[Federal Register Volume 62, Number 162 (Thursday, August 21, 1997)]
[Rules and Regulations]
[Pages 44393-44404]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-22004]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency

7 CFR Part 1955

RIN 0560-AE88


Implementation of the Inventory Property Management Provisions of 
the Federal Agriculture Improvement and Reform Act of 1996

AGENCIES: Rural Housing Service, Rural Business-Cooperative Service, 
Rural Utilities Service, and Farm Service Agency, USDA.

ACTION: Interim rule with request for comments.

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SUMMARY: This implements provisions of the Federal Agriculture 
Improvement and Reform Act of 1996 (1996 Act) that affect the farm 
credit programs of the Farm Service Agency (FSA), formerly administered 
by the Farmers Home Administration (FmHA). The provisions of this rule 
affect the acquisition, management and disposal of inventory farm 
property by FSA.

DATES: Effective August 21, 1997. Comments must be submitted by October 
20, 1997.

ADDRESSES: Submit written comments to the Farm Credit Programs Loan 
Servicing and Property Management Division, Farm Service Agency, United 
Sates Department of Agriculture, Room 5449-S, Stop 0523, 1400 
Independence Avenue, SW, Washington, DC 20013-0523.

FOR FURTHER INFORMATION CONTACT: James P. Fortner, Senior Realty 
Specialist, Farm Service Agency; Telephone: 202-720-1976; Facsimile: 
202-690-0949. E-mail: [email protected]

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been determined to be significant and was reviewed by 
the Office of Management and Budget under Executive Order 12866.

Regulatory Flexibility Act

    The Farm Service Agency (FSA) certifies that this rule will not 
have a significant impact on a substantial number of small entities as 
defined in the Regulatory Flexibility Act, Pub. L. 96-534, as amended 
(5 U.S.C. 601).
    In addition, the Regulatory Flexibility Act is not applicable to 
this rule since

[[Page 44394]]

the Farm Service Agency (FSA) is not required by 5 U.S.C. 553, or any 
other provisions of law, to publish a notice of proposed rulemaking to 
effect these administrative changes.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, Environmental Program. The issuing agencies have determined 
that this action does not significantly affect the quality of human 
environment, and in accordance with the National Environmental Policy 
Act of 1969, Pub. L. 91-190, an Environmental Impact Statement is not 
required.

The Unfunded Mandate Reform Act of 1995

    Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Pub. L. 
104-4, established requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, FSA 
generally must prepare a written statement, including a cost-benefit 
assessment, for proposed and final rules with Federal mandates that may 
result in expenditures to State, local, or tribal governments, in the 
aggregate, or to the private sector of $100 million or more in any 1 
year. When such a statement is needed for a rule, section 205 of the 
UMRA generally requires FSA to identify and consider a reasonable 
number of regulatory alternatives and adopt the least costly, more 
cost-effective or least burdensome alternative that achieves the 
objectives of the rule.
    This rule contains no Federal mandates (under regulatory provisions 
of title II of the UMRA) for State, local, and tribal governments or 
the private sector. Thus, this rule is not subject to the requirements 
of sections 202 and 205 of the UMRA.

Executive Order 12988

    This interim final rule has been reviewed under Executive Order 
12998, Civil Justice Reform. In accordance with this rule: (1) All 
State and local laws and regulations that are in conflict with this 
rule will be preempted; (2) no retroactive effect will be given to this 
rule: and (3) administrative proceedings in accordance with 7 CFR part 
11 must be exhausted before bringing suit in court challenging action 
taken under this rule unless those regulations specifically allow 
bringing suit at an earlier time.

Executive Order 12372

    For reasons set forth in the Notice regarding 7 CFR part 3015, 
subpart V (48 FR 29115, June 24, 1983), the programs within this rule 
are not affected by Executive Order 12372.

Programs Affected

    This rule does not affect any programs listed in the Catalog of 
Federal Domestic Assistance.

Paperwork Reduction Act

    The information collection requirements contained in this 
regulation have been approved by OMB under the provisions of 44 U.S.C. 
chapter 35 and have been assigned OMB control numbers 0575-0109 and 
0575-0110 in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507). This interim rule does not revise or impose any new 
information collection or recordkeeping requirement from those approved 
by OMB.

Discussion of the Interim Rule

    On April 4, 1996, the 1996 Act was signed into law and required 
certain provisions to be implemented either immediately or no later 
than 90 days from the date of enactment. The specific changes to the 
acquisition, management, and disposal of real and chattel property 
which served as security for FSA farm credit programs loans are 
discussed below:

Liquidation and Acquisition

    The 1996 Act eliminated the Leaseback/Buyback program which 
provided the former borrower and owner, the borrower's spouse or 
children, stockholder in the corporation if the borrower and owner was 
a corporation held exclusively by members of the same family, or the 
previous operator with rights to lease back an acquired property for up 
to 5 years with an option to purchase. Several changes were made by the 
1996 Act in relationship to the voluntary conveyance of property by 
Native American borrowers when new property is located within the 
boundaries of an Indian reservation. Leaseback/buyback rights as well 
as the regular leasing authority were eliminated for Native American 
borrowers. See Sec. 638(1) of the 1996 Act which eliminated the 
leaseback/buyback program, as well as most of the Agency's authority to 
lease inventory property (previously contained in Sec. 335(e)(3) of the 
Consolidated Farm and Rural Development Act) (CONACT) and to resolve 
disputes over lease terms (previously contained in Sec. 335(e)(9) of 
the CONACT).
    Under the program provided by the 1996 Act, if the Native American 
borrower and owner does not voluntarily convey the real property to 
FSA, FSA will, not less than 30 days prior to the foreclosure sale of 
the property, provide the Native American borrower and owner with the 
option of (1) requiring FSA to assign the loan and security instruments 
to the Secretary of the Interior, or (2) requiring FSA to assign the 
loan and security instruments to the tribe having jurisdiction over the 
reservation where the property is located pursuant to 
Sec. 335(e)(1)(D)(v)(I)(bb) of the CONACT. If the Native American 
borrower and owner require FSA to assign the loan and security 
instruments to the Secretary of the Interior and the Secretary of the 
Interior agrees to the assignment, pursuant to Sec. 335(e)(1)(D)(v)(aa) 
the Secretary of Agriculture is released from all further 
responsibility for collection of the loan.
    If the Native American borrower and owner elect to require FSA to 
assign the loan to the tribe, the tribe must assume the loan and the 
loan terms will be restructured to be consistent with Indian Land 
Acquisition Loans made pursuant to 25 U.S.C. Sec. 488 and the principal 
amount will be the lesser of the fair market value of the property or 
the outstanding principal and interest on the date of the assignment. 
While the narrow language of Sec. 335(e)(1)(D)(v)(I)(bb) only provides 
for the assignment of the loan to the tribe and could be interpreted as 
releasing the Government's interest in the repayment of the loan, in 
the context of the amendment made to Sec. 335(e)(1)(D) by the 1996 Act, 
there is no indication that Congress intended for the Government to 
release the Government's right to be repaid and in effect make a grant 
to the tribe. Had Congress intended for the loan to be transferred to 
the tribe with no repayment responsibility, language similar to the 
language for assignment to the Secretary of the Interior could have 
been used. We interpret Sec. 335(e)(1)(D)(v)(III) as requiring that, if 
the loan is assigned to the tribe, it must be assumed by the tribe as 
well.

Management

    The 1996 Act eliminated FSA's ability to lease inventory farm 
property except to those beginning farmers or ranchers who are selected 
to purchase an inventory property but are unable to do so due to a lack 
of Agency credit funds. Leases with beginning farmers or ranchers who 
were selected to purchase an inventory property on a credit sale may 
not exceed 18 months or the date that FSA credit assistance becomes 
available, whichever is earlier.
    We have added a paragraph asserting FSA's limited authority to 
lease

[[Page 44395]]

property pursuant to Sec. 335(b) of the CONACT. While the statute is 
not free from doubt because Sec. 638(2) of the 1996 Act limits leasing 
to beginning farmers and ranchers, Sec. 335(b) was not repealed by the 
1996 Act. It states as follows:
    Except as provided in subsections (c) and (e), real property 
administered under the provisions of this title may be operated or 
leased by the Secretary for such period or periods as the Secretary may 
deem necessary to protect the Government's investment therein.
    Based on this authority as modified by the limitation that 
inventory property should be sold within 105 days of acquisition, we 
have provided limited authority to lease property upon the approval of 
the Administrator when it is impossible to sell it.

