[Federal Register Volume 75, Number 184 (Thursday, September 23, 2010)]
[Proposed Rules]
[Pages 57866-57880]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-23830]


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DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Parts 761, 763, and 764

RIN 0560-AI03


Farm Loan Programs Loan Making Activities

AGENCY: Farm Service Agency, USDA.

ACTION: Proposed rule.

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SUMMARY: The Farm Service Agency (FSA) is proposing to amend the Farm 
Loan Programs (FLP) loan making regulations to implement four 
provisions of the Food, Conservation, and Energy Act of 2008 (2008 Farm 
Bill). The first proposed amendment renames, expands, and makes the 
Beginning Farmer and Rancher Land Contract Guarantee Pilot Program 
permanent. The next two proposed amendments change the farm experience 
requirements in the regulations for direct Farm Operating Loans (OL) 
and direct Farm Ownership Loans (FO). The fourth proposed amendment 
makes some equine farmers and certain equine losses eligible for 
Emergency Loans (EM).

DATES: We will consider comments on the rule that we receive by 
November 22, 2010.

ADDRESSES: We invite you to submit written comments to this proposed 
rule and information collection. In your comment, include the volume, 
date, and page number of this issue of the Federal Register. You may 
also send comments about the information collection to the Desk Officer 
for Agriculture, Office of Information and Regulatory Affairs, Office 
of Management and Budget, Washington, DC 20503. You may submit comments 
by any of the following methods:
     E-mail: [email protected].
     Fax: (202) 720-6797.
     Mail: Director, Loan Making Division (LMD), FSA, USDA, 
1400 Independence Avenue, SW., Stop 0522, Washington, DC 20250-0522.
     Hand Delivery or Courier: Deliver comments to FSA, LMD, 
1280 Maryland Avenue, SW., Suite 240, Washington, DC 20024.

[[Page 57867]]

     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting 
comments.
    Comments may be inspected in the Office of the Director, LMD, FSA, 
at 1280 Maryland Avenue, SW., Suite 240, Washington, DC between 8 a.m. 
and 4:30 p.m., except holidays.

FOR FURTHER INFORMATION CONTACT: Connie Holman, Senior Loan Officer, 
LMD, FSA; telephone: (202) 690-0756; fax: (202) 720-6797; e-mail: 
[email protected]. Persons with disabilities or who require 
alternative means for communication (Braille, large print, audio tape, 
etc.) should contact the USDA Target Center at (202) 720-2600 (voice 
and TDD).

SUPPLEMENTARY INFORMATION: 

Background

    This rule is proposing to implement four provisions of the 2008 
Farm Bill (Pub. L. 110-246) concerning FSA's loan making activities.

Land Contract Guarantee Program

    The Beginning Farmer and Rancher Land Contract Guarantee Pilot 
Program (pilot program) was originally authorized by section 5006 of 
the Farm Security and Rural Investment Act of 2002 (Pub. L. 107-171) as 
an amendment to section 310F of the Consolidated Farm and Rural 
Development Act (7 U.S.C. 1936 (CONACT)). The pilot program was 
initially implemented in six States through a notice of funds 
availability (NOFA) published in the Federal Register on September 4, 
2003 (68 FR 52557-52562) and further expanded to add three additional 
States through a notice published in the Federal Register on September 
15, 2005 (70 FR 54520).
    The pilot program called the Beginning Farm and Rancher Land 
Contract Guarantee Pilot Program was authorized in specified States for 
up to five guarantees of land contracts entered into by private sellers 
of farms to qualified beginning farmers each year from fiscal year 2003 
through 2007. A land contract is a contract between a willing buyer and 
seller through which the buyer makes principal and interest payments to 
the seller over a specified time period while the seller retains title 
to the property until all payments are made. For the Land Contract 
Guarantee Program, land contract sales will be for land transfers of 
farmland. The pilot program provided the seller of the land a 10-year 
``prompt payment'' guarantee of an amount not to exceed the total 
monetary amount of two amortized annual installments, plus the amount 
of two years' property taxes and hazard insurance premiums.
    The pilot program produced very limited activity with only 2 
guarantees made.
    Based on 2008 Farm Bill amendment (section 5005) to section 310F of 
the CONACT, FSA proposes expanding eligibility for land contract 
guarantees from the pilot program eligibility of only beginning 
farmers. In brief, a beginning farmer is someone who has not operated a 
farm for more than 10 years, does not own real farm property that 
aggregate acreage exceeds 30 percent of the median farm acreage of the 
farms in the county where the property is located and will 
substantially participate in the operation of the farm. Eligibility for 
the new Land Contract Guarantee Program also will include socially 
disadvantaged applicants who are members of a group whose members have 
been subject to racial, ethnic, or gender prejudice. (See definitions 
of beginning farmer and socially disadvantaged group in 7 CFR 761.2.) 
As in the pilot program and consistent with other FSA loan programs, 
eligibility will continue to be limited to family farms, which are 
farms in which the majority of the labor and management decisions are 
provided by the farm family and other regulatory criteria are met. (See 
FSA definitions for family farm, family member, and farm in 7 CFR 
761.2.) FSA believes that the proposed Land Contract Guarantee Program 
will provide another alternative for intergenerational transitioning of 
farm real estate to help ensure the future viability of family farms 
for beginning farmers and socially disadvantaged farmers.
    In this rule, FSA proposes regulations for the Land Contract 
Guarantee Program in 7 CFR part 763. As proposed, the new Land Contract 
Guarantee Program will be similar to the pilot program, with amendments 
needed to comply with section 310F of the CONACT. The program will 
become permanent in the final rule and expand nationwide. As required 
by the CONACT, FSA proposes expanding the guarantee available to give 
the seller the option of choosing either a:
    (1) Prompt payment guarantee of three years' amortized annual 
installments plus the amount of three years' real estate taxes and 
hazard insurance premiums (instead of two under the pilot), or
    (2) Standard 90 percent guarantee of outstanding principal on the 
land contract.
    As proposed, the Land Contract Guarantee Program will be consistent 
with other FSA farm loan programs as to general eligibility criteria 
and most servicing options.
    As in the pilot program, the guarantee may only be used for 
financing the purchase of a farm on a new land contract basis. Existing 
contracts are not eligible for a guarantee since the purpose of the 
guarantee is to facilitate sales that would not occur without the 
guarantee.
    Section 310F of the CONACT prohibits a loan guarantee ``if the 
purchase price or the appraisal value of the farm or ranch that is the 
subject of the contract land sale is greater than $500,000.''
    In addition, these guarantees, like other Farm Loan Programs 
guarantees, will not be used to establish or support a non-eligible 
enterprise. A non-eligible enterprise is defined in 7 CFR 761.2 as a 
business that produces exotic animals, birds and fish; produces non-
farm animals ordinarily used for pets, companionship or pleasure; 
markets non-farm goods; or processes farm products when the majority of 
the commodities are not produced by the farming operation.

Terms and Definitions

    Definitions used throughout FSA farm loan programs are in 7 CFR 
761.2; the Land Contract Guarantee Program will also use those 
definitions. Section 310F of the CONACT uses the words ``farmers'' and 
``ranchers.'' For consistency with existing FLP regulations, for the 
Land Contract Guarantee Program the word ``farm'' will also include the 
word ``ranch'', and the use of the word ``farmer'' will also include 
``rancher.''
    The Agency proposes to add the definition of ``land contract'' to 7 
CFR 761.2 as follows:

    Land contract is an installment contract drawn between a buyer 
and a seller for the sale of real property, in which complete fee 
title ownership of the property is not transferred until all 
payments under the contract have been made.

Guarantee Plan Options

    As specified in section 310F of the CONACT, the prompt payment 
guarantee plan will cover three annual amortized installments, or an 
amount equal to three annual installments including an amount equal to 
the total cost of any tax and insurance incurred during the period 
covered by the annual installment (rather than 2 years under the 
pilot). The standard guarantee plan is similar to FSA's regular 
guarantee program except that as specified in section 310F, it will 
cover an amount equal to 90 percent of the outstanding principal only 
and will not cover

[[Page 57868]]

interest. The seller selects which plan when applying for the Land 
Contract Guarantee Program.
    When the Standard Guarantee Plan is requested, an appraisal will be 
completed as specified in 7 CFR 761.7. To allow flexibility, the 
appraisal may be completed prior to, or as a condition of approval. The 
appraisal will be obtained and paid for by FSA. The requirement for an 
appraisal is necessary to establish the Agency's initial commitment for 
the standard guarantee made under the Land Contract Guarantee Program. 
FSA will not guarantee a land contract under either the prompt payment 
guarantee plan or the standard guarantee if the sales price of the real 
estate exceeds the appraised value.

