeds will be prepared as follows:
    (i) Conveyances of title to borrowers by parties other than FmHA 
will be by general warranty deed. If a general warranty deed cannot be 
obtained, a special warranty deed, quitclaim deed, or grant deed may be 
used if the entity providing title clearance (closing agent) determines 
that the deed used will vest in the borrower a good and marketable 
title of record. All conveyances by FmHA will be by quitclaim deed.
    (ii) The deed to the security property will show the exceptions to 
which the title is subject and should, where customary, contain a tie-
in description showing that it covers the same land or part of the same 
land as that designated or described in another deed or mortgage 
described specifically by date, parties, and recording data.
    (iii) Each deed should recite legal consideration.
    (b) Preparation of mortgages. The closing agent will insure that 
all mortgages are properly prepared, completed, executed, and filed for 
record. Where applicable, the mortgages should recite that it is a 
purchase money mortgage. The following requirements will be observed in 
preparing FmHA mortgages:
    (1) Real estate mortgage forms. FmHA mortgage forms will be used in 
all cases and other FmHA forms will be used whenever possible. Form 
FmHA 1927-1, ``Real Estate Mortgage or Deed of Trust For ______,'' 
(state) will be used for all insured and direct loans except where Form 
FmHA 1927-7 (State), is used for all rural housing loans. These forms 
will be prepared and distributed in accordance with state supplements. 
When a loan is made to a homestead entryman or to a contract purchaser 
of a farm unit from the Bureau of Reclamation, a rider to Form FmHA 
1927-1 will be used per state supplement.
    (2) Number of copies.
    (i) The original recorded mortgage is to be retained in the 
borrower's case file unless the original mortgage is retained by the 
recorder, and a conformed copy will be provided to the borrower.
    (ii) When the original is to be retained by the recorder, an 
original and two conformed copies will be prepared. One conformed copy 
will be retained in the borrower's case file and one conformed copy 
will be provided to the borrower.
    (iii) Extra copies of mortgages may be needed in individual cases 
in some participation loans, loans on reclamation projects, when 
security is taken on trust or restricted property involving loans to 
Native American, and other similar situations.
    (iv) The closing agent will distribute copies to appropriate 
parties at loan closing or as soon as possible thereafter.
    (3) Persons required to execute mortgage. The mortgage will be 
executed by the borrower and all other persons having an interest in 
the real property being mortgaged whose execution is necessary for FmHA 
to have the required lien priority, (for example, a spouse's right of 
dower or curtesy) so that, in the event of default, the mortgage will 
be enforceable against all such interests. Persons signing the 
promissory note and the mortgage will use exactly the same names which 
appear on the title.
    (i) When the applicant is a corporation or cooperative, the 
mortgage will be executed by the authorized officers on behalf of the 
corporation or cooperative. Authorization must be granted to the 
officers by either:
    (A) The Articles of Incorporation and Bylaws, or
    (B) A duly adopted resolution of the board of directors authorizing 
such execution and indicating which officers are authorized to execute 
the loan documents on behalf of the corporation/cooperative, unless 
applicable FmHA instruction or state law prohibits. The resolution must 
bear the certification of the corporate/cooperative secretary that it 
was duly adopted and not revoked and have the corporate seal affixed, 
if applicable, to be acceptable. When shareholder approval is necessary 
the resolution must recite that shareholder approval has been obtained.
    (ii) When the applicant is a partnership, the mortgage must be 
executed by the partners required by the partnership agreement to 
execute loan documents on its behalf.
    (iii) When the applicant is a trust, the requirements of the trust 
agreement and state law shall control as to who is authorized to 
execute the loan documents.
    (4) Date of Execution. The mortgage will be dated and executed on 
the same date as the promissory note. If necessary, the mortgage may be 
done on a different date provided it is not executed before the date of 
the note or after the date of closing.
    (5) Title exceptions. The mortgage will specifically describe all 
exceptions it will be subject to, if customary under local practice or 
required by state law or state supplement. The exceptions will normally 
be shown as part of or immediately following the legal description of 
the land and must be the same as shown on the final title opinion or 
mortgagee policy of title insurance. In cases where specific 
description of each exception to title is not customary or required, 
these exceptions may be described by use of a general statement similar 
to the following (unless inconsistent with applicable State law): 
``Subject, however, to all outstanding covenants, conditions, 
restrictions, reservations, liens, encumbrances, easements, rights of 
way, leases, mineral, oil, gas and geothermal rights (with or without 
the right of surface entry), timber rights, water rights, judgements, 
pending court proceedings, probate proceedings and agreements which 
limit the title to the property.''
    (6) Releasing or retaining existing mortgages in refinancing cases. 
When there is an outstanding FmHA real estate mortgage against the 
property and the loan secured by the mortgage is being refinanced with 
the current loan, the mortgage for the outstanding loan will be 
superseded and will be released at the time of loan closing, unless it 
is necessary under state law to keep the existing mortgage in effect to 