Disposal

    The 1996 Act placed new requirements on FSA to dispose of inventory 
property. The definition of a beginning farmer contained in Sec. 640(1) 
of the 1996 Act was amended to raise the maximum amount of farm or 
ranch property that may be owned from 15 percent to 25 percent of the 
median farm size in the county in which the property is located. 
However, the Agency will use 25 percent of the mean rather than the 
median farm size in this definition since median farm sizes are 
unavailable in the Census of Agriculture. Inventory must be advertised 
for sale no later than 15 days after acquisition by the Agency. Not 
later than 75 days from the date of acquisition, the Agency will offer 
to sell inventory property to qualified beginning farmers or ranchers 
at the current market value based on a current appraisal. Based on the 
statutory language contained in Sec. 638(2) of the 1996 Act which 
provides a priority in the sale of inventory property only to beginning 
farmers and ranchers, the Agency has removed the regulatory priorities 
previously contained in Sec. 1955.107(f)(1). The previous priorities 
were as follows: first priority to beginning farmers and ranchers who 
were also socially disadvantaged applicants (SDA); second priority to 
beginning farmers and ranchers; third priority to operators of not 
larger than family-size farms who were also SDAs; fourth priority to 
operators of not larger than family size farms who meet the Agency's 
eligibility requirements and fifth priority to operators of not larger 
than family size farms who are not eligible for Agency credit. Under 
this interim rule, the only remaining priority is to beginning farmers 
and ranchers who can purchase the property at the current market value 
based on a current appraisal. If more than one qualified beginning 
farmer or rancher submits an application to purchase an inventory 
property, FSA will select a purchaser through a random selection 
process. Appeal rights for participation in the random selection as a 
qualified beginning farmer or rancher were eliminated by Sec. 638(2) of 
the 1996 Act and replaced by an expedited review by the State Executive 
Director that is administratively final. If inventory property is not 
sold to a beginning farmer or rancher within 75 days from acquisition, 
Sec. 638(2) of the 1996 Act requires FSA, not later than 30 days after 
the 75-day period, to sell the property by means of a public sale, such 
as a public auction or sealed bids, at the best price obtainable.
    A transitional rule provides that properties under a lease upon 
passage of the 1996 Act would be advertised for sale no later than 60 
days after the lease expires and properties in inventory upon passage 
of the 1996 Act, but not under a lease, would be advertised no later 
than 60 days from April 4, 1996. The transitional rule was implemented 
in Notice FC-37 which informed FSA county and State offices that 
property in inventory and not leased before April 5, 1996, will be 
offered for sale within 60 days of the enactment of the 1996 Act. The 
Notice also stated that property then under the lease will be offered 
for sale no later than 60 days after the lease expires. The 
transitional rule for leased properties is also contained in 
Sec. 1955.107(a) of this rule.
    While section 638 of the 1996 Act by its terms applies to all 
property acquired under the CONACT, and thus applies to non-FSA 
programs, these programs rarely acquire or lease inventory property. 
Therefore, compliance with the 1996 Act will be achieved by guidance 
given on a case-by-case basis, rather than through published 
procedures, by requiring program officials to immediately contact the 
National Office whenever they acquire inventory property. See 
Sec. 1955.108.
    The 1996 Act modified how conservation easements are placed on 
wetlands located on inventory property. Wetland conservation easements 
will only be placed on those wetlands or converted wetlands located on 
inventory property that were not considered as cropland on the date of 
acquisition and were not used for farming at any time during the 5-year 
period prior to acquisition. The 1996 Act also amended the process 
whereby inventory property can be transferred to Federal or State 
agencies for conservation purposes. The 1996 Act requires that, upon 
receipt of a request for transfer, FSA must provide at least two public 
notices, hold at least one public meeting if requested, and consult 
with the Governor and at least one elected county official of the State 
and county where the property requested for transfer is located.

List of Subjects in 7 CFR Part 1955

    Foreclosure, Government property.

    Chapter XVIII, Title 7, Code of Federal Regulations is amended as 
follows:

PART 1955--PROPERTY MANAGEMENT

    1. The authority citation for part 1955 continues to read as 
follows:

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

Subpart A--Liquidation of Loans Secured by Real Estate and 
Acquisition of Real and Chattel Property

    2. Section 1955.3 is amended by removing the definition of 
``Leaseback/Buyback Property.''
    3. Section 1955.4(a) is amended by removing the word ``Assistant'' 
in the first sentence and adding in its place the word ``Deputy.''
    4. Section 1955.9 is revised to read as follows:


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

    (a) The borrower-owner is a member of the tribe that has 
jurisdiction over the reservation in which the real property is 
located. An Indian tribe may also meet the borrower-owner criterion if 
it is indebted for Farm Credit Programs loans.
    (b) A voluntary conveyance will be accepted only after all 
preacquisition primary and preservation servicing actions have been 
considered in accordance with subpart S of part 1951 of this chapter.
    (c) When all servicing actions have been considered under subpart S 
of part 1951 of this chapter and a positive outcome cannot be achieved, 
the following additional actions are to be taken:
    (1) The county official will notify the Native American borrower-
owner and the tribe by certified mail, return receipt requested, and by 
regular mail if the certified mail is not received, that:
    (i) The borrower-owner may convey the real estate security to FSA 
and FSA will consider acceptance of the property into inventory in 
accordance with paragraph (d) of this section.

[[Page 44396]]

    (ii) The borrower-owner must inform FSA within 60 days from receipt 
of this notice of the borrower and owner's decision to deed the 
property to FSA;
    (iii) The borrower-owner has the opportunity to consult with the 
Indian tribe that has jurisdiction over the reservation in which the 
real property is located, or counsel, to determine if State or tribal 
law provides rights and protections that are more beneficial than those 
provided the borrower-owner under Agency regulations;
    (2) If the borrower-owner does not voluntarily deed the property to 
FSA, not later than 30 days before the foreclosure sale, FSA will 
provide the Native American borrower-owner with the following options:
    (i) The Native American borrower-owner may require FSA to assign 
the loan and security instruments to the Secretary of the Interior. If 
the Secretary of the Interior agrees to such an assignment, FSA will be 
released from all further responsibility for collection of any amounts 
with regard to the loans secured by the real property.
    (ii) The Native American borrower-owner may require FSA to complete 
a transfer and assumption of the loan to the tribe having jurisdiction 
over the reservation in which the real property is located if the tribe 
agrees to the assumption. If the tribe assumes the loans, the following 
actions shall occur:
    (A) FSA shall not foreclose the loan because of any default that 
occurred before the date of the assumption.
    (B) The assumed loan shall be for the lesser of the outstanding 
principal and interest of the loan or the fair market value of the 
property as determined by an appraisal.
    (C) The assumed loan shall be treated as though it is a regular 
Indian Land Acquisition Loan made in accordance with subpart N of part 
1823 of this chapter.
    (3) If a Native American borrower-owner does not voluntarily convey 
the real property to FSA, not less than 30 days before a foreclosure 
sale of the property, FSA will provide written notice to the Indian 
tribe that has jurisdiction over the reservation in which the real 
property is located of the following:
    (i) The sale;
    (ii) The fair market value of the property; and
    (iii) The ability of the Native American borrower-owner to require 
the assignment of the loan and security instruments either to the 
Secretary of the Interior or the tribe (and the consequences of either 
action) as provided in Sec. 1955.9(c)(2).
    (4) FSA will accept the offer of voluntary conveyance of the 
property unless a hazardous substance, as defined in the Comprehensive 
Environmental Response, Compensation, and Liability Act of 1980, is 
located on the property which will require FSA to take remedial action 
to protect human health or the environment if the property is taken 
into inventory. In this case, a voluntary conveyance will be accepted 
only if FSA determines that it is in the best interests of the 
Government to acquire title to the property.
    (d) When determining whether to accept a voluntary conveyance of a 
Native American borrower-owner's real property, the county official 
must consider:
    (1) The cost of cleaning or mitigating the effects if a hazardous 
substance is found on the property. A deduction equal to the amount of 
the cost of a hazardous waste clean-up will be made to the fair market 
value of the property to determine if it is in the best interest of the 
Government to accept title to the property. FSA will accept the 
property if clear title can be obtained and if the value of the 
property after removal of hazardous substances exceeds the cost of 
hazardous waste clean-up.
    (2) If the property is located within the boundaries of a federally 
recognized Indian reservation, and is owned by a member of the tribe 
with jurisdiction over the reservation, FSA will credit the Native 
American borrower-owner's account based on the fair market value of the 
property or the FSA debt against the property, whichever is greater.
    5. Section 1955.15(b)(3) is amended by revising the reference to 
``Sec. 1955.137(e)'' in the first sentence to read ``Sec. 1955.137(c)'' 
and the reference to ``Sec. 1955.137(b)'' in the first sentence to read 
``Sec. 1955.137(c).''
    6. Exhibit G of subpart A is amended by removing the words ``County 
Supervisor'' and ``State Director'' and adding in their place, the 
words ``County Official'' and ``State Executive Director,'' 
respectively and by revising the heading of the exhibit and the first 
paragraph to read as follows:

