[Federal Register Volume 69, Number 46 (Tuesday, March 9, 2004)]
[Rules and Regulations]
[Pages 10901-10913]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-5138]



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  Federal Register / Vol. 69, No. 46 / Tuesday, March 9, 2004 / Rules 
and Regulations  

[[Page 10901]]



FARM CREDIT ADMINISTRATION

12 CFR Parts 609, 611, 612, 614, 615, and 617

RIN 3052-AB69


Electronic Commerce; Organization; Standards of Conduct and 
Referral of Known or Suspected Criminal Violations; Loan Policies and 
Operations; Funding and Fiscal Affairs, Loan Policies and Operations, 
and Funding Operations; Borrower Rights

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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SUMMARY: The Farm Credit Administration (FCA) issues this final rule to 
clarify the rights provided in the Farm Credit Act of 1971, as amended 
(Act), for loan applicants and borrowers of the Farm Credit System (FCS 
or System). The final rule further explains the responsibilities of the 
System in providing these rights, responds to comments, and places all 
borrower rights provisions in one part of our regulations.

EFFECTIVE DATE: This regulation will be effective 30 days after 
publication in the Federal Register during which time either or both 
Houses of Congress are in session. We will publish a notice of the 
effective date in the Federal Register.

FOR FURTHER INFORMATION CONTACT:
Mark L. Johansen, Policy Analyst, Office of Policy and Analysis, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4479, TTY (703) 
883-4434;
 or
Joy Strickland, Senior Counsel, Office of General Counsel, Farm Credit 
Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-
2020.

SUPPLEMENTARY INFORMATION:

I. Objectives

    The objectives of the final rule are to:
     Provide the protections required by the Act to 
applicants and borrowers with distressed loans;
     Avoid placing unnecessary burdens on System 
institutions; and
     Use plain language in a question-and-answer 
format.

II. Background

    In the Farm Credit Amendments Act of 1985 \1\ and the Agricultural 
Credit Act of 1987,\2\ Congress gave particular rights to borrowers 
with distressed loans who borrow from System institutions operating 
under titles I and II of the Act. These rights include notice when a 
loan becomes distressed; the opportunity to request a restructuring of 
a distressed loan; review of certain loan decisions; and the right of 
first refusal on purchasing or leasing agricultural real estate 
acquired by a System institution through foreclosure or voluntary 
conveyance. Collectively, these rights are referred to as borrower 
rights. We published a proposed rule (69 FR 5595) on February 4, 2003, 
to clarify our expectations for compliance with borrower rights. This 
final rule addresses the comments received on the proposed rule.
---------------------------------------------------------------------------

    \1\ Pub. L. 99-205, 99 Stat. 1678.
    \2\ Pub. L. 100-233, 101 Stat. 1568.
---------------------------------------------------------------------------

III. Redesignate Portions of Part 614 to Part 617

    We are redesignating Sec.  614.4336 and all of subparts L and N of 
part 614 to a new part 617 to make the borrower rights rules more 
readily identifiable. We are also redesignating Sec.  612.2130 through 
Sec.  612.2270 to a new subpart A in part 612 and Sec.  617.1 through 
Sec.  617.4 to Sec.  612.2300 through Sec.  612.2303. In addition, we 
are making conforming changes to Sec. Sec.  609.910(c), 611.1223(d)(6), 
611.1290, 614.4560(d), 615.5280(h), and 615.5290(a) and (b) to reflect 
the redesignation. As a result of finalizing this rule before we 
finalize the proposed Effective Interest Rate Disclosure rule (68 FR 
5587), we are also including amendatory and conforming changes to 
Sec. Sec.  611.1223(d)(6), 611.1290, and 614.4560(d) here.

IV. Comments and Our Response

    We received 12 comments on our proposed rule from 10 System 
associations, one System bank, and the Farm Credit Council (FCC) on 
behalf of the Farm Credit institutions they represent. The commenters 
generally supported the proposed rule; however, they asked us to change 
or clarify certain aspects of our proposal. We discuss those aspects, 
the individual comments associated with them, and our responses below. 
Those areas of the proposed rule that did not receive comments are 
finalized as proposed.

V. General Issues

A. Waiver of Borrower Rights

    Four System associations commented that FCA should interpret the 
Act to allow the waiver of borrower rights by certain borrowers, such 
as large and sophisticated borrowers. They argued that these borrowers 
are represented by experienced counsel and are at equal-bargaining 
strength with qualified lenders. They also commented that borrower 
rights prevent qualified lenders from acting as lead or agent lenders 
in commercial transactions.
    We continue to believe that waivers of borrower rights should be 
authorized only on a limited basis. Wholesale waiver provisions, such 
as ones for all large and sophisticated borrowers, would not be 
consistent with the intent of Congress.
    A System association also commented that prohibiting waivers of 
borrower rights deprives borrowers of a potential ``tool'' for use in 
negotiating concessions or some other economic value in a workout 
situation. The association stated that without this ``tool'' the 
institution has no incentive to listen to such loan-servicing 
proposals. The institution's position is not in keeping with the 
legislative intent of borrower rights. Borrower rights are not 
bargaining tools. They are statutory rights designed to protect 
borrowers with distressed loans who generally are in unequal-bargaining 
positions with qualified lenders. The Act and our regulations do not 
consider these rights to be ``tools'' for obtaining concessions in 
restructuring discussions, and neither should the System.

B. Borrower Rights and Bankruptcy

    Six System associations and the FCC commented that the Bankruptcy 
Code supersedes all borrower rights and, therefore, no borrower rights 
should be offered once bankruptcy has been filed. The commenters 
offered several reasons

[[Page 10902]]

to support this supposition, including (1) A qualified lender may not 
always be able to satisfy both the Bankruptcy Code and our regulations 
in a way that is meaningful to the borrower; (2) a borrower who 
voluntarily files bankruptcy has made an ``election of remedies'' that 
effectively waives his rights under the Act; (3) the process of debt 
restructuring under borrower rights should not be concurrent with the 
process of bankruptcy because it creates a conflict in jurisdiction and 
right of review; and (4) the Bankruptcy Code and the Act provide 
separate and distinct remedies to the borrowers.
    We do not agree that borrower rights and bankruptcy are mutually 
exclusive, but that the requirements of the Act and the Bankruptcy Code 
can co-exist. Further, the courts have ruled that our borrower rights 
provisions apply to debtors in bankruptcy.\3\ Borrower rights under the 
Act are generally compatible with filing for reorganization in 
bankruptcy, as both laws are designed to resolve a borrower's financial 
difficulties. Additionally, bankruptcy reorganization offers various 
remedies to borrowers, many that are similar to those provided under 
the Act. We believe that borrowers filing for bankruptcy do not waive 
their rights under the Act, nor make an election of remedies resulting 
in a loss of those rights.
---------------------------------------------------------------------------

    \3\ In re Kvamme, 91 B.R. 77 (Bankr. D. N.D. 1988) (holding the 
Act merely provides for a restructuring opportunity and within 
bankruptcy that opportunity is no more nor less than what would be 
available to a borrower outside of bankruptcy (emphasis in 
original)).
    Courts have also held that they are ``not at liberty to pick and 
choose among congressional enactments and when statutes are capable 
of coexistence, it is the duty of the courts, absent a clearly 
expressed congressional intention to the contrary, to regard each as 
effective.'' See Morton v. Mancari, 417 U.S. 535, 551 (1974).
---------------------------------------------------------------------------

    One of the associations commented that borrower rights impede the 
bankruptcy plan negotiation process. We do not believe that notifying a 
borrower of restructuring opportunities impedes a bankruptcy workout 
negotiation. Further, we do not believe that informing a borrower in 
bankruptcy, and his counsel, of his restructuring opportunities 
conflicts with any bankruptcy provisions. We recognize that combining 
borrower rights with bankruptcy reorganization may require additional 
effort by qualified lenders, but believe no real conflict exists 
between the Act and the Bankruptcy Code.

C. Borrower Rights and Arbitration

    The FCC commented that it disagreed with our position that borrower 
rights may not be set aside as a result of the arbitration process. The 
FCC stated that our position defeats the purpose of arbitration and 
creates a disincentive for qualified lenders to use arbitration. We do 
not agree with the comment. Arbitrators must work within the framework 
of borrower rights and other prevailing laws when reaching decisions.