Eligibility

    The seller in the land contract receives benefits from the 
guarantee, therefore, FSA is proposing eligibility requirements for 
sellers. These requirements apply to private sellers, and to each 
entity member, in the case of an entity seller. The private seller and, 
if the seller is an entity, each member of the entity must:
    (1) Possess the legal capacity to enter into a legally binding 
agreement;
    (2) Not have provided false documents or statements during past or 
present dealings with FSA;
    (3) Not be ineligible due to disqualifications resulting from 
Federal Crop Insurance violation in accordance with 7 CFR part 718, and
    (4) Not be suspended or debarred under 7 CFR part 3017.
    FSA does not intend to evaluate the financial strength of the 
seller. Contracts entered into by FSA with the seller as a result of an 
approved land contract guarantee will be written to sufficiently 
protect the Government's interest in case of financial failure of the 
seller. The buyer will be expected to conduct an adequate investigation 
of the seller to protect their own interests.
    FSA proposes buyer eligibility requirements that will mirror the 
eligibility requirements established for the Guaranteed Farm Loan 
program involving conventional lenders and found in 7 CFR part 762. The 
buyer:
    (1) Must be the owner and operator of a family farm after the 
contract is completed. In the case of an entity buyer:
    (i) Each entity member's ownership interest may not exceed the 
amount specified in the family farm definition in 7 CFR 761.2.
    (ii) The entity members cannot themselves be entities.
    (iii) The entity must be authorized to own and operate a farm in 
the State in which the farm is located.
    (iv) If the entity members holding a majority interest are related 
by blood or marriage, at least one member of the entity must:
    (A) Operate the farm; and
    (B) Own the farm.
    (v) If the entity members holding a majority interest are not 
related by blood or marriage, the entity members holding a majority 
interest must:
    (A) Operate the farm; and
    (B) Own the farm, or the entity itself must own the farm.
    (2) Must have participated in the business operations of a farm for 
at least 3 years out of the last 10 years prior to the date of the 
application;
    (3) And all entity members, in the case of an entity, must not have 
received debt forgiveness on any direct or guaranteed FLP loan (that 
was not repaid) on more than three occasions on or prior to April 4, 
1996, or on any occasion after April 4, 1996;
    (4) And all entity members, in the case of an entity, must not be 
delinquent on Federal debt other than a debt under the Internal Revenue 
Code of 1986, when the guarantee is issued;
    (5) And all entity members, in the case of an entity, must have no 
outstanding unpaid judgment awarded to the United States in any non-tax 
court;
    (6) Must and in the case of an entity, the majority interest of the 
entity must, be held by members, who are a U.S. citizen, non-citizen 
national, or qualified alien;
    (7) And all entity members, in the case of an entity, must possess 
the legal capacity to enter into a legally binding agreement;
    (8) And all entity members, in the case of an entity, must not have 
provided false or misleading documents or statements during past or 
present dealings with FSA;
    (9) And all entity members, in the case of an entity, must not be 
ineligible as a result of a conviction for certain activities relating 
to controlled substances;
    (10) And all entity members, in the case of an entity, must have an 
acceptable credit history as required by section 310F;
    (11) Must be unable to enter into the land contract unless the 
seller can obtain a FSA guarantee as required by section 310F;
    (12) And all entity members in the case of an entity, must not be 
ineligible due to disqualification resulting from Federal Crop 
Insurance violation in accordance with 7 CFR part 718;
    (13) And all entity members in the case of an entity, must not be 
suspended or debarred under 7 CFR part 3017.
    In addition, buyer eligibility will be extended to include socially 
disadvantaged farmers (both beginning and non-beginning) as required by 
section 310F.

Application Processing

    FSA proposes application requirements for both the seller and the 
buyer. The seller will be required to provide the completed letter of 
interest along with the name, address, and telephone number of the 
chosen servicing or escrow agent.
    FSA proposes the same procedure for the buyer to apply for the Land 
Contract Guarantee Program as is used under the direct loan program. 
Since the seller will not be governed by banking rules and eligibility 
requirements like approved lenders in FSA's regular guaranteed loan 
program, FSA will take a greater role in reviewing the buyer's 
financial capacity. Buyers must submit such information as:
    (1) The completed FSA application form (same form as used in direct 
loan programs);
    (2) If the applicant is an entity, other information such as a 
current personal financial statement from each member of the entity, a 
current financial statement for the entity itself, a copy of the 
entity's charter or any entity agreement, articles of incorporations 
and bylaws, certificate or evidence of current registration, and a 
resolution adopted by the Board of Directors authorizing specified 
officers of the entity to execute the desire land contract;
    (3) Current financial information;
    (4) A current farm operating plan;
    (5) Brief description of the buyer proposed operation, farm 
training, and experience;
    (6) Prior 3 years income tax and other financial records;
    (7) Prior 3 years farm production records, if available;
    (8) Verification of income and debts;
    (9) Payment of credit report fee;
    (10) Documentation of compliance with FSA environmental regulations 
contained in subpart G of 7 CFR part 1940;
    (11) A copy of the proposed land contract; and
    (12) Any other information FSA requires to process the application.
    FSA proposes the same procedure for processing an incomplete 
application specified in 7 CFR 764.52 for direct loan processing. The 
section specifies that within 10 days after receipt of incomplete 
application will notify they

[[Page 57869]]

buyer of additional information needed to process the request and 20 
days for the buyer to provide the needed information. If the 
information is not received within the initial 20 day timeframe, a 
subsequent letter will be sent and 10 additional days will be given to 
provide the missing information. The second letter will provide that if 
the information is not received within this 10 day timeframe, the 
incomplete application will be withdrawn without further notice. FSA 
proposes to adopt the same processing timeframes for a complete 
application specified in Sec.  762.130 for standard eligible lenders in 
FSA's regular Guaranteed Farm Loans Program.

Downpayment, Rates, and Terms

    As in the pilot program, FSA proposes that the buyer will be 
required to provide a minimum down payment of five percent of the 
purchase price of the farm. This is the minimum requirement of section 
310F.
    The interest rate charged by the seller to the buyer for the 10-
year term of the contract cannot exceed FSA's direct FO loan rate in 
effect at the time the guarantee is issued plus three percentage points 
and the rate must remain fixed during the 10-year guarantee period. 
Section 310F requires a 10-year guarantee. FSA's direct loan interest 
rates may be obtained in any FSA office or by visiting the FSA Web site 
at: http://www.fsa.usda.gov/daflp.rates.htm.
    As in the pilot program, installments on land contracts must be 
amortized for a minimum of 20 years and must be equal installments. FSA 
proposes to prohibit balloon payments during the 10-year term of the 
guarantee. These provisions will permit more realistic cash flow 
projections, improve the buyer's chance of success, protect the 
Government's interest, and limit the amount of FSA's exposure due to 
the prompt payment guarantee plan.

Fees

    FSA proposes that no guarantee fees be charged to obtain or execute 
the ``Land Contract Agreement for Prompt Payment Guarantee'' or the 
``Land Contract Agreement for Standard Guarantee.'' The seller and 
buyer will be responsible for payment of any expenses or local 
government fees necessary to process the land contract agreement or for 
the buyer to ensure that proper title is vested in the seller 
including, but not limited to, attorney fees, recording costs, and 
notary fees.

Taxes and Insurance

    FSA proposes that maintenance of both annual property taxes and 
hazard insurance, if applicable, will be the responsibility of the 
seller. FSA believes that since maintenance of both of these items will 
be a stipulation for payment of the guarantee in the event of default, 
the ultimate responsibility should rest with the seller. Agreements 
regarding payment of taxes and insurance made between the buyer and 
seller should be part of the land contract. FSA will not be party to 
this agreement as the land contract is between the buyer and seller 
only.
    The land contract must contain language to ensure that any 
insurance proceeds received for real estate losses will be used only to 
replace or repair the real estate improvements that were damaged, to 
make other essential real estate improvements that they mutually agree 
on, or to pay a prior lien, with an equal amount credited to the land 
contract. FSA need not be named on the insurance policy, but will 
reduce a loss claim if insurance funds are not used to replace 
improvements that were damaged or used to make other essential real 
estate improvements. The seller will maintain flood insurance, if 
available, if buildings are located in a special 100-year floodplain as 
defined by FEMA flood hazard area maps.

Approval and Executing the Guarantee

    FSA proposes to follow the procedures consistent with the pilot 
program for approving and executing the guarantee. Once the guarantee 
is approved, all parties including the seller, buyer, escrow or 
servicing agent, and FSA's representative will execute either the 
``Land Contract Agreement for Prompt Payment Guarantee'' or the ``Land 
Contract Agreement for Standard Guarantee'' depending on the guarantee 
plan chosen by the seller. These agreements describe the conditions of 
the guarantee and the process for payment of claims under the 
respective plan.

Servicing Agents and Escrow Agents

    The Land Contract Guarantee Program requires the use of a third 
party agent to service the loan. The distinction of ``escrow agent'' 
versus ``servicing agent'' will be tied to the guarantee plan that the 
seller chooses and the duties that the agent performs.
    The prompt payment guarantee plan, as proposed requires use of a 
third party escrow agent. FSA proposes that escrow agents must be 
bonded and may include title insurance companies, attorneys, financial 
institutions, or any fiscally responsible institution as determined by 
FSA. If the terms of the land contract agreement allow, the escrow 
agent's fee may be taken from each payment and a pro-rata share 
remitted to the seller, but FSA will not dictate how to establish 
payment to the escrow agent. The escrow agent for the seller must 
provide evidence to FSA that property taxes are paid and insurance is 
kept current on the security property. Although not required by section 
310F of the CONACT for a prompt payment guarantee, this requirement 
will protect FSA from losses from third party taxing authorities and 
losses due to failure of either the buyer or the seller to maintain 
adequate insurance coverage.
    The standard guarantee plan, as proposed, requires use of a third 
party agent that FSA is proposing to call a ``servicing agent'' rather 
than an escrow agent. This ``servicing agent'' would perform all the 
duties that the escrow agent performs under the prompt payment 
guarantee plan, but would also perform additional duties than an escrow 
agent does not normally perform, but that a lender under FSA's 
traditional guarantee program would when servicing guaranteed loans. 
These additional duties include gathering financial information from 
the buyer, performing an annual analysis of the farming operation, 
doing an annual inspection of the farm, and preparing an annual 
inspection report. It is necessary to have a servicing agent perform 
these additional duties and provide the information to FSA because FSA 
has the potential for a much greater financial loss under the standard 
guarantee than under the prompt payment guarantee. If the terms of the 
land contract agreement allow, the servicing agent's fee may be taken 
from each payment submitted by the buyer, and a pro-rata share remitted 
to the seller; but FSA will not dictate how to establish payment to the 
servicing agent.
    The proposed standard guarantee plan requires the servicing agent 
to handle transactions relating to the land contract between the buyer 
and seller, including receiving all contract installment payments and 
remitting them to the seller. The servicing agent must send the buyer a 
payment reminder letter 30 days prior to the due date of each annual 
installment. The servicing agent is also responsible for providing 
evidence to FSA that property taxes have been paid and hazard insurance 
is kept in effect when insurable structures are on the security 
property. In most, but not all cases, provisions for payment of taxes 
and hazard insurance premiums, if applicable, will be included in the 
land contract; however,