Exhibit G of Subpart A--Worksheet for Accepting a Voluntary Conveyance 
of Farm Credit Program Security Property into Inventory

----------------------------------------------------------------------
(present owner/borrower)

Refer to Exhibit I in FmHA Instruction 1951-S for guidance in 
estimating the incomes and expenses to be used in this exhibit. The 
holding period to be used is 105 days (3.5 months).
* * * * *
    7. Exhibit G-1 of subpart A is amended by removing the words 
``County Supervisor'' and ``State Director'' and adding in their place 
the words ``County Official'' and ``State Executive Director,'' 
respectively, and by revising the heading of the exhibit and the first 
paragraph to read as follows:
Exhibit G-1 of Subpart A--Worksheet for Determining Farm Credit 
Programs, Maximum Bid on Real Estate Property

----------------------------------------------------------------------
(present owner/borrower)

Refer to Exhibit I in FmHA Instruction 1951-S for guidance in 
estimating the incomes and expenses to be used in this exhibit. The 
holding period to be used is 105 days (3.5 months).
* * * * *

Subpart B--Management of Property

    8. Section 1955.53 is amended by removing the definitions of 
``Leaseback/Buyback Property'' and ``Socially disadvantaged applicant'' 
and by revising the definitions of ``Suitable property'' and ``Surplus 
property'' to read as follows:


Sec. 1955.53  Definitions:

* * * * *
    Suitable property. For FSA inventory property, real property that 
can be used for agricultural purposes, including those farm properties 
that may be used as a start up or add-on parcel of farmland. It also 
includes a residence or other off-farm site that could be used as a 
basis for a farming operation. For agencies other than FSA, real 
property that could be used to carry out the objectives of the Agency's 
loan program with financing provided through that program.
    Surplus property. For FSA inventory property, real property that 
cannot be used for agricultural purposes including nonfarm properties. 
For other agencies, property that cannot be used to carry out the 
objectives of financing available through the applicable loan program.
    9. Section 1955.63 is amended by revising the introductory text and 
paragraphs (a) and (b) to read as follows:


Sec. 1955.63  Suitability determination.

    As soon as real property is acquired, a determination must be made 
as to whether or not the property can be used for program purposes. The 
suitability determination will be recorded in the running record of the 
case file.
    (a) Determination. Property which secured loans or was acquired 
under the CONACT will be classified as suitable or surplus in 
accordance with the definitions for``suitable'' and ``surplus''

[[Page 44397]]

found in Sec. 1955.53 of this subpart. For FSA property, the county 
committee will make this determination. For other agencies, this 
determination will be made by the State Director, or designee.
    (b) Grouping and subdividing farm properties larger than family-
size. The county official will subdivide farm properties larger than 
family-size whenever possible into parcels for the purpose of creating 
one or more suitable farm properties. Properties may also be subdivided 
to facilitate the granting or selling of a conservation easement or the 
fee title transfer of portions of a property for conservation purposes. 
Such land shall be subdivided into parcels of land the shape and size 
of which are suitable for farming, the value of which shall not exceed 
the direct farm ownership loan limit of $200,000 or the guaranteed farm 
ownership loan limit of $300,000. The county official may also group 
two or more individual properties into one or more suitable farm 
properties. The environmental effects will also be considered pursuant 
to subpart G of part 1940 of this chapter. Also refer to Sec. 1955.140 
of subpart C of this part.
* * * * *
    10. Section 1955.66 is revised to read as follows:


Sec. 1955.66  Lease of real property.

    When inventory real property, except for FSA and MFH properties, 
cannot be sold promptly, or when custodial property is subject to 
lengthy liquidation proceedings, leasing may be used as a management 
tool when it is clearly in the best interest of the Government. Leasing 
will not be used as a means of deferring other actions which should be 
taken, such as liquidation of loans in abandonment cases or repair and 
sale of inventory property. Leases will provide for cancellation by the 
lessee or the Agency on 30-day written notice unless Special 
Stipulations in an individual lease for good reason provide otherwise. 
If extensive repairs are needed to render a custodial property suitable 
for occupancy, this will preclude its being leased since repairs must 
be limited to those essential to prevent further deterioration of the 
security in accordance with Sec. 1955.55(c) of this subpart. The 
requirements of subpart G of part 1940 of this chapter will be met for 
all leases.
    (a) Authority to approve lease of property. (1) Custodial property. 
Custodial property may be leased pending foreclosure with the servicing 
official approving the lease on behalf of the Agency.
    (2) Inventory property. Inventory property may be leased under the 
following conditions. Except for farm property proposed for a lease 
under the Homestead Protection Program, any property that is listed or 
eligible for listing on the National Register of Historic Places may be 
leased only after the servicing official and the State Historic 
Preservation Officer determine that the lease will adequately ensure 
the property's condition and historic character.
    (i) SFH. SFH inventory will generally not be leased; however, if 
unusual circumstances indicate leasing may be prudent, the county 
official is authorized to approve the lease.
    (ii) MFH. MFH projects will generally not be leased, although 
individual living units may be leased under a management agreement. 
After the property is placed under a management contract, the 
contractor will be responsible for leasing the individual units in 
accordance with subpart C of part 1930 of this chapter. In cases where 
an acceptable management contract cannot be obtained, the District 
Director may execute individual leases.
    (iii) Farm property. (A) Any property which secures an insured loan 
made under the CONACT and which contains a dwelling (whether located on 
or off the farm) that is possessed and occupied as a principal 
residence by a prior owner who was personally liable for a Farm Credit 
Programs loan must first be considered for Homestead Protection in 
accordance with subpart S of part 1951 of this chapter.
    (B) Other than for Homestead Protection and except as provided in 
paragraph (c), the county official may only approve the lease of farm 
property to a beginning farmer or rancher who was selected through the 
random selection process to purchase the property but is not able to 
complete the purchase due to the lack of Agency funding.
    (C) When the servicing official determines it is impossible to sell 
farm property after advertising the property for sale and negotiating 
with interested parties in accordance with Sec. 1955.107 of subpart C 
of this part, farm property may be leased, upon the approval of the 
Administrator, on a case-by-case basis. This authority cannot be 
delegated. Any lease under this paragraph shall be for 1 year only, and 
not subject to renewal or extension. If the servicing official 
determines that the prospective lessee may be interested in purchasing 
the property, the lease may contain an option to purchase.
    (D) When a lease with an option to purchase is signed, the lessee 
should be advised that FSA cannot make a commitment to finance the 
purchase of the property.
    (E) Chattel property will not normally be leased unless it is 
attached to the real estate as a fixture or would normally pass with 
the land.
    (F) The property may not be used for any purpose that will 
contribute to excessive erosion of highly erodible land or to 
conversion of wetlands to produce an agricultural commodity. See 
Exhibit M of subpart G of part 1940 of this chapter. All prospective 
lessees of inventory property will be notified in writing of the 
presence of highly erodible land, converted wetlands and wetland and 
other important resources such as threatened or endangered species. 
This notification will include a copy of the completed and signed Form 
SCS-CPA-26, ``Highly Erodible Land and Wetland Conservation 
Determination,'' which identifies whether the property contains wetland 
or converted wetlands or highly erodible land. The notification will 
also state that the lease will contain a restriction on the use of such 
property and that the Agency's compliance requirements for wetlands, 
converted wetlands, and highly erodible lands are contained in Exhibit 
M of subpart G of part 1940 of this chapter. Additionally, a copy of 
the completed and signed Form SCS-CPA-26 will be attached to the lease 
and the lease will contain a special stipulation as provided on the FMI 
to Form RD 1955-20, ``Lease of Real Property,'' prohibiting the use of 
the property as specified above.
    (iv) Organization property other than MFH. Only the State Director, 
with the advice of appropriate National Office staff, may approve the 
lease of organization property other than MFH, such as community 
facilities, recreation projects, and businesses. A lease of utilities 
may require approval by State regulatory agencies.
    (b) Selection of lessees for other than farm property. When the 
property to be leased is residential, a special effort will be made to 
reach prospective lessees who might not otherwise apply because of 
existing community patterns. A lessee will be selected considering the 
potential as a program applicant for purchase of the property (if 
property is suited for program purposes) and ability to preserve the 
property. The leasing official may require verification of income or a 
credit report (to be paid for by the prospective lessee) as he or she 
deems necessary to assure payment ability and creditworthiness of the 
prospective lessee.
    (c) Selection of lessees for FSA property. FSA inventory property 
may only be leased to an eligible beginning