retain a valid lien of the same priority for the obligation being 
refinanced.
    (7) Describing notes in mortgages. In most cases, only the note(s) 
for the new loan(s) needs to be described when a subsequent loan is 
made and a subsequent mortgage is taken. The note(s) for any unpaid 
loan(s) secured by real estate will not be described in the mortgage 
unless the approval official determines:
    (i) It is necessary to do so to protect the government's interest,
    (ii) The description of the unpaid prior secured note(s) in the 
mortgage being taken would not result in a higher title insurance 
premium for the new mortgage, or
    (iii) State law requires that all original notes be presented when 
filing a security instrument. A State supplement should reflect this 
exception when applicable.
    (8) Determining due date of final installments. The ``Due Date of 
Final Installment,'' as shown in the mortgage, is determined by adding 
the number of years over which the loan is payable to the date of the 
promissory note: for example, if the note is dated March 30, 1987, and 
the final payment is due and payable 20 years from that date, the ``Due 
Date of Final Installment'' is March 30, 2007.
    (9) Alteration of mortgage form. A mortgage form may be altered 
pursuant to a state supplement having prior approval of the National 
Office, or in a special case, to comply with the terms of loan approval 
prescribed in accordance with program instructions. No other 
alterations in the printed mortgage forms will be made without prior 
approval of the National Office. Any changes made by deletion, 
substitution, or addition (excluding filling in blanks) will be 
initialed in the margin by all persons signing the mortgage.
    (10) Special requirements imposed by program instructions. Some 
program instructions require that the mortgage forms be modified. In 
such cases, either OGC or the approval official will modify the FmHA 
mortgage form as specified. The closing agent will make sure that the 
modification has been made prior to execution of the mortgage.
    (11) Mortgages on leasehold estates. When the FmHA security 
interest is a leasehold estate, unless state law or state supplement 
otherwise provides, the Forms FmHA 1927-1 or FmHA 1927-7 will be 
modified as follows:
    (i) In the space provided on the mortgage for the description of 
the real property security, the leasehold estate and the land covered 
by the lease must be described. The following language must be used: 
``All of borrower's right, title and interest in and to a leasehold 
estate for an original term of ______ years, commencing on ______, 19 
______, created and established by and between ______ as lessor and 
owner and ______ as lessee, including any extensions and renewals 
thereof, a copy of which lease was recorded/filed in book ______, page 
______, as instrument number ______, in the Office of the (e.g., County 
Clerk), for the aforesaid county and state and covering the following 
real property: ______.''
    (ii) Immediately preceding the covenant starting with the words 
``should default,'' the following covenant will be added: ``(    ) 
Borrower covenants and agrees to pay when due all rents and any and all 
other charges required by said lease, to comply with all other 
requirements of said lease, and not to surrender or relinquish, without 
the government's prior written consent, any of borrower's right, title 
or interest in or to said leasehold estate or under said lease while 
this mortgage remains of record.''
    (12) Mortgages on land purchase contract. When the FmHA security 
interest is on a borrower's interest in a land purchase contract, OGC 
will provide language to be used to modify the Form FmHA 1927-1 or FmHA 
1927-7.
    (13) Legal description. The legal description on the mortgage 
should be taken directly from the title insurance commitment or the 
title abstract to insure accuracy of the legal description.
    (c) Preparation of the promissory note. The closing agent will make 
sure that the promissory note (or assumption agreement) is completed in 
accordance with the forms manual insert (FMI), and executed. The 
approval official will determine who is to execute the promissory note, 
including cosigners, if necessary, in accordance with program 
instructions and provide the closing agent with the names of these 
individuals. If the applicant is a corporation, partnership, or trust, 
the approval official will provide the name(s) and title(s) of the 
individual(s) executing the promissory note on behalf of the entity. 
Any other signatures on the note (or assumption agreement) needed to 
insure the required security, as provided in state supplements, will be 
obtained. Persons having a disability of minority or mental 
incompetency, or persons who have not been legally admitted for 
residency in the U.S., its territories, or possessions, are not to 
execute the promissory note. The date shown on the note will be the 
date it is executed by the borrower which may not be later than the 
date of the mortgage.
    (d) Preparation of protective instruments. The closing agent will 
properly prepare, complete, and/or approve releases and curative 
documents necessary for title clearance and closing, in recordable form 
and record them if required.
    (1) Prior lienholder's agreement. If any liens (other than FmHA 
liens or tax liens to local governmental authorities) or security 
agreements (hereafter called ``liens''), with priority over FmHA's 
mortgage will remain against the real property securing the loan(s), 
the lienholders must execute, in recordable form, agreements containing 
all of the following provisions:
    (i) The prior lienholder shall agree not to declare the lien in 
default or accelerate the indebtedness secured by the prior lien for a 
specific period of time after notice to FmHA. The agreement must:
    (A) Provide that the specified period of time will not commence 