VI. Section-by-Section Analysis

A. Definitions

1. Adverse Credit Decision [Sec.  614.4440(a) to New Sec.  617.7000]
    A System association and the FCC commented that the definition of 
an adverse credit decision excludes those situations where a loan 
request is approved for less than the amount requested by the 
applicant. The System association commented that applicants have been 
confused by receiving notices of the adverse credit decision after 
agreeing to a loan in a lesser amount. The System association further 
pointed out that the Federal Reserve Board's (FRB) Regulation B 
provides that a loan in a reduced amount, if accepted by an applicant 
and closed, is not an adverse credit action. The System association 
further commented that if an applicant does not accept a counter offer 
within a set period of time the nonacceptance would be an adverse 
credit decision.
    The commenter correctly referenced Regulation B and adverse credit 
decisions; however, the plain language of section 4.14 of the Act does 
not support the commenter's approach. The plain language of the Act 
clearly states that making a loan in an amount less than requested is 
an adverse credit decision. While it may appear confusing for 
applicants to receive a notice of the adverse credit decision after 
agreeing to a loan in a lesser amount, we believe this confusion is 
minimized by qualified lenders appropriately counseling applicants or 
by providing an explanation of the requirements in the notice of the 
adverse credit decision.
    The FCC commented that our treatment of reduced loan offers is 
inconsistent with our discussion in the proposed rule on applications 
for restructuring. We stated that Congress expected borrowers and 
lenders to negotiate applications for restructuring. If negotiations 
result in a denial of the application for restructuring, the borrower 
may appear before the credit review committee (CRC). The FCC argues 
that we proposed an inconsistent definition of adverse credit decision 
because we did not specifically identify approved restructuring plans 
that are less than what the borrower applied for as subject to CRC 
review. The FCC compared reduced loan requests with reduced 
restructuring requests when making this argument. The Act and our 
proposed rule treat these two types of actions differently. Sections 
4.13B(a)(2) and 4.14(b)(1) of the Act specifically state that 
applicants may request CRC reviews of decisions to deny or reduce the 
amount of the loan applied for. Conversely, section 4.14(b)(2) provides 
CRC review rights for denied loan restructurings, not reductions in 
restructuring requests.
2. Application for Restructuring [Sec. Sec.  614.4440(c) and 
614.4512(a) to New Sec.  617.7000]
    A System association and the FCC commented that they disagreed with 
including a borrower's bankruptcy plan of reorganization in our 
proposed definition of an application for restructuring. They expressed 
concern that including a bankruptcy plan in the definition may make it 
difficult or impossible for the qualified lender to comply with all 
borrower rights provisions. We agree that the proposed definition 
inadvertently created confusion and are removing bankruptcy plans of 
reorganization from the definition of ``application for 
restructuring.'' However, as a paperwork reduction measure, a proposed 
bankruptcy plan may be considered as the application for restructuring 
if the bankruptcy filing contains all of the information necessary for 
a restructuring application, as required by section 4.14A(a)(1) of the 
Act.
    A System association commented that it appeared that we had deleted 
the requirement contained in existing Sec.  614.4440(c) that an 
application for restructuring include a preliminary plan of 
restructuring from the borrower. In our plain language rewrite of the 
rule, we deleted the specific phrase ``preliminary restructuring plan 
proposed by the borrower'' from existing Sec.  614.4440(c)(1). That 
requirement is contained in the Act at section 4.14A(a)(1)(A); 
therefore a regulatory provision with the same requirement is 
unnecessary. Although we deleted the specific phrase, we did not delete 
the requirement that a borrower submit an application for restructuring 
that includes a preliminary plan.
3. Independent Evaluator [Sec.  614.4440(f) to New Sec.  617.7000]
    Our proposed rule clarified the definition of ``independent 
evaluator'' by specifically including the term ``agent'' in the 
definition instead of referencing it through part 612. A

[[Page 10903]]

System association commented that adding ``agent'' to the definition of 
an independent evaluator makes the term too restrictive. The 
association recommended adding a time element to the definition so that 
an independent evaluator would not be considered an agent if he or she 
did not have a contractual relationship with a qualified lender within 
1 year of being selected as an independent evaluator. We declined to 
make this change, as adding the term ``agent'' to new Sec.  617.7000 
does not modify the existing definition.
4. Restructure and Restructuring of a Loan [Sec. Sec.  614.4440(i) and 
614.4512(h) to New Sec.  617.7000]
    A System association commented that using ``best opportunity'' in 
the definition of ``restructure'' was troublesome. A borrower could 
argue that the restructuring was not the best opportunity or suggest 
that the lender had somehow influenced the success of the plan. The 
association suggested changing ``best'' to ``reasonable.'' The purpose 
of restructuring is not necessarily to return the operation to 
viability. As such, we removed the phrase referring to viability in the 
proposed definition to focus the definition on the loan terms.

B. What Happens to Borrower Rights When a Loan is Sold? [New Sec.  
617.7015]

    A System association commented that the 180-day period for loans 
designated for sale into a secondary market should be changed to 365 
days. We cannot agree to this change since the 180-day period is 
required by section 4.14A(a)(5)(B)(ii) of the Act.

C. When Acting on a Loan Application, What Are the Notice Requirements 
and Review Rights? [New Sec.  617.7300 et seq.]

1. What Documents May the CRC Consider? [New Sec.  617.7310(c)]
    A System association commented that we limit a borrower's or 
applicant's entitlement to a copy of a qualified lender's collateral 
evaluation to just the collateral in connection with the adverse credit 
decision under review. We do not agree with this comment. Section 4.13A 
of the Act provides borrowers the right to receive copies of all 
appraisals of borrower assets made or used by the qualified lender, not 
just the independent collateral evaluation made in connection with a 
CRC review.
2. May an Applicant Obtain a New Collateral Evaluation Even if 
Collateral Was Not a Reason for the Adverse Credit Decision? [New Sec.  
617.7310(d)]
    Five System associations, a System bank, and the FCC commented that 
applicants and borrowers receiving notices of the adverse credit 
decision should not have the right to obtain an independent collateral 
evaluation unless inadequate collateral was a basis for the adverse 
credit decisions. We do not agree with the comment. The Act clearly 
states that applicants and borrowers have the right to request 
collateral evaluations without regard to whether the evaluations are 
part of the reasons for the adverse credit decision. We believe 
restricting this right might cause harm to an applicant or borrower. 
For example, a notice of the adverse credit decision may not state that 
collateral was a reason for an adverse credit decision, but the loan 
might have been approved if the collateral evaluation had resulted in a 
higher value. We also want to preclude institutions listing reasons 
other than collateral for the adverse credit decision to avoid 
providing the right to an independent collateral evaluation.
    A System bank also commented that section 4.14(d)(1) of the Act 
states that a request for a CRC review of an adverse credit decision 
``may include'' independent appraisals. The bank argued that ``may 
include'' is permissive and may be interpreted to mean that the Act 
does not entitle every applicant or borrower to an independent 
collateral evaluation when requesting a CRC review. We interpret the 
Act as expressly providing an applicant or borrower the option of 
obtaining an independent collateral evaluation when seeking a CRC 
review. Applicants and borrowers, though not required to, may choose to 
obtain independent collateral evaluations and submit them as part of 
CRC review requests. We believe complete disclosure of the reasons for 
an adverse credit decision will help applicants and borrowers decide 
whether the expenditure of time and money for an independent collateral 
evaluation will benefit their CRC reviews. We note, however, that 
Congress limited such requests to only collateral being offered to 
secure loans related to the adverse credit decision.
    The FCC separately commented that permitting an applicant or 
borrower to obtain an independent collateral evaluation when inadequate 
collateral was not among the reasons for the adverse credit decision is 
at odds with section 4.14(d)(2) of the Act. Section 4.14(d)(2) requires 
the CRC to provide an applicant or borrower with an approved list of 
appraisers within 30 days after request, instructs the applicant or 
borrower to bear the cost of the evaluation, and requires the CRC to 
include the evaluation in its reconsideration of an adverse credit 
decision. We do not see a conflict between the applicant's or 
borrower's right to include independent collateral evaluations in CRC 
reviews and the procedures for responding to the exercise of this 
right.
3. When Must an Applicant or Borrower Obtain the Independent Collateral 
Evaluation? [New Sec.  617.7310(d)(2)]
    Three System associations and the FCC disagreed with the proposed 
30-day time period for an applicant or borrower to enter into a 
contractual arrangement with an independent evaluator. The commenters 
instead requested that we establish a time limit for completing the 
independent evaluation, such as 30 or 60 days. We do not believe a 
regulatory time limit to obtain an independent evaluation is 
appropriate. There may be instances where an applicant or borrower 
needs a longer time than the 30 or 60 days suggested. Further, we do 
not believe that restricting a process that is not in the complete 
control of the qualified lender, applicant, or borrower is in keeping 
with the spirit of the borrower rights provisions.
    Five System associations commented that the 30-day time period to 
contract with an independent evaluator is too long. Two of the 
associations provided alternative time periods ranging from 7 days to 2 
weeks. One of the associations also suggested that an applicant or 
borrower execute a written contract for services that complies with the 
qualified lender's standards. We are maintaining the 30-day period. 
However, we agree that a written contract for appraisal services should 
be executed and should comply with a qualified lender's appraisal 
standards. We have amended our proposal to reflect this change.

D. When and How Does a Qualified Lender Notify a Borrower of the Right 
to Seek Loan Restructuring? [New Sec.  617.7410]

1. What Notice Should the Qualified Lender Send to a Borrower Who Is a 
Debtor in a Bankruptcy Proceeding? [New Sec.  617.7410(c)]
    A System association, a System bank, and the FCC commented that 
sending a notice of restructuring to a borrower who has filed 
bankruptcy violates the automatic stay of a bankruptcy proceeding. The 
System bank also asked that the notice be made optional to address 
jurisdictional variations. The FCC argued that some bankruptcy judges 
have viewed any such letters as a violation of the automatic stay. We 
do not agree that sending notice of a restructuring opportunity is a 
violation of the automatic stay. Debtors do not

[[Page 10904]]

forfeit borrower rights, including notice of the opportunity to 
restructure under the Act, when filing for bankruptcy. The automatic 
stay prohibits creditors from making collection efforts. The notice 
required by the Act is not a collection effort. It is a means of 
informing a borrower of his rights under the Act. We believe a properly 
worded notice is not an effort to collect. However, if a qualified 
lender is concerned about potential misunderstandings, the qualified 
lender should include language in the notice that the notice is not a 
collection attempt. Qualified lenders should check with their own 
counsel for appropriate wording.
2. Whom Should the Qualified Lender Notify? [New Sec.  617.7410(d)]
    Two System associations commented on our proposal to send 
distressed loan notices to a borrower's attorney in bankruptcy. Both 
associations stated that not all debtors in bankruptcy have legal 
representation, and one suggested that the notices be sent directly to 
the borrower. We agree that not all borrowers retain counsel for a 
bankruptcy proceeding and we have amended our rule accordingly. The 
final rule allows for sending notice to the borrower and the borrower's 
counsel, if known.
    A System association asked what notice is required when a borrower 
has been discharged of debt in a Chapter 7 bankruptcy. When a 
Bankruptcy Court has discharged a debt, the debt is eliminated. Thus, 
no borrower rights obligations remain, absent the right of first 
refusal that may apply.
3. When Is a Qualified Lender Required To Send Another Restructure 
Notice to a Borrower Whose Loan Was Previously Restructed? [New Sec.  
617.7410(e)]
    Two System associations commented that we should expand our 
definition of performance under a restructure agreement beyond payment 
terms. One association suggested the definition include nonperformance 
of contractual requirements, such as liquidating a piece of equipment. 
The other association suggested that a qualified lender and borrower be 
given the latitude to define compliance. We recognize that loan 
restructuring often includes performance criteria in addition to 
repayment. However, nonpayment criteria cannot be used to determine 
default under the Act. Section 4.14D(c) of the Act prohibits a 
qualified lender from initiating foreclosure on a loan that is not past 
due. Thus, a qualified lender cannot accelerate a borrower's loan if 
the borrower has made all scheduled payments.