[[Page 44398]]

farmer or rancher who was selected to purchase the property through the 
random selection process in accordance with Sec. 1955.107(a)(2)(ii) of 
subpart C of this part. The applicant must have been able to 
demonstrate a feasible farm plan and Agency funds must have been 
unavailable at the time of the sale. Any applicant determined not to be 
a beginning farmer or rancher may request that the State Executive 
Director conduct an expedited review in accordance with 
Sec. 1955.107(a)(2)(ii) of subpart C of this part.
    (d) Property securing Farm Credit Programs loans located within an 
Indian Reservation. (1) State Executive Directors will contact the 
Bureau of Indian Affairs Agency supervisor to determine the boundaries 
of Indian Reservations and Indian allotments.
    (2) Not later than 90 days after acquiring a property, FSA will 
afford the Indian tribe having jurisdiction over the Indian reservation 
within which the inventory property is located an opportunity to 
purchase the property. The purchase shall be in accordance with the 
priority rights as follows:
    (i) To a member of the Indian tribe that has jurisdiction over the 
reservation within which the real property is located;
    (ii) To an Indian corporate entity;
    (iii) To the Indian tribe.
    (3) The Indian tribe having jurisdiction over the Indian 
reservation may revise the order of priority and may restrict the 
eligibility for purchase to:
    (i) Persons who are members of such Indian tribe;
    (ii) Indian corporate entities that are authorized by such Indian 
tribe to purchase lands within the boundaries of the reservation; or
    (iii) The Indian tribe itself.
    (4) If any individual, Indian corporate entity, or Indian tribe 
covered in paragraphs (d)(1) and (d)(2) of this section wishes to 
purchase the property, the county official must determine the 
prospective purchaser has the financial resources and management skills 
and experience that is sufficient to assure a reasonable prospect that 
the terms of the purchase agreement can be fulfilled.
    (5) If the real property is not purchased by any individual, Indian 
corporate entity or Indian tribe pursuant to paragraphs (d)(1) and 
(d)(2) of this section and all appeals have concluded, the State 
Executive Director shall transfer the property to the Secretary of the 
Interior if they are agreeable. If present on the property being 
transferred, important resources will be protected as outlined in 
Secs. 1955.137 and 1955.139 of subpart C of this part.
    (6) Properties within a reservation formerly owned by entities and 
non-tribal members will be treated as regular inventory that is not 
located on an Indian Reservation and disposed of pursuant to this part.
    (e) Lease amount. Inventory property will be leased for an amount 
equal to that for which similar properties in the area are being leased 
or rented (market rent). Inventory property will not be leased for a 
token amount.
    (1) Farm property. To arrive at a market rent amount, the county 
official will make a survey of lease amounts of farms in the immediate 
area with similar soils, capabilities, and income potential. The 
income-producing capability of the property during the term of the 
lease must also be considered. This rental data will be maintained in 
an operational file as well as in the running records of case files for 
leased inventory properties. While cash rent is preferred, the lease of 
a farm on a crop-share basis may be approved if this is the customary 
method in the area. The lessee will market the crops, provide FSA with 
documented evidence of crop income, and pay the pro rata share of the 
income to FSA.
    (2) SFH property. The lease amount will be the market rent unless 
the lessee is a potential program applicant, in which case the lease 
amount may be set at an amount approximating the monthly payment if a 
loan were made (reflecting payment assistance, if any) calculated on 
the basis of the price of the house and income of the lessee, plus \1/
12\ of the estimated real estate taxes, property insurance, and 
maintenance which would be payable by a homeowner.
    (3) Property other than farm or SFH. Any inventory property other 
than a farm or single-family dwelling will generally be leased for 
market rent for that type property in the area. However, such property 
may be leased for less than market rent with prior approval of the 
Administrator.
    (f) Property containing wetlands or located in a floodplain or 
mudslide hazard area. Inventory property located in areas identified by 
the Federal Insurance Administration as special flood or mudslide 
hazard areas will not be leased or operated under a management contract 
without prior written notice of the hazard to the prospective lessee or 
tenant. If property is leased by FSA, the servicing official will 
provide the notice, and if property is leased under a management 
contract, the contractor must provide the notice in compliance with a 
provision to that effect included in the contract. The notice must be 
in writing, signed by the servicing official or the contractor, and 
delivered to the prospective lessee or tenant at least one day before 
the lease is signed. A copy of the notice will be attached to the 
original and each copy of the lease. Property containing floodplains 
and wetlands will be leased subject to the same use restrictions as 
contained in Sec. 1955.137(a)(1) of subpart C of this part.
    (g) Highly erodible land. If farm inventory property contains 
``highly erodible land,'' as determined by the NRCS, the lease must 
include conservation practices specified by the NRCS and approved by 
FSA as a condition for leasing.
    (h) Lease of FSA property with option to purchase. A beginning 
farmer or rancher lessee will be given an option to purchase farm 
property. Terms of the option will be set forth as part of the lease as 
a special stipulation.
    (1) The lease payments will not be applied toward the purchase 
price.
    (2) The purchase price (option price) will be the advertised sales 
price as determined by an appraisal prepared in accordance with subpart 
E of part 1922 of this chapter.
    (3) For inventory properties leased to a beginning farmer or 
rancher applicant, the term of the lease shall be the earlier of:
    (i) A period not to exceed 18 months from the date that the 
applicant was selected to purchase the inventory farm, or
    (ii) The date that direct, guaranteed, credit sale or other Agency 
funds become available for the beginning farmer or rancher to close the 
sale.
    (4) Indian tribes or tribal corporations which utilize the Indian 
Land Acquisition program will be allowed to purchase the property for 
its market value less the contributory value of the buildings, in 
accordance with subpart N of part 1823 of this chapter.
    (i) Costs. The costs of repairs to leased property will be paid by 
the Government. However, the Government will not pay costs of utilities 
or any other costs of operation of the property by the lessee. Repairs 
will be obtained pursuant to subpart B of part 1924 of this chapter. 
Expenditures on custodial property as limited in Sec. 1955.55 (c) (2) 
of this subpart will be charged to the borrower's account as 
recoverable costs.
    (j) Security deposit. A security deposit in at least the amount of 
one month's rent will be required from all lessees of SFH properties. 
The security deposit for farm property should be determined by 
considering only the improvements or facilities which might be subject 
to misuse or abuse during the term of the lease. For all other types of 
property, the

[[Page 44399]]

leasing official may determine whether or not a security deposit will 
be required and the amount of the deposit.
    (k) Lease form. Form RD 1955-20 approved by OGC will be used by the 
agency to lease property.
    (l) Lease income. Lease proceeds will be remitted according to 
subpart B of part 1951 of this chapter.
    (1) Custodial property. The proceeds from a lease of custodial 
property will be applied to the borrower's account as an extra payment 
unless foreclosure proceedings require that such payments be held in 
suspense.
    (2) Inventory property. The proceeds from a lease of inventory 
property will be applied to the lease account.
    11. Exhibit B of subpart B is revised to read as follows.