until the lienholder gives written notice of the borrower's default and 
the prior lienholder's intention to accelerate the indebtedness to the 
FmHA office servicing the loan,
    (B) Include the address of the FmHA servicing office,
    (C) Give FmHA the option to cure any monetary default by paying the 
amount of the borrower's delinquent payments to the prior lienholder, 
or pay the obligation in full and have the lien assigned to FmHA, and
    (D) Provide that the prior lienholder will not declare the lien in 
default for any nonmonetary reason if FmHA commences liquidation 
proceedings against the property and thereafter acquires the property.
    (ii) When the prior lien secures future advances, including the 
lienholder's costs for borrower liquidation or bankruptcy, which under 
state law have priority over the mortgage being taken (or a FmHA 
mortgage already held), the prior lienholder shall agree not to make 
advances for purposes other than taxes, insurance or payments on other 
prior liens without written consent of the State Director.
    (iii) The prior lienholder shall consent to FmHA making (or 
transferring) the loan and taking (or retaining) the related mortgage 
if the prior lien instrument prohibits a loan or mortgage (or transfer) 
without the prior lienholder's consent.
    (iv) The prior lienholder shall consent to FmHA transferring the 
property subject to the prior lien after FmHA has obtained title to the 
property either by foreclosure or voluntary conveyance if the prior 
lien instrument prohibits such transfer without the prior lienholder's 
consent.
    (2) Notice of foreclosure agreements. These agreements will be 
obtained only when required by a state supplement. As a precautionary 
measure, the state supplement will require notice agreements when OGC 
determines that state law permits junior liens of private parties to be 
extinguished by foreclosure of a prior lien without the junior 
lienholder being made parties or being given actual notice. The state 
supplement will specify the number of days within which notice of 
foreclosure is required by the agreement.
    (3) Leaseholds. When the FmHA security interest is on a leasehold, 
the approval official must review the lease to make sure that it meets 
the security and duration requirements of the program instructions. If 
not, it will be necessary for the landlord and tenant to amend the 
lease to meet these requirements at closing.
    (4) Agreement by holder of vendor's interest under land contract. 
If the buyer's interest in the security property is that of a buyer 
under a land contract, it will be necessary for the seller (vendor) to 
execute, in recordable form, an agreement containing all of the 
following provisions:
    (i) The vendor shall agree not to sell or voluntarily transfer the 
vendor's interest under the land contract without the prior written 
consent of the FmHA State Director.
    (ii) The vendor shall agree not to encumber or cause any liens to 
be levied against the property.
    (iii) The vendor shall agree not to commence or take any action to 
accelerate, forfeit or foreclose the buyer's interest in the security 
property until a specified period of time after notifying the State 
Director of intent to do so. This period of time will be ninety (90) 
days unless a state supplement otherwise provides. The agreement shall 
give FmHA the option to cure any monetary default by paying the amount 
of the buyer's delinquent payments to the vendor, or paying the vendor 
in full and having the contract assigned to FmHA.
    (iv) The vendor shall consent to FmHA making the loan and taking a 
security interest in the borrower's interest under the land contract as 
security for the FmHA loan.
    (v) The vendor shall agree not to take any actions to foreclose or 
forfeit the interest of the buyer under the land contract because FmHA 
has acquired the buyer's interest under the land contract by 
foreclosure or voluntary conveyance, or because FmHA has subsequently 
sold or assigned the buyer's interest to a third party who will assume 
the buyer's obligations under the land contract.
    (vi) When FmHA acquires a buyer's interest under a land contract by 
voluntary conveyance or foreclosure, FmHA will not be deemed to have 
assumed any of the buyer's obligations under the contract, provided 
that the failure of FmHA to perform any such obligations while it holds 
the buyer's interest is a ground to commence an action to terminate the 
land contract.
    (5) Form of agreement. The form of prior lienholder's agreement, 
forbearance agreement, notice of foreclosure or assignment, and 
agreement by holder of vendor's interest under land contract will be 
prescribed in a state supplement with the concurrence of OGC. When only 
forbearance agreements are needed, they will be obtained on Form FmHA 
1927-8, ``Agreement with Prior Lienholder,'' or, if that form is not 
legally satisfactory, on a state form having the same title. When only 
notice of foreclosure or assignment are required, a separate form for 
this purpose will be used. When both forbearance agreements and notices 
of foreclosure or assignment are required, Form FmHA 1927-8 may be 
amended in order to serve both purposes, a substitute state form may be 
used for both purposes, or Form FmHA 1927-8 may be used and the notice 
agreement obtained on a separate state form.
    (6) Executing, acknowledging, and recording. When an agreement is 
required by paragraphs (d)(1), (d)(2), (d)(3), or (d)(4) of this 
section, the closing agent will determine at the time of closing that 
the agreement is properly completed, executed, sealed, witnessed, 
acknowledged, and recorded as required by state law or state 
supplement.
    (e) Correction of errors in recorded security instruments. A state 
supplement, subject to OGC's review and approval, will be issued to 
provide guidance in correcting error(s) in recorded security 
instruments.


