[Code of Federal Regulations]
[Title 7, Volume 14]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR1965.17]

[Page 332]
 
                          TITLE 7--AGRICULTURE
 
   CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS--COOPERATIVE 
SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT OF 
                         AGRICULTURE (CONTINUED)
 
PART 1965--REAL PROPERTY--Table of Contents
 
  Subpart A--Servicing of Real Estate Security for Farm Loan Programs 
                    Loans and Certain Note-Only Cases
 
Sec.  1965.17  Lease of security.

    (a) General provisions. When the County Supervisor learns that a 
borrower is leasing or intends to lease all or a portion of the 
security, the County Supervisor will ask the borrower for a copy of the 
lease, if it is written. If the borrower leases or proposes to lease the 
real estate security for a term of more than 3 years or with an option 
to purchase, the County Supervisor will normally initiate liquidation 
action in accordance with Sec.  1965.26(b) of this subpart. However, if 
under unusual circumstances the County Supervisor believes FmHA or its 
successor agency under Public Law 103-354 should consent to such a lease 
arrangement, prior approval of the Assistant Administrator, Farmer 
Programs, or the Administrator, if a SFH loan is secured by the same 
security, is required. The State Director should forward such a request, 
along with a justification to the National Office. No action will be 
taken to disapprove or to approve a lease if the lease is for less than 
three years and contains no option to purchase; however, if under the 
lease of security, the borrower ceases to operate the farm, action will 
be taken in accordance with Sec.  1965.26(d) of this subpart.
    (b) Liquidation. No action to initiate liquidation based on the 
lease will be taken unless the borrower:
    (1) Enters into a lease for a term of more than 3 years; or
    (2) Enters into a lease for any term containing an option to 
purchase.
    (c) Mineral leases. When a borrower requests consent to lease the 
mineral rights to security, the County Supervisor may consent provided 
the proposed use of the leased rights will not result in the 
Government's security interest being adversely affected. If applicable, 
the requirements of Subpart G of Part 1940 of this chapter must be met. 
A borrower does not need FmHA or its successor agency under Public Law 
103-354's consent to lease the mineral rights securing a Farmer Program 
loan approved after December 23, 1985, unless the oil, gas or other 
minerals were included on FmHA or its successor agency under Public Law 
103-354's real estate appraisal. If FmHA or its successor agency under 
Public Law 103-354 consent is needed and consent is given, lease 
payments can be used for prospective payments on FmHA or its successor 
agency under Public Law 103-354 loans. Any payment or other compensation 
the borrower may receive for damages to the surface of the collateral 
real estate resulting from exploration for or recovery of minerals will 
be assigned to FmHA or its successor agency under Public Law 103-354 and 
will be used to repair the damage or used as authorized in Sec.  
1965.13(f) of this Subpart. Form FmHA or its successor agency under 
Public Law 103-354 465-1 will be used to process requests under this 
section. The County Supervisor should carefully document the facts to 
support the determinations reached concerning the effects of a mineral 
lease on the Government security. Assignment of income will be taken by 
use of Form FmHA or its successor agency under Public Law 103-354 443-
16, ``Assignment of Income from Real Estate Security,'' or other form 
approved by OGC which is necessary to comply with State law.

[51 FR 4140, Feb. 3, 1986, as amended at 53 FR 35795, Sept. 14, 1988; 58 
FR 52654, Oct. 12, 1993]