[Federal Register: February 9, 2004 (Volume 69, Number 26)]
[Proposed Rules]
[Page 6055-6121]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09fe04-25]
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Part III
Department of Agriculture
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Farm Service Agency
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7 CFR Parts 761, 762, et al.
Regulatory Streamlining of the Farm Service Agency's Direct Farm Loan
Programs; Proposed Rule
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DEPARTMENT OF AGRICULTURE
Farm Service Agency
7 CFR Parts 761 through 769
RIN 0560-AF60
Regulatory Streamlining of the Farm Service Agency's Direct Farm
Loan Programs
AGENCY: Farm Service Agency, USDA.
ACTION: Proposed rule.
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SUMMARY: The Farm Service Agency (FSA) proposes to streamline
regulations governing the direct Farm Loan Programs. The proposed
regulatory action will enable FSA to accomplish the following: Simplify
and clarify direct loan regulations; implement the recommendations of
the USDA Civil Rights Action Team; meet the objectives of the Paperwork
Reduction Act of 1995; meet the goals and objectives of the National
Performance Review; and separate FSA's direct Farm Loan Programs
regulations from Rural Development mission area loan program
regulations.
DATES: Comments on this rule and on the information collections must be
submitted by April 9, 2004 to be assured consideration.
ADDRESSES: Address comments on, and alternatives to, the proposed rule
to: Deputy Administrator for Farm Loan Programs, USDA/FSA/DAFLP/STOP
0520, 1400 Independence Avenue SW., Washington, DC 20250-0520. Comments
on the information collection requirements of this proposed rule must
be sent to the Office of Management and Budget (OMB) at the address
listed in the Paperwork Reduction Act section of this preamble and sent
to the Department address listed after the OMB address.
FOR FURTHER INFORMATION CONTACT: William D. Cobb USDA/FSA/DAFLP/STOP
0520, 1400 Independence Avenue SW., Washington, DC 20250-0520;
telephone (202) 720-1059; electronic mail: bill_cobb@wdc.usda.gov.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This rule has been determined to be significant under Executive
Order 12866 and was reviewed by OMB.
Regulatory Flexibility Act
In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
602), the undersigned has determined and certified by signature of this
document that this rule will not have a significant economic impact on
a substantial number of small entities. This rule does not impose any
new requirements on Agency applicants and borrowers. In some cases,
existing information collections and regulatory requirements have been
reduced as a result of streamlining the loan making and servicing
application processes.
Environmental Impact Statement
FSA is completing an Environmental Assessment (EA) in accordance
with the provisions of the National Environmental Policy Act of 1969
(NEPA), 42 U.S.C. 4321 et seq., the regulations of the Council on
Environmental Quality (40 CFR parts 1500-1508) and the FSA regulations
for compliance with NEPA, 7 CFR part 799 and part 1940, subpart G. The
draft EA will be made available for public comment under a separate
notice. The final EA will be completed before this rule is published as
final.
Executive Order 13132
The policies contained in this rule do not have a substantial
direct effect on states, on the relationship between the national
government and the states, or on the distribution of power and
responsibilities among the various levels of government. Nor does this
rule impose substantial direct compliance costs on state and local
governments. Therefore, consultation with the states is not required.
Executive Order 12988
This rule has been reviewed in accordance with Executive Order
12988, Civil Justice Reform. In accordance with this Executive Order:
(1) All State and local laws and regulations that are in conflict with
this rule will be preempted; (2) no retroactive effect will be given to
this rule; and (3) administrative proceedings in accordance with 7 CFR
parts 11 and 780 must be exhausted before bringing suit in court
challenging action taken under this rule unless those regulations
specifically allow bringing suit at an earlier time.
Executive Order 12372
For reasons contained in the Notice to 7 CFR part 3015, subpart V
(48 FR 29115, June 24, 1983), the programs within this rule are
excluded from the scope of E.O. 12372, which requires intergovernmental
consultation with State and local officials.
Unfunded Mandates
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub.
L. 104-4, requires Federal agencies to assess the effects of their
regulatory actions on State, local, and tribal governments or the
private sector of $100 million or more in any 1 year. When such a
statement is needed for a rule, section 205 of the UMRA requires FSA to
prepare a written statement, including a cost benefit assessment, for
proposed and final rules with ``Federal mandates'' that may result in
such expenditures for State, local, or tribal governments, in the
aggregate, or to the private sector. UMRA generally requires agencies
to consider alternatives and adopt the more cost effective or least
burdensome alternative that achieves the objectives of the rule.
This rule contains no Federal mandates, as defined under Title II
of the UMRA, for State, local, and tribal governments or the private
sector. Thus, this rule is not subject to the requirements of sections
202 and 205 of UMRA.
Paperwork Reduction Act
Information collection requirements for the direct Farm Loan
Programs are currently approved in numerous information collection
dockets. Based on the proposed regulations, FSA will reduce the number
of information collections by consolidating related collections in a
manner that matches the organizational structure of the proposed CFR
parts.
In accordance with the Paperwork Burden Act of 1995, FSA intends to
request approval of the following information collections.
Title: General Program Administration.
OMB Control Number: 0560-New.
Type of Request: New Collection.
Abstract: 7 CFR 761, General Program Administration, establishes
requirements within FSA's Farm Loan Programs that are applicable to
both making and servicing direct 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 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
[[Page 6057]]
construction plans and specifications comply with state and local
building standards. Existing collections applicable to FSA's Farm Loan
Programs from OMB Control Numbers 0560-0154, 0575-0042, 0575-0064, and
0575-0158 will be consolidated in this docket. Burden associated with
the Rural Development Agencies' information collections will remain
under Control Numbers 0575-0042, 0575-0064, and 0575-0158.
Estimate of Burden: Public reporting for this collection of
information is estimated to average 51 minutes per response.
Respondents: Individuals or households, businesses or other for
profit and farms.
Estimated number of respondents: 70,290.
Estimated number of responses per respondent: 2.6.
Estimated total annual burden on respondents: 214,363.
Title: Direct Loan Making.
OMB Control Number: 0560-New.
Type of Request: New Collection.
Abstract: 7 CFR 764, Direct Loan Making, establishes the
requirements for FSA's direct Farm Ownership, Operating, and Emergency
loan programs. Information collections established in the regulation
are necessary for the Agency to evaluate the loan applicant's request
and determine if eligibility, loan repayment and security requirements
can be met. Existing collections pertaining to direct loan making from
OMB Control Numbers 0560-0157, 0560-0159, 0560-0162, 0560-0166, 0560-
0167, 0560-0178, 0575-0087, 0575-0088, and 0575-0147 will be
consolidated in this docket. Burden associated with the Rural
Development Agencies' information collections will remain under Control
Numbers 0575-0087, 0575-0088, and 0575-0147.
Estimate of Burden: Public reporting for this collection of
information is estimated to average 26 minutes per response.
Respondents: Individuals or households, businesses or other for
profit and farms.
Estimated number of respondents: 128,513.
Estimated number of responses per respondent: 3.38.
Estimated total annual burden on respondents: 177,150.
Title: Direct Loan Servicing--Regular.
OMB Control Number: 0560-New.
Type of Request: New Collection.
Abstract: 7 CFR 765, Direct Loan Servicing--Regular, establishes
the requirements related to routine servicing actions associated with
direct 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. Existing collections pertaining to
routine direct loan servicing actions from OMB Control Numbers 0560-
0158, 0560-0171, 0575-0075, and 0575-0093 will be consolidated in this
docket. Burden associated with the Rural Development Agencies'
information collections will remain under Control Numbers 0575-0075,
and 0575-0093.
Estimate of Burden: Public reporting for this collection of
information is estimated to average 38 minutes per response.
Respondents: Individuals or households, businesses or other for
profit and farms.
Estimated number of respondents: 58,875.
Estimated number of responses per respondent: 1.
Estimated total annual burden on respondents: 105,547.
Title: Direct Loan Servicing--Special.
OMB Control Number: 0560-New.
Type of Request: New Collection.
Abstract: 7 CFR 766, Direct Loan Servicing--Special, establishes
the requirements for servicing financially distressed and delinquent
direct loan borrowers. The information collections established in the
regulation are necessary for the Agency to evaluate a borrower's
request for disaster set-a-side, primary loan servicing (including
reamortization, rescheduling, deferral, write down and conservation
contracts), and homestead protection. Existing collections pertaining
to servicing financially distressed and delinquent direct loan
borrowers from OMB Control Numbers 0560-0160, 0560-0161, and 0560-0164
will be consolidated in this docket.
Estimate of Burden: Public reporting for this collection of
information is estimated to average 31 minutes per response.
Respondents: Individuals or households, businesses or other for
profit and farms.
Estimated number of respondents: 11,595.
Estimated number of responses per respondent: 2.39.
Estimated total annual burden on respondents: 14,869.
Title: Inventory Property Management.
OMB Control Number: 0560-New.
Type of Request: New Collection.
Abstract: 7 CFR 767, Inventory Property Management, establishes the
requirements for the management, lease and sale of security property
acquired by the Agency. Information collections established in the
regulation are necessary for the Agency to determine an applicant's
eligibility to lease or purchase inventory property; and to ensure
payment of the lease or purchase amount. Existing collections
pertaining to the lease and sale of property acquired under FSA's Farm
Loan Programs from OMB Control Number 0575-0110 will be incorporated in
this docket. Burden associated with the Rural Development Agencies'
information collections will remain under Control Number 0575-0110.
Estimate of Burden: Public reporting for this collection of
information is estimated to average 40 minutes per response.
Respondents: Individuals or households, businesses or other for
profit and farms.
Estimated number of respondents: 212.
Estimated number of responses per respondent: 1.
Estimated total annual burden on respondents: 243.
The Agency is soliciting comments on the burden of all of the above
regarding: (a) Whether the collection of information is necessary for
the proper performance of the functions of the Agency, including
whether the information will have practical utility; (b) the accuracy
of the Agency's estimate of burden including the validity of the
methodology and assumptions used; (c) ways to enhance the quality,
utility and clarity of the information to be collected; (d) ways to
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. These comments should be sent to
the Desk Officer for Agriculture, Office of Information and Regulatory
Affairs, Office of Management and Budget, Washington, DC 20503 and to
William D. Cobb, USDA/FSA/DAFLP/STOP 0520, 1400 Independence Avenue,
SW., Washington, DC 20250-0520. Copies of the information collections
may be obtained from Mr. Cobb at the above address. All comments will
become a matter of public record.
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Federal Assistance Programs
These changes affect the following FSA programs as listed in the
Catalog of Federal Domestic Assistance:
10.404--Emergency Loans
10.406--Farm Operating Loans
10.407--Farm Ownership Loans
Government Paperwork Elimination Act (GPEA)
The Agency is committed to compliance with GPEA, which requires
Government agencies to provide the public the option of submitting or
transacting business electronically to the maximum extent possible.
Discussion of the Proposed Rule
Background
FSA proposes to move the majority of its Farm Loan Programs direct
loan making and servicing rules from Chapter XVIII to Chapter VII of
the Code of Federal Regulations (CFR). Prior to the Department of
Agriculture Reorganization Act of 1994 (1994 Act), Chapter XVIII was
assigned to the Farmers Home Administration (FmHA) and Chapter VII was
assigned to the Agricultural Stabilization and Conservation Service
(ASCS). Under the provisions of the 1994 Act, both FmHA and ASCS were
abolished. FmHA's Farm Loan Programs and ASCS's programs were
consolidated under the newly created FSA while the remaining FmHA
programs were transferred to one of the following Rural Development
mission area agencies: Rural Business Cooperative Service, Rural
Housing Service, and Rural Utilities Service. Chapter VII of the CFR is
now assigned to FSA while Chapter XVIII is shared by FSA and the Rural
Development mission area agencies.
The following policies are not addressed in this proposed rule but
will be addressed in separate rulemakings:
1. Designation of Disaster Areas--The designation of disaster areas
will be moved from subpart A of 7 CFR 1945 to 7 CFR 791.
2. Offset of Federal payments--The policies pertaining to the
offset of Federal payments for application to outstanding Farm Loan
Programs debts contained in subpart C of 7 CFR 1951 will be
consolidated with 7 CFR 792.
3. Environmental Policies--The environmental policies contained in
subpart G of 7 CFR 1940 will be consolidated with 7 CFR 799. This
proposed rule makes reference to part 799. If part 799 is not amended
prior to the rule finalizing this proposed rule, the Agency will
continue to use part 1940, subpart G.
4. Debt Settlement Policies--The debt settlement policies contained
in subpart B of 7 CFR 1956 will be consolidated with 7 CFR 792. This
proposed rule makes reference to part 792. If part 792 is not amended
prior to the rule finalizing this proposed rule, the Agency will
continue to use part 1956, subpart B.
Consolidation and Reorganization
The Farm Loan Programs direct loan making and servicing rules are
currently in numerous parts of Chapter XVIII, making their use
difficult to all but the most well-informed user. The Agency proposes
to consolidate and reorganize these rules in an orderly and logical
manner. Part 761 of Chapter VII is entitled General Program
Administration and contains the rules that, in general, apply either to
both guaranteed and direct loans, or to both direct loan making and
direct loan servicing. Part 762, which contains regulations pertaining
to the Guaranteed Loan Program, was published as a final rule on
February 12, 1999 (64 FR 7358-7403). Part 763 is reserved for future
use. Part 764 is entitled Direct Loan Making and consists of the
regulations governing the origination of direct loans. Part 765,
Regular Servicing, contains the regulations related to servicing for
direct loans. Regulation policies for distressed and delinquent
borrowers with direct loans are contained in part 766, Special
Servicing. Part 767 is entitled Inventory Property Management and
contains regulations pertaining to security property that is abandoned
by the borrower or acquired by the Agency. Parts 768 and 769 are
reserved for future use. The table shown below illustrates how the
existing CFR parts will be consolidated within the proposed parts:
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Existing CFR subparts from
Proposed CFR parts which FSA provisions will be
consolidated
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7 CFR 761--General..................... 7 CFR 1806-A, 1806-B, 1901-A,
1901-F, 1902-A, 1924-A, 1924-
B, 1940-Q.
764--Direct Loan Making................ 7 CFR 1910-A, 1927-B, 1941-A,
1941-B, 1943-A, 1943-B, 1945-
D.
765--Direct Loan Servicing--Regular.... 7 CFR 1925-A, 1950-C, 1951-A,
1951-D, 1951-F, 1951-J, 1962-
A, 1965-A.
766--Direct Loan Servicing--Special.... 7 CFR 1951-L, 1951-S, 1951-T,
1962-A.
767--Inventory Property Management..... 7 CFR 1955-A, 1955-B, 1955-C.
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By reorganizing the loan making and servicing rules in this manner,
the general public, including loan applicants and borrowers, and the
Agency can more easily find needed information. In addition, this
structure helps to eliminate redundancies and, thereby, avoid
inconsistencies. The proposed rule references rather than repeats other
parts of the chapter, thereby, making it easier to incorporate future
policy changes.
Removal of Internal and Administrative Procedures
The existing regulations often describe in detail the Agency's
internal and administrative procedures for implementing Farm Loan
Programs. This approach not only contributes to a lengthy body of
regulations, but also creates a barrier to quickly improving procedures
which have no impact on loan applicants and borrowers. The Agency has
to use the rulemaking process to modify procedures, thereby, adding
time and expense to prepare and implement such changes. In contrast to
the current regulations, the proposed rule focuses on Agency policies
impacting loan applicants and borrowers. The Agency is moving the
administrative procedures to a series of new handbooks which will
parallel the topics in this proposed rule and will be issued
simultaneously with the final rule.
Streamlining of Program Requirements
While consolidating the loan making and servicing regulation parts,
the Agency also is streamlining its Farm Loan Programs policies. With
the aid of working groups of both Headquarters and Field staff, the
Agency is proposing policy changes consistent with the existing
statutory authority. The Agency also proposes to clarify certain
regulations that have multiple interpretations, amend others that have
led to unintended consequences, and revise policies to reduce burdens
on loan applicants and borrowers. In
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addition, the proposed rule initiates action toward achieving
recommendation number 56 of the USDA Civil Rights Action Team Report
dated August 1997, which mandated that agencies ``streamline program
regulations and application forms to make USDA programs easily
accessible to all customers.'' The substantive changes are discussed in
this preamble by regulation section.
Removal of Obsolete Parts
As a result of the 1994 Act, some of the CFR subparts published by
FmHA continue to be used by FSA and one or more of the Rural
Development mission area agencies, while others are used exclusively by
FSA. When the final rule for this proposed rule is published, FSA will
remove the subparts which are used only by FSA. The following subparts
will be removed in the final rule: 1910-A, 1924-B, 1941-A, 1941-B,
1943-A, 1943-B, 1951-J, 1951-L, 1951-S, 1951-T, and 1965-A.
National Performance Review Objectives
Under the National Performance Review initiative, Federal agencies
were charged with ``creating a government that works better and costs
less.'' Federal agencies were commissioned to focus on results rather
than procedures, empower employees, put customers first, and cut red
tape. The proposed rule responds to this challenge by eliminating
unnecessary procedural or internal requirements, clarifying regulations
with multiple interpretations, and adding flexibility to allow
employees to address each customer's unique needs.
Farm Security and Rural Investment Act of 2002
The proposed rule contains all the provisions from the Farm
Security and Rural Investment Act of 2002 applicable to Farm Loan
Programs. Those provisions were published in the proposed rule of April
9, 2003, (68 FR 17316-17320), entitled ``2002 Farm Bill Regulations--
Loan Eligibility Provisions,'' and the final rule of February 18, 2003,
(68 FR 7693-7701), entitled ``2002 Farm Bill Regulations--General
Credit Provisions.''
Part 761--General Program Administration
Abbreviations and Definitions (Section 761.2)
The Agency proposes to move all abbreviations and definitions
applicable to Farm Loan Programs to this section. By including all
abbreviations and definitions in a single section of the CFR, the
Agency will eliminate the need for the general public to search
multiple CFR subparts and parts to determine if and where a term is
defined. Other CFR parts applicable to Farm Loan Programs will refer
the reader to this section for an explanation or definition of an
abbreviation or term.
The Agency proposes to replace the term ``nonfarm enterprise'' with
the term ``non-eligible enterprise.'' Existing direct loan making
regulations identify authorized purposes for which loan funds may be
used. While the Agency defines the term nonfarm enterprise, the
regulations do not clearly state that loan funds may not be used to
finance nonfarm enterprises, nor do they identify purposes for which
loan funds may not be used. The proposed rule defines the term non-
eligible enterprise and clearly states that loan funds may not be used
to finance a non-eligible enterprise. In addition, the term non-farm
enterprise has resulted in confusion as several of the enterprises
listed in the definition are farm or agriculture related, but are
simply not an authorized loan purpose. The Agency believes the term
non-eligible enterprise more accurately reflects that enterprises
identified in the definition may not be financed with Agency loans
funds. Furthermore, the Agency proposes to modify the definition by
categorizing the examples under the production of exotic or non-farm
animals; production of non-farm goods or services; or processing of
farm products.
The Agency also proposes to modify the definition of ``family
farm.'' The definition contained in the existing regulation provides
broad guidelines for determining if a farming operation is a family
farm; however, this has resulted in inconsistencies in applying the
definition on a nationwide basis. The proposed definition establishes
that the typical year gross income of the operation cannot exceed at
the greater of $750,000 in annual sales or the 95 percentile of farms
in the state with sales in excess of $10,000, based on the most
recently published farm data and survey of farm economic factors
published by the National Agricultural Statistics Service, USDA. This
calculation will be available in each Agency Office. Consideration of
the typical year annual gross farm income of the particular state
involved will allow for necessary regional differences in what is
considered a ``family farm'' but is based on objective, quantifiable
criteria. The $10,000 gross sales threshold is consistent with
treatment of farms with gross sales of less than $10,000 as hobby farms
by the Economic Research Service, USDA. The definition also will be
clarified to state that daily operational and management decisions must
be made and substantial labor must be provided by the applicant or
borrower and persons related to the applicant or borrower by blood or
marriage. ``Related by blood or marriage'' will be defined as connected
to one another as husband, wife, parent, child, brother, or sister. The
current definition of family farm refers to the applicant or borrower
and ``family members'' of the applicant or borrower. The Agency
anticipates that these proposed objective criteria will result in
consistent, equitable, and sound loan making decisions across states.
In the existing regulations, the Agency utilizes the term ``farm or
ranch.'' While this wording takes regional terminology into
consideration, the Agency believes it is unnecessary. In the proposed
rule, the Agency uses only the term ``farm.'' The definition of
``farm'' clearly includes ``farm'' or ``ranch'' as appropriate.
The Agency also proposes to add definitions for the following
terms: basic part of an applicant's total farming operation, chattel or
real estate essential to the farming operation, crop allotment or
quota, debt service margin, essential family household expenses,
established farmer, false information, farm income, Farm Programs
payments, foreclosed, foreclosure sale, good faith, household contents,
joint financing arrangement, production cycle, and working capital.
Planning and Performing Construction and Other Development (Sec.
761.10)
The proposed regulations would give loan applicants more
responsibility and flexibility in planning and completing construction
and development projects. For example, applicants would have more
freedom in choosing appropriate construction and repair design
standards. The existing regulations require applicants to select from
design standards that have been adopted by the Agency, including
methods described in the FmHA Manual of Acceptable Practices. To ensure
that Agency-financed projects have architectural and engineering
integrity, the revised regulations would require that the design
standard ``meet or exceed any applicable local or state laws,
ordinances, codes, and regulations, including building, plumbing,
mechanical, electrical, water, and waste management'' (proposed section
761.10(d)(3)). Moreover, the revised rules would allow the Agency to
request additional technical data, tests, or engineering evaluation, or
to reject proposals that do not conform with industry-accepted
construction practices and standards.
[[Page 6060]]
The revised regulations also would increase the applicant's
responsibility and flexibility in preparing construction and
development plans, while decreasing the Agency's role in this task. For
example, currently the Agency must visit the development site with the
applicant to identify and agree upon the necessary items of
development, as well as the dates by which construction will be started
and completed. Under the revised regulations, the applicant would
propose the scope and schedule of the development, and the Agency would
visit the site while evaluating the proposal. In addition, the Agency
would no longer be required to advise the applicant of ``publications,
plans, planning aids, engineering data, and other technical advice and
assistance available though local, state, and Federal agencies, and
private individuals and organizations'' (7 CFR 1924.5(f)(2)(v)). While
the Agency would continue to be available to advise applicants, the
Agency believes that most applicants, as assisted when necessary by
engineers, architects, other professionals, and state and local
officials, can assemble acceptable development plans. In addition, the
Agency would oversee development plans through the review process.
The proposed regulations would eliminate the Agency's
responsibility to verify the architectural and engineering proficiency
of proposed projects. Under current regulations, the Agency reviews a
construction and development plan, drawings, and specifications to
determine the technical soundness of proposed developments. In
addition, the Agency must offer suggestions to the applicant, when
appropriate, on how the drawings and specifications might be altered
and assist the applicant in revising the drawings. Under the proposal,
the Agency could ensure the soundness of proposals by requiring the
applicant to provide written certification by a licensed architect,
professional engineer, or other specified professionals that the
``final drawings and specifications conform with the applicable
development standard.'' Thus, the applicant and professionals hired by
the applicant would be responsible for the technical soundness of the
proposal, not the Agency. The Agency is proposing this policy change
because it lacks the engineering and architectural staff and expertise
necessary to adequately review the wide variety of construction and
development plans financed with Agency funds. This change also will
give the applicant greater control over the project schedule. While the
need for a professional certification may increase project costs, these
costs can be covered as part of the Agency loan for the project.
Under both the existing and proposed regulations, an applicant is
responsible for seeking bids and selecting contractors. The proposed
rule, however, would limit the Agency's responsibilities in this
process. For example, the existing rules allow the Agency to request
further negotiations between the applicant and the proposed contractor
when the Agency determines that the proposed contractor's price is too
high or is otherwise unreasonable. In addition, the Agency may request
the applicant to obtain competitive bids if the applicant is unable to
negotiate a reasonable price or if the Agency considers the contractor
to be unqualified. Furthermore, under the existing rules, the applicant
reviews competitive bids with the Agency's assistance and must select
the lowest responsible bidder (7 CFR 1924.6(a)(10)(iv)). The Agency is
proposing to eliminate its role in contractor selection to give
applicants additional discretion and responsibility and will only
require the applicant to provide an estimate of the total cash cost for
all planned development prior to loan closing. The Agency believes that
applicants generally have adequate incentives and information to select
qualified and reasonably priced contractors.
The existing regulations require the Agency to inspect developments
``as frequently as necessary to assure that construction and land
development conforms to the drawings and specifications'' (7 CFR
1924.9(b)). At a minimum, the Agency must make final inspections of all
projects. In many cases, additional inspections are required at certain
stages of construction. Agency inspections would not be mandatory under
the proposed regulations. Instead, the Agency would ``inspect
development work periodically, as appropriate to protect the
government's security interest'' (proposed Section 761.10(f)(1)). The
proposal also would make the applicant responsible for inspecting
development work as necessary to protect the applicant's interest. In
addition, to protect the Government and applicant's interests, the
proposal would require the applicant to obtain all lien waivers before
the Agency would issue final payment and would allow the Agency to
require a surety bond for construction contracts.
The Agency is proposing to streamline the inspection requirements
and increase the responsibility of applicants largely because the
Agency staff does not have architectural and engineering expertise.
Thus, the Agency cannot assure that projects conform to drawings and
specifications or assure the adequacy of actual construction and
development work. The Agency would increase the applicant's
responsibility to obtain adequate inspections, such as those by State
or local code inspectors or inspection services. These professional
inspections would protect both the applicant and the Government's
interests. Less Agency involvement in the inspection process may help
to expedite project completion by giving the applicant more flexibility
in scheduling inspections. This regulatory change may increase project
costs for some applicants who obtain professional inspections, instead
of relying on the Agency's inspections. However, these costs can be
covered by the Agency loan for the development project.
Part 762--Guaranteed Farm Loans
The guaranteed loan regulations were published as a final rule on
February 12, 1999. In this rule, changes made to part 762 are only
those necessary to correct references to CFR parts or subparts that are
being revised or replaced, or to remove regulatory text which will now
be addressed in part 761.
Part 764--Direct Loan Making
Application Requirements (Section 764.51)
The Agency proposes to reduce the amount of historical
documentation required to process loan requests. Currently, the Agency
requires 5 years of financial and production documentation, while the
traditional commercial lending standard is 3 years. While some
additional requirements may be justified because of the additional risk
inherent in a direct loan to an applicant who is unable to obtain
commercial credit, the Agency does not believe the additional 2 years
of data significantly improves the quality of loan making decisions;
therefore, a 3-year data requirement is proposed for financial and
production documentation.
The proposed rule clarifies that payment of the applicable credit
report fee is required from the loan applicant for the application to
be considered complete. The Agency is only responsible for obtaining
the credit report after the fee has been paid. Existing regulation,
published in 7 CFR 1910.4, pertaining to a complete loan application
lists the credit report under the heading ``FSA Responsibilities for a
[[Page 6061]]
Complete Application''; however, regulations published in 7 CFR 1910.51
clearly provide that ``a non-refundable fee will be charged to the
applicant'' for ordering a credit report. This has resulted in
confusion in determining the loan applicant's responsibilities
regarding a complete application and will be revised accordingly.
The proposed rule also would authorize the Agency to collect
additional information from an applicant that the Agency deems
necessary to make a decision on the applicant's request. This provision
would apply to all loan applicants. The additional information might
include divorce or separation decrees, documentation regarding child
support payments, or any other information necessary to evaluate the
loan request. Business loans, including direct farm loans, require an
assessment of each applicant's request, and there are no one-size-fits-
all templates. Agency staff feels constrained by the existing
regulations since the regulations do not allow the Agency to identify
specific information needed for each application. Rather than attempt
to identify every possible piece of information that could ever be
needed and then require every applicant to provide that information,
thereby increasing the burden on all applicants, the Agency proposes to
allow specific information to be requested as deemed necessary.
Applicant Eligibility (Section 764.101)
The proposed rule will also set consistent rules for acceptable
composition of entity applicants. Under the existing rules, an entity
applicant for an emergency loan must meet the same requirements as
applicants for other direct loans, except that the applicant may not be
an estate or trust, or a corporation, partnership, or joint operation
with over 50 percent of the ownership held by an estate, trust, another
corporation, another partnership, or another joint operation. The
proposed rule would extend this requirement to entity applicants for
all direct loans. The Agency does not foresee that this change would
have any significant impact on applicants, but it would ease program
implementation by applying the same requirements across all direct loan
programs.
An eligibility requirement has been added to require that the
applicant, and all entity members in the case of an entity applicant,
not own real estate subject to a Federal judgment lien. This change is
made to comply with 28 U.S.C. 3201(e). This statutory provision, in
part, prohibits debtors with Federal judgment liens on their property
from receiving any loan made or guaranteed by the United States or
receiving funds directly from the Federal Government in any program,
except funds to which the debtor is entitled as beneficiary. The
prohibition remains until the judgment is paid in full or otherwise
satisfied.
General Limitations (Section 764.102)
The proposed rule will add the limitation for all Farm Loan
Programs direct loans that the tracts to be farmed must be contiguous
or the distance between the tracts will not prevent an efficient
farming operation. This is a current loan limitation for farm ownership
loans and should be applied consistently across loan programs.
The Agency also proposes to add the clarification that loan funds
may not be used to establish or support a non-eligible enterprise, even
if the non-eligible enterprise contributes to the farm. The term ``non-
eligible enterprise'' will be substituted for the current term ``non-
farm enterprise''.
The proposed rule also would specify that loan funds are to be used
for farming operations located in the United States, in accordance with
the Consolidated Farm and Rural Development Act (Act). Sections 302 and
311 of the Act, in part, limit farm ownership and operating loans,
respectively, to farmers ``in the United States'' who are United States
citizens and to farm entities ``engaged primarily and directly in
farming or ranching in the United States'' whose majority interest is
held by United States citizens. Section 321 of the Act similarly limits
emergency loans, in part, to established farmers who are citizens of
the United States and farm entities in which a majority interest is
held by United States citizens where the applicants' farm operations
``have been substantially affected by a natural disaster in the United
States.''
The existing regulations contain eligibility requirements that an
applicant be a United States citizen, or lawfully admitted alien and
for entity applicants that the operation must ``be controlled by
farmers or ranchers engaged primarily and directly farming in the
United States.'' The Agency will add in the proposed rule a limitation
that loan funds only be used for farm operations in the United States.
Choice of Security (Section 764.103)
Sometimes an applicant has more assets available than are needed to
satisfy the Agency's security requirements. The existing regulations
have been construed by some to allow the applicant to choose which
assets would secure the Agency's loan. The proposed rule clarifies that
the Agency has the authority and responsibility to choose the best
security available when there are several options. However, under the
proposal, the Agency may honor an applicant's preference that certain
assets be taken as security over others provided that the quality and
value of the Agency's security position would not be compromised.
Agency Lien on Non-Essential Assets (Section 764.103)
Non-essential assets are those assets that are not essential to the
farming operation and do not contribute net income to pay family living
expenses. The Agency prefers that an applicant sell non-essential
assets and reduce the amount of the loan request. However, there are
circumstances when an applicant cannot or will not convert non-
essential assets to cash.
Existing regulations require that the Agency take a lien on all
non-essential assets with an aggregate value exceeding $5,000 as
security only for emergency loans. The proposed rule would extend this
requirement to all direct loans for consistency and would change the
value of the non-essential assets from an ``aggregate value exceeding
$5,000'' to an individual value for each non-essential asset in excess
of $5,000. As under the existing regulations, the lien on non-essential
assets would be taken in addition to the lien on assets obtained to
meet the adequate or additional security requirements. These changes
provide consistency between loan programs and ensure that the Agency
does not invest an inordinate amount of time obtaining a lien on assets
of minimal value.
Farm Ownership Loan Program (FO) (Subpart D)
The proposed regulations would clarify the benefits of a joint
financing arrangement for FO loans. A joint financing agreement is an
arrangement between two or more lenders that make separate loans
simultaneously to supply the funds required by one applicant.
Currently, the regulations describe the joint financing agreement but
do not clearly state that a lower interest rate will apply. The
proposed rule states that the joint financing agreement allows the
Agency to establish a ``more favorable interest rate. This interest
rate would be at least 4 percent annually.''
Operating Loan Program (OL) (Subpart F)
The OL loan eligibility requirement that the applicant and any
persons signing the promissory note may not
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close an OL loan in more than seven calendar years will be modified to
apply only after December 31, 2002. This change is required by section
255 of the Agricultural Risk Protection Act of 2000, Pub. L. 106-224,
enacted on June 20, 2000.
The Agency proposes to clarify its policy regarding the difference
between the acceptable use of OL and FO funds. Prior to March 3, 1997,
(62 FR 9351-9359) the authorized uses for direct OL funds included
``not more than $15,000 in a fiscal year for real estate improvements
or repairs.'' The current regulation provides, in part, that OL funds
may be used for paying costs associated with reorganizing a farm or
ranch to improve its profitability; purchasing farm or ranch equipment;
paying annual operating expenses; and paying farm, ranch or home needs.
Under this language, the Agency permits OL funds to be used for real
estate improvements or repairs, but the lack of specific guidelines has
resulted in confusion regarding the intent of the regulation.
The proposed rule provides that OL funds can be used for minor
repairs and improvements to buildings, provided the costs do not exceed
$15,000 per year. More substantial repairs and improvements would have
to be made under a FO loan. This policy is consistent with the
statutory loan purposes of OL loans in section 312 of the Act.
The Agency proposes to remove the requirement of a nonsupervised
bank account for farm or home needs (7 CFR 1941.16) for OL applicants.
Prior to the Federal Agriculture Improvement and Reform Act of 1996
(Pub. L. 104-127) (1996 Act), the Act provided that the Agency ``shall
reserve not more than 10 percent of any loan made under this title or
$5,000 of such loan, whichever is less, to be placed in a nonsupervised
bank account which may be used at the discretion of the applicant for
necessary family living needs * * *.'' The 1996 Act amended section 312
of the Act to provide that the Agency ``may reserve a portion of any
loan * * *.'' While the amended language maintained the maximum limit
of 10 percent of the loan amount or $5,000, it provides the Agency with
some flexibility in implementation. The payment of expenses for family
subsistence is an authorized use of loan funds and in many cases, loan
funds are provided directly to the applicant to use as specified in the
operating plan agreed to by both the applicant and the Agency without
the need of a nonsupervised bank account. The proposed rule only
requires the use of a supervised bank account when ``special
supervision is needed.'' This is consistent with the Agency's policy of
reducing the use of supervised bank accounts. Therefore, the Agency has
determined that it is no longer necessary to require the use of a
``nonsupervised bank account'' in its regulations.
Youth Loan Program (Subpart G)
The Agency proposes to modify the Youth Loan Program regulations in
order to make the program easier to use and more accessible. The Youth
Loan Program is part of the direct OL and currently has the same
regulatory requirements as other OL loans. The Agency proposes to
establish a separate subpart for youth loan regulations and streamline
the processing of Youth loans.
The Agency makes small loans, up to a maximum of $5,000, to youths
(age 10-21) who likely have no credit background, or at least, have
less credit history than the typical adult applicant. The risk of loss
to the Agency is low due to the small loan balance. Additionally, some
of the information that is routinely required to process loans is
generally not available. Therefore, under the proposed rule, the Agency
may waive certain application requirements that will not be applicable
based on the applicant's age. The Agency is soliciting comments on
lowering the youth applicant's age limit to 8 years of age to coincide
with the age limitation in participating in 4-H clubs. The Agency will
evaluate all comments received on this issue and adopt the age limit
suggested on most comments.
The proposed rule also would emphasize the Agency's intention that
Youth loans support agriculture-related, educational projects. The
existing regulations state that the objective of the Youth Loan Program
is to provide credit for rural youths to establish and operate modest,
income-producing projects in connection with 4-H clubs, FFA, and
similar organizations. This provision has been interpreted to allow
Youth loans for projects that are not significantly related to
agriculture, therefore, a provision on authorized Youth loan users will
be added.
The existing definition of ``rural youth'' limits the Youth Loan
Program to a youth who ``does not reside in any city or town with a
population of more than 10,000 inhabitants.'' As part of the Agency's
effort to make the Youth Loan Program more accessible, the proposed
rule would extend the program to applicants who reside in a rural area,
or city or town with a population of 50,000 or fewer people. The Youth
Loan Program provides a valuable, educational opportunity for youth to
experience farming. By providing supervised loan funds for agriculture-
related projects to a larger pool of youth, the Agency hopes to
increase the number of motivated, educated farmers in the future.
The existing security requirements are the same for a Youth loan
and an OL loan. Under the existing regulations, additional security up
to 150 percent of the loan amount is required if it is available. In
the case of a term OL loan, the existing regulations require security
with a value that will remain relatively constant over time that is
equal to 100 percent of the loan amount. Youth loan applicants
generally do not have available security beyond what is purchased or
produced with loan funds. The proposed rule would require the Youth
loan be secured by only the asset being purchased or produced with the
loan funds, unless it is impractical to separately identify the asset
from the applicant's other assets or the adequate security requirement
has not been met. This provision would eliminate the requirement for
additional security in the case of youth loans.
Emergency Loan Program (EM) (Subpart H)
The Agency published a final rule to streamline the EM loan program
on January 8, 2002, in 67 FR 791-801. This proposed rule adopts the
changes addressed in the discussion of the January 8, 2002, rule.
Therefore, while the Agency will accept comments regarding the EM loan
program, discussion of the changes is not included in this rule.
Loan Decision and Closing (Subpart I)
The Agency proposes to clarify the actions to be taken when an
adverse loan decision is overturned on appeal. Loan approval is not
automatic after an Agency loan denial is overturned. The Agency must
reevaluate the request based on the findings of the appeal hearing
officer and take the next step toward processing the loan application.
Current regulations do not specify the process that occurs after a loan
denial is overturned. To avoid confusion, the proposed rule states that
the Agency will consider the following prior to loan approval: (1)
Satisfactory review of current financial information and determination
of whether changes in the applicant's financial and agricultural
conditions will adversely affect the applicant's operation; (2)
determination that the applicant will be able to produce a crop in the
production cycle for which the loan is requested (specifically for crop
production loans);
[[Page 6063]]
and (3) determination that the applicant's operating plan, as modified
based on the appeal decision, reflects a feasible plan. The Agency
expects that this clarification would create a more efficient and
consistent decision process for both the Agency and applicants.
The proposed rule states that the Agency will not approve a loan
unless the applicant demonstrates an ability to satisfy its total
credit needs. For example, an applicant for a FO loan must demonstrate
an ability to obtain any additional credit necessary to operate the
farm. This proposed change recognizes that the Agency's loan may be
only a part of the applicant's financial needs. It would help ensure
that the Agency makes loans only to applicants who have viable
operations and are not undue credit risks.
Borrower Training (Subpart J)
Under the existing regulations, the Agency must evaluate the need
for production and financial management training when considering a
request for a loan or primary loan servicing. Additionally, the Agency
cannot require applicants ``who have previously received a waiver, or
who have previously satisfied the training requirements'' to complete
training (7 CFR 1924.74(b)(2)). Under the proposed regulations, the
Agency is eliminating the requirement to assess the need for training
when a borrower requests primary loan servicing. The Agency believes
that borrower training, if needed, is most helpful early in the loan
process. It is of little or no benefit to a borrower who is already
delinquent or in non-monetary default. The Agency, however, would be
able to require direct loan applicants who have previously received a
waiver or satisfied training requirements to complete training when:
(1) The proposed loan is to finance a new enterprise for which the
applicant has not had production training or (2) information contained
in the loan assessment or obtained from year-end analyses, farm visits,
or the borrower's case file indicates that additional production or
financial management training is needed. This early detection of the
need for additional training will help borrowers become successful and
hopefully avoid later delinquencies.
Part 765-- Direct Loan Servicing--Regular
Increasing Limited Resource Interest Rates (Subpart B)
Section 1951.25 of 7 CFR 1951 provides ``the interest rate may not
be changed more often than quarterly.'' This limitation is eliminated
in this proposed rule. The Agency instead will review borrowers with
limited resource rates annually; however, the Agency may process a
change in interest rate at any time it becomes aware of a change in the
borrower's circumstances. This change will reduce unnecessary
administrative burden and provide for annual limited resource rate
reviews consistent with the annual process for developing farm
operating plans.
Borrower Payments (Subpart D)
The existing regulations are written in a manner that allows
inconsistencies in applying payments to the borrower's Agency loans.
The proposed rule clarifies that payments will be applied in the
following order:
(1) Annual operating loans;
(2) Delinquent FLP installments, paying least-secured loans first;
(3) Non-delinquent FLP installments due in the current operating
cycle in order of security priority, paying least-secured loans first;
and
(4) Any future FLP installments due.
The Agency believes these changes will assure that regular payments
are applied to protect the Agency's security interest and preserve the
financial viability of the borrower's operation.
Protective Advances (Section 765.203)
The existing regulations allow the Agency to make protective
advances when necessary to protect its interest in security property.
The regulations also provide that protective advances will be added to
the outstanding principal when a loan is rescheduled or reamortized,
except for advances to pay prior or junior liens other than real estate
tax liens. This policy reduces the incentive for borrowers to pay costs
such as real estate taxes. Under the proposed rule, the Agency would
continue to make protective advances when necessary; however, the
Agency will consider the payment of protective advances for reasons not
beyond the borrower's control when determining eligibility for future
loan and servicing requests. One general loan eligibility requirement
is that the applicant will honestly endeavor to carry out the
conditions of the loan. Another general loan servicing eligibility
requirement is that the borrower has acted in good faith in accordance
with borrower loan agreements.
Subordination of Chattel Security (Section 765.205)
Existing regulations published in Sec. 1962.30 of 7 CFR 1962 allow
for only one subordination to be outstanding ``at any one time in
connection with the same security.'' Under the proposed rule, the
Agency will consider a second subordination of chattel security to
enable the borrower to obtain crop insurance when (1) the creditor with
the first subordination did not provide for the payment of crop
insurance and consents in writing to pay insurance premiums from crops
or insurance proceeds, and (2) the borrower assigns insurance proceeds
to the Agency or names the Agency in the loss payable clause of the
policy. In some areas, banks typically do not lend additional money for
the borrower to obtain crop insurance. In those cases, a second
subordination is needed for the secured debt on an insurance provider.
In addition, crop insurance may not yet be available or has not been
chosen when the borrower obtains the loan requiring the first
subordination of the Agency's chattel security. The proposed change
would allow for second subordinations in these cases. The same
requirements for initial subordinations also will apply to these second
subordinations.
Unapproved Disposition of Chattel Security (Section 765.304)
A borrower cannot dispose of chattel security in a manner that is
inconsistent with the borrower's agreement with the Agency. Under
current regulations, when an unauthorized disposition occurs, the
borrower must make restitution by paying the Agency the market value of
the security, or replacing the security with property of equal or
greater value. In addition, the borrower may submit information to
allow the Agency to consider post-approval of the disposition, provided
the funds were used in accordance with Agency regulations. However, the
regulation provides that only one post-approval may be granted during
the period covered by the agreement. If the borrower fails to make
restitution, provide information to allow for post-approval, or commits
a second transgression, the Agency may pursue civil or criminal action,
or both. The proposed rule continues to allow the borrower to make
restitution or submit information for post-approval; however, the
requirement establishing a limit of one transgression per period of the
agreement has been eliminated. The Agency believes that one warning is
adequate. The proposed rule provides that subsequent violations of the
agreement and uncured first violations will be considered when
determining eligibility for future loan or servicing assistance. One
general loan eligibility requirement is that the applicant will
honestly endeavor to carry out the conditions of the loan. One general
loan
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servicing eligibility requirement is that the borrower has acted in
good faith in accordance with borrower loan agreements.
Disposing of a Portion of Real Estate Security (Subpart H)
When the borrower proposes to sell, exchange, or otherwise dispose
of a portion of real estate security, the existing regulations require
that the portion of real estate security to be disposed of be appraised
whenever one of several conditions are met. One of these conditions is
that the estimated value of the portion of real estate security
proposed for disposition exceeds $10,000. The Agency implemented this
requirement to ensure that the borrower obtains fair market value for
the real estate security, and that in turn, the Agency's security
interest is protected. In cases where an appraisal is not required, the
Agency estimates the value of the real estate based on current real
estate values for the area in which the property is located. The
proposed rule would increase the maximum from an estimated value of
$10,000 to $25,000, but as with the existing regulations, provide the
Agency discretion, when in its best interest, to obtain an appraisal
when the estimated value is below this limit. The Agency proposes
modifying this requirement because the cost to the Agency of conducting
an appraisal for portions of properties with a value of $10,000 to
$25,000 often exceeds the benefit of the appraisal. In addition, the
proposed rule would require an appraisal of the remaining real estate
security only when the Agency believes the value of the remaining real
estate is diminished by an amount greater than the market value of the
property proposed for disposition. These modifications would reduce the
administrative burden associated with handling borrower requests for
disposition of real estate security. It would also expedite the Agency
approval process for the disposition of real estate security by
borrowers. These benefits outweigh any risk to the Agency from not
appraising all remaining real estate security.
In addition, the Agency proposes to modify the regulations
pertaining to the use of proceeds received from the sale of real estate
security. Section 1965.13(e)(4)(iii) of 7 CFR allows the borrower to
use up to $10,000 to develop land not owned by the borrower. The Agency
has eliminated this option as an authorized use of proceeds in the
proposed rule. The Agency does not believe it is prudent to release
proceeds from the sale of its loan security to develop land on which it
does not have a lien.