[[Page 57870]]

under the standard guarantee plan, the seller is responsible for paying 
property taxes. The servicing agent also must submit a status report to 
FSA and to the seller semi-annually as of September 30 and March 31 
showing the outstanding principal and interest balance on the land 
contract agreement. This is the same report information that guaranteed 
lenders are required to submit semi-annually to FSA for the regular 
guaranteed program in 7 CFR 762.141. The report is used to keep FSA 
informed of its potential risk exposure and is required for FSA to 
complete its annual financial statement. The servicing agent also must 
perform an annual physical inspection of the collateral property and 
provide a written report to FSA. Annually, the servicing agent will 
also obtain from the buyer a current balance sheet, income statement, 
cash flow budget, along with any additional information needed, perform 
an analysis of the buyer's financial condition, and provide the 
information to FSA. The servicing agent also must perform any other 
duties that may be required by State law or agreed to by the seller and 
the buyer in the land contract.
    The reason FSA is requiring more from the servicing agent for 
guarantees made under the standard guarantee plan is that FSA has 
greater potential financial risk exposure under this option than the 
prompt payment guarantee plan, where FSA's exposure for possible loss 
claim is limited to three annual installments plus three years' 
property taxes and hazard insurance premiums. Under the standard 
guarantee plan, FSA is liable for 90 percent of the entire principal 
amount of the land contract, and is not limited to just three 
installments as it is under the prompt payment plan.
    FSA proposes that the servicing agent must be a bonded commercial 
lending institution or similar entity that is registered and authorized 
to provide escrow and collection services in the State in which the 
real estate is located.

Land Contract Modification

    All modifications to the land contract will require FSA prior 
written approval except for a reduction in interest rate. Both the 
prompt payment guarantee plan and the standard guarantee plan allow the 
seller and buyer to lower the interest rate and the corresponding 
amortized payment schedule without FSA approval. FSA approval is not 
needed to lower the interest rate since that action is clearly in the 
best interest of both the buyer and FSA, and will not lead to an 
increased loss claim.
    With FSA's prior written approval, the seller and the buyer may 
modify the land contract provided that a feasible plan can be 
reasonably projected throughout the remaining term of the guarantee and 
for the upcoming operating cycle. The seller and buyer may defer 
installments with prior approval from FSA.
    A partial release is a release of a portion of the real estate 
included in the land contract. Any partial release requires prior 
approval by FSA, the buyer, and the seller in writing. All proceeds 
from a partial release sale must be applied to a prior lien owed by the 
seller, if one exists. In addition, an amount equal to the value of the 
parcel being released must be credited to the principal balance of the 
land contract. This is necessary because otherwise the security for the 
land contract would be reduced without a corresponding reduction in the 
debt owed by the buyer if the seller in the land contract transaction 
sells part of the real estate security without crediting the amount of 
the released property to the land contract balance.
    All leasing or subleasing requests must be submitted to FSA for 
approval, and will only be approved if such action is determined not to 
be detrimental to FSA under the guarantee. Income received by the 
seller from royalties from mineral extraction must be applied to the 
principal balance of the land contract being guaranteed by FSA. If the 
landowner receives royalties from mineral extraction from the 
collateral property without crediting the amount to the land contract 
balance, the security for the land contract would be reduced without a 
corresponding reduction in debt owed by the buyer.
    The seller cannot assign interest in the FSA guarantee to another 
party without FSA's written consent. The buyer can only transfer 
obligation in the land contract and the guarantee to an eligible 
applicant under the land contract program. The eligible applicant first 
must be approved by FSA and the seller in the land contract. If an 
eligible applicant cannot be found, the FLP Deputy Administrator may 
make an exception to this requirement.
    If a land contract is modified, the seller must provide FSA and the 
escrow or servicing agent with a copy of the modified contract. 
Modifications other than those listed above must be approved by the FLP 
Deputy Administrator and will be approved only if such action is 
determined not to be detrimental to FSA under the guarantee.

Delinquent Account Servicing

    If the buyer fails to make a payment under either the Land Contract 
Agreement for Prompt Payment Guarantee or Land Contract Agreement for 
Standard Guarantee, the escrow or servicing agent will send the first 
delinquent notice to the buyer within 30 days of the missed payment due 
date with a copy to FSA and the seller.
    Under the prompt payment guarantee plan, if the buyer does not 
resolve the default within 30 days of the written demand, the escrow 
agent must make demand on FSA to pay the defaulted amount plus property 
taxes and insurance premiums, if applicable. This demand on FSA must be 
made within 90 days from the missed payment due date.
    Under the standard guarantee plan, if a missed payment is not 
resolved within 60 days from the date of the demand letter, the seller 
has two options for determining the amount of the loss when a buyer 
defaults. The seller may either liquidate the real estate or have FSA 
establish the amount of loss by an appraisal.
    If the seller chooses the liquidation option, the servicing agent 
must liquidate the real estate. The servicing agent will be required to 
submit a liquidation plan to FSA for approval, just as lenders do for 
the regular FSA guarantee program as specified in 7 CFR 762.149. This 
is necessary to assure FSA that the servicing agent is using a 
liquidation method that is likely to result in the greatest return on 
the sale of the property. The servicing agent will be required to have 
the liquidation completed within 12 months of the initial default 
unless prevented from doing so by bankruptcy action, redemption rights, 
or other legal action. FSA believes that under normal circumstances, 
this is an adequate amount of time to prepare a plan of liquidation, 
secure FSA approval of the plan, and complete liquidation. It will also 
prevent the possible deterioration of security property and keep loss 
claims to a minimum. A credit of an amount equal to the sales price 
received in a liquidation of the security property, with no deduction 
for expenses must be applied to the principal balance of the land 
contract. This differs from the regular guarantee loan program because 
in the guarantee loan program a loan is guaranteed, and the guarantee 
could include principal and interest, along with selling expenses and 
other charges to the account. In the Land Contract Guarantee program, 
FSA is guaranteeing only the principal amount of a land contract. To 
allow a deduction for

[[Page 57871]]

expenses would in effect be guaranteeing those expenses whereas this 
program only guarantees the principal amount of the land contract 
according to section 310F of the CONACT. The servicing agent must 
submit the loss claim to FSA along with a complete ledger of all 
transactions from the date the guarantee began.
    FSA may require, but will pay for, an appraisal prior to approval 
of the liquidation plan. The amount of a loss claim is determined by 
the sale price, so before a loss claim is paid, FSA must be satisfied 
that the servicing agent received a realistic price for the security 
property. If the seller reacquires the property through liquidation, 
the loss claim amount will be based on the appraisal method, and the 
seller will give FSA a lien on the property for that amount. The reason 
for this is the original seller in the land contract agreement will be 
retaining the property, and will be required to sign a Shared 
Appreciation Agreement so that if the seller sells the property within 
5 years for more than the amount FSA loss payment was based on, FSA 
will be able to enforce a future recovery. This is consistent with 
other FSA programs where a claim is paid on property the owner is 
retaining. It would not be a good use of taxpayer money to pay the 
seller for his loss, then have him turn around in a short time and sell 
at a profit, in effect collecting when he did not actually suffer a 
loss, and in effect double dipping.
    If the seller chooses to have the amount of the loss established by 
an appraisal rather than liquidation of real estate, the servicing 
agent must inform FSA that the seller has chosen this method. FSA will 
obtain an appraisal and the loss will be based on the difference 
between that appraised valued at the time the loss is calculated and 
the unpaid principal balance of the land contract at that time. For the 
resulting appraisal amount, the seller will only be allowed to appeal 
whether the appraisal is Uniform Standards of Professional Appraisal 
Practice (USPAP) compliant, as proposed in Sec.  763.19.
    In exchange for payment of the loss claim when the appraisal method 
is used, the seller must give a lien to FSA on the security property in 
the amount of the loss claim. If the property is sold within 5 years 
for more than the appraised value at the time of the loss claim, the 
seller must repay the difference, up to the amount of the loss claim. 
For purposes of determining the amount to be repaid (recapture), the 
market value of the property may be reduced by the value of certain 
capital improvements made by the seller to the property in the time 
period from the payment of the loss claim to final disposition. This 5 
year recapture period is consistent with FSA's direct loan program and 
with FSA's other guaranteed loan programs.
    The original buyer in the land contract also has a responsibility 
to repay the loss claim, and is required to begin repaying the loss 
payment within a short time after it is paid. If the buyer has already 
paid back part of the loss claim to FSA and the seller sells the real 
estate for more than the appraised value when the claim was originally 
paid, the seller will only be required to repay the remaining unpaid 
balance. If the former buyer has paid back the entire claim, the seller 
will not be required to pay back any of the claim. If the seller in the 
original land contract does not sell the property within 5 years from 
the date of the loss claim, the lien will be released and the seller 
will have no further obligation to FSA.
    Without a lien on the property, there is no realistic method of 
enforcing repayment from a sale of the property. This also prevents the 
seller from collecting on a loss and turning around in a short time 
period and selling the property for an amount higher than the appraised 
value, essentially obtaining a loss payment from the government when no 
loss really occurred. These provisions are consistent with other FSA 
loan programs.

Federal Debt and FSA Recovery of Loss Claim Payments

    Any amount paid by FSA as a result of an approved loss claim is 
immediately due and payable by the buyer after FSA notifies the buyer 
that a loss claim has been paid to the seller. If the debt is not 
restructured into a repayment plan or the obligation otherwise cured, 
FSA may use all remedies available, including offset as authorized by 
the Debt Collection Improvement Act of 1996, to collect the debt. The 
amount paid on behalf of the buyer, and not yet repaid to FSA, will 
bear interest from the date of the FSA advance at the FLP non-program 
credit sales real property loan rate (available in local FSA offices) 
in effect at the time the first loss claim is paid.
    The debt may be scheduled for repayment consistent with the buyer's 
repayment ability not to exceed 7 years from the date of the first FSA 
payment of a claim. Before a repayment plan can be approved, the buyer 
must provide FSA with the best lien obtainable on all of the buyer's 
assets. This includes ownership interest in the real estate under 
contract for guarantees using the prompt payment guarantee plan, if 
State law permits. When the buyer is an entity, the best lien 
obtainable will be taken on all of the entity's assets, and all assets 
owned by the individual members of the entity, including their interest 
in the guaranteed land contract.
    Defaulted buyers with an FSA-approved repayment plan will supply 
FSA with a current balance sheet, income statement, cash flow budget, 
complete copy of Federal income tax returns, and any additional 
information needed to analyze the buyer's financial condition annually. 
If the buyer fails to perform as required on an FSA-approved repayment 
plan, the debt will be treated as a non-program loan debt, and 
servicing will proceed as specified in 7 CFR 766.351(c).