E. How Does a Qualified Lender Decide To Restructure a Loan? [New Sec.  
617.7415]

1. How Does a Qualified Lender Decide Whether To Restructure or 
Foreclose? [New Sec.  617.7415 (a), (b) and (d)]
    Two System associations commented that viability should be the 
deciding factor in determining whether to restructure or foreclose, 
rather than least cost. We disagree with the comment. Section 4.14A(f) 
requires that the least cost, that is, the lesser of the cost of 
restructuring versus the cost of foreclosure, be used when determining 
whether to restructure or foreclose. Therefore, a restructured loan 
does not have to restore the farming operation to viability; it only 
has to be the least-cost alternative. We note however, that viability 
is an important consideration when calculating the cost of restructure.
    One association went on to comment that our position on least cost 
is contrary to portions of the proposed rule, where we stated that 
deficient management should weigh heavily in determining the future 
viability of the operation. We do not agree that our position regarding 
viability and least cost is in conflict with our statement that 
deficient management should weigh heavily in determining the future 
viability of a borrower's operation. Both are relevant factors. The 
capability of farm management weighs heavily in the potential viability 
of the operation, and determining viability is part of the overall 
least-cost analysis.
2. What Should the Qualified Lender Do if the Borrower and the 
Qualified Lender Cannot Agree on the Financial Inputs Used in the 
Application for Restructuring? [New Sec.  617.7415(c)]
    A System association commented that we define the term ``financial 
inputs'' and allow benchmarks to include any source or mechanism 
regularly used by a qualified lender. We agree that benchmarks include 
any objective source or mechanism regularly used by a qualified lender, 
which is why we use the phrase ``or other such support'' in the rule. 
Further, to alleviate any confusion, we have replaced the term 
``input'' with ``projections.''

F. How Will a Decision on an Application for Restructuring Be Issued? 
[New Sec. Sec.  617.7420 to 617.7425]

1. What Notice Is Required if the Restructuring Request Is Denied? [New 
Sec.  617.7420(c)]
    A System association commented that the notice of the adverse 
credit decision does not need to include every reason for the denial of 
an application for restructuring. The association stated that we have 
exceeded what is necessary and have created an administrative burden. 
The commenter also stated that our proposal was contradictory to the 
FRB's staff commentary to Regulation B that a combination of more than 
four principal reasons for an adverse action is not likely to be 
helpful to applicants. We disagree with the comment. Borrowers have the 
right to know all the reasons leading to a denial. Failure to provide 
all reasons for a denial deprives borrowers of complete information 
needed to decide whether to request a CRC review of an adverse credit 
decision. Although the FRB has noted in staff commentary to Regulation 
B that more than four reasons may not be helpful, it does not limit 
disclosure to only four or less reasons. We believe including all the 
reasons for a denial is not unreasonable.
    As a general rule, we encourage open and complete communication 
with borrowers and applicants at every stage of the loan-making 
process, especially in ensuring that applicants and borrowers receive 
the rights intended by Congress. At the outset, System institutions 
should be open to accepting loan applications from all eligible 
parties. We further encourage System institutions to process those 
applications, using open, helpful communication. If the loan is denied, 
qualified lenders should provide complete communication of the specific 
reasons for denial so that applicants are able to determine whether to 
seek review of a denial. In the situation where a borrower has a 
distressed loan, qualified lenders should provide full information on 
restructuring rights and then engage in meaningful, open negotiations 
with borrowers to identify and evaluate restructuring opportunities. 
Again, complete communication of the specific reasons for restructuring 
denials enable borrowers to make informed decisions on whether to seek 
CRC reviews.

[[Page 10905]]

G. What Type of Notice Should Be Given to a Borrower Before 
Foreclosure? [New Sec.  617.7425]

    Two System associations and the FCC provided comment on the 
treatment of chronically delinquent borrowers.\4\ The two associations 
commented that we should change our regulations to require only one 
distressed loan notice per 12-month period. The FCC supported the 12-
month comment and suggested linking this requirement to the performance 
provision on restructuring in new Sec.  617.7410(e). We do not agree 
that chronically delinquent borrowers should receive limited 
restructuring opportunities, but we recognize that these borrowers can 
create a burden for some institutions.
---------------------------------------------------------------------------

    \4\ We refer to borrowers who repeatedly default as chronically 
delinquent.
---------------------------------------------------------------------------

    A distressed loan is one where the borrower does not have the 
financial capacity to pay. In some instances, a chronically delinquent 
borrower has the financial capacity to pay, so by definition the loan 
is not distressed. If qualified lenders send distressed loan notices in 
these cases, they may be using the notices as servicing letters. By 
doing so, they invoke the requirements of borrower rights, which are 
only intended for distressed loans. We encourage qualified lenders to 
use caution when determining whether chronically delinquent loans are 
distressed, as defined by the Act. However, if a loan is distressed, 
the qualified lender must send a restructuring notice at least 45 days 
prior to beginning foreclosure.

H. Distressed Loan Restructuring Directive [New Sec.  617.7500 et seq.]

    Two System associations and the FCC questioned the need for 
regulations on issuing borrower rights directives and stated that 
existing FCA enforcement authorities are adequate. One association 
commented that these regulations would provide borrowers additional 
opportunities to delay the restructuring process. Another remarked that 
our examination process provides an adequate check and balance on 
borrower rights. The FCC commented that a distinct enforcement process 
for borrower rights does not provide any additional benefit.
    We do not agree with the comments. As discussed in the proposed 
rule, Congress expressly provided FCA with directive authorities for 
distressed loan restructurings. However, the Act does not describe the 
procedures used when issuing directives. Therefore, we are adopting the 
directive authority, as proposed, to implement our statutory authority.

I. Right of First Refusal [New Sec.  617.7600 et seq.]

1. What Are the Definitions Used in This Subpart? [New Sec.  617.7600]
    a. What Property Is Included in the Term ``Acquired Agricultural 
Real Estate or Property''? A System bank, an association, and the FCC 
commented that the definition of ``acquired agricultural real estate or 
property'' does not include property acquired through bankruptcy 
proceedings. All three commenters claim that the right of first refusal 
should not apply when a System institution obtains title to 
agricultural real estate in a Chapter 7 trustee sale because this type 
of sale is not a foreclosure or a voluntary conveyance. The System bank 
also commented that a bankruptcy sale is outside the language of the 
Act, and offering the right of first refusal is inconsistent with the 
Bankruptcy Court's determination that a debtor's sale of property is 
conducive to reorganization or liquidation.
    We do not agree with these comments. Section 4.36 of the Act states 
that agricultural real estate acquired by a System institution from 
loan foreclosure or a voluntary conveyance by a borrower is subject to 
the right of first refusal. Because of the similarities between a 
Bankruptcy Trustee sale and a loan foreclosure, property acquired by a 
System institution under these circumstances would be subject to the 
right of first refusal.
    b. Who is the Previous Owner? [New Sec.  617.7600] The FCC 
commented that it does not agree that a previous owner includes a prior 
record owner of the property in question. They argue that the Act 
restricts the term previous owner to the borrower on the loan for which 
the property served as collateral. Further, the FCC contends our 
definition complicates the process of determining the previous owner's 
ability to avoid foreclosure since a previous owner who is not a 
borrower has little or no opportunity to prevent foreclosure. We do not 
agree that the Act intended to restrict the term ``previous owner'' to 
a borrower only. We believe the legislative history clearly explains 
that the intention of the right of first refusal is to preserve the 
family farm. Restricting the definition of previous owner to 
individuals signing a debt instrument may not achieve this goal. We 
believe the System is able to determine the ability of a borrower to 
avoid foreclosure and then, when appropriate, to offer first refusal 
rights to the previous owner. If the borrower could have avoided 
foreclosure, then the previous owner would have no first refusal 
rights.
2. May a Previous Owner Waive the Right of First Refusal?
    The FCC requested clarification on whether a waiver of the right of 
first refusal may be obtained. The FCC stated that a borrower should be 
able to freely waive the right of first refusal as part of a debt 
settlement. The FCC specified that such a waiver would be appropriate 
when there has been bona fide consideration, the borrower has been 
specifically advised of his rights, and the borrower has had the 
opportunity to obtain counsel. In addition, the FCC commented that a 
borrower should be able to waive this right subsequent to the System 
institution acquiring the property. We proposed no waiver of the right 
of first refusal, and the Act does not provide for a waiver. Further, 
we do not believe a waiver in this situation is appropriate, nor should 
borrower rights be used as a basis for negotiation in the servicing of 
a loan. A borrower in a distressed loan situation, including debt 
settlement, cannot be considered free of duress when the lender is 
initiating ``waiver'' discussions.
3. How Should System Institutions Document Whether the Borrower Had the 
Financial Resources To Avoid Foreclosure? [New Sec.  617.7605].
    A System association and the FCC asked if a System institution 
would violate our regulations by offering the right of first refusal to 
a borrower who may have had the ability to avoid foreclosure or 
voluntary conveyance. The Act requires System institutions to provide 
the right of first refusal to borrowers who do not have the financial 
resources to avoid foreclosure or voluntary conveyance. It does not 
prohibit offering this opportunity to other borrowers. However, a 
System institution should establish an objective standard for making 
such an opportunity available. The lack of established standards poses 
a risk of perceived discrimination or favoritism. Also, once the right 
of first refusal is offered optionally by the institution, the 
provisions of the Act and regulations governing the means of processing 
the exercise of that right become applicable.
4. What Should the System Institution Do When It Decides To Sell 
Acquired Agricultural Real Estate? [New Sec.  617.7610]
    A System association requested guidance regarding a System 
institution's ability to reject an offer to