Non-Program Loan Terms (Section 765.404)
The Agency proposes to extend the term for Non-Program loans when
an ineligible applicant assumes an outstanding debt or purchases
inventory property. The existing regulations allow the Agency to
schedule repayment over 15 years. The Agency proposes to base the term
on the applicant's repayment ability, with maximum term of 25 years.
This modification will allow the Agency greater flexibility to resolve
delinquent accounts through assumption of the indebtedness and when
selling inventory property.
Part 766 Direct Loan Servicing--Special
Notification of the Availability of Loan Servicing (Section 766.101)
Section 331D of the Act establishes requirements regarding when the
Agency must notify a borrower of the availability of loan servicing and
mandates that the initial notice be ``contained in the regulations
implementing this title.'' The Agency published a proposed rule (53 FR
18392-18523) announcing regulations implementing section 331D on May
23, 1988. An interim rule (53 FR 35639-35798) was published on
September 14, 1988. In both rules, the Agency published the initial
loan servicing notification, as well as all subsequent notices
associated with the loan servicing process. The Agency chose to publish
notices beyond those mandated in the Act for several reasons. First,
the Agricultural Credit Act of 1987 provided for substantial changes to
the Agency's loan servicing policies. Second, at the time the proposed
rule was published, a significant portion of the Agency's direct loan
borrowers were delinquent or in some other form of loan default.
Incorporating the loan servicing notices in the regulation has resulted
in the need for the Agency to go through the rulemaking process to make
only minor editorial changes in the notices. Therefore, the Agency is
proposing to publish only the initial loan servicing notification in
its regulations as required by the Act. All other loan servicing
notices will be available to the public in any Agency office.
In addition, Sec. 1962.17(a)(2) of 7 CFR requires that a notice of
the availability of loan servicing be provided to the borrower when the
Agency denies a request for the release of proceeds from the sale of
chattel security. This notification is not required under Sec. 331D of
the Act. Section 766.101 of the proposed rule, continues the Agency
policy of notifying financially distressed and delinquent borrowers of
the availability of loan servicing. Therefore, the Agency believes that
the additional notification requirement established in Sec. 1962.17 is
unnecessary and has removed it.
Financial and Production Records (Section 766.102)
As with loan applicants, the Agency proposes to reduce the burden
on borrowers applying for loan servicing by requiring the borrower to
submit only 3 years of historical financial and production
documentation when applying for loan servicing. Currently, the Agency
requires the borrower to submit 5 years of historical financial and
production records. The guaranteed loan program regulations require 3
years of financial and production records. To ensure consistency
between programs and with industry standards, the Agency is proposing
to change the requirement for the direct program to match the
guaranteed program requirements, as well as commercial lenders.
Borrower Eligibility for Loan Servicing (Section 766.104)
Section 353 of the Act requires that to be eligible for loan
restructuring, the delinquency must be ``due to circumstances beyond
the control of the borrower, as defined in regulations issued by the
Secretary.'' The Agency has published the loan servicing eligibility
requirements in subpart S of 7 CFR part 1951. Section 1951.909(c)(1)
lists specific causes of reductions in income ``beyond the control of
the borrower.'' The Agency believes that the existing regulations do
not adequately address all potential circumstances beyond the control
of a borrower. Under the proposed rule, the Agency will expand the
existing language which addresses ``[n]atural disasters, an outbreak of
uncontrollable disease, or uncontrollable insect damage,'' to include
``adverse weather,'' thus clarifying that it is not required that the
farming operation be located in a county designated or declared a
natural disaster. In addition, the Agency will add reduction in income
due to ``damage or destruction of property essential to the operation''
and clarify the list of examples as inexhaustive.
Agency Offer To Restructure a Delinquent Borrower (Section 766.106)
Under existing regulations, when the Agency offers to restructure
the loans of a delinquent borrower, the notification
[[Page 6065]]
includes the right to appeal the Agency offer. If the borrower does not
respond to the Agency's offer, the Agency then provides the borrower
with a ``Notice of Intent to Accelerate.'' This notification also
provides the borrower with appeal rights. Under this rule, the Agency
proposes to consolidate the borrower's appeal rights. The Agency's
offer to restructure will no longer include appeal rights. Instead, if
the borrower does not accept the offer or fails to respond within the
established timeframe, the Agency will immediately provide a ``Notice
of Intent to Accelerate'' which will provide the borrower the
opportunity to appeal either the Agency's offer, notice of intent to
accelerate, or both. Consolidation of the appeal rights will allow for
more timely processing of a borrower's request for loan servicing and
resolution of delinquent accounts.
Deferral Period (Section 766.109)
The existing regulations stipulate that a deferral period will not
exceed 5 annual installments, but are unclear on how the length of a
deferral is determined. As a result, the Agency has often granted
borrowers 5-year deferrals. In the proposed rule, the maximum deferral
term would still be 5 years, but the Agency would grant the shortest
deferral term that would result in a feasible operating plan without
debt writedown. The length of the deferral period affects the interest
accrual and the debt payments after deferral. A longer deferral period
increases the interest accrual and the post-deferral payments. The
shortest deferral period necessary to generate a feasible plan benefits
the borrower by minimizing interest accrual.
Appeal of a Conservation Contract Technical Decision (Section 766.110)
Current regulations are ambiguous regarding the appeal of Natural
Resources Conservation Service's technical decisions on a Conservation
Contract. The proposed rule would clarify how a borrower may appeal the
Natural Resources Conservation Service's technical decisions by stating
that such appeals will be handled in accordance with 7 CFR part 780.
This section also will be amended to consider only the present
market value of the land without any structural improvements in
determining the appropriate amount of debt reduction. This change is
needed to prevent inflated conservation contract values based on
structural improvements that do not have value in promoting
conservation, recreation, or wildlife on the property.
Softwood Timber Loan Program
The Agency proposes to eliminate the Softwood Timber Loan Program
regulations. The Softwood Timber Loan Program allows a borrower to
convert all or a portion of their debt to a Softwood Timber loan. This
conversion allows a borrower who is financially distressed or
delinquent on an Agency direct loan to defer loan payments and generate
income from planting and harvesting softwood timber to make future loan
payments. Since the program's inception in 1983, the Agency has
processed only 35 Softwood Timber loans. The Agency believes the use of
the Softwood Timber program does not justify the costs associated with
maintaining the program. The most significant Agency costs associated
with the Softwood Timber Loan Program include costs for training Agency
staff, monitoring Softwood Timber loans, maintaining automation
programs, and publishing Softwood Timber regulations. It should be
noted that Softwood Timber production is confined to certain limited
areas within the country as a result of the marginal land requirements.
Therefore, many borrowers are not eligible for assistance under this
program.
Homestead Protection eligibility (Section 766.153)
The Agency proposes to add a property eligibility requirement for
homestead protection. Where voluntary conveyance of the property to the
Agency would be required to process homestead protection, the Agency
proposes to take title to the property only if it can obtain a positive
recovery after paying any outstanding liens of other creditors on the
property. This is consistent with the Agency's policy to accept
voluntary conveyances only if it is in the Government's best financial
interest. If homestead protection is not offered prior to foreclosure,
the option is still available after the Agency takes title to the
property.
Homestead Protection lease (Section 766.155)
The proposed rule will clarify that homestead protection leases
will not be less than 3 years and will not exceed 5 years. These
limitations on terms are required by Sec. 352(b)(3) of the Act. The
current regulation does not specify the minimum lease term.
Accelerated Repayment Agreements
The existing regulations allow the Agency to enter into an
accelerated repayment agreement with a borrower when the Agency
considers liquidating an account due to the borrower's failure to
graduate or to use the security as agreed in the operating plan. This
agreement is used in lieu of foreclosure when it is in the Agency's
best financial interest and when the borrower can meet the accelerated
payment schedule. The proposed rule would eliminate accelerated
repayment agreements for borrowers who fail to graduate to other credit
when able to do so. The Agency believes the overall impact of this
change would be minimal as accelerated repayment agreements are rarely
executed. Eliminating accelerated repayment agreements would allow the
Agency to treat all borrowers in non-monetary default more
consistently. The proposed change would encourage qualified borrowers
to graduate promptly and encourage borrowers who are not farming to
cure the default or voluntarily liquidate their security.
Unauthorized Assistance (Subpart F)
The Agency proposes to change its procedures regarding the
resolution of unauthorized assistance cases where a portion of the loan
is unauthorized. Under the current regulations, the Agency splits the
loan into two accounts: one loan account for the authorized portion of
the loan and a second loan account for the unauthorized portion of the
loan. The Agency proposes to eliminate this requirement and by internal
procedure keep one loan account to eliminate the burden on Agency staff
of creating, tracking, and servicing a second loan account. Under the
proposed rule, the Agency will attempt to collect the unauthorized
assistance, or that portion which the borrower is able to pay within 90
days. If the borrower is unable to repay the entire amount of
unauthorized assistance, the Agency may enter into an accelerated
repayment plan with the borrower for such amount if the borrower did
not intentionally provide incomplete or false information and such
action is in the best financial interest of the Government. The debt
under the accelerated repayment plan will be treated as a non-program
(NP) loan with NP interest rate and terms as short as feasible, but not
exceeding the remaining term of the FLP loan. The Agency will not
continue with the borrower at existing rates and terms in any case as
to the unauthorized portion of the debt. This change in policy is
necessary to cure errors resulting in unauthorized assistance
regardless of whether borrower or Agency error is involved. The
unauthorized amount may be the result of a statutory or a regulatory
violation, but in either case it never should have been given to the
borrower. An accelerated repayment
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plan will allow those borrowers who did not intentionally provide
incomplete or false information to the Agency to pay unauthorized
assistance over time. If the borrower is able to repay, but refuses to,
the borrower will receive the primary loan servicing notices for those
in non-monetary default prior to liquidation.
Part 767--Inventory Property Management
Inventory Property Classification
An interim rule published at 62 FR 44393-44404, on August 21, 1997,
implemented provisions of the 1996 Act impacting the management and
sale of inventory property. The revised regulation provided one method
of sale of inventory property, and, thus, eliminated the need to
classify inventory property as suitable or surplus. However, the
interim rule did not eliminate usage of the terms ``suitable'' and
``surplus'' properties elsewhere in the CFR. The proposed rule would
eliminate references to suitable and surplus property as necessary.
Chattel Inventory Property Disposition Methods (Section 767.155)
The current regulations allow the Agency to sell inventory chattel
property through a sealed bid or regular sale. The proposed rule would
eliminate the use of these sale methods and require sale by public
auction. An auction is the most efficient and common venue for selling
chattel property.
The current regulations state that ``[b]eginning farmers or
ranchers obtaining special OL [Operating] loan assistance * * * will
receive priority in the purchase of farm equipment held in government
inventory during the commitment period'' (7 CFR 1955.122(a)). The
proposed rule eliminates this preference as the Agency's statutory
authority for giving special Operating loan assistance was eliminated
by Sec. 616 of the 1996 Act. This change would have a minimal impact on
the Agency, beginning farmers, and the general public because of the
limited amount of chattels the Agency takes into inventory.
Inventory Property With Important Resources, Special Hazard Areas, and
Environmental Risks (Subpart E)
The proposed rule would clarify the Agency's obligations under the
National Environmental Policy Act and other Federal environmental laws.
The current regulations require the Agency to inspect all inventory
property for hazardous waste contamination and report certain
underground storage tanks, but they do not specify when the Agency will
undertake corrective measures. The proposed rule would clarify when the
Agency is responsible for cleaning up hazardous waste contamination and
removing or permanently closing underground storage tanks. It would
clarify that the Agency would undertake corrective measures when: (1)
Any known contamination or underground storage tank leakage presents an
immediate threat to the health and safety of neighboring property
owners or to potential purchasers of the property; and (2) The Agency
is selling the property to a beginning farmer and providing credit
assistance through a direct or guaranteed loan. Moreover, the proposed
rule also states that the Agency would not undertake corrective action
if the property is being sold back to a potentially responsible party.
By more clearly defining the Agency's responsibilities, the proposed
rule would eliminate questions of liability and reduce the Agency's
risk of being responsible for costly cleanups.
List of Subjects
7 CFR Part 761
Administrative practice and procedure, Agriculture, Authority
delegations, Credit, Loan programs--Agriculture.
7 CFR Part 762
Agriculture, Credit, Loan programs--Agriculture.
7 CFR Part 764
Agriculture, Agricultural commodities, Credit, Disaster assistance,
livestock, Loan programs--Agriculture, Mortgages.
7 CFR Part 765
Agriculture, Agricultural Commodities, Credit, Livestock, Loan
programs--Agriculture.
7 CFR Part 766
Agriculture, Agricultural commodities, Credit, Livestock, Loan
programs--Agriculture.
7 CFR Part 767
Agriculture, Credit, Government property, Government property
management, Indians--Loans, Loan Programs--Agriculture.
Accordingly, it is proposed that 7 CFR chapter VII be amended as
follows:
7 CFR Chapter VII
1. Revise part 761 to read as follows:
PART 761--GENERAL PROGRAM ADMINISTRATION
Subpart A--General Provisions
Sec.
761.1 Introduction.
761.2 Abbreviations and definitions.
761.3 Civil rights.
761.4 Conflict of interest.
761.5 Restrictions on lobbying.
761.6 Appeals.
761.7 Appraisals.
761.8 Loan limitations.
761.9 Interest rates for direct loans.
761.10 Planning and performing construction and other development.
761.11-761.50 [Reserved]
Subpart B--Supervised Bank Accounts
761.51 Establishing a supervised bank account.
761.52 Deposits into a supervised bank account.
761.53 Interest bearing accounts.
761.54 Withdrawals from a supervised bank account.
761.55 Closing a supervised bank account.
761.56-761.100 [Reserved]
Subpart C--Supervised Credit
761.101 Applicability of this subpart.
761.102 Borrower recordkeeping, reporting, and supervision.
761.103 Farm assessment.
761.104 Year-end analysis.
761.105-761.200 [Reserved]
Subpart D--Allocation of Farm Loan Programs Funds to State Offices
761.201 Purpose.
761.202 Timing of the allocation of Farm Ownership and Operating
loan funds.
761.203 National reserves for Farm Ownership and Operating loans.
761.204 Methods of allocating funds to State Offices.
761.205 Computing the formula allocation.
761.206 Pooling of unobligated funds that have been allocated to
State Offices.
761.207 Distribution of Farm Ownership and Operating loan funds by
State Offices.
761.208 Target participation rates for socially disadvantaged
groups.
761.209 Reservation of Farm Ownership and Operating loan funds for
beginning farmers.
761.210 Transfer of funds.
761.211-761.250 [Reserved]
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
Subpart A--General Provisions
Sec. 761.1 Introduction.
(a) Parts 761 through 767 describe the Agency's policies for its
Farm Loan Programs. The objective of these programs is to provide
supervised credit and management assistance to eligible farmers to
become owners or operators, or both, of family-sized farms, to continue
such operations when credit is not available elsewhere, or to return to
normal farming operations after
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sustaining substantial losses as a result of a designated or declared
disaster. These regulations apply to loan applicants, borrowers,
lenders, holders, Agency personnel, and other parties involved in
making, guaranteeing, holding, servicing, or liquidating such loans.
(b) This part describes the Agency's general and administrative
policies for its guaranteed and direct Farm Loan Programs. In general,
this part addresses issues that affect both guaranteed and direct loan
programs, or both direct loan making and direct loan servicing.
Sec. 761.2 Abbreviations and definitions.
The following abbreviations and definitions are applicable to the
Farm Loan Programs policies addressed in parts 761 through 767 unless
otherwise noted.
(a) Abbreviations.
ALP Approved Lender Program
CLP Certified Lender Program
DSA Disaster Set-Aside
EE Economic Emergency loan
EM Emergency loan
FLP Farm Loan Programs of the FSA
FO Farm Ownership loan
FSA Farm Service Agency, an Agency of the USDA, including its personnel
and any successor Agency.
Lo-Doc Low-Documentation Operating loan
OGC Office of the General Counsel of the USDA
OL Operating loan
PLP Preferred Lender Program
RHF Rural Housing loan for farm service buildings
RL Recreation loan
SAA Shared Appreciation Agreement
SA Shared Appreciation loan
SEL Standard Eligible Lender
ST Softwood Timber loan
SW Soil and Water loan
USDA United States Department of Agriculture
USPAP Uniform Standards of Professional Appraisal Practice.
(b) Definitions.
Abandoned security property is security property that a borrower is
not occupying, is not in possession of, or has relinquished control of
and has not made arrangements for its care or sale.
Accrued deferred interest is unpaid interest from past due
installments posted to a borrower's loan account.
Act is the Consolidated Farm and Rural Development Act (7 U.S.C.
1921 et seq.).
Active borrower is a borrower who has an outstanding account in the
Agency records, which may include an unsatisfied account balance where
a voluntary conveyance was accepted without the borrower being released
from liability or where liquidation did not satisfy the indebtedness.
Additional security is property which provides security in excess
of the amount of security value equal to the loan amount.
Adequate security is property which is required to provide security
value at least equal to the loan amount.
Adjustment is a form of settlement that reduces the financial
obligation to the Agency, conditioned upon the completion of payment of
a specified amount at a future time. An adjustment is not a final
settlement until all payments have been made under the agreement.
Administrative appraisal review is a review of an appraisal to
determine if the appraisal:
(1) Meets applicable Agency requirements; and
(2) Is accurate outside the requirements of standard 3 of USPAP.
Agency is the FSA.
Agreement for the use of proceeds is an agreement between the
borrower and the Agency that reflects how, when, and to whom the
borrower will sell, exchange, or consume chattel security and the
planned use of any proceeds during a specific production cycle.
Agricultural commodity is livestock, livestock products, grains,
cotton, oilseeds, dry beans, tobacco, peanuts, sugar beets, sugar cane,
fruit, vegetable, forage, tree farming, nursery crops, nuts,
aquacultural species, and other plant and animal production, as
determined by the Agency.
Allonge is an attachment or an addendum to a promissory note.
Allowable costs are those costs for replacement or repair that are
supported by acceptable documentation, including but not limited to
written estimates, invoices, and bills.
Applicant, as used in part 762 of this title, is the lender
requesting the guarantee. Applicant as used in parts 764 through 767 is
the individual or entity applying for a direct loan or direct loan
servicing. Applicant as used in subpart H of part 764 is the individual
or entity (including each member of the entity unless the context
states that it does not apply to each member of the entity) operating
the farm at the time of the disaster, who is requesting assistance from
the Agency. All requirements of individual applicants apply to all
members of the entity individually and collectively unless the context
clearly requires otherwise.
Approval official is a field official who has been delegated
approval authorities within applicable loan programs.
Aquaculture is the husbandry of any aquatic organisms (including
fish, mollusks, crustaceans or other invertebrates, amphibians,
reptiles, or aquatic plants) raised in a controlled or selected
environment of which the applicant has exclusive rights to use.
Assignment of guaranteed portion is a process by which the lender
transfers the right to receive payments or income on a guaranteed loan
to another party, usually in return for payment in the amount of the
loan's guaranteed principal. The lender retains the unguaranteed
portion in its portfolio and receives a fee from the purchaser or
assignee to service the loan and receive and remit payments according
to a written assignment agreement. This assignment can be reassigned or
sold multiple times.
Assignment of indemnity is the transfer of rights to compensation
under an insurance contract.
Assistance is financial assistance in the form of a direct or
guaranteed loan or interest subsidy or servicing action.
Assumption is the act of agreeing to be legally responsible for
another party's indebtedness.
Average farm customer is a conventional farm borrower who is
required to pledge crops, livestock, and other chattel and real estate
security for the loan. This term does not include a high-risk farmer
with limited security and management ability who is generally charged a
higher interest rate by conventional agricultural lenders. Also, this
term does not include a low-risk farm customer who obtains financing on
a secured or unsecured basis, who is able to pledge as collateral for a
loan items such as savings accounts, time deposits, certificates of
deposit, stocks and bonds, and life insurance.
Basic part of an applicant's total farming operation is any single
agricultural commodity or livestock production enterprise of an
applicant's farming operation which normally generates sufficient
income to be considered essential to the success of such farming
operation.
Basic security is all farm machinery, equipment, vehicles,
foundation and breeding livestock herds and flocks, including
replacements, and real estate that serves as security for a loan made
or guaranteed by the Agency.
Beginning farmer is an individual or entity who:
(1) Meets the loan eligibility requirements for a direct or
guaranteed OL or FO loan as applicable;
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(2) For OL's, has not operated a farm for more than 10 years. For
FO's, including Beginning Farmer Downpayment loans, has operated a farm
for more than three years, but not more than 10 years. These
requirements apply to all members of an entity;
(3) Will materially and substantially participate in the operation
of the farm:
(i) In the case of a loan made to an individual, individually or
with the immediate family, material and substantial participation
requires that the individual provide substantial day-to-day labor and
management of the farm, consistent with the practices in the county or
State where the farm is located.
(ii) In the case of a loan made to an entity, all members must
materially and substantially participate in the operation of the farm.
Material and substantial participation requires that the member provide
some amount of the management, or labor and management necessary for
day-to-day activities, such that if the individual did not provide
these inputs, operation of the farm would be seriously impaired;
(4) Agrees to participate in any loan assessment and borrower
training required by Agency regulations;
(5) Except for a direct OL applicant, does not own real farm
property or who, directly or through interests in family farm entities
owns real farm property, the aggregate acreage of which does not exceed
30 percent of the average farm acreage of the farms in the county where
the property is located. If the farm is located in more than one
county, the average farm acreage of the county where the applicant's
residence is located will be used in the calculation. If the
applicant's residence is not located on the farm or if the applicant is
an entity, the average farm acreage of the county where the major
portion of the farm is located will be used. The average county farm
acreage will be determined from the most recent Census of Agriculture;
(6) Demonstrates that the available resources of the applicant and
spouse (if any) are not sufficient to enable the applicant to enter or
continue farming on a viable scale; and
(7) In the case of an entity:
(i) All the members are related by blood or marriage; and
(ii) All the members are beginning farmers.
Beginning Farmer Downpayment loan is a type of FO loan made to
eligible applicants to finance a portion of a real estate purchase
under part 764, subpart E of this chapter.
Borrower (or debtor) is an individual or entity that has an
outstanding obligation to the Agency under any FLP loan, without regard
to whether the loan has been accelerated. A borrower includes all
parties liable for such obligation owed to the Agency, including
collection-only borrowers, except for debtors whose total loans and
accounts have been voluntarily or involuntarily foreclosed, sold, or
conveyed, or who have been discharged of all such obligations owed to
the Agency.
Cancellation is the final discharge or, and release of liability
for, a financial obligation to the Agency on which no settlement amount
has been paid.
Cash flow budget is a projection listing of all anticipated cash
inflows (including all farm income, nonfarm income and all loan
advances) and all cash outflows (including all farm and nonfarm debt
service and other expenses) to be incurred by the borrower during the
period of the budget. Cash flow budgets for guaranteed loans under
$125,000 do not require income and expenses itemized by categories. A
cash flow budget may be completed either for a 12-month period, a
typical production cycle, or the life of the loan, as appropriate. It
may also be prepared with a breakdown of cash inflows and outflows for
each month of the review period and include the expected outstanding
operating credit balance for the end of each month. The latter type is
referred to as a ``monthly cash flow budget.''
Chattel or real estate essential to the farming operation is
chattel or real estate that would be necessary for the applicant to
continue operating the farm after the disaster in a manner similar to
the manner in which the farm was operated immediately prior to the
disaster, as determined by the Agency.
Chattel security is property that may consist of, but is not
limited to: crops; livestock; aquacultural species; farm equipment;
inventory; accounts; contract rights; general intangibles; and supplies
that are covered by financing statements and security agreements,
chattel mortgages, and other security instruments.
Civil action is a court proceeding to protect the Agency's
financial interests. A civil action does not include bankruptcy and
similar proceedings to impound and distribute the bankrupt's assets to
creditors and probate or similar proceedings to settle and distribute
estates of incompetents or of decedents under a will, or otherwise, and
pay claims of creditors.
Closing agent is the attorney or title insurance company selected
by the applicant and approved by the Agency to provide closing services
for the proposed loan or servicing action. Unless a title insurance
company provides loan closing services, the term ``title company'' does
not include ``title insurance company.''
Coastal Barrier Resources Area is an area of land identified as
part of the national Coastal Barrier Resources System under the Coastal
Barrier Resources Act of 1980.
Commercial classified account is an Agency account of such quality
that commercial lenders would likely view the loan as a profitable
investment.
Compromise is the settlement of an Agency debt or claim by a lump-
sum payment of less than the total amount owed in satisfaction of the
debt or claim.
Conditional commitment is the Agency's commitment to a lender that
the material the lender has submitted is approved subject to the
completion of all listed conditions and requirements.
Conservation Contract is a contract under which a borrower agrees
to set aside land for conservation, recreation or wildlife purposes in
exchange for reduction of a portion of an outstanding Agency debt.
Conservation Contract review team is comprised by the appropriate
offices of FSA, the Natural Resources Conservation Service, U.S. Fish
and Wildlife Service, State Fish and Wildlife Agencies, Conservation
Districts, National Park Service, Forest Service, State Historic
Preservation Officer, State Conservation Agencies, State Environmental
Protection Agency, State Natural Resource Agencies, adjacent public
landowner, and any other entity that may have an interest and qualifies
to be a management authority for a proposed conservation contract.
Consolidation is the process of combining the outstanding principal
and interest balance of two or more loans of the same type made for
operating purposes.
Construction is work such as erecting, repairing, remodeling,
relocating, adding to, or salvaging any building or structure, and the
installing, repairing, or adding to heating and electrical systems,
water systems, sewage disposal systems, walks, steps, and driveways.
Controlled is when a director or an employee has more than a 50
percent ownership in an entity or, the director or employee, together
with relatives of the director or employee, have more than a 50 percent
ownership.
Cooperative is an entity that has farming as its purpose, whose
members have agreed to share the profits of the farming enterprise, and
is recognized as a farm cooperative by the laws of the
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state in which the entity will operate a farm.
Corporation is a private domestic corporation created and organized
under the laws of the state in which it will operate a farm.
Cosigner is a party who joins in the execution of a promissory note
to assure its repayment. The cosigner becomes jointly and severally
liable to comply with the terms of the note. In the case of an entity
applicant, the cosigner cannot be a member, partner, joint operator, or
stockholder of the entity.
County is a local administrative subdivision of a State or similar
political subdivision of the United States.
County average yield is the historical average yield for an
agricultural commodity in a particular political subdivision, as
determined or published by a government entity or other recognized
source.
Criminal action is the prosecution by the United States to exact
punishment in the form of fines or imprisonment for alleged violation
of criminal statutes.
Crop allotment or quota is a farm's share of an approved national
tobacco or peanut allotment or quota.
Current market value buyout is the termination of a borrower's loan
obligations to the Agency in exchange for payment of the current
appraised value of the borrower's security property and nonessential
assets, less any prior liens and liquidation costs.
Debt forgiveness is a reduction or termination of a debt under the
Act in a manner that results in a loss to the Agency (excluding a
consolidation, rescheduling, reamortization, or deferral), through:
(1) Writing down or writing off a debt pursuant to 7 U.S.C. 2001;
(2) Compromising, adjusting, reducing, or charging off a debt or
claim pursuant to 7 U.S.C. 1981; or
(3) Paying a loss pursuant to 7 U.S.C. 2005 on a FLP loan
guaranteed by the Agency.
Debt reduction through a conservation easement or contract is not
considered debt forgiveness for loan making or servicing purposes.
Debt instrument is a collective term that includes, but is not
limited to, promissory notes and assumption agreements.
Debt settlement is a compromise, adjustment, or cancellation of an
Agency debt.
Debt service margin is the difference between all of the borrower's
expected expenditures in a planning period (including farm operating
expenses, capital expenses, essential family living expenses, and debt
payments) and the borrower's projected funds available to pay all
expenses and payments.
Debt writedown is the reduction in the amount of the borrower's
debt to that amount that the Agency determines to be collectible based
on an analysis of the security value and the borrower's ability to pay.
Default is the failure of a borrower to observe any agreement with
the Agency, or the lender in the case of a guaranteed loan, as
contained in promissory notes, security instruments, and similar or
related instruments.
Deferral is a postponement of the payment of interest or principal,
or both.
Delinquent borrower is a borrower with any portion of a payment to
the Agency that is at least 30 days past due.
Direct loan is a loan funded and serviced by the Agency as the
lender.
Disaster is an event of unusual and adverse weather conditions or
other natural phenomena, or quarantine, that has substantially affected
producers of agricultural commodities by causing physical property or
production losses in a county, or similar political subdivision, that
triggered the inclusion of such county or political subdivision in the
disaster area as designated by the Agency.
Disaster area is the county or counties declared or designated as a
disaster area for EM loan assistance as a result of disaster related
losses. This area includes counties contiguous to those counties
declared or designated as disaster areas.
Disaster set-aside is the deferral of payment of an annual loan
installment to the Agency to the end of the loan term in accordance
with part 766, subpart B of this chapter.
Disaster yield is the per-acre yield of an agricultural commodity
for the farming operation during the production period when the
disaster occurred.
Economic Emergency loan is a loan that was made or guaranteed to an
eligible applicant to allow for continuation of the operation during an
economic emergency which was caused by a lack of agricultural credit or
an unfavorable relationship between production costs and prices
received for agricultural commodities. EE loans are not currently
funded, however, such outstanding loans are serviced by the Agency or
the lender in the case of a guaranteed EE loan.
Emergency loan is a loan made to eligible applicants who have
incurred substantial financial losses from a disaster.
Entity is a corporation, partnership, joint operation, cooperative,
limited liability company or trust.
Essential family household expenses are the expenses associated
with providing food, clothing, and shelter necessary to maintain the
borrower and the immediate family of the borrower.
Essential family living and farm operating expenses:
(1) Essential expenses are those which are basic, crucial or
indispensable.
(2) In determining what are essential family living and farm
operating expenses for a particular family and farm, the Agency will
consider the following:
(i) The individual borrower's operation;
(ii) What is typical for that type of operation in the area; and
(iii) What is an efficient method of production considering the
borrower's resources.
(3) Essential family living and farm operating expenses include,
but are not limited to essential: household operating expenses; food,
including lunches; clothing and personal care; health and medical
expenses, including medical insurance; house repair and sanitation;
school and church expenses; transportation; hired labor; machinery
repair; farm building and fence repair; interest on loans and credit or
purchase agreement; rent on equipment, land, and buildings; feed for
animals; seed, fertilizer, pesticides, herbicides, spray materials and
other necessary farm supplies; livestock expenses, including medical
supplies, artificial insemination, and veterinarian bills; machinery
hire; fuel and oil; personal property taxes; real estate taxes; water
charges; personal, property and crop insurance; auto and truck
operating expenses; and utility payments.
Established farmer is a farmer who is the operator of the farming
operation (in the case of a farming operation operated by an entity,
its members as a group) who:
(1) Actively participated in the operation and the management,
including but not limited to, exercising control over, making decisions
regarding, and establishing the direction of, the farming operation at
the time of the disaster;
(2) Spends a substantial portion of time in carrying out the
farming operation;
(3) Planted the crop, or purchased or produced the livestock on the
farming operation;
(4) In the case of an entity, is primarily engaged in farming and
has over 50 percent of its gross income from all sources from its
farming operation based on the farming operation's projected cash flow
for the next crop
[[Page 6070]]
year or the next 12-month period, as mutually determined; and
(5) Is not:
(i) An entity with an ownership interest of 50 percent or more held
by one or more entities; or
(ii) An integrated livestock, poultry, or fish processor who
operates primarily and directly as a commercial business through
contracts or business arrangements with farmers, except a grower under
contract with an integrator or processor may be considered an
established farmer, provided the operation is not managed by an outside
full-time manager or management service and such loans shall be based
on the applicant's share of the agricultural production as set forth in
the contract;
(iii) An operation which employees a full time farm manager.
False information is information provided by an applicant, borrower
or other source to the Agency that the applicant or borrower knows to
be incorrect.
Family farm is a farm that:
(1) Produces agricultural commodities for sale in sufficient
quantities so that it is recognized as a farm rather than a rural
residence, and in a typical year generates net cash income that
improves the family's standard of living;
(2) Generates or will generate in a typical year annual gross farm
income which does not exceed the greater of $750,000 or 95 percent of
the statistical distribution of the income of farms in the State with
gross sales in excess of $10,000 based on the farm data and survey of
farm economic factors most recently published by the National
Agricultural Statistics Service, USDA, or any successor agency;
(3) Has both physical labor and management provided as follows:
(i) The majority of day-to-day, operational decisions, and all
strategic management decisions are made by:
(A) The borrower and persons related to the borrower by blood or
marriage, for an individual borrower; or
(B) The members responsible for operating the farm, in the case of
an entity.
(ii) A substantial amount of labor to operate the farm is provided
by:
(A) The borrower and persons related to the borrower by blood or
marriage, for an individual borrower; or
(B) The members responsible for operating the farm, in the case of
an entity.
(4) May use full-time hired labor in amounts only to supplement
family labor.
(5) May use reasonable amounts of temporary labor for seasonal peak
workload periods or intermittently for labor intensive activities.
Family living expenses are the costs of providing for the needs of
family members.
Family members are the immediate members of the family residing in
the same household with the individual borrower, or, in the case of an
entity, with the operator.
Farm is a tract or tracts of land, improvements, and other
appurtenances that are used or will be used in the production of crops,
livestock, or aquaculture products for sale in sufficient quantities so
that the property is recognized as a farm rather than a rural
residence. The term ``farm'' also includes the term ``ranch.'' It may
also include land and improvements and facilities used in a non-
eligible enterprise or the residence which, although physically
separate from the farm acreage, is ordinarily treated as part of the
farm in the local community.
Farm income is the proceeds from the sale of agricultural
commodities that are normally sold annually during the regular course
of business, such as crops, feeder livestock, and other farm products.
Farm Loan Programs are Agency programs to make, guarantee, and
service loans to family farmers authorized under the Act or Agency
regulations.
Farm Ownership loan is a loan made to eligible applicants to
purchase, enlarge, or make capital improvements to family farms, or to
promote soil and water conservation and protection. It also includes
the Beginning Farmer Downpayment loan.
Farm Programs payments are benefits received under FSA for any
commodity, disaster, or cost share programs.
Farmer is an individual, corporation, partnership, joint operation,
cooperative, trust, or limited liability company who is engaged in
farming.
Feasible plan is when an applicant or borrower's cash flow budget
indicates that there is sufficient cash inflow to pay all cash outflow
each year during the term of the loan. If a loan approval or
restructuring action exceeds one production cycle and the planned cash
flow budget is atypical due to cash or inventory on hand, new
enterprises, carryover debt, atypical planned purchases, important
operating changes, or other reasons, a cash flow budget must be
prepared that reflects a typical cycle. If the request is for only one
cycle, a feasible plan for only one cycle is required for approval.
Financially distressed borrower is a borrower unable to make
payments as planned for the current or next business accounting period
or to project a feasible plan of operation for the next business
accounting period.
Financially viable operation is an operation that, with Agency
assistance, is projected to improve its financial condition over a
period of time to the point that the operator can obtain commercial
credit without further Agency assistance. Such an operation must
generate sufficient income to:
(1) Meet annual operating expenses and debt payments as they become
due;
(2) Meet basic family living expenses to the extent they are not
met by dependable non-farm income;
(3) Provide for replacement of capital items; and
(4) Provide for long-term financial growth.
Fixture is an item of personal property attached to real estate in
such a way that it cannot be removed without defacing or dismantling
the structure, or damaging the item itself.
Floodplains are lowland and relatively flat areas adjoining inland
and coastal waters, including flood-prone areas of offshore islands,
including at a minimum, that area subject to a one percent or greater
chance of flooding in any given year. The base floodplain shall be used
to designate the 100-year floodplain (one percent chance floodplain).
The critical floodplain is defined as the 500-year floodplain (0.2
percent chance floodplain).
Foreclosed is the completed act of selling security either under
the power of sale in the security instrument or through court
proceedings.
Foreclosure sale is the act of selling security either under the
power of sale in the security instrument or through court proceedings.
Good faith is the borrower's adherence to all written agreements
with the Agency including, but not limited to, loan application, loan
agreement, security instruments, operating plans, and agreements for
use of proceeds. The Agency considers a borrower to act in good faith,
however, when the borrower is unable to adhere to all agreements due to
circumstances beyond the borrower's control. Good faith does not
include fraud, waste, or conversion.
Graduation is the payment in full of all direct FLP loans made for
operating, real estate, or both purposes by refinancing with other
credit sources either with or without an Agency guarantee.
Guaranteed loan is a loan made and serviced by a lender for which
the Agency has entered into a Lender's Agreement and for which the
Agency has issued a Loan Guarantee. This term
[[Page 6071]]
also includes guaranteed lines of credit except where otherwise
indicated.
Hazard insurance is insurance covering fire, windstorm, lightning,
hail, explosion, riot, civil commotion, aircraft, vehicles, smoke,
builder's risk, public liability, property damage, flood or mudslide,
workers compensation, or any similar insurance that is available and
needed to protect the Agency security or that is required by law.
Holder is a person or organization other than the lender that holds
all or a part of the guaranteed portion of an Agency guaranteed loan
but has no servicing responsibilities. When the lender assigns a part
of the guaranteed loan by executing an assignment form, the assignee
becomes a holder.
Homestead protection is the borrower's right to lease with an
option to purchase the principal residence and up to 10 acres of
adjoining land which secured an FLP loan.
Homestead protection property is the principal residence that
secured an FLP loan and is subject to homestead protection.
Household contents are essential household items necessary to
maintain viable living quarters. Household contents exclude all luxury
items such as jewelry, furs, antiques, paintings, etc.
Inaccurate information is incorrect information provided by a
borrower or other source inadvertently without intent to obtain
benefits fraudulently.
Indian reservation is all land located within the limits of any
Indian reservation under the jurisdiction of the United States,
notwithstanding the issuance of any patent, and including rights-of-way
running through the reservation; trust or restricted land located
within the boundaries of a former reservation of a Federally recognized
Indian Tribe in the State of Oklahoma; or all Indian allotments the
Indian titles to which have not been extinguished if such allotments
are subject to the jurisdiction of a Federally recognized Indian Tribe.
In-house expenses are expenses associated with credit management
and loan servicing by the lender and the lender's contractor. In-house
expenses include, but are not limited to, employee salaries, staff
lawyers, travel, supplies, and overhead.
Interest Assistance Agreement is the signed agreement between the
Agency and the lender containing the terms and conditions under which
the Agency will make interest assistance payments to the lender on
behalf of the guaranteed loan borrower.
Interest assistance anniversary date is the date on which interest
assistance reviews and claims will be effective. This date is
established by the lender. Once established, it will not change unless
the loan is restructured.
Interest assistance review is the yearly review process that
includes an analysis of the borrower's farming operation and need for
continued interest assistance, completion of the needs test, and a
request for continuation of interest assistance.
Inventory property is real estate and chattel property and related
rights to which the Federal Government has acquired title.
Joint financing arrangement is an arrangement in which two or more
lenders make separate loans simultaneously to supply the funds required
by one applicant.
Joint operation is an operation run by individuals who have agreed
to operate a farm or farms together as an entity, sharing equally or
unequally land, labor, equipment, expenses, or income, or some
combination of these items. The real and personal property is owned
separately or jointly by the individuals.
Leasehold is a right to use farm property for a specific period of
time under conditions provided for in a lease agreement.
Lender is the organization making and servicing a loan, or
advancing and servicing a line of credit, that is guaranteed by the
Agency. The lender is also the party requesting a guarantee.
Lender's Agreement is the appropriate Agency form executed by the
Agency and the lender setting forth their loan responsibilities when
the Loan Guarantee is issued.
Lien is a legally enforceable hold or claim on the property of
another obtained as security for the repayment of indebtedness or an
encumbrance on property to enforce payment of an obligation.
Limited resource interest rate is an interest rate below the
Agency's regular interest rate available to farmers who are unable to
develop a feasible plan at regular rates and are requesting:
(1) FO or OL loan assistance under part 764 of this title; or
(2) Primary loan servicing on an FO, OL, or SW loan under part 766
of this title.
Line of Credit Agreement is a contract between the borrower and the
lender that contains certain lender and borrower conditions,
limitations, and responsibilities for credit extension and acceptance
where loan principal balance may fluctuate throughout the term of the
contract.
Liquidation is the act of selling all security for recovery of
amounts owed to the Agency.
Liquidation expenses are the costs of an appraisal, due diligence
evaluation, environmental assessment, outside attorney fees, and other
costs incurred as a direct result of liquidating the security for a
direct or guaranteed loan. Liquidation expenses do not include internal
Agency expenses for a direct loan or in-house expenses for a guaranteed
loan.
Livestock is a member of the animal kingdom, or product thereof, as
determined by the Agency.
Loan Agreement is a contract between the borrower and the lender
that contains certain lender and borrower agreements, conditions,
limitations, and responsibilities for credit extension and acceptance.
Loan applicant is the party applying to a lender for a guaranteed
loan or to the Agency for a direct loan.
Loan servicing programs include primary loan servicing programs,
conservation contract, current market value buyout, and homestead
protection.
Loan transaction is any loan approval or servicing action.
Loss claim is a request made to the Agency by a lender to receive a
reimbursement based on a percentage of the lender's loss on a loan
covered by an Agency guarantee.
Loss rate is the net amount of loan loss claims paid on guaranteed
OL, FO, and SW loans made in the past seven years divided by the total
loan amount of all such loans made in the past seven years.
Low-Documentation Operating loan is an OL loan made to eligible
applicants based on reduced documentation.
Majority interest is more than a 50 percent interest in an entity
held by an individual or group of individuals.
Market value is the amount that an informed and willing buyer would
pay an informed and willing, but not forced, seller in a completely
voluntary sale.
Mineral right is an ownership interest in minerals in land, with or
without ownership of the surface of the land.
Mortgage is a legal instrument giving the lender a security
interest or lien on real or personal property of any kind. The term
``mortgage'' also includes the terms ``deed of trust'' and ``security
agreement.''
Natural disaster is unusual and adverse weather conditions or
natural phenomena that has substantially affected farmers by causing
severe physical or production, or both, losses.
Negligent servicing is servicing that fails to include those
actions that are considered normal industry standards of loan
management or comply with the lender's agreement or the guarantee.
[[Page 6072]]
Negligent servicing includes failure to act or failure to act in a
timely manner consistent with actions of a reasonable lender in loan
making, servicing, and collection.
Negotiated sale is a sale in which there is a bargaining of price
or terms, or both.
Net recovery value of security property is the market value of the
security property, assuming that the lender in the case of a guaranteed
loan, or the Agency in the case of a direct loan, will acquire the
property and sell it for its highest and best use, less the lender's or
the Agency's costs of property acquisition, retention, maintenance, and
liquidation. The net recovery value of non-essential assets is the
appraised market value of the assets less any prior liens and any
selling costs which may include such items as taxes due, commissions
and advertising costs. However, no deduction is made for maintenance of
the property while in inventory.
Non-capitalized interest is interest on a loan that was not
reclassified as principal at the time of restructuring. Between October
10, 1988, and November 27, 1990, the Agency did not capitalize interest
that was less than 90 days past due when restructuring a direct loan.
Non-eligible enterprise is a business that meets the criteria in
any one of the following categories:
(1) Production of exotic or non-farm animals. An enterprise which
produces animals, birds, or aquatic organisms or their products which
are not ordinarily associated with human consumption, fiber, or draft
use, or for which a ready market does not exist.
(2) Production or marketing of non-farm goods or services. An
enterprise which might be agriculturally related but does not produce
or market products from the farm.
(3) Processing or marketing of farm products when the majority of
the commodities processed or marketed are not produced by the farm
operation.
Non-essential assets are assets in which the borrower has an
ownership interest, that:
(1) Do not contribute to:
(i) Income to pay essential family living expenses, or
(ii) The farming operation; and
(2) Are not exempt from judgment creditors or in a bankruptcy
action.
Non-program loan is a loan made to a borrower who does not meet the
eligibility requirements for a program loan.
Normal income security is all security not considered basic
security, including crops, livestock, poultry products, other property
covered by Agency liens that is sold in conjunction with the operation
of a farm or other business, and Farm Program payments.
Normal production yield as used in 7 CFR 764 for EM loans, is:
(1) The per acre actual production history of the crops produced by
the farming operation used to determine Federal Crop Insurance payments
or payment under the Non-Insured Assistance Program for the production
year during which the disaster occurred;
(2) The applicant's own production records or the records of
production on which FSA farm program payments are made contained in the
applicant's farm program file for the previous three years, when the
actual production history is not available;
(3) The county average production yield, when the production
records outlined in (1) and (2) above are not available.
Note is written evidence of indebtedness, such as a promissory
note, bond, or assumption agreement.
Operating loan is a loan made to an eligible applicant to assist
with the financial costs of operating a farm.
Owner-operator is the individual or entity that owns the land on
which a farm is located and provides the labor, management, and capital
to operate the farm. An entity may have to receive authorization from
the State in which the farm is located to be the owner-operator of the
farm.
Partnership is any entity consisting of two or more individuals who
have agreed to operate a farm as one business unit. The entity must be
recognized as a partnership by the laws of the State in which the
partnership will operate a farm. It also must be authorized to own both
real and personal property and to incur debt in its own name.
Physical loss is verifiable damage or destruction with respect to
real estate or chattel, excluding annual growing crops.
