[Federal Register Volume 63, Number 27 (Tuesday, February 10, 1998)]
[Rules and Regulations]
[Pages 6627-6629]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3314]



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 Rules and Regulations
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  Federal Register / Vol. 63, No. 27 / Tuesday, February 10, 1998 / 
Rules and Regulations  

[[Page 6627]]


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DEPARTMENT OF AGRICULTURE

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

7 CFR Parts 1951

RIN 0560-AE61


Enforcement and Collection of Shared Appreciation Agreements

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

ACTION: Final rule.

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SUMMARY: The Farm Service Agency (FSA) is amending its direct Farm Loan 
Programs loan servicing regulations to clarify the requirements for 
collecting on a Shared Appreciation Agreement (SAA). The intended 
effect is to reduce losses to the Government caused by litigation 
expenses and delays in account collection.

EFFECTIVE DATE: March 12, 1998.

FOR FURTHER INFORMATION CONTACT: Kimberly R. Laris, Senior Loan 
Officer, Farm Loan Programs Loan Servicing Division, Farm Service 
Agency (FSA), U.S. Department of Agriculture, STOP 0523, 1400 
Independence Ave., SW, Washington, D.C. 20250-0523; Telephone: 202-720-
1649; Facsimile: 202-690-0949; E-mail: [email protected].

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been determined not significant for the purposes of 
E.O. 12866 and has not been reviewed by OMB.

Executive Order 12372

    1. For the reasons contained in the final rule related Notice to 7 
CFR part 3015, subpart V (48 FR 29115, June 24, 1983), Farm Ownership 
Loans, Farm Operating Loans, and Emergency Loans are excluded from the 
scope of E.O. 12372, which requires intergovernmental consultation with 
State and local officials.
    2. The Soil and Water Loan Program is subject to and has met the 
provisions of E.O.12372 in accordance with FmHA Instruction 1940-J.

Federal Assistance Program

    These changes affect the following FSA programs as listed in the 
Catalog of Federal Domestic Assistance:

10.404--Emergency Loans
10.406--Farm Operating Loans
10.407--Farm Ownership Loans
10.416--Soil and Water Loans

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.

Executive Order 12988

    This final rule has been reviewed in accordance with E.O. 12988, 
Civil Justice Reform. In accordance with this rule: (1) 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 parts 11 and 
780 must be exhausted before bringing suit in court challenging action 
taken under this rule.

Paperwork Reduction Act of 1995

    This final rule does not impose any new information or record 
keeping requirements on the public that require clearance by the OMB 
under the provisions of 44 U.S.C. chapter 35.

Regulatory Flexibility Act

    The issuing agencies certify that this rule will not have a 
significant economic impact on a substantial number of small entities 
as defined in the Regulatory Flexibility Act, Public Law 96-534, as 
amended (5 U.S.C. 601). This rule will not increase or decrease the 
action required by small business entities. Amendments included in this 
rule also will not impact small entities to a greater extent than large 
entities or individual farm borrowers.

Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector of $100 million or more in any 1 
year. When such statement is needed for a rule, section 205 of the 
UMRA, FSA generally must prepare a written statement, including a cost-
benefit analysis, for proposed and final rules with ``Federal 
mandates'' that may result in expenditures to State, local, and tribal 
governments, in the aggregate, or to the private sector. 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 the 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.

National Performance Review

    This rule has been reviewed in accordance with the National 
Performance Review.

Discussion of Final Rule

    These changes involve the Farm Loan Programs (FLP) loans of FSA 
formerly administered by the Farmers Home Administration (FmHA) as 
Farmer Programs loans.
    This rule amends 7 CFR part 1951 subpart S which was published in 
its entirety as an interim rule with a request for comments (53 FR 
35638-35798, September 14, 1988) to implement the requirements of the 
Agricultural Credit Act of 1987. A second interim rule with a request 
for

[[Page 6628]]