[[Page 10906]]

purchase agricultural real estate if the offer contains unusual or 
unacceptable contingencies, such as an unreasonable timeframe to 
settle. The association also requested that we add a regulatory 
provision requiring offers from previous owners to be made in writing, 
dated, and signed. We believe this comment has merit, and we are 
considering resoliciting comments on this issue.

VII. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), the FCA hereby certifies that the final rule will 
not have a significant economic impact on a substantial number of small 
entities. Each of the banks in the System, considered together with its 
affiliated associations, has assets and annual income in excess of the 
amounts that would qualify them as small entities. Therefore, System 
institutions are not ``small entities'' as defined in the Regulatory 
Flexibility Act.

List of Subjects

12 CFR Part 609

    Agriculture, Banks, banking, Electronic commerce, Reporting and 
recordkeeping requirements, Rural areas.

12 CFR Part 611

    Agriculture, Banks, banking, Rural areas.

12 CFR Part 612

    Agriculture, Banks, banking, Conflict of interests, Rural areas.

12 CFR Part 614

    Agriculture, Banks, banking, Flood insurance, Foreign trade, 
Reporting and recordkeeping requirements, Rural areas.

12 CFR Part 615

    Accounting, Agriculture, Banks, banking, Government securities, 
Investments, Rural areas.

12 CFR Part 617

    Banks, banking, Criminal referrals, Criminal transactions, 
Embezzlement, Insider abuse, Investigations, Money laundering, Theft.

0
For the reasons stated in the preamble, parts 609, 611, 612, 614, 615, 
and 617, chapter VI, title 12 of the Code of Federal Regulations are 
amended as follows:

PART 609--ELECTRONIC COMMERCE

0
1. The authority citation for part 609 continues to read as follows:

    Authority: Sec. 5.9 of the Farm Credit Act (12 U.S.C. 2243); 5 
U.S.C. 301; Pub. L. 106-229 (114 Stat. 464).

Subpart A--General Rules

0
2. Amend Sec.  609.910(c) by revising the fourth sentence to read as 
follows:


Sec.  609.910  Compliance with the Electronic Signatures in Global and 
National Commerce Act (Public Law 106-229)(E-SIGN).

* * * * *
    (c) * * * Thus, System institutions cannot use electronic 
notification to deliver some notices that must be provided under part 
617, subparts A, D, E, and G of this chapter. * * *
* * * * *

PART 611--ORGANIZATION

0
3. The authority citation for part 611 continues to read as follows:

    Authority: Secs. 1.3, 1.13, 2.0, 2.10, 3.0, 3.21, 4.12, 4.15, 
4.20, 4.21, 5.9, 5.10, 5.17, 6.9, 6.26, 7.0-7.13, 8.5(e) of the Farm 
Credit Act (12 U.S.C. 2011, 2021, 2071, 2091, 2121, 2142, 2183, 
2203, 2208, 2209, 2243, 2244, 2252, 2278a-9, 2278b-6, 2279a-2279f-1, 
2279aa-5(e)); secs. 411 and 412 of Pub. L. 100-233, 101 Stat. 1568, 
1638; secs. 409 and 414 of Pub. L. 100-399, 102 Stat. 989, 1003, and 
1004.

Subpart P--Termination of System Institution Status

0
4. Amend Sec.  611.1223(d)(6) by revising the second sentence to read 
as follows:


Sec.  611.1223  Information statement--contents.

* * * * *
    (d) * * *
    (6) * * * You must explain the effect termination will have on 
borrower rights granted in the Act and part 617 of this chapter.
* * * * *

0
5. Amend Sec.  611.1290 by revising the second sentence to read as 
follows:


Sec.  611.1290  Continuation of borrower rights.

    * * * Institutions that become other financing institutions on 
termination must comply with the applicable borrower rights provisions 
in the Act and part 617 of this chapter.

PART 612--STANDARDS OF CONDUCT AND REFERRAL OF KNOWN OR SUSPECTED 
CRIMINAL VIOLATIONS

0
6. The authority citation for part 612 continues to read as follows:

    Authority: Secs. 5.9, 5.17, 5.19 of the Farm Credit Act (12 
U.S.C. 2243, 2252, 2254).


0
7. Revise the heading of part 612 to read as set forth above.

0
8. Redesignate Sec. Sec.  612.2130 through 612.2270 as subpart A and 
add a heading for new subpart A to read as follows:

Subpart A--Standards of Conduct

PART 614--LOAN POLICIES AND OPERATIONS

0
9. The authority citation for part 614 is revised to read as follows:

    Authority: 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128; secs. 
1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 1.11, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 
2.13, 2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10, 3.20, 3.28, 4.12, 4.12A, 
4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.18, 4.18A, 4.19, 4.25, 
4.26, 4.27, 4.28, 4.36, 4.37, 5.9, 5.10, 5.17, 7.0, 7.2, 7.6, 7.8, 
7.12, 7.13, 8.0, 8.5 of the Farm Credit Act (12 U.S.C. 2011, 2013, 
2014, 2015, 2017, 2018, 2019, 2071, 2073, 2074, 2075, 2091, 2093, 
2094, 2097, 2121, 2122, 2124, 2128, 2129, 2131, 2141, 2149, 2183, 
2184, 2201, 2202, 2202a, 2202c, 2202d, 2202e, 2206, 2206a, 2207, 
2211, 2212, 2213, 2214, 2219a, 2219b, 2243, 2244, 2252, 2279a, 
2279a-2, 2279b, 2279c-1, 2279f, 2279f-1, 2279aa, 2279aa-5); sec. 413 
of Pub. L. 100-233, 101 Stat. 1568, 1639.

Subpart H--Loan Purchases and Sales


Sec.  614.4336  [Removed]

0
10. Remove Sec.  614.4336.

Subpart L--[Removed]

0
11. Remove subpart L, consisting of Sec. Sec.  614.4440 through 
614.4444.

Subpart N--Loan Servicing Requirements; State Agricultural Loan 
Mediation Programs; Right of First Refusal


Sec. Sec.  614.4514-614.4522  [Removed]

0
12. Remove Sec. Sec.  614.4514 through 614.4522 in subpart N.

Subpart P--Farm Credit Bank and Agricultural Credit Bank Financing 
of Other Financing Institutions

0
13. Revise Sec.  614.4560(d) to read as follows:


Sec.  614.4560  Requirements for OFI funding relationships.

* * * * *
    (d) The borrower rights requirements in part C of title IV of the 
Act, and section 4.36 of the Act, and the regulations in part 617 of 
this chapter shall apply to all loans that an OFI funds or discounts 
through a Farm Credit Bank or agricultural credit bank, unless such 
loans are subject to the Truth in Lending Act, 15 U.S.C. 1601 et seq.
* * * * *

[[Page 10907]]

PART 615--FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS, 
AND FUNDING OPERATIONS

0
14. The authority citation for part 615 continues to read as follows:

    Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5, 
2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9, 5.17, 
6.20, 6.26, 8.0, 8.3, 8.4, 8.6, 8.7, 8.8, 8.10, 8.12 of the Farm 
Credit Act (12 U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 
2075, 2076, 2093, 2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 
2211, 2243, 2252, 2278b, 2278b-6, 2279aa, 2279aa-3, 2279aa-4, 
2279aa-6, 2279aa-7, 2279aa-8, 2279aa-10, 2279aa-12); sec. 301(a) of 
Pub. L. 100-233, 101 Stat. 1568, 1608.

Subpart J--Retirement of Equities

0
15. Section 615.5280(h) is revised to read as follows:


Sec.  615.5280  Retirement in event of default.

* * * * *
    (h) The requirements of this section may be satisfied by notices 
given pursuant to Sec. Sec.  617.7405, 617.7410, 617.7420, and 617.7425 
of this chapter that contain the information required by this section.

0
16. Amend Sec.  615.5290 by revising paragraphs (a) and (b) to read as 
follows:


Sec.  615.5290  Retirement of capital stock and participation 
certificates in event of restructuring.