Potential liquidation value is the amount of a lender's protective
bid at a foreclosure sale. Potential liquidation value is determined by
an independent appraiser using comparables from other forced
liquidation sales.
Present value is the present worth of a future stream of payments
discounted to the current date.
Presidentially-designated emergency is a major disaster or
emergency designated by the President under the Robert T. Stafford
Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.).
Primary loan servicing programs include:
(1) Loan consolidation and rescheduling, or reamortization;
(2) Interest rate reduction, including use of the limited resource
rate program;
(3) Deferral;
(4) Write-down of the principal or accumulated interest; or
(5) Any combination of the above.
Production cycle is the time it takes to produce an agricultural
commodity from the beginning of the production process until it
matures.
Production loss is verifiable damage or destruction with respect to
annual growing crops.
Program loans include FO, OL, and EM. In addition, for loan
servicing purposes the term includes existing loans for the following
programs no longer funded: SW, RL, EE, ST, and RHF.
Prospectus consists of a transmittal letter, a current balance
sheet and projected year's budget which is sent to commercial lenders
to determine their interest in financing or refinancing specific Agency
direct loan applicants and borrowers.
Protective advance is an advance made by the Agency or a lender to
protect or preserve the collateral from loss or deterioration.
Quarantine is a quarantine imposed by the Secretary under the Plant
Protection Act or animal quarantine laws (as defined in section 2509 of
the Food, Agriculture, Conservation and Trade Act of 1990).
Reamortization is the rewriting of rates or terms, or both, of a
loan made for real estate purposes.
Reasonable rates and terms are those commercial rates and terms
that other farmers are expected to meet when borrowing from a
commercial lender or private source for a similar purpose and similar
period of time. The ``similar period of time'' of available commercial
loans will be measured against, but need not be the same as, the
remaining or original term of the loan.
Recoverable cost is a loan cost expense chargeable to either a
borrower or property account.
Recreation loan is a loan that was made to eligible applicants to
assist in the conversion of all or a portion of the farm they owned or
operated to outdoor income producing recreation enterprises to
supplement or supplant farm income. RL's are no longer funded, however,
such outstanding loans are serviced by the Agency.
Redemption right is a Federal or state right to reclaim property
for a period of time established by law, by paying the amount paid at
the involuntary sale plus accrued interest and costs.
[[Page 6073]]
Related by blood or marriage is being connected to one another as
husband, wife, parent, child, brother, or sister.
Relative is the spouse and anyone having one the following
relationships to an applicant or borrower: Parent, son, daughter,
sibling, stepparent, stepson, stepdaughter, stepbrother, stepsister,
half brother, half sister, uncle, aunt, nephew, niece, grandparent,
grandson, granddaughter, or the spouses of the foregoing.
Repossessed property is security property in the Agency's custody.
Rescheduling is the rewriting of the rates or terms, or both, of a
loan made for operating purposes.
Restructuring see primary loan servicing programs.
Rural youth is a person who has reached the age of 10 but has not
reached the age of 21 and resides in a rural area or any city or town
with a population of 50,000 or fewer people.
Security is property or right of any kind that is subject to a real
or personal property lien. Any reference to ``collateral'' or
``security property'' will be considered a reference to the term
``security.''
Security value is the value of real estate or chattel property
(less the value of any prior liens) used as security for an Agency
loan.
Shared Appreciation Agreement is an agreement between the Agency,
or a lender in the case of a guaranteed loan, and a borrower that
requires the borrower who has received a writedown on a direct or
guaranteed loan to repay the Agency or the lender some or all of the
writedown received, based on a percentage of any increase in the value
of the real estate securing an SAA at a future date.
Socially disadvantaged applicant is an applicant who is a member of
a socially disadvantaged group. For entity applicants, the majority
interest must be held by socially disadvantaged individuals.
Socially disadvantaged group is a group whose members have been
subject to racial, ethnic, or gender prejudice because of their
identity as members of a group without regard to their individual
qualities.
Softwood Timber Program loan was available to eligible financially
distressed borrowers who would take marginal land, including highly
erodible land, out of production of agricultural commodities other than
the production of softwood timber. ST loans are no longer available,
however, such outstanding loans are serviced by the Agency.
Soil and Water loan is a loan that was made to an eligible
applicant to encourage and facilitate the improvement, protection, and
proper use of farmland by providing financing for soil conservation,
water development, conservation, and use; forestation; drainage of
farmland; the establishment and improvement of permanent pasture;
pollution abatement and control; and other related measures consistent
with all Federal, State and local environmental standards. SW loans are
no longer funded, however, such outstanding loans are serviced by the
Agency.
Subordination is a creditor's temporary relinquishment of all or a
portion of its lien priority in favor of another creditor, providing
the other creditor with a priority right to collect a debt of a
specific dollar amount from the sale of the same collateral.
Subsequent loan is any FLP loan processed by the Agency after an
initial loan of the same type has been made to the same borrower.
Supervised bank account is an account with a financial institution
established through a deposit agreement entered into between the
borrower, the Agency, and the financial institution.
Technical appraisal review is a review of an appraisal to determine
if such appraisal meets the requirements of USPAP pursuant to standard
3 of USPAP.
Transfer and assumption is the conveyance by a debtor to an
assuming party of the assets, collateral, and liabilities of a loan in
return for the assuming party's binding promise to pay the debt
outstanding or the current market value of the collateral.
Trust is an entity that under applicable state law meets the
criteria of being a trust of any kind but does not meet the criteria of
being a farm cooperative, private domestic corporation, partnership, or
joint operation.
Unaccounted for security is security for a direct or guaranteed
loan that was misplaced, stolen, sold, or otherwise missing, where
replacement security was not obtained or the proceeds from its sale
have not been applied to the loan.
Unauthorized assistance is any loan, loan servicing action, lower
interest rate, loan guarantee, or subsidy received by a borrower, or
lender in the case of a loan guarantee, for which the borrower or
lender was not eligible, or which the Agency obligated from the wrong
appropriation or fund. Unauthorized assistance may result from
borrower, lender, or Agency error.
Uniform Standards of Professional Appraisal Practice (USPAP) are
standards governing the preparation, reporting, and reviewing of
appraisals established by the Appraisal Foundation pursuant to the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
United States is each of the several States, the Commonwealth of
Puerto Rico, the Virgin Islands of the United States, Guam, American
Samoa, and the Commonwealth of the Northern Mariana Islands.
U.S. Attorney is an attorney for the United States Department of
Justice.
Veteran is any person who served in the military, naval, or air
service during any war as defined in section 101(12) of title 38,
United States Code.
Wetlands are those lands or areas of land as determined by the
Natural Resources Conservation Service to meet the requirements
provided in section 1201(18) of the Food Security Act of 1985.
Working capital is cash available to conduct normal daily farming
operations including but not limited to feed, seed, fertilizer,
pesticides, farm supplies, cooperative stock, and cash rent.
Youth loan is an operating type loan made to an eligible rural
youth applicant to finance a modest income-producing agricultural
project.
Sec. 761.3 Civil rights.
Part 15d of this title contains applicable regulations pertaining
to civil rights and filing of discrimination complaints by program
participants.
Sec. 761.4 Conflict of interest.
The Agency enforces conflict of interest policies to maintain high
standards of honesty, integrity, and impartiality in the making and
servicing of direct and guaranteed loans. These requirements are
established in 5 CFR parts 2635 and 8301.
Sec. 761.5 Restrictions on lobbying.
A person who applies for or receives a loan made or guaranteed by
the Agency must comply with the restrictions on lobbying in 7 CFR 3018.
Sec. 761.6 Appeals.
A direct loan applicant or borrower, or guaranteed loan applicant
or borrower and lender, except as provided in 7 CFR 762, may request an
appeal or review of an adverse decision made by the Agency in
accordance with 7 CFR 11 and 780.
Sec. 761.7 Appraisals.
(a) General. This section describes Agency requirements for:
(1) Real estate and chattel appraisals made in connection with the
making
[[Page 6074]]
and servicing of direct FLP and Non-program loans; and
(2) Appraisal reviews conducted on appraisals made in connection
with the making and servicing of direct and guaranteed FLP and Non-
program loans.
(b) Appraisal standards. (1) Real estate appraisals, technical
appraisal reviews and their respective forms must comply with the
standards contained in USPAP, as well as applicable Agency regulations
and procedures for the specific FLP activity involved. A current copy
of USPAP along with other applicable procedures and regulations are
available for review in each Agency State Office.
(2) When a chattel appraisal is required it must be completed on an
applicable Agency form (available in each Agency State Office) or other
format containing the same information.
(c) Use of an existing real estate appraisal. When a real estate
appraisal is required, the Agency will use the existing real estate
appraisal to reach loan making or servicing decisions under either of
the following conditions:
(1) The appraisal was completed within the previous 12 months and
the Agency determines that:
(i) The appraisal meets the provisions of this section and the
applicable Agency loan making or servicing requirements, and
(ii) Current market values have remained stable since the appraisal
was completed; or
(2) The appraisal was not completed in the previous 12 months, but
has been updated by the appraiser or appraisal firm that completed the
appraisal, and both the update and original appraisal were completed in
accordance with USPAP.
(d) Appraisal reviews. (1) With respect to a real estate appraisal,
the Agency may conduct a technical appraisal review or an
administrative appraisal review, or both.
(2) With respect to a chattel appraisal, the Agency may conduct an
administrative appraisal review.
Sec. 761.8 Loan limitations.
(a) Dollar limits. The outstanding principal balances for a farm
loan applicant or anyone who will sign the promissory note cannot
exceed any of the following:
(1) Farm Ownership loans, Beginning Farmer Down payment loans and
Soil and Water loans:
(i) Direct--$200,000;
(ii) Guaranteed--$700,000 (for fiscal year 2000 and increased at
the beginning of each fiscal year in accordance with paragraph (b) of
this section);
(iii) Any combination of a direct Soil and Water loan, direct Farm
Ownership loan, guaranteed Soil and Water loan, and guaranteed Farm
Ownership loan--$700,000 (for fiscal year 2000 and increased each
fiscal year in accordance with paragraph (b) of this section);
(2) Operating loans:
(i) Direct--$200,000;
(ii) Guaranteed--$700,000 (for fiscal year 2000 and increased each
fiscal year in accordance with paragraph (b) of this section);
(iii) Any combination of a direct Operating loan and guaranteed
Operating loan--$700,000 (for fiscal year 2000 and increased each
fiscal year in accordance with paragraph (b) of this section);
(3) Any combination of guaranteed Farm Ownership loan, guaranteed
Soil and Water loan, and guaranteed Operating loan--$700,000 (for
fiscal year 2000 and increased each fiscal year in accordance with
paragraph (b) of this section);
(4) Any combination of direct Farm Ownership loan, direct Soil and
Water loan, direct Operating loan, guaranteed Farm Ownership loan,
guaranteed Soil and Water loan, and guaranteed Operating loan--the
amount in paragraph (a)(1)(ii) of this section plus $200,000;
(5) Emergency loans--$500,000;
(6) Any combination of direct Farm Ownership loan, direct Soil and
Water loan, direct Operating loan, guaranteed Farm Ownership loan,
guaranteed Soil and Water loan, guaranteed Operating loan, and
Emergency loan--the amount in paragraph (a)(1)(ii) of this section plus
$700,000.
(b) Guaranteed loan limit. The dollar limits of guaranteed loans
will be increased each fiscal year based on the percentage change in
the Prices Paid by Farmers Index as compiled by the National
Agricultural Statistics Service, USDA. The maximum loan limits for the
current fiscal year are available in any FSA office and on the FSA
website at http://www.fsa.usda.gov.
(c) Line of credit advances. The total dollar amount of guaranteed
line of credit advances and income releases cannot exceed the total
estimated expenses, less interest expense, as indicated on the
borrower's cash flow budget, unless the cash flow budget is revised and
continues to reflect a feasible plan.
Sec. 761.9 Interest rates for direct loans.
Interest rates for all direct loans are set in accordance with the
Act. A copy of the current interest rates may be obtained in any Agency
office.
Sec. 761.10 Planning and performing construction and other
development.
(a) Purpose. This section describes Agency policies regarding the
planning and performing of construction and other development work
performed with:
(1) Direct FLP loan funds; or
(2) Insurance or other proceeds resulting from damage or loss to
direct loan security.
(b) Funds for development work. The applicant or borrower:
(1) Must provide the Agency with an estimate of the total cash cost
of all planned development prior to loan approval;
(2) Must show proof of sufficient funds to pay for the total cash
cost of all planned development at or before loan closing;
(3) Must not incur any debts for materials or labor or make any
expenditures for development purposes prior to loan closing with the
expectation of being reimbursed from Agency loan funds.
(c) Scheduling, planning, and completing development work. The
applicant or borrower:
(1) Is responsible for scheduling and planning development work in
a manner acceptable to the Agency and must furnish the Agency
information fully describing the planned development, the proposed
schedule, and the manner in which it will be accomplished;
(2) Is responsible for obtaining all necessary State and local
construction approvals and permits prior to loan closing;
(3) Must ensure that all development work meets the environmental
requirements established in 7 CFR 799;
(4) Must schedule development work to start as soon as feasible
after the loan is closed and be completed as quickly as practicable;
(5) Is responsible for obtaining any required technical services
from qualified technicians, tradespeople, and contractors.
(d) Construction and repair standards. (1) The construction of a
new building and the alteration or repair of an existing building must
conform with industry-acceptable construction practices and standards.
(2) All improvements to a property must conform to applicable laws,
ordinances, codes, and regulations.
(3) The applicant or borrower is responsible for selecting a design
standard that meets all applicable local and state laws, ordinances,
codes, and regulations, including building, plumbing, mechanical,
electrical, water, and waste management.
[[Page 6075]]
(4) The Agency will require drawings, specifications, and estimates
to fully describe the work as necessary to protect the Government's
financial interests. The drawings and specifications must identify any
specific development standards being used. Such information must be
sufficiently complete to avoid any misunderstanding as to the extent,
kind, and quality of work to be performed.
(5) The Agency will require technical data, tests, or engineering
evaluations to support the design of the development as necessary to
protect the Government's financial interests.
(6) The Agency will require the applicant or borrower to provide
written certification that final drawings and specifications conform
with the applicable development standard as necessary to protect the
Government's financial interests. Certification shall be obtained from
individuals or organizations trained and experienced in the compliance,
interpretation, or enforcement of the applicable development standards,
such as licensed architects, professional engineers, persons certified
by a relevant national model code organization, authorized local
building officials, or national code organizations.
(e) Inspection. (1) The applicant or borrower is responsible for
inspecting development work as necessary to protect their interest.
(2) The applicant or borrower must provide the Agency written
certification that the development conforms to the plans and good
construction practices, and complies with applicable laws, ordinances,
codes and regulations.
(3) The Agency will require the applicant or borrower to obtain
professional inspection services during construction as necessary to
protect the Government's financial interests.
(4) Agency inspections do not create or imply any duty or
obligation of the Government to the applicant or borrower.
(f) Warranty and lien waivers. The applicant or borrower must
obtain and submit all lien waivers on any construction before the
Agency will issue final payment.
(g) Surety. The Agency will require surety to guarantee both
payment and performance for construction contracts as necessary to
protect the Government's financial interests.
(h) Changing the planned development. An applicant or borrower must
request, in writing, Agency approval for any change to a planned
development. The Agency will approve a change if all of the following
are met:
(1) It will not reduce the value of the Agency's security;
(2) It will not adversely affect the soundness of the operation;
(3) It complies with all applicable laws and regulations;
(4) It is for an authorized loan purpose;
(5) It is within the scope of the original loan proposal;
(6) If required, documentation that sufficient funding for the full
amount of the planned development is approved and available;
(7) If required, surety to cover the full revised development
amount has been provided; and
(8) The modification is certified in accordance with Sec.
761.10(d)(6).
Sec.Sec. 761.11-761.50 [Reserved]
Subpart B--Supervised Bank Accounts
Sec. 761.51 Establishing a supervised bank account.
(a) The borrower may select the financial institution in which the
account will be established, provided the institution is Federally
insured. If the borrower does not select an institution, the Agency
will choose one.
(b) Only one supervised bank account will be established for any
borrower.
(c) When two co-borrowers sign an FLP note and security agreement,
the supervised bank account will be established as a joint tenancy
account with right of survivorship from which either borrower can
withdraw funds.
(d) If the funds to be deposited into the account cause the balance
to exceed $100,000, the financial institution must agree to pledge
acceptable collateral with the Federal Reserve Bank for the excess over
$100,000, before the deposit is made.
(1) If the financial institution is not a member of the Federal
Reserve System, the institution must pledge acceptable collateral with
a correspondent bank that is a member of the Federal Reserve System.
The correspondent bank must inform the Federal Reserve Bank that it is
holding securities pledged for the supervised bank account in
accordance with 31 CFR part 202 (Treasury Circular 176).
(2) When the balance in the account has been reduced, the financial
institution may request a release of part or all of the collateral, as
applicable, from the Agency.
Sec. 761.52 Deposits into a supervised bank account.
(a) Checks or money orders may be deposited into a supervised bank
account provided they are not payable:
(1) Solely to the Federal Government or any agency thereof; or
(2) To the Treasury of the United States as a joint payee.
(b) Loan proceeds may be deposited electronically.
Sec. 761.53 Interest bearing accounts.
(a) A supervised bank account shall, if possible, be established as
an interest bearing deposit account provided that the funds will not be
immediately disbursed, and the account is held jointly by the borrower
and the Agency if this arrangement will benefit the borrower.
(b) Interest earned on a supervised bank account will be treated as
normal income security.
Sec. 761.54 Withdrawals from a supervised bank account.
(a) The Agency will authorize a withdrawal from the supervised bank
account for an approved purpose after ensuring that:
(1) Sufficient funds in the supervised bank account are available;
(2) No loan proceeds are disbursed prior to confirmation of proper
lien position, except to pay for lien search if needed;
(3) No checks are issued to ``cash''; and
(4) The use of funds is consistent with the current farm operating
plan or other agreement with the Agency.
(b) A check must be signed by the borrower with countersignature of
the Agency, except as provided in paragraph (c) of this section. All
checks must bear the legend ``countersigned, not as co-maker or
endorser.''
(c) The Agency will withdraw funds from a supervised bank account
without borrower counter signature only for the following purposes:
(1) For application on Agency indebtedness;
(2) To refund Agency loan funds;
(3) To protect the Agency's lien or security;
(4) To accomplish a purpose for which such advance was made; or
(5) In the case of a deceased borrower, continue to pay necessary
farm expenses to protect Agency security in conjunction with the
borrower's estate.
Sec. 761.55 Closing a supervised bank account.
(a) If the supervised bank account is no longer needed and the loan
account is not paid in full, the Agency will determine the source of
the remaining funds in the supervised bank account. If the funds are
determined to be:
(1) Loan funds and the balance is less than $100, the Agency will
provide the
[[Page 6076]]
balance to the borrower to use for authorized loan purposes;
(2) Loan funds and the balance is $100 or greater, the Agency will
apply the balance to the FLP loan;
(3) Normal income funds, the Agency will apply the balance to the
remaining current year's scheduled payments and pay any balance to the
borrower; and
(4) Basic security funds, the Agency will apply the balance to the
FLP loan as an extra payment or the borrower may apply the balance
toward the purchase of basic security, provided the Agency obtains a
lien on such security and its security position is not diminished.
(b) If the borrower is uncooperative in closing a supervised bank
account, the Agency will make written demand to the financial
institution for the balance and apply it in accordance with paragraph
(a) of this section.
(c) In the event of a borrower's death, the Agency may:
(1) Apply the balance to the borrower's FLP loan;
(2) Continue with a remaining borrower, provided the supervised
bank account was established as a joint tenancy with right of
survivorship account;
(3) Refund unobligated balances from other creditors in the
supervised bank account for specific operating purposes in accordance
with any prior written agreement between the Agency and the deceased
borrower; or
(4) Continue to pay expenses from the supervised bank account in
conjunction with the borrower's estate.
Sec.Sec. 761.56-761.100 [Reserved]
Subpart C--Supervised Credit
Sec. 761.101 Applicability of this subpart.
This subpart applies to all direct FLP applicants and borrowers,
except borrowers with only Non-program loans.
Sec. 761.102 Borrower recordkeeping, reporting, and supervision.
(a) A borrower must maintain accurate records sufficient to make
informed management decisions and to allow the Agency to render loan
making and servicing decisions in accordance with Agency regulations.
These records must include the following:
(1) Production (e.g., total and per unit for livestock and crops);
(2) Revenues, by source;
(3) Other sources of funds, including borrowed funds;
(4) Operating expenses;
(5) Interest;
(6) Family living expenses;
(7) Profit and loss;
(8) Tax-related information;
(9) Capital expenses;
(10) Outstanding debt; and
(11) Debt repayment.
(b) A borrower also must agree in writing to:
(1) Cooperate with the Agency and comply with all supervisory
agreements, farm assessments, farm operating plans, year-end analyses,
and all other loan-related requirements and documents;
(2) Submit financial information and an updated farm operating plan
when requested by the Agency;
(3) Immediately notify the Agency of any proposed or actual
significant change in the farming operation;
(4) Within 30 days, notify the Agency of any significant changes in
family income, expenses, or the development of problem situations; and
(5) Immediately report any losses or proposed significant changes
in the security for Agency loans.
(c) If the borrower fails to comply with these requirements, unless
due to reasons outside the borrower's control, the non-compliance will
be a factor to be considered in determining eligibility for future
Agency loans, servicing, or both.
Sec. 761.103 Farm assessment.
(a) The Agency assesses each operation to determine the applicant's
financial condition, organizational structure, management strengths and
weaknesses, appropriate levels of Agency oversight, credit counseling
needs, and training needs. The applicant will participate in developing
the assessment.
(b) The initial assessment must evaluate, at a minimum, the:
(1) Farm organization and key personnel qualifications;
(2) Type of farming operation;
(3) Goals for the farming operation;
(4) Adequacy of real estate, including facilities, to conduct the
operation;
(5) Adequacy of chattel property used to conduct the operation;
(6) Historical performance;
(7) Farm operating plan;
(8) Loan evaluation;
(9) Supervisory plan; and
(10) Training plan.
(c) An assessment update must be prepared for each subsequent loan.
The update must include a farm operating plan, a loan evaluation, and
any other items discussed in paragraph (b) of this section that have
significantly changed since the initial assessment.
(d) The Agency reviews the assessment to determine a borrower's
progress at least annually. A review will be in the form of an office
visit, field visit, letter, phone conversation, or year-end analysis,
as determined by the Agency.
Sec. 761.104 Year-end analysis.
(a) The Agency conducts a year-end analysis at its discretion or if
the borrower:
(1) Has received any direct loan, chattel subordination, or primary
loan servicing action within the last year;
(2) Is financially distressed or delinquent;
(3) Has a loan deferred, excluding deferral of an installment under
subpart B of part 766; or
(4) Is receiving a limited resource interest rate on any loan.
(b) To the extent practicable, the year-end analysis will be
completed within 60 days after the end of the business year or farm
budget planning period and must include:
(1) An analysis comparing actual income, expenses, and production
to projected income, expenses, and production for the preceding
production cycle; and
(2) An updated farm operating plan.
Sec.Sec. 761.105-761.200 [Reserved]
Subpart D--Allocation of Farm Loan Programs Funds to State Offices
Sec. 761.201 Purpose.
(a) This subpart describes the methods and formulas the Agency uses
to allocate FLP funds to State Offices. State funding information is
available for review in any State Office.
(b) This subpart addresses:
(1) The allocation of funds for direct and guaranteed:
(i) FO loans,
(ii) OL loans;
(2) The establishment of socially disadvantaged target
participation rates; and
(3) The reservation of loan funds for beginning farmers.
(c) The Agency does not allocate EM loan funds to State Offices but
makes funds available following a designated or declared disaster. EM
loan funds are available on a first-come first-served basis.
Sec. 761.202 Timing of the allocation of Farm Ownership and Operating
loan funds.
The Agency's National Office allocates funds for FO and OL loans to
the State Offices on a fiscal year basis, as made available by the
Office of Management and Budget. However, the National Office will
retain control over the funds when funding or administrative
constraints make allocation to State Offices impractical.
[[Page 6077]]
Sec. 761.203 National reserves for Farm Ownership and Operating loans.
(a) Reservation of funds. At the start of each fiscal year, the
National Office reserves a portion of the funds available for each
direct and guaranteed loan program. These reserves enable the Agency to
meet unexpected or justifiable program needs during the fiscal year.
(b) Allocation of reserved funds. The National Office distributes
funds from the reserve to one or more State Offices to meet a program
need or Agency objective.
Sec. 761.204 Methods of allocating funds to State Offices.
FO and OL loan funds are allocated to State Offices using one or
more of the following allocation methods:
(a) Formula allocation, if data, as specified in Sec. 761.205, is
available to use the formula for the State.
(b) Administrative allocation, if the Agency cannot adequately meet
program objectives with a formula allocation. The National Office
determines the amount of an administrative allocation on a case-by-case
basis.
(c) Base allocation, to ensure funding for at least one loan in
each State, District, or County Office. In making a base allocation,
the National Office may use criteria other than those used in the
formula allocation, such as historical Agency funding information.
Sec. 761.205 Computing the formula allocation.
(a) The formula allocation for FO or OL loan funds is equal to:
(1) The amount available for allocation by the Agency minus the
amounts held in the National Office reserve and distributed by base and
administrative allocation, multiplied by
(2) The State Factor, which represents the percentage of the total
amount of the funds for a loan program that the National Office
allocates to a State Office.
formula allocation = (amount available for allocation - national
reserve - base allocation - administrative allocation) x State Factor
(b) To calculate the State Factor, the Agency:
(1) Uses the following criteria, data sources, and weights:
----------------------------------------------------------------------------------------------------------------
Weight for
farm Weight for
Criteria Loan type criterion is Data source ownership operating
used for loans loans
(percent) (percent)
----------------------------------------------------------------------------------------------------------------
Farm operators with sales of $2,500- FO and OL loans........ U.S. Census of 15 15
$39,999 and less than 200 days work Agriculture.
off the farm.
Farm operators with sales of $40,000 FO and OL loans........ U.S. Census of 35 35
or more and less than 200 days work Agriculture.
off farm.
Tenant farm operators............... FO and OL loans........ U.S. Census of 25 20
Agriculture.
Three-year average net farm income.. FO and OL loans........ USDA Economic Research 15 15
Service.
Value of farm real estate assets.... FO loans............... USDA Economic Research 10 N/A
Service.
Value of farm non-real estate assets OL loans............... USDA Economic Research N/A 15
Service.
----------------------------------------------------------------------------------------------------------------
(2) Determines each State's percentage of the national total for
each criterion;
(3) Multiplies the percentage for each State determined in
paragraph (b)(2) of this section by the applicable weight for that
criterion;
(4) Sums the weighted criteria for each State to obtain the State
factor.
Sec. 761.206 Pooling of unobligated funds that have been allocated to
State Offices.
The Agency periodically pools unobligated FO and OL loan funds that
have been allocated to State Offices. When pooling these funds, the
Agency places all unobligated funds in the appropriate National Office
reserve. The pooled funds may be retained in the national reserve or be
reallocated to the States.
Sec. 761.207 Distribution of Farm Ownership and Operating loan funds
by State Offices.
A State Office may distribute its allocation of loan funds to
District or County level using the same allocation methods that are
available to the National Office. State Offices may reserve a portion
of the funds to meet unexpected or justifiable program needs during the
fiscal year.
Sec. 761.208 Target participation rates for socially disadvantaged
groups.
(a) General policies. (1) FO and OL loan rates. The Agency
establishes target participation rates for providing FO and OL loans to
members of socially disadvantaged groups.
(2) State and County rates. The Agency sets the target
participation rates for State and County levels annually.
(3) Indian Reservations. When distributing loan funds in counties
within Indian reservations, the Agency will allocate the funds on a
reservation-wide basis.
(4) Reservation of funds. The Agency reserves and allocates
sufficient loan funds to achieve these target participation rates. The
Agency may also use funds that are not reserved and allocated for
socially disadvantaged groups to make or guarantee loans to members of
socially disadvantaged groups.
(b) FO loan target participation rate for socially disadvantaged
groups based on ethnicity or race.
(1) State participation rate. The FO loan target participation rate
for socially disadvantaged groups based on ethnicity or race in each
State is equal to the percent of the total rural population in the
State who are members of such socially disadvantaged groups.
(2) County participation rate. The FO loan target participation
rate for socially disadvantaged groups based on ethnicity or race in
each county is equal to the percent of rural population in the county
who are members of such socially disadvantaged groups.
(c) OL loan target participation rate for socially disadvantaged
groups based on ethnicity or race.
(1) State participation rate. The OL loan target participation rate
for socially disadvantaged groups based on ethnicity or race in each
State is equal to the percent of the total number of farmers in the
State who are members of such socially disadvantaged groups.
(2) County participation rate. The OL loan target participation
rate for socially disadvantaged groups based on ethnicity or race in
each county is equal to the percent of the total number of farmers in
the county who are members of socially disadvantaged ethnic groups.
(d) Target participation rate for women farmers. (1) State
participation rate. The target participation rate for
[[Page 6078]]
women farmers in each State is equal to the percent of farmers in the
State who are women.
(2) County participation rate. The target participation rate for
women farmers in each county is equal to the percent of farmers in the
county who are women.
(3) Consideration of women that are current and potential farmers.
In developing target participation rates for women, the Agency will
consider the number of women who are current farmers and potential
farmers.
Sec. 761.209 Reservation of Farm Ownership and Operating loan funds
for beginning farmers.
Each fiscal year, the Agency reserves a portion of direct and
guaranteed FO and OL loan funds for beginning farmers in accordance
with section 346(b)(2) of the Act.
Sec. 761.210 Transfer of funds.
(a) If sufficient unsubsidized guaranteed OL funds are available,
then beginning on:
(1) August 1 of each fiscal year, the Agency will use available
unsubsidized guaranteed OL loan funds to make approved direct FO loans
to beginning farmers under the Beginning Farmer Downpayment loan
program; and
(2) September 1 of each fiscal year the Agency will use available
unsubsidized guaranteed OL loan funds to make approved direct FO loans
to beginning farmers.
(b) On September 1 of each fiscal year, the Agency may utilize
unused EM loan funds to fund credit sales. The Agency may not transfer
any EM loan funds resulting from supplemental appropriations.
Sec.Sec. 761.211--761.250 [Reserved]
PART 762--GUARANTEED FARM LOANS
2. The authority citation for part 762 continues to read as
follows:
Authority: 5 U.S.C. 301, 7 U.S.C. 1989, 42 U.S.C. 1480.
3. Amend Sec. 762.101 as follows:
a. Revise paragraphs (b) and (c) introductory text;
b. Remove paragraph (c)(1) and redesignate paragraphs (c)(2) as
(c)(1), (c)(2)(i) through (iii) as (c)(1)(i) through (iii) and (c)(3)
as (c)(2).
The revised text reads as follows:
Sec. 762.101 Introduction
* * * * *
(b) Lender list. The Agency maintains a current list of lenders who
express a desire to participate in the guaranteed loan program. This
list is made available to farmers upon request.
(c) Lender classification.
* * * * *
4. Revise Sec. 762.102 to read as follows:
Sec. 762.102 Abbreviations and definitions.
Abbreviations and definitions for terms used in this part are
provided in Sec. 761.2 of this chapter.
5. Add paragraph (g) to Sec. 762.110 to read as follows:
Sec. 762.110 Loan applications.
* * * * *
(g) Market Placement Program. When the Agency determines that a
direct loan applicant or borrower may qualify for guaranteed credit,
the Agency may submit the applicant or borrower's financial information
to one or more guaranteed lenders. If a lender indicates interest in
providing financing to the applicant or borrower through the guaranteed
loan program, the Agency will assist in completing the application for
a guarantee.
Sec. 762.120 [Amended]
6. In paragraph (a) of Sec. 762.120, remove the word ``CONACT'' and
add in its place the word ``Act.''
Sec. 762.121 [Amended]
7. In paragraph (b)(1) of Sec. 762.121, remove the words ``1943,
subpart A, of this title'' and add in their place, the words ``part 764
of this chapter.''
8. Amend Sec. 762.122 by revising paragraph (a).
Sec. 762.122 Loan limitations.
(a) Dollar limits. Maximum loan limits are published in Sec. 761.8.
* * * * *
Sec. 762.124 [Amended]
9. In paragraph (e)(3) of Sec. 762.124, remove the words ``1943,
subpart A, of this title'' and add in their place, the words ``part 764
of this chapter.''
Sec. 762.128 [Amended]
10. Amend Sec. 762.128 as follows:
a. In paragraph (a), remove the words, ``1940, subpart G of this
title'' and add in their place, the words ``part 799 of this chapter.''
b. In paragraph (c)(3), remove the words, ``part 1940, subpart G,
and part 1901, subpart F, of this title'' and add in their place, the
words ``part 799 of this chapter.''
c. In paragraph (c)(4), remove the word ``CONACT'' and add in its
place the word ``Act.''
PART 763--[RESERVED]
11. Add and reserve part 763.
12. Revise part 764 to read as follows:
PART 764--DIRECT LOAN MAKING
Subpart A--Overview
Sec.
764.1 Purpose.
764.2 Types of loans.
764.3 Abbreviations and definitions.
764.4-764.50 [Reserved]
Subpart B--Loan Application Process
764.51 Loan application.
764.52 Processing an incomplete application.
764.53 Processing the complete application.
764.54 Acting on complete applications.
764.55 Preferences when there is limited funding.
764.56-764.100 [Reserved]
Subpart C--Requirements for All Direct Program Loans
764.101 General eligibility requirements.
764.102 General limitations.
764.103 General security requirements.
764.104 General real estate security requirements.
764.105 General chattel security requirements.
764.106 Exceptions to security requirements.
764.107 General appraisal requirements for real estate and chattel.
764.108 General insurance requirements.
764.109-764.150 [Reserved]
Subpart D--Farm Ownership Loan Program
764.151 Farm Ownership loan uses.
764.152 Eligibility requirements.
764.153 Limitations.
764.154 Rates and terms.
764.155 Security requirements.
764.156--764.200 [Reserved]
Subpart E--Beginning Farmer Downpayment Loan Program
764.201 Beginning Farmer Downpayment loan uses.
764.202 Eligibility requirements.
764.203 Limitations.
764.204 Rates and terms.
764.205 Security requirements.
764.206-764.250 [Reserved]
Subpart F--Operating Loan Program
764.251 Operating loan uses.
764.252 Eligibility requirements.
764.253 Limitations.
764.254 Rates and terms.
764.255 Security requirements.
764.256-764.300 [Reserved]
Subpart G--Youth Loan Program
764.301 Youth loan uses.
764.302 Eligibility requirements.
764.303 Limitations.
764.304 Rates and terms.
764.305 Security requirements.
764.306-764.350 [Reserved]
Subpart H--Emergency Loan Program
764.351 Emergency loan uses.
764.352 Eligibility requirements.
764.353 Limitations.
764.354 Rates and terms.
764.355 Security requirements.
764.356 Appraisal and valuation requirements.
[[Page 6079]]
764.357-764.400 [Reserved]
Subpart I--Loan Decision and Closing
764.401 Loan decision.
764.402 Loan closing.
764.403-764.450 [Reserved]
Subpart J--Borrower Training and Training Vendor Requirements
764.451 Purpose.
764.452 Borrower training requirements.
764.453 Agency waiver of training requirements.
764.454 Actions that a borrower must take when training is required.
764.455 Potential training vendors.
764.456 Applying to be a vendor.
764.457 Vendor Requirements.
764.458 Vendor approval.
764.459 Evaluation of borrower progress.
764.460-764.500 [Reserved]
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
Subpart A--Overview
Sec. 764.1 Purpose.
This part describes the Agency's policies for making direct FLP
loans.
Sec. 764.2 Types of loans.
The Agency makes the following types of loans:
(a) FO, including Beginning Farmer Downpayment loans;
(b) OL, including Youth loans; and
(c) EM.
Sec. 764.3 Abbreviations and definitions.
Abbreviations and definitions for terms used in this part are
provided in Sec. 761.2 of this chapter.
Sec.Sec. 764.4-764.50 [Reserved]
Subpart B--Loan Application Process
Sec. 764.51 Loan application.
(a) A complete loan application, except as provided in paragraphs
(b) through (d) of this section, will include:
(1) The completed Agency application form;
(2) If the applicant is an entity:
(i) A complete list of entity members showing the address,
citizenship, principal 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 from each member of the
entity;
(iii) A current financial statement from 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 (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 desired loan and execute
required debt, security and other loan instruments and agreements;
(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;
(4) The last 3 years of farm financial records, unless the
applicant has been farming less than 3 years;
(5) The last 3 years of farm production records, unless the
applicant has been farming less than 3 years;
(6) Documentation that the applicant and each member of an entity
applicant cannot obtain sufficient credit elsewhere on reasonable rates
and terms, including a loan guaranteed by the Agency;
(7) Documentation of compliance with the Agency's environmental
regulations contained in 7 CFR 799;
(8) Verification of all non-farm income of the applicant;
(9) The farm's operating plan, including the projected cash flow
budget reflecting production, income, expenses, and loan repayment
plan;
(10) A legal description of the farm property owned or to be
acquired and, if applicable, any leases, contracts, options, and other
agreements with regard to the property;
(11) Payment to the Agency for ordering a credit report on the
applicant;
(12) Verification of all debts of the applicant;
(13) Any additional information deemed necessary by the Agency to
effectively evaluate the applicant's eligibility and plan of operation;
and
(14) For EM loans, a statement of loss or damage on the appropriate
Agency form.
(b) For a Lo-Doc OL request, the applicant must:
(1) Be current on all payments to all creditors including the
Agency (if an Agency borrower);
(2) Have not received primary loan servicing on any Agency debt
within the past 5 years; and
(3) Meet one of the following sets of criteria:
(i) The loan requested is $50,000 or less and the total outstanding
Agency OL loan debt at the time of loan closing will be less than
$100,000; or
(ii) The loan requested is to pay annual operating expenses and the
applicant is an existing Agency borrower who has received and timely
repaid at least two previous annual OL loans from the Agency.
(4) Submit items (1), (2), (7), (9), and (11) of paragraph (a) of
this section. The Agency may require a Lo-Doc applicant to submit any
other information listed in paragraph (a) of this section as needed to
make a determination on the loan application.
(c) For a youth loan request:
(1) The applicant must submit items (1), (7), (8), (9) and (10) of
paragraph (a) of this section.
(2) Applicants 18 years or older, must also provide items (11) and
(12) of paragraph (a) of this section.
(3) The Agency may require a youth loan applicant to submit any
other information listed in paragraph (a) of this section as needed to
make a determination on the loan application.
(d) The applicant need not submit any information under this
section that already exists in the applicant's Agency file and is still
current.
Sec. 764.52 Processing an incomplete application.
(a) Within 10 days of receipt of an incomplete application, the
Agency will provide the applicant written notice of any additional
information which must be provided. The applicant must provide the
additional information within 20 calendar days of the date of this
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 this
second notice.
Sec. 764.53 Processing the complete application.
Upon receiving a complete loan application, the Agency will:
(a) Consider the loan application in the order received, based on
the date the application was determined to be complete; and
(b) Provide written notice to the applicant that the application is
complete.
Sec. 764.54 Acting on complete applications.
(a) Within 60 calendar days after receiving a complete loan
application, the Agency will complete the processing of the loan
request.
(b) If, based on the Agency's review of the application, it appears
the applicant's credit needs could be met through the guaranteed loan
program, the Agency will assist the applicant in securing guaranteed
loan assistance under the market placement program in accordance with
Sec. 762.110(g) of this chapter.
(c) In the absence of funds for a direct loan program, the Agency
will keep an approved loan application on file until funding is
available. At least annually
[[Page 6080]]
the Agency will contact the applicant to determine if the Agency should
retain the application or if the applicant wants the application
withdrawn.
(d) If funding becomes available, the Agency will resume processing
of approved loans in accordance with this part.
Sec. 764.55 Preferences when there is limited funding.
(a) First priority. When there is a shortage of loan funds,
approved applications will be funded in the order of the date the
application was received, whether or not complete.
(b) Secondary priorities. If two or more applications were received
on the same date, the Agency will give preference to:
(1) First, an applicant who is a veteran of any war, as defined in
38 U.S.C. 101(12);
(2) Second, an applicant who is not a veteran, but:
(i) Has a dependent family;
(ii) Is able to make a down payment; or
(iii) Owns livestock and farm implements necessary to farm
successfully.
(3) Third, to other eligible applicants.
Sec.Sec. 764.56--764.100 [Reserved]
Subpart C--Requirements for All Direct Program Loans
Sec. 764.101 General eligibility requirements.
FLP loan applicants must meet all of the following requirements,
unless otherwise provided in the eligibility requirements for the
particular type of loan.
(a) No prior drug convictions. The applicant, and all entity
members, in the case of an entity applicant, must not have been
convicted under Federal or state law, within the last five crop years,
of planting, cultivating, growing, producing, harvesting, or storing a
controlled substance, as defined at 21 CFR part 1308.
(b) Legal capacity. The applicant must possess the legal capacity
to incur the obligation of the loan. A Youth loan applicant will incur
full personal liability upon execution of the promissory note without
regard to the applicant's minority status.
(c) Citizenship. The applicant must be a citizen of the United
States, United States non-citizen national, or a qualified alien under
applicable Federal immigration laws. For an entity applicant, the
majority of the entity must be owned by members meeting the citizenship
test or other entities that are domestically owned.
(d) Credit history. The applicant must have acceptable credit
history demonstrated by debt repayment. A history of failures to repay
past debts as they came due when the ability to repay was within the
applicant's control will demonstrate unacceptable credit history. As
part of the credit history the Agency will determine whether the
applicant will make a sincere effort to repay the loan, devote the
effort required to carry out the terms and conditions of the loan, and
deal with the Agency in good faith. This includes the applicant
providing current, complete, and truthful information when applying for
assistance and in all past dealings with the Agency. In making this
determination, the Agency may examine whether the applicant has
properly fulfilled its obligations to other parties, including other
agencies of the Federal Government.
(e) Availability of credit elsewhere. The applicant, and all entity
members in the case of an entity applicant, must be unable to obtain
sufficient credit elsewhere to finance actual needs at reasonable rates
and terms. The Agency will evaluate the applicant's ability to obtain
credit based on factors including, but not limited to:
(1) Loan amounts, rates, and terms available in the marketplace;
and
(2) An applicant's property interests, income, and significant
nonessential assets.
(f) Not delinquent on Federal debt. Except for EM loan applicants,
the applicant, and anyone who will execute the promissory note, must
not be delinquent on any Federal debt, other than a debt under the
Internal Revenue Code of 1986 at the time of loan closing. However,
debt under the Internal Revenue Code of 1986, will be considered in
determining creditworthiness and ability to repay.
(g) Outstanding judgements. The applicant, and anyone who will
execute the promissory note, must have no outstanding unpaid judgements
obtained by the United States in any court. Such judgements do not
include those filed as a result of action in the United States Tax
Courts.
(h) Managerial ability. The applicant must have sufficient
managerial ability to assure reasonable prospects of loan repayment, as
determined by the Agency. The applicant must demonstrate this
managerial ability by education, on-the-job training, or farming
experience within the last five years. The farming experience must
cover at least one entire production cycle.
(i) Borrower training. The applicant must agree to meet the
training requirements in subpart J of this part.
(j) Family farm. Depending on the type of loan requested, the
applicant must be the owner-operator or tenant-operator of a family
farm after the loan is closed. For an entity applicant:
(1) All members must be involved in the operation;
(2) Any other farming operations, in which any of the members are
owners, must be no larger than a family farm; and
(3) Except for EM loans, the collective interests of the members
may be larger than a family farm only if:
(i) Each member's ownership interest is not larger than a family
farm; and
(ii) All of the members of the entity are related by blood or
marriage.
(k) Entity composition. If the applicant is an entity, the entity
must not be:
(1) An estate or trust, unless the trust would qualify as a joint
operation;
(2) A corporation, partnership, or joint operation with 50 percent
or more of the ownership held solely or in a combination by another
estate, trust, corporation, a partnership, or a joint operation; and
(3) An integrated livestock, poultry, or aquaculture processor who
operates primarily and directly as commercial business through
contracts or business arrangements with farmers.
Sec. 764.102 General limitations.
(a) Program limitations. Limitations specific to each loan program
are contained in subparts D through H of this part.
(b) General limitations. (1) Maximum loan limits. The total
principal balance owed to the Agency at any one time by the applicant,
or any one who will sign the promissory note, cannot exceed the limits
established in Sec. 761.8.
(2) Loan funds used in the United States. The funds from the Agency
loan must be used for farming operations located in the United States.
(3) Highly erodible land and wetlands conversion. The Agency will
not make a loan for any purpose that contributes to excessive erosion
of highly erodible land, as determined by the Agency, or to the
conversion of wetlands to produce an agricultural commodity.
(4) Construction. Any construction financed by the Agency must
comply with the standards established in Sec. 761.10.
(5) Noncontiguous tracts. The Agency will not make a loan if the
distance between the tracts to be farmed will prevent an efficient
farming operation.
(6) Non-eligible enterprise. Loan funds will not be used to
establish or support
[[Page 6081]]
a non-eligible enterprise, even if the non-eligible enterprise
contributes to the farm.
Sec. 764.103 General security requirements.
(a) Program security requirements. Security requirements specific
to each loan program are outlined in subparts D through H.
