[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. ----------------------------------------------------------------------- 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