Sec. 1927.58  Closing the transaction.

    The closing agent will cooperate with the approval official, the 
borrower and the seller, and other necessary parties to arrange the 
time and place of closing. The closing agent will make sure that FmHA 
obtains a valid mortgage lien on the property of the priority required 
by FmHA, subject only to any defects and exceptions approved by the 
approval official or State Director. The ``Date of Closing'' will be 
considered to be the date that the note and mortgage are signed, and 
the loan closing process takes place.
    (a) Disbursement of loan funds. When the closing agent indicates 
that the conditions necessary to close the loan have been met, loan 
funds will be forwarded to the closing agent. Loan funds will not be 
disbursed prior to filing of the mortgage for record; however, when 
necessary, loan funds may be placed in escrow before the mortgage is 
filed for record and disbursed after it is filed. No development funds 
will be kept in escrow by the closing agent after loan closing. Loan 
funds for the payment of a lien may be disbursed only upon receipt of a 
discharge, satisfaction, or release (or assignment where necessary to 
protect the interests of FmHA).
    (b) Title examination and liens or claims against borrowers. The 
closing agent will examine the title for liens against the property and 
claims against the borrower from the terminal date of the preliminary 
title examination up to and including the time of recording the current 
mortgage. If there are no entries of record during the period, except 
the documents required in connection with title clearance and any 
partial release(s) or subordination(s) previously approved by FmHA, the 
transaction may be closed. If there are other entries of record during 
this period, the transaction will not be closed until these entries 
have been cleared of record or administratively approved. The closing 
agent will advise the approval official of the nature of such 
intervening instruments and the effect they may have on obtaining a 
valid mortgage of the priority required or the title insurance policy 
to be issued.
    (c) Taxes and assessments. The closing agent will determine if all 
taxes and assessments against the property which are due and payable 
are paid at or before the time of loan closing. If the seller and the 
borrower have agreed to prorate any taxes or assessment which are not 
yet due and payable for the year in which the closing of the 
transaction takes place, the seller's proportionate share of the taxes 
and assessments will be deducted from the proceeds to be paid to seller 
at closing and will be credited to the amount required to be paid by 
borrower at closing. Certificates or receipts should be produced from 
the taxing authorities to show that taxes or assessments which are due 
and payable have been paid and, if possible, the certificates or 
receipts, or copies, will be kept in the borrower's County Office or 
District Office case file. Appropriate prorations as agreed upon 
between the borrower and seller may also be made for taxes paid by the 
seller which are applicable to a period after the closing date, common 
area maintenance fees, prepaid rentals, insurance (unless the borrower 
is to obtain a new policy of insurance) and growing crops.
    (d) Affidavit regarding work of improvement--(1) Execution by 
borrower. The closing agent will require that a Form FmHA 1927-5, 
``Affidavit Regarding Work of Improvement,'' be completed and executed 
(including acknowledgment) when a loan is being made to a borrower who 
already owns the real estate to be mortgaged. This affidavit will be 
executed by the borrower at closing.
    (2) Execution by seller.  The closing agent will require that Form 
FmHA 1927-5 be completed and executed (including acknowledgment) by the 
seller when the FmHA is making a loan to a borrower to enable the 
borrower to acquire the property (including transfers). This affidavit 
will be executed by the seller at closing.
    (3) Legal insufficiency of affidavit form. If Form FmHA 1927-5 is 
not legally sufficient in a particular state, a state form approved by 
OGC will be used. A similar form that may be required by a title 
insurance company may be substituted for Form FmHA 1927-5.
    (4) Recording. The affidavit will not be recorded unless the 
closing agent deems it necessary and state law permits.
    (5) Delay in closing. The loan will not be closed if, at the loan 
closing, the seller (in a sale transaction) or the borrower (in a 
nonpurchase money loan situation) indicates that construction, repair 
or remodeling has been commenced or completed on the property, or 
related materials or services have been delivered to or performed on 
the property within the time limit specified in the affidavit, unless a 
state supplement otherwise provides. The closing agent will notify the 
approval official, who will determine if the work of improvement will 
result in a lien prior to the FmHA lien. The State Director will, with 
the advice and concurrence of OGC, provide in a state supplement the 
period of time to be used in completing the affidavit.
    (e) Completion of closing documents. The closing agent will 
determine that deeds, promissory notes, mortgages, releases, and other 
curative instruments are completed in accordance with the FMI (sealed 
and witnessed if required by state law) and, if necessary, acknowledged 
and filed for record at the proper time.
    (f) Assignment of future income. If Form FmHA 443-16, ``Assignment 
of Income from Real Estate Security,'' is required in a particular 
case, the approval official will prepare the form and have it available 
for execution by the borrower when the transaction closes. The closing 
agent will see that the form is properly completed, executed (sealed 
and witnessed if required by state law), and acknowledged by the 
borrower.
    (g) Return of loan documents to approval official after loan 
closing. Within one day after loan closing, the closing agent will 
return completed and executed copies of Form FmHA 1927-15, the 
promissory note, all other documents required for loan closing (except 
the mortgage), and the final title opinion or policy of title insurance 
to the approval official. If the recorded mortgage is customarily 
returned to the borrower or closing agent after recording, then it must 
be forwarded to the approval official immediately.
    (h) Final opinion or mortgage title policy. As soon as possible 
after the transaction has been closed:
    (1) Final opinion. The attorney will issue a final opinion to FmHA 
and the borrower on Form FmHA 1927-10, ``Final Title Opinion.'' If that 
form is not legally sufficient in a particular state, a state form 
approved by OGC may be used. Issuance of the final opinion should not 
be held up pending the return of recorded instruments. If it is not 
possible for the final title opinion to show the book and page of 
recordation of the FmHA security instrument, the words ``and is 
recorded'' in paragraph II B of Form FmHA 1927-10 may be deleted and 
the following blank space completed to show the filing office and the 
filing instrument number if available. Attached to the final opinion 
will be required documents then available, including any which the 
approval official has furnished to the attorney which were not 
previously returned. The attorney will ensure that all recorded 
instruments are forwarded or delivered, to the proper parties after 
recording. The certification of title will be forwarded for a voluntary 
conveyance.
    (2) Mortgagee title policy. The closing agent will send or deliver 
the mortgagee title policy, with the United States listed as mortgage 
holder, to the approval official. The policy will be subject only to 
standard exceptions and those outstanding encumbrances, exceptions, 
reservations, and other defects approved by the approval official. If 
an owner's policy of title insurance is requested, the closing agent 
will send or deliver it to the borrower. The closing agent will ensure 
that all recorded instruments are delivered or sent to the proper 
parties after recording.
    (3) Responsibilities of the approval official. The approval 
official will check the final title opinion or mortgagee title policy 
to make sure that the lien priority required in the loan approval has 
been obtained. Form FmHA 1927-15 will be checked to see that funds were 
disbursed as authorized. If these conditions have not been met, the 
approval official will report it to the State Director for advice.
    (i) Other services of the closing agent. (1) The closing agent will 
assist the approval official in preparing, completing, obtaining 
execution, acknowledgment, and recording the required documents when 
necessary. Standard FmHA forms will be used whenever possible. The 
closing agent will keep the approval official advised as to the 
progress of title clearance and preparation of material for closing the 
transaction.
    (2) The closing agent will provide services for voluntary 
conveyances as set forth in Sec. 1927.62 of this subpart, and 
Sec. 1955.10 of subpart A of part 1955 of this chapter.