(b) Security requirements. (1) Adequate security. All loans must be
secured by assets having a security value equal to 100 percent of the
loan amount, except for EM loans as provided in subpart H of this part.
If the applicant's assets do not provide adequate security, the Agency
may accept:
(i) A pledge of security from a third party; or
(ii) Interests in property not owned by the applicant (such as
leases that provide a mortgageable value, water rights, easements,
mineral rights, and royalties).
(2) Additional security. An additional amount of security up to 150
percent of the loan amount will be taken when available, except for
beginning farmer downpayment loans and youth loans.
(3) Choice of security. The Agency will choose the best security
available when there are several alternatives that meet the Agency's
security requirements.
(4) Non-essential assets. The Agency will take a lien on all assets
that are not essential to the farming operation and are not being
converted to cash to reduce the loan amount when each such asset has a
value in excess of $5,000. The value of this security is not included
in the Agency's additional security requirement stated in paragraph
(b)(2) of this section. This requirement does not apply to beginning
farmer downpayment loans and youth loans.
Sec. 764.104 General real estate security requirements.
(a) Agency lien position requirements. If real estate is pledged as
security for a loan, the Agency must obtain a first lien, if available.
When a first lien is not available, the Agency may take a junior lien
under the following conditions:
(1) The prior lien does not contain any provisions that may
jeopardize the Agency's interest or an applicant's ability to repay the
Agency loan;
(2) Prior lienholders agree to notify the Agency prior to
foreclosure;
(3) The applicant must agree not to increase an existing prior lien
without the written consent of the Agency; and
(4) Equity in the collateral exists.
(b) Real estate held under a purchase contract. If the real estate
offered as security is held under a recorded purchase contract:
(1) The applicant must provide a security interest in the real
estate.
(2) The applicant and the purchase contract holder must agree in
writing that any insurance proceeds received for real estate losses
will be used only for one or more of the following purposes:
(i) To replace or repair the damaged real estate improvements which
are essential to the farming operation;
(ii) To make other essential real estate improvements; or
(iii) To pay any prior real estate lien, including the purchase
contract.
(3) The purchase contract must provide the applicant with
possession, control and beneficial use of the property, and entitle the
applicant to marketable title upon fulfillment of the contract terms.
(4) The purchase contract must not:
(i) Be subject to summary cancellation upon default;
(ii) Contain provisions which jeopardize the Agency's security
position, or the applicant's ability to repay the loan.
(5) The purchase contract holder must agree in writing:
(i) Not to sell or voluntarily transfer their interest without
prior written consent of the Agency;
(ii) Not to encumber or cause any liens to be levied against the
property;
(iii) Not to take any action to accelerate, forfeit, or foreclose
the applicant's interest in the security property until a specified
period of time after notifying the Agency of the intent to do so;
(iv) To consent to the Agency making the loan and taking a security
interest in the applicant's interest under the purchase contract as
security for the Agency loan;
(v) Not to take any action to foreclose or forfeit the interest of
the applicant under the purchase contract because the Agency has
acquired the applicant's interest by foreclosure or voluntary
conveyance, or because the Agency has subsequently sold or assigned the
applicant's interest to a third party who will assume the applicant's
obligations under the purchase contract;
(vi) If the Agency acquires the applicant's interest under the
purchase contract by foreclosure or voluntary conveyance, the Agency
will not be deemed to have assumed any of the applicant's obligations
under the contract, provided that if the Agency fails to perform the
applicant's obligations while it holds the applicant's interest is
grounds for terminating the purchase contract;
(vii) To notify the Agency in writing of any breach by the
applicant; and
(viii) To give the Agency the option to rectify the conditions that
amount to a breach within 30 days after the date the Agency receives
written notice of the breach.
(c) Tribal lands held in trust or restricted. The Agency will take
security on tribal real estate held in trust or of restricted status,
provided that the United States Bureau of Indian Affairs provides a
title report and approves the lien.
(d) Security for more than one loan. The same real estate may be
pledged as security for more than one direct or guaranteed loan.
(e) Loans secured by leaseholds. A loan may be secured by a
mortgage on a leasehold, if the leasehold has negotiable value and can
be mortgaged.
Sec. 764.105 General chattel security requirements.
The same chattel may be pledged as security for more than one
direct or guaranteed loan.
Sec. 764.106 Exceptions to security requirements.
Notwithstanding any other provision of this part, the Agency will
not take a security interest:
(a) When adequate security is otherwise available and the lien will
prevent the applicant from obtaining credit from other sources;
(b) When the property could have significant environmental problems
or costs as described in 7 CFR 799;
(c) When the Agency cannot obtain a valid lien;
(d) When the property is the applicant's personal residence and
appurtenances and:
(1) They are located on a separate parcel; and
(2) The real estate that serves as security for the Agency loan
plus crops and chattels are greater than or equal to 150 percent of the
unpaid balance due on the loan;
(e) When the property is subsistence livestock, cash, special
collateral accounts the applicant uses for the farming operation,
retirement accounts, personal vehicles necessary for family living,
household goods, or small equipment such as hand tools and lawn mowers;
or
(f) On marginal land and timber that secures an outstanding ST
loan.
Sec. 764.107 General appraisal requirements for real estate and
chattel.
(a) Establishing value for real estate. The value of real estate
will be established by an appraisal completed in accordance with Sec.
761.7.
(b) Establishing value for chattels. The value of chattels will be
established as follows:
[[Page 6082]]
(1) Annual production. The security value of annual livestock and
crop production is presumed to be 100 percent of the projected annual
income generated from livestock and crop production.
(2) Livestock and equipment. The value of livestock and equipment
will be established by an appraisal completed in accordance with Sec.
761.7.
Sec. 764.108 General insurance requirements.
(a) The applicant must obtain and maintain insurance equal to the
lesser of the value of the security at the time of loan closing, or the
principal of the loan.
(b) All security, except growing crops, must be covered by hazard
insurance if it is readily available (sold by insurance agents in the
applicant's normal trade area) and economically feasible.
(c) Real estate security located in flood or mudslide prone areas
must be covered by flood or mudslide insurance.
(d) Prior to closing the loan, the applicant must have obtained at
least the catastrophic risk protection level of crop insurance coverage
for the crop during the crop year for which the loan is sought for each
crop which is a basic part of the applicant's total farming operation,
if such insurance is available, unless the applicant executes a written
waiver of any emergency crop loss assistance with respect to such crop.
(e) Growing crops used to provide adequate security must be covered
by crop insurance, if such insurance is available.
(f) The applicant must:
(1) List the Agency as loss payee for the insurance indemnity
payment or as a beneficiary of a mortgagee loss payable clause; and
(2) In the case of crop insurance, execute an assignment of
indemnity in favor of the Agency.
Sec.Sec. 764.109-764.150 [Reserved]
Subpart D--Farm Ownership Loan Program
Sec. 764.151 Farm Ownership loan uses.
FO loan funds may only be used to:
(a) Acquire or enlarge a farm or make a down payment on a farm;
(b) Make capital improvements to a farm owned by the applicant, for
construction, purchase or improvement of farm dwellings, service
buildings or other facilities and improvements essential to the
operation. In the case of leased property, the applicant must have a
lease to ensure use of the improvement over its useful life or to
ensure that the applicant receives compensation for any remaining
economic life upon termination of the lease;
(c) Promote soil and water conservation and protection;
(d) Pay loan closing costs;
(e) Refinance a bridge loan if the following conditions are met:
(1) The applicant obtained the loan to be refinanced to purchase a
farm after a direct FO was approved;
(2) Direct FO funds were not available to fund the loan at the time
of approval;
(3) The loan to be refinanced is temporary financing; and
(4) The loan was made by a commercial or cooperative lender.
Sec. 764.152 Eligibility requirements.
The applicant:
(a) Must comply with the general eligibility requirements contained
in Sec. 764.101;
(b) And anyone who will sign the promissory note, must not have
received debt forgiveness from the Agency on any direct or guaranteed
loan;
(c) Must be the owner and operator of the farm after the loan is
closed;
(d) Except as provided in paragraph (f) of this section, must have
participated in the business operations of a farm if the applicant has:
(1) Been the owner, manager or operator of a farm business for the
year's complete production and marketing cycles as evidenced by tax
returns, FSA farm records or similar documentation;
(2) Been employed as a farm manager or farm management consultant
for the year's complete production and marketing cycles; or
(3) Participated in the operation of a farm by virtue of being
raised on a farm or having worked on a farm with significant
responsibility for the day-to-day decisions for the year's complete
production and marketing cycle, which may include selection of seed
varieties, weed control programs, input suppliers, or livestock feeding
programs or decisions to replace or repair equipment.
(e) And anyone who will sign the promissory note:
(1) Has never received a direct FO loan; or
(2) Must not have had direct FO loans outstanding for more than a
total of 10 years prior to the date that the new direct FO loan is
closed.
(f) And anyone who will sign the promissory note had direct FO
loans outstanding on April 4, 1996:
(1) For less than five years, then the applicant is eligible for FO
loans through April 4, 2006.
(2) For five years or more, then the applicant is no longer
eligible for direct FO loans.
Sec. 764.153 Limitations.
The applicant must:
(a) Comply with the general limitations contained in Sec. 764.102;
(b) Have dwellings and other buildings necessary for the planned
operation of the farm available for use after the loan is made.
Sec. 764.154 Rates and Terms.
(a) Rates. (1) The interest rate is the Agency's Direct Farm
Ownership rate, available in each Agency office.
(2) The limited resource Farm Ownership interest rate is available
to applicants who are unable to develop a feasible plan at regular
interest rates.
(3) If the FO loan is part of a joint financing arrangement and the
amount of the Agency's loan does not exceed 50 percent of the total
amount financed, the Agency will use the Farm Ownership participation
rate, available in each Agency office.
(b) Terms. The Agency schedules repayment of an FO loan based on
the applicant's ability to repay and the useful life of the security.
In no event will the term be more than 40 years from the date of the
note.
Sec. 764.155 Security requirements.
An FO loan must:
(a) Be secured in accordance with Sec.Sec. 764.103 through 764.106;
(b) Be secured, at a minimum, by real estate being purchased or
improved.
Sec.Sec. 764.156-764.200 [Reserved]
Subpart E--Beginning Farmer Downpayment Loan Program
Sec. 764.201 Beginning Farmer Downpayment loan uses.
Beginning Farmer Downpayment loan funds may be used to partially
finance the purchase of a family-sized farm by an eligible beginning
farmer.
Sec. 764.202 Eligibility requirements.
The applicant:
(a) Must comply with the general eligibility requirements
established at Sec. 764.101;
(b) And anyone who will sign the promissory note, must not have
received debt forgiveness from the Agency on any direct or guaranteed
loan;
(c) Must be the owner and operator of the farm after the loan is
closed;
(d) Must be a beginning farmer.
Sec. 764.203 Limitations.
(a) The applicant must:
(1) Comply with the general limitations established at Sec.
764.102; and
(2) Must provide a minimum downpayment of 10 percent of the
purchase price of the farm.
[[Page 6083]]
(b) The purchase price or appraised value of the farm, whichever is
lower, must not exceed $250,000.
(c) Beginning Farmer Downpayment loans will not exceed 40 percent
of the lesser of the purchase price or appraised value of the farm to
be acquired.
(d) Financing provided by the Agency and any other creditor must
not exceed 90 percent of the lesser of the purchase price or appraised
value of the farm and may be guaranteed by the Agency under part 762 of
this chapter.
Sec. 764.204 Rates and terms.
(a) Rates. The interest rate for Beginning Farmer Downpayment loans
shall be 4 percent.
(b) Terms. (1) The Agency schedules repayment of Beginning Farmer
Downpayment loans in equal, annual installments over a term not to
exceed 15 years.
(2) The non-Agency financing must have an amortization period of at
least 30 years and cannot have a balloon payment due within the first
15 years of the loan.
Sec. 764.205 Security requirements.
A Beginning Farmer Downpayment loan must:
(a) Be secured in accordance with Sec.Sec. 764.103 through 764.106;
(b) Be secured by a lien on the property being acquired with the
loan funds and junior only to the party financing the balance of the
purchase price.
Sec.Sec. 764.206-764.250 [Reserved]
Subpart F--Operating Loan Program
Sec. 764.251 Operating loan uses.
OL loan funds may only be used for:
(a) Payment of costs associated with reorganizing a farm to improve
its profitability;
(b) Purchase of livestock, including poultry, and farm equipment,
quotas and bases, and cooperative stock for credit, production,
processing or marketing purposes;
(c) Payment of annual farm operating expenses, including but not
limited to, feed, seed, fertilizer, pesticides, farm supplies, repairs
and improvements which are to be expensed, cash rent and family
subsistence;
(d) Payment of scheduled principal and interest payments on term
debt provided the debt is for authorized FO or OL purposes;
(e) Other farm needs;
(f) Payment of costs associated with land and water development,
use, or conservation;
(g) Payment of loan closing costs;
(h) Payment of costs associated with Federal or State-approved
standards under the Occupational Safety and Health Act of 1970 (29
U.S.C. 655 and 667) if the applicant can show that compliance or non-
compliance with the standards will cause substantial economic injury;
(i) Payment of borrower training costs required or recommended by
the Agency;
(j) Refinancing farm-related debts other than real estate to
improve farm profitability, if the applicant has refinanced direct or
guaranteed OL loans four times or fewer and one of the following
conditions is met:
(1) A designated or declared disaster caused the need for
refinancing; or
(2) The debts to be refinanced are owed to a creditor other than
the USDA;
(k) Payment of costs for minor real estate repairs or improvements,
not to exceed $15,000 per year.
Sec. 764.252 Eligibility requirements.
The applicant:
(a) Must comply with the general eligibility requirements
established at Sec. 764.101.
(b) And anyone who will sign the promissory note, except as
provided in paragraph (c) of this section, 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 CONACT by
debt write-down or write-off; compromise, adjustment, reduction, or
charge-off under the provision of section 331 of the CONACT; discharge
in bankruptcy; or through payment of a guaranteed loss claim under the
same circumstances.
(c) And anyone who will sign the promissory note may receive direct
OL loans to pay annual farm operating and family living expenses,
provided that the applicant meets all other eligibility requirements,
if the applicant:
(1) Received a write-down under section 353 of the CONACT;
(2) Is current on payments under a confirmed reorganization plan
under Chapter 11, 12, or 13 of Title 11 of the United States Code; or
(3) Received debt forgiveness on not more than one occasion after
April 4, 1996, resulting directly and primarily from a Presidentially-
designated emergency for the county in which the applicant operates.
Only applicants who were current on all existing direct and guaranteed
FLP loans prior to the beginning date of the incidence period of a
Presidentially-designated emergency and received debt forgiveness on
that debt within three years after the designation of such emergency
meet this exception.
(d) And anyone who will sign the promissory note, may close an OL
loan in no more than seven calendar years, either as an individual or
as a member of an entity, except as provided in paragraph (e) of this
section. The years may be consecutive or non-consecutive, and there is
no limit on the number of loans closed in a year. Youth loans are not
counted toward this limitation.
(e) And anyone who will sign the note who has closed direct OL
loans in four or more previous calendar years as of April 4, 1996, is
eligible to close direct OL loans in any three additional years after
that date.
(f) On a case-by-case basis, may request a one-time waiver of OL
term limits for a period of two years, not subject to administrative
appeal, if the applicant:
(1) Has a financially viable operation;
(2) Applied for commercial credit from at least two lenders;
(3) Was unable to obtain a commercial loan, including an Agency-
guaranteed loan; and
(4) Has successfully completed, or will complete within one year,
borrower training. Previous waivers to the borrower training
requirements are not applicable under this paragraph.
(g) Whose land is subject to the jurisdiction of an Indian tribe
and their loan is secured by one or more security instruments subject
to the jurisdiction of an Indian tribe may request a waiver of OL term
limits, provided that other credit is not available at reasonable rates
and terms.
Sec. 764.253 Limitations.
The applicant must comply with the general limitations established
at Sec. 764.102.
Sec. 764.254 Rates and terms.
(a) Rates. (1) The interest rate is the Agency's Direct Operating
Loan rate, available in each Agency office;
(2) The limited resource Operating Loan interest rate is available
to applicants who are unable to develop a feasible plan at regular
interest rates.
(b) Terms. (1) The Agency schedules repayment of annual OL loans
made for essential family living and farm operating expenses when
planned income is projected to be available, but not to exceed 18
months from the date of the note.
(2) The Agency schedules the repayment of all other OL loans based
on the applicant's ability to repay and the useful life of the
security. In no event will the term of the loan exceed seven years from
the date of the note.
Sec. 764.255 Security requirements.
An OL loan must be secured:
(a) In accordance with sections 764.103 through 764.106.
[[Page 6084]]
(b) By all property or products acquired, produced, or refinanced
with loan funds.
Sec.Sec. 764.256-764.300 [Reserved]
Subpart G--Youth Loan Program
Sec. 764.301 Youth loan uses.
Youth loan funds may only be used to finance a modest, income-
producing, agriculture-related, educational project while participating
in 4-H, FFA, or a similar organization.
Sec. 764.302 Eligibility requirements.
The applicant must:
(a) Comply with the general eligibility requirements established in
section 764.101, paragraphs (a) through (g);
(b) Be at least 10 but not yet 21 years of age at the time the loan
is closed;
(c) Reside in a rural area or any city or town with a population of
50,000 or fewer people;
(d) Be recommended and continuously supervised by a project
advisor, such as a 4-H Club advisor, a vocational teacher, home
economics teacher, county extension agent, or other agriculture-related
organizational sponsor; and
(e) Obtain a written recommendation and consent from a parent or
guardian if an applicant has not reached the age of majority under
state law.
Sec. 764.303 Limitations.
(a) The applicant must comply with the general limitations
established at Sec. 764.102(b).
(b) The total principal balance owed by the applicant to the Agency
on all Youth loans at any one time cannot exceed $5,000.
Sec. 764.304 Rates and terms.
(a) Rates. (1) The interest rate is the Agency's Direct Operating
Loan rate, available in each Agency office.
(2) The limited resource Operating Loan interest rate is not
available for Youth loans.
(b) Terms. Youth loan terms are the same as for an OL established
at Sec. 764.254(b).
Sec. 764.305 Security requirements.
A first lien will be obtained on property or products acquired or
produced with loan funds.
Sec.Sec. 764.306-764.350 [Reserved]
Subpart H--Emergency Loan Program
Sec. 764.351 Emergency loan uses.
(a) Physical losses. (1) Real estate losses. EM loan funds for real
estate physical losses may only be used to repair or replace property
damaged or destroyed as a result of a disaster as follows:
(i) For any FO purpose, as specified in Sec. 764.151, except
paragraph (e) of that section;
(ii) To establish a new site for farm dwelling and service
buildings outside of a flood or mudslide area; and
(iii) To replace land from the farm that was sold or conveyed, if
such land is necessary for the farming operation to be effective.
(2) Chattel losses. EM loan funds for chattel physical losses may
only be used to repair or replace property damaged or destroyed as a
result of a disaster as follows:
(i) Purchase livestock, farm equipment, quotas and bases, and
cooperative stock for credit, production, processing, or marketing
purposes;
(ii) Pay customary costs associated with obtaining and closing a
loan that an applicant cannot pay from other sources;
(iii) Repair or replace essential household contents damaged in the
disaster;
(iv) Pay the costs to restore perennials, which produce an
agricultural commodity, to the stage of development the damaged
perennials had obtained prior to the disaster;
(v) Pay essential family household expenses, in the case of a
farming operation that has suffered livestock losses or losses to
stored crops held for sale; and
(vi) Refinance farm-related debts other than real estate to improve
farm profitability, if the applicant has refinanced direct or
guaranteed loans four times or fewer and one of the following
conditions is met:
(A) A designated or declared disaster caused the need for
refinancing; or
(B) The debts to be refinanced are owed to a creditor other than
the USDA.
(b) Production losses. EM loan funds for production of agricultural
commodities (except the losses associated with the loss of livestock)
may be used to:
(1) Pay costs associated with reorganizing the farm to improve its
profitability;
(2) Pay annual operating expenses, which include but are not
limited to, feed, seed, fertilizer, pesticides, farm supplies, and cash
rent;
(3) Payment of costs associated with Federal or State-approved
standards under the Occupational Safety and Health Act of 1970 (29
U.S.C. 655 and 667) if the applicant can show that compliance or non-
compliance with the standards will cause substantial economic injury;
(4) Pay borrower training costs required or recommended by the
Agency;
(5) Pay essential family household expenses;
(6) Refinance farm-related debts other than real estate to improve
farm profitability, if the applicant has refinanced direct or
guaranteed loans four times or fewer and one of the following
conditions is met:
(i) A designated or declared disaster caused the need for
refinancing; or
(ii) The debts to be refinanced are owed to a creditor other than
the USDA; and
(7) Replace lost working capital.
Sec. 764.352 Eligibility requirements.
(a) Eligibility requirements. The applicant:
(1) Must comply with the general eligibility requirements
established at Sec. 764.101;
(2) Must be an established farmer;
(3) Must be the owner and operator, or operator as follows:
(i) For a loan made under Sec. 764.351(a)(1), must be:
(A) The owner and operator of the farm at the time of the disaster;
or
(B) The operator of the farm at the time of the disaster whose
lease on the affected real estate exceeds the term of the loan. The
operator will provide prior notification to the Agency if the lease is
proposed to terminate during the term of the loan. The lessor will
provide the Agency a mortgage on the real estate as security for the
loan; and
(ii) For a loan made under Sec. 764.351(a)(2) or (b), must be the
operator of the farm at the time of the disaster.
(4) In the case of an entity:
(i) If the owners holding a majority interest in the entity
applicant are related by blood or marriage, at least one of such
related owners must operate the farm; or
(ii) If the owners holding a majority interest in the entity
applicant are not related by blood or marriage, the majority interest
holders must all operate the farm; and
(iii) If the entity applicant has an owner-operator or operator
interest in any other farming operation, that farming operation must
not be larger than a family farm;
(5) Must demonstrate the intent to continue the farm operation
after the designated or declared disaster;
(6) Must be unable to obtain sufficient credit elsewhere at
reasonable rates and terms. To establish this, the applicant must
obtain written declinations of credit, specifying the reasons for
declination, from legally organized
[[Page 6085]]
commercial lending institutions within reasonable proximity of the
applicant as follows:
(i) In the case of a loan in excess of $300,000, two written
declinations of credit are required;
(ii) In the case of a loan of less than $300,000, one written
declination of credit is required; and
(iii) In the case of a loan of $100,000 or less, the Agency may
waive the requirement for obtaining a written declination of credit, if
the Agency determines that it would pose an undue burden on the
applicant, the applicant certifies that they cannot get credit
elsewhere, and based on the applicant's circumstances credit is not
likely to be available;
(7) And any entity member must not have received debt forgiveness
from the Agency on more than one occasion before April 4, 1996, or any
time on or after April 4, 1996.
(b) Additional EM loan eligibility requirements. (1) An EM loan
application must be received by the Agency not later than eight months
after the date the designated or declared disaster occurred in the
county of the applicant's farming operation.
(2) For production loss loans, an applicant must have a disaster
yield that is at least 30 percent below the normal production yield of
the crop, as determined by the Agency, that comprises a basic part of
an applicant's total farming operation.
(3) For physical loss loans, an applicant must have suffered
disaster-related damage to chattel or real estate essential to the
farming operation, or to household items that must be repaired or
replaced.
(4) If the ownership structure of a family farm changes between the
time of a qualifying loss and the time an EM loan is closed, all of the
following requirements must be met:
(i) The applicant, in the new form, including all owners must meet
all of the eligibility requirements;
(ii) The new individual applicant, or all owners of a new entity
applicant, must have had an ownership interest in the farming operation
at the time of the disaster; and
(iii) The amount of the loan will be based on the percentage of the
former farming operation transferred to the new applicant and in no
event will the individual portions aggregated equal more than would
have been authorized for the former farming operation.
Sec. 764.353 Limitations.
(a) EM loans must comply with the general limitations established
at Sec. 764.102.
(b) EM loans may not exceed the lesser of:
(1) The amount of credit necessary to restore the farming operation
to its pre-disaster condition;
(2) In the case of a physical loss loan, the total eligible
physical losses caused by the disaster; or
(3) In the case of a production loss loan, 100 percent of the total
actual production loss sustained by the applicant as calculated in
paragraph (d) of this section.
(c) For production loss loans, the applicant's actual crop
production loss will be calculated as follows:
(1) Subtract the disaster yield from the normal yield to determine
the per acre production loss;
(2) Multiply the per acre production loss by the number of acres of
the farming operation devoted to the crop to determine the volume of
the production loss;
(3) Multiply the volume of the production loss by the market price
for such crop as determined by the Agency to determine the dollar value
for the production loss; and
(4) Subtract any other disaster related compensation received by
the applicant for the production loss.
(d) For a physical loss loan, the applicant's total eligible
physical losses will be calculated as follows:
(1) Add the allowable costs associated with replacing or repairing
chattel covered by hazard insurance (excluding labor, machinery,
equipment, or materials contributed by the applicant to repair or
replace chattel);
(2) Add the allowable costs associated with repairing or replacing
real estate, covered by hazard insurance;
(3) Add the value of replacement livestock for which the applicant
provided:
(i) Written documentation of inventory on hand immediately
preceding the loss;
(ii) Records of livestock product sales sufficient to allow the
Agency to establish a value;
(4) Add the allowable costs to restore perennials to the stage of
development the damaged perennials had obtained prior to the disaster;
(5) Add, in the case of an individual applicant, the allowable
costs associated with repairing or replacing essential household
contents, not to exceed $20,000; and
(6) Subtract any other disaster related compensation received by
the applicant for the loss or damage to the chattel or real estate.
(e) EM loan funds may not be used for physical loss purposes unless
that physical property was covered by general hazard insurance at the
time that the damage caused by the natural disaster occurred. The level
of the coverage in effect at the time of the disaster must have been
the tax or cost depreciated value, whichever is less. Chattel property
must have been covered at the tax or cost depreciated value, whichever
is less, when such insurance was readily available and the benefit of
the coverage was greater than the cost of the insurance.
(f) EM loan funds may not be used to refinance consumer debt, such
as automobile loans, or credit card debt unless such credit card debt
is directly attributable to the farming operation.
Sec. 764.354 Rates and terms.
(a) Rates. The interest rate is the Agency's Emergency Loan Actual
Loss rate, available in each Agency office.
(b) Terms. (1) The Agency schedules repayment of EM loans based on
the useful life of the loan security, the applicant's repayment
ability, and the type of loss.
(2) The repayment schedule must include at least one payment every
year.
(3) EM loans for annual operating expenses must be repaid within 12
months. The Agency may extend this term to not more than 18 months to
accommodate the production cycle of the agricultural commodities.
(4) EM loans for production losses or physical losses to chattel
(including but not limited to assets with an expected life between one
and seven years) may not exceed seven years. The Agency may extend this
term up to a total length not to exceed 20 years, if necessary to
improve the applicant's repayment ability and real estate security is
available.
(5) The repayment schedule for EM loans for physical losses to real
estate is based on the applicant's repayment ability and the useful
life of the security, but in no case will the term exceed 40 years.
Sec. 764.355 Security requirements.
(a) EM loans made under Sec. 764.351(a)(1) must comply with the
general security requirements established at Sec.Sec. 764.103, 764.104
and 764.155(b).
(b) EM loans made under Sec. 764.351(a)(2) and (b) must comply with
the general security requirements established at Sec.Sec. 764.103,
764.104 and 764.255(b).
(c) When adequate security is not available because of the
disaster, the loan may be approved if the Agency determines, based on
an otherwise feasible plan, there is a reasonable
[[Page 6086]]
assurance that the applicant has the ability to repay the loan
provided:
(1) The applicant has pledged as security for the loan, all
available personal and business security, except as provided in Sec.
764.106;
(2) The farm plan, approved by the Agency, indicates the loan will
be repaid based upon the applicant's production and income history;
addresses applicable pricing risks through the use of marketing
contracts, hedging, or options and includes a marketing plan or similar
risk management practice; and
(3) The applicant has had positive net cash farm income in at least
3 of the past 5 years.
(d) For loans over $25,000, title clearance is required when real
estate is taken as security.
(e) For loans of $25,000 or less, when real estate is taken as
security, a certification of ownership in real estate is required.
Certification of ownership may be in the form of an affidavit which is
signed by the applicant, names the record owner of the real estate in
question and lists the balances due on all known debts against the real
estate. Whenever the loan approving official is uncertain of the record
owner or debts against the real estate security, a title search is
required.
Sec. 764.356 Appraisal and valuation requirements.
(a) In the case of physical losses associated with livestock, the
applicant must have written documentation of the inventory of livestock
and records of livestock product sales sufficient to allow the Agency
to value such livestock or livestock products just prior to the loss.
(b) In the case of farm assets damaged by the disaster, the value
of such security shall be established as of the day before the disaster
occurred.
Sec.Sec. 764.357-764.400 [Reserved]
Subpart I--Loan Decision and Closing
Sec. 764.401 Loan decision.
(a) Loan approval. (1) The Agency will approve a loan only if it
determines that:
(i) The applicant's operating plan reflects a feasible plan, which
includes repayment of the proposed loan and demonstrates that all other
credit needs can be met;
(ii) The proposed use of loan funds is authorized for the type of
loan requested;
(iii) The applicant has been determined eligible for the type of
loan requested;
(iv) All security requirements for the type of loan requested have
been, or will be met before the loan is closed;
(v) The applicant's total indebtedness to the Agency, including the
proposed loan, will not exceed the maximum limits established in Sec.
761.8 of this chapter;
(vi) There have been no significant changes in the plan of
operation or the applicant's financial condition since the time the
Agency received a complete application; and
(vii) All other pertinent requirements have been, or will be met
before the loan is closed.
(2) The Agency will place conditions upon loan approval it
determines necessary to protect its interest and maximize the
applicant's potential for success.
(b) Loan denial. The Agency will not approve a loan if it
determines that:
(1) The applicant's operating plan does not reflect a feasible
plan;
(2) The proposed use of loan funds is not authorized for the type
of loan requested;
(3) The applicant does not meet the eligibility requirements for
the type of loan requested;
(4) There is inadequate security for the type of loan requested;
(5) Approval of the loan would cause the applicant's total
indebtedness to the Agency to exceed the maximum limits established in
Sec. 761.8;
(6) The applicant's circumstances may not permit continuous
operation and management of the farm; or
(7) The applicant, the applicant's operation, or other
circumstances surrounding the loan are inconsistent with the
authorizing statutes, other Federal laws, or Federal credit policies.
(c) Overturn of an Agency decision by appeal. If an Agency loan
denial is overturned on administrative appeal, the Agency will not
automatically approve the loan. Unless prohibited by the final appeal
determination, the Agency will:
(1) Request current financial information from the applicant as
necessary to determine whether any changes in the applicant's financial
condition or agricultural conditions which occurred after the Agency's
adverse decision was made will adversely affect the applicant's
operation;
(2) Approve a loan for crop production only if the Agency can
determine that the applicant will be able to produce a crop in the
production cycle for which the loan is requested;
(3) The applicant's operating plan, as modified based on the appeal
decision, reflects a feasible plan, which includes repayment of the
proposed loan and demonstrates that all other credit needs can be met.
Sec. 764.402 Loan closing.
(a) General. (1) Signatures on loan documents are required as
follows:
(i) For individual applicants, only the applicant is required to
sign the promissory note.
(ii) For entity applicants, the promissory note will be executed to
evidence the liability of the entity and the individual liability of
all members of the entity.
(iii) Despite minority status, a youth executing a promissory note
for a Youth loan will incur full personal liability for the debt.
(iv) A cosigner will be required to sign the promissory note only
when the applicant cannot meet the repayment requirements for the loan
requested.
(v) All signatures needed for the Agency to acquire the required
security interests will be obtained according to State law.
(2) Loan funds will be made available to the applicant within 15
days of loan approval, subject to the availability of funding.
(3) If the loan is not closed within 90 days of loan approval or if
the applicant's financial condition changes significantly, the Agency
must reconfirm the requirements for loan approval prior to loan
closing. The applicant may be required to provide updated information
in order for the Agency to reconfirm approval and proceed with loan
closing.
(b) Real estate-secured loans. The Agency will close a real estate
loan only when it determines that the Agency requirements for the loan
have been satisfied and when the closing agent can issue a policy of
title insurance or final title opinion as of the date of closing. The
title insurance or final title opinion must show title vested as
required by the Agency, the lien of the Agency's security instrument in
the priority required by the Agency, and title to the security
property, subject only to those exceptions approved in writing by the
Agency.
(1) The Agency must approve agents who will close Agency loans. In
order to be approved, closing agents must meet all of the following
requirements to the Agency's satisfaction:
(i) Be licensed in the state where the loan will be closed;
(ii) Not be debarred or suspended from participating in any Federal
programs;
(iii) Maintain liability insurance;
(iv) Have a fidelity bond which covers all employees with access to
loan funds;
[[Page 6087]]
(v) Have current knowledge of the requirements of State law in
connection with the loan closing and title clearance;
(vi) Not represent both the buyer and seller in the transaction;
(vii) Not be related as a family member or business associate with
the applicant; and
(viii) Act promptly to provide required services.
(2) Except as provided in Sec. 764.355 for EM loans, title
clearance and legal services are required for all loans and may be
completed by the Agency or an approved agent. This requirement may be
waived:
(i) For loans of $10,000 or less;
(ii) When the real estate is considered additional security by the
Agency; or
(iii) When the real estate is a non-essential asset.
(c) Chattel-secured loans. The following requirements apply to
loans secured by chattel:
(1) The Agency will not close a loan secured by chattels until it
is satisfied that the loan has been secured;
(2) The Agency requires a financing statement for every loan except
when a filed financing statement covering the applicant's property is
still effective, covers all types of chattel property that will serve
as security for the loan, describes the land on which crops and
fixtures are or will be located, and complies with the law of the
jurisdiction where filed;
(3) The Agency requires a new security agreement for all new loans
prior to the disbursement of loan funds.
(d) Payment of fees. The applicant, or in the case of a real estate
purchase, the applicant and seller, must pay all filing, recording,
notary, lien search, and any other fees necessary to process and close
a loan.
(e) Disbursement of funds. The Agency or closing agent will be
responsible for disbursing loan funds. The Agency may require a
supervised bank account in accordance with subpart B of part 761 of
this chapter or disburse funds directly to the applicant.
Sec.Sec. 764.403-764.450 [Reserved]
Subpart J--Borrower Training and Training Vendor Requirements
Sec. 764.451 Purpose.
The purpose of production and financial management training is to
help a direct loan borrower develop and improve skills necessary to:
(a) Successfully operate a farm;
(b) Build equity in the farm business; and
(c) Become financially successful and prepared to graduate from
Agency financing to commercial sources of credit.
Sec. 764.452 Borrower training requirements.
(a) The Agency will require a loan applicant to agree to complete
production and financial management training, unless the Agency
provides a waiver in accordance with Sec. 764.453, or the borrower has
previously satisfied the training requirements. In the case of an
entity borrower:
(1) The Agency will require any individual member holding a
majority interest in the entity or who is operating the farm to
complete training on behalf of the entity, except as provided in
paragraph (a)(2) of this section;
(2) If one entity member is solely responsible for financial or
production management, then only that member will be required to
complete training.
(b) When the Agency determines that production training is
required, a borrower must agree to complete course work covering
production management in each crop or livestock enterprise that the
Agency determines necessary.
(c) When the Agency determines that financial management training
is required, a borrower must agree to complete course work covering all
aspects of farm accounting and integrating accounting elements into a
financial management system.
(d) The Agency will require a borrower who applies for a loan to
finance a new enterprise, such as a new crop or a new type of
livestock, to agree to complete production training with regard to that
enterprise, even if production training requirements were waived or
satisfied under a previous loan request, unless the Agency provides a
waiver in accordance with Sec. 764.453.
(e) If a waiver is granted, the Agency will require borrower
training as a condition for future loans if Agency supervision provided
in 7 CFR 761 subpart C, reflects that such training is needed.
(f) The Agency cannot reject a request for a direct loan based
solely on a loan applicant's or borrower's need for training.
(g) Any notification of required training or waiver of training
must be in writing.
Sec. 764.453 Agency waiver of training requirements.
(a) The applicant must request the waiver in writing.
(b) The Agency will grant a waiver for training in production,
financial management, or both, under the following conditions:
(1) The applicant submits evidence of successful completion of a
course similar to a course approved under section Sec. 764.457 and
additional training is not needed; or
(2) The applicant submits evidence which demonstrates to the
Agency's satisfaction the experience and training necessary for a
successful and efficient operation.
(c) If the production and financial functions of the farming
operation are shared among individuals, the Agency will consider the
collective knowledge and skills of the individuals when determining
whether to waive training requirements.
Sec. 764.454 Actions that a borrower must take when training is
required.
(a) Deadline for completion of training. (1) If the Agency requires
a borrower to complete training, at loan closing the borrower must
agree in writing to complete all required training within two years.
(2) The Agency will grant a one-year extension to complete training
if the borrower is unable to complete training within the two-year
period due to circumstances beyond the borrower's control.
(3) The Agency will grant an extension longer than one year for
extraordinary circumstances as determined by the Agency.
(4) A borrower who does not complete the required training within
the specified time period will be ineligible for additional direct FLP
loans.
(b) Arranging training with a vendor. The borrower must select and
contact an Agency approved vendor and make all arrangements to begin
training.
(c) Payment of training fees. (1) A borrower is responsible for the
cost of training and must include training fees in the farm operating
plan as a farm operating expense.
(2) A borrower's payment of training fees is an authorized use of
OL funds.
(3) The Agency is not a party to fee or other agreements between
the borrower and vendor.
(d) Borrower evaluation of a vendor. Upon completion of the
required training, the borrower will complete an evaluation of the
course and submit it to the vendor. The vendor will forward completed
evaluation forms to the Agency for consideration.
Sec. 764.455 Potential training vendors.
The Agency will contract for training services with State or
private providers of production and financial management training
services.
Sec. 764.456 Applying to be a vendor.
(a) A vendor for borrower training services must apply to the
Agency for approval.
[[Page 6088]]
(b) The vendor application must include:
(1) A sample of the course materials and a description of the
vendor's training methods;
(2) Specific training objectives for each section of the course;
(3) A detailed course agenda specifying the topics to be covered,
the time devoted to each topic, and the number of sessions to be
attended;
(4) A list of instructors and their qualifications;
(5) The criteria by which additional instructors will be selected;
(6) The proposed locations where training will take place;
(7) The cost per participant and the cost per organization;
(8) The minimum and maximum class size;
(9) A description of the vendor's experience in developing and
administering training to farmers;
(10) A description of the monitoring and quality control methods
the vendor will use;
(11) A description of the policy on allowing Agency employees to
attend the course for monitoring purposes;
(12) A description of how the needs of borrowers with physical or
mental disabilities or learning disabilities will be met; and
(13) A plan of how the needs of borrowers who do not speak English
as their primary language will be met.
Sec. 764.457 Vendor requirements.
Vendors must meet the following requirements.
(a) Minimum experience. The vendor must demonstrate a minimum of
three years of experience in conducting training courses or teaching
the subject matter.
(b) Training objectives. The courses provided by a vendor must
enable the borrower to accomplish one or more of the following
objectives:
(1) Describe the specific goals of the business, any changes
required to attain the goals, and outline how these changes will occur
using present and projected business budgets;
(2) Maintain and use a financial management information system to
make financial decisions;
(3) Understand and use an income statement;
(4) Understand and use a balance sheet;
(5) Understand and use a cash flow budget; and
(6) Use production records and other production information to
identify problems, evaluate alternatives, and correct current
production practices to improve efficiency and profitability.
(c) Curriculum. At least one of the following subjects must be
covered:
(1) Business planning courses, covering general goal setting, risk
management, and planning.
(2) Financial management courses, covering all aspects of farm
accounting and focusing on integrating accounting elements into a
financial management system.
(3) Crop and livestock production courses focusing on improving the
profitability of the farm.
(d) Instructor qualifications. All instructors must have:
(1) Sufficient knowledge of the material and experience in adult
education;
(2) A bachelor's degree or comparable experience in the subject
area to be taught; and
(3) A minimum of three years experience in conducting training
courses or teaching.
Sec. 764.458 Vendor approval.
(a) Agreement to conduct training. (1) Upon approval, the vendor
must sign an agreement to conduct training for the Agency's borrowers.
(2) The agreement to conduct training is valid for three years.
(3) Any changes in curriculum, instructor, or cost require prior
approval by the Agency.
(4) The vendor may revoke the agreement by giving a written 30-day
notice.
(5) The Agency may revoke the agreement if the vendor does not
comply with the responsibilities listed in the agreement by giving a
written 30-day notice.
(b) Renewal of agreement to conduct training. (1) To renew an
agreement to conduct training, a vendor must submit in writing to the
Agency:
(i) A request to renew the agreement;
(ii) Any changes in curricula, instructor, or cost; and
(iii) Documentation that the vendor is providing effective
training.
(2) The Agency will review renewal requests in accordance with Sec.
764.457.
Sec. 764.459 Evaluation of borrower progress.
(a) The vendor must provide the Agency with a periodic progress
report for each borrower enrolled in training in accordance with the
agreement to complete training. The reports will indicate whether the
borrower is attending sessions, completing the training program, and
demonstrating an understanding of the course material.
(b) Upon borrower completion of the training, the vendor must
provide the Agency with an evaluation of the borrower's knowledge of
the course material and assign a score. The following table lists the
possible scores, the criteria used to assign each score, and Agency
consideration of each score:
------------------------------------------------------------------------
Score Criteria used to determine score Agency consideration
------------------------------------------------------------------------
1 If the borrower: Training requirement
associated with course
is complete.
Attended
classroom sessions as agreed,
Satisfactorily
completed all assignments, and
Demonstrated an
understanding of the course
material.
2 If the borrower: Training requirement
Attended classroom associated with course
sessions as agreed, and is complete.
Attempted to Additional Agency
complete all assignments, but supervision may be
Does not necessary.
demonstrate an understanding of the
course material.
3 If the borrower did not: Training requirement
Attend classroom associated with course
sessions as agreed, or is not complete.
Attempt to The borrower is
complete assignments, or ineligible for future
Otherwise make a direct loans.
good faith effort to complete the
training.
------------------------------------------------------------------------
Sec.Sec. 764.460-764.500 [Reserved]
13. Add part 765 to read as follows:
PART 765--DIRECT LOAN SERVICING--REGULAR
Sec.
Subpart A--Overview
765.1 Introduction to Direct Loan Servicing--Regular.
765.2 Abbreviations and definitions.
[[Page 6089]]
765.3-765.50 [Reserved]
Subpart B--Borrowers with Limited Resource Interest Rate Loans
765.51 Annual review.
765.52-765.100 [Reserved]
Subpart C--Borrower Graduation
765.101 Borrower graduation requirements.
765.102 Borrower noncompliance with graduation requirements.
765.103-765.150 [Reserved]
Subpart D--Borrower Payments
765.151 Handling payments.
765.152 Types of payments.
765.153 Application of payments.
765.154 Distribution of payments.
765.155 Final loan payments.
765.156-765.200 [Reserved]
Subpart E--Protecting the Agency's Security Interest
765.201 General policy.
765.202 Borrower responsibilities.
765.203 Protective advances.
765.204 Notifying potential purchasers.
765.205 Subordination of liens.
765.206 Junior liens.
765.207 Conditions for severance agreements.
765.208-765.250 [Reserved]
Subpart F--Required Use and Operation of Agency Security
765.251 General.
765.252 Lease of security.
765.253 Operating security.
765.254-765.300 [Reserved]
Subpart G--Disposal of Chattel Security
765.301 General.
765.302 Use and maintenance of agreement of use of proceeds.
765.303 Use of proceeds from chattel security.
765.304 Unapproved disposition.
765.305 Release of security interest.
765.306-765.350 [Reserved]
Subpart H--Partial Release of Real Estate Security
765.351 Requirements to obtain Agency consent.
765.352 Use of proceeds.
765.353 Determining market value.
765.354-765.400 [Reserved]
Subpart I--Transfer of Security and Assumption of Debt
765.401 Conditions for transfer of real estate and chattel security.
765.402 Transfer of security and loan assumption on same rates and
terms.
765.403 Transfer of security to and assumption of debt by eligible
borrowers.
765.404 Transfer of security to and assumption of debt by ineligible
borrowers.
765.405 Payment of costs associated with transfers.
765.406 Release of transferor from liability.
765.407-765.450 [Reserved]
Subpart J--Deceased Borrowers
765.451 Continuation of FLP debt and transfer of security.
765.452 Borrowers with Non-program loans.
765.453-765.500 [Reserved]
Subpart K--Exception Authority
765.501 Agency exception authority.
765.502-765.550 [Reserved]
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
Subpart A--Overview
Sec. 765.1 Introduction to Direct Loan Servicing--Regular.
(a) Purpose. This part describes the general policies for servicing
FLP direct loans, except for borrowers who are delinquent, financially
distressed, or otherwise in default on their loan.
(b) Servicing actions described in this part. Servicing actions
described in this part include:
(1) Limited resource reviews;
(2) Graduation to commercial credit;
(3) Application of payments;
(4) Maintaining and disposing of security;
(5) Transfer of security and assumption of debt; and
(6) Servicing accounts of deceased borrowers.
(c) Loans covered. The Agency services FLP direct loans under the
policies contained in this part. This part is not applicable to Non-
program loans, except where noted.
Sec. 765.2 Abbreviations and definitions.