Negligence and Negligent Servicing

    FSA may deny a loss claim in whole or in part due to seller 
negligence and negligent servicing that contributed to the loss claim. 
This also could include the escrow or servicing agent failing to seek 
payment of a missed installment from the buyer within the prescribed 
timeframes or otherwise failing to enforce the terms of the land 
contract; losing the collateral to a third party (for example, taxing 
authority, prior lienholder, etc.); not performing the duties and 
responsibilities required of the escrow or servicing agent; seller's 
failing to disclose environmental issues; or any other action in 
violation of the land contract or guarantee agreement not resulting in 
terminating of the guarantee.

Termination of Guarantee

    The land contract guarantee and FSA's obligations under the 
agreement will terminate under the following scenarios:
    (1) At the end of the 10 year term of the guarantee, without 
notice;
    (2) When the land contract agreement is paid in full;
    (3) When there is a payment of a loss claim required by the 
standard guarantee plan;
    (4) If FSA pays 3 amortized annual installments or an amount equal 
to 3 annual installments (including an amount equal to the total cost 
of any tax and insurance incurred during the period covered by the 
annual installments). An FSA-approved repayment plan will not 
constitute payment in full until such time as the entire amount due for 
the FSA-approved repayment plan is paid in full;
    (5) When the seller terminates the land contract for reasons other 
than monetary default;

[[Page 57872]]

    (6) When there is a sale of the property without the guarantee 
being properly assigned; or
    (7) If for any reason the land contract becomes null and void.

Eligibility Change for Direct Farm Ownership and Operating Loans

    Currently, for all direct loan programs, if an applicant is relying 
on past farm experience to demonstrate sufficient managerial ability, 
the experience must have been within the last 5 years. Sections 5001 
and 5101 of the 2008 Farm Bill amended sections 302 and 311 of the 
CONACT, respectively, to revise this eligibility requirement for FSA's 
direct farm ownership loan (FO) program and direct farm operating loan 
(OL) program to require training or farm experience, that the Secretary 
determines is sufficient ``taking into consideration all farming 
experience of the applicant without regard to any lapse between farming 
experiences.'' As a result, FSA proposes to amend the experience 
requirements in 7 CFR 764.101 to consider all prior farming. FSA 
proposes to require this broadened farm experience requirement to be 
supplemented by on-the-job training or education that occurred within 
the last 5 years prior to the date of the application if all prior 
farming occurred more than 5 years prior to application.
    FSA proposes to add the training or education requirement because 
the current technological innovations, market volatility, financial 
environment challenging today's farmers, and recent knowledge of 
industry practices will better equip applicants with the tools 
necessary to ensure the greatest chance for success in the present 
agriculture business climate. While farm experience is one avenue for 
gaining this knowledge, recent on-the-job training and education can be 
an equally sufficient substitute for acquiring the knowledge and skills 
necessary to successfully operate a farm or ranch. These changes to FO 
and OL regulations will allow applicants previously ineligible due to 
their lack of recent farm experiences an opportunity to receive 
assistance. FSA believes that with its history of providing supervised 
credit, these applicants can be provided an adequate opportunity to 
thrive in today's agribusiness industry.

Emergency Loans

    FSA provides emergency loans to help producers recover from 
production and physical losses due to drought, flooding, other natural 
disasters, and certain quarantines. FSA proposes a number of changes in 
7 CFR part 764, subpart H, ``Emergency Loan Program,'' to carry out 
section 5201 of the 2008 Farm Bill that amends section 321 of the 
CONACT to expand EM eligibility to equine farmers. In addition, FSA 
proposes to amend 7 CFR 764.102 to add an exception to the limitation 
prohibiting the use of loan funds to support non-eligible enterprises 
as defined in Sec.  761.2 that includes a business that produces 
nonfarm animals, birds, or aquatic organisms ordinarily used for pets, 
companionship, or pleasure. These proposed changes will make certain 
equine losses eligible under the EM Program. FSA proposes to expand EM 
eligibility criteria by amending 7 CFR 764.352 to extend eligibility to 
equine farmers whose primary enterprise is to breed, raise, and sell 
horses. For farmers whose primary enterprise is to breed, raise and 
sell horses, losses will be treated the same as losses for other types 
of livestock operations with a minor difference intended to accommodate 
the unique nature of the equine industry. FSA is proposing this change 
to both broaden the potential eligibility pool of farmers for EM and to 
adequately define qualifying equine losses. FSA proposes this 
definition because Conference Report (No. 110-627) language on the 
section clearly indicates Congress' intent to exempt losses associated 
with horses used for racing, showing, recreation, or pleasure and 
associated losses of income from eligibility under the EM Program. 
These losses will not be eligible and will specifically be prohibited 
in 7 CFR 764.353.
    Since the equine industry is widely diverse and unlike many other 
livestock operations, FSA proposes to amend 7 CFR 764.355 to add 
guidelines regarding security requirements for loans to equine farmers. 
FSA believes these additional guidelines will allow flexibility in 
securing equine loss loans in States where the conventional Uniform 
Commercial Code (UCC) laws do not adequately address the perfection of 
liens on horses. In some States, to properly perfect liens on horses, 
the lender must obtain and hold the horse's breed registration papers, 
Jockey Club papers, or other papers that evidence ownership. In many 
instances, this procedure would impede the applicant from carrying out 
their normal course of business. Therefore, FSA proposes alternate 
security provisions in a specific order of preference. The security 
alternatives are similar to those developed for FSA's previous Horse 
Breeder Loan Program and were sufficient in providing adequate security 
for loans made under that program. These alternative security 
provisions allow equine farmers the ability to carry out the normal 
course of business by allowing them to pledge other resources to 
fulfill the loan's security requirements. The security alternatives, in 
preference order are: Real estate, chattels and crops (other than 
horses), and other assets owned by the applicant.
    FSA proposes additional specific guidance on appraisal and 
valuation requirements in 7 CFR 764.356 for equine loans that follow 
the guidelines established in FSA's previous Horse Breeder Loan 
Program. State laws may dictate rules for establishing the value of 
horses and the methods used to adequately perfect liens for equine 
loans. In some cases, it may be necessary for States to issue State 
specific guidelines in consultation with their local Office of General 
Counsel to give additional guidance in determining equine losses and 
specific security procedures.

Executive Order 12866

    The Office of Management and Budget (OMB) designated this rule as 
significant under Executive Order 12866 and, therefore, OMB reviewed 
this proposed rule. A cost benefit assessment of this rule is 
summarized below and is available from the contact listed above.

Summary of Economic Impacts

    The Cost Benefit Analysis covers three provisions required by the 
2008 Farm Bill: Implementation of the Beginning Farmer or Rancher and 
Socially Disadvantaged Farmer or Rancher Contract Land Sales Program, 
which expands and makes permanent a pilot program, expansion of 
emergency loan program eligibility to include equine farmers, and 
revision of farm loan eligibility criteria regarding farming and 
ranching experience. These provisions are authorized by Sections 5001, 
5005, 5101, and 5201 of the 2008 Farm Bill.
    The program changes proposed in this rule are expected to have 
relatively minor impacts on FSA lending programs, as they affect only a 
small share of total lending authority. Likewise, impacts on budget 
authority and workload are expected to be small.
    Implementation of the land contract guarantee program on a national 
basis is expected to enable 140 beginning and socially-disadvantaged 
farmers to purchase land each year, resulting in additional loan 
obligations of up to $25 million annually. The USDA 2008 Agricultural 
Resource Management Study indicated that about one-fourth of all 
farmland buyers had at least one

[[Page 57873]]

beginning farmer present on the farm. While FSA's overall share of debt 
is around 7 percent for direct and guaranteed combined, its share for 
targeted groups tends to be larger. As a result, it is assumed that 10 
percent of those eligible would actually apply and receive a guarantee, 
which results in FSA issuance of about 140 land contract guarantees 
annually once the program is fully implemented. While 140 land 
contracts per year, nationwide, may seem low, it is consistent with the 
experience of the pilot program.
    The most notable impact is likely to be associated with the 
increased flexibility in evaluating farm experience, which will 
initially increase the number of farmers eligible for beginning-farmer 
loans. But, anticipated impacts from changing eligibility are expected 
to be naturally short-lived because changing the criteria for measuring 
farm experience is expected to enable 673 farmers to borrow in 2010 and 
2011 rather than in 2012--in other words, since it moves up the year in 
which farmers will be eligible, the impacts will be most noticeable in 
2010 and 2011. This change is expected to initially increase total 
obligations by $47 million in fiscal year 2011, which is a minor share 
of total lending.
    Expansion of the EM eligibility to include equine producers is 
expected to increase loan obligations by just more than $2 million 
annually and involve an estimated 112 farmers nationwide.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601), 
FSA certifies that there would not be a significant economic impact on 
a substantial number of small entities. All FSA direct loan borrowers 
and all farm entities affected by this rule are small businesses 
according to the North American Industry Classification System and the 
U. S. Small Business Administration. There is no diversity in size of 
the entities affected by this rule, and the costs to comply with it are 
the same for all entities. As discussed in the CBA summary, the 
expected impacts are to enable a relatively small number of farmers to 
buy farms through guaranteed land contracts, enable beginning farmers 
to qualify sooner for FSA loans, and to allow equine farmers to be 
eligible for EM.