    (a) If a Farm Credit Bank or agricultural credit bank forgives and 
writes off, under Sec.  617.7415, any of the principal outstanding on a 
loan made to any borrower, where appropriate the Federal land bank 
association of which the borrower is a member and stockholder shall 
cancel the same dollar amount of borrower stock held by the borrower in 
respect of the loan, up to the total amount of such stock, and to the 
extent provided for in the bylaws of the Bank relating to its 
capitalization, the Farm Credit Bank or agricultural credit bank shall 
retire an equal amount of stock owned by the Federal land bank 
association.
    (b) If a production credit association or merged association 
forgives and writes off, under Sec.  617.7415, any of the principal 
outstanding on a loan made to any borrower, the association shall 
cancel the same dollar amount of borrower stock held by the borrower in 
respect of the loan, up to the total amount of such loan.
* * * * *

PART 617--REFERRAL OF KNOWN OR SUSPECTED CRIMINAL VIOLATIONS

0
17. The authority citation for part 617 is revised to read as follows:

    Authority: Secs. 4.13, 4.13A, 4.13B, 4.14, 4.14A, 4.14C, 4.14D, 
4.14E, 4.36, 5.9, 5.17 of the Farm Credit Act (12 U.S.C. 2199, 2200, 
2201, 2202, 2202a, 2202c, 2202d, 2202e, 2219a, 2243, 2252).

PART 617--[REMOVED]


Sec. Sec.  617.1-617.4  [Redesignated as Sec. Sec.  612.2300-612.2303]

0
18. Redesignate Sec. Sec.  617.1 through 617.4 as new Sec. Sec.  
612.2300 through 612.2303.

0
19. Remove part 617.

0
20. Redesignate newly designated Sec. Sec.  612.2300-612.2303 as 
subpart B and add a heading for Subpart B to read as follows:

Subpart B--Referral of Known or Suspected Criminal Violations


Sec.  612.2300  [Amended]

0
21. Amend newly designated Sec.  612.2300 by removing the reference 
``Sec.  617.2'' each place it appears and add in its place, the 
reference ``Sec.  612.2301'' in paragraphs (a), (c), and (e).

0
22. Add a new part 617, subpart A, to read as follows:

PART 617--BORROWER RIGHTS

Subpart A--General
Sec.
617.7000 Definitions
617.7005 When may electronic communications be used in the borrower 
rights process?
617.7010 May borrower rights be waived?

Subpart A--General


Sec.  617.7000  Definitions.

    For the purposes of this part, the following terms apply:
    Adverse credit decision means a credit decision where a qualified 
lender:
    (1) Decides not to make a loan to an applicant;
    (2) Approves a loan in an amount less than the applicant requested; 
or
    (3) Denies an application for restructuring.
    Applicant means any person who completes and executes a loan 
application from a qualified lender.
    Application for restructuring means a written request from a 
borrower to restructure a distressed loan. The request must be 
submitted on the appropriate forms prescribed by the qualified lender 
and accompanied by sufficient financial information and repayment 
projections, where appropriate, as required by the qualified lender to 
support a sound credit decision.
    Distressed loan means a loan that the borrower does not have the 
financial capacity to pay according to its terms, as determined by the 
qualified lender, and exhibits one or more of the following 
characteristics:
    (1) The borrower is demonstrating adverse financial and repayment 
trends.
    (2) The loan is delinquent or past due under the terms of the loan 
contract.
    (3) One or both of the factors listed in paragraphs (1) and (2) of 
this section, together with inadequate collateralization, present a 
high probability of loss to the qualified lender.
    Foreclosure proceeding means:
    (1) A foreclosure or similar legal proceeding to enforce a lien on 
property, whether real or personal, that secures a non-interest-earning 
asset or distressed loan; or
    (2) The seizing of and realizing on non-real property collateral, 
other than collateral subject to a statutory lien arising under titles 
I and II of the Act, to effect collection of a nonaccrual or distressed 
loan.
    Independent evaluator means an individual who is a qualified 
evaluator and who satisfies the standards of Sec.  614.4260, subpart F 
of this chapter, and the standards set by the qualified lender for the 
type of property to be evaluated. The independent evaluator may not be 
an employee or agent of a qualified lender or have a relationship with 
the lender or any of its officers or directors in contravention of part 
612 of this chapter.
    Loan means an extension of credit made to a farmer, rancher, or 
producer or harvester of aquatic products, for any agricultural or 
aquatic purpose and other credit needs of the borrower, including 
financing for basic processing and marketing that directly relates to 
the borrower's operations and those of other eligible farmers, 
ranchers, and producers or harvesters of aquatic products.
    Loan application means a complete oral or written request for an 
extension of credit made in accordance with a qualified lender's 
procedures for the type of credit requested. An application is complete 
when the qualified lender receives all the information normally 
obtained and used in evaluating applications for credit. This 
information may include credit reports, supporting information for the 
credit requested, and reports by governmental agencies or other persons 
necessary to guarantee, insure, or provide security for the credit or 
collateral.

[[Page 10908]]

    Qualified lender means:
    (1) A System institution, except a bank for cooperatives, that 
makes loans as defined in this section; and
    (2) Each bank, institution, corporation, company, credit union, and 
association described in section 1.7(b)(1)(B) of the Act (commonly 
referred to as an other financing institution), but only with respect 
to loans discounted or pledged under section 1.7(b)(1).
    Restructure and restructuring of a loan means a reamortization, 
renewal, deferral of principal or interest, monetary concessions, or 
the taking of any other action to modify the terms of, or forbear on, a 
loan.


Sec.  617.7005  When may electronic communications be used in the 
borrower rights process?

    Qualified lenders may use, with the parties' agreement, electronic 
commerce (E-commerce), including electronic communications for borrower 
rights disclosures. Part 609 of this chapter addresses when a qualified 
lender may use E-commerce. Consistent with these rules, a qualified 
lender should interpret part 617 broadly to allow electronic 
transmissions, communications, records, and submissions. However, 
electronic communications may not be used for a notice of default, 
acceleration, repossession, foreclosure, eviction, or the right to cure 
when a borrower's primary residence secures the loan. In these 
instances, a qualified lender must use paper disclosures.


Sec.  617.7010  May borrower rights be waived?

    (a) A qualified lender may not obtain a waiver of borrower rights, 
except as indicated in paragraph (b) of this section.
    (b) A borrower may waive rights relating to distressed loan 
restructuring, credit reviews, and the right of first refusal as 
follows:
    (1) When a loan is guaranteed by the Small Business Administration.
    (2) In connection with a loan sale as provided in Sec.  617.7015.
    (c) All waivers must be voluntary and in writing. The document 
evidencing the waiver must clearly explain the rights the borrower is 
being asked to waive and provide an explanation of such rights.


Sec.  617.7015  What happens to borrower rights when a loan is sold?

    (a) What happens when a qualified lender sells a loan to another 
qualified lender? A loan made by a qualified lender and subsequently 
sold, in whole or in part, to another qualified lender is subject to 
the borrower rights provisions of title IV of the Act.
    (b) What happens when a qualified lender sells a loan into the 
secondary market?
    (1) Except as provided in paragraph (b)(2) of this section, the 
borrower rights provisions of sections 4.14, 4.14A, 4.14B, 4.14C, 
4.14D, and 4.36 of the Act do not apply to a loan made on or after 
February 10, 1996, and designated for sale into a secondary market at 
the time the loan was made.
    (2) Borrower rights apply to a loan designated for sale under 
paragraph (b)(1) of this section but not sold into a secondary market 
during the 180-day period that begins on the date of designation. The 
provisions of paragraph (b)(1) of this section will subsequently apply 
on the date of sale if the loan is later sold into a secondary market.
    (c) What happens when a qualified lender sells a loan to a 
nonqualified lender?
    (1) Except for loans sold to another qualified lender or designated 
for sale into a secondary market, a qualified lender must comply with 
one of the following requirements before selling a loan or interest in 
a loan subject to borrower rights:
    (i) The qualified lender and borrower must agree to include 
provisions in the loan contract with the borrower, or a written 
modification thereto, that ensure that the buyer of the loan will be 
obligated to provide the borrower the same rights a qualified lender 
must provide; or
    (ii) The qualified lender must obtain from the borrower a signed 
written consent to the sale, which clearly states the borrower waives 
statutory borrower rights.
    (2) Before the qualified lender obtains the borrower's consent to 
the sale of the loan and the waiver of borrower rights under paragraph 
(c)(1)(ii) of this section, the qualified lender must disclose in 
writing to the borrower:
    (i) A complete description of the statutory rights the borrower 
will waive;
    (ii) Any changes in the loan terms or conditions that will occur if 
the qualified lender does not sell the loan;
    (iii) That waiving borrower rights will not become effective unless 
the qualified lender sells the loan; and
    (iv) That borrower rights will become effective again if any 
qualified lender repurchases the loan or any interest in the loan.
    (3) The consent to the loan sale and waiver of borrower rights 
shall have no effect until the qualified lender sells the loan. 
Borrower rights become effective again if any qualified lender 
repurchases the loan or any interest in the loan.
    (4) A qualified lender may not make a loan conditioned on the 
borrower consenting to the loan's sale and a waiver of borrower rights.

0
23. Amend part 617 by adding new subparts D, E, F, and G to read as 
follows:
Subpart D--Actions on Applications; Review of Credit Decisions
Sec.
617.7300 When acting on a loan application, what are the notice 
requirements and review rights?
617.7305 What is a CRC and who are the members?
617.7310 What is the review process of the CRC?
617.7315 What records must the qualified lender maintain on behalf 
of the CRC?

Subpart D--Actions on Applications; Review of Credit Decisions


Sec.  617.7300  When acting on a loan application, what are the notice 
requirements and review rights?