Sec. 1927.59  Subsequent loans and/or transfers with assumptions.

    Title services and closing for subsequent loans to an existing 
borrower will be done in accordance with previous instructions in this 
subpart, except that:
    (a) Loans closed using title insurance. (1) Title insurance will 
only be obtained if:
    (i) Additional land is being acquired,
    (ii) An initial loan is being refinanced with a subsequent loan,
    (iii) An additional loan is being made where the prior secured loan 
was not subject to title clearance (e.g. where the prior loan was 
secured by the best mortgage obtainable), or
    (iv) An additional section 504 loan is being made where the 
previous loan was unsecured, or secured for less than $7,500 and the 
outstanding debt amount plus the new loan exceeds $7,500.
    (2) When a new mortgagee title policy is required,:
    (i) It will cover the entire real property which is to secure the 
loan, including the real property already owned and any additional real 
property being acquired by the borrower with the loan proceeds.
    (ii) Title insurance coverage will be obtained for the entire 
amount of any subsequent loan plus the amount of any existing loan 
being refinanced. If the existing loan is not being refinanced, the new 
mortgagee policy will insure only the amount of the subsequent loan.
    (b) Loans closed using title opinions. Unless the approval official 
is aware of problems with or discrepancies in the original title 
opinion, the title will be researched back to the date of the last FmHA 
mortgage, except when the conditions of paragraph (a)(1) (i), (ii), or 
(iii) of this section exist. In these cases, the title will be examined 
in accordance with Sec. 1927.55 of this subpart.
    (c) Title services required in connection with assumptions. This is 
set forth in subparts A, B, and C of part 1965 of this chapter as 
appropriate for the loan type.