Abbreviations and definitions for terms used in this part are
provided in Sec. 761.2 of this chapter.
Sec.Sec. 765.3--765.50 [Reserved]
Subpart B--Borrower With Limited Resource Interest Rate Loans
Sec. 765.51 Annual review.
(a) A borrower with limited resource interest rate loans is
required to provide the Agency annually the operation's financial
information to determine if the borrower can afford to pay a higher
interest rate on the loan. The Agency will review the information in
accordance with Sec. 761.104 of this chapter.
(b) If the borrower's operating plan shows that the debt service
margin exceeds 110 percent, the Agency will increase the interest rate
on the loans with limited resource interest rate until:
(1) A further increase in the interest rate results in a debt
service margin of less than 110 percent; or
(2) The interest rate is equal to the interest rate currently in
effect for the type of loan.
(c) Except as provided in paragraph (d) of this section, the Agency
will increase the limited resource interest rate to the current
interest rate for the type of loan, if the borrower:
(1) Purchases items not planned during the term of the loan;
(2) Refuses to submit information the Agency requests for use in
reviewing the borrower's financial condition; or
(3) Ceases farming, as described in Sec. 765.253.
(d) If the borrower has limited resource interest rate loans that
are deferred, the Agency will not increase the interest rate pursuant
to paragraph (b) of this section during the deferral period, except
under paragraph (c) of this section.
Sec.Sec. 765.52-765.100 [Reserved]
Subpart C--Borrower Graduation
Sec. 765.101 Borrower graduation requirements.
(a) In accordance with the promissory note and security
instruments, the borrower must graduate to another source of credit if
the Agency determines that:
(1) The borrower has the ability to obtain credit from other
sources; and
(2) Adequate credit is available from other sources at reasonable
rates and terms.
(b) The Agency may require partial or full graduation.
(1) In a partial graduation, all FLP loans of one type (i.e. all
chattel loans or all real estate loans) must be paid in full by
refinancing with other credit with or without an Agency guarantee.
(2) In a full graduation, all FLP loans are paid in full by
refinancing with other credit with or without an Agency guarantee.
(3) A loan made for chattel and real estate purposes will be
categorized according to how the majority of the loan's funds are
expended.
(c) The borrower must submit all information that the Agency
requests in conjunction with the review of the borrower's financial
condition in accordance with Sec. 761.102.
(d) The Agency may provide a borrower's prospectus to lenders in an
attempt to identify sources of non-Agency credit and assess the
lenders' interest in refinancing the borrower's loan.
(e) If a lender expresses an interest in refinancing the borrower's
FLP loan, the borrower must:
(1) Apply for a loan from the interested lender within 30 days of
notice; or
(2) Seek guaranteed loan assistance under the market placement
program in accordance with Sec. 762.110(g) of this chapter.
(f) The borrower will be responsible for any application fees or
purchase of stock in conjunction with graduation.
[[Page 6090]]
Sec. 765.102 Borrower noncompliance with graduation requirements.
Borrower failure to fulfill all graduation requirements within the
time period specified by the Agency constitutes default on the loan.
The Agency will accelerate the borrower's loan without offering
servicing options provided under 7 CFR 766.
Sec.Sec. 765.103-765.150 [Reserved]
Subpart D--Borrower Payments
Sec. 765.151 Handling payments.
(a) Borrower payments. Borrowers must submit their loan payments in
a form acceptable to the Agency, such as checks, cash, and money
orders. Forms of payment not acceptable to the Agency include, but are
not limited to, foreign currency, foreign checks, and sight drafts.
(b) Crediting account. The Agency credits a borrower's account as
of the date the Agency receives payment.
Sec. 765.152 Types of payments.
(a) Regular payments. Regular payments are derived from, but are
not limited to:
(1) The sale of normal income security;
(2) The sale of farm products;
(3) Lease income, including mineral lease signing bonus;
(4) Program or disaster-related disbursements from USDA or crop
insurance entities; and
(5) Non-farm income.
(b) Extra payments. Extra payments are derived from any of the
following:
(1) Sale of chattel security other than normal income security;
(2) Sale of real estate security;
(3) Refinancing of Agency debt;
(4) Cash proceeds of insurance claims received on Agency
collateral, if not being used to repair or replace security items;
(5) Any transaction that results in a loss in the value of any
Agency basic security;
(6) Refunds of duplicate disaster program benefits to be applied on
an EM loan; or
(7) Refunds of unused loan funds.
(c) Payments from sale of real estate. Notwithstanding any other
provision of this section, payments derived from the sale of real
estate security will be treated as regular payments at the Agency's
discretion, if the Agency loans will be adequately secured after the
transaction.
Sec. 765.153 Application of payments.
(a) Regular payments. A regular payment is credited to a scheduled
installment on Agency FLP direct and Non-program loans. Regular
payments are applied to FLP loans in the following order:
(1) Annual operating loan;
(2) Delinquent FLP installments, paying FLP least secured loans
first;
(3) Non-delinquent FLP installments due in the current operating
cycle in order of security priority, paying least secured loans first;
(4) Any future installments due.
(b) Extra payments. An extra payment is not credited to a scheduled
installment and does not relieve the borrower's responsibility to make
scheduled loan installments, but will reduce the borrower's FLP
indebtedness. Extra payments are applied to FLP loans in order of lien
priority.
Sec. 765.154 Distribution of payments.
The Agency applies both regular and extra payments to each loan in
the following order, as applicable:
(a) Administrative costs and protective advances plus interest;
(b) Deferred non-capitalized interest;
(c) Accrued deferred interest;
(d) Interest accrued to date of payment; and
(e) Loan principal.
Sec. 765.155 Final loan payments.
(a) General. (1) If the borrower makes a final payment by one of
the following methods, the Agency may release the borrower's security
instruments at the time payment is made, unless the Agency has
reservations regarding the validity of the payment:
(i) Cash;
(ii) U.S. Treasury check;
(iii) Cashier's check; or
(iv) Certified check.
(2) Security instruments will only be released when all loans
secured by the instrument have been paid in full or otherwise
satisfied.
(3) The Agency will return the paid note and satisfied security
instruments to the borrower after the Agency processes the final
payment and determines that the total indebtedness is paid in full.
(b) Borrower refunds. If the borrower refunds the entire loan after
the loan is closed, the borrower must pay interest from the date of the
note to the date the Agency received the funds.
(c) Overpayments. If an Agency miscalculation of a final payment
results in an overpayment by the borrower of less than $10, the
borrower must request a refund from the Agency in writing. Overpayments
of $10 or more automatically will be refunded by the Agency.
(d) Underpayments. If an Agency miscalculation of a final payment
amount results in an underpayment, the Agency attempts to collect all
account balances resulting from its error unless the outstanding
balance is less than $10.
(1) The Agency may initiate court proceedings to collect the
balance of a loan if it exceeds $1,000 and the Agency believes that the
borrower has recoverable assets.
(2) If the Agency cannot collect an underpayment from the borrower,
the Agency attempts to settle the debt in accordance with 7 CFR 792.
Sec.Sec. 765.156-765.200 [Reserved]
Subpart E--Protecting the Agency's Security Interest
Sec. 765.201 General policy.
All Agency servicing actions regarding preservation and protection
of Agency loan security will be consistent with the covenants and
agreements contained in all the borrower debt and loan security
instruments.
Sec. 765.202 Borrower responsibilities.
The borrower must:
(a) Comply with all provisions of the loan documents;
(1) Non-compliance with loan provisions, aside from borrower
failure to meet scheduled loan repayment installments contained in the
promissory note, constitutes non-monetary default of FLP loans by the
borrower;
(2) Borrower failure to keep agreements will be considered by the
Agency when making eligibility determinations for future requests for
assistance and may adversely impact such requests;
(b) Maintain, protect, and account for all loan security;
(c) Pay the following, unless State law requires the Agency to pay:
(1) Fees for executing, filing or recording financing statements,
continuation statements or other security instruments; and
(2) The cost of lien search reports;
(d) Pay taxes on property securing FLP loans when they become due;
(e) Maintain insurance coverage in an amount specified by the
Agency;
(f) Protect the interests of the Government when a third party
brings suit or takes other action that could affect Agency security.
Sec. 765.203 Protective advances.
When necessary to protect the Agency's security interest, costs
incurred for the following actions will be charged to the borrower's
account:
(a) Maintain abandoned security property;
(b) Preserve inadequately maintained security;
[[Page 6091]]
(c) Pay real estate taxes and assessments;
(d) Pay property, hazard, or flood insurance;
(e) Pay harvesting costs;
(f) Maintain Agency security instruments;
(g) Pay ground rents;
(h) Pay expenses for emergency measures to protect the Agency's
collateral; and
(i) Protect the Agency from actions by third parties.
Sec. 765.204 Notifying potential purchasers.
(a) States with a Central Filing System (CFS). The Agency
participates and complies with central filing operations in States
where CFS have been organized. In a State with a CFS, the Agency is not
required to additionally notify potential purchasers that the Agency
has a lien on a borrower's chattel security, unless specifically
required by State law.
(b) States without a CFS. In a State without a CFS, the Agency
follows the filing requirements specified for perfecting a lien on a
borrower's chattel security under State law. The Agency will distribute
the list of chattel and crop borrowers to sale barns, warehouses, and
other businesses that buy or sell chattels or crops. In addition, the
Agency may provide the list of borrowers to potential purchasers upon
request.
Sec. 765.205 Subordination of liens.
(a) Real estate security. For loans secured by real estate, the
Agency will approve a request for subordination if all of the following
conditions are met:
(1) The borrower is not in default or will not be in default on
Agency FLP loans by the time the subordination closing is complete;
(2) The loan will be used for an authorized Agency loan purpose or
is made in conjunction with a guaranteed loan;
(3) The credit is essential to the operation and the borrower
cannot obtain the credit without a subordination;
(4) The borrower can demonstrate, through a current farm operating
plan, the ability to repay all debt payments scheduled, and to be
scheduled, during the operating cycle;
(5) The Agency loan is still adequately secured after the
subordination, or the value of the loan security will be increased by
an amount at least equal to the advance to be made under the
subordination;
(6) The borrower is not able to graduate;
(7) If the borrower is an entity and the Agency has taken real
estate as additional security on property owned by a member, a
subordination for any authorized Agency loan purpose may be approved
when it is needed for the entity member to finance a separate
operation, provided the subordination does not cause the unpaid
principal and interest on the Agency loans to exceed the value of loan
security or otherwise adversely affect the security;
(8) The borrower has not been convicted under Federal or state law,
within the last five crop years, of planting, cultivating, growing,
producing, harvesting, or storing a controlled substance, as defined at
21 CFR part 1308;
(9) The borrower will not use loan funds in a way that will
contribute to erosion of highly erodible land or conversion of wetlands
to produce agricultural commodities as described in 7 CFR part 799;
(10) There is no other subordination outstanding in connection with
the same security;
(11) The subordination is limited to a specific amount and the loan
made in conjunction with the subordination will be closed within a
reasonable time;
(12) In the case of real property purchase or exchange, the Agency
will obtain a valid mortgage and the required lien position on the real
property. The Agency will require title clearance and loan closing for
the property in compliance with Sec. 764.402 of this chapter;
(13) Any planned development of real estate security will be
performed as directed by the creditor, approved by the Agency, and will
comply with the terms and conditions of Sec. 761.10 of this chapter;
(14) Subordinations of SAA mortgages may only be approved when
there is no increase in the debt which is prior to the SAA debt; and
(15) If a borrower has only a Non-program loan, the Agency does not
permit subordination. The Agency may subordinate Non-program security
when it is also security for a program loan with the same borrower.
(b) Chattel security. (1) For loans secured by chattel, the
subordination must meet conditions contained in paragraphs (a)(1)
through (11) of this section.
(2) The Agency will approve a request for a second subordination to
enable a borrower to obtain crop insurance, if the following conditions
are met:
(i) The creditor to whom the first subordination was given did not
provide for payment of the current year's crop insurance premium, and
consents in writing to the provisions of the second subordination to
pay insurance premiums from the crop or insurance proceeds;
(ii) The borrower assigns the insurance proceeds to the Agency or
names the Agency in the loss payable clause of the policy; and
(iii) The subordination meets the conditions under paragraphs
(a)(1) through (11) of this section.
(c) Appraisals. An appraisal of the property that secures the
Agency loan will be required when the Agency determines it necessary to
protect its interest. Appraisals will be obtained in accordance with
Sec. 761.7 of this chapter.
Sec. 765.206 Junior liens.
(a) General policy. The borrower will not give a lien on Agency
security without the consent of the Agency. Failure to obtain Agency
consent will be considered by the Agency when making eligibility
determinations for future requests for assistance and may adversely
impact such requests.
(b) Conditions for consent. The Agency will consent to the terms of
a junior lien if all of the following conditions are met:
(1) The borrower's ability to make scheduled loan payments is not
jeopardized;
(2) The borrower provides the Agency a copy of the operating plans
submitted to the junior lienholder, and the plans are consistent with
the Agency operating plan;
(3) The total debt against the security does not exceed the
security's market value;
(4) The junior lienholder agrees in writing not to foreclose the
security instrument unless written notice is provided to the Agency;
(5) The borrower is unable to graduate; and
(6) The junior lien will not otherwise adversely impact the
Agency's financial interests.
Sec. 765.207 Conditions for severance agreements.
For loans secured by real estate, a borrower may request Agency
consent to a severance agreement or similar instrument so that future
chattel acquired by the borrower will not become part of the real
estate securing the Agency debt. The Agency will consent to severance
agreements if all of the following conditions are met:
(a) The financing arrangements are in the best financial interest
of the Agency and the borrower;
(b) The transaction will not adversely affect the Agency's security
position;
(c) The borrower is unable to graduate;
(d) The transaction will not jeopardize the borrower's ability to
pay all
[[Page 6092]]
outstanding debts to the Agency and other creditors; and
(e) The property acquired is consistent with authorized loan
purposes.
Sec.Sec. 765.208-765.250 [Reserved]
Subpart F--Required Use and Operation of Agency Security
Sec. 765.251 General.
(a) A borrower is required to be the operator of Agency security in
accordance with loan purposes and agreements contained in the
provisions of loan security instruments.
(b) A borrower who fails to operate the security without Agency
consent is in violation of loan and security agreements.
(c) The Agency will consider a borrower's request to lease or cease
to operate the security as provided in Sec.Sec. 765.252 and 765.253.
Sec. 765.252 Lease of security.
(a) Real estate leases. The borrower may lease real estate security
provided the following conditions are met:
(1) The Agency approves the borrower's request to lease;
(2) The term of consecutive leases does not exceed three years;
(3) The lease does not contain an option to purchase; and
(4) The requirements of Sec. 765.253 have been met.
(b) Mineral leases. The borrower must request Agency consent to
lease any mineral rights used as security for Agency loans.
(1) For loans secured by real estate before December 23, 1985, the
Agency has a security interest in any mineral rights the borrower has
on the real estate pledged as collateral.
(2) For loans secured by real estate on or after December 23, 1985,
the Agency has a security interest in any mineral rights if the mineral
rights were included in an appraisal.
(3) The Agency may consent to a mineral lease if the proposed use
of the leased rights will not adversely affect either:
(i) The Agency's security interest; or
(ii) Compliance with any applicable environmental requirements of 7
CFR 799.
(c) Lease of chattel security. Lease of chattel security is not
authorized.
(d) Lease proceeds. Lease proceeds are considered normal income
security and may be used in accordance with Sec. 765.303(b).
(e) Lease of allotments. (1) The Agency will not approve any crop
allotment lease that will adversely affect its security interest.
(2) The borrower must assign all rental proceeds from an allotment
lease to the Agency.
Sec. 765.253 Operating security.
If the borrower requests Agency consent to cease operating the
security or if the Agency discovers that the borrower is failing to
operate the security, the Agency will give consent if:
(a) Such action is in the Government's best interests;
(b) The borrower is unable to graduate;
(c) The borrower is involved in the day-to-day operational
activities, management decisions, costs and returns of the operation,
and will continue to reside in the immediate farming community for
reasonable management and farm operation involvement;
(d) The borrower's failure to operate the farm is due to age or
poor health, and the borrower continues to reside in the immediate
farming community for reasonable management and farm operation
involvement; or
(e) The borrower's failure to operate the real estate security is
beyond the borrower's control, and the borrower will resume the
operation within three years.
Sec.Sec. 765.254-765.300 [Reserved]
Subpart G--Disposal of Chattel Security
Sec. 765.301 General.
(a) The borrower must account for all security.
(b) The borrower may not dispose of chattel security for an amount
less than its market value. All proceeds, including any amount in
excess of the market value, must be distributed to lienholders for
application to the borrower's account in the order of lien priority.
(1) The Agency considers the market value of normal income security
to be the prevailing market price of the commodity in the area in which
the farm is located.
(2) The market value for basic security is determined by an
appraisal obtained in accordance with Sec. 761.7 of this chapter.
(c) When the borrower sells chattel security, the property and
proceeds remain subject to the Agency lien until the lien is released
by the Agency.
(d) The Agency and all other lienholders must provide written
consent before a borrower may use proceeds for a purpose other than
payment of lienholders in the order of lien priority.
(e) The transaction must not interfere with the borrower's
operation or jeopardize the borrower's ability to repay the Agency
loan.
(f) The disposition must enhance the program objectives of the
Agency loan.
(g) When the borrower exchanges security property for other
property or purchases new property with sale proceeds, the acquisition
must be essential to the operation as well as meet the program
objectives, purposes, and limitations for the type of loan.
(h) All checks, drafts, or money orders which the borrower receives
from the sale of Agency security must be payable to the borrower and
the Agency, unless all Agency loan installments, and any past due
installments, for the period of the agreement for the use of proceeds
have been paid.
Sec. 765.302 Use and maintenance of the agreement for the use of
proceeds.
(a) The borrower and the Agency will execute an agreement for the
use of proceeds for each production cycle, including proceeds from the
sale of milk, crops on hand or in storage, planned proceeds from
Government payments, crop insurance and insurance proceeds derived from
the loss of security.
(b) The agreement for the use of proceeds will remain in effect
until the proper disposition of all listed chattel security has been
accomplished, or the remaining chattel security has been transferred to
a new agreement for the use of proceeds.
(c) The borrower must report any disposition of basic or normal
income security immediately to the Agency.
(d) If a borrower wants to dispose of chattel security not listed
or in a way different than provided on the agreement for the use of
proceeds, the borrower must obtain the Agency's consent before the
disposition.
(e) If the borrower sells security to a purchaser not listed in the
agreement for the use of proceeds, the borrower must immediately notify
the Agency of what property has been sold and of the name and business
address of the purchaser.
(f) The borrower must provide the Agency with the necessary
information to update the operation's plan and the agreement for the
use of proceeds in accordance with Sec. 761.102 of this chapter.
(g) Changes to the agreement on the use of proceeds will be
recorded, dated and initialed by the borrower and the Agency.
(h) The borrower must maintain records of dispositions of property
and the actual use of proceeds. The borrower must make these records
available to the
[[Page 6093]]
Agency at the end of the period covered by the agreement for the use of
proceeds.
Sec. 765.303 Use of proceeds from chattel security.
(a) General. Proceeds from the sale of basic or normal income
security may be used in accordance with the agreement for the use of
proceeds as follows:
(1) Sales proceeds must be remitted to lienholders in order of lien
priority.
(2) Proceeds will be applied to the Agency debt if there is no
prior lienholder.
(3) Proceeds may be used to pay customary costs appropriate to the
transaction.
(4) Security may be consumed as follows:
(i) Livestock may be used by the borrower's family for subsistence;
(ii) If crops serve as security and usually would be marketed, the
Agency may allow such crops to be fed to livestock, if this is
preferable to marketing, the Agency obtains a lien or assignment on the
livestock, and livestock products, at least equal to the lien on the
crops.
(5) Proceeds may be used to purchase property better suited to the
borrower's needs if the Agency will acquire a lien on the purchased
property. The value of the purchased property, together with any
proceeds applied to the Agency debt, must at least equal the value of
the Agency lien on the old security.
(6) Security may be exchanged for property better suited to the
borrower's needs if the Agency will acquire a lien on the new property
at least equal in value to the lien held on the property exchanged.
(b) Additional uses of proceeds from the sale of normal income
security. (1) The agreement for the use of proceeds will allow for
release of proceeds from the sale of normal income security to be used
to pay essential family living and farm operating expenses. Such
releases will be terminated when an account is accelerated.
(2) With the concurrence of all lienholders, proceeds may be used
to preserve the security because of a natural disaster or other severe
catastrophe, when funds cannot be obtained by other means or with an
Agency loan in time to prevent the borrower and the Agency from
suffering a substantial loss.
(c) Basic security. Proceeds from the sale of basic security may
not be used for any family living and farm operating expenses.
Sec. 765.304 Unapproved disposition.
(a) If a borrower disposes of chattel security without Agency
approval, or misuses proceeds, the borrower must:
(1) Make restitution to the Agency within 30 days of Agency
notification; or
(2) Provide disposition or use information to enable the Agency to
consider post-approval within 30 days of Agency notification.
(b) Failure to cure the first unauthorized disposition in
accordance with paragraph (a) of this section, or a second unauthorized
disposition, whether or not cured, will adversely impact future
borrower eligibility for loans or loan servicing, and may result in
civil or criminal action.
Sec. 765.305 Release of security interest.
(a) When Agency security is sold, exchanged, or consumed in
accordance with the agreement for the use of proceeds, the Agency will
release its security interest to the extent of the value of the
security disposed.
(b) Security interests on wool and mohair may be released when the
security is marketed by consignment, provided all of the following
conditions are met:
(1) The borrower assigns to the Agency the proceeds of any advances
made, or to be made, on the wool or mohair by the broker, less
shipping, handling, processing, and marketing costs;
(2) The borrower assigns to the Agency the proceeds of the sale of
the wool or mohair, less any remaining costs in shipping, handling,
processing, and marketing, and less the amount of any advance
(including any interest which may have accrued on the advance) made by
the broker against the wool or mohair; and
(3) The borrower and broker agree that the net proceeds of any
advances on, or sale of, the wool or mohair will be paid by checks made
payable jointly to the borrower and the Agency.
Sec.Sec. 765.306-765.350 [Reserved]
Subpart H--Partial Release of Real Estate Security
Sec. 765.351 Requirements to obtain Agency consent.
The borrower must obtain prior consent from the Agency for any
transactions affecting the real estate security, including but not
limited to, sale or exchange of security, a right-of-way across
security, and a partial release. The Agency may consent to such
transactions provided the conditions in this section are met.
(a) General. (1) The transaction will enhance the objectives for
which the Agency loan or loans were made;
(2) The transaction will not jeopardize the borrower's ability to
repay the Agency loan, or is necessary to place the borrower's
operation on a sound basis;
(3) The amount received for the security being disposed of or the
rights being granted is not less than the market value;
(4) Any proceeds in excess of the market value are remitted to
lienholders in the order of lien priority;
(5) The transaction must not interfere with the borrower's
operation;
(6) The market value of the remaining security is adequate to
secure the Agency loans, or if the market value of the security before
the transaction was inadequate to fully secure the Agency loans, the
Agency's equity in the security is not diminished;
(7) The environmental requirements of 7 CFR 799 part must be met;
and
(8) The borrower cannot graduate to other credit.
(b) Sale of timber, gravel, oil, gas, coal, or other minerals. (1)
Agency lien instruments require that the borrower request and receive
written consent from the Agency prior to certain transactions,
including but not limited to, cutting, removal, or lease of timber,
gravel, oil, gas, coal, or other minerals, except small amounts used by
the borrower for ordinary household purposes.
(i) The sale of timber from real estate which secures an Agency
loan will be considered a disposition of a portion of the security.
(ii) For loans secured by real estate before December 23, 1985, the
Agency has a security interest in mineral products, gravel, oil, gas,
coal, or other resources and the sale by unit or lump sum payment will
be considered a disposition of security.
(iii) For loans secured by real estate on or after December 23,
1985, the Agency has a security interest in mineral products, gravel,
oil, gas, coal, or other resources if the value of such products was
included in an appraisal. When the Agency has a security interest, the
sale of such products will be considered a disposition of a portion of
the security.
(2) Any compensation the borrower may receive for damages to the
surface of the real estate security resulting from exploration for, or
recovery of, minerals must be assigned to the Agency. Such proceeds
will be used to repair the damage and any remaining funds must be
remitted to lienholders in the order of lien priority or, with all
lienholders
[[Page 6094]]
consent, used for an authorized loan purpose.
(3) The disposition of security for an outstanding ST loan will
only be authorized if the transaction will result in full repayment of
the loan.
(c) Exchange of security property. When an exchange of security
results in a balance owing to the borrower, the proceeds must be used
in accordance with Sec. 765.352.
Property acquired by the borrower must meet program objectives,
purposes and limitations relating to the type of loan involved as well
as applicable requirements for appraisal, title clearance and security.
(d) Sale under contract for deed. A borrower may sell a portion of
the security for not less than its market value under a contract for
deed subject to the following:
(1) Not less than 10 percent of the purchase price will be paid as
a down payment and remitted to lienholders in the order of lien
priority;
(2) Payments will not exceed 10 annual installments of principal
plus interest. The interest rate will be the current rate being charged
on a regular FO loan plus 1 percent or the rate on the borrower's
notes, whichever is greater. Payments may be in equal or unequal
installments with a balloon final installment;
(3) The Agency's security rights, including the right to foreclose
on either the portion being sold or retained, will not be impaired;
(4) Any subsequent payments must be assigned to the lienholders and
remitted in order of lien priority, or with lienholder approval, used
in accordance with Sec. 765.352;
(5) The mortgage on the property sold will not be released prior to
either full payment of the borrower's account or receipt of the full
amount of sale proceeds;
(6) The sale proceeds applied to the borrower's loan accounts will
not relieve the borrower from obligations under the terms of the note
or other agreements approved by the Agency;
(7) All other requirements of this section are met.
(e) Transfer of allotments. (1) The Agency will not approve any
crop allotment lease that will adversely affect its security interest.
(2) The sale of an allotment must comply with all conditions of
this subpart.
(3) The borrower may transfer crop allotments to another farm owned
or controlled by the borrower. Such transfer will be treated as a lease
under Sec. 765.252.
Sec. 765.352 Use of proceeds.
(a) Proceeds from transactions affecting the real estate security
may only be used as follows:
(1) Applied on liens in order of priority;
(2) To pay customary costs appropriate to the transaction, which
meet the following conditions:
(i) Are reasonable in amount;
(ii) Cannot be paid by the borrower;
(iii) Will not be paid by the purchaser;
(iv) Must be paid to consummate the transaction; and
(v) May include postage and insurance when it is necessary for the
Agency to present the promissory note to the recorder to obtain a
release of a portion of the real estate from the mortgage.
(3) For development or enlargement of real estate owned by the
borrower as follows:
(i) Development or enlargement must be necessary to improve the
borrower's debt-payment ability, place the borrower's operation on a
sound basis, or otherwise enhance the objectives of the loan;
(ii) Such use will not conflict with the loan purposes,
restrictions or requirements of the type of loan involved;
(iii) Funds will be deposited in a supervised bank account in
accordance with subpart B of part 761 of this chapter;
(iv) The Agency has, or will obtain, a lien on the real estate
developed or enlarged;
(v) Construction and development will be completed in accordance
with Sec. 761.10 of this chapter.
(b) When liquidation is pending, the Agency may approve
transactions only when all the proceeds will be applied to the liens
against the security in the order of their priority, after deducting
customary costs appropriate to the transaction. Such approval will not
cancel or delay liquidation, unless all loan defaults are otherwise
cured.
Sec. 765.353 Determining market value.
(a) Security proposed for disposition. (1) The Agency will obtain
an appraisal of the security proposed for disposition.
(2) The Agency may waive the appraisal requirement when the
estimated value is less than $20,000.
(b) Security remaining after disposition. The Agency will obtain an
appraisal of the remaining security if it determines that the
transaction will reduce the value of the remaining security by an
amount greater than the value of the security proposed for disposition.
(c) Appraisal requirements. Appraisals, when required, will be
conducted in accordance with Sec. 761.7 of this chapter.
Sec.Sec. 765.354-765.400 [Reserved]
Subpart I--Transfer of Security and Assumption of Debt
Sec. 765.401 Conditions for transfer of real estate and chattel
security.
(a) General conditions. (1) Approval of a security transfer and
corresponding loan assumption obligates a new borrower to repay an
existing Agency debt.
(2) All transferees will become personally liable for the debt and
assume the full responsibilities and obligations of the debt
transferred when the transfer and assumption is complete. If the
transferee is an entity, the entity and each member must assume
personal liability for the loan.
(3) A transfer and assumption will only be approved if the Agency
determines it is in the Agency's best financial interest.
(b) Agency consent. A borrower must request and obtain written
Agency consent prior to selling or transferring security to another
party.
Sec. 765.402 Transfer of security and loan assumption on same rates
and terms.
An eligible applicant may assume an Agency loan under the same
rates and terms as the original note if:
(a) The original borrower has died and the spouse, other relative,
or joint tenant who is not obligated on the note inherits the security
property;
(b) An immediate family member of the borrower's family or an
entity comprised solely of immediate family members of the borrower
assumes the debt along with the original borrower;
(c) An individual with an ownership interest in the borrower entity
buys the entire ownership interest of the other members and continues
to operate the farm in accordance with loan requirements. The new owner
must assume personal liability for the loan;
(d) A new entity buys the borrower entity and continues to operate
the farm in accordance with loan requirements; or
(e) The original loan is an EM loan for physical or production
losses and persons who were directly involved in the farm's operation
at the time of the loss will assume the loan. If the original loan was
made to:
(1) An individual borrower, the transferee must be an immediate
family member of the original borrower or an entity that is comprised
solely of immediate family members of the original borrower.
[[Page 6095]]
(2) A trust, partnership or joint operation, the transferee must
have been a member, partner or joint operator when the Agency made the
original loan or remain an entity comprised solely of people who were
original members, partners or joint operators when the entity received
the original loan.
(3) A corporation, including limited liability company, or
cooperative, the transferee must:
(i) Have been a corporate stockholder or a cooperative member when
the Agency made the original loan or will be an entity comprised solely
of people who were corporate stockholders or cooperative members when
the entity received the loan; and
(ii) Assume only the portion of the physical or production loss
loan equal to the transferee's percentage of ownership. In the case of
entity transferees, the transferee must assume that portion of the loan
equal to the combined percentages of ownership of the individual
stockholders or members in the transferee.
Sec. 765.403 Transfer of security to and assumption of debt by
eligible borrowers.
(a) Transfer of real estate and chattel security. The Agency may
approve transfers of security with assumption of Agency debt by
transferees eligible for the type of loan being assumed if:
(1) The transferee meets all loan and security requirements in 7
CFR part 764 for the type of loan being assumed; and
(2) The outstanding loan balance (principal and interest) does not
exceed the maximum loan limit for the type of loan as contained in Sec.
761.8 of this chapter.
(b) Assumption of Non-program loans. Applicants eligible for FO
loans under 7 CFR part 764 may assume Non-program loans made for real
estate purposes if the Agency determines the property meets program
requirements. In such case, the Agency will reclassify the Non-program
loan as a FO loan.
(c) Loan types that the Agency no longer makes. Real estate loan
types the Agency no longer makes (i.e., EE, SL, EO, RL, RHF) may be
assumed and reclassified as FO loans if the transferee is eligible for
a FO loan under 7 CFR part 764 and the property proposed for transfer
meets program requirements.
(d) Amount of assumption. The transferee must assume the lesser of:
(1) The outstanding balance of the transferor's loan; or
(2) The present market value of the security, less prior liens and
authorized costs, if the outstanding loan balance exceeds the present
market value of the property.
Sec. 765.404 Transfer of security to and assumption of debt by
ineligible borrowers.
(a) General. (1) The Agency will allow the transfer of real estate
and chattel security property to borrowers who are ineligible for the
type of loan being assumed only on Non-program loan rates and terms.
(2) The Agency will reclassify the assumed loan as a Non-program
loan.
(b) Eligibility. Transferees must provide written documentation
verifying their credit worthiness and debt repayment ability.
(c) Assumption amount. The transferee must assume the total
outstanding Agency debt or if the value of the property is less than
the entire amount of debt, an amount equal to the current market value
of the security less any prior liens. The total outstanding Agency debt
will include any unpaid deferred interest that accrued on the loan to
the extent that the debt does not exceed the security's present market
value.
(d) Downpayment. Non-program transferees must make a downpayment to
the Agency of not less than 10 percent of the lesser of the present
market value or unpaid debt.
(e) Interest rate. The interest rate will be the Non-program
interest rate in effect at the time of loan approval.
(f) Loan terms. (1) For a Non-program loan secured by real estate,
the Agency schedules repayment in 25 years or less, based on the
borrower's repayment ability.
(2) For a Non-program loan secured by chattel property only, the
Agency schedules repayment in five years or less, based on the
borrower's repayment ability.
Sec. 765.405 Payment of costs associated with transfers.
The transferor and transferee are responsible for paying transfer
costs such as real estate taxes, title examination, attorney's fees,
surveys, and title insurance. When the transferor is unable to pay its
portion of the transfer costs, the transferee, with Agency approval,
may pay these costs provided:
(a) Any cash equity due the transferor is applied first to payment
of costs and the transferor does not receive any cash payment above
these costs;
(b) The transferee's payoff of any junior liens does not exceed
$5,000;
(c) Fees are customary and reasonable;
(d) The transferee can verify that personal funds are available to
pay transferor and transferee fees; and
(e) Any equity due the transferor is held in escrow by an Agency
designated closing agent and is disbursed at closing.
Sec. 765.406 Release of transferor from liability.
(a) General. Agency approval of an assumption does not
automatically release the transferor from liability.
(b) Requirements for release. (1) The Agency may release the
transferor from liability when all of the security is transferred and
the total outstanding debt is assumed.
(2) If an outstanding debt balance will remain and only part of the
transferor's Agency security is transferred, the written request for
release of liability will not be approved, unless the deficiency is
otherwise resolved to the Agency's satisfaction.
(3) If an outstanding balance will remain and all of the
transferor's security has been transferred, the transferor may pay the
remaining balance or request debt settlement in accordance with 7 CFR
part 792.
(4) Except for loans in default being serviced under 7 CFR part
766, if an individual who is jointly liable for repayment of an Agency
loan withdraws from the operation and conveys all of their interest in
the security to the remaining borrower, the withdrawing party may be
released from liability under the following conditions:
(i) A divorce decree or property settlement states that the
withdrawing party is no longer responsible for repaying the loan;
(ii) All of the withdrawing party's interests in the security are
conveyed to the persons with whom the loan will be continued; and
(iii) The persons with whom the loan will be continued can
demonstrate the ability to repay all of the existing and proposed debt
obligations.
Sec.Sec. 765.407-765.450 [Reserved]
Subpart J--Deceased Borrowers
Sec. 765.451 Continuation of FLP debt and transfer of security.
(a) Individuals who are liable. The Agency will continue the loan
with any individual who was liable for the indebtedness provided that
the individual complies with the obligations of the loan and security
instruments.
(b) Individuals who are not liable. The Agency will continue the
loan with a person who is not liable for the indebtedness in accordance
with subpart I of this part.
Sec. 765.452 Borrowers with Non-program loans.
(a) Loan continuation. (1) The Agency will continue the loan with a
jointly liable borrower if the borrower
[[Page 6096]]
continues to pay the deceased's loan in accordance with the terms of
the loan.
(2) The Agency may continue the loan with an individual who
inherits title to the property and is not liable for the indebtedness
provided the individual makes payments as scheduled and fulfills all
other responsibilities of the borrower under the promissory note.
(b) Loan assumption. A deceased borrower's loan may be assumed by
an individual not liable for the indebtedness in accordance with
subpart I of this part.
(c) Loan discontinuation. (1) The Agency will not continue a loan
for any subsequent transfer of title by the heirs, or sale of interests
between heirs to consolidate title; and
(2) The Agency treats any subsequent transfer of title as a sale
subject to requirements listed in subpart I of this part.
Sec.Sec. 765.453-765.500 [Reserved]
Subpart K--Exception Authority
Sec. 765.501 Agency exception authority.
On an individual case basis, the Agency may consider granting an
exception to any regulatory requirement or policy of this part if:
(a) The exception is not inconsistent with the authorizing statute
or other applicable law; and
(b) The Government's financial interest would be adversely affected
by acting in accordance with published regulations or policies and
granting the exception would resolve or eliminate the adverse effect
upon the Government's financial interest.
Sec.Sec. 765.502-765.550 [Reserved]
14. Add part 766 to read as follows:
PART 766--DIRECT LOAN SERVICING--SPECIAL
Subpart A--Overview
Sec.
766.1 Introduction to direct loan servicing--special.
766.2 Abbreviations and definitions.
766.3-766.50 [Reserved]
Subpart B--Disaster Set-Aside
766.51 General.
766.52 Eligibility.
766.53 Disaster Set Aside amount limitations.
766.54 Borrower application requirements.
766.55 Eligibility determination.
766.56 Security requirements.
766.57 Borrower acceptance of Disaster Set Aside.
766.58 Installment to be set aside.
766.59 Payments toward set-aside installments.
766.60 Canceling a Disaster Set Aside.
766.61 Reversal of a Disaster Set Aside.
766.62-766.100 [Reserved]
Subpart C--Loan Servicing Programs
766.101 Initial Agency notification to borrower of loan servicing
programs.
766.102 Borrower application requirements.
766.103 Borrower does not respond or does not submit a complete
application.
766.104 Borrower eligibility requirements.
766.105 Agency consideration of servicing requests.
766.106 Agency notification of decision regarding a complete
application.
766.107 Consolidation and rescheduling.
766.108 Reamortization.
766.109 Deferral.
766.110 Conservation Contract.
766.111 Writedown.
766.112 Additional security for restructured loans.
766.113 Buyout of loan at current market value.
766.114 State-certified mediation and voluntary meeting of
creditors.
766.115 Challenging the Agency appraisal.
766.116-766.150 [Reserved]
Subpart D--Homestead Protection Program
766.151 Purpose.
766.152 Applying for Homestead Protection.
766.153 Eligibility.
766.154 Homestead Protection transferability.
766.155 Homestead Protection leases.
766.156 Conflict with State law.
766.157-766.200 [Reserved]
Subpart E--Servicing Shared Appreciation Agreements and Net Recovery
Buyout Agreements
766.201 Shared Appreciation Agreement.
766.202 Determining the shared appreciation due.
766.203 Payment of recapture.
766.204 Amortization of recapture.
766.205 Shared Appreciation Payment Agreement rates and terms.
766.206 Net Recovery Buyout Recapture Agreement.
766.207-766.250 [Reserved]
Subpart F--Unauthorized Assistance
766.251 Types of unauthorized assistance.
766.252 Repayment of unauthorized assistance.
766.253 Unauthorized assistance resulting from submission of false
or incomplete information.
766.254 Unauthorized assistance resulting from borrower or Agency
error.
766.255-766.300 [Reserved]
Subpart G--Bankruptcy
766.301 Notifying borrower in bankruptcy of loan servicing.
766.302 Loan servicing application requirements for borrowers in
bankruptcy.
766.303 Processing loan servicing requests from borrowers in
bankruptcy.
766.304-766.350 [Reserved]
Subpart H--Loan Liquidation
766.351 Liquidation.
766.352 Voluntary sale of real property and chattel.
766.353 Voluntary conveyance of real property.
766.354 Voluntary conveyance of chattel.
766.355 Acceleration of loans.
766.356 Involuntary liquidation of real property and chattel.
766.357-766.400 [Reserved]
Subpart I--Exception Authority
766.401 Agency exception authority.
766.402-766.450 [Reserved]
Appendix A to subpart C of 7 CFR 766--FSA 2501, Notice of
Availability of Loan Servicing to Borrowers Who Are Current or Less
Than 90 Days Past Due
Appendix B to subpart C of 7 CFR 766--FSA 2503, Notice of
Availability of Loan Servicing to Borrowers Who Are 90 Days Past Due
Appendix C to subpart C of 7 CFR 766--FSA 2505, Notice of
Availability of Loan Servicing to Borrowers in Non-Monetary Default
Authority: 5 U.S.C. 301 and 7 U.S.C. 1981d and 1989.
Subpart A--Overview
Sec. 766.1 Introduction to direct loan servicing--special.
(a) This part describes the Agency's servicing policies for
borrowers who:
(1) Are financially distressed;
(2) Are delinquent in paying direct loans or otherwise in default;
(3) Have received unauthorized assistance;.
(4) Have filed bankruptcy or are involved in other civil or
criminal cases affecting the Agency; or
(5) Have loan security being liquidated voluntarily or
involuntarily.
(b) The Agency services FLP direct loans under the policies
contained in this part. The Agency does not service Non-program loans
under this part except where noted.
(c) The Agency requires the borrower to make every reasonable
attempt to make payments and comply with loan requirements before the
Agency considers special servicing.
Sec. 766.2 Abbreviations and definitions.
Abbreviations and definitions for terms used in this part are
provided in Sec. 761.2 of this chapter.
Sec.Sec. 766.3-766.50 [Reserved]
Subpart B--Disaster Set-Aside
Sec. 766.51 General.
(a) The DSA program is available to borrowers with FLP direct
program loans who suffered losses as a result of a natural disaster.
(b) DSA is not intended to circumvent other servicing available
under this part.
(c) Non-program loans may be serviced under this subpart for
borrowers who also have FLP program loans.
[[Page 6097]]
Sec. 766.52 Eligibility.
(a) Borrower eligibility. The borrower must meet all of the
following requirements to be eligible for a DSA:
(1) The borrower must have operated the farm in a county designated
or declared a disaster area or a contiguous county at the time of the
disaster. Farmers who have rented out their land base for cash are not
operating the farm.
(2) The borrower must have acted in good faith, and the borrower's
inability to make the upcoming scheduled loan payments must be for
reasons not within the borrower's control.
(3) A borrower cannot have more than one installment set aside on
each loan;
(4) As a direct result of the natural disaster, the borrower does
not have sufficient income available to pay all essential family living
and farm operating expenses, and debt to the Agency. This determination
will be based on:
(i) The borrower's actual production, income and expense records
for the year the natural disaster occurred;
(ii) Any other records required by the servicing official;
(iii) Compensation received for losses; and
(iv) Increased expenses incurred because of the natural disaster.
(5) For the next business accounting year, the borrower must
develop a positive cash flow projection showing that the borrower will
at least be able to pay all operating expenses and taxes due during the
year, essential family living expenses, and meet scheduled payments on
all debts, including FLP debts. The borrower must provide any
documentation required to support the cash flow projection.
(6) The borrower must not be in non-monetary default.
(7) The borrower must not become 165 days past due before DSA is
complete.
(b) Loan eligibility. (1) Any FLP loan to be considered for DSA
must have been outstanding at the time the natural disaster occurred.
(2) All of the borrower's FLP program and Non-program loans must be
current after the Agency completes a DSA of the scheduled installment.
(3) All FLP loans must be current or less than 90 days past due at
the time the application for DSA is complete.
(4) The Agency has not accelerated or applied any servicing action
to the loan since the natural disaster occurred.
(5) For any loan that will receive a DSA, the remaining term of the
loan must equal or exceed 2 years from the due date of the installment
set-aside.
Sec. 766.53 Disaster Set Aside amount limitations.
(a) The DSA amount is limited to:
(1) The first or second scheduled annual installment on the Agency
loans due after the disaster occurred; or
(2) The amount the borrower is unable to pay the Agency due to the
disaster. Borrowers are required to pay any portion of an installment
they are able to pay.
(b) The amount set aside will be the unpaid balance remaining on
the installment at the time the DSA is complete. This amount will
include the unpaid interest and any principal that would be credited to
the account as if the installment were paid on the due date, taking
into consideration any payments applied to principal and interest since
the due date.
(c) Recoverable cost items may not be set aside.
Sec. 766.54 Borrower application requirements.
(a) Requests for DSA. (1) A borrower must submit a request for DSA
in writing within eight months from the date the natural disaster was
designated.
(2) For an entity, all obligors of the Agency indebtedness must
sign the DSA request.
(b) Required financial information. (1) The borrower must submit
actual production, income, and expense records for the production and
marketing period in which the disaster occurred unless the Agency
already has this information.
(2) The Agency may request other information needed to make an
eligibility determination.
Sec. 766.55 Eligibility determination.
Within 30 days of a complete DSA application, the Agency will
determine if the borrower meets the eligibility requirements for DSA.
Sec. 766.56 Security requirements.
If the borrower is not current on all FLP loans when the borrower
executes the appropriate DSA Agency documents, the borrower, and all
obligors in the case of an entity, must execute and provide to the
Agency a best lien obtainable on all of their assets except those
listed under Sec. 766.112 (b).
Sec. 766.57 Borrower acceptance of Disaster Set Aside.
The borrower must execute the appropriate Agency documents within
45 days after the borrower receives notification of Agency approval of
DSA.
Sec. 766.58 Installment to be set aside.
(a) The Agency will set-aside the first installment due immediately
after the disaster occurred.
(b) If the borrower has already paid the installment due
immediately after the disaster occurred, the Agency will set-aside the
next annual installment.
Sec. 766.59 Payments toward set-aside installments.
(a) Interest accrual. (1) Interest will accrue on any principal
portion of the set-aside installment at the same rate charged on the
balance of the loan.
(2) If the borrower's set-aside installment is for a loan with a
limited resource rate and the Agency modifies that limited resource
rate, the interest rate on the set-aside portion will be modified
concurrently.
