[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: 7CFR1779.94]

[Page 1028-1029]
 
                          TITLE 7--AGRICULTURE
 
    CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE
 
PART 1779--WATER AND WASTE DISPOSAL PROGRAMS GUARANTEED LOANS--Table of Contents
 
Sec. 1779.94  Determination and payment of loss.

    In all liquidation cases, final settlement will be made with the 
lender after the collateral is liquidated. The Agency will have the 
right to recover losses paid under the guarantee from any liable party.
    (a) General.If the lender takes title to collateral, any loss will 
be based on the collateral value at the time the lender obtains title.
    (b) Loss calculations.The Report of Loss form (available in any 
Agency office) will be used for calculations of all estimated and final 
loss determinations. Estimated loss payments may only be approved after 
the lender has submitted a liquidation plan approved by the Agency.
    (c) Estimated loss payments.When the lender is conducting the 
liquidation and owns any of the guaranteed portion of the loan, it may 
request an estimated loss payment by submitting an estimate of loss that 
will occur in connection with liquidation of the loan. An estimated loss 
payment may be approved after the Agency has approved the liquidation 
plan.
    (1) The lender will prepare and submit a Report of Loss using the 
appraised value in lieu of amount received from sale of collateral.
    (2) The estimated loss payment shall be calculated as of the date of 
such payment. The total amount of the loss payment remitted by the 
Agency will be applied by the lender on the guaranteed portion of the 
loan debt. Such application does not release the borrower from 
liability. At the time of final loss settlement, the lender may notify 
the borrower that the loss payment has been so applied.
    (3) After liquidation has been completed, a final Report of Loss 
will be submitted by the lender to the Agency.
    (d) Final report of loss.In all cases, a final Report of Loss must 
be submitted to the Agency. Before Agency approval of any final loss 
report, the lender must account for all funds obtained, disposition of 
the collateral, all costs incurred, and any other information

[[Page 1029]]

necessary for the successful completion of liquidation. Upon receipt of 
the final accounting and Report of Loss, the Agency may conduct an audit 
and will determine the final loss. The lender will make its records 
available to, and otherwise assist, the Agency in making any audit it 
requires of the Report of Loss. The documentation accompanying the 
Report of Loss must support the loss claimed.
    (1) The lender must document and show that all of the collateral has 
been accounted for and properly liquidated and that liquidation proceeds 
have been properly accounted for and applied correctly on the loan. The 
Agency must be satisfied that the lender has accomplished this in the 
manner contained herein and that the lender has maximized the 
collections in conducting the liquidation.
    (2) The lender must show a breakdown on any protective advance 
amount as to the payee, purpose of the expenditure, date paid, evidence 
that the amount expended was proper, and that the amount was actually 
paid.
    (3) The lender must show a breakdown of liquidation expenses as to 
the payee, purpose of the expenditure, date paid, evidence that the 
amount expended was proper, and that the amount was actually paid.
    (4) Accrued interest should be supported by attachments showing how 
the amount was accrued by the lender. A copy of the promissory note and 
ledger will be attached. If the interest rate was a variable rate, the 
lender must include documentation of changes in the selected base rate 
and when the changes in the loan rate became effective.
    (e) Liquidation income. Any net rental or other income that has been 
received by the lender from the collateral will be applied on the 
guaranteed loan debt.
    (f) Liquidation costs. Certain reasonable liquidation costs will be 
allowed during the liquidation process. The liquidation costs must be 
submitted as a part of the liquidation plan. Such costs will be deducted 
from gross proceeds received from the disposition of collateral unless 
the costs have been previously determined by the lender (with Agency 
concurrence) to be protective advances. If changed circumstances after 
submission of the liquidation plan require a revision of liquidation 
costs, the lender will obtain the Agency's written concurrence prior to 
proceeding with the proposed changes. No in-house expenses of the lender 
will be allowed.
    (g) Protective advance losses. In those instances where the lender 
made authorized protective advances, the lender may claim recovery for 
the guaranteed portion of any loss of monies advanced as well as 
interest resulting from such protective advances. These claims shall be 
included in the final Report of Loss.
    (h) Final loss approval. After the final Report of Loss has been 
tentatively approved:
    (1) If the actual loss is greater than any estimated loss payment, 
such loss will be paid by the Agency;
    (2) If the actual loss is less than any estimated loss payment, the 
lender will reimburse the Agency;
    (3) If the Agency conducted the liquidation, it will provide an 
accounting to the lender and will pay the lender in accordance with the 
Loan Note Guarantee.
    (i) Loss limits. The amount payable by the Agency to the lender 
cannot exceed the limits contained in the Loan Note Guarantee. If the 
Agency conducts the liquidation, loss occasioned by accruing interest 
will be covered by the guarantee only to the date the Agency accepts 
this responsibility. When the liquidation is conducted by the lender, 
loss occasioned by accruing interest will be covered to the extent of 
the guarantee to the date of final settlement provided the lender 
proceeds expeditiously with the liquidation plan approved by the Agency.