Exhibit B--Notification of Tribe of Availability of Farm Property for 
Purchase

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

Sincerely,

County official

Subpart C--Disposal of Inventory Property

    12. Section 1955.102 is amended by revising the fifth sentence to 
read as follows:


Sec. 1955.102  Policy.

* * * Examples are: (RH) property; detached Labor Housing or Rural 
Rental Housing units may be sold as SFH units; or SFH units may be sold 
as a Rural Rental Housing project. * * *
    13. Section 1955.103 is amended by removing the number ``15'' and 
replacing it with the number ``25'' in the first sentence of paragraph 
(5) of the definition of ``Beginning farmer or rancher,'' by removing 
the definitions for ``Agricultural production unit,'' ``Cropland,'' 
``Forage production area,'' ``Leaseback/Buyback,'' ``Leaseback/Buyback 
Property,'' ``Marketable agricultural production unit comparable to 
that acquired,'' and ``Previous operator,'' and by revising the 
definitions of ``Suitable property'' and ``Surplus property'' to read 
as follows:


Sec. 1955.103  Definitions.

* * * * *
    Suitable property. For FSA inventory property, real property that 
can be used for agricultural purposes, including those farm properties 
that may be used as a start-up or add-on parcel of farmland. It would 
also include a residence or other off-farm site that could be used as a 
basis for a farming operation. For Agencies other than FSA, real 
property that could be used to carry out the objectives of the Agency's 
loan programs with financing provided through that program.
    Surplus property. For FSA inventory property, real property that 
cannot be used for agricultural purposes including nonfarm properties. 
For other agencies, property that cannot be used to carry out the 
objectives of financing available through the applicable loan program.


Sec. 1955.105  [Amended]

    14. Section 1955.105 is amended by removing the words ``Leaseback/
Buyback and,'' removing the word ``are'' and replacing it with the word 
``is'' in the last sentence of paragraph (a) and revising the reference 
``Sec. 1955.137(f)'' to read ``Sec. 1955.137(d)'' in paragraph (d).
    15. Section 1955.106 is amended by revising paragraphs (a) and (c) 
to read as follows:


Sec. 1955.106  Disposition of farm property.

    (a) Rights of previous owner and notification. Before property 
which secured a Farm Credit Programs loan is taken into inventory, the 
FSA county official will advise the borrower-owner of Homestead 
Protection rights (see subpart S of part 1951 of this chapter.)
* * * * *
    (c) Nonprogram (NP) borrowers. Nonprogram (NP) borrowers are not 
eligible for Homestead Protection provisions as set forth in subpart S 
of part 1951 of this chapter. When it is determined that all conditions 
of Sec. 1951.558(b) of subpart L of part 1951 of this chapter have been 
met, loans for unauthorized assistance will be treated as authorized 
loans and will be eligible for homestead protection.
    16. Section 1955.107 is revised to read as follows:


Sec. 1955.107  Sale of FSA property (CONACT).

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

[[Page 44400]]

RD 1955-40 or Form RD 1955-41, ``Notice of Sale,'' will be posted in a 
prominent place in the county. Maximum publicity should be given to the 
sale under guidance provided by Sec. 1955.146 of this subpart and care 
should be taken to spell out eligibility criteria. Tribal Councils or 
other recognized Indian governing bodies having jurisdiction over 
Indian reservations (see Sec. 1955.103 of this subpart) shall be 
responsible for notifying those parties in Sec. 1955.66(d)(2) of 
subpart B of this part.
    (1) Price. Property will be advertised for sale for its appraised 
market value based on the condition of the property at the time it is 
made available for sale. The market value will be determined by an 
appraisal made in accordance with subpart E of part 1922 of this 
chapter. Property contaminated with hazardous waste will be appraised 
``as improved'' which will be used as the sale price for advertisement 
to beginning farmers or ranchers.
    (2) Selection of purchaser. After homestead protection rights have 
expired, suitable farmland must be sold in the priority outlined in 
this paragraph. When farm inventory property is larger than family 
size, the property will be subdivided into suitable family size farms 
pursuant to Sec. 1955.140 of this subpart.
    (i) Sale to Beginning Farmers/Ranchers. Not later than 75 days from 
the date of acquisition, FSA will sell suitable farm property, with a 
priority given to applicants who are classified as beginning farmers or 
ranchers, as defined in Sec. 1955.103 of this subpart, as of the time 
of sale.
    (ii) Random selection. The county official will first determine 
whether applicants meet the eligibility requirements of a beginning 
farmer or rancher. For applicants who are not determined to be 
beginning farmers or ranchers, they may request that the State 
Executive Director provide an expedited review and determination of 
whether the applicant is a beginning farmer or rancher for the purpose 
of acquiring inventory property. This review shall take place not later 
than 30 days after denial of the application. The State Executive 
Director's review decision shall be final and is not administratively 
appealable. When there is more than one beginning farmer or rancher 
applicant, the Agency will select by lot by placing the names in a 
receptacle and drawing names sequentially. Drawn offers will be 
numbered and those drawn after the first drawn name will be held in 
suspense pending sale to the successful applicant. The random selection 
drawing will be open to the public, and applicants will be advised of 
the time and place.
    (iii) Notification of applicants not selected to purchase suitable 
farmland. When the Agency selects an applicant to purchase suitable 
farmland, in accordance with this paragraph, all applicants not 
selected will be notified in writing that they were not selected. The 
outcome of the random selection by lot is not appealable if such 
selection is conducted in accordance with this subpart.
    (3) Credit sale procedure. Subject to the availability of funds, 
credit sale to program applicants will be processed as follows:
    (i) The interest rate charged by the Agency will be the lower of 
the interest rates in effect at the time of loan approval or closing.
    (ii) The loan limits for the requested type of assistance are 
applicable to a credit sale to an eligible applicant.
    (iii) Title clearance and loan closing for a credit sale and any 
subsequent loan to be closed simultaneously must be the same as for an 
initial loan except that:
    (A) Form RD 1955-49, ``Quitclaim Deed,'' or other form of 
nonwarranty deed approved by the Office of the General Counsel (OGC) 
will be used.
    (B) The buyer will pay attorney's fees and title insurance costs, 
recording fees, and other customary fees unless they are included in a 
subsequent loan. A subsequent loan may not be made for the primary 
purpose of paying closing costs and fees.
    (iv) Property sold on credit sale may not be used for any purpose 
that will contribute to excessive erosion of highly erodible land or to 
the conversion of wetlands to produce an agricultural commodity, see 
Exhibit M of subpart G of part 1940 of this chapter. All prospective 
buyers will be notified in writing as a part of the property 
advertisement of the presence of highly erodible land and wetlands on 
inventory property.
    (b) Surplus Property and Suitable Property not sold to a Beginning 
Farmer or Rancher. Except where a lessee is exercising the option to 
purchase under the Homestead Protection provision of subpart S of part 
1951 of this chapter, surplus property will be offered for public sale 
by sealed bid or auction within 15 days from the date of acquisition in 
accordance with Sec. 1955.147 or Sec. 1955.148 of this subpart. 
Suitable farm property which has been advertised for sale to a 
beginning farmer or rancher in accordance with Sec. 1955.107 (a) of 
this subpart but has not sold within 75 days from the date of 
acquisition will be offered for public sale by sealed bid or auction to 
the highest bidder as provided in paragraph (b)(1) of this section. All 
prospective buyers will be notified in writing as a part of the 
property advertisement of the presence of highly erodible land, 
converted wetlands, floodplains, wetlands, or other special 
characteristics of the property that may limit its use or cause an 
easement to be placed on the property.
    (1) Advertising surplus property. FSA will advertise surplus 
property for sale by sealed bid or auction within 15 days from the date 
of acquisition or, for those suitable properties not sold to beginning 
farmers or ranchers in accordance with the provisions or paragraph (a) 
of this section, within 75 days of the date of acquisition.
    (2) Sale by sealed bid or auction. Surplus real estate must be 
offered for public sale by sealed bid or auction and must be sold no 
later than 105 days from the date of acquisition to the highest bidder. 
Preference will be given to a cash offer which is at least *percent of 
the highest offer requiring credit. (*Refer to Exhibit B of RD 
Instruction 440.1 (available in any Agency office) for the current 
percentage.) Equally acceptable sealed bid offers will be decided by 
lot.
    (3) Negotiated sale. If no acceptable bid is received through the 
sealed bid or auction process, the State Executive Director will sell 
surplus property at the maximum price obtainable without further public 
notice by negotiation with interested parties, including all previous 
bidders. The rates and terms offered for a credit sale through 
negotiation will be within the limitations established in paragraph (b) 
(4) of this section. A sale made through negotiation will require a bid 
deposit of not less than 10 percent of the negotiated price in the form 
of a cashier's check, certified check, postal or bank money order, or 
bank draft payable to FSA. Preference will be given to a cash offer 
which is at least * percent of the highest offer requiring credit. 
[*Refer to Exhibit B of RD Instruction 440.1 (available in any Agency 
office) for the current percentage.] Equally acceptable offers will be 
decided by lot.
    (4) Rates and terms. Subject to the availability of funds, rates 
and terms for Homestead Protection will be in accordance with subpart S 
of part 1951 of this chapter. Sales of suitable property offered to 
program eligible applicants will be on rates and terms provided in 
subpart A of part 1943 of this chapter. Surplus property and suitable 
property which has not been sold to program eligible applicants will be 
offered for cash or on ineligible terms