comments (57 FR 18612, April 30, 1992) was published to implement 
amendments made by the Food, Agriculture, Conservation, and Trade Act 
of 1990. This rule is being published in response to comments received 
on these interim rules and to make minor clarifications. In addition, 
the Office of Management and Budget control number assigned for the 
approval of information collections is being revised to reflect the 
transfer of the public reporting burden from the Farmers Home 
Administration to the Farm Service Agency in accordance with the 
provisions of the Federal Crop Insurance Reform and Department of 
Agriculture Reorganization Act of 1994 (Pub. L. 103-354).
    As a condition to, and in consideration of, having a portion of 
their debt written down and their loans restructured, a borrower must 
execute an SAA. FSA collects a portion of the written off debt from 
appreciation of the real estate security when the property is sold, the 
loans are paid or the farmer quits farming. Current regulations are 
written so as to allow collection on an SAA only after transfer of 
title. The present wording has resulted in the interpretation that 
property must be foreclosed upon in order to effect a change in title 
before SAA can be enforced. This requires filing an additional civil 
action after foreclosure to collect proceeds that result from value 
appreciation of the security. This results in decreased collections on 
SAA's and increased litigation costs. This rule clarifies that 
acceleration of the loan triggers acceleration of the SAA.
    Comments were received from a State commissioner of agriculture, a 
State rural action organization, a legal services organization, and the 
National Family Farm Coalition. Two commenters recommended that FSA 
clarify that a borrower may pay the amount due under an SAA in 
installments and that the debt arising out of this agreement may be 
serviced as an Agency loan. This recommendation has been adopted in 
this rule. Another commenter suggested that the regulation address how 
shared appreciation is to be handled when there is only a partial sale 
of the real estate securing the SAA. This recommendation has also been 
adopted and the necessary changes are made by this rule. A commenter 
also recommended that the SAA contain the amounts of appreciation to be 
recaptured and the actions that trigger the agreement. This 
recommendation has also been adopted. Another commenter recommended 
that the Agency requirement that real estate records be reviewed 
biannually be revised to require that records be reviewed after 
expiration of the agreement. This suggestion was adopted. The 
requirement that records be reviewed after expiration of the agreement 
is not included in the final rule since it is an internal Agency policy 
directive.
    Additionally, FSA is proposing to remove administrative processes 
from the regulations leaving only regulatory actions which impact the 
public. Also, some paragraphs are reorganized and wording changes are 
made to make the regulation more concise and easier to read and 
understand. FSA is developing a separate handbook to address internal 
operating procedures. This handbook will not be published in the 
Federal Register, but will be available to the public upon request.
    For example, in this rule, FSA is removing the specific references 
to Exhibit D, ``Shared Appreciation Agreement,'' which is being made 
into Form FSA 1951-64. FSA will continue to use these types of 
specialized forms. However, since these matters involve internal 
operating procedures, the form will be contained in FSA's internal 
instructions only, with the regulation referencing only that a form 
will be executed. Other clarifications are made on how to execute, 
service and collect Shared Appreciation Agreements. This change will 
clarify that acceleration of the loan triggers acceleration of the SAA.

List of Subjects in 7 CFR Part 1951

    Account servicing, Debt restructuring, Credit, Loan programs--
agriculture, Loan programs--housing and community development, Low and 
moderate income housing loans--servicing.

    For the reasons stated in the preamble, the Farm Service Agency 
amends 7 CFR, part 1951 as follows:

PART 1951--SERVICING AND COLLECTIONS

    1. The authority citation for part 1951 continues to read as 
follows:

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

Subpart S--Farm Loan Programs Account Servicing Policies

    2. Section 1951.901 is amended by adding a new sentence after the 
second sentence to read as follows:


Sec. 1951.901  Purpose.

    * * * Shared Appreciation Loans (SA) may be reamortized under this 
subpart if the borrower also has outstanding Farm Loan Programs loans. 
* * *
    3. Section 1951.909 is amended by revising paragraphs (e)(2)(viii), 
(e)(2)(vii) introductory text, and (e)(2)(viii)(A), (h)(3)(viii), and 
(j) to read as follows and by removing paragraphs (k), (l), and (m):


Sec. 1951.909  Processing primary loan service programs requests.

    (e) * * *
    (2) * * *
    (vii) Reamortized installments usually will be scheduled for 
repayment within the remaining time period of the note or assumption 
agreement being reamortized. If repayment is extended, the new 
repayment period plus the period the loan has been in effect may not 
exceed the maximum number of years for that type of loan as set forth 
below, or the useful life of the security, whichever is less:
    (A) FO, SW, RL, EE, and EM loans may not exceed 40 years from the 
date of the original note or assumption agreement.
    (B) EE loans for real estate purposes, which are secured by 
chattels only, may be reamortized over a period not to exceed 20 years 
from the date of the original note or assumption agreement.
    (C) RHF loans may not exceed 33 years from the date of the original 
note or assumption agreement.
    (D) SA loans may not exceed 25 years from the date of the original 
amortized note.
    (viii) The interest rate will be as follows:
    (A) The interest rate will be the current interest rate in effect 
on the date of reamortization (the date the new note is signed by the 
borrower), or the interest rate on the original Promissory Note to be 
reamortized, whichever is less. In the case of a limited resource loan, 
it will be the limited resource FO or SW loan rate or the original loan 
note rate, whichever is less. SA loans will be remortized at the 
current nonprogram interest rate in effect on the date of 
reamortization or the nonprogram interest rate on the original 
amortized note, whichever is less.
* * * * *
    (h) * * *
    (3) * * *
    (viii) Upon payment by the borrower of current market value buyout, 
the security instruments will be released for the Farm Loan Programs 
loans bought out.
* * * * *
    (j) Processing of writedown. The DALR$ computer program will be 
used to determine the notes and amount to be written down. The 
borrower's account

[[Page 6629]]

will be credited for the amount written down and the loans remaining 
after writedown will be rescheduled or reamortized.
    (1) A separate note will be signed for each loan being reamortized.
    (2) If any loan written down was secured by real estate, the 
borrower must enter into a ``Shared Appreciation Agreement.'' This 
agreement provides for FSA to collect back all or part of the amount 
written down by taking a share in any positive appreciation in the 
value of the real property securing the SAA and the remaining debt 
after the writedown. The maximum amount of shared appreciation 
collected will not exceed the amount written down. If a borrower's FLP 
loan was not secured by real estate, the borrower will not be required 
to enter into a shared appreciation agreement.
    (3) A lien will be taken on assets in accordance with 
Sec. 1951.910. The Agency's real estate liens will be maintained even 
if the writedown of the borrower's debt results in all real estate 
debts to the Agency being written down. The Agency's real estate lien 
will not be surbordinated to increase the amount of the prior liens 
during the shared appreciation period.
    4. Section 1951.914 is amended to read as follows:


Sec. 1951.914  Servicing Shared Appreciation Agreements.