Environmental Review

    The environmental impacts of this rule have been considered in a 
manner consistent with the provisions of the National Environmental 
Policy Act (NEPA, 42 U.S.C. 4321-4347), the regulations of the Council 
on Environmental Quality (40 CFR parts 1500-1508), and the FSA 
regulations for compliance with NEPA (7 CFR 799 and 7 CFR part 1940, 
subpart G). FSA concluded that this rule will not have a significant 
impact on the quality of the human environment either individually or 
cumulatively, provided no shifts in land use are proposed and should be 
considered categorically excluded (7 CFR 1940.310). Therefore, FSA need 
not prepare an environmental assessment or environmental impact 
statement on this rule.

Executive Order 12372

    This program is not subject to Executive Order 12372, which 
requires consultation with State and local officials. See the notice 
related to 7 CFR part 3015, subpart V, published in the Federal 
Register on June 24, 1983 (48 FR 29115).

Executive Order 12988

    This proposed rule has been reviewed in accordance with Executive 
Order 12988, Civil Justice Reform. As proposed, this rule preempts 
State and local laws and regulations that are in conflict with this 
rule. Before any judicial action may be brought concerning the 
provisions of this rule the administrative appeal provisions of 7 CFR 
parts 11 and 780 must be exhausted.

Executive Order 13132

    The policies in this rule would not have any substantial direct 
effect on States, the relationship between the Federal Government and 
the States, or the distribution of power and responsibilities among the 
various levels of government. Nor would this proposed rule impose 
substantial direct compliance costs on State and local governments. 
Therefore, consultation with the States is not required.

Executive Order 13175

    The policies contained in this rule do not impose substantial 
unreimbursed direct compliance costs on Indian tribal governments or 
have tribal implications that preempt tribal law.
    USDA will undertake, within 6 months after this rule becomes 
effective, a series of regulation Tribal consultation sessions to gain 
input by Tribal officials concerning the impact of this rule on Tribal 
governments, communities, and individuals. These sessions will 
establish a baseline of consultation for future actions, should any 
become necessary, regarding this rule. Reports from these sessions for 
consultation will be made part of the USDA annual reporting on Tribal 
Consultation and Collaboration. USDA will respond in a timely and 
meaningful manner to all Tribal government requests for consultation 
concerning this rule and will provide additional venues, such as 
Webinars and teleconferences, to periodically host collaborative 
conversations with Tribal leaders and their representatives concerning 
ways to improve this rule in Indian country.

Unfunded Mandates

    This rule contains no Federal mandates under the regulatory 
provisions of Title II of the Unfunded Mandate Reform Act of 1995 
(UMRA, Pub. L. 104-4) for State, local, or tribal governments, or the 
private sector. Therefore, this rule is not subject to the requirements 
of sections 202 and 205 of UMRA.

Federal Assistance Programs

    The title and number of the Federal assistance programs in the 
Catalog of Federal Domestic Assistance to which this proposed rule 
would apply are:

10.404--Emergency Loans
10.406--Farm Operating Loans
10.407--Farm Ownership Loans

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, FSA is 
requesting comments from all interested individuals and organizations 
on Land Contract Guarantee Program information collection activities 
and the change in information collection activities related to the 
regulatory changes in this proposed rule. In the Land Contract 
Guarantee Program, FSA is providing certain financial guarantees to 
eligible sellers in land transfers of farmland through a land contract 
sale to beginning farmers and socially disadvantaged farmers. The new 
information collection requests for Farm Loan Programs, General Program 
Administration; Direct Loan Making; and regular Direct Loan Servicing 
all result from expanding eligibility for EM to cover equine losses; 
and when approved will be incorporated into the existing approved ICRs 
(of the same titles) that will be up for a renewal this year. There are 
no changes to the approved burden related to the regulatory change in 
the required amount of farm experience.
    Title: Land Contract Guarantee Program.
    OMB Control Number: 0560-New.
    Type of Request: New Collection.
    Abstract: This information collection is required to support the 
regulations proposed in 7 CFR part 763, ``Land Contract Guarantee 
Program,'' which establishes the requirements for FSA's

[[Page 57874]]

new Land Contract Guarantee Program. Information collections 
established in the regulations are necessary for the Agency to evaluate 
the buyer and seller's request for guarantee and determine if 
eligibility and security requirements can be met. It also establishes 
the requirements related to routine servicing actions necessary to 
monitor guarantee progress, and special servicing of land contract 
guarantee agreements related to buyers, sellers, and servicing and 
escrow agents for payment of loss claims and subsequent collection 
attempts.
    Estimate of Burden: Public reporting for this collection of 
information is estimated to average 50 minutes per response.
    Respondents: Individuals or households, businesses or other for-
profit and farms.
    Estimated Number of Respondents: 275.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Number of Responses: 275.
    Estimated Total Annual Burden on Respondents: 230 hours.
    Title: Farm Loan Programs, General Program Administration.
    OMB Control Number: 0560-New.
    Type of Request: New Collection.
    Abstract: This information collection is required to support the 
proposed regulatory changes that include equine losses as eligible for 
EM. Some of the same information collection activities will be used 
that are currently approved for 7 CFR part 761, ``Farm Loan Programs, 
General Program Administration,'' which establishes requirements within 
FSA's Farm Loan Programs that are applicable to both making and 
servicing of all Farm Loan Programs loans including Emergency Loans. 
Information collections established by the regulation are necessary to 
ensure that program applicants and participants meet statutory 
eligibility requirements, loan funds are used for authorized purposes 
and the Government's interest in security is adequately protected. 
Specific information collection requirements include financial 
information in the form of a balance sheet and cash flow projection 
used in loan making and servicing decisions; information needed to 
establish joint bank accounts in which either loan funds, proceeds 
derived from the sale of loan security, or insurance proceeds may be 
deposited; collateral pledges from financial institutions when the 
balance of a supervised bank account will exceed $100,000; and 
documentation that construction plans and specifications comply with 
State and local building standards.
    Estimate of Burden: Public reporting for this collection of 
information is estimated to average 54 minutes per response.
    Type of Respondents: Individuals or households, businesses or other 
for profit and farms.
    Estimated Number of Respondents: 388.
    Estimated Number of Responses per Respondent: 1.1.
    Estimated Total Number of Responses: 426.8.
    Estimated Total Annual Burden on Respondents: 384 hours.
    Once this information collection is approved, FSA will incorporate 
these collections into existing collections package 0560-0238.
    Title: Direct Loan Making.
    OMB Control Number: 0560-New.
    Type of Request: New Collection.
    Abstract: This information collection is required to support the 
proposed regulatory changes that include equine losses as eligible for 
EM in 7 CFR part 764, Direct Loan Making, which establishes the 
requirements for most of FSA's direct loan programs including the 
Emergency loan program. Information collections established in the 
regulation are necessary for the FSA to evaluate the loan applicant's 
request and determine if eligibility, loan repayment, and security 
requirements can be met.
    Estimate of Burden: Public reporting for this collection of 
information is estimated to average 36 minutes per response.
    Type of Respondents: Individuals or households, businesses or other 
for profit and farms.
    Estimated Number of Respondents: 1,125.
    Estimated Number of Responses per Respondent: 1.3.
    Estimated Total Annual Number of Responses: 1,463.
    Estimated Total Annual Burden on Respondents: 878 hours.
    Once this information collection is approved, FSA will incorporate 
this collection into existing collections package 0560-0237.
    Title: Direct Loan Servicing--Regular.
    OMB Control Number: 0560-New.
    Type of Request: New Collection.
    Abstract: This information collection is required to support the 
proposed regulatory changes that include equine losses as eligible for 
EM. Some of the same information collection activities will be used 
that are currently approved for 7 CFR part 765, Direct Loan Servicing 
--Regular, which establishes the requirements related to routine 
servicing actions associated with direct loans including Emergency 
loans. Information collections established in the regulation are 
necessary for the Agency to monitor and account for loan security, 
including proceeds derived from the sale of security, and to process a 
borrower's requests for subordination or partial release of security. 
Information collections associated with the statutory requirement that 
borrowers be reviewed for graduation to commercial credit are also 
established in the regulation.
    Estimate of Burden: Public reporting for this collection of 
information is estimated to average 49 minutes per response.
    Type of Respondents: Individuals or households, businesses or other 
for profit and farms.
    Estimated Number of Respondents: 48.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Number of Responses: 48.
    Estimated Total Annual Burden on Respondents: 39 hours.
    Once this information collections request is approved, FSA will 
incorporate this collection into existing collections package 0560-
0236.
    We are requesting comments on all aspects of this information 
collection to help us to:
    (1) Evaluate whether the collection of information is necessary for 
the proper performance of FSA's functions, including whether the 
information will have practical utility;
    (2) Evaluate the accuracy of FSA's estimate of burden including the 
validity of the methodology and assumptions used;
    (3) Enhance the quality, utility and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology.
    All comments received in response to this notice, including names 
and addresses when provided, will be a matter of public record. 
Comments will be summarized and included in the submission for Office 
of Management and Budget approval.

E-Government Act Compliance

    FSA is committed to complying with the E-Government Act, to promote 
the use of the Internet and other information technologies to provide 
increased opportunities for citizen

[[Page 57875]]

access to Government information and services, and for other purposes.

List of Subjects

7 CFR Part 761

    Accounting, Loan programs--agriculture, Rural areas.

7 CFR Part 763

    Agriculture, Banks, Banking, Credit, Loan programs--agriculture.

7 CFR Part 764

    Agriculture, Disaster assistance, Loan programs--agriculture.

    For reasons discussed in the preamble, the Farm Service Agency 
(USDA) proposes to amend 7 CFR chapter VII as follows:

PART 761--FARM LOAN PROGRAMS; GENERAL PROGRAM ADMINISTRATION

    1. The authority citation for part 761 continues to read as 
follows:

    Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.

    2. Revise the part heading for 7 CFR part 761 to read as shown 
above.
    3. Amend Sec.  761.2 paragraph (b) to add a definition, in 
alphabetical order, for ``Land Contract'' to read as set forth below.