(b) Due date. The amount set-aside, including interest accrued on
the principal portion of the set-aside, is due on or before the final
due date of the loan.
(c) Applying payments. The Agency will apply borrower payments
toward set-aside installments first to interest and then to principal.
Sec. 766.60 Canceling a Disaster Set Aside.
The Agency will cancel a DSA if:
(a) The Agency takes any primary loan servicing action on the loan;
(b) The borrower pays the market value buyout in accordance with
Sec. 766.113; or
(c) The borrower pays the set-aside installment.
Sec. 766.61 Reversal of a Disaster Set Aside.
If the Agency determines that the borrower received an unauthorized
DSA, the Agency will reverse the DSA after all appeals are concluded.
Sec.Sec. 766.62-766.100 [Reserved]
Subpart C--Loan Servicing Programs
Sec. 766.101 Initial Agency notification to borrower of loan servicing
programs.
(a) Borrowers notified. The Agency will provide servicing
information under this section to borrowers who:
(1) Have a current operating plan that demonstrates the borrower is
financially distressed;
(2) Are 90 days or more past due on loan payments, even if the
borrower has submitted an application for loan servicing as a
financially distressed borrower;
(3) Are in non-monetary default on any loan agreements;
(4) Have filed bankruptcy;
(5) Request this information;
(6) Request voluntary conveyance of security;
(7) Have only delinquent SA; or
(8) Are subject to any other collection action except when such
action is a result of failure to graduate. Borrowers
[[Page 6098]]
who fail to graduate when required and are able to do so, will be
accelerated without providing notification of loan servicing options.
(b) Form of notification. The Agency will notify borrowers of the
availability of primary loan servicing programs, conservation contract,
current market value buyout, debt settlement programs and homestead
protection as follows:
(1) A borrower who is financially distressed, or current and
requesting servicing will be provided FSA 2501;
(2) A borrower who is 90 days past due will be sent FSA 2503;
(3) A borrower who is in non-monetary or both monetary and non-
monetary default will receive FSA 2505;
(4) A borrower who has only delinquent SA will be notified of
available loan servicing;
(5) Notification to a borrower who files bankruptcy will be
provided in accordance with subpart G of this part.
(c) Mailing. Notices to delinquent borrowers or borrowers in non-
monetary default will be sent by certified mail to the last known
address of the borrower.
(d) Borrower response timeframes. To be considered for loan
servicing, a borrower who is:
(1) Current or financially distressed may submit a complete
application any time prior to becoming 90 days past due;
(2) Ninety (90) days past due must submit a complete application
within 60 days from receipt of FSA 2503;
(3) In non-monetary default with or without monetary default must
submit a complete application within 60 days from receipt of FSA 2505.
Sec. 766.102 Borrower application requirements.
(a) Except as provided in paragraph (e) of this section, an
application for primary loan servicing, conservation contract, current
market value buyout, homestead protection, or some combination of these
options, must include the following to be considered complete:
(1) Completed acknowledgment form provided with the Agency
notification;
(2) Completed Agency application form. In the case of an entity,
all entity members must provide current financial statements;
(3) Financial records for the three most recent years, including
income tax returns;
(4) Farm operation production records for the three most recent
years or the years the borrower has been farming, whichever is less;
(5) Documentation of compliance with the Agency's environmental
regulations contained in 7 CFR 799;
(6) Verification of all non-farm income;
(7) The farm's operating plan, including projected cash flow budget
reflecting production, income, expenses, and debt repayment plan; and
(8) Verification of all debts and collateral.
(b) In addition to the requirements contained in paragraph (a) of
this section, the borrower must submit an aerial photo delineating any
land to be considered for a conservation contract.
(c) To be considered for debt settlement, the borrower must provide
the appropriate Agency form, and any additional information required
under 7 CFR 792.
(d) If a borrower who submitted a complete application while
current or financially distressed is renotified as a result of becoming
90 days past due, the borrower must only submit a request for servicing
in accordance with paragraph (a)(1) of this section, provided all other
information is less than 90 days old and is based on the current
production cycle. Any information 90 or more days old or not based on
the current production cycle must be updated.
(e) The borrower need not submit any information under this section
that already exists in the Agency's file and is still current as
determined by the Agency.
(f) When jointly liable borrowers have been divorced and one has
withdrawn from the operation, the Agency may release the withdrawing
individual from liability, provided:
(1) The remaining individual submits a complete application in
accordance with this section;
(2) Both parties have agreed in a divorce decree or property
settlement that only the remaining individual will be responsible for
all Agency loan payments;
(3) The withdrawing individual has conveyed all ownership interest
in the security to the remaining individual; and
(4) The withdrawing individual does not have repayment ability and
does not own any non-essential assets.
Sec. 766.103 Borrower does not respond or does not submit a complete
application.
(a) If a borrower who was financially distressed, or current and
requested loan servicing and received FSA 2501 but fails to timely
respond and subsequently becomes 90 days past due, the Agency will
notify the borrower in accordance with Sec. 766.101(a)(2).
(b) If a borrower who is 90 days past due without non-monetary
default and received FSA 2503, or is in non-monetary default and
received FSA 2505 and fails to timely respond or does not submit a
complete application within the 60-day timeframe, the Agency will
notify the borrower by certified mail of the following:
(1) The Agency's intent to accelerate the loan; and
(2) The borrower's right to request reconsideration, mediation and
appeal in accordance with 7 CFR part 11 and 7 CFR part 780.
Sec. 766.104 Borrower eligibility requirements.
(a) A borrower must meet the following eligibility requirements to
be considered for primary loan servicing:
(1) Any delinquency or financial distress is due to circumstances
beyond the borrower's control which reduced repayment ability to the
extent that scheduled payments cannot be made as a result of one of the
following circumstances:
(i) Illness, injury, or death of a borrower or other individual who
operates the farm;
(ii) Natural disaster, adverse weather, disease, or insect damage
which caused severe loss of agricultural production;
(iii) Widespread economic conditions such as low commodity prices;
(iv) Damage or destruction of property essential to the operation;
or
(v) Loss of, or reduction in, the borrower or spouse's essential
non-farm income.
(2) The borrower does not have non-essential assets for which the
net recovery value is sufficient to resolve the financial distress or
pay the delinquent portion of the loan.
(3) If the borrower is in non-monetary default, the borrower will
resolve the non-monetary default prior to closing the servicing action.
(4) The borrower has acted in good faith in accordance with the
borrower's loan agreements.
(5) Financially distressed or current borrowers requesting
servicing must pay a portion of the interest due on the loans.
(b) Debtors with SA only must:
(1) Be delinquent due to circumstances beyond their control;
(2) Have acted in good faith.
Sec. 766.105 Agency consideration of servicing requests.
(a) Order in which Agency considers servicing options. The Agency
will consider loan servicing options and combinations of options to
maximize loan repayment and minimize losses to the Agency. The Agency
will consider loan servicing options in the following order for each
eligible borrower who requests servicing:
[[Page 6099]]
(1) Conservation Contract, if requested;
(2) Consolidation and rescheduling or reamortization;
(3) Deferral;
(4) Writedown; and
(5) Current market value buyout.
(b) Debt service margin.
(1) The Agency will attempt to achieve a 110 percent debt service
margin for the servicing options listed in paragraphs (a)(2) through
(4) of this section.
(2) If the borrower cannot develop a feasible plan with the 110
percent debt service margin, the Agency will reduce the debt service
margin by one percent and reconsider all available servicing
authorities. This process will be repeated until a feasible plan has
been developed or it has been determined that a feasible plan is not
possible with a 100 percent margin.
(3) The borrower must be able to develop a feasible plan with at
least a 100 percent debt service margin to be considered for the
servicing options listed in paragraphs (a)(1) through (4) of this
section.
(c) Appraisal of borrower's assets. The Agency will obtain an
appraisal on:
(1) All Agency security, non-essential assets, and real property
unencumbered by the Agency that does not meet the criteria established
in Sec. 766.112(b), when:
(i) A writedown is required to develop a feasible plan;
(ii) The borrower will be offered current market value buyout.
(2) The borrower's non-essential assets when their net recovery
value may be adequate to bring the delinquent loans current.
Sec. 766.106 Agency notification of decision regarding a complete
application.
The Agency will notify a borrower of the Agency's decision within
60 calendar days after receiving a complete application for loan
servicing.
(a) Notification to financially distressed or current borrowers.
(1) If the borrower can develop a feasible plan and is eligible for
primary loan servicing, the Agency will offer to service the account.
(i) The borrower will have 45 days to accept the offer of
servicing. After accepting the Agency's offer, the borrower must
execute loan agreements and security instruments, as appropriate.
(ii) If the borrower does not accept the offer, the Agency will
renotify the borrower of the availability of loan servicing if the
borrower becomes 90 days past due in accordance with Sec.
766.101(a)(2).
(2) If the borrower cannot develop a feasible plan, or is not
eligible for loan servicing, the Agency will notify the borrower of the
reasons for the adverse decision.
(i) The borrower may request reconsideration, mediation and appeal
in accordance with 7 CFR 11 and 7 CFR 780 of this title.
(ii) The Agency will renotify the borrower of the availability of
loan servicing if the borrower becomes 90 days past due in accordance
with Sec. 766.101(a)(2).
(b) Notification to borrowers 90 days past due or in non-monetary
default. (1) If the borrower can develop a feasible plan and is
eligible for primary loan servicing, the Agency will offer to service
the account.
(i) The borrower will have 45 days to accept the offer of
servicing. After accepting the Agency's offer, the borrower must
execute loan agreements and security instruments, as appropriate.
(ii) If the borrower does not accept the offer, or fails to
respond, the Agency will notify the borrower of its intent to
accelerate the account.
(2) If the borrower cannot develop a feasible plan, or is not
eligible for loan servicing, the Agency will notify the borrower of its
intent to accelerate the account in accordance with subpart H of this
part, unless the account is resolved through any of the following
options:
(i) The borrower may request reconsideration, mediation or
voluntary meeting of creditors, or appeal in accordance with 7 CFR part
11 and 7 CFR part 780.
(ii) The borrower may request negotiation of appraisal within 30
days in accordance with Sec. 766.115.
(iii) If the net recovery value of non-essential assets is
sufficient to pay the account current, the borrower has 90 days to pay
the account current.
(iv) The borrower, if eligible in accordance with Sec. 766.113, may
buyout the loans at the current market value within 90 days.
(v) The borrower may request homestead protection if the borrower's
primary residence was pledged as security by providing the information
required under Sec. 766.152.
Sec. 766.107 Consolidation and rescheduling.
(a) Loans eligible for consolidation. The Agency may consolidate OL
loans if:
(1) The borrower meets loan servicing eligibility requirements in
Sec. 766.104;
(2) The Agency determines that consolidation will assist the
borrower to repay the loans;
(3) Consolidating the loans will bring the borrower's account
current or prevent the borrower from becoming delinquent;
(4) The Agency has not referred the borrower's account to OGC or
the U.S. Attorney, and the Agency does not plan to refer the account to
either of these two offices in the near future;
(5) The borrower is in compliance with the Highly Erodible Land and
Wetland Conservation requirements of 7 CFR part 12, if applicable;
(6) The loans are not secured by real estate;
(7) The Agency holds the same lien position on each loan;
(8) The Agency has not serviced the loans for unauthorized
assistance under subpart F of this part; and
(9) The loan is not currently deferred, as described in Sec.
766.109, or set-aside, as described in subpart B of this part. The
Agency may consolidate loans upon cancellation of the deferral or DSA.
(b) Loans eligible for rescheduling. The Agency may reschedule
loans made for chattel purposes, including OL, SW, RL, EE, or EM if:
(1) The borrower meets loan servicing eligibility requirements in
Sec. 766.104;
(2) Rescheduling the loans will bring the borrower's account
current or prevent the borrower from becoming delinquent;
(3) The Agency determines that rescheduling will assist the
borrower to repay the loans;
(4) The Agency has not referred the borrower's account to OGC or
the U.S. Attorney, and the Agency does not plan to refer the account to
either of these two offices in the near future;
(5) The borrower is in compliance with the Highly Erodible Land and
Wetland Conservation requirements of 7 CFR 12, if applicable; and
(6) The loan is not currently deferred, as described in Sec.
766.109, or set-aside, as described in subpart B of this part. The
Agency may reschedule loans upon cancellation of the deferral or DSA.
(c) Consolidated and rescheduled loan terms. (1) The Agency
determines the repayment schedule for consolidated and rescheduled
loans according to the borrower's repayment ability.
(2) The repayment period cannot exceed 15 years from the date of
the consolidation and rescheduling, except that the repayment schedule
for RL loans may not exceed 7 years from the date of rescheduling.
(d) Consolidated and rescheduled loan interest rate. The interest
rate of consolidated and rescheduled loans will be as follows:
(1) The interest rate for loans made at the regular interest rate
will be the lesser of:
[[Page 6100]]
(i) The lowest interest rate for that type of loan on the date a
complete servicing application was received;
(ii) The lowest interest rate for that type of loan on the date of
restructure; or
(iii) The lowest original loan note rate on any of the original
notes being consolidated and rescheduled.
(2) The interest rate for loans made at the limited resource
interest rate will be the lesser of:
(i) The limited resource interest rate for that type of loan on the
date a complete servicing application was received;
(ii) The limited resource interest rate for that type of loan on
the date of restructure; or
(iii) The lowest original loan note rate on any of the original
notes being consolidated and rescheduled.
(3) At the time of consolidation and rescheduling, the Agency may
reduce the interest rate to a limited resource rate, if available, if:
(i) The borrower meets the requirements for the limited resource
interest rate; and
(ii) A feasible plan cannot be developed at the regular interest
rate and maximum terms permitted in this section.
(4) Loans consolidated and rescheduled at the limited resource
interest rate will be subject to annual limited resource review in
accordance with Sec. 765.51 of this chapter.
(e) Capitalizing accrued interest and adding protective advances to
the loan principal. (1) The Agency capitalizes the amount of
outstanding accrued interest on the loan at the time of consolidation
and rescheduling.
(2) The Agency adds protective advances for the payment of real
estate taxes to the principal balance at the time of consolidation and
rescheduling.
(3) The borrower must resolve all other protective advances not
capitalized prior to closing the servicing actions.
(f) Installments. If there are no deferred installments, the first
installment payment under the consolidation and rescheduling will be at
least equal to the interest amount which will accrue on the new
principal between the date the promissory note is processed and the
next installment due date.
Sec. 766.108 Reamortization.
(a) Loans eligible for reamortization. The Agency may reamortize
loans made for real estate purposes, including FO, SW, RL, SA, EE, RHF,
and EM if:
(1) The borrower meets the loan servicing eligibility requirements
listed in Sec. 766.104;
(2) Reamortization will bring the borrower's account current or
prevent the borrower from becoming delinquent;
(3) The Agency determines that reamortization will assist the
borrower to repay the loan;
(4) The Agency has not referred the borrower's account to OGC or
the U.S. Attorney, and the Agency does not plan to refer the account to
either of these two offices in the near future;
(5) The borrower is in compliance with the Highly Erodible Land and
Wetland Conservation provisions of 7 CFR part 12, if applicable; and
(6) The loan is not currently deferred, as described in Sec.
766.109, or set-aside, as described in subpart B of this part. The
Agency may reamortize loans upon cancellation of the deferral or DSA.
(b) Reamortized loan terms. (1) Except as provided in paragraph
(b)(2), the Agency will reamortize loans within the remaining term of
the original loan or assumption agreement unless a feasible plan cannot
be developed or debt forgiveness will be required to develop a feasible
plan.
(2) If the Agency extends the loan term, the repayment period from
the original loan date may not exceed the maximum number of years for
the type of loan being reamortized as set forth below, or the useful
life of the security, whichever is less.
(i) FO, SW, RL, EE real estate-type, and EM loans made for real
estate purposes may not exceed 40 years from the date of the original
note or assumption agreement.
(ii) EE real estate-type loans secured by chattels only may not
exceed 20 years from the date of the original note or assumption
agreement.
(iii) RHF loans may not exceed 33 years from the date of the
original note or assumption agreement.
(iv) SA loans may not exceed 25 years from the date of the original
Shared Appreciation note.
(c) Reamortized loan interest rate. The interest rate will be as
follows:
(1) The interest rate for loans made at the regular interest rate
will be the lesser of:
(i) The lowest interest rate for that type of loan on the date a
complete servicing application was received;
(ii) The lowest interest rate for that type of loan on the date of
restructure; or
(iii) The original loan note rate of the note being reamortized.
(2) The interest rate for loans made at the limited resource
interest rate will be the lesser of:
(i) The limited resource interest rate for that type of loan on the
date a complete servicing application was received;
(ii) The limited resource interest rate for that type of loan on
the date of restructure; or
(iii) The original loan note rate of the note being reamortized.
(3) At the time of reamortization, the Agency may reduce the
interest rate to a limited resource rate, if available, if:
(i) The borrower meets the requirements for the limited resource
interest rate; and
(ii) A feasible plan cannot be developed at the regular interest
rate and maximum terms permitted in this section.
(4) Loans reamortized at the limited resource interest rate will be
subject to annual limited resource review in accordance with Sec.
765.51 of this chapter.
(5) SA payment agreements will be reamortized at the current SA
amortization rate in effect on the date of approval or the rate on the
original payment agreement, whichever is less.
(d) Capitalizing accrued interest and adding protective advances to
the loan principal. (1) The Agency capitalizes the amount of
outstanding accrued interest on the loan at the time of reamortization.
(2) The Agency adds protective advances for the payment of real
estate taxes to the principal balance at the time of reamortization.
(3) The borrower must resolve all other protective advances not
capitalized prior to closing the reamortization.
(e) Installments. If there are no deferred installments, the first
installment payment under the reamortization will be at least equal to
the interest amount which will accrue on the new principal between the
date the promissory note is processed and the next installment due
date.
Sec. 766.109 Deferral.
(a) Conditions for approving deferrals. The Agency will only
consider deferral of loan payments if:
(1) The borrower meets the loan servicing eligibility requirements
of Sec. 766.104;
(2) Rescheduling, consolidation, and reamortization of all the
borrower's loans, will not result in a feasible plan with 110 percent
debt service margin;
(3) The need for deferral is temporary; and
(4) The borrower develops feasible first-year deferral and post-
deferral plans subject to the following:
(i) The deferral will not create excessive net cash reserves beyond
that necessary to develop a feasible plan.
(ii) The Agency will consider a partial deferral if deferral of the
total Agency
[[Page 6101]]
payment would result in the borrower developing more cash availability
than necessary to meet debt repayment obligations.
(b) Deferral period. (1) The deferral term will be based on the
post-deferral plan which results in the greatest improvement over the
first year cash available to service FLP debt, and in no case will
exceed 5 years.
(2) The Agency will distribute interest accrued on the deferred
principal portion of the loan equally to payments over the remaining
loan term after the deferral period ends.
(c) Agency actions when borrower's repayment ability improves. (1)
If the Agency determines that the borrower's repayment ability has
increased to allow the borrower to make some payments during the
deferral period, the borrower must make supplemental payments, as
determined by the Agency. If the borrower agrees to make supplemental
payments, but does not do so, the borrower will be considered to be in
non-monetary default.
(2) If the Agency determines that the borrower's improved repayment
ability will allow graduation, the Agency will require the borrower to
graduate in accordance with part 765, subpart C of this chapter.
(d) Associated loan servicing. (1) The Agency must cancel an
existing deferral if the Agency approves any new primary loan servicing
action.
(2) Loans deferred will also be serviced in accordance with
Sec.Sec. 766.107, 766.108 and 766.111, as appropriate.
Sec. 766.110 Conservation Contract.
(a) General. (1) A debtor with only SA is not eligible for a
Conservation Contract.
(2) A current or financially distressed borrower may request a
Conservation Contract at any time prior to becoming 90 days past due.
(3) A delinquent borrower may request a Conservation Contract
during the same 60-day time period in which the borrower may apply for
primary loan servicing. The borrower eligibility requirements
established at Sec. 766.104 will apply.
(4) A Conservation Contract may be established for conservation,
recreation, and wildlife purposes.
(5) The land under a Conservation Contract cannot be used for the
production of agricultural commodities during the term of the contract.
(b) Eligible lands. The following types of lands are eligible to be
considered for a Conservation Contract by the Conservation Contract
review team:
(1) Wetlands or highly erodible lands, as defined by the Food
Security Act of 1985; and
(2) Uplands that meet any one of the following criteria:
(i) Land containing aquatic life, endangered species, or wildlife
habitat of local, State, tribal, or national importance;
(ii) Land in 100-year floodplains;
(iii) Areas of high water quality or scenic value;
(iv) Historic or cultural properties listed in or eligible for the
National Register of Historic Places;
(v) Aquifer recharge areas of local, regional, State or tribal
importance;
(vi) Buffer areas necessary for the adequate protection of proposed
Conservation Contract areas;
(vii) Areas that contain soils generally not suited for
cultivation; or
(viii) Areas within or adjacent to Federal, State, tribal, or
locally administered conservation areas.
(c) Unsuitable acreage. Acreage is unsuitable for a Conservation
Contract if:
(1) It is not suited or eligible for the program due to legal
restrictions;
(2) It has on-site or off-site conditions that prohibit the use of
the land for conservation, wildlife, or recreational purposes; or
(3) The Conservation Contract review team determines that the land
is not suitable for conservation, wildlife, or recreational purposes.
(d) Conservation Contract terms. The borrower selects the term of
the contract, which may be 10, 30, or 50 years.
(e) Conservation management plan. The Agency, through the
recommendations of the Conservation Contract review team, is
responsible for developing a conservation management plan.
(f) Management authority. The Agency has enforcement authority over
the Conservation Contract. The Agency, however, may delegate contract
management to another entity if doing so is in the Agency's interest.
(g) Limitations. The Conservation Contract must meet the following
conditions:
(1) Result in a feasible plan for current borrowers; or
(2) Result in a feasible plan with or without primary loan
servicing for financially distressed or delinquent borrowers; and
(3) Improve the borrower's ability to repay the remaining balance
of the loan.
(h) Maximum debt reduction for a financially distressed or current
borrower. The amount of debt reduction by a Conservation Contract is
calculated as follows:
(1) Divide the contract acres by the total acres that secure the
borrower's FLP loans to determine the contract acres percentage.
[GRAPHIC] [TIFF OMITTED] TP09FE04.000
(2) Multiply the borrower's total unpaid FLP loan balance
(principal, interest and recoverable costs already paid by the Agency)
by the percentage calculated under (h)(1) of this section to determine
the amount of Agency debt that is secured by the contract acreage.
[GRAPHIC] [TIFF OMITTED] TP09FE04.001
(3) Multiply the borrower's total unpaid FLP loan balance
(principal, interest and recoverable costs already paid by the Agency)
by 33 percent.
[GRAPHIC] [TIFF OMITTED] TP09FE04.002
(4) The lesser of the amounts calculated in (h)(2) and (h)(3) of
this section is the maximum amount of debt reduction for a 50-year
contract.
(5) The borrower will receive 60 percent of the amount calculated
in (h)(4) of this section for a 30-year contract.
[[Page 6102]]
[GRAPHIC] [TIFF OMITTED] TP09FE04.003
(6) The borrower will receive 20 percent of the amount calculated
in (h)(4) of this section for a 10-year contract.
[GRAPHIC] [TIFF OMITTED] TP09FE04.004
(i) Maximum debt reduction for a delinquent borrower. The amount of
debt reduction by a Conservation Contract is calculated as follows:
(1) Divide the contract acres by the total acres that secure the
borrower's FLP loans to determine the contract acres percentage.
[GRAPHIC] [TIFF OMITTED] TP09FE04.005
(2) Multiply the borrower's total unpaid FLP loan balance
(principal, interest and recoverable costs already paid by the Agency)
by the percentage calculated in (i)(1) of this section to determine the
amount of FLP debt that is secured by the contract acreage.
[GRAPHIC] [TIFF OMITTED] TP09FE04.006
(3) Multiply the present market value of the total acres, less
contributory value of any structural improvements, that secure the
borrower's FLP loans by the percent calculated in (i)(1) of this
section to determine the current value of the acres in the contract.
[GRAPHIC] [TIFF OMITTED] TP09FE04.007
(4) Subtract the current market value of the contract acres
calculated in (i)(3) of this section from the FLP debt secured by the
contract acres as calculated in (i)(2).
[GRAPHIC] [TIFF OMITTED] TP09FE04.008
(5) Select the greater of the amounts calculated in (i)(3) and
(i)(4) of this section.
(6) The lesser of the amounts calculated in (i)(2) and (i)(5) of
this section will be the maximum amount of debt reduction for a 50-year
contract term.
(7) The borrower will receive 60 percent of the amount calculated
in (i)(6) of this section for a 30-year contract term.
[GRAPHIC] [TIFF OMITTED] TP09FE04.009
(8) The borrower will receive 20 percent of the amount calculated
in (i)(6) of this section for a 10-year contract term.
[GRAPHIC] [TIFF OMITTED] TP09FE04.010
(j) Conservation Contract Agreement. The borrower must sign the
Conservation Contract Agreement establishing the contract's terms and
conditions.
(k) Transferring title to land under Conservation Contract. If the
borrower or any subsequent landowner transfers title to the property,
the Conservation Contract will remain in effect for the duration of the
contract term.
(l) Borrower appeals of technical decisions. If the borrower
appeals any technical decision made in connection with a Conservation
Contract, the Natural Resources Conservation Service's appeal process
at 7 CFR part 614 must be followed.
Sec. 766.111 Writedown.
(a) Eligibility. (1) The Agency will only consider a writedown if
the borrower:
(i) Meets the eligibility criteria in Sec. 766.104;
(ii) Is delinquent;
(iii) Has not previously received debt forgiveness on any FLP
direct loan; and
(iv) Complies with the Highly Erodible Land and Wetland
Conservation requirements of 7 CFR 12.
(2) Debtors with SA only are not eligible to receive writedown.
(b) Conditions. (1) Rescheduling, consolidation, reamortization,
deferral or some combination of these options on all of the borrower's
loans would not result in a feasible plan with a 110 percent debt
service margin. If a feasible plan, including writedown is achieved
with a debt service margin of 101 percent or more, the Agency will
determine if a feasible plan can be achieved without a writedown. If a
feasible plan is achieved with and without a writedown and the borrower
meets all the eligibility requirements, both options will be offered
and the borrower may choose one option.
[[Page 6103]]
(2) The present value of the restructured loan must be greater than
or equal to the net recovery value of Agency security and any non-
essential assets;
(3) The writedown amount does not exceed $300,000 excluding debt
reduction received through Conservation Contract;
(4) A borrower who owns real estate must execute an SAA in
accordance with Sec. 766.201.
(c) Associated loan servicing. Loans written down will also be
serviced in accordance with Sec.Sec. 766.107 and 766.108, as
appropriate.
Sec. 766.112 Additional security for restructured loans.
(a) The borrower, and all obligors in the case of an entity, must
execute and provide to the Agency a lien on all of their assets, except
as provided in paragraph (b) of this section, when the Agency is
servicing a loan.
(b) The Agency will take the best lien obtainable on all assets the
borrower owns, except:
(1) When taking a lien on such property will prevent the borrower
from obtaining credit from other sources;
(2) When the property could have significant environmental problems
or costs as described in 7 CFR 799;
(3) When the Agency cannot obtain a valid lien;
(4) When the property is the borrower's personal residence and
appurtenances and:
(i) They are located on a separate parcel; and
(ii) The real estate that serves as collateral for the Agency loan
plus crops and chattels are valued at greater than or equal to 150
percent of the unpaid balance due on the loan;
(5) When the property is subsistence livestock, cash, special
collateral accounts the borrower uses for the farming operation,
retirement accounts, personal vehicles necessary for family living,
household goods, or small equipment such as hand tools and lawn mowers;
or
(6) When a contractor holds title to a livestock or crop
enterprise, or the borrower manages the enterprise under a share lease
or share agreement.
Sec. 766.113 Buyout of loan at current market value.
(a) Borrower eligibility. A delinquent borrower who has received
FSA 2503 may buy out the borrower's Agency loans at the current market
value of the loan security, including security not in the borrower's
possession, and all non-essential assets if:
(1) The borrower has not previously received debt forgiveness on
any other FLP direct loan;
(2) The borrower has acted in good faith;
(3) The borrower does not have non-essential assets for which the
net recovery value is sufficient to pay the account current;
(4) The borrower is unable to develop a feasible operating plan
through primary loan servicing programs or a Conservation Contract, if
requested;
(5) The present value of the restructured loans is less than the
net recovery value of Agency security;
(6) The borrower pays the amount required in a lump sum without
guaranteed or direct credit from the Agency; and
(7) The amount of debt forgiveness does not exceed $300,000.
(b) Buyout time frame. After the Agency offers current market value
buyout of the loan, the borrower has 90 days from the date of Agency
notification to pay that amount.
Sec. 766.114 State-certified mediation or voluntary meeting of
creditors.
(a) A borrower who is unable to develop a feasible plan but is
otherwise eligible for primary loan servicing may request:
(1) State-certified mediation; or
(2) Voluntary meeting of creditors when a State does not have a
certified mediation program.
(b) Any negotiation of the Agency's appraisal must be completed
before State-certified mediation or voluntary meeting of creditors.
Sec. 766.115 Challenging the Agency appraisal.
(a) A borrower considered for primary loan servicing who does not
agree with the Agency's appraisal of the borrower's assets may:
(1) Obtain a technical appraisal review of the Agency's appraisal
and provide it at the appeal hearing;
(2) Obtain an independent appraisal completed in accordance with
Sec. 761.7 as part of the appeals process. The borrower must:
(i) Pay for this appraisal;
(ii) Choose which appraisal will be used in Agency calculations, if
the difference between the two appraisals is less than 5 percent.
(3) Negotiate the Agency's appraisal by obtaining a second
appraisal.
(i) If the difference between the two appraisals is less than five
percent, the borrower will choose the appraisal to be used in Agency
calculations.
(ii) If the difference between the two appraisals is greater than
five percent, the borrower may request a third appraisal. The Agency
and the borrower will share the cost of the third appraisal equally.
The average of the two appraisals closest in value will serve as the
final value.
(iii) A borrower may request a negotiated appraisal only once in
connection with an application for primary loan servicing.
(iv) The borrower may not appeal a negotiated appraisal.
(b) If the appraised value of the borrower's assets changes as a
result of the appealed appraisal or the negotiated appraisal, the
Agency will reconsider its previous loan servicing decision using the
new appraisal value.
(c) If the appeal process results in a determination that the
borrower is eligible for primary loan servicing, the Agency will use
the information the appeal officer used in making the decision on the
appeal, unless stated otherwise in the appeal decision letter.
Sec.Sec. 766.116-766.150 [Reserved]
Subpart D--Homestead Protection Program
Sec. 766.151 Purpose.
The Homestead Protection Program provides an opportunity for
borrowers to retain their principal residence and up to 10 acres of
adjoining land to maintain their family, through a lease-purchase
agreement with the Agency. If the Agency has only chattels as security,
homestead protection will not apply.
Sec. 766.152 Applying for Homestead Protection.
(a) Pre-acquisition. (1) Notification. If the borrower requested
primary loan servicing but cannot develop a feasible plan, the Agency
will notify the borrower of any additional information needed to
process the homestead protection request. The borrower must provide
this information within 30 days of Agency notification.
(2) Borrower does not respond. If the borrower does not timely
provide the information requested, the Agency will deny the homestead
protection request and provide reconsideration and appeal rights.
(3) Application requirements. A complete application for Homestead
Protection will include:
(i) Updates to items required under Sec. 766.102;
(ii) Information required under Sec. 766.353(b); and
(iii) Identification of land and buildings to be considered.
(b) Post-acquisition. (1) Notification. After the Agency acquires
title to the property, the Agency will notify the
[[Page 6104]]
borrower of the availability of homestead protection. The borrower must
submit a complete application within 30 days of Agency notification.
(2) Borrower does not respond. If the borrower does not respond to
the Agency notice, the Agency will dispose of the property in
accordance with 7 CFR 767.
(3) Application requirements. A complete application for Homestead
Protection will include:
(i) Updates to items required under Sec. 766.102; and
(ii) Identification of land and buildings to be considered.
Sec. 766.153 Eligibility.
(a) Property. (1) The principal residence and the adjoining land of
up to 10 acres, must have served as real estate security for the FLP
loan and may include existing farm service buildings.
(2) The applicant may propose a homestead protection site. Any
proposed site is subject to Agency approval.
(3) The proposed homestead protection site must meet all State and
local requirements for division into a separate legal lot.
(4) Where voluntary conveyance of the property to the Agency is
required to process the Homestead Protection request, the Agency will
take title to the property only if it can obtain a positive recovery
after paying any outstanding liens of other creditors on the property.
(b) Applicant. To be eligible for Homestead Protection, the
applicant:
(1) Must be the owner, or former owner from whom the Agency
acquired title of the property pledged as security for an FLP loan;
(i) Is a member of an entity who is or was personally liable for
the FLP loan secured by the Homestead Protection property and the
applicant or entity held fee title to the property;
(ii) Is an entity and the members of the entity are or were
personally liable for the FLP loan and have separate homes on the
security property, each member possessing and occupying a separate home
may apply for homestead protection.
(2) Must have earned gross farm income commensurate with:
(i) The size and location of the farm; and
(ii) The local agricultural conditions in at least two calendar
years during the 6-year period immediately preceding the calendar year
in which the borrower applied for Homestead Protection;
(3) Must have received 60 percent of gross income from farming in
at least 2 of the 6 years immediately preceding the year in which the
borrower applied for Homestead Protection;
(4) Must have lived in the home during the 6-year period
immediately preceding the year in which the borrower applied for
Homestead Protection. The borrower may have left the home for not more
than 12 months if it was due to circumstances beyond their control; and
(5) Must demonstrate sufficient income to make rental payments on
the homestead property for the term of the lease and to maintain the
property in good condition. The lessee will be responsible for any
normal maintenance, making any improvements to the property, and
replacing systems such as:
(i) Structural;
(ii) Mechanical;
(iii) Electrical;
(iv) Plumbing;
(v) Well;
(vi) Water;
(vii) Septic;
(viii) Sewage;
(ix) Appliance;
(x) Corral;
(xi) Fences;
(xii) Windmills;
(xiii) Outbuildings; and
(xiv) Any other system that is affixed to or a part of the real
estate.
Sec. 766.154 Homestead Protection transferability.
Homestead protection rights are not transferrable or assignable,
unless the eligible party dies or becomes legally incompetent in which
case the homestead protection rights may be transferred to the spouse
only.
Sec. 766.155 Homestead Protection leases.
(a) General. (1) The Agency may approve a lease-purchase agreement
subject to obtaining title to the property.
(2) If a third party obtains title to the property:
(i) The applicant and the property are no longer eligible for
homestead protection; and
(ii) The Agency will not implement any outstanding lease-purchase
agreement.
(3) The borrower may request homestead protection for property
subject to third party redemption rights. In such case, homestead
protection will not begin until the Agency obtains title to the
property.
(b) Lease terms and conditions. (1) The amount of rent will be
based on equivalent rents charged for similar residential properties in
the area in which the dwelling is located.
(2) All leases will include an option to purchase the homestead
protection property as described in paragraph (c) of this section.
(3) The lease term will not be less than three years and will not
exceed five years.
(4) The lessee must agree to make lease payments on time and
maintain the property.
(5) The lessee must cooperate with Agency efforts to sell the
remaining portion of the farm.
(c) Lease-purchase options. (1) The lessee may exercise in writing
the purchase option and complete the homestead protection purchase at
any time prior to the expiration of the lease provided all lease
payments are current.
(2) The purchase price is the current market value of the property
when the option is exercised as determined by a current appraisal
obtained by the Agency.
(3) The lessee may purchase homestead protection property with cash
or other credit source.
(4) The lessee may receive Agency Non-program financing provided:
(i) The lessee has not received previous debt forgiveness;
(ii) The Agency has funds available to finance the purchase of
homestead protection property; and
(iii) The lessee demonstrates an ability to repay such an Agency
loan.
(d) Lease terminations. The Agency may terminate the lease if the
lessee does not cure any lease defaults within 30 days of Agency
notification.
(e) Appraisal of Homestead Protection property. The Agency will use
an appraisal obtained within 6 months from the date of the application
for considering homestead protection. If a current appraisal does not
exist, the Agency will acquire an appraisal to determine the current
market value of the homestead protection property.
Sec. 766.156 Conflict with State law.
If there is a conflict between a borrower's homestead protection
rights and any provisions of State law relating to redemption rights,
the State law prevails.
Sec.Sec. 766.157-766.200 [Reserved]
Subpart E--Servicing Shared Appreciation Agreements and Net
Recovery Buyout Agreements
Sec. 766.201 Shared Appreciation Agreement.
(a) When a SAA is required. The Agency requires a borrower to enter
into a SAA with the Agency when the borrower:
(1) Owns any real estate that serves or will serve as loan
security; and
(2) Accepts a writedown in accordance with Sec. 766.111.
(b) When SAA is due. The borrower must repay the calculated amount
of
[[Page 6105]]
shared appreciation after a term of 5 years from the date of the
writedown, or earlier if:
(1) The borrower sells or conveys all or a portion of the Agency's
real estate security, unless real estate is conveyed upon the death of
a borrower to a spouse who will continue farming;
(2) The borrower repays or satisfies all FLP loans;
(3) The borrower ceases farming; or
(4) The Agency accelerates the borrower's loans.
Sec. 766.202 Determining the shared appreciation due.
(a) The value of the real estate security at the time of maturity
of the SAA (current market value) shall be the appraised value of the
security at the highest and best use, less the increase in the value of
the security resulting from capital improvements added during the term
of the SAA (contributory value). The current market value of the real
estate security property will be determined based on a current
appraisal obtained in accordance with Sec. 761.7 of this chapter, and
subject to the following:
(1) The borrower will identify any capital improvements that have
been added to the property since the execution of the SAA.
(2) The appraisal must specifically identify the contributory value
of capital improvements made to the Agency real estate security during
the term of the SAA to make deductions for that value.
(3) For calculation of shared appreciation recapture, the remaining
contributory value of capital improvements added during the term of the
SAA will be deducted from the current market value of the property.
Such capital improvements must also meet at least one of the following
criteria:
(i) It is the borrower's primary residence. If the new residence is
affixed to the real estate security as a replacement for a residence
which existed on the security property when the SAA was originally
executed, or, the living area square footage of the original residence
was expanded, only the value added to the real property by the new or
expanded portion of the original residence (if it added value) will be
deducted from the current market value.
(ii) It is an improvement to the real estate with a useful life of
over one year and is affixed to the property, the following conditions
must be met:
(A) The item must have been capitalized and not taken as an annual
operating expense on the borrower's Federal income tax returns. The
borrower must provide copies of appropriate tax returns to verify that
capital improvements claimed for shared appreciation recapture
reduction are capitalized.
(B) If the new item is affixed to the real estate as a replacement
for an item that existed on the real estate at the time the SAA was
originally executed, only the value added by the new item will be
deducted from the current market value.
(b) In the event of a partial sale, an appraisal of the property
being sold may be required to determine the market value at the time
the SAA was signed if such value cannot be obtained through another
method.
Sec. 766.203 Payment of recapture.
(a) The borrower must pay on the due date or 30 days from Agency
notification, whichever is later:
(1) Seventy-five percent of the appreciation in the real estate
security if the agreement is triggered within four years or less from
the date of the writedown; or
(2) Fifty percent of such appreciation if the agreement is
triggered more than four years from the date of the writedown or when
the agreement matures.
(b) If the borrower sells a portion of the security, the borrower
must pay shared appreciation only on the portion sold. Shared
appreciation on the remaining portion will be due in accordance with
paragraph (a) of this section.
(c) The amount of recapture cannot exceed the amount of the debt
written off through debt writedown.
Sec. 766.204 Amortization of recapture.
(a) The Agency will amortize the recapture into a Shared
Appreciation Payment Agreement provided the borrower:
(1) Has not ceased farming and the borrower's account has not been
accelerated;
(2) Provides a complete application in accordance with Sec.
764.51(a), by the recapture due date or within 60 days of Agency
notification of the amount of recapture due, whichever is later;
(3) Is unable to pay the recapture and cannot obtain funds from any
other source;
(4) Develops a feasible plan that includes repayment of the shared
appreciation amount;
(5) Provides a lien on all assets, except those listed in Sec.
766.112(b); and
(6) Signs loan agreements and security instruments as required.
(b) If the borrower later becomes delinquent or financially
distressed reamortization of the Shared Appreciation Payment Agreement
can be considered under subpart C of this part.
Sec. 766.205 Shared Appreciation Payment Agreement rates and terms.
(a) The interest rate for Shared Appreciation Payment Agreements is
the Agency's SA amortization rate.
(b) The term of the Shared Appreciation Payment Agreement is based
on the borrower's repayment ability and the useful life of the
security. The term will not exceed 25 years.
Sec. 766.206 Net Recovery Buyout Recapture Agreement.
(a) Servicing existing Net Recovery Buyout Recapture Agreements.
Prior to July 3, 1996, the Agency was authorized to offer borrowers to
buy out their loans at the net recovery value. A Net Recovery Buyout
Agreement was required for borrowers who bought out their loans at the
net recovery value. The Agency services existing Net Recovery Buyout
Recapture Agreements as described in this section.
(b) Requirements and terms. (1) The term of a Net Recovery Buyout
Recapture Agreement is 10 years. Net Recovery Buyout Recapture
Agreements are secured by a lien on the former borrower's real estate.
(2) If the former borrower sells or conveys real estate within the
10-year term, the former borrower must repay the Agency the lesser of:
(i) The fair market value of the real estate parcel at the time of
sale or conveyance, as determined by an Agency appraisal, minus the
portion of the recovery value of the real estate paid to the Agency in
the buyout;
(ii) The fair market value of the real estate parcel at the time of
the sale or conveyance, as determined by an Agency appraisal, minus:
(A) The unpaid balance of prior liens at the time of the sale or
conveyance; and
(B) The net recovery value of the real estate the borrower paid to
the Agency in the buyout if this amount has not been accounted for as a
prior lien;
(iii) The total amount of the FLP debt the Agency wrote off for
loans secured by real estate.
(3) If the former borrower does not pay the amount due, the Agency
will liquidate the Net Recovery Buyout account in accordance with
subpart H of this part.
(4) If the former borrower does not sell or convey the real estate
within the 10 year term, no recapture is due.
[[Page 6106]]
Sec.Sec. 766.207-766.250 [Reserved]
Subpart F--Unauthorized Assistance
Sec. 766.251 Types of unauthorized assistance.
(a) Unauthorized loan. An unauthorized loan is any loan, portion of
a loan, interest rate, or interest subsidy that was not processed and
approved in accordance with all Agency procedures and requirements.
(b) Unauthorized loan servicing action. An unauthorized loan
servicing action is any servicing action not made in accordance with
all Agency procedures and requirements.
Sec. 766.252 Repayment of unauthorized assistance.
(a) Except where specified otherwise, the borrower is responsible
for repaying any unauthorized assistance in full within 90 days of
Agency notice.
(b) The borrower has the opportunity to meet with an Agency
representative to discuss or refute the Agency's findings.
Sec. 766.253 Unauthorized assistance resulting from submission of
false or incomplete information.
A borrower is ineligible for continued Agency assistance if the
borrower, or a third party on the borrower's behalf, submits
information to the Agency that the borrower knows to be incomplete or
false.
Sec. 766.254 Unauthorized assistance resulting from borrower or Agency
error.
(a) Borrower options. (1) The borrower may repay the amount of the
unauthorized assistance in a lump sum within 90 days of Agency notice.
(2) If the borrower is unable to repay the entire amount in a lump
sum, the Agency will accept partial repayment of the unauthorized
assistance within 90 days of Agency notice to the extent of the
borrower's ability to repay. Any remaining balance will be handled in
accordance with paragraph (a)(3) of this section.
(3) If the borrower is unable to repay all or part of the
unauthorized amount, the Agency will enter into an accelerated
repayment agreement with the borrower for such amount under the
following conditions:
(i) The borrower did not intentionally provide incomplete or false
information;
(ii) Such agreement is in the best financial interest of the
Government;
(iii) The debt under the repayment agreement will be subject to the
interest rate for Non-program loans;
(iv) The term of the repayment agreement will be as short as
feasible, but in no case will exceed:
(A) The remaining term of the FLP loan;
(B) Twenty-five (25) years for real estate loans;
(C) The life of the security for chattel loans.
(v) The debt under the repayment agreement will be serviced as a
Non-program loan.
(b) Borrower refusal to pay. If the borrower is able to pay the
unauthorized assistance amount but refuses to do so, the Agency will
notify the borrower of the availability of loan servicing in accordance
with subpart C of this part.
Sec.Sec. 766.255-766.300 [Reserved]
Subpart G--Bankruptcy
Sec. 766.301 Notifying borrower in bankruptcy of loan servicing.
If a borrower files for bankruptcy, the Agency will provide written
notification to the borrower's attorney with a copy to the borrower as
follows:
(a) Borrower not previously notified. The Agency will provide
notice of all loan servicing options available under subpart C of this
part, if the borrower has not been previously notified of these
options.
(b) Borrower with prior notification. If the borrower had received
monetary or non-monetary notification at the time of bankruptcy filing
but all loan servicing was not completed, the Agency will provide
notice of any remaining loan servicing options available under subpart
C of this part.
Sec. 766.302 Loan servicing application requirements for borrowers in
bankruptcy.