Secs. 1927.60-1927.61  [Reserved]


Sec. 1927.62  Voluntary conveyances.

    When a borrower offers to convey security, the approval official 
will process and close the transaction according to Sec. 1955.10 of 
subpart A of part 1955 of this chapter. The closing agent will issue a 
certification of title stating that title is vested in the United 
States of America subject only to FmHA liens or prior liens previously 
approved by FmHA in accordance with Sec. 1955.10 of subpart A of part 
1955 of this chapter.


Secs. 1927.63-1927.64  [Reserved]


Sec. 1927.65  Additional requirements in connection with loans to 
homestead entrymen, contract purchasers of farm units from the Bureau 
of Reclamation, and certain American Indians.

    Whenever loans or assumptions are subject to agreements with other 
agencies (e.g. loans to or assumptions by homestead entrymen, American 
Indians, or contract purchasers from the Bureau of Reclamation), the 
title clearance and closing of the transaction will be handled in 
accordance with special instructions issued by FmHA and/or other 
parties involved applicable to the type of transaction, as well as 
those of this subpart. The special instructions may be in form of a 
Memorandum of Understanding with the advice and approval of OGC.


Sec. 1927.66  Cancellation of loan, assumption, or credit sale.

    If it is determined that the transaction will not be closed, the 
approval official will promptly notify the borrower and the following 
parties who are involved in the case at the time the determination is 
made: the seller, attorney(s), OGC, and the title company.


Secs. 1927.67-1927.89  [Reserved]


Sec. 1927.90  State supplements.

    The state supplement issued pursuant to this subpart will have 
prior National Office approval and will be the minimum necessary to 
comply with state laws.


Sec. 1927.91  Exception authority.

    The Administrator may, in individual cases, make an exception to 
any requirement or provision of this subpart which is not inconsistent 
with applicable law or opinion of the Comptroller General. The 
Administrator may exercise this authority upon written request from the 
State Director or an Assistant Administrator provided the Administrator 
determines that application of the requirement or provision would 
adversely affect the Government's interest. Request for exception must 
be supported with documentation to explain adverse effect on the 
Government's interest, proposed alternative courses of actions, and 
show how the adverse effect will be eliminated or minimized if the 
exception is granted.


Secs. 1927.92-1927.99  [Reserved]


Sec. 1927.100  OMB control number.

    The reporting requirements contained in this regulation have been 
approved by the Office of Management and Budget and have been assigned 
OMB control number 0575-0147. Public reporting burden for this 
collection of information is estimated to vary from 5 minutes to 1.5 
hours per response, with an average of .38 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 # 0575-0147), Washington, D.C. 20503.

    Dated: March 1, 1994.
Bob Nash,
Under Secretary, Small Community and Rural Development.
[FR Doc. 94-11311 Filed 5-10-94; 8:45 am]
BILLING CODE 3410-07-U