Sec.  761.2  Abbreviations and definitions.

* * * * *
    (b) * * *
    Land contract is an installment contract drawn between a buyer and 
a seller for the sale of real property, in which complete fee title 
ownership of the property is not transferred until all payments under 
the contract have been made.
* * * * *
    4. Add part 763 to read as follows:

PART 763--LAND CONTRACT GUARANTEE PROGRAM

Sec.
763.1 Introduction.
763.2 Abbreviations and definitions.
763.3 Full faith and credit.
763.4 Authorized land contract purpose.
763.5 Eligibility.
763.6 Limitations.
763.7 Application requirements.
763.8 Incomplete applications.
763.9 Processing complete applications.
763.10 Feasibility.
763.11 Maximum loss amount, guarantee period, and conditions.
763.12 Down payment, rates, and terms.
763.13 Fees.
763.14 Appraisals.
763.15 Taxes and insurance.
763.16 Environmental regulation compliance.
763.17 Approving application and executing guarantee.
763.18 General servicing responsibilities.
763.19 Contract modification.
763.20 Delinquent servicing and collecting on guarantee.
763.21 Establishment of Federal debt and Agency recovery of loss 
claim payments.
763.22 Negligence.
763.23 Terminating the guarantee.

    Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.


Sec.  763.1  Introduction.

    (a) Purpose. The Land Contract Guaranteed Program provides certain 
financial guarantees to the seller in land transfers of farmland 
through a land contract sale to beginning farmers and socially 
disadvantaged farmers.
    (b) Types of guarantee. The seller may request either of the 
following:
    (1) The prompt payment guarantee plan. The Agency will guarantee an 
amount not to exceed three amortized annual installments plus an amount 
equal to the total cost of any related real estate taxes and insurance 
incurred during the period covered by the annual installment; or
    (2) The standard guarantee plan. The Agency will guarantee an 
amount equal to 90 percent of the outstanding principal.
    (c) Guarantee period. The guarantee period is 10 years for either 
plan.


Sec.  763.2  Abbreviations and definitions.

    Abbreviations and definitions for terms used in this part are in 
Sec.  761.2 of this chapter.


Sec.  763.3  Full faith and credit.

    (a) The land contract guarantee constitutes an obligation supported 
by the full faith and credit of the United States. The Agency may 
contest the guarantee only in cases of fraud or misrepresentation by 
the seller, in which:
    (1) The seller had actual knowledge of the fraud or 
misrespresentation at the time it became the seller, or
    (2) The seller participated in or condoned the fraud or 
misrepresentation.
    (b) Loss Claims also may be reduced or denied to the extent that 
any negligence contributed to the loss under Sec.  763.22.


Sec.  763.4  Authorized land contract purpose.

    The Agency will only guarantee the contract installments, real 
estate taxes, and insurance; or outstanding principal balance for an 
eligible seller of a family farm, through a land contract sale to an 
eligible beginning or socially disadvantaged farmer.


Sec.  763.5  Eligibility.

    (a) Seller eligibility requirements. The private seller, and each 
entity member in the case of an entity seller, must:
    (1) Possess the legal capacity to enter into a legally binding 
agreement;
    (2) Not have provided false or misleading documents or statements 
during past or present dealings with the Agency;
    (3) Not be ineligible due to disqualification resulting from 
Federal Crop Insurance violation, according to 7 CFR part 718; and
    (4) Not be suspended or debarred under 7 CFR part 3017.
    (b) Buyer eligibility requirements. The buyer must meet the 
following requirements to be eligible for the Land Contract Guarantee 
Program:
    (1) Is a beginning farmer or socially disadvantaged farmer engaged 
primarily in farming in the United States after the guarantee is 
issued.
    (2) Is the owner and operator of a family farm after the contract 
is completed. In the case of an entity buyer:
    (i) Each entity member's ownership interest may not exceed the 
amount specified in the family farm definition in Sec.  761.2 of this 
chapter.
    (ii) The entity members cannot themselves be entities.
    (iii) The entity must be authorized to own and operate a farm in 
the State in which the farm is located.
    (iv) If the entity members holding a majority interest are related 
by blood or marriage, at least one member of the entity must:
    (A) Operate the farm and
    (B) Own the farm;
    (v) If the entity members holding a majority interest are not 
related by blood or marriage, the entity members holding a majority 
interest must:
    (A) Operate the farm; and
    (B) Own the farm, or the entity itself must own the farm;
    (3) Must have participated in the business operations of a farm or 
ranch for at least 3 years out of the last 10 years prior to the date 
the application is submitted.
    (4) The buyer and all entity members in the case of an entity, must 
not have caused the Agency a loss by receiving debt forgiveness on all 
or a portion of any direct or guaranteed loan made under the authority 
of the Act by debt write-down or write-off; compromise, adjustment, 
reduction, or charge off under the provisions of section 331 of the 
Act; discharge in bankruptcy; or through payment of a guaranteed loss 
claim on more than three occasions on or prior to April 4, 1996, or any 
occasion after April 4, 1996. If the debt forgiveness is resolved by 
repayment of the Agency's loss, the Agency may still consider the debt 
forgiveness in determining the applicant's creditworthiness.

[[Page 57876]]

    (5) The buyer and all entity members in the case of an entity, must 
not be delinquent on any Federal debt, other than a debt under the 
Internal Revenue Code of 1986 when the guarantee is issued.
    (6) The buyer and all entity members in the case of an entity, may 
have no outstanding unpaid judgment awarded to the United States in any 
court. Such judgments do not include those filed as a result of action 
in the United States Tax Courts.
    (7) The buyer and all entity members in the case of an entity, must 
be a citizen of the United States, United States non-citizen national, 
or a qualified alien under applicable Federal immigration laws. United 
States non-citizen nationals and qualified aliens must provide the 
appropriate documentation as to their immigration status as required by 
the U.S. Department of Homeland Security, Bureau of Citizenship and 
Immigration Services.
    (8) The buyer and all entity members in the case of an entity, must 
possess the legal capacity to enter into a legally binding agreement.
    (9) The buyer and all entity members in the case of an entity, must 
not have provided false or misleading documents or statements during 
past or present dealings with the Agency.
    (10) The buyer and all entity members in the case of an entity, 
must not be ineligible as a result of a conviction for controlled 
substances according to 7 CFR part 718 of this chapter.
    (11) The buyer and all entity members in the case of an entity must 
have an acceptable credit history demonstrated by satisfactory debt 
repayment.
    (i) A history of failures to repay past debts as they came due when 
the ability to repay was within their control will demonstrate 
unacceptable credit history.
    (ii) Unacceptable credit history will not include:
    (A) Isolated instances of late payments, which do not represent a 
pattern and were clearly beyond their control; or
    (B) Lack of credit history.
    (12) The buyer is unable to enter into a contract unless the seller 
obtains an Agency guarantee to finance the purchase of the farm at 
reasonable rates and terms.
    (13) The buyer and all entity members in the case of an entity, 
must not be ineligible due to disqualification resulting from Federal 
Crop Insurance violation, according to 7 CFR part 718.
    (14) The buyer and all entity members in the case of an entity, 
must not be suspended or debarred under 7 CFR part 3017.


Sec.  763.6  Limitations.

    (a) To qualify for a guarantee, the purchase price of the farm to 
be acquired through the land contract sale cannot exceed the lesser of:
    (1) $500,000 or
    (2) The current market value of the property.
    (b) A guarantee will not be issued if the appraised value of the 
farm is greater than $500,000.
    (c) Existing land contracts are not eligible for the Land Contract 
Guarantee Program.
    (d) Guarantees may not be used to establish or support a non-
eligible enterprise.


Sec.  763.7  Application requirements.

    (a) Seller application requirements. A seller who contacts FSA with 
interest in a guarantee under the Land Contract Guarantee Program will 
be sent the land contract letter of interest outlining specific program 
details. To formally request a guarantee on the proposed land contract, 
the seller, and each entity member in the case of an entity, must:
    (1) Complete, sign, date, and return the land contract letter of 
interest to the Agency, and
    (2) Provide the name, address, and telephone number of the chosen 
servicing or escrow agent.
    (b) Buyer application requirements. A complete application from the 
buyer will include:
    (1) The completed Agency application form;
    (2) A current Financial Statement (not older than 90 days);
    (3) If the buyer is an entity:
    (i) A complete list of entity members showing the address, 
citizenship, principle occupation, and the number of shares and 
percentage of ownership or stock held in the entity by each member, or 
the percentage of interest in the entity held by each member;
    (ii) A current personal financial statement for each member of the 
entity;
    (iii) A current financial statement for the entity itself;
    (iv) A copy of the entity's charter or any entity agreement, any 
articles of incorporation and bylaws, any certificate or evidence of 
current registration (in good standing), and a resolution adopted by 
the Board of Directors or entity members authorizing specified officers 
of the entity to apply for and obtain the land contract guarantee and 
execute required debt, security and other instruments and agreements; 
and
    (v) In the form of a married couple applying as a joint operation, 
items in paragraphs (b)(3)(i) and (b)(3)(iv) of this section will not 
be required. The Agency may request copies of the marriage license, 
prenuptial agreement, or similar documents as needed to verify loan 
eligibility and security. The information specified in paragraphs 
(b)(2)(ii) and (iii) of this section are only required to the extent 
needed to show the individual and joint finances of the husband and 
wife without duplication;
    (4) A brief written description of the buyer's proposed operation;
    (5) A farm operating plan;
    (6) A brief written description of the buyer's farm training and 
experience;
    (7) Three years of income tax and other financial records 
acceptable to FSA, unless the buyer has been farming less than 3 years;
    (8) Three years of farm production records, unless the buyer has 
been farming less than 3 years;
    (9) Verification of income and off-farm employment if relied upon 
for debt repayment;
    (10) Verification of all debts;
    (11) Payment of the credit report fee;
    (12) Documentation of compliance with the environmental regulations 
in part 1940, subpart G, of this title;
    (13) A copy of the proposed land contract; and
    (14) Any additional information deemed necessary by the Agency to 
effectively evaluate the applicant's eligibility and farm operating 
plan.