(a) Borrower not previously notified. To be considered for loan
servicing, the borrower or borrower's attorney must sign and return the
appropriate response form and any forms or information requested by the
Agency within 60 days of the date of receipt of Agency notice on loan
servicing options.
(b) Borrower previously notified. To be considered for continued
loan servicing, the borrower or borrower's attorney must sign and
return the appropriate response form and any forms or information
requested by the Agency within the greater of:
(1) Sixty days after the borrower's attorney received the
notification of any remaining loan servicing options; or
(2) The remaining time from the Agency's previous monetary or non-
monetary notification of all servicing options that the Agency
suspended when the borrower filed bankruptcy.
(c) Court approval. The borrower is responsible for obtaining court
approval prior to exercising any available servicing rights.
Sec. 766.303 Processing loan servicing requests from borrowers in
bankruptcy.
(a) Considering borrower requests for servicing. Any request for
servicing is the borrower's acknowledgment that the Agency will not
interfere with any rights or protections under the Bankruptcy Code and
its automatic stay provisions.
(b) Borrowers with confirmed bankruptcy plans. If a plan is
confirmed before servicing and any appeal is completed under 7 CFR part
11, the Agency will complete the servicing or appeals process and may
consent to a post-confirmation modification of the plan if it is
consistent with the Bankruptcy Code and subpart C of this part, as
appropriate.
(c) Chapter 7 borrowers. A borrower filing for bankruptcy under
chapter 7 of the Bankruptcy Code may not receive primary loan servicing
unless the borrower reaffirms the entire Agency debt. A chapter 7
borrower does not have to reaffirm the debt in order to be considered
for homestead protection.
Sec.Sec. 766.304-766.350 [Reserved]
Subpart H--Loan Liquidation
Sec. 766.351 Liquidation.
(a) General. (1) When a borrower cannot or will not meet a loan
obligation, the Agency will consider liquidating the borrower's account
in accordance with this subpart.
(2) The Agency will charge protective advances against the
borrower's account as necessary to protect the Agency's interests
during liquidation in accordance with Sec. 765.203 of this chapter.
(3) The Agency considers liquidation in accordance with paragraph
(b) of this section, if a borrower has both Program and Non-program
loans.
(4) When no surviving family member or third party assumes or
repays a deceased borrower's loan in accordance with part 765, subpart
J, of this chapter, or when the estate does not otherwise fully repay
or sell loan security to repay a deceased borrower's Agency loans, the
Agency will liquidate the security as quickly as possible in accordance
with State and local requirements.
(b) Liquidation for Program borrowers. (1) If the borrower does not
apply, does not accept, or is not eligible for primary loan servicing,
conservation contract, market value buyout or homestead protection, and
all administrative appeals are concluded, the Agency will accelerate
the borrower's account in accordance with Sec. 766.355.
(2) Borrowers may voluntarily liquidate their security in
accordance with Sec.Sec. 766.352, 766.353 and 766.354.
[[Page 6107]]
(i) The Agency will not delay involuntary liquidation action.
(ii) If the conditions of (b)(1) of this section have not been met,
the Agency will notify the borrower in accordance with subpart C of
this part, prior to acting on the request for voluntary liquidation.
(c) Liquidation for Non-program borrowers. If a borrower has both
Program and Non-program loans, the borrower's account will be handled
in accordance with paragraph (b) of this section. If a borrower with
only Non-program loans is in default, the borrower may liquidate
voluntarily, subject to the following:
(1) The Agency may delay involuntary liquidation actions when in
the Agency's best financial interest for a period not to exceed 60
days.
(2) The borrower must obtain the Agency's consent prior to the sale
of the property.
(3) If the borrower will not pay the Agency in full, the minimum
sales price must be the current market value of the property as
determined by the Agency.
(4) The Agency will accept a conveyance offer only when it is in
the Agency's best financial interest.
(5) If a Non-program borrower does not cure the default, or cannot
or will not voluntarily liquidate, the Agency will accelerate the loan.
Sec. 766.352 Voluntary sale of real property and chattel.
(a) Conditions for voluntary sale of real property and chattel. A
borrower may voluntarily sell real property or chattel to repay Agency
debt in lieu of involuntary liquidation. Partial dispositions are
handled in accordance with part 765, subparts G and H of this chapter.
(1) The borrower must sell all real property and chattel that
secure Agency debt until the debt is paid in full or until all security
has been liquidated.
(2) The Agency must approve the sale and approve the use of
proceeds.
(3) The sale proceeds are applied in order of lien priority, except
that proceeds may be used to pay customary costs appropriate to the
transaction as follows:
(i) The costs must be reasonable in amount;
(ii) The borrower cannot arrange to pay the costs from personal
funds or cannot have the purchaser pay;
(iii) The costs must be paid to consummate the transaction;
(iv) When it is necessary for the Agency to present the promissory
note to the recorder to obtain a release of a portion of the real
property from the mortgage, the borrower must pay any cost for postage
and insurance of the note while in transit.
(4) The Agency will approve the sale of property when the proceeds
do not cover the borrower's full debt only if:
(i) The sales price must be equal to or greater than the market
value of the property; and
(ii) The sale is in the Agency's best financial interest.
(5) If an unpaid loan balance remains after the sale, the Agency
will continue to service the loan in accordance with 7 CFR part 792.
(b) Voluntary sale of chattel. If the borrower complies with
paragraph (a) of this section, the borrower may sell chattel security
by:
(1) Public sale. The borrower must obtain the agreement of
lienholders as necessary to complete a public sale; or
(2) Private sale. The borrower may sell chattel security at a
private sale if the borrower:
(i) Sells all of the security for not less than the current market
value;
(ii) Obtains the agreement of lienholders as necessary to complete
the sale;
(iii) Has a buyer who is ready and able to purchase the property;
and
(iv) The Agency agrees to the sale.
Sec. 766.353 Voluntary conveyance of real property.
(a) Requirements for conveying real property. The following
requirements must be satisfied before the Agency will accept a
conveyance.
(1) The borrower must supply the Agency with the following:
(i) An Agency application form;
(ii) A current financial statement. If the borrower is an entity,
all entity members must provide current financial statements;
(iii) Information on present and future income and potential
earning ability;
(iv) A warranty deed or other deed acceptable to the Agency;
(v) In the case of an entity, a resolution approved by the
governing body that authorizes the conveyance;
(vi) Assignment of all leases to the Agency. The borrower must put
all oral leases in writing;
(vii) Title insurance or title record for the security, if
available;
(viii) Complete debt settlement application in accordance with 7
CFR part 792 before or in conjunction with the voluntary conveyance
offer if the value of the property to be conveyed is less than the
debt; and
(ix) Any other documentation required by the Agency to evaluate the
request.
(2) The Agency will have the property appraised to determine its
current market value.
(b) Conditions for conveying real property. The Agency will accept
voluntary conveyance of real property by a borrower if:
(1) Conveyance is in the Agency's best financial interest;
(2) The borrower conveys all real property securing the Agency
loan; and
(3) The borrower has received prior notification of the
availability of loan servicing in accordance with subpart C of this
part.
(c) Prior and junior liens. (1) The Agency will pay prior liens to
the extent consistent with the Agency's best financial interest.
(2) Before conveyance, the borrower must pay or obtain releases of
all junior liens, real estate taxes, judgments, and other assessments.
(d) Charging and crediting the borrower's account. (1) The Agency
will charge the borrower's account for all recoverable costs incurred
in connection with a conveyance in accordance with Sec. 765.203 of this
chapter.
(2) The Agency will credit the borrower's account for the amount of
the market value of the property less any prior liens, or the debt,
whichever is less. In the case of a Native American borrower whose
loans are secured by real estate located within the boundaries of a
Federally recognized Indian reservation, however, the Agency will
credit the borrower's account at the greater of the market value of the
security or the borrower's Agency debt.
Sec. 766.354 Voluntary conveyance of chattel.
(a) Requirements for conveying chattel. The borrower must supply
the Agency with the following:
(1) An Agency application form;
(2) A current financial statement. If the borrower is an entity,
all entity members must provide current financial statements;
(3) Information on present and future income and potential earning
ability;
(4) A bill of sale including each item and titles to all vehicles
and equipment, as applicable;
(5) In the case of an entity, a resolution approved by the
governing body that authorizes the conveyance;
(6) Complete debt settlement application in accordance with 7 CFR
part 792 before or in conjunction with the voluntary conveyance offer
if the value of the property to be conveyed is less than the debt.
(b) Conditions for conveying chattel. The Agency will accept
conveyance of chattel only if:
(1) The borrower has made every possible effort to sell the
property voluntarily;
(2) The borrower can convey the chattel free of other liens;
[[Page 6108]]
(3) The conveyance is in the Agency's best financial interest;
(4) The borrower conveys all chattel securing the Agency loan; and
(5) The borrower has received prior notification of the
availability of loan servicing in accordance with subpart C of this
part.
(c) Charging and crediting the borrower's account. (1) The Agency
will charge the borrower's account for all recoverable costs incurred
in connection with the conveyance in accordance with Sec. 765.203 of
this chapter.
(2) The Agency will credit the borrower's account in the amount of
the market value of the chattel.
Sec. 766.355 Acceleration of loans.
(a) General. (1) The Agency accelerates loans in accordance with
this section, unless State law imposes separate restrictions on
accelerations.
(2) The Agency accelerates all of the borrower's loans at the same
time, regardless of whether each individual loan is delinquent or not.
(3) All borrowers must receive prior notification in accordance
with subpart C of this part, except for borrowers who fail to graduate
in accordance with Sec. 766.101(a)(7).
(b) Time limitations. The borrower has 30 days from the date of the
Agency acceleration notice to pay the Agency in full.
(c) Borrower options. The borrower may:
(1) Pay cash;
(2) Transfer the security to a third party in accordance with part
765, subpart I of this chapter;
(3) Sell the security property in accordance with Sec. 766.352; or
(4) Voluntarily convey the security to the Agency in accordance
with Sec.Sec. 766.353 and 766.354.
(d) Partial payments. The Agency may accept a payment that does not
cover the unpaid balance of the accelerated loan if the borrower is in
the process of selling security, unless acceptance of the payment would
reverse the acceleration.
(e) Failure to satisfy the debt. The Agency will liquidate the
borrower's account in accordance with Sec. 766.356 if the borrower does
not pay the account in full within the time period specified in the
acceleration notice.
Sec. 766.356 Involuntary liquidation of real property and chattel.
(a) General policy. The Agency will liquidate the borrower's
security if:
(1) The borrower does not satisfy the account in accordance with
Sec. 766.355;
(2) The Agency can obtain a positive recovery on a loan; and
(3) The involuntary liquidation is in the Agency's best financial
interest.
(b) Foreclosure on loans secured by real property. (1) The Agency
will charge the borrower's account for all recoverable costs incurred
in connection with the foreclosure and sale of the property in
accordance with Sec. 765.203.
(2) If the Agency acquires the foreclosed property, the Agency will
credit the borrower's account in the amount of the market value of the
property less the amount of any prior liens on the date of acquisition.
(3) If the Agency does not acquire the foreclosed property, the
Agency will credit the borrower's account in accordance with State law
and guidance from the Regional OGC.
(4) For a Native American borrower whose real property secures an
Agency loan and is located within the confines of a Federally
recognized Indian reservation, the Agency will credit the borrower's
account in the amount that is the greater of:
(i) The market value of the security; or
(ii) The amount of the Agency debt against the property.
(5) If an unpaid balance on the Agency loan remains after the
foreclosure sale of the property, the Agency may debt settle the
account in accordance with 7 CFR part 792.
(c) Foreclosure of loans secured by chattel. (1) The Agency will
charge the borrower's account for all recoverable costs incurred by the
Agency as a result of the repossession and sale of the property.
(2) The Agency will apply the proceeds from the repossession sale
to the borrower's account less prior liens and all authorized
liquidation costs.
(3) If an unpaid balance on the Agency loan remains after the sale
of the repossessed property, the Agency may debt settle the account in
accordance with 7 CFR part 792.
Sec.Sec. 766.357-766.400 [Reserved]
Subpart I--Exception Authority
Sec. 766.401 Agency exception authority.
On an individual case basis, the Agency may consider granting an
exception to any regulatory requirement or policy of this part if:
(a) The exception is not inconsistent with the authorizing statute
or other applicable law; and
(b) The Government's financial interest would be adversely affected
by acting in accordance with published regulations or policies and
granting the exception would resolve or eliminate the adverse effect
upon the Government's financial interest.
Sec.Sec. 766.402-766.450 [Reserved]
Appendix A to Subpart C of Part 766--Notice of Availability of Loan
Servicing to Borrowers Who Are Current or Less Than 90 Days Past Due
FSA 2501
Notice of Availability of Loan Servicing to Borrowers Who Are Current
or Less Than 90 Days Past Due
Dear (Borrower's Name)
This notice informs you of servicing options that may be
available to financially distressed borrowers or borrowers less than
90 days past due. The Agency's primary loan servicing programs,
Conservation Contract Program, Homestead Protection Program, and
debt settlement programs may help you resolve your financial
distress, repay your loan, retain your farm property or settle your
Farm Loan Programs (FLP) debt.
How To Apply
To apply, you must complete, where applicable, and provide all
items required in paragraph (e).
Help in Responding to This Notice
The servicing options available to you may become complicated.
You may need help to understand them and their impact on your
operation. You may want to ask an attorney to help you or there are
organizations that give free or low-cost advice to farmers. You may
contact your State Department of Agriculture or the USDA Extension
Service for available services in your State.
Note: Agency employees cannot recommend a particular attorney or
organization.
Who Will Decide if You Qualify?
After you submit a complete application, the Agency will
determine if you meet all eligibility requirements and can develop a
farm operating plan which shows that you can pay all debts and
expenses.
What Happens if You Do Not Apply or Do Not Resolve Your
Delinquency?
If you do not timely apply to this notice, or you do not resolve
your delinquency, and you become 90 days past due on your loans, the
Agency will notify you of available loan servicing by sending you
FSA 2503, ``Notice of Availability of Loan Servicing to Borrowers
Who Are 90 Days Past Due.''
Included with this notice you will find information on:
(a) Primary loan servicing programs;
(b) Conservation Contract Program;
(c) Homestead Protection Program;
(d) Debt settlement programs;
(e) Forms, documentation, and information needed to apply;
(f) How to get copies of the Agency's handbooks and forms;
(g) Reconsideration, mediation, negotiation and appeal rights;
(h) The right not to be discriminated against.
[[Page 6109]]
(a) Primary Loan Servicing Programs
Eligibility
You must meet the following eligibility requirements to obtain
primary loan servicing:
(a) You are financially distressed due to circumstances beyond
your control which reduced your repayment ability to the extent that
scheduled payments cannot be made as a result of one the following
circumstances:
(1) Illness, injury, or death of a borrower or other individual
who operates the farm;
(2) Natural disaster, adverse weather, disease, or insect damage
which caused severe loss of agricultural production;
(3) Widespread economic conditions such as low commodity prices;
(4) Damage or destruction of property essential to the
operation; or
(5) Loss of, or reduction in, your or your spouse's essential
non-farm income.
(b) You do not have non-essential assets for which the net
recovery value is sufficient to resolve your financial distress. The
Agency cannot write down debt that you could pay with the value of
your equity in these assets.
(c) If you are in non-monetary default as a result of
noncompliance with the Agency's loan agreements, you must resolve
the non-monetary default prior to closing the servicing action.
(d) You must have acted in good faith in accordance with your
loan agreements.
Time Limits
If the Agency determines that you are eligible for primary loan
servicing and can develop a feasible plan, you will have 45 days
from notice to accept the Agency's offer for loan servicing.
Lien requirements
If you are offered loan servicing and accept the offer, you must
agree to give the Agency a lien on your other assets and you must
provide this lien at closing.
Payment of interest
You must pay a portion of the interest that has accrued on your
loans prior to closing the servicing action.
Loan consolidation
The unpaid principal and interest of two or more operating loans
can be combined into one larger operating loan. When loans are
consolidated, the interest rate will be the lesser of:
(1) the lowest interest rate for that type of loan on the date a
complete servicing application was received;
(2) the lowest interest rate for that type of loan on the date
of restructure; or
(3) the lowest original loan note rate on any of the original
notes being consolidated.
In addition, the Agency will consider the maximum loan terms.
Loan rescheduling
The repayment schedule may be changed to cure the financial
distress or delinquency and give you new terms to repay loans made
for equipment, livestock, or annual operating purposes. When loans
are rescheduled, the interest rate will be the lesser of:
(1) the lowest interest rate for that type of loan on the date a
complete servicing application was received;
(2) the lowest interest rate for that type of loan on the date
of restructure; or
(3) the lowest original loan note rate on any of the original
notes being rescheduled.
In addition, the Agency will consider the maximum loan terms.
Loan reamortization
The repayment schedule may be changed to cure the financial
distress or delinquency and give you a new schedule of repayment on
loans made for real estate purposes. When loans are reamortized, the
interest rate will be the lesser of:
(1) the lowest interest rate for that type of loan on the date a
complete servicing application was received;
(2) the lowest interest rate for that type of loan on the date
of restructure; or
(3) The original loan note rate of the note being reamortized.
In addition, the Agency will consider the maximum loan terms.
Limited Resource Interest Rate
Limited resource interest rates are available for certain types
of loans. If you have existing loans which are not at the limited
resource rate, and a limited resource rate is available, the Agency
will consider reducing the rate of the loans. The limited resource
interest rate can be as low as 5 percent, however, this rate may
change depending on what it costs the Government to borrow money.
For information about current interest rates, contact this
office.
Loan Deferral
Partial or full payments of principal and interest may be
temporarily delayed for up to five years. You will only be
considered for loan deferral if the loan servicing programs
discussed above will not allow you to pay all essential family
living and farm operating expenses, maintain your property, and pay
your debts.
You must be able to show through a farm operating plan that you
are unable to pay all essential family living and farm operating
expenses, maintain your property, and pay your debts. The farm
operating plan must also show that you will be able to pay your full
installment at the end of the deferral period.
The interest that accrues during the deferral period must be
paid in yearly payments for the rest of the loan term after the
deferral period ends.
Debt Writedown
Debt writedown can reduce the principal and interest on your
loan. The Agency offers a writedown only when the loan servicing
programs discussed above and the Conservation Contract Program will
not result in a feasible plan. To receive debt writedown, the value
of your restructured loan must be equal to or greater than the
recovery value to the Agency from foreclosure and repossession of
your security property.
The recovery value is the market value of:
(1) The collateral pledged as security for your FLP loans minus
expenses (such as the sale costs, attorneys' fees, management costs,
taxes, and payment of prior liens) on the collateral that the Agency
would have to pay if it foreclosed, or repossessed, and sold the
collateral;
(2) Any collateral that is not in your possession and has not
been released for sale by the Agency in writing; and
(3) Any other non-essential assets you may own.
A qualified appraiser determines the value of the collateral and
any other assets you own. You may receive a writedown only if you
have not previously received any form of debt forgiveness on any
other FLP direct loan. The maximum amount of debt that can be
written down on all direct loans is $300,000.
Shared Appreciation Agreement
If you own real estate and receive a debt writedown, you must
sign a Shared Appreciation Agreement. The term of the agreement is
five years. Under the terms of the agreement you must repay all or a
part of the amount written down at the maturity of your Shared
Appreciation Agreement if your real estate collateral increased in
value. Payment of shared appreciation will be required prior to the
maturity of your Shared Appreciation Agreement if you:
(1) Sell or convey the real estate;
(2) Stop farming;
(3) Pay off your entire FLP debt; or
(4) Have your FLP accounts accelerated by the Agency.
If any of these events occur within the first four years of the
agreement, you will have to pay 75 percent of the increase in value
of the real estate. If any of these events occur after the fourth
anniversary of the agreement, or if the Shared Appreciation
Agreement matures without having previously been fully triggered,
you will have to pay only 50 percent of the increase in value. You
will not have to pay more than the amount of the debt written down.
(b) Conservation Contract Program
You may request a Conservation Contract to protect highly
erodible land, wetlands, or wildlife habitats located on your real
estate property that serves as security for your FLP debt. In
exchange for such contract, the Agency would reduce your FLP debt.
The amount of land left after the contract must be sufficient to
continue your farming operation.
(c) Homestead Protection Program
Under the Homestead Protection Program, you may repurchase your
primary residence, certain outbuildings, and up to 10 acres of land.
If you cannot pay cash or Agency financing is not available, you may
lease your primary residence. The lease will include an option for
you to purchase the property you lease.
This program may apply when primary loan servicing or the
Conservation Contract Program are not available or are not accepted.
You must agree to give the Agency title to your land at the time
the Agency signs the homestead protection agreement with you. The
Agency will compute the costs of taking title including the cost of
paying other creditors who have outstanding liens on the
[[Page 6110]]
property. The Agency will take title only if it can obtain a
positive recovery.
Eligibility Requirements
(1) Your gross annual income from the farming operation must
have been similar to other comparable operations in your area in at
least two of the last six years.
(2) Sixty percent (60%) of your gross annual income in at least
two of the last six years must have come from the farming operation.
(3) You must have lived in your homestead property for six years
immediately before your application. If you had to leave for less
than 12 months during the 6-year period and you had no control over
the circumstances, you may still qualify.
(4) You must be the owner of the property immediately prior to
the Agency obtaining title.
Property Restrictions and Easements
The Agency may place restrictions or easements on your property
which restrict your use if the property is located in a special area
or has special characteristics. These restrictions and easements
will be placed in leases and in deeds on properties containing
wetlands, floodplains, endangered species, wild and scenic rivers,
historic and cultural properties, coastal barriers, and highly
erodible lands.
Leasing the Homestead Property
(1) You must pay rent to the Agency to lease the property
determined eligible for homestead protection. The rent the Agency
charges will be similar to comparable property in your area.
(2) You must maintain the property in good condition during the
term of the lease.
(3) You may lease the property for up to five years but no less
than three years.
(4) You cannot sublease the property.
(5) If you do not make the rental payments to the Agency, the
Agency will cancel the lease and take legal action to force you to
leave.
(6) Lease payments are not applied toward the final purchase
price of the property.
Purchasing the Homestead Protection Property
You can repurchase your homestead property at market value at
any time during the lease. The market value of the property will be
decided by a qualified appraiser and will reflect the value of the
land after any placement of a restriction or easement such as a
wetland conservation easement.
(d) Debt Settlement Programs
You can apply for debt settlement at any time; however, these
programs are usually used only after it has been determined that
primary loan servicing programs and Conservation Contract cannot
help you. Under the debt settlement programs, the debt you owe the
Agency under FLP may be settled for less than the amount you owe.
These programs are subject to the discretion of the Agency and are
not a matter of entitlement or right.
Settlement Alternatives
Settlement alternatives include:
(1) Compromise: A lump-sum payment of less than the total FLP
debt owed;
(2) Adjustment: Two or more payments of less than the total
amount owed to the Agency. Payments can be spread out over a maximum
of five years if the Agency determines you will be able to make the
payments as they become due; and
(3) Cancellation: Satisfaction of Agency debt without payment.
Note: The Agency will not finance these alternatives.
Processing and Requirements
If you sell loan collateral, you must apply the proceeds from
the sale to your FLP loans before you can be considered for debt
settlement. In the case of compromise or adjustment you may keep
your collateral, if you pay the Agency the market value of your
collateral along with any additional amount the Agency determines
you are able to pay. Debt amounts which are collectible through
administrative offset, judgment, or by the Department of the
Treasury will not be settled through debt settlement procedures. You
must certify that you do not have assets or income in addition to
what you stated in your application. If you qualify, your
application must also be approved by the State Executive Director or
the Administrator, depending on the amount of the debt to be
settled.
(e) Forms, Documentation, and Information Needed To Apply
A complete application for primary loan servicing must include
items 1 through 9. Additional information is required as noted if
you want to be considered for the Conservation Contract Program or
for debt settlement programs. If you need help to complete the
required forms, you may request an Agency official to assist you.
The forms for requirements (1) through (6) and (10) are included
with this package.
(1) FSA 2502, ``Acknowledgment of Available Loan Servicing--Less
Than 90 Days Past Due.'' All individuals and entities liable for the
FLP debt must sign FSA 2502 to request servicing.
(2) FSA 410-1, ``Application for Agency Services.'' In the case
of an entity borrower, all entity members must provide current
financial statements.
(3) FSA 431-2, ``Farm and Home Plan,'' or other acceptable plan
of operation.
(4) FSA 440-32, ``Request for Statement of Debts and
Collateral.'' Complete the name and address of the creditor, account
number, if applicable, and your name. All parties liable to the
creditor must sign and date the form. The Agency will mail this form
to the creditor to obtain the needed information. Any debts less
than $1,000 can be verified by a credit report. If debts of $1,000
or more appear on your credit report and no FSA 440-32 is supplied
to the Agency to mail to the creditor within the 60-day time period,
the application cannot be considered complete.
(5) RD 1910-5, ``Request for Verification of Employment.'' If
you have non-farm income, you must complete employer's name and
address, employee's name and address, social security number, sign
and date the form. The Agency will send the form to your employer to
obtain the needed information.
(6) FSA 1960-12, ``Financial and Production Farm Analysis
Summary.'' Complete the form or another similar worksheet to provide
production and expense history for crops, livestock, livestock
products, etc., for each of the three years immediately preceding
the year of application or the years you have been farming,
whichever is less and if not already in the Agency case file. You
must be able to support this information with farm records.
(7) AD-1026, ``Highly Erodible Land Conservation (HELC) and
Wetland Conservation (WC) Certification.'' You will be required to
complete this form if the one you have on file does not reflect all
the land you own and lease.
(8) SCS-CPA-026, ``Highly Erodible Land and Wetland Conservation
Determination.'' This form must be obtained from and completed by
the Natural Resources Conservation Service office, if not already on
file with the Agency.
(9) Copies of your income tax records and any supporting
documents for the last three years immediately preceding the year of
application. If your copies of tax records are not readily
available, you can obtain copies from the Internal Revenue Service.
(10) RD 1956-1, ``Application for Settlement of Indebtedness.''
Complete this form only if you wish to apply for debt settlement.
You must also comply with any Agency request for additional
information needed to process a debt settlement request.
(11) If you are applying for a Conservation Contract a map or
aerial photo of your farm identifying the portion of the land and
approximate number of acres to be considered.
Divorced Spouses
If you are an FLP obligor who has left the farm operation due to
divorce, you may request release of liability. To be released of
liability after a divorce, you must present the Agency with the
following within 60 days of receiving this notice:
(1) A divorce decree or property settlement document which
states the remaining party will be responsible for all repayment to
the Agency;
(2) Evidence that you have conveyed your ownership interest in
FLP security to the remaining party; and
(3) Evidence that you do not have any repayment ability for the
FLP loan through cash, income, or other non-essential assets.
The Agency will make a determination on your request and will
inform you of the decision within 60 days of receiving your request.
If you are not released of liability, you will need to include
all of your relevant financial information if applying for primary
loan servicing, homestead protection, or debt settlement program.
(f) How To Get Copies of Agency Handbooks and Forms
Copies of the forms for requirements (e)(1) through (e)(6) and
(e)(10) have been included in this notice. You may obtain copies of
Agency handbooks describing available
[[Page 6111]]
programs or additional copies of forms from this office.
(g) Reconsideration, Mediation, Negotiation, and Appeal Rights
Reconsideration, mediation, negotiation, and appeal rights will
be provided to you if the Agency makes an adverse decision on your
request for loan servicing or prior to acceleration of your FLP
account. These options will be provided when required to insure that
you are given the reasons for the Agency decision and complete
information on how you may request any of these options.
Reconsideration
If you are determined by the Agency to be ineligible for loan
servicing, or if you cannot develop a feasible plan, you may request
a reconsideration meeting with the Agency decision maker. You must
request reconsideration within 30 days of the date you receive the
adverse decision. At a reconsideration meeting, you may present
additional information to the decision maker and explain why you
believe the adverse decision to be in error. If the meeting does not
change the Agency decision, you will be notified and provided 30
days to request mediation, negotiation, or appeal as outlined below.
Mediation
Mediation is a process for resolution of a disagreement. A
trained neutral mediator assists two or more parties in dispute to
look at the issues, consider all available options, and attempt to
agree on an acceptable solution. If your State has a mediation
program approved by the USDA, the Agency will participate in
mediation. If there is no State mediation program, the Agency may
help you to set up a meeting with your other creditors. If you wish
to request mediation, you must make such request within 30 days of
your receipt of an adverse Agency decision. If you request mediation
prior to requesting an appeal, the 30-day time period for requesting
an appeal will be temporarily suspended. If mediation fails to
resolve your dispute with the Agency, only the balance of the 30
days will remain to request an appeal.
Negotiation of the Appraisal
If you timely submit a complete application for primary loan
servicing, but disagree with the appraisal used by the Agency for
processing your primary loan servicing request, you will have 30
days to obtain, at your own expense, an independent appraisal which
conforms to published Agency appraisal standards. If this
independent appraised value is within 5 percent of the value of the
Agency appraisal, you must choose one of these two appraisals for
the Agency to use to continue processing your request. If the
appraisals differ by more than 5 percent, you may request a third
appraisal for which you must pay half of the cost, and the average
of the two appraisals closest in value is taken as the final
appraised value to be used in considering your request. If you wish
to request both negotiation and mediation, these should be requested
at the same time so the negotiation of the appraisal can be
concluded prior to mediation. If not requested at the same time,
negotiation of the appraisal must be requested first. Negotiated
appraisals are not appealable but other issues can still be appealed
after negotiation. If you request negotiation of the appraisal prior
to requesting an appeal, the 30-day time period for requesting an
appeal will be temporarily suspended. If negotiation of the
appraisal fails to resolve your dispute with the Agency, only the
balance of the 30-day time frame will remain to request an appeal on
issues other than the negotiated appraisal.
Appeal
Appeal is a process under which you present evidence to USDA's
National Appeals Division which shows that the Agency's adverse
decision is wrong. Subject to the deadline suspensions discussed
above, your request for an appeal must be postmarked no later than
30 days from the date you received the Agency's adverse decision.
(h) The Right Not To Be Discriminated Against
The Federal Equal Credit Opportunity Act prohibits creditors
from discriminating against credit applicants on the basis of race,
color, religion, national origin, sex, marital status, age (provided
the applicant has the capacity to enter into a binding contract);
because all or part of the applicant's income derives from any
public assistance program; or because the applicant has in good
faith exercised any right under the Consumer Credit Protection Act.
The Federal agency that administers compliance with this law is the
Federal Trade Commission, Equal Credit Opportunity, Washington, DC
20580.
USDA regulations prohibit discrimination in USDA programs
because of your race, color, religion, sex, age, national origin,
marital status, familial status, sexual orientation, disability;
because all or part of your income is derived from any public
assistance program; or because you have filed a program complaint,
participated in any program complaint proceeding, or opposed a
prohibited practice.
If you believe that you have been discriminated against for any
of the reasons stated above, you may file a complaint with the
Director, Office of Civil Rights, United States Department of
Agriculture, Room 326-W, Whitten Building, 1400 Independence Avenue
SW., Washington, DC 20250-9410.
The servicing programs described by this Notice are subject to
applicable Agency regulations published at 7 CFR part 766.
For more information, please contact this office.
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Title
Office Address
Telephone number
Appendix B to subpart C of part 766--Notice of Availability of Loan
Servicing to Borrowers Who Are 90 Days Past Due
FSA 2503
Notice of Availability of Loan Servicing to Borrowers Who are 90 Days
Past Due
Dear (Borrower's Name)
This notice informs you that you are seriously delinquent with
your Farm Loan Programs (FLP) loan payment and notifies you of
options that may be available to you. The Agency's primary loan
servicing programs, Conservation Contract Program, current market
value buyout, Homestead Protection Program, and debt settlement
programs may help you repay your loan and retain your farm property
or settle your FLP debt.
How to apply
To apply, you must complete, where applicable, and provide all
items required in paragraph (f), within 60 days of the date you
receive this notice.
Help in responding to this notice
The servicing options available to you may become complicated.
You may need help to understand them and their impact on your
operation. You may want to ask an attorney to help you or there are
organizations that give free or low-cost advice to farmers. You may
contact your State Department of Agriculture or the USDA Extension
Service for available services in your State.
Note: Agency employees cannot recommend a particular attorney or
organization.
Who will decide if you qualify?
After you submit a complete application, the Agency will
determine if you meet all eligibility requirements and can develop a
farm operating plan which shows that you can pay all debts and
expenses.
What happens if you do not bring the account current or apply
within 60 days?
The Agency will accelerate your loan if you do not bring the FLP
account current or timely apply for loan servicing. This means the
Agency will take legal action to collect all the money you owe to
the Agency under FLP. After acceleration of your loan accounts, the
Agency will start foreclosure proceedings. The Agency will repossess
or take legal action to sell your real estate, personal property,
crops, livestock, equipment, or any other assets in which the Agency
has a security interest. The Agency will stop all releases of the
proceeds from Agency security including, but not limited to,
releases of your crops, livestock and milk. The Agency will take, by
administrative offset, money or other program benefits which FSA or
other Federal Agencies owe you. The Agency will also obtain and file
judgments against you and your property or refer your account to the
Department of the Treasury for collection.
Included with this notice you will find information on:
(a) Primary loan servicing programs;
(b) Conservation Contract Program;
(c) Current market value buyout;
(d) Homestead Protection Program;
(e) Debt settlement programs;
(f) Forms, documentation, and information needed to apply;
(g) How to get copies of Agency handbooks and forms;
(h) Reconsideration, mediation, negotiation, and appeal rights;
[[Page 6112]]
(i) Acceleration and foreclosure;
(j) The right not to be discriminated against.
(a) Primary Loan Servicing Programs
Eligibility
You must meet the following eligibility requirements to obtain
primary loan servicing:
(a) You cannot repay your FLP debt due to circumstances beyond
your control which reduced your repayment ability to the extent that
scheduled payments cannot be made as a result of one of the
following circumstances:
(1) Illness, injury, or death of a borrower or another
individual who operates the farm;
(2) Natural disaster, adverse weather, disease, or insect damage
which caused severe loss of agricultural production;
(3) Widespread economic conditions such as low commodity prices;
(4) Damage or destruction of property essential to the
operation; or
(5) Loss of, or reduction in, your or your spouse's essential
non-farm income.
(b) You do not have non-essential assets for which the net
recovery value is sufficient to pay the delinquent portion of the
loan. The Agency cannot reduce or write off debt that you could pay
with the value of your equity in these assets.
(c) If you are in non-monetary default as a result of
noncompliance with the Agency's loan agreements, you must resolve
the non-monetary default prior to closing the servicing action.
(d) You must have acted in good faith in accordance with your
loan agreements.
Time Limits
If the Agency determines that you can develop a feasible plan
and are eligible for primary loan servicing, you will have 45 days
from the date you receive the Agency's offer to accept loan
servicing.
Lien Requirements
If you are offered loan servicing and accept the offer, you must
agree to give the Agency a lien on your other assets and you must
provide this lien at closing.
Loan Consolidation
The unpaid principal and interest of two or more operating loans
can be combined into one larger operating loan. When loans are
consolidated, the interest rate will be the lesser of:
(1) The lowest interest rate for that type of loan on the date a
complete servicing application was received;
(2) The lowest interest rate for that type of loan on the date
of restructure; or
(3) The lowest original loan note rate on any of the original
notes being consolidated.
In addition, the Agency will consider the maximum loan terms.
Loan Rescheduling
The repayment schedule may be changed to cure the financial
distress or delinquency and give you new terms to repay loans made
for equipment, livestock, or annual operating purposes. When loans
are rescheduled, the interest rate will be the lesser of:
(1) The lowest interest rate for that type of loan on the date a
complete servicing application was received;
(2) The lowest interest rate for that type of loan on the date
of restructure; or
(3) The lowest original loan note rate on any of the original
notes being rescheduled.
In addition, the Agency will consider the maximum loan terms.
Loan Reamortization
The repayment schedule may be changed to cure the financial
distress or delinquency and give you a new schedule of repayment on
loans made for real estate purposes. When loans are reamortized, the
interest rate will be the lesser of:
(1) The lowest interest rate for that type of loan on the date a
complete servicing application was received;
(2) The lowest interest rate for that type of loan on the date
of restructure; or
(3) The original loan note rate of the note being reamortized.
In addition, the Agency will consider the maximum loan terms.
Limited Resource Interest Rate
Limited resource interest rates are available for certain types
of loans. If you have existing loans which are not at the limited
resource rate, but a limited resource rate is available, the Agency
will consider reducing the rate of the loans. The limited resource
interest rate can be as low as 5 percent, however, this rate may
change depending on what it costs the Government to borrow money.
For information about current interest rates, contact this
office.
Loan Deferral
Partial or full payments of principal and interest may be
temporarily delayed for up to five years. You will only be
considered for loan deferral if the loan servicing programs
discussed above will not allow you to pay all essential family
living and farm operating expenses, maintain your property, and pay
your debts.
You must be able to show through a farm operating plan that you
are unable to pay all essential family living and farm operating
expenses, maintain your property, and pay your debts. The farm
operating plan must also show that you will be able to pay your full
installment at the end of the deferral period.
The interest that accrues during the deferral period must be
paid in yearly payments for the rest of the loan term after the
deferral period ends.
Debt Writedown
Debt writedown can reduce the principal and interest on your
loan. The Agency offers a writedown only when the loan servicing
programs discussed above and the Conservation Contract Program, if
requested, will not result in a feasible plan. To receive debt
writedown, the value of your restructured loan must be equal to or
greater than the recovery value to the Agency from foreclosure and
repossession of your security property.
The recovery value is the market value of:
(1) The collateral pledged as security for FLP loans minus
expenses (such as the sale costs, attorneys' fees, management costs,
taxes, and payment of prior liens) on the collateral that the Agency
would have to pay if it foreclosed, or repossessed, and sold the
collateral;
(2) Any collateral that is not in your possession and has not
been released for sale by the Agency in writing; and
(3) Any other non-essential assets you may own.
A qualified appraiser determines the value of the collateral and
any other assets you own. You may receive a writedown only if you
have not previously received any form of debt forgiveness on any
other FLP direct loan. The maximum amount of debt that can be
written down on all direct loans is $300,000.
Shared Appreciation Agreement
If you own real estate and receive a debt writedown, you must
sign a Shared Appreciation Agreement. The term of the agreement is
five years. Under the terms of the agreement you must repay all or a
part of the amount written down at the maturity of your Shared
Appreciation Agreement if your real estate collateral increased in
value. Payment of shared appreciation will be required prior to the
maturity of your Shared Appreciation Agreement if you:
(1) Sell or convey the real estate;
(2) Stop farming;
(3) Pay off your entire FLP debt; or
(4) Have your FLP accounts accelerated by the Agency.
If any of these events occur within the first four years of the
agreement, you will have to pay 75 percent of the increase in value
of the real estate. If any of these events occur after the fourth
anniversary of the agreement, or if the Shared Appreciation
Agreement matures without having previously been fully triggered,
you will have to pay only 50 percent of the increase in value. You
will not have to pay more than the amount of the debt written down.
(b) Conservation Contract Program
You may request a Conservation Contract to protect highly
erodible land, wetlands, or wildlife habitats located on your real
estate property that serves as security for your FLP debt. In
exchange for such contract, the Agency would reduce your FLP debt.
The amount of land left after the contract must be sufficient to
continue your farming operation.
(c) Current Market Value Buyout
If the analysis of your debt shows that you cannot achieve a
feasible plan even if the present value of your FLP debt is reduced
to the value of the security, the Agency may offer you buyout of
your Farm Loan Programs debt. You would pay the market value of all
FLP security and non-essential assets, minus any prior liens. The
market value is determined by a current appraisal completed by a
qualified appraiser. In exchange, your loans would be satisfied.
Limits
To receive a current market value buyout offer:
(1) You must not have previously received any form of debt
forgiveness from the Agency on any other direct FLP loan;
[[Page 6113]]
(2) The maximum debt to be written off with buyout does not
exceed $300,000; and
(3) You must not have non-essential assets with a net recovery
value sufficient to pay your account current.
Eligibility
To qualify, you must prove that:
(1) You cannot repay your delinquent FLP debt due to
circumstances beyond your control; and
(2) You have acted in good faith in accordance with your loan
agreements.
Time Limit
To buyout your FLP debt at the current market value, you must
pay the Agency within 90 days of the date you receive the offer.
Method of payment
To buyout your FLP debt at the current market value, you must
pay by cash, cashier's check, or U.S. Treasury check. The Agency
will not make or guarantee a loan for this purpose.
(d) Homestead Protection Program
Under the Homestead Protection Program, you may repurchase your
primary residence, certain outbuildings, and up to 10 acres of land.
If you cannot pay cash or Agency financing is not available, you may
lease your primary residence. The lease will include an option for
you to purchase the property you lease.
This program may apply when primary loan servicing, the
Conservation Contract Program, or current market value buyout is not
available or not accepted.
You must agree to give the Agency title to your land at the time
the Agency signs the homestead protection agreement with you. The
Agency will compute the costs of taking title including the cost of
paying other creditors who have outstanding liens on the property.
The Agency will take title only if it can obtain a positive
recovery.
Eligibility requirements
(1) Your gross annual income from the farming operation must
have been similar to other comparable operations in your area in at
least two of the last six years.
(2) Sixty percent (60%) of your gross annual income in at least
two of the last six years must have come from the farming operation.
(3) You must have lived in your homestead property for six years
immediately before your application. If you had to leave for less
than 12 months during the 6-year period and you had no control over
the circumstances, you may still qualify.
(4) You must be the owner of the property immediately prior to
the Agency obtaining title.
Property restrictions and easements
The Agency may place restrictions or easements on your property
which restrict your use if the property is located in a special area
or has special characteristics. These restrictions and easements
will be placed in leases and in deeds on properties containing
wetlands, floodplains, endangered species, wild and scenic rivers,
historic and cultural properties, coastal barriers, and highly
erodible lands.
Leasing the homestead property
(1) You must pay rent to the Agency to lease the property
determined eligible for homestead protection. The rent the Agency
charges will be similar to comparable property in your area.
(2) You must maintain the property in good condition during the
term of the lease.
(3) You may lease the property for up to five years but no less
than three years.
(4) You cannot sublease the property.
(5) If you do not make the rental payments to the Agency, the
Agency will cancel the lease and take legal action to force you to
leave.
(6) Lease payments are not applied toward the final purchase
price of the property.
Purchasing the homestead protection property
You can repurchase your homestead property at market value at
any time during the lease. The market value of the property will be
decided by a qualified appraiser and will reflect the value of the
land after any placement of a restriction or easement such as a
wetland conservation easement.
(e) Debt Settlement Programs
You can apply for debt settlement at any time; however, these
programs are usually used only after it has been determined that
primary loan servicing programs and the Conservation Contract
Program cannot help you. Under the debt settlement programs, the
debt you owe the Agency under FLP may be settled for less than the
amount you owe. These programs are subject to the discretion of the
Agency and are not a matter of entitlement or right. If you do not
have any Agency security, you may apply for debt settlement only. If
you do not apply, or do not receive approval of a debt settlement
request, your FLP loan accounts will be forwarded to the Department
of the Treasury for collection.
Settlement Alternatives
Settlement alternatives include:
(1) Compromise: A lump-sum payment of less than the total FLP
debt owed;
(2) Adjustment: Two or more payments of less than the total
amount owed to the Agency. Payments can be spread out over a maximum
of 5 years if the Agency determines you will be able to make the
payments as they become due; and
(3) Cancellation: Satisfaction of Agency debt without payment.
Note: The Agency will not finance these alternatives.
Processing and Requirements
If you sell loan collateral, you must apply the proceeds from
the sale to your FLP loans before you can be considered for debt
settlement. In the case of compromise or adjustment you may keep
your collateral, if you pay the Agency the market value of your
collateral along with any additional amount the Agency determines
you are able to pay.
Debt amounts which are collectible through administrative
offset, judgment, or by the Department of the Treasury will not be
settled through debt settlement procedures. You must certify that
you do not have assets or income in addition to what you stated in
your application. If you qualify, your application must also be
approved by the State Executive Director or the Administrator,
depending on the amount of the debt to be settled.
(f) Forms, Documentation, and Information Needed to Apply
A complete application for primary loan servicing must include
items 1 through 9. Additional information is required as noted if
you want to be considered for the Conservation Contract Program or
for debt settlement programs. If you need help to complete the
required forms, you may request an Agency official to assist you.
The forms for requirements (1) through (6) and (10) are included
with this package.
(1) FSA 2504 ``Acknowledgment of Available Loan Servicing--90
Days Past Due.'' All individuals and entities liable for the FLP
debt must sign FSA 2504 to request servicing.
(2) FSA 410-1, ``Application for Agency Services.'' In the case
of an entity borrower, all entity members must provide current
financial statements.
(3) FSA 431-2, ``Farm and Home Plan'', or other acceptable plan
of operation.
(4) FSA 440-32, ``Request for Statement of Debts and
Collateral.'' Complete the name and address of the creditor, account
number, if applicable, and your name. All parties liable to the
creditor must sign and date the form. The Agency will mail this form
to the creditor to obtain the needed information. Any debts less
than $1,000 can be verified by a credit report. If debts of $1,000
or more appear on your credit report and no FSA 440-32 is supplied
to the Agency to mail to the creditor within the 60-day time period,
the application cannot be considered complete.
(5) RD 1910-5, ``Request for Verification of Employment.'' If
you have non-farm income, you must complete employer's name and
address, employee's name and address, social security number, sign
and date the form. The Agency will send the form to your employer to
obtain the needed information.