    Each qualified lender must make its decision on a loan application 
as quickly as possible. The qualified lender must provide prompt 
written notice of its decision to the applicant. The qualified lender 
is required to notify all primary applicants. If a loan application has 
more than one primary applicant, the qualified lender may send the 
original notice to the applicant designated to receive notices and may 
send copies to all other applicants. If the qualified lender makes an 
adverse credit decision on a loan application, the notice must include:
    (a) The specific reasons for the qualified lender's decision;
    (b) A statement that the applicant may request a review of the 
decision;
    (c) A statement that a written request for review must be made 
within 30 days after the applicant receives the qualified lender's 
notice; and
    (d) A brief explanation of the process for seeking review of the 
decision, including the independent collateral evaluation review 
process, whom to contact for access to information, and the applicant's 
right to appear in person before the credit review committee (CRC).


Sec.  617.7305  What is a CRC and who are the members?

    The board of directors of each qualified lender must establish one 
or more CRCs to review adverse credit decisions made by a qualified 
lender. The CRC may only review adverse credit decisions at the request 
of the applicant or borrower. The CRC has the ultimate decision-making 
authority on the loan or application under review.

[[Page 10909]]

CRC members are selected by the board of directors of each qualified 
lender and must include at least one of the qualified lender's farmer-
elected board members. The loan officer involved in the adverse credit 
decision being reviewed may not serve on the CRC when it reviews that 
loan.


Sec.  617.7310  What is the review process of the CRC?

    (a) How will an applicant or borrower know when the CRC will 
consider the review request? The qualified lender must inform the 
applicant or borrower 15 days in advance of the CRC meeting where the 
applicant or borrower's request will be reviewed.
    (b) Who may make a personal appearance before the CRC? Each 
applicant or borrower who has requested a review may appear in person 
before the CRC. The applicant or borrower may be accompanied by counsel 
or other representative when seeking a reversal of a decision on a loan 
or an application for restructuring.
    (c) What documents may the CRC consider? An applicant or borrower 
may submit any documents or other evidence to support the information 
contained in the loan or application for restructuring. The documents 
should demonstrate that the application for a loan or restructuring 
satisfies the credit standards of the qualified lender and is an 
eligible loan or application for restructuring. Additionally, the 
applicant or borrower is entitled to a copy of each independent 
collateral evaluation used by the qualified lender.
    (d) May an applicant obtain a new collateral evaluation even if 
collateral was not a reason for the adverse credit decision? As part of 
a CRC review, an applicant may request an independent collateral 
evaluation of the agricultural real estate securing the loan or being 
offered as security, regardless of whether collateral was an identified 
reason for the adverse credit decision. The independent collateral 
evaluation may be for any interest(s) in the property securing the 
loan, except stock or participation certificates issued by the 
qualified lender and held by the applicant or borrower.
    (1) Who may conduct an independent collateral evaluation? The 
independent collateral evaluation must be conducted by an independent 
evaluator. The CRC must provide the applicant or borrower with a list 
of three independent evaluators approved by the qualified lender within 
30 days of the request for an independent collateral evaluation. The 
applicant or borrower must select and engage the services of an 
evaluator from the list. The evaluation must comply with the collateral 
evaluation requirements of part 614, subpart F, of this chapter. The 
qualified lender must provide the applicant or borrower a copy of part 
614, subpart F, for presentation to the selected independent evaluator. 
A copy of part 614, subpart F, signed by the evaluator is a required 
exhibit in the subsequent evaluation report.
    (2) When must an applicant or borrower obtain the independent 
collateral evaluation and who pays for the evaluation? The applicant or 
borrower must enter into a contractual arrangement for evaluation 
services within 30 days of receiving the names of three approved 
independent evaluators. The contractual arrangement must be a written 
contract for services that complies with the lender's appraisal 
standards. The evaluation must be completed within a reasonable period 
of time, taking into consideration any extenuating circumstance. The 
applicant or borrower is responsible for the costs of the independent 
evaluation.
    (3) How does the CRC use an independent collateral evaluation when 
making a decision? The CRC will consider the results of any independent 
collateral evaluation before making a final determination with respect 
to the loan or restructuring, except the CRC is not required to 
consider a collateral evaluation that does not conform to the 
collateral evaluation standards described in part 614, subpart F, of 
this chapter.
    (e) When must the CRC issue a decision? The CRC must reach a 
decision, and it must be the final decision of the qualified lender, 
not later than 30 days after the meeting on the request under review. 
The CRC must make every reasonable effort to conduct reviews and render 
decisions in as expeditious a manner as possible. After making its 
decision, the committee must promptly notify the applicant or borrower 
in writing of the decision and the reasons for the decision.


Sec.  617.7315  What records must the qualified lender maintain on 
behalf of the CRC?

    A qualified lender must maintain a complete file of all requests 
for CRC reviews, including participation in state mediation programs, 
the minutes of each CRC meeting, and the disposition of each review by 
the CRC.
Subpart E--Distressed Loan Restructuring; State Agricultural Loan 
Mediation Programs
Sec.
617.7400 What protections exist for borrowers who meet all loan 
obligations?
617.7405 On what policies are loan restructurings based?
617.7410 When and how does a qualified lender notify a borrower of 
the right to seek loan restructuring?
617.7415 How does a qualified lender decide to restructure a loan?
617.7420 How will a decision on an application for restructuring be 
issued?
617.7425 What type of notice should be given to a borrower before 
foreclosure?
617.7430 Are institutions required to participate in state 
agricultural loan mediation programs?

Subpart E--Distressed Loan Restructuring; State Agricultural Loan 
Mediation Programs


Sec.  617.7400  What protections exist for borrowers who meet all loan 
obligations?

    (a) A qualified lender may not foreclose on a loan because the 
borrower failed to post additional collateral when the borrower has 
made all accrued payments of principal, interest, and penalties on the 
loan.
    (b) A qualified lender may not require a borrower to reduce the 
outstanding principal balance of a loan by any amount that exceeds the 
regularly scheduled principal installment when due and payable, unless:
    (1) The borrower sells or otherwise disposes of part, or all, of 
the collateral without the prior approval of the qualified lender and 
the proceeds from the sale or disposition are not applied to the loan; 
or
    (2) The parties agree otherwise in writing.
    (c) After a borrower has made all accrued payments of principal, 
interest, and penalties on a loan, the qualified lender may not enforce 
acceleration of the borrower's repayment schedule due to the borrower's 
untimely payment of those principal, interest, or penalty payments.
    (d) If a qualified lender places a loan in non-interest-earning 
status and this results in an adverse action being taken against the 
borrower, such as revoking any undisbursed loan commitment, the lender 
must document the change of status and promptly notify the borrower in 
writing of the action and the reasons for taking it. If the borrower 
was not delinquent on any principal, interest, or penalty payment at 
the time of such action and the borrower's request to have the loan 
placed back into accrual status is denied, the borrower may obtain a 
review of the denial before the CRC pursuant to Sec.  617.7310 of this 
part. The borrower must request this review within 30 days after 
receiving the lender's notice.


Sec.  617.7405  On what policies are loan restructurings based?

    Loan restructurings must be made in accordance with the policy 
adopted by

[[Page 10910]]

the supervising bank board of directors under section 4.14A(g) of the 
Act.


Sec.  617.7410  When and how does a qualified lender notify a borrower 
of the right to seek loan restructuring?

    (a) What are the notice requirements?
    When a qualified lender determines that a loan is, or has become, 
distressed, the lender must provide one of the following written 
notices to the borrower stating that the loan may be suitable for 
restructuring.
    (1) A notice stating that the loan has been identified as 
distressed and that the borrower has the right to request a 
restructuring of the loan (nonforeclosure notice).
    (2) A notice that the loan has been identified as distressed, that 
the borrower has the right to request a restructuring of the loan, and 
that the alternative to restructuring may be foreclosure (45-day 
notice). The qualified lender must provide this notice to the borrower 
no later than 45 days before the qualified lender begins foreclosure 
proceedings with respect to any loan outstanding to the borrower. This 
notice must specifically state that if the loan is restructured and the 
borrower does not perform under the restructure agreement (as described 
in Sec.  617.7410(e)), the qualified lender may initiate foreclosure 
proceedings without further notice.
    (b) What should each notice include?
    (1) A copy of the policy the qualified lender established governing 
the treatment of distressed loans; and
    (2) All materials necessary for the borrower to submit an 
application for restructuring.
    (c) What notice should a qualified lender send to a borrower who is 
a debtor in a bankruptcy proceeding? The qualified lender should send a 
notice that identifies the loan as distressed and the statutory right 
to file an application for a restructuring. The notice may also restate 
the language from the automatic stay provision to emphasize that the 
notice is not intended as an attempt to collect, assess, or recover a 
claim.
    (d) Whom should the qualified lender notify? The qualified lender 
is required to notify all primary obligors. If the obligors identify 
one party to receive notices, the qualified lender should send the 
original notice to that person and send copies to the other obligors. 
For borrowers in a bankruptcy proceeding, the qualified lender should 
send the notice to the borrower and, if retained, the borrower's 
counsel.
    (e) When is a qualified lender required to send another restructure 
notice to a borrower whose loan was previously restructured? A 
qualified lender must notify a borrower of the right to file another 
application to restructure the loan if the qualified lender sent the 
nonforeclosure notice to the borrower and the borrower has performed on 
the previous restructure agreement. Performance means that a borrower 
has made six consecutive monthly payments, four consecutive quarterly 
payments, three consecutive semiannual payments, or two consecutive 
annual payments. However, a qualified lender is not required to send 
another notice if they previously sent a 45-day notice, as described in 
Sec.  617.7410(a)(2), and a borrower did not perform under a 
restructure agreement, as described above.
    (f) Does the borrower have the opportunity to meet with the 
qualified lender after receiving the restructure notice? The qualified 
lender must provide any borrower to whom a notice has been sent with a 
reasonable opportunity to meet personally with a representative of the 
lender. The borrower and lender may meet to review the status of the 
loan, the financial condition of the borrower, and the suitability of 
the loan for restructuring. A meeting to discuss a loan that is in a 
non-interest-earning status may also involve developing a plan for 
restructuring, if the qualified lender determines the loan is suitable 
for restructuring.
    (g) May the qualified lender voluntarily consider restructuring for 
a borrower who did not submit a restructuring application? A qualified 
lender may, in the absence of an application for restructuring from a 
borrower, propose restructuring to an individual borrower.