[[Page 44401]]

in accordance with subpart J of part 1951 of this chapter. The State 
Executive Director will determine the loan terms for surplus property 
within these limitations. A credit sale made on ineligible terms will 
be closed at the interest rate in effect at the time the credit sale 
was approved. After extensive sales efforts where no acceptable offer 
has been received, the State Executive Director may request the 
Administrator to permit offering surplus property for sale on more 
favorable rates and terms; however, the terms may not be more favorable 
than those legally permissible for eligible borrowers. Surplus property 
will be offered for sale for cash or terms that will provide the best 
net return for the Government. The term of financing extended may not 
be longer than the period for which the property will serve as adequate 
security. All credit sales on ineligible terms will be identified as NP 
loans.
    17. Section 1955.108 is revised to read as follows:


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

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


Sec. 1955.109  [Amended]

    18. Section 1955.109 is amended by adding the word ``FSA'' before 
the word ``applicants'' in the second sentence of paragraph (a) and by 
removing the words ``Farmer Credit Programs'' and adding in their place 
the word ``FSA'' in the third sentence of paragraph (a).


Sec. 1955.122  [Amended]

    19. Section 1955.122 is amended by removing paragraph (b) and 
redesignating paragraphs (c) through (g) as paragraphs (b) through (f), 
respectively.


Sec. 1955.130  [Amended]

    20. Section 1955.130 is amended by adding the words ``and surplus 
FSA'' before ``CONACT'' in the heading and revising the reference 
``Sec. 1955.106'' to read ``Sec. 1955.107'' in paragraph (c)(5), and 
revising the heading ``Surplus CONACT'' to read ``Suitable and Surplus 
Non-FSA CONACT'' and revising the reference ``Sec. 1955.107'' to read 
``Sec. 1955.108'' in paragraph (c)(6).
    21. Section 1955.137 is revised to read as follows:


Sec. 1955.137  Real property located in special areas or having special 
characteristics.

    (a) Real property located in flood, mudslide hazard, wetland or 
Coastal Barrier Resources System (CBRS). (1) Use restrictions. 
Executive Order 11988, ``Floodplain Management,'' and Executive Order 
11990, ``Protection of Wetlands,'' require the conveyance instrument 
for inventory property containing floodplains or wetlands which is 
proposed for lease or sale to specify those uses that are restricted 
under identified Federal, State and local floodplains or wetlands 
regulations as well as other appropriate restrictions. The restrictions 
shall be to the uses of the property by the lessee or purchaser and any 
successors, except where prohibited by law. Applicable restrictions 
will be incorporated into quitclaim deeds in a format similar to that 
contained in Exhibits H and I of RD Instruction 1955-C (available in 
any Agency office). A listing of all restrictions will be included in 
the notices required in paragraph (a)(2) of this section.
    (2) Notice of hazards. Acquired real property located in an 
identified special flood or mudslide hazard area as defined in, subpart 
B of part 1806 of this chapter will not be sold for residential 
purposes unless determined by the county official or district director 
to be safe (that is, any hazard that exists would not likely endanger 
the safety of dwelling occupants).
    (3) Limitations placed on financial assistance. (i) Financial 
assistance is limited to property located in areas where flood 
insurance is available. Flood insurance must be provided at closing of 
loans on program-eligible and nonprogram (NP)-ineligible terms. 
Appraisals of property in flood or mudslide hazard areas will reflect 
this condition and any restrictions on use. Financial assistance for 
substantial improvement or repair of property located in a flood or 
mudslide hazard area is subject to the limitations outlined in, 
paragraph 3b (1) and (2) of Exhibit C of subpart G of part 1940.
    (ii) Pursuant to the requirements of the Coastal Barrier Resources 
Act (CBRA) and except as specified in paragraph (a)(3)(v) of this 
section, no credit sales will be provided for property located within a 
CBRS where:
    (A) It is known that the purchaser plans to further develop the 
property;
    (B) A subsequent loan or any other type of Federal financial 
assistance as defined by the CBRA has been requested for additional 
development of the property;
    (C) The sale is inconsistent with the purpose of the CBRA; or
    (D) The property to be sold was the subject of a previous financial 
transaction that violated the CBRA.
    (iii) For purposes of this section, additional development means 
the expansion, but not maintenance, replacement-in-kind, 
reconstruction, or repair of any roads, structures or facilities. Water 
and waste disposal facilities as well as community facilities may be 
repaired to the extent required to meet health and safety requirements, 
but may not be improved or expanded to serve new users, patients or 
residents.
    (iv) A sale which is not in conflict with the limitations in 
paragraph (a)(3)(ii) of this section shall not be completed until the 
approval official has consulted with the appropriate Regional Director 
of the U.S. Fish and Wildlife Service and the Regional Director concurs 
that the proposed sale does not violate the provisions of the CBRA.
    (v) Any proposed sale that does not conform to the requirements of 
paragraph (a)(3)(ii) of this section must be forwarded to the 
Administrator for review. Approval will not be granted unless the 
Administrator determines, through consultation with the Department of 
Interior, that the proposed sale does not violate the provisions of the 
CBRA.
    (b) Wetlands located on FSA inventory property. Perpetual wetland 
conservation easements (encumbrances in deeds) to protect and restore 
wetlands or converted wetlands that exist on suitable or surplus 
inventory property will be established prior to sale of such property. 
The provisions of paragraphs (a) (2) and (3) of this section also 
apply, as does paragraph (a)(1) of this section insofar as floodplains 
are concerned. This requirement applies to either cash or credit sales. 
Similar restrictions will be included in leases of inventory properties 
to beginning farmers or ranchers. Wetland conservation easements will 
be established as follows:
    (1) All wetlands or converted wetlands located on FSA inventory 
property which were not considered cropland on the date the property 
was acquired and were not used for farming at any time during the 
period beginning on the date 5 years before the property was acquired 
and ending on the date the property was acquired will receive a wetland 
conservation easement.
    (2) All wetlands or converted wetlands located on FSA inventory 
property that were considered cropland on the date the property was 
acquired or were used for farming at any time during the period 
beginning on the date 5 years before the property was acquired and 
ending on the date the property was acquired will not receive a wetland 
conservation easement.