Sec.  763.8  Incomplete applications.

    (a) Within 10 days of receipt of an incomplete application, the 
Agency will provide the seller and buyer written notice of any 
additional information that must be provided. The seller or buyer, as 
applicable, must provide the additional information within 20 calendar 
days of the date of the notice.
    (b) If the additional information is not received, the Agency will 
provide written notice that the application will be withdrawn if the 
information is not received within 10 calendar days of the date of the 
second notice.


Sec.  763.9  Processing complete applications.

    Applications will be approved or rejected and all parties notified 
in writing no later than 30 calendar days after application is 
considered complete.


Sec.  763.10  Feasibility.

    (a) The buyer's proposed operation as described in a form 
acceptable to FSA must represent the operating cycle for the farm 
operation and must project a feasible plan as defined in Sec.  
761.2(b).
    (b) The projected income, expenses, and production estimates:
    (1) Must be based on the buyer's last 3 years actual records of 
production and

[[Page 57877]]

financial management unless the buyer has been farming less than 3 
years;
    (2) For those farming less than 3 years, a combination of any 
actual history and other reliable sources of information may be used. 
Sources must be documented and acceptable to the Agency; and
    (3) May deviate from historical performance if deviations are the 
direct result of specific changes in the operation, reasonable, 
justified, documented, and acceptable to the Agency.
    (c) Price forecasts used in the plan must be reasonable, 
documented, and acceptable to the Agency.
    (d) The Agency will analyze the buyer's business ventures other 
than the farm operation to determine their soundness and contribution 
to the operation.
    (e) When a feasible plan depends on income from sources other than 
from owned land, the income must be dependable and likely to continue.
    (f) When the buyer's farm operating plan is developed in 
conjunction with a proposed or existing Agency direct loan, the two 
farm operating plans must be consistent.


Sec.  763.11  Maximum loss amount, guarantee period, and conditions.

    (a) Maximum loss amount. The maximum loss amount of loss due to 
nonpayment by the buyer covered by the guarantee is based on the type 
of guarantee initially selected by the seller as follows:
    (1) The prompt payment guarantee will cover:
    (i) 3 amortized annual installments; or
    (ii) An amount equal to 3 annual installments (including an amount 
equal to the total cost of any tax and insurance incurred during the 
period covered by the annual installments).
    (2) The standard guarantee will cover an amount equal to 90 percent 
of the outstanding principal balance.
    (b) Guarantee period. The period of the guarantee will be 10 years 
from the effective date of the guarantee unless terminated earlier 
under Sec.  763.23.
    (c) Conditions. The seller will select an escrow agent to service a 
Land Contract Agreement if selecting the prompt payment guarantee plan, 
and a servicing agent to service a Land Contract Agreement if selecting 
the standard guarantee plan.
    (1) An escrow agent must provide the Agency evidence of being a 
bonded title insurance company, attorney, financial institution or 
fiscally responsible institution.
    (2) A servicing agent must provide the Agency evidence of being a 
bonded commercial lending institution or similar entity, registered and 
authorized to provide escrow and collection services in the State in 
which the real estate is located.


Sec.  763.12  Down payment, rates, terms, and installments.

    (a) Down payment. The buyer must provide a minimum down payment of 
five percent of the purchase price of the farm.
    (b) Interest rate. The interest rate charged by the seller must be 
fixed at a rate not to exceed FSA's direct farm ownership (FO) loan 
interest rate in effect at the time the guarantee is issued, plus three 
percentage points. The seller and buyer may renegotiate the interest 
rate for the remaining term of the contract following expiration of the 
guarantee.
    (c) Land contract terms. The contract payments must be amortized 
for a minimum of 20 years and payments on the contract must be of equal 
amounts during the term of the guarantee.
    (d) Balloon installments. Balloon payments are prohibited during 
the 10-year term of the guarantee.


Sec.  763.13  Fees.

    (a) Payment of fees. The seller and buyer will be responsible for 
payment of any expenses or fees necessary to process the land contract 
agreement required by the State or county to ensure that proper title 
is vested in the seller including, but not limited to, attorney fees, 
recording costs, and notary fees.
    (b) [Reserved]


Sec.  763.14  Appraisals.

    (a) Standard guarantee plan. For the standard guarantee plan, the 
value of real estate to be purchased will be established by an 
appraisal obtained at Agency expense and completed as specified in 
Sec.  761.7 of this chapter. An appraisal is required prior to, or as a 
condition of, approval of the guarantee.
    (b) Prompt payment guarantee plan. The Agency may, at its option 
and expense, obtain an appraisal to determine value of real estate to 
be purchased under the prompt payment guarantee plan.


Sec.  763.15  Taxes and insurance.

    (a) The seller will ensure that taxes and insurance on the real 
estate are paid timely and will provide the evidence of payment to the 
escrow or servicing agent.
    (b) The seller will maintain flood insurance, if available, if 
buildings are located in a special 100-year floodplain as defined by 
FEMA flood hazard area maps.
    (c) The seller will report any insurance claim and use of proceeds 
to the escrow or servicing agent.


Sec.  763.16  Environmental regulation compliance.

    (a) Environmental compliance requirements. The environmental 
requirements contained in part 1940, subpart G, of this title must be 
met prior to approval of guarantee request.
    (b) Determination. The Agency determination of whether an 
environmental problem exists will be based on:
    (1) The information supplied with the application;
    (2) Environmental resources available to the Agency including, but 
not limited to, documents, third parties, and government agencies;
    (3) Other information supplied by the buyer or seller upon Agency 
request; and
    (4) A visit to the farm.


Sec.  763.17  Approving application and executing guarantee.

    (a) Approval is subject to the availability of funds, meeting the 
requirements in this part, and the participation of an approved escrow 
or servicing agent.
    (b) Upon approval of the guarantee, all parties (buyer, seller, 
escrow or servicing agent, and Agency official) will execute the 
Agency's guarantee agreement.
    (c) The ``Land Contract Agreement for Prompt Payment Guarantee'' or 
the ``Land Contract Agreement for Standard Guarantee'' will describe 
the conditions of the guarantee, outline the covenants and any 
agreements of the buyer, seller, escrow or servicing agent, and the 
Agency, and outline the process for payment of loss claims.


Sec.  763.18  General servicing responsibilities.

    (a) For the prompt payment guarantee plan, the seller must use a 
third party escrow agent approved by the Agency. The escrow agent will:
    (1) Provide the Agency a copy of the recorded land contract;
    (2) Handle transactions relating to the land contract between the 
buyer and seller;
    (3) Receive contract installment payments from the buyer and send 
them to the seller;
    (4) Provide evidence to the Agency that property taxes are paid and 
insurance is kept current on the security property;
    (5) Send a notice of payment due to the buyer at least 30 days 
prior to the installment due date;

[[Page 57878]]

    (6) Notify the Agency and the seller if the buyer defaults;
    (7) Service delinquent accounts as specified in Sec.  763.20(a);
    (8) Make demand on the Agency to pay missed payments;
    (9) Send the seller any missed payment amount paid by the Agency 
under the guarantee;
    (10) Notify the Agency on March 31 and September 30 of each year of 
the outstanding balance on the land contract and the status of payment; 
and
    (11) Perform other duties as required by State law and as agreed to 
by the buyer and the seller;
    (b) For the standard guarantee plan, the seller must use a third 
party servicing agent approved by the Agency. The servicing agent is 
required to:
    (1) Provide the Agency a copy of the recorded land contract;
    (2) Handle transactions relating to the land contract between the 
buyer and seller;
    (3) Receive contract installment payments from the buyer and send 
them to the seller;
    (4) Provide evidence to the Agency that property taxes are paid and 
insurance is kept current on the security property;
    (5) Perform a physical inspection of the farm each year during the 
term of the guarantee, and provide an annual inspection report to the 
Agency;
    (6) Obtain from the buyer a current balance sheet, income 
statement, cash flow budget, and any additional information needed, 
perform, and provide the Agency an analysis of the buyer's financial 
condition on an annual basis;
    (7) Notify the Agency on March 31 and September 30 of each year of 
the outstanding balance on the land contract and the status of payment;
    (8) Send a notice of payment due to the buyer at least 30 days 
prior to the installment due date;
    (9) Notify the Agency and the seller if the buyer defaults;
    (10) Service delinquent accounts as specified in Sec.  763.20(b); 
and
    (11) Perform other duties as required by State law and as agreed to 
by the buyer and the seller.


Sec.  763.19  Contract modification.

    (a) The seller and buyer may modify the land contract to lower the 
interest rate and corresponding amortized payment amount without Agency 
approval.
    (b) With prior written approval from the Agency, the seller and 
buyer may modify the land contract provided that, in addition to a 
feasible plan for the upcoming operating cycle, a feasible plan can be 
reasonably projected throughout the remaining term of the guarantee. 
Such modifications may include, but are not limited to:
    (1) Deferral of installments,
    (2) Leasing or subleasing, and
    (3) Partial releases. All proceeds from a partial release or 
royalties from mineral extraction must be applied to a prior lien, if 
one exists, and in addition, the same amount must be credited to the 
principal balance of the land contract.
    (4) Transfer and Assumption. If the guarantee is to remain in 
effect, any transfer of the property and assumption of the guaranteed 
debt must be made to an eligible buyer for the Land Contract Guarantee 
Program as specified in Sec.  763.4, and must be approved by the Agency 
in writing. If an eligible applicant for transfer and assumption cannot 
be found, the Deputy Administrator for Farm Loan Programs may make an 
exception to this requirement.
    (5) Assignment. The seller may not assign the contract to another 
party without written consent of the Agency.
    (c) Any contract modifications other then those listed above must 
be approved by the Deputy Administrator for Farm Loan Programs, and 
will only be approved if such action is determined permissible by law 
and in the Government's best financial interests.


Sec.  763.20  Delinquent servicing and collecting on guarantee.