Sec.  617.7415  How does a qualified lender decide to restructure a 
loan?

    (a) What criteria does a qualified lender use to evaluate an 
application for restructuring? The qualified lender should consider the 
following:
    (1) Whether the cost to the lender of restructuring the loan is 
equal to or less than the cost of foreclosure, considering all relevant 
criteria. These criteria include:
    (i) The present value of interest and principal foregone by the 
lender in carrying out the application for restructuring;
    (ii) Reasonable and necessary administrative expenses involved in 
working with the borrower to finalize and implement the application for 
restructuring;
    (iii) Whether the borrower's application for restructuring included 
a preliminary restructuring plan and cash flow analysis, taking into 
account income from all sources to be applied to the debt and all 
assets to be pledged, that show a reasonable probability that orderly 
debt retirement will occur as a result of the proposed restructuring; 
and
    (iv) Whether the borrower has furnished, or is willing to furnish, 
complete and current financial statements in a form acceptable to the 
qualified lender.
    (2) Whether the borrower is applying all income over and above 
necessary and reasonable living and operating expenses to the payment 
of primary obligations;
    (3) Whether the borrower has the financial capacity and the 
management skills to protect the collateral from diversion, 
dissipation, or deterioration;
    (4) Whether the borrower is capable of working out existing 
financial difficulties, taking into consideration any prior 
restructuring of the loan, reestablishing a viable operation, and 
repaying the loan on a rescheduled basis; and
    (5) In the case of a distressed loan that is not delinquent, 
whether restructuring consistent with sound lending practices may be 
taken to reasonably ensure that the loan will not have to be placed 
into non-interest-earning status in the future.
    (b) What should be included in determining the cost of foreclosure?
    (1) The difference between the outstanding balance due, as provided 
by the loan documents, and the liquidation value of the loan, taking 
into consideration the borrower's repayment capacity and the 
liquidation value of the collateral used to secure the loan;
    (2) The estimated cost of maintaining a loan classified as a high-
risk asset;
    (3) The estimated cost of administrative and legal actions 
necessary to foreclose a loan and dispose of property acquired as the 
result of the foreclosure, including attorneys' fees and court costs;
    (4) The estimated cost of value changes in collateral used to 
secure a loan during the period beginning on the date of the initiation 
of an action to foreclose or liquidate the loan and ending on the date 
of the disposition of the collateral; and
    (5) All other costs incurred as the result of the foreclosure or 
liquidation of a loan.
    (c) What should the qualified lender do if the borrower and the 
qualified lender cannot agree on the financial projections used in the 
application for restructuring? If the borrower and lender are not able 
to agree on supportable or realistic financial projections, the lender 
may use benchmarks to determine the operational input costs and chattel

[[Page 10911]]

security values. These benchmarks may include, but are not limited to, 
the borrower's 5-year production average; averages in the county where 
the farming operation is located, based on data from United States 
Department of Agriculture, local colleges or universities, or other 
recognized authority; and other such reasonable sources.
    (d) How does the qualified lender decide whether to restructure or 
foreclose? If a qualified lender determines the potential cost to the 
lender of restructuring the loan as proposed in the application for 
restructuring is less than or equal to the potential cost of 
foreclosure, the qualified lender must restructure the loan. If two or 
more restructuring alternatives are available, the qualified lender 
must restructure the loan using the alternative that results in the 
least cost to the lender.
    (e) What documentation should the qualified lender retain? In the 
event that an application for restructuring is denied, a qualified 
lender must maintain sufficient documentation to demonstrate compliance 
with paragraphs (a), (b), and (c) of this section, as applicable.


Sec.  617.7420  How will a decision on an application for restructuring 
be issued?

    (a) When must a qualified lender make a decision on an application 
for restructuring? Each qualified lender must provide a written 
decision on an application for restructuring and provide this decision 
to the borrower within 15 days from the conclusion of the negotiations 
used to develop the application for restructuring.
    (b) How does a qualified lender notify the borrower of the 
decision? On reaching a decision on an application for restructuring, 
the qualified lender must provide written notice in any manner that 
requires a primary obligor to acknowledge receipt of the lender's 
decision. In the case of a loan involving one or more primary obligors, 
the original notice may be provided to the primary obligor identified 
to receive such notice, with copies provided by regular mail to the 
other obligors.
    (c) What notice is required if the restructuring request is denied? 
When an application for restructuring is denied, the notice must 
include:
    (1) The specific reason(s) for the denial and any critical 
assumptions and relevant information on which the specific reasons are 
based, except that any confidential information shall not be disclosed;
    (2) A statement that the borrower may request a review of the 
denial;
    (3) A statement that any request for review must be made in writing 
within 7 days after receiving such notice.
    (4) A brief explanation of the process for seeking review of the 
denial, including the appraisal review process and the right to appear 
before the CRC, pursuant to Sec.  617.7310 of this part, accompanied by 
counsel or any other representative, if the borrower chooses.


Sec.  617.7425  What type of notice should be given to a borrower 
before foreclosure?

    The qualified lender must send the 45-day notice, as described in 
Sec.  617.7410(a)(2), no later than 45 days before any qualified lender 
begins foreclosure proceedings. The notice informs the borrower in 
writing that the loan may be suitable for restructuring and that the 
qualified lender will review any suitable loan for possible 
restructuring. The 45-day notice must include a copy of the policy and 
the materials described in Sec.  617.7410(b). The notice must also 
state that if the loan is restructured, the borrower must perform under 
this restructure agreement. If the borrower does not perform, the 
qualified lender may initiate foreclosure.
    (a) Does the notice have to inform the borrower that foreclosure is 
possible? The notice must inform the borrower that the alternative to 
restructuring may be foreclosure. If the notice does not inform the 
borrower of potential foreclosure, then the qualified lender must send 
a second notice at least 45 days before foreclosure is initiated.
    (b) How are borrowers who are debtors in a bankruptcy proceeding 
notified? A qualified lender must restate the language from the 
automatic stay provision to emphasize that the notice is not intended 
to be an attempt to collect, assess, or recover a claim. The qualified 
lender should send the notice to the borrower and, if retained, the 
borrower's counsel.
    (c) May a qualified lender foreclose on a loan when there is a 
restructuring application on file? No qualified lender may foreclose or 
continue any foreclosure proceeding with respect to a distressed loan 
before the lender has completed consideration of any pending 
application for restructuring and CRC consideration, if applicable. 
This section does not prevent a lender from taking any action necessary 
to avoid the dissipation of assets or the diversion, dissipation, or 
deterioration of collateral if the lender has reasonable grounds to 
believe that such diversion, dissipation, or deterioration may occur.


Sec.  617.7430  Are institutions required to participate in state 
agricultural loan mediation programs?

    (a) If initiated by a borrower, System institutions must 
participate in state mediation programs certified under section 501 of 
the Agricultural Credit Act of 1987 and present and explore debt 
restructuring proposals advanced in the course of such mediation. If 
provided in the certified program, System institutions may initiate 
mediation at any time.
    (b) System institutions must cooperate in good faith with requests 
for information or analysis of information made in the course of 
mediation under any loan mediation program.
    (c) No System institution may make a loan secured by a mortgage or 
lien on agricultural property to a borrower on the condition that the 
borrower waive any right under the agricultural loan mediation program 
of any state.
    (d) A state mediation may proceed at the same time as the loan 
restructuring process of Sec.  617.7415 or at any other appropriate 
time.
Subpart F--Distressed Loan Restructuring Directive
Sec.
617.7500 What is a directive used for and what may it require?
617.7505 How will the qualified lender know when FCA is considering 
issuing a distressed loan restructuring directive?
617.7510 What should the qualified lender do when it receives notice 
of a distressed loan restructuring directive?
617.7515 How does the FCA decide whether to issue a directive?
617.7520 How does the FCA issue a directive and when will it be 
effective?
617.7525 May FCA use other enforcement actions?

Subpart F--Distressed Loan Restructuring Directive


Sec.  617.7500  What is a directive used for and what may it require?

    (a) A distressed loan restructuring directive is an order issued to 
a qualified lender when FCA has determined that the lender has violated 
section 4.14A of the Act.
    (b) A distressed loan restructuring directive requires the 
qualified lender to comply with the specific distressed loan 
restructuring requirements in the Act.
    (c) A distressed loan restructuring directive is enforceable in the 
same manner and to the same extent as an effective and outstanding 
cease and desist order that has become final. Any violation of a 
distressed loan restructuring directive may result in FCA assessing 
civil money penalties or seeking a court order pursuant to section 5.31 
or 5.32 of the Act.