(6) FSA 1960-12, ``Financial and Production Farm Analysis
Summary.'' Complete the form or another similar worksheet to provide
production and expense history for crops, livestock, livestock
products, etc., for each of the three years immediately preceding
the year of application or the years you have been farming,
whichever is less and if not already in the Agency case file. You
must be able to support this information with farm records.
(7) AD-1026, ``Highly Erodible Land Conservation (HELC) and
Wetland Conservation (WC) Certification.'' You will be required to
complete this form if the one you have on file does not reflect all
the land you own and lease.
(8) SCS-CPA-026, ``Highly Erodible Land and Wetland Conservation
Determination.'' This form must be obtained from and completed by
the Natural Resources Conservation Service office, if not already on
file with the Agency.
[[Page 6114]]
(9) Copies of your income tax records and any supporting
documents for the last three years immediately preceding the year of
application. If your copies of tax records are not readily
available, you can obtain copies from the Internal Revenue Service.
(10) RD 1956-1, ``Application for Settlement of Indebtedness.''
Complete this form only if you wish to apply for debt settlement.
You must also comply with any Agency request for additional
information needed to process a debt settlement request.
(11) If you are applying for a Conservation Contract a map or
aerial photo of your farm identifying the portion of the land and
approximate number of acres to be considered.
Divorced Spouses
If you are an FLP obligor who has left the farm operation due to
divorce, you may request release of liability. To be released of
liability after a divorce, you must present the Agency with the
following within 60 days of receiving this notice:
(1) A divorce decree or property settlement document which
states the remaining party will be responsible for all repayment to
the Agency;
(2) Evidence that you have conveyed your ownership interest in
FLP security to the remaining party; and
(3) Evidence that you do not have any repayment ability for the
FLP loan through cash, income, or other non-essential assets.
The Agency will make a determination on your request and will
inform you of the decision within 60 days of receiving your request.
If you are not released of liability, you will need to include
all of your relevant financial information if applying for primary
loan servicing, homestead protection, or debt settlement program.
(g) How To Get Copies of Agency Handbooks and Forms
Copies of the forms for requirements (f)(1) through (f)(6) and
(f)(10) have been included in this notice. You may obtain copies of
Agency handbooks describing available programs or additional copies
of forms from this office.
(h) Reconsideration, Mediation, Negotiation, and Appeal Rights
Reconsideration, mediation, negotiation, and appeal rights will
be provided to you if the Agency makes an adverse decision on your
request for loan servicing or prior to acceleration of your account.
These options will be provided when required to insure that you are
given the reasons for the Agency decision and complete information
on how you may request any of these options.
Reconsideration
If you are determined by the Agency to be ineligible for loan
servicing, or if you cannot develop a feasible plan, you may request
a reconsideration meeting with the Agency decision maker. You must
request reconsideration within 30 days of the date you receive the
adverse decision. At a reconsideration meeting, you may present
additional information to the decision maker and explain why you
believe the adverse decision to be in error. If the meeting does not
change the Agency decision, you will be notified and provided 30
days to request mediation, negotiation, or appeal as outlined below.
Mediation
Mediation is a process for resolution of a disagreement. A
trained neutral mediator assists two or more parties in dispute to
look at the issues, consider all available options, and attempt to
agree on an acceptable solution. If your State has a mediation
program approved by the USDA, the Agency will participate in
mediation. If there is no State mediation program, the Agency may
help you to set up a meeting with your other creditors. If you wish
to request mediation, you must make such request within 30 days of
your receipt of an adverse Agency decision. If you request mediation
prior to requesting an appeal, the 30 day time period for requesting
an appeal will be temporarily suspended. If mediation fails to
resolve your dispute with the Agency, only the balance of the 30
days will remain to request an appeal.
Negotiation of the Appraisal
If you timely submit a complete application for primary loan
servicing, but disagree with the appraisal used by the Agency for
processing your primary loan servicing request, you will have 30
days to obtain, at your own expense, an independent appraisal which
conforms to published Agency appraisal standards. If this
independent appraised value is within 5 percent of the value of the
Agency appraisal, you must choose one of these two appraisals for
the Agency to use to continue processing your request. If the
appraisals differ by more than 5 percent, you may request a third
appraisal for which you must pay half of the cost, and the average
of the two appraisals closest in value is taken as the final
appraised value to be used in considering your request. If you wish
to request both negotiation and mediation, these should be requested
at the same time so the negotiation of the appraisal can be
concluded prior to mediation. If not requested at the same time,
negotiation of the appraisal must be requested first. Negotiated
appraisals are not appealable but other issues can still be appealed
after negotiation. If you request negotiation of the appraisal prior
to requesting an appeal, the 30 day time period for requesting an
appeal will be temporarily suspended. If negotiation of the
appraisal fails to resolve your dispute with the Agency, only the
balance of the 30 day time frame will remain to request an appeal on
issues other than the negotiated appraisal.
Appeal
Appeal is a process under which you present evidence to USDA's
National Appeals Division which shows that the Agency's adverse
decision is wrong. Subject to the deadline suspensions discussed
above, your request for an appeal must be postmarked no later than
30 days from the date you received the Agency's adverse decision.
(i) Acceleration and foreclosure
If you do not appeal an adverse determination, if you appeal,
but are denied relief on appeal, or if you do not otherwise resolve
your delinquency, the Agency will accelerate your loan accounts and
demand payment of the entire debt. You may prevent Agency
foreclosure on the loan collateral, if with prior Agency approval,
you:
(1) Sell all loan collateral for not less than its current
market value and apply all proceeds to your creditors in order of
lien priority.
(2) Transfer the collateral to someone else and have that person
assume all or part of your FLP debt.
(3) Transfer the collateral to the Agency.
If any of these options result in payment of less than you owe,
you may apply for debt settlement. However, applications for debt
settlement filed after the 60-day time period provided in this
notice will not delay acceleration, administrative offset, and
foreclosure. If the Agency determines that you cannot qualify for
debt settlement, you can:
(1) Pay your FLP loan accounts current;
(2) Pay your FLP loan accounts in full;
(3) Request reconsideration, mediation or appeal.
If your real estate security contains your primary residence and
becomes inventory property of the Agency, Homestead Protection
rights will be provided.
(j) The right not to be discriminated against
The Federal Equal Credit Opportunity Act prohibits creditors
from discriminating against credit applicants on the basis of race,
color, religion, national origin, sex, marital status, age (provided
the applicant has the capacity to enter into a binding contract);
because all or part of the applicant's income derives from any
public assistance program; or because the applicant has in good
faith exercised any right under the Consumer Credit Protection Act.
The Federal agency that administers compliance with this law is the
Federal Trade Commission, Equal Credit Opportunity, Washington, DC
20580.
USDA regulations prohibit discrimination in USDA programs
because of your race, color, religion, sex, age, national origin,
marital status, familial status, sexual orientation, disability;
because all or part of your income is derived from any public
assistance program; or because you have filed a program complaint,
participated in any program complaint proceeding, or opposed a
prohibited practice.
If you believe that you have been discriminated against for any
of the reasons stated above, you may file a complaint with the
Director, Office of Civil Rights, United States Department of
Agriculture, Room 326-W, Whitten Building, 1400 Independence Avenue
SW., Washington, DC 20250-9410.
The servicing programs described by this Notice are subject to
applicable Agency regulations published at 7 CFR 766.
For more information, please contact this office.
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Title
Office Address
Telephone number
[[Page 6115]]
Appendix C to subpart C of part 766--Notice of Availability of Loan
Servicing to Borrowers in Non-Monetary Default
FSA 2505
Notice of Availability of Loan Servicing to Borrowers in Non-Monetary
Default
Dear (Borrower's Name):
The Agency has reviewed your Farm Loan Programs (FLP) loan
account. Our records show:
[ ] You have disposed of property used to secure your FLP loan.
You did not get written approval for this. This property is
-----------------------------------------------------------------------
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(Describe property.)
[ ] You have stopped farming.
[ ] A foreclosure action has been filed against you by --------
------------------------.
[ ] You have
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(Insert reasons for proposed action.)
[ ] You are also $---------------- behind on your payments.
This notice informs you that you are in default on your FLP
loans. You must resolve this default. The Agency's primary loan
servicing programs, Conservation Contract Program, current market
value buyout, Homestead Protection Program, and debt settlement
programs may assist you in resolving the default.
How to apply
To apply, you must complete, where applicable, and provide all
items required in paragraph (f), within 60 days of the date you
receive this notice.
Help in responding to this notice
The servicing options available to you may become complicated.
You may need help to understand them and their impact on your
operation. You may want to ask an attorney to help you or there are
organizations that give free or low-cost advice to farmers. You may
contact your State Department of Agriculture or the USDA Extension
Service for available services in your State.
Note: Agency employees cannot recommend a particular attorney or
organization.
Who will decide if you qualify?
After you submit a complete application, the Agency will
determine if you meet all eligibility requirements and can develop a
farm operating plan which shows that you can pay all debts and
expenses.
What happens if you do not resolve the default or apply within 60
days?
The Agency will accelerate your FLP loan if you do not resolve
the default, or apply for loan servicing. This means the Agency will
take legal action to collect all the money you owe. After
acceleration of your FLP loan accounts, the Agency will start
foreclosure proceedings. The Agency will repossess or take legal
action to take any real estate, personal property, crops, livestock,
equipment, or any other assets in which the Agency has a security
interest. The Agency will stop all releases of the proceeds from
Agency security including, but not limited to, releases of your
crops, livestock, and milk. The Agency will take by administrative
offset money, or other program benefits, which FSA or other Federal
Agencies owe you. The Agency will also file judgements against you
and your property or refer your account to the Department of the
Treasury for collection.
Included with this notice you will find information on:
(a) Primary loan servicing programs;
(b) Conservation Contract Program;
(c) Current market value buyout;
(d) Homestead Protection Program;
(e) Debt settlement programs;
(f) Forms, documentation, and information needed to apply;
(g) How to get copies of Agency handbooks and forms;
(h) Reconsideration, mediation, negotiation, and appeal rights;
(i) Acceleration and foreclosure;
(j) The right not to be discriminated against.
(a) Primary Loan Servicing Programs
Eligibility
You must meet the following eligibility requirements to obtain
primary loan servicing:
(a) You must resolve all non-monetary defaults prior to closing
the servicing action.
(b) You must have acted in good faith in accordance with your
loan agreements.
(c) If you are also financially distressed or delinquent, it
must be due to circumstances beyond your control which reduced your
repayment ability to the extent that scheduled payments cannot be
made as a result of one of the following circumstances:
(1) Illness, injury, or death of a borrower or another
individual who operates the farm;
(2) Natural disaster, adverse weather, disease, or insect damage
which caused severe loss of agricultural production;
(3) Widespread economic conditions such as low commodity prices;
(4) Damage or destruction of property essential to the
operation; or
(5) Loss of, or reduction in, your or your spouse's essential
non-farm income.
(d) You do not have non-essential assets for which the net
recovery value is sufficient to pay any delinquent portion of the
loan. The Agency cannot reduce or write off debt that you could pay
with the value of your equity in these assets.
Time limits
If the Agency determines that you can develop a feasible plan
and are eligible for primary loan servicing, you will have 45 days
from the date you receive the Agency's offer to accept loan
servicing.
Lien requirements
If you are offered loan servicing and accept the offer, you must
agree to give the Agency a lien on your other assets and you must
provide this lien at closing.
Loan consolidation
The unpaid principal and interest of two or more operating loans
can be combined into one larger operating loan. When loans are
consolidated, the interest rate will be the lesser of:
(1) the lowest interest rate for that type of loan on the date a
complete servicing application was received;
(2) the lowest interest rate for that type of loan on the date
of restructure; or
(3) the lowest original loan note rate on any of the original
notes being consolidated.
In addition, the Agency will consider the maximum loan terms.
Loan rescheduling
The repayment schedule may be changed to cure the financial
distress or delinquency and give you new terms to repay loans made
for equipment, livestock, or annual operating purposes. When loans
are rescheduled, the interest rate will be the lesser of:
(1) the lowest interest rate for that type of loan on the date a
complete servicing application was received;
(2) the lowest interest rate for that type of loan on the date
of restructure; or
(3) the lowest original loan note rate on any of the original
notes being rescheduled.
In addition, the Agency will consider the maximum loan terms.
Loan Reamortization
The repayment schedule may be changed to cure the financial
distress or delinquency and give you a new schedule of repayment on
loans made for real estate purposes. When loans are reamortized, the
interest rate will be the lesser of:
(1) The lowest interest rate for that type of loan on the date a
complete servicing application was received;
(2) the lowest interest rate for that type of loan on the date
of restructure; or
(3) the original loan note rate of the note being reamortized.
In addition, the Agency will consider the maximum loan terms.
Limited Resource Interest Rate
Limited resource interest rates are available for certain types
of loans. If you have existing loans which are not at the limited
resource rate, but a limited resource rate is available, the Agency
will consider reducing the rate of the loans. The limited resource
interest rate can be as low as 5 percent, however, this rate may
change depending on what it costs the Government to borrow money.
For information about current interest rates, contact this
office.
Loan Deferral
Partial or full payments of principal and interest may be
temporarily delayed for up to five years. You will only be
considered for loan deferral if the loan servicing programs
discussed above will not allow you to pay all essential family
living and farm operating expenses, maintain your property, and pay
your debts.
You must be able to show through a farm operating plan that you
are unable to pay all essential family living and farm operating
expenses, maintain your property, and pay your debts. The farm
operating plan must also show that you will be able to pay your full
installment at the end of the deferral period.
[[Page 6116]]
The interest that accrues during the deferral period must be
paid in yearly payments for the rest of the loan term after the
deferral period ends.
Debt Writedown
Debt writedown can reduce the principal and interest on your
loan. The Agency offers a writedown only when the loan servicing
programs discussed above and the Conservation Contract Program will
not result in a feasible plan. To receive debt writedown, the value
of your restructured loan must be equal to or greater than the
recovery value to the Agency from foreclosure and repossession of
your security property.
The recovery value is the market value of:
(1) The collateral pledged as security for FLP loans minus
expenses (such as the sale costs, attorneys' fees, management costs,
taxes, and payment of prior liens) on the collateral that the Agency
would have to pay if it foreclosed, or repossessed, and sold the
collateral;
(2) Any collateral that is not in your possession and has not
been released for sale by the Agency in writing; and
(3) Any other non-essential assets you may own.
A qualified appraiser determines the value of the collateral and
any other assets you own. You may receive a writedown only if you
have not previously received any form of debt forgiveness on any
other FLP direct loan. The maximum amount of debt that can be
written down on all direct loans is $300,000.
Shared Appreciation Agreement
If you own real estate and receive a debt writedown, you must
sign a Shared Appreciation Agreement. The term of the agreement is
five years. Under the terms of the agreement you must repay all or a
part of the amount written down at the maturity of your Shared
Appreciation Agreement if your real estate collateral increased in
value. Payment of shared appreciation will be required prior to the
maturity of your Shared Appreciation Agreement if you:
(1) Sell or convey the real estate;
(2) Stop farming;
(3) Pay off your entire FLP debt; or
(4) Have your FLP accounts accelerated by the Agency.
If any of these events occur within the first four years of the
agreement, you will have to pay 75 percent of the increase in value
of the real estate. If any of these events occur after the fourth
anniversary of the agreement, or if the Shared Appreciation
Agreement matures without having previously been fully triggered,
you will have to pay only 50 percent of the increase in value. You
will not have to pay more than the amount of the debt written down.
(b) Conservation Contract Program
You may request a Conservation Contract to protect highly
erodible land, wetlands, or wildlife habitats located on your real
estate property that serves as security for your FLP debt. In
exchange for such contract, the Agency would reduce your FLP debt.
The amount of land left after the contract must be sufficient to
continue your farming operation.
(c) Current Market Value Buyout
If the analysis of your debt shows that you cannot achieve a
feasible plan even if the present value of your FLP debt is reduced
to the value of the security, the Agency may offer you buyout of
your FLP debt. You would pay the market value of all Agency security
and non-essential assets, minus any prior liens. The market value is
determined by a current appraisal completed by a qualified
appraiser. In exchange, your loans would be satisfied.
Limits
To receive a current market value buyout offer:
(1) You must not have previously received any form of debt
forgiveness from the Agency on any other direct FLP loan;
(2) The maximum debt to be written off with buyout does not
exceed $300,000; and
(3) You must not have non-essential assets with a net recovery
value sufficient to pay your account current if you are delinquent.
Eligibility
To qualify, you must prove that:
(1) You cannot repay your delinquent FLP debt due to
circumstances beyond your control; and
(2) You have acted in good faith in accordance with your loan
agreements.
Time Limit
To buyout your FLP debt at the current market value, you must
pay the Agency within 90 days of the date you receive the offer.
Method of Payment
To buyout your FLP debt at the current market value, you must
pay by cash, cashier's check, or U.S. Treasury check. The Agency
will not make or guarantee a loan for this purpose.
(d) Homestead Protection Program
Under the Homestead Protection Program, you may repurchase your
primary residence, certain outbuildings, and up to 10 acres of land.
If you cannot pay cash or Agency financing is not available, you may
lease your primary residence. The lease will include an option for
you to purchase the property you lease.
This program may apply when primary loan servicing, the
Conservation Contract Program, or current market value buyout is not
available or not accepted.
You must agree to give the Agency title to your land at the time
the Agency signs the homestead protection agreement with you. The
Agency will compute the costs of taking title including the cost of
paying other creditors who have outstanding liens on the property.
The Agency will take title only if it can obtain a positive
recovery.
Eligibility Requirements
(1) Your gross annual income from the farming operation must
have been similar to other comparable operations in your area in at
least two of the last six years.
(2) Sixty percent (60%) of your gross annual income in at least
two of the last six years must have come from the farming operation.
(3) You must have lived in your homestead property for six years
immediately before your application. If you had to leave for less
than 12 months during the 6-year period and you had no control over
the circumstances, you may still qualify.
(4) You must be the owner of the property immediately prior to
the Agency obtaining title.
Property Restrictions and Easements
The Agency may place restrictions or easements on your property
which restrict your use if the property is located in a special area
or has special characteristics. These restrictions and easements
will be placed in leases and in deeds on properties containing
wetlands, floodplains, endangered species, wild and scenic rivers,
historic and cultural properties, coastal barriers, and highly
erodible lands.
Leasing the Homestead Property
(1) You must pay rent to the Agency to lease the property
determined eligible for homestead protection. The rent the Agency
charges will be similar to comparable property in your area.
(2) You must maintain the property in good condition during the
term of the lease.
(3) You may lease the property for up to five years but no less
than three years.
(4) You cannot sublease the property.
(5) If you do not make the rental payments to the Agency, the
Agency will cancel the lease and take legal action to force you to
leave.
(6) Lease payments are not applied toward the final purchase
price of the property.
Purchasing the Homestead Protection Property
You can repurchase your homestead property at current market
value at any time during the lease. The market value of the property
will be decided by a qualified appraiser and will reflect the value
of the land after any placement of a restriction or easement such as
a wetland conservation easement.
(e) Debt Settlement Programs
You can apply for debt settlement at any time; however, these
programs are usually used only after it has been determined that
primary loan servicing programs and Conservation Contract cannot
help you. Under the debt settlement programs, the debt you owe the
Agency under FLP may be settled for less than the amount you owe.
These programs are subject to the discretion of the Agency and are
not a matter of entitlement or right. If you do not have any Agency
security, you may apply for debt settlement only. If you do not
apply, or do not receive approval of a debt settlement request, your
FLP loan accounts will be forwarded to the Department of the
Treasury for collection.
Settlement Alternatives
Settlement alternatives include:
(1) Compromise: A lump-sum payment of less than the total FLP
debt owed;
(2) Adjustment: Two or more payments of less than the total
amount owed to the Agency. Payments can be spread out over a
[[Page 6117]]
maximum of 5 years if the Agency determines you will be able to make
the payments as they become due; and
(3) Cancellation: Satisfaction of Agency debt without payment.
Note: The Agency will not finance these alternatives.
Processing and Requirements
If you sell loan collateral, you must apply the proceeds from
the sale to your FLP loans before you can be considered for debt
settlement. In the case of compromise or adjustment you may keep
your collateral, if you pay the Agency the market value of your
collateral along with any additional amount the Agency determines
you are able to pay.
Debt amounts which are collectible through administrative
offset, judgment, or by the Department of the Treasury will not be
settled through debt settlement procedures. You must certify that
you do not have assets or income in addition to what you stated in
your application.
If you qualify, your application must also be approved by the
State Executive Director or the Administrator, depending on the
amount of the debt to be settled.
(f) Forms, Documentation, and Information Needed To Apply
A complete application for primary loan servicing must include
items 1 through 9. Additional information is required as noted if
you want to be considered for a Conservation Contract or for debt
settlement programs. If you need help to complete the required
forms, you may request an Agency official to assist you. The forms
for requirements 1 through 6 and 10 are included with this package.
(1) FSA 2506 ``Acknowledgment of Available Loan Servicing--Non-
Monetary Default.'' All individuals and entities liable for the FLP
debt must sign FSA 2506 to request servicing.
(2) FSA 410-1, ``Application for Agency Services.'' In the case
of an entity borrower, all entity members must provide current
financial statements.
(3) FSA 431-2, ``Farm and Home Plan'', or other acceptable plan
of operation.
(4) FSA 440-32, ``Request for Statement of Debts and
Collateral.'' Complete the name and address of the creditor, account
number, if applicable, and your name. All parties liable to the
creditor must sign and date the form. The Agency will mail this form
to the creditor to obtain the needed information. Any debts less
than $1,000 can be verified by a credit report. If debts of $1,000
or more appear on your credit report and no FSA 440-32 is supplied
to the Agency to mail to the creditor within the 60-day time period,
the application cannot be considered complete.
(5) RD 1910-5, ``Request for Verification of Employment.'' If
you have non-farm income, you must complete employer's name and
address, employee's name and address, social security number, sign
and date the form. The Agency will send the form to your employer to
obtain the needed information.
(6) FSA 1960-12, ``Financial and Production Farm Analysis
Summary.'' Complete the form or another similar worksheet to provide
production and expense history for crops, livestock, livestock
products, etc., for each of the three years immediately preceding
the year of application or the years you have been farming,
whichever is less and if not already in the Agency case file. You
must be able to support this information with farm records.
(7) AD-1026, ``Highly Erodible Land Conservation (HELC) and
Wetland Conservation (WC) Certification.'' You will be required to
complete this form if the one you have on file does not reflect all
the land you own and lease.
(8) SCS-CPA-026, ``Highly Erodible Land and Wetland Conservation
Determination.'' This form must be obtained from and completed by
the Natural Resources Conservation Service office, if not already on
file with the Agency.
(9) Copies of your income tax records and any supporting
documents for the last three years immediately preceding the year of
application. If your copies of tax records are not readily
available, you can obtain copies from the Internal Revenue Service.
(10) RD 1956-1, ``Application for Settlement of Indebtedness.''
Complete this form only if you wish to apply for debt settlement.
You must also comply with any Agency request for additional
information needed to process a debt settlement request.
(11) If you are applying for a Conservation Contract a map or
aerial photo of your farm identifying the portion of the land and
approximate number of acres to be considered.
Divorced Spouses
If you are an FLP obligor who has left the farm operation due to
divorce, you may request release of liability. To be released of
liability after a divorce, you must present the Agency with the
following within 60 days of receiving this notice:
(1) A divorce decree or property settlement document which
states the remaining party will be responsible for all repayment to
the Agency;
(2) Evidence that you have conveyed your ownership interest in
FLP security to the remaining party; and
(3) Evidence that you do not have any repayment ability for the
FLP loan through cash, income, or other non-essential assets.
The Agency will make a determination on your request and will
inform you of the decision within 60 days of receiving your request.
If you are not released of liability, you will need to include
all of your relevant financial information if applying for primary
loan servicing, homestead protection, or debt settlement program.
(g) How To Get Copies of Agency Handbooks and Forms
Copies of the forms for requirements (f)(1) through (f)(6) and
(f)(10) have been included in this notice. You may obtain copies of
Agency handbooks describing available programs or additional copies
of forms from this office.
(h) Reconsideration, Mediation, Negotiation, and Appeal Rights
Reconsideration, mediation, negotiation, and appeal rights will
be provided to you if the Agency makes an adverse decision on your
request for loan servicing or prior to acceleration of your account.
These options will be provided when required to insure that you are
given the reasons for the Agency decision and complete information
on how you may request any of these options.
Reconsideration
If you are determined by the Agency to be ineligible for loan
servicing, or if you cannot develop a feasible plan, you may request
a reconsideration meeting with the Agency decision maker. You must
request reconsideration within 30 days of the date you receive the
adverse decision. At a reconsideration meeting, you may present
additional information to the decision maker and explain why you
believe the adverse decision to be in error. If the meeting does not
change the Agency decision, you will be notified and provided 30
days to request mediation, negotiation, or appeal as outlined below.
Mediation
Mediation is a process for resolution of a disagreement. A
trained neutral mediator assists two or more parties in dispute to
look at the issues, consider all available options, and attempt to
agree on an acceptable solution. If your State has a mediation
program approved by the USDA, the Agency will participate in
mediation. If there is no State mediation program, the Agency may
help you to set up a meeting with your other creditors. If you wish
to request mediation, you must make such request within 30 days of
your receipt of an adverse Agency decision. If you request mediation
prior to requesting an appeal, the 30 day time period for requesting
an appeal will be temporarily suspended. If mediation fails to
resolve your dispute with the Agency, only the balance of the 30
days will remain to request an appeal.
Negotiation of the Appraisal
If you timely submit a complete application for primary loan
servicing, but disagree with the appraisal used by the Agency for
processing your primary loan servicing request, you will have 30
days to obtain, at your own expense, an independent appraisal which
conforms to published Agency appraisal standards. If this
independent appraised value is within 5 percent of the value of the
Agency appraisal, you must choose one of these two appraisals for
the Agency to use to continue processing your request. If the
appraisals differ by more than 5 percent, you may request a third
appraisal for which you must pay half of the cost, and the average
of the two appraisals closest in value is taken as the final
appraised value to be used in considering your request. If you wish
to request both negotiation and mediation, these should be requested
at the same time so the negotiation of the appraisal can be
concluded prior to mediation. If not requested at the same time,
negotiation of the appraisal must be requested first. Negotiated
appraisals are not
[[Page 6118]]
appealable but other issues can still be appealed after negotiation.
If you request negotiation of the appraisal prior to requesting an
appeal, the 30 day time period for requesting an appeal will be
temporarily suspended. If negotiation of the appraisal fails to
resolve your dispute with the Agency, only the balance of the 30 day
time frame will remain to request an appeal on issues other than the
negotiated appraisal.
Appeal
Appeal is a process under which you present evidence to USDA's
National Appeals Division which shows that the Agency's adverse
decision is wrong. Subject to the deadline suspensions discussed
above, your request for an appeal must be postmarked no later than
30 days from the date you received the Agency's adverse decision.
(i) Acceleration and Foreclosure
If you do not appeal an adverse determination, if you appeal,
but are denied relief on appeal, or if you do not otherwise resolve
your delinquency, the Agency will accelerate your loan accounts and
demand payment of the entire debt. You may prevent Agency
foreclosure on the loan collateral, if with prior Agency approval,
you:
(1) Sell all loan collateral for not less than its current
market value and apply all proceeds to your creditors in lien order.
(2) Transfer the collateral to someone else and have that person
assume all or part of your FLP debt.
(3) Transfer the collateral to the Agency.
If any of these options result in payment of less than you owe,
you may apply or reapply for debt settlement even if you applied
before and were denied. However, applications for debt settlement
filed after the 60-day time period provided in this notice will not
delay acceleration, administrative offset, and foreclosure.
If the Agency determines that you cannot qualify for debt
settlement, you can:
(1) Pay your FLP loan accounts current;
(2) Pay your FLP loan accounts in full;
(3) Request reconsideration, mediation or appeal.
If your real estate security contains your primary residence and
becomes inventory property of the Agency, homestead protection
rights will be provided.
(j) The right not to be discriminated against
The Federal Equal Credit Opportunity Act prohibits creditors
from discriminating against credit applicants on the basis of race,
color, religion, national origin, sex, marital status, age (provided
the applicant has the capacity to enter into a binding contract);
because all or part of the applicant's income derives from any
public assistance program; or because the applicant has in good
faith exercised any right under the Consumer Credit Protection Act.
The Federal agency that administers compliance with this law is the
Federal Trade Commission, Equal Credit Opportunity, Washington, DC
20580.
USDA regulations prohibit discrimination in USDA programs
because of your race, color, religion, sex, age, national origin,
marital status, familial status, sexual orientation, disability;
because all or part of your income is derived from any public
assistance program; or because you have filed a program complaint,
participated in any program complaint proceeding, or opposed a
prohibited practice.
If you believe that you have been discriminated against for any
of the reasons stated above, you may file a complaint with the
Director, Office of Civil Rights, United States Department of
Agriculture, Room 326-W, Whitten Building, 1400 Independence Avenue
SW., Washington, DC 20250-9410.
The servicing programs described by this Notice are subject to
applicable Agency regulations published at 7 CFR 766.
For more information, please contact this office.
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Title
Office Address
Telephone number
15. Add part 767 to read as follows:
PART 767--INVENTORY PROPERTY MANAGEMENT
Sec.
Subpart A--Overview
767.1 Introduction to inventory property management.
767.2 Abbreviations and definitions.
767.3-767.50 [Reserved]
Subpart B--Property Abandonment and Personal Property Removal
767.51 Property abandonment.
767.52 Disposition of personal property from inventory real
property.
767.53-767.100 [Reserved]
Subpart C--Lease of Inventory Real Property
767.101 Leasing inventory real property.
767.102 Lease of inventory non-real estate property.
767.103 Managing leased inventory real property.
767.104-767.150 [Reserved]
Subpart D--Disposal of Inventory Property
767.151 General requirements.
767.152 Exceptions.
767.153 Sale of inventory real property.
767.154 Conveying easements, rights-of-way, and other interests in
inventory property.
767.155 Selling chattel property.
767.156-767.200 [Reserved]
Subpart E--Real Property with Important Resources, Special Hazard Areas
and Environmental Risks
767.201 Inventory real property with important resources.
767.202 Inventory real property located in special hazard areas.
767.203 Inventory real property containing environmental risks.
767.204-767.250 [Reserved]
Subpart F--Exception Authority
767.251 Agency exception authority.
767.252-767.300 [Reserved]
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
Subpart A--Overview
Sec. 767.1 Introduction to inventory property management.
(a) Purpose. This part describes the Agency's policies for:
(1) Managing inventory property;
(2) Selling inventory property;
(3) Leasing inventory property;
(4) Managing real and chattel property the Agency takes into
custody after abandonment by the borrower;
(5) Selling or leasing inventory property with important resources,
special hazard areas and environmental risks; and
(6) Conveying interest in real property for conservation purposes.
(b) Basic policy. The Agency maintains, manages and sells inventory
property as necessary to protect the Agency's financial interest.
Sec. 767.2 Abbreviations and definitions.
Abbreviations and definitions for terms used in this part are
provided in Sec. 761.2 of this chapter.
Sec.Sec. 767.3-767.50 [Reserved]
Subpart B--Property Abandonment and Personal Property Removal
Sec. 767.51 Property abandonment.
The Agency will take actions necessary to secure, maintain,
preserve, manage, and operate the abandoned security property,
including marketing perishable security property on behalf of the
borrower when such action is in the Government's best financial
interest. If the security is in jeopardy, the Agency will take the
above actions prior to completing servicing actions contained in 7 CFR
766.
Sec. 767.52 Disposition of personal property from inventory real
property.
(a) Preparing to dispose of personal property. If, at the time of
acquisition, personal property has been left on the inventory real
property, the Agency will notify the former real estate owner and any
known lienholders that the Agency will dispose of the personal
property. Property of value may be sold at a public sale.
(b) Reclaiming personal property. The owner or lienholder may
reclaim personal property at any time prior to the property's sale or
disposal by paying all expenses incurred by the Agency in connection
with the personal property.
(c) Use of proceeds from sale of personal property. Proceeds from
the public sale of personal property will be distributed as follows:
(1) To lienholders in order of lien priority less a pro rata share
of the sale expenses;
[[Page 6119]]
(2) To the inventory account up to the amount of expenses incurred
by the Agency in connection with the sale of personal property;
(3) To the outstanding balance on the Agency loan; and
(4) To the borrower, if the borrower's whereabouts are known.
Sec.Sec. 767.53-767.100 [Reserved]
Subpart C--Lease of Inventory Real Property
Sec. 767.101 Leasing inventory real property.
(a) When the Agency may lease inventory real property. The Agency
may lease inventory real property in the following situations:
(1) To the former owner under the Homestead Protection Program.
(2) To a beginning farmer who was selected to purchase the property
but was unable to purchase it because of a lack of Agency direct or
guaranteed loan funds.
(3) When the Agency is unable to sell the property because of
lengthy litigation or appeal processes.
(b) Condition of property. The Agency will lease inventory real
property in an ``as is'' condition.
(c) Lease terms. (1) The Agency will lease property for:
(i) Homestead protection in accordance with part 766, subpart D, of
this chapter.
(ii) A maximum of 18 months to a beginning farmer the Agency
selected as purchaser when no Agency loan funds are available; or
(iii) For the shortest possible duration for all other cases
subject to the following:
(A) The maximum lease term for such a lease is 12 months.
(B) The lease is not subject to renewal or extension.
(2) The lessee may pay:
(i) A lump sum;
(ii) On an annual installment basis;
(iii) On a crop-share basis, if the lessee is a beginning farmer
under paragraph (a) of this section.
(3) The Agency leases inventory real property for a market rent
amount charged for similar properties in the area.
(4) The Agency may require the lessee to provide a security
deposit.
(5) Only leases to a beginning farmer or Homestead Protection
Program participant will contain an option to purchase the property.
Sec. 767.102 Lease of inventory non-real estate property.
The Agency does not lease non-real estate property unless it is
attached as a fixture to inventory real property that is being leased
and it is essential to the farming operation.
Sec. 767.103 Managing leased inventory real property.
(a) Repairing leased property. The Agency will pay for repairs to
leased inventory real property only when necessary to protect the
Agency's interest.
(b) Handling income from leased inventory real property. (1) The
Agency will apply lease proceeds to the inventory property account.
(2) If the lessee purchases the inventory real property, the Agency
will not credit lease payments to the purchase price of the property.
Sec.Sec. 767.104-767.150 [Reserved]
Subpart D--Disposal of Inventory Property
Sec. 767.151 General requirements.
Subject to Sec. 767.152, the Agency will attempt to sell its
inventory property as follows:
(a) The Agency will advertise all inventory real property that can
be used for any authorized FO loan purpose for sale to beginning
farmers no later than 15 days after the Agency obtains title to the
property. A beginning farmer may apply up through 135 days after the
advertisement to purchase inventory property.
(b) If more than one eligible beginning farmer applies, the Agency
will select a purchaser by a random selection process open to the
public.
(1) All applicants will be advised of the time and place of the
selection.
(2) All drawn offers will be numbered.
(3) Offers drawn after the first will be held in suspense pending
sale to the successful applicant.
(4) Random selection shall be final and not subject to
administrative appeal.
(c) If there are no offers from beginning farmers, the Agency will
offer to sell inventory property by auction or sealed bid to the
general public between days 136 and 165 after the Agency obtains title
to the property. All bidders will be required to submit a 10 percent
deposit with their bid.
(d) If the Agency receives no acceptable bid through an auction or
sealed bid, the Agency will attempt to sell the property through a
negotiated sale at the best obtainable price.
(e) If the Agency is not able to sell the property through
negotiated sale, the Agency may list the property with a real estate
broker. The broker must be properly licensed in the State in which the
property is located.
Sec. 767.152 Exceptions.
The Agency's disposition procedure under Sec. 767.151 is subject to
the following:
(a) If the Agency leases inventory real property to a beginning
farmer in accordance with Sec. 767.101(a)(2), and the lease expires,
the Agency will not advertise the property if the beginning farmer is
approved to purchase the property and the Agency has direct or
guaranteed loan funds available to finance the transaction.
(b) The Agency will not advertise a property for sale until the
Homestead Protection rights have terminated in accordance with part
766, subpart D of this chapter.
(c) The Agency may allow an additional 60 days if needed for
conservation easements or environmental contamination reviews.
(d) If Agency analysis of farm real estate market conditions
indicates the sale of Agency farm inventory property will have a
negative effect on the value of farms in the area, the Agency may
withhold inventory farm properties in the affected area from the market
until further analysis indicates otherwise.
Sec. 767.153 Sale of inventory real property.
(a) Pricing. (1) The Agency will advertise property for sale at its
current market value, as established by an appraisal obtained in
accordance with Sec. 761.7, except for properties containing
environmental risks in accordance with Sec. 767.203(b).
(2) Property sold by auction or sealed bid will be sold for the
best obtainable price. The Agency reserves the right to reject any and
all bids.
(b) Agency-financed sales. The Agency may finance sales to
purchasers if:
(1) The Agency has direct or guaranteed FO loan funds available;
(2) All applicable loan making requirements are met; and
(3) All non-beginning farmer purchasers make a 10 percent down
payment.
(c) Taxes and assessments. (1) Property taxes and assessments will
be prorated between the Agency and the purchaser based on the date the
Agency conveys title to the purchaser.
(2) The purchaser is responsible for paying all taxes and
assessments after the Agency conveys title to the purchaser.
(d) Loss or damage to property. If, through no fault of either
party, the property is lost or damaged as a result of fire, vandalism,
or act of God before the Agency conveys the property, the Agency may
reappraise the property and set the sale price accordingly.
[[Page 6120]]
(e) Termination of contract. Either party may terminate the sales
contract. If the contract is terminated, the Agency returns any deposit
to the bidder or offeror.
(f) Warranty on title. The Agency will not provide any warranty on
the title or on the condition of the property.
Sec. 767.154 Conveying easements, rights-of-way, and other interests
in inventory property.
(a) Appraisal of real property and real property interests. The
Agency will determine the value of real property and real property
interests being transferred in accordance with Sec. 761.7 of this
chapter.
(b) Easements and rights-of-way on inventory property. (1) The
Agency may grant or sell an easement or right-of-way for roads,
utilities, and other appurtenances if the conveyance is in the public
interest and does not adversely affect the value of the real property.
(2) The Agency may sell an easement or right-of-way by negotiation
for market value to any purchaser for cash without giving public notice
if:
(i) The sale would not prevent the Agency from selling the
property; and
(ii) The sale would not decrease the value of the property by an
amount greater than the price received.
(3) In the case of condemnation proceedings by a State or political
subdivision, the transfer of title will not be completed until adequate
compensation and damages have been determined and paid.
(c) Disposal of other interests in inventory property. (1) If
applicable, the Agency will sell mineral and water rights, mineral
lease interests, mineral royalty interests, air rights, and
agricultural and other lease interests with the surface land except as
provided in paragraph (b) of this section.
(2) If the Agency sells the land in separate parcels, any rights or
interests that apply to each parcel are included with the sale.
(3) The Agency will assign lease or royalty interests not passing
by deed to the purchaser at the time of sale.
(4) Appraisals of property will reflect the value of such rights,
interests, or leases.
Sec. 767.155 Selling chattel property.
(a) Method of sale. (1) Public auctions. The Agency will use
established public auctions for selling chattel. The Agency does not
require public notice of sale in addition to the notice commonly used
by the auction facility.
(2) Concurrent sale of real and chattel inventory property. The
Agency may sell inventory chattel property, including fixtures,
concurrently with inventory real estate if, by doing so, the Agency can
obtain a higher aggregate price. The Agency may accept an offer for
chattel based upon the combined final sales price of both the chattel
and real estate.
(b) Agency-financed sales. The Agency may finance the purchase of
inventory chattel property if the Agency has direct or guaranteed OL
loan funds available and all applicable loan making requirements are
met.
Sec.Sec. 767.156-767.200 [Reserved]
Subpart E--Real Property with Important Resources, Special Hazard
Areas and Environmental Risks
Sec. 767.201 Inventory real property with important resources.
In addition to the requirements established in 7 CFR 799, the
following apply to inventory property with important resources:
(a) Wetland conservation easements. The Agency will establish
permanent wetland conservation easements to protect and restore certain
wetlands that exist on inventory property prior to the sale of such
property, regardless of whether the sale is cash or credit.
(1) The Agency establishes conservation easements on all wetlands
or converted wetlands located on inventory real property that:
(i) Were not considered cropland on the date the property was
acquired by the Agency; and
(ii) Were not used for farming at any time during the five years
prior to the date of acquisition by the Agency.
(A) The Agency will consider property to have been used for farming
if it was used for agricultural purposes including, but not limited to,
cropland, pastures, hayland, orchards, vineyards, and tree farming.
(B) In the case of cropland, hayland, orchards, vineyards, or tree
farms, the Agency must be able to demonstrate that the property was
harvested for crops.
(C) In the case of pastures, the Agency must be able to demonstrate
that the property was actively managed for grazing by documenting
practices such as fencing, fertilization, and weed control.
(2) The wetland conservation easement will provide for access to
other portions of the property as necessary for farming or other uses.
(b) Mandatory conservation easements. The Agency will establish
conservation easements to protect 100-year floodplains and other
Federally designated important resources. Federally designated
important resources include, but are not limited to:
(1) Listed or proposed endangered or threatened species;
(2) Listed or proposed critical habitats for endangered or
threatened species;
(3) Designated or proposed wilderness areas;
(4) Designated or proposed wild or scenic rivers;
(5) Historic or archeological sites listed or eligible for listing
on the National Register of Historic Places;
(6) Coastal barriers included in Coastal Barrier Resource Systems;
(7) Natural landmarks listed on National Registry of Natural
Landmarks; and
(8) Sole source aquifer recharge areas as designated by EPA.
(c) Discretionary easements. The Agency may grant or sell an
easement, restriction, development right, or similar legal right to
real property for conservation purposes to a State government, a
political subdivision of a State government, or a private non-profit
organization.
(1) The Agency may grant or sell discretionary easements separate
from the underlying fee or property rights.
(2) The Agency may convey property interests under this paragraph
by negotiation to any eligible recipient without giving public notice
if the conveyance does not change the intended use of the property.
(d) Conservation transfers. The Agency may transfer inventory real
property to a Federal or State agency provided the following conditions
are met:
(1) The transfer of title must serve a conservation purpose;
(2) A predominance of the property must:
(i) Have marginal value for agricultural production;
(ii) Be environmentally sensitive; or
(iii) Have special management importance;
(3) The Homestead Protection rights of the previous owner have been
exhausted;
(4) The Agency will notify the public of the proposed transfer; and
(5) The transfer is in the Government's best financial interest.
(e) Use restrictions on inventory real property with important
resources. (1) Lessees and purchasers receiving Agency credit must
follow a conservation plan developed with assistance from NRCS.
(2) Lessees and purchasers of real property with important
resources or real property interests must allow the Agency or its
representative to periodically inspect the real property to
[[Page 6121]]
determine if it is being used for conservation purposes.
Sec. 767.202 Inventory real property located in special hazard areas.
(a) Special hazard areas. The Agency considers the following to be
special hazard areas:
(1) Mudslide hazard areas;
(2) Special flood areas; and
(3) Earthquake areas.
(b) Use restrictions. (1) The Agency will use deed restrictions to
prohibit residential use of properties determined to be unsafe in
special hazard areas.
(2) The Agency will incorporate use restrictions in its leases of
property in special hazard areas.
Sec. 767.203 Inventory real property containing environmental risks.
(a) Environmental risks. The Agency considers the following to be
environmental risks:
(1) Hazardous waste;
(2) Petroleum products and underground storage tank systems;
(3) Medical waste;
(4) Lead-based paints; and
(5) Asbestos.
(b) Remediation of environmental risk. (1) The Agency will comply
with all applicable Federal, State and local laws, ordinances, codes,
and regulations.
(2) The Agency will consult with the appropriate environmental
regulatory authority to determine State or local requirements for
cleanup or corrective action.
(3) For inventory real properties containing hazardous waste and
underground storage tank systems, the Agency will not conduct cleanup
or take corrective actions unless:
(i) Any known contamination or underground storage tank leakage
presents an immediate threat to the health and safety of neighboring
property owners or potential purchasers of the property; or
(ii) The Agency is selling the property to a beginning farmer and
providing credit assistance through direct or guaranteed loans.
(4) When the Agency will advertise the property for sale, the sales
price of the property is the ``as improved value'' as determined by an
appraisal.
(5) When the property is being sold back to the former owner-
borrower, the Agency will not undertake corrective action.
(c) Use restrictions on inventory real property containing
environmental risks. The Agency will not allow the use of underground
storage tank systems on leased inventory properties.
Sec.Sec. 767.205-767.250 [Reserved]
Subpart F--Exception Authority
Sec. 767.251 Agency exception authority.
On an individual case basis, the Agency may consider granting an
exception to any regulatory requirement or policy of this part if:
(a) The exception is not inconsistent with the authorizing statute
or other applicable law; and
(b) The Government's financial interest would be adversely affected
by acting in accordance with published regulations or policies and
granting the exception would resolve or eliminate the adverse effect
upon the Government's financial interest.
Sec.Sec. 767.252-767.300 [Reserved]
PART 768--[RESERVED]
PART 769--[RESERVED]
16. Add and reserve parts 768 and 769.
Signed in Washington, DC, on January 12, 2004.
James R. Little,
Administrator.
[FR Doc. 04-1891 Filed 2-6-04; 8:45 am]
BILLING CODE 3410-05-P