[[Page 44402]]

    (3) The following steps should be taken in determining if 
conservation easements are necessary for the protection of wetlands or 
converted wetland on inventory property:
    (i) NRCS will be contacted first to identify the wetlands or 
converted wetlands and wetland boundaries of each wetland or converted 
wetland on inventory property.
    (ii) After receiving the wetland determination from NRCS, the FSA 
county committee will review the determination for each inventory 
property and determine if any of the wetlands or converted wetlands 
identified by NRCS were considered cropland on the date the property 
was acquired or were used for farming at any time during the period 
beginning on the date 5 years before the property was acquired and 
ending on the date the property was acquired. Property will be 
considered to have been used for farming if it was primarily used for 
agricultural purposes including but not limited to such uses as 
cropland, pasture, hayland, orchards, vineyards and tree farming.
    (iii) After the county committee has completed their determination 
of whether the wetlands or converted wetlands located on an inventory 
property were used for cropland or farming, the U.S. Fish and Wildlife 
Service (FWS) will be contacted. Based on the technical considerations 
of the potential functions and values of the wetlands on the property, 
FWS will identify those wetlands or converted wetlands that require 
protection with a wetland conservation easement along with the 
boundaries of the required wetland conservation easement. FWS may also 
make other recommendations if needed for the protection of important 
resources such as threatened or endangered species during this review.
    (4) The wetland conservation easement will provide for access to 
other portions of the property as necessary for farming and other uses.
    (5) The appraisal of the property must be updated to reflect the 
value of the land due to the conservation easement on the property.
    (6) Easement areas shall be described in accordance with State or 
local laws. If State or local law does not require a survey, the 
easement area can be described by rectangular survey, plat map, or 
other recordable methods.
    (7) In most cases the FWS shall be responsible for easement 
management and administration responsibilities for such areas unless 
the wetland easement area is an inholding in Federal or State property 
and that entity agrees to assume such responsibility, or a State fish 
and wildlife agency having counterpart responsibilities to the FWS is 
willing to assume easement management and administration 
responsibilities. The costs associated with such easement management 
responsibilities shall be the responsibility of the agency that assumes 
easement management and administration.
    (8) County officials are encouraged to begin the easement process 
before the property is taken into inventory, if possible, in order to 
have the program completed before the statutory time requirement for 
sale.
    (c) Historic preservation. (1) Pursuant to the requirements of the 
National Historic Preservation Act and Executive Order 11593, 
``Protection and Enhancement of the Cultural Environment,'' the Agency 
official responsible for the conveyance must determine if the property 
is listed on or eligible for listing on the National Register of 
Historic Places. (See subpart F of part 1901 of this chapter for 
additional guidance.) The State Historic Preservation Officer (SHPO) 
must be consulted whenever one of the following criteria are met:
    (i) The property includes a structure that is more than 50 years 
old.
    (ii) Regardless of age, the property is known to be of historical 
or archaeological importance; has apparent significant architectural 
features; or is similar to other Agency properties that have been 
determined to be eligible.
    (iii) An environmental assessment is required prior to a decision 
on the conveyance.
    (2) If the result of the consultations with the SHPO is that a 
property may be eligible or that it is questionable, an official 
determination must be obtained from the Secretary of the Interior.
    (3) If a property is listed on the National Register or is 
determined eligible for listing by the Secretary of Interior, the 
Agency official responsible for the conveyance must consult with the 
SHPO in order to develop any necessary restrictions on the use of the 
property so that the future use will be compatible with preservation 
objectives and which does not result in an unreasonable economic burden 
to public or private interest. The Advisory Council on Historic 
Preservation must be consulted by the State Director or State Executive 
Director after the discussions with the SHPO are concluded regardless 
of whether or not an agreement is reached.
    (4) Any restrictions that are developed on the use of the property 
as a result of the above consultations must be made known to a 
potential bidder or purchaser through a notice procedure similar to 
that in Sec. 1955.13(a)(2) of this subpart.
    (d) Highly erodible farmland. (1) The FSA county official will 
determine if any inventory property contains highly erodible land as 
defined by the NRCS and, if so, what specific conservation practices 
will be made a condition of a sale of the property.
    (2) If the county official does not concur in the need for a 
conservation practice recommended by NRCS, any differences shall be 
discussed with the recommending NRCS office. Failure to reach an 
agreement at that level shall require the State Executive Director to 
make a final decision after consultation with the NRCS State 
Conservationist.
    (3) Whenever NRCS technical assistance is requested in implementing 
these requirements and NRCS responds that it cannot provide such 
assistance within a time frame compatible with the proposed sale, the 
sale arrangements will go forward. The sale will proceed, conditioned 
on the requirement that a purchaser will immediately contact (NRCS) 
have a conservation plan developed and comply with this plan. The 
county official will monitor the borrower's compliance with the 
recommendations in the conservation plan. If problems occur in 
obtaining NRCS assistance, the State Executive Director should consult 
with the NRCS State Conservationist.
    (e) Notification to purchasers of inventory property with 
reportable underground storage tanks. If the Agency is selling 
inventory property containing a storage tank which was reported to the 
Environmental Protection Agency (EPA) pursuant to the provisions of 
Sec. 1955.57 of subpart B of this part, the potential purchaser will be 
informed of the reporting requirement and provided a copy of the report 
filed by the Agency.
    (f) Real property that is unsafe. If the Agency has in inventory, 
real property, exclusive of any improvements, that is unsafe, that is 
it does not meet the definition of ``safe'' as contained in 
Sec. 1955.103 of this subpart and which cannot be feasibly made safe, 
the State Director or State Executive Director will submit the case 
file, together with documentation of the hazard and a recommended 
course of action to the National Office, ATTN: appropriate Deputy 
Administrator, for review and guidance.
    (g) Real property containing hazardous waste contamination. All 
inventory property must be inspected for hazardous waste contamination 
either through the use of a preliminary hazardous waste site survey or

[[Page 44403]]

Transaction Screen Questionnaire. If possible contamination is noted, a 
Phase I or II environmental assessment will be completed per the advice 
of the State Environmental Coordinator.
    22. Section 1955.139 is amended by revising the introductory text 
of paragraph (a)(3) and paragraph (c) to read as follows:


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

    (a) * * *
    (3) For FSA properties only, easements, restrictions, development 
rights or similar legal rights may be granted or sold separately from 
the underlying fee or sum of all other rights possessed by the 
Government if such conveyances are for conservation purposes and are 
transferred to a State, a political subdivision of a State, or a 
private nonprofit organization. Easements may be granted or sold to a 
Federal agency for conservation purposes as long as the requirements of 
Sec. 1955.139(c)(2) of this subpart are followed. If FSA has an 
affirmative responsibility such as protecting an endangered species as 
provided for in paragraph (a)(3(v) of this section, the requirements in 
Sec. 1955.139(c) of this subpart do not apply.
* * * * *
    (c) Transfer of FSA inventory property for conservation purposes. 
(1) In accordance with the provisions of this paragraph, FSA may 
transfer, to a Federal or State agency for conservation purposes (as 
defined in paragraph (a)(3)(i) of this section), inventory property, or 
an interest therein, meeting any one of the following three criteria 
and subject only to the homestead protection rights of all previous 
owners having been met.
    (i) A predominance of the land being transferred has marginal value 
for agricultural production. This is land that NRCS has determined to 
be either highly erodible or generally not used for cultivation, such 
as soils in classes IV, V, VII or VIII of NRCS's Land Capability 
Classification, or
    (ii) A predominance of land is environmentally sensitive. This is 
land that meets any of the following criteria:
    (A) Wetlands, as defined in Executive Order 11990 and USDA 
Regulation 9500.
    (B) Riparian zones and floodplains as they pertain to Executive 
Order 11988.
    (C) Coastal barriers and zones as they pertain to the Coastal 
Barrier Resources Act or Coastal Zone Management Act.
    (D) Areas supporting endangered and threatened wildlife and plants 
(including proposed and candidate species), critical habitat, or 
potential habitat for recovery pertaining to the Endangered Species 
Act.
    (E) Fish and wildlife habitats of local, regional, State or Federal 
importance on lands that provide or have the potential to provide 
habitat value to species of Federal trust responsibility (e.g., 
Migratory Bird Treaty Act, Anadromous Fish Conservation Act).
    (F) Aquifer recharges areas of local, regional, State or Federal 
importance.
    (G) Areas of high water quality or scenic value.
    (H) Areas containing historic or cultural property; or
    (iii) A predominance of land with special management importance. 
This is land that meets the following criteria:
    (A) Lands that are in holdings, lie adjacent to, or occur in 
proximity to, Federally or State-owned lands or interest in lands.
    (B) Lands that would contribute to the regulation of ingress or 
egress of persons or equipment to existing Federally or State-owned 
conservation lands.
    (C) Lands that would provide a necessary buffer to development if 
such development would adversely affect the existing Federally or 
State-owned lands.
    (D) Lands that would contribute to boundary identification and 
control of existing conservation lands.
    (2) When a State or Federal agency requests title to inventory 
property, the State Executive Director will make a preliminary 
determination as to whether the property can be transferred.
    (3) If a decision is made by the State Executive Director to deny a 
transfer request by a Federal or State agency, the requesting agency 
will be informed of the decision in writing and informed that they may 
request a review of the decision by the FSA Administrator.
    (4) When a State or Federal agency requests title to inventory 
property and the State Executive Director determines that the property 
is suited for transfer, the following actions must be taken prior to 
approval of the transfer:
    (i) At least two public notices must be provided. These notices 
will be published in a newspaper with a wide circulation in the area in 
which the requested property is located. The notice will provide 
information on the proposed use of the property by the requesting 
agency and request any comments concerning the negative or positive 
aspects of the request. A 30-day comment period should be established 
for the receipt of comments.
    (ii) If requested, at least one public meeting must be held to 
discuss the request. A representative of the requesting agency should 
be present at the meeting in order to answer questions concerning the 
proposed conservation use of the property. The date and time for a 
public meeting should be advertised.
    (iii) Written notice must be provided to the Governor of the State 
in which the property is located as well as at least one elected 
official of the county in which the property is located. The 
notification should provide information on the request and solicit any 
comments regarding the proposed transfer. All procedural requirements 
in paragraph (c) (3) of this section must be completed in 75 days.
    (5) Determining priorities for transfer or inventory lands.
    (i) A Federal entity will be selected over a State entity.
    (ii) If two Federal agencies request the same land tract, priority 
will be given to the Federal agency that owns or controls property 
adjacent to the property in question or if this is not the case, to the 
Federal agency whose mission or expertise best matches the conservation 
purposes for which the transfer would be established.
    (iii) In selecting between State agencies, priority will be given 
to the State agency that owns or controls property adjacent to the 
property in question or if that is not the case, to the State agency 
whose mission or expertise best matches the conservation purpose(s) for 
which the transfer would be established.
    (6) In cases where land transfer is requested for conservation 
purposes that would contribute directly to the furtherance of 
International Treaties or Plans (e.g., Migratory Bird Treaty Act or 
North American Waterfowl Management Plan), to the recovery of a listed 
endangered species, or to a habitat of National importance (e.g., 
wetlands as addressed in the Emergency Wetlands Resources Act), 
priority consideration will be given to land transfer for conservation 
purposes, without reimbursement, over other land disposal alternatives.
    (7) An individual property may be subdivided into parcels and a 
parcel can be transferred under the requirements of this paragraph as 
long as the remaining parcels to be sold make up a viable sales unit, 
suitable or surplus.
    23. Section 1955.140 is revised to read as follows:


Sec. 1955.140  Sale in parcels.

    (a) Individual property subdivided. An individual property, other 
than Farm Credit Programs property, may be offered for sale as a whole 
or subdivided into parcels as determined by the State Director. For MFH 
property, guidance will be requested from the National Office for all 
properties other than RHS

[[Page 44404]]

projects. When farm inventory property is larger than a family-size 
farm, the county official will subdivide the property into one or more 
tracts to be sold in accordance with Sec. 1955.107 of this subpart. 
Division of the land or separate sales of portions of the property, 
such as timber, growing crops, inventory for small business 
enterprises, buildings, facilities, and similar items may be permitted 
if a better total price for the property can be obtained in this 
manner. Environmental effects should also be considered pursuant to 
subpart G of part 1940 of this chapter. Any applicable State laws will 
be set forth in a State supplement and will be complied with in 
connection with the division of land. Subdivision of acquired property 
will be reported on Form RD 1955-3C, ``Acquired Property--
Subdivision,'' in accordance with the FMI.
    (b) Grouping of individual properties. The county official for FCP 
cases, and the State Director for all other cases, may authorize the 
combining of two or more individual properties into a single parcel for 
sale as a suitable program property.
    24. Section 1955.148 is revised to read as follows:


Sec. 1955.148  Auction sales.

    This section provides guidance on the sale of all inventory 
property by auction, except FSA real property. Before an auction, the 
State Director, with the advice of the National Office for 
organizational property, will determine and document the minimum sale 
price acceptable. In determining a minimum sale price, the State 
Director will consider the length of time the property has been in 
inventory, previous marketing efforts, the type property involved, and 
potential purchasers. Program financing will be offered on sales of 
program and property. For NP property, credit may be offered to 
facilitate the sale. Credit, however, may not exceed the market value 
of the property nor may the term exceed the period for which the 
property will serve as adequate security. For program property sales, 
no preference will be given to program purchasers. The State Director 
will also consider whether an Agency employee will conduct an auction 
or whether the services of a professional auctioneer are necessary due 
to the complexity of the sale.
    When the services of a professional auctioneer are advisable, the 
services will be procured by contract in accordance with RD Instruction 
2024-A (available in any Agency Office). Chattel property may be sold 
at public auction that is widely advertised and held on a regularly 
scheduled basis without solicitation. Form RD 1955-46 will be used for 
auction sales. At the auction, successful bidders will be required to 
make a bid deposit. For program and suitable property, the bid deposit 
will be the same as outlined in Sec. 1955.130(e)(1) of this subpart. 
For NP property sales, a bid deposit of 10 percent is required. 
Deposits will be in the form of cashier's check, certified check, 
postal or bank money order or bank draft payable to the Agency, cash or 
personal checks may be accepted when deemed necessary for a successful 
auction by the person conducting the auction. Where credit sales are 
authorized, all notices and publicity should provide for a method of 
prior approval of credit and the credit limit for potential purchasers. 
This may include submission of letters of credit or financial 
statements prior to the auction. The auctioneer should not accept a bid 
which requests credit in excess of the market value. When the highest 
bid is lower than the minimum amount acceptable to the Agency, 
negotiations should be conducted with the highest bidder or in turn, 
the next highest bidder or other persons to obtain an executed bid at 
the predetermined minimum. Upon purchaser's default, the approval 
official will remit the bid deposit as a Miscellaneous Collection 
according to RD Instruction 1951-B (available in any agency office). 
The bid deposit will be remitted only when the bidder defaults; 
otherwise it will be used at closing towards a down payment or closing 
costs, as applicable. The closing will be conducted in accordance with 
the procedures prescribed in this subpart for the type property and 
program involved.

    Dated: June 30, 1997.
James W. Schroeder,
Acting Under Secretary for Farm and Foreign Agricultural Services.
    Dated: July 8, 1997.

Jill Long Thompson,
Under Secretary for Rural Development.
[FR Doc. 97-22004 Filed 8-20-97; 8:45 am]
BILLING CODE 3410-05-P