[[Page 10912]]

Sec.  617.7505  How will the qualified lender know when FCA is 
considering issuing a distressed loan restructuring directive?

    When FCA intends to issue a distressed loan restructuring 
directive, it will notify the qualified lender in writing. The notice 
will state:
    (a) The reasons FCA intends to issue a distressed loan 
restructuring directive;
    (b) The proposed contents of the distressed loan restructuring 
directive; and
    (c) Any other relevant information.


Sec.  617.7510  What should the qualified lender do when it receives 
notice of a distressed loan restructuring directive?

    (a) A qualified lender should respond to the notice by stating why 
FCA should not issue a distressed loan restructuring directive, by 
proposing changes to the directive, or by seeking other suitable 
relief. The response must include any information, documentation, or 
other relevant evidence that supports the qualified lender's position. 
The response may include a plan for achieving compliance with the 
distressed loan restructuring requirements of the Act. The response 
must be in writing and delivered to FCA within 30 days after the date 
on which the qualified lender received the notice. In its discretion, 
FCA may extend the time period for good cause. FCA may shorten the 30-
day period with the consent of the qualified lender or when FCA 
determines that providing the full 30 days would result in a borrower 
not receiving distressed loan restructuring rights.
    (b) If the qualified lender fails to respond within 30 days or such 
other time period specified by FCA, this failure will constitute a 
waiver of any objections to the proposed distressed loan restructuring 
directive.


Sec.  617.7515  How does the FCA decide whether to issue a directive?

    After the closing date of the qualified lender's response period, 
or following receipt of the qualified lender's response, FCA must 
decide if there is sufficient information to support the issuance of a 
directive or if additional information is necessary. Once FCA has 
received sufficient information, it must decide whether to issue a 
directive as originally proposed or as modified.


Sec.  617.7520  How does the FCA issue a directive and when will it be 
effective?

    A distressed loan restructuring directive is effective immediately 
on receipt by the qualified lender, or on such later date as may be 
specified by FCA, and will remain effective and enforceable until it is 
stayed, modified, or terminated by FCA.


Sec.  617.7525  May FCA use other enforcement actions?

    FCA may issue a distressed loan restructuring directive in addition 
to, or instead of, any other action allowed by law, including cease and 
desist proceedings, civil money penalties, or the granting or 
conditioning of any application or other requests by the System 
institution.
Subpart G--Right of First Refusal
Sec.
617.7600 What are the definitions used in this subpart?
617.7605 How should System institutions document whether the 
borrower had the financial resources to avoid foreclosure?
617.7610 What should the System institution do when it decides to 
sell acquired agricultural real estate?
617.7615 What should the System institution do when it decides to 
lease acquired agricultural real estate?
617.7620 What should the System institution do when it decides to 
sell acquired agricultural real estate at a public auction?
617.7625 Whom should the System institution notify?
617.7630 Does this Federal requirement affect any state property 
laws?

Subpart G--Right of First Refusal


Sec.  617.7600  What are the definitions used in this subpart?

    In addition to the definitions in Sec.  617.7000, the following 
definitions apply to this subpart.
    Acquired agricultural real estate or property means agricultural 
real estate acquired by a System institution as a result of a loan 
foreclosure or a voluntary conveyance by a borrower who, as determined 
by the institution, does not have the financial resources to avoid 
foreclosure.
    Previous owner means:
    (1) The prior record owner who was a borrower from a System 
institution and did not have the financial resources, as determined by 
the institution, to avoid foreclosure on acquired agricultural real 
estate; or
    (2) The prior record owner who is not a borrower and whose acquired 
agricultural real estate was used as collateral for a loan to a System 
borrower.
    System institution means a Farm Credit System institution, except a 
bank for cooperatives, which makes loans as defined in Sec.  617.7000.


Sec.  617.7605  How should System institutions document whether the 
borrower had the financial resources to avoid foreclosure?

    The right of first refusal applies only to borrowers who did not 
have the financial resources to avoid foreclosure or voluntary 
conveyance. A System institution must clearly document in its files 
whether the borrower had the resources to avoid foreclosure or 
voluntary conveyance.


Sec.  617.7610  What should the System institution do when it decides 
to sell acquired agricultural real estate?

    (a) Notify the previous owner,
    (1) Within 15 days of the System institution's decision to sell 
acquired agricultural real estate, it must notify the previous owner, 
by certified mail, of the property's appraised fair market value as 
established by an accredited appraiser and of the previous owner's 
right to:
    (i) Buy the property at the appraised fair market value, or
    (ii) Offer to buy the property at a price less than the appraised 
value.
    (2) That any offer must be received within 30 days of receipt of 
the notice.
    (b) Act on an offer to buy the acquired agricultural real estate at 
the appraised value. Within 15 days after the receipt of the previous 
owner's offer to buy the acquired agricultural real estate at the 
appraised value, the System institution must accept the offer and sell 
the property to the previous owner if the offer was received within 30 
days of the notice required in paragraph (a)(2) of this section.
    (c) Act on an offer to buy the acquired agricultural real estate at 
less than the appraised value.
    (1) The System institution must consider the offer if it was 
received within 30 days of the notice required in paragraph (a)(2) of 
this section.
    (2) If the System institution accepts this offer, it must notify 
the previous owner of the decision and sell the acquired agricultural 
real estate to the previous owner within 15 days of receiving the offer 
to buy the acquired agricultural real estate at a value less than the 
appraised value.
    (3) If the System institution rejects this offer, it must notify 
the previous owner of the decision within 15 days of receiving the 
offer to buy the acquired agricultural real estate at a value less than 
the appraised value. The previous owner has 15 days from receipt of the 
notice to submit an offer to buy at such price or under such terms and 
conditions. The System institution may not sell the acquired 
agricultural real estate to any other person:
    (i) At a price equal to, or less than, that offered by the previous 
owner; or
    (ii) On different terms or conditions than those extended to the 
previous owner without first notifying the previous owner by certified 
mail and providing an opportunity to buy the

[[Page 10913]]

property at such price or under such terms and conditions.
    (d) For purposes of this section, financing by the System 
institution is not a term or condition of the sale of acquired 
agricultural real estate. A System institution is not required to 
provide financing to the previous owner for purchase of acquired 
agricultural real estate.


Sec.  617.7615  What should the System institution do when it decides 
to lease acquired agricultural real estate?

    (a) Notify the previous owner,
    (1) Within 15 days of the System institution's decision to lease 
acquired agricultural real estate, it must notify the previous owner, 
by certified mail, of the property's appraised rental value, as 
established by an accredited appraiser, and of the previous owner's 
right to:
    (i) Lease the property at a rate equivalent to the appraised rental 
value of the property, or
    (ii) Offer to lease the property at rate that is less than the 
appraised rental value of the property.
    (2) That any offer must be received within 15 days of receipt of 
the notice.
    (b) Act on an offer to lease the acquired agricultural real estate 
at a rate equivalent to the appraised rental value of the property.
    (1) Within 15 days after receipt of such offer, the System 
institution may accept the offer to lease the property at the appraised 
rental value and lease the property to the previous owner, or
    (2) Within 15 days after receipt of such offer, the System 
institution may reject the offer to lease the property at the appraised 
rental value when the institution determines that the previous owner:
    (i) Does not have the resources available to conduct a successful 
farming or ranching operation; or
    (ii) Cannot meet all the payments, terms, and conditions of such 
lease.
    (c) Act on an offer to lease the acquired agricultural real estate 
at a rate that is less than the appraised rental value of the property.
    (1) The System institution must consider the offer to lease the 
property at a rate that is less than the appraised rental value of the 
property. Notice of the decision to accept or reject such offer must be 
provided to the previous owner within 15 days of receipt of the offer.
    (2) If the System institution accepts the offer to lease the 
property at less than the appraised rental value, it must notify the 
previous owner and lease the property to the previous owner.
    (3) If the institution rejects the offer, the System institution 
must notify the previous owner of this decision. The previous owner has 
15 days after receipt of the notice in which to agree to lease the 
property at such rate or under such terms and conditions. The System 
institution may not lease the property to any other person:
    (i) At a rate equal to or less than that offered by the previous 
owner; or
    (ii) On different terms and conditions than those that were 
extended to the previous owner without first informing the previous 
owner by certified mail and providing an opportunity to lease the 
property at such rate or under such terms and conditions.


Sec.  617.7620  What should the System institution do when it decides 
to sell acquired agricultural real estate at a public auction?

    System institutions electing to sell or lease acquired agricultural 
real estate or a portion of it through a public auction, competitive 
bidding process, or other similar public offering must:
    (a) Notify the previous owner, by certified mail, of the 
availability of such property. The notice must contain the minimum 
amount, if any, required to qualify a bid as acceptable to the 
institution and any terms or conditions to which such sale or lease 
will be subject;
    (b) Accept the offer by the previous owner if the System 
institution receives two or more qualified bids in the same amount, the 
bids are the highest received, and one of the qualified bids is from 
the previous owner; and
    (c) Not discriminate against a previous owner in these proceedings.


Sec.  617.7625  Whom should the System institution notify?

    Each certified mail notice requirement in this section is fully 
satisfied by mailing one certified mail notice to the last known 
address of the previous owner or owners.


Sec.  617.7630  Does this Federal requirement affect any state property 
laws?

    The rights provided under section 4.36 of the Act and this section 
do not affect any right of first refusal under the law of the state in 
which the property is located.

    Dated: March 3, 2004.
Jeanette C. Brinkley,
Secretary, Farm Credit Administration Board.
[FR Doc. 04-5138 Filed 3-8-04; 8:45 am]
BILLING CODE 6705-01-P