    (a) [Reserved]
    (b) When shared appreciation is due. Shared appreciation is due at 
the end of the term of the Shared Appreciation Agreement, or sooner, if 
one of the following events occurs:
    (1) The sale or conveyance of any or all the real estate security, 
including gift, contract for sale, purchase agreement, or foreclosure. 
Transfer to the spouse of the borrower in case of the death of the 
borrower will not be treated as a conveyance; until the spouse further 
conveys the property;
    (2) Repayment of the loans; or the loans are otherwise satisfied;
    (3) The borrower or surviving spouse ceases farming operations or 
no longer receives farm income, including lease income; or
    (4) The notes are accelerated.
    (c) Determining the amount of shared appreciation due. (1) The 
current market value of the real estate property will be determined 
based on a current appraisal. If only a portion of the real estate is 
sold, an appraisal will only be done on the real estate being 
considered for release. For these cases, an appraisal may be required 
to determine the market value of the property at the time the SAA was 
signed if such value cannot be obtained through another method.
    (2) [Reserved]
    (3) Shared appreciation will be due if there is a positive 
difference between the market value of the security property at the 
time of calculation and the market value of the security property as of 
the date of the SAA. The maximum appreciation requested will not be 
more than the total amount written down. The amount of shared 
appreciation will be:
    (i) 75% of any positive appreciation if any one of the events 
listed in paragraphs (b)(1) through (4) of this section occur within 4 
years or less from the date of the SAA; or
    (ii) 50% of any positive appreciation if any one of the events 
listed in paragraphs (b)(1) through (4) of this section occurs more 
than 4 years from the date of the SAA, or if the term of the SAA 
expires.
    (4) [Reserved]
    (5) When the full amount of the appreciation due under this section 
and any remaining FSA debt is paid in full and credited to the account, 
the borrower will be released from liability.
    (6) Shared appreciation that will become due will be included in 
the amount owed to FSA, such as with any debt settlement. Nonamortized 
shared appreciation may be assumed and amortized on program or 
nonprogram terms based on the transferee's eligibility as contained in 
subpart A of part 1965 of this chapter.
    (d) [Reserved]
    (e) Shared appreciation amortization. Shared appreciation may be 
amortized to a nonprogram loan for borrowers who will continue with FSA 
on program loans. Shared appreciation will not be amortized if the 
amount is due because of acceleration, payment in full or satisfaction 
of the debt, or the borrower ceases farming. The amount due may be 
amortized as an SA loan under the following conditions:
    (1) The borrower must have a feasible plan as defined in 
Sec. 1951.906 including the SA loan payment.
    (2) The borrower must be unable to pay the shared appreciation, or 
obtain the funds elsewhere to pay the shared appreciation.
    (3) [Reserved]
    (4) [Reserved]
    (5) The loan term will be based on the borrower's repayment ability 
and the life of the security, not to exceed 25 years.
    (6) The interest rate will be the nonprogram real property rate 
contained in RD Instruction 440.1 (available in any FSA office.)
    (7) A lien will be obtained on any remaining FSA security, or if 
there is no security remaining, the best lien obtainable on any other 
real estate or chattel property sufficient to secure the SA note, if 
available.
    (8) The borrower will sign a promissory note for each SA loan 
established.
    (9) If the borrower has outstanding FLP loans, and becomes 
delinquent or financially distressed as defined in Sec. 1951.906, the 
SA loan may be considered for reamortization as set forth in 
Sec. 1951.909(e).
    (f) Priority of collection application. Proceeds from the sale of 
security property will first be applied to any prior lienholder's debt, 
then to any shared appreciation due, and to the balance of outstanding 
FLP loans in accordance with subpart A of this part.
    (g) Subordination. Subordination of FSA's lien on property securing 
the Shared Appreciation Agreement may be approved and processed in 
accordance with subpart A of part 1965 of this chapter provided the 
prior lien debt is not increased.
    5. Section 1951.950 is amended to revise the OMB control number 
``0575-0133'' in the first and last sentences to read ``0560-0161''.
    6. Exhibit D is removed and reserved.

    Signed in Washington, D.C., on January 26, 1998.
August Schumacher, Jr.,
Under Secretary for Farm and Foreign Agricultural Services.
[FR Doc. 98-3314 Filed 2-9-98; 8:45 am]
BILLING CODE 3410-05-P