[Code of Federal Regulations]
[Title 7, Volume 11]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR1779.81]

[Page 1023-1024]
 
                          TITLE 7--AGRICULTURE
 
    CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE
 
PART 1779--WATER AND WASTE DISPOSAL PROGRAMS GUARANTEED LOANS--Table of Contents
 
Sec. 1779.81  Liquidation.

    Liquidation will occur when the lender concludes that liquidation of 
the guaranteed loan is necessary because of default or third party 
actions that the borrower cannot, or will not, cure or eliminate within 
a reasonable period of time and the Agency concurs with the lender; or 
the Agency, at any time, independently concludes that liquidation is 
necessary. The lender will proceed as expeditiously as possible, 
including giving any notices or taking any legal actions required by the 
security instruments.
    (a) General.If a lender has made a loan guaranteed by the Agency 
under previous regulations, the lender has the option to liquidate the 
loan under the provisions of this part or under the provisions of 
previous regulations. The lender will notify the Agency in writing 
within 10 days after its decision to liquidate, which regulatory 
provisions it chooses to use. The lender may not choose some provisions 
of one regulation and other provisions of the other regulation.
    (b) Acquiring property titles.If a lender acquires title to 
property, the Agency may elect to permit the lender the option of 
calculating the final loss settlement using the net proceeds received at 
the time of the ultimate disposition of the property. The lender must 
submit to the Agency a written request to use this option within 15 days 
of acquiring title and the Agency must agree, in writing, prior to the 
lender submitting any request for estimated loss payment.
    (c) Liquidation plan.The lender will (within 30 days after a 
decision to liquidate) submit to the Agency, in writing, a proposed, 
detailed liquidation

[[Page 1024]]

plan. Upon approval by the Agency of the liquidation plan, the lender 
will commence liquidation. The lender's liquidation plan must include, 
but is not limited to, the following:
    (1) Such proof as the Agency requires to establish the lender's 
ownership of the guaranteed loan notes and related security instruments, 
a copy of the payment ledger or other documentation which reflects the 
outstanding loan balance and accrued interest to date, and the method of 
computing the interest;
    (2) A complete list of collateral;
    (3) The recommended liquidation methods for making the maximum 
collection possible on the indebtedness and the justification for such 
methods, including the recommended action for acquiring and disposing of 
all collateral;
    (4) Necessary steps for preservation of the collateral;
    (5) Copies of the borrower's latest available financial statements;
    (6) An itemized list of estimated liquidation expenses expected to 
be incurred and justification for each expense;
    (7) A schedule to periodically report to the Agency on the progress 
of the liquidation;
    (8) Estimated protective advance amounts with justification;
    (9) Proposed protective bid amounts on collateral to be sold at 
auction and a discussion of how the amounts were determined;
    (10) If a voluntary conveyance is considered, the proposed amount to 
be credited to the guaranteed debt;
    (11) Legal opinions, as needed; and
    (12) If the outstanding balance of principal and interest is less 
than $250,000, the lender will obtain an estimate of fair market and 
potential liquidation value of the collateral. If the outstanding 
balance of principal and interest is $250,000 or more, the lender will 
obtain an independent appraisal report on all collateral securing the 
loan which will reflect the fair market value and potential liquidation 
value. The independent appraiser's fee will be shared equally by the 
Agency and the lender.
    (d) Partial liquidation plan.If actions are necessary to immediately 
preserve and protect the collateral, a partial liquidation plan may be 
submitted and, when approved, must be followed by a complete liquidation 
plan prepared by the lender.
    (e) Disposition of collateral.Disposition of collateral acquired by 
the lender must be approved, in writing, by the Agency when:
    (1) The lender's cost to acquire the collateral of a borrower 
exceeds the potential recovery value of the security and the lender 
proposes abandoning the collateral in lieu of liquidation; or
    (2) The acquired collateral is to be sold to the borrower, 
borrower's stockholders or officers, or the lender or lender's 
stockholders or officers.
    (f) Agency liquidation.The Agency will liquidate at its option only 
when it is a holder and there is reason to believe the lender is not 
likely to initiate liquidation efforts that will result in maximum 
recovery. When the Agency liquidates, proceeds derived from the sale of 
the collateral will be applied first to reasonable liquidation expenses 
and second to the guaranteed portion of the loan.
    (g) Final loss payment.Final loss payments will be made only after 
all collateral has been properly accounted for and liquidation expenses 
are determined to be reasonable and within approved limits. Any 
estimated loss payments made to the lender will be credited against the 
final loss on the guaranteed loan. The amount of an estimated loss 
payment must be credited as a deduction from the principal balance of 
the loan.