    (a) Prompt payment guarantee plan. If the buyer fails to pay an 
annual amortized installment or a portion of an installment on the 
contract or taxes or insurance when due, the escrow agent:
    (1) Must make a written demand on the buyer for payment of the 
defaulted amount within 30 days of the missed payment, taxes, or 
insurance and send a copy of the demand letter to the Agency and to the 
seller; and
    (2) Must make demand on the Agency within 90 days from the original 
payment, taxes, or insurance due date, for the missed payment in the 
event the buyer has not made the payment.
    (b) Standard guarantee plan. If the buyer fails to pay an annual 
amortized installment or a portion of an installment on the contract, 
then the seller has the option of either liquidating the real estate, 
or having the amount of the loss established by the Agency by an 
appraisal of the real estate. For either option, the servicing agent:
    (1) Must make a written demand on the buyer for payment of the 
defaulted amount within 30 days of the missed payment, and send a copy 
of the demand letter to the Agency and to the seller; and
    (2) Must immediately inform the Agency which option the seller has 
chosen for establishing the amount of the loss, in the event the buyer 
does not make the payment within 60 days of the demand letter.
    (i) Liquidation method. If the seller chooses the liquidation 
method, the servicing agent will:
    (A) Submit a liquidation plan to the Agency within 120 days from 
the missed payment for approval prior to any liquidation action. The 
Agency may require and pay for an appraisal prior to approval of the 
liquidation plan.
    (B) Complete liquidation within 12 months of the missed installment 
unless prevented by bankruptcy, redemption rights, or other legal 
action.
    (C) Credit an amount equal to the sale price received in a 
liquidation of the security property, with no deduction for expenses, 
to the principal balance of the land contract.
    (D) File a loss claim immediately after liquidation, which must 
include a complete loan ledger.
    (E) Base the loss claim amount on the appraisal method if the 
property is reacquired by the seller, through liquidation.
    (ii) Appraisal method. If the seller chooses to have the loss 
amount established by appraisal rather than liquidation, the Agency 
will complete an appraisal on the real estate, and the loss claim 
amount will be based on the difference between the appraised value at 
the time the loss is calculated and the unpaid principal balance of the 
land contract at that time.
    (A) The only administrative appeal allowed under Sec.  761.6 
related to the resulting appraisal amount will be a determination of 
whether the appraisal is Uniform Standards of Professional Appraisal 
Practice (USPAP) compliant.
    (B) The seller will give the Agency a lien on the security property 
in the amount of the loss claim payment. If the property sells within 5 
years from the date of the loss payment for an amount greater than the 
appraised value used to establish the loss claim amount, the seller 
must repay the difference, up to the amount of the loss claim. For 
purposes of determining the amount to be repaid (recapture), the market 
value of the property may be reduced by the value of certain capital 
improvements made by the seller to the property in the time period from 
the loss claim to final disposition. If the property is not sold within 
5 years from the date of the loss payment, the Agency will release the 
lien and the seller will have no further obligation to the Agency.

[[Page 57879]]

Sec.  763.21  Establishment of Federal debt and Agency recovery of loss 
claim payments.

    (a) Any amount paid by FSA as a result of an approved loss claim is 
immediately due and payable by the buyer after FSA notifies the buyer 
that a loss claim has been paid to the seller. If the debt is not 
restructured into a repayment plan or the obligation otherwise cured, 
FSA may use all remedies available, including offset as authorized by 
the Debt Collection Improvement Act of 1996, to collect the debt.
    (1) Interest on the debt will be at the FLP non-program credit 
sales real property loan rate in effect at the time of the first Agency 
payment of a loss claim.
    (2) The debt may be scheduled for repayment consistent with the 
buyer's repayment ability, not to exceed 7 years. Before any payment 
plan can be approved, the buyer must provide the Agency with the best 
lien obtainable on all of the buyer's assets. This includes the buyer's 
ownership interest in the real estate under contract for guarantees 
using the prompt payment guarantee plan. When the buyer is an entity, 
the best lien obtainable will be taken on all of the entity's assets, 
and all assets owned by individual members of the entity, including 
their ownership interest in the real estate under contract.
    (b) Annually, buyers with an Agency approved repayment plan under 
this section will supply the Agency a current balance sheet, income 
statement, cash flow budget, complete copy of Federal income tax 
returns, and any additional information needed to analyze the buyer's 
financial condition.
    (c) If a buyer fails to make required payments to the Agency as 
specified in the approved repayment plan, the debt will be treated as a 
non-program loan debt, and servicing will proceed as specified in Sec.  
766.351(c) of this chapter.


Sec.  763.22  Negligence.

    (a) The Agency may deny a loss claim in whole or in part due to 
negligence that contributed to the loss claim. This could include, but 
is not limited to:
    (1) The escrow or servicing agent failing to seek payment of a 
missed installment from the buyer within the prescribed timeframe or 
otherwise does not enforce the terms of the land contract;
    (2) Losing the collateral to a third party, such as a taxing 
authority, prior lien holder, etc.;
    (3) Not performing the duties and responsibilities required of the 
escrow or servicing agent;
    (4) The seller's failing to disclose environmental issues; or
    (5) Any other action in violation of the land contract or guarantee 
agreement that does not terminate the guarantee.
    (b) [Reserved]


Sec.  763.23  Terminating the guarantee.

    (a) The guarantee and the Agency's obligations will terminate at 
the earliest of the following circumstances:
    (1) Full payment of the land contract;
    (2) Agency payment to the seller of 3 annual installments plus 
property taxes and insurance, if applicable, under the prompt payment 
guarantee plan, if not repaid in full by the buyer. An Agency approved 
repayment plan will not constitute payment in full until such time as 
the entire amount due for the Agency approved repayment plan is paid in 
full;
    (3) Payment of a loss claim through the standard guarantee plan;
    (4) Sale of real estate without guarantee being properly assigned;
    (5) The seller terminates the land contract for reasons other than 
monetary default; or
    (6) If for any reason the land contract becomes null and void.
    (b) If none of the events in paragraph (a) of this section occur, 
the guarantee will automatically expire, without notice, 10 years from 
the effective date of the guarantee.

PART 764--DIRECT LOAN MAKING

    5. The authority citation for part 764 continues to read as 
follows:

    Authority:  5 U.S.C. 301 and 7 U.S.C. 1989.

    6. Amend Sec.  764.51 by revising paragraph (b)(3) to read as 
follows:


Sec.  764.51  Loan application.

* * * * *
    (b) * * *
    (3) A written description of the applicant's farm training and 
experience, including each entity member who will be involved in 
managing or operating the farm. Farm experience of the applicant, 
without regard to any lapse of time between the farm experience and the 
new application, may be included in the applicant's written 
description. If farm experience occurred more than 5 years prior to the 
date of the new application, the applicant must demonstrate sufficient 
on-the-job training or education within the last 5 years;
* * * * *
    7. Amend Sec.  764.101 by revising paragraph (i)(3) to read as 
follows:


Sec.  764.101  General eligibility requirements.

* * * * *
    (i) * * *
    (3) Farming experience. For example, the applicant has been an 
owner, manager, or operator of a farm business for at least one entire 
production cycle. Farm experience of the applicant, without regard to 
any lapse of time between the farm experience and the new application, 
will be taken into consideration in determining loan eligibility. If 
farm experience occurred more than 5 years prior to the date of the new 
application, the applicant must demonstrate sufficient on-the-job 
training or education within the last 5 years to demonstrate managerial 
ability.
* * * * *
    8. Amend Sec.  764.102 by revising paragraph (f) to read as 
follows:


Sec.  764.102  General limitations.

* * * * *
    (f) Loan funds will not be used to establish or support a non-
eligible enterprise, even if the non-eligible enterprise contributes to 
the farm. Notwithstanding this limitation an Emergency Loan may cover 
qualified equine losses as specified in subpart H of this part.
    9. Amend Sec.  764.352 by adding paragraph (l) to read as follows:


Sec.  764.352  Eligibility requirements.

* * * * *
    (l) Whose primary enterprise is to breed, raise, and sell horses 
may be eligible under this part.
    10. Amend Sec.  764.353 by adding paragraph (g) to read as follows:


Sec.  764.353  Limitations.

* * * * *
    (g) Losses associated with horses used for racing, showing, 
recreation, or pleasure or loss of income derived from racing, showing, 
recreation, boarding, or pleasure are not considered qualified losses 
under this section.
    11. Amend Sec.  764.355 by revising paragraph (b) to read as 
follows:


Sec.  764.355  Security requirements.

* * * * *
    (b) EM loans made as specified in Sec.  764.351(a)(2) and (b) 
generally must comply with the general security requirements 
established in Sec. Sec.  764.103, 764.104 and 764.255(b). These 
general security requirements, however, do not apply to equine loss 
loans to the extent that a lien is not obtainable or obtaining a lien 
may prevent the applicant from carrying on the normal course of 
business. Other security may be considered for an equine loss loan in 
the order of priority as follows:
    (1) Real Estate,
    (2) Chattels and crops, other than horses,

[[Page 57880]]

    (3) Other assets owned by the applicant,
    (4) Third party pledges of property not owned by the applicant, and
    (5) Repayment ability under paragraph (c) of this section.
* * * * *
    12. Amend paragraph Sec.  764.356 by adding paragraph (c) to read 
as follows:


Sec.  764.356  Appraisal and valuation requirements.

* * * * *
    (c) In the case of an equine loss loan:
    (1) The applicant's Federal income tax and business records will be 
the primary source of financial information. Sales receipts, invoices, 
or other official sales records will document the sales price of 
individual animals.
    (2) If the applicant does not have 3 complete years of business 
records, the Agency will obtain the most reliable and reasonable 
information available from sources such as the Cooperative Extension 
Service, universities, and breed associations to document production 
for those years for which the applicant does not have a complete year 
of business records.

    Signed in Washington, DC, on September 17, 2010.
Jonathan W. Coppess,
Administrator, Farm Service Agency.
[FR Doc. 2010-23830 Filed 9-22-10; 8:45 am]
BILLING CODE 3410-05-P