[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: 7CFR1965.85] [Page 387-390] 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 B--Security Servicing for Multiple Housing Loans Sec. 1965.85 Default and liquidation. (a) General. Liquidation will be recommended only after all efforts by FmHA or its successor agency under Public Law 103-354 officials have failed to effect a satisfactory solution whereby the borrower will comply with its obligations under the note, mortgage, loan agreements or resolution, and all related security agreements and other instruments. Liquidation, whether by voluntary conveyance or foreclosure, will be handled in strict accordance with the provisions of subpart A of part 1955 of this chapter. FmHA or its successor agency under Public Law 103- 354 Form 1965-11, ``Accelerated Repayment Agreement,'' will not be used in lieu of foreclosure for RRH, LH, or RCH loans [[Page 388]] unless specific prior written authorization is received from the National Office. (b) Servicing delinquent accounts. Delinquent multiple housing accounts will be serviced according to the respective program requirements and the following: (1) The District Director will service delinquent accounts with guidance and assistance as necessary from the State Director. Every delinquent borrower will be serviced according to a routine established for the particular loan type by the State Director. The following sequential steps should be taken for each delinquent account: (i) Each quarterly delinquency Report Code 616 and 621 or other official FmHA or its successor agency under Public Law 103-354 Report will be reviewed for accuracy by the State Director. The following delinquency classification system for multi-housing accounts may be used. The District Director will classify each account on the Report Code 621, as follows: D1--Delinquent; a servicing plan or action has not been formulated D2--Audit trail has been completed to verify amount delinquent D3--Agreement has been made with borrower to become current within a set period D4--Transfer or substitution of membership interests is in process to correct the delinquency D5--Reamortization is in process D6--Account has been accelerated D7--Borrower is in bankruptcy D8--Voluntary conveyance is planned D9--A subsequent loan is planned to correct delinquency D10--Other (litigation, abandonment before action taken, etc.) C1--Current (D/O records show the account current) C2--Audit trail completed that shows D/O or F/O error (double maturities, misapplication, etc.) and action taken has been taken to correct the error C3--Account paid current since latest Report Code 616 or 621 C4--Other C5--Requesting an exception to the late fee charged to the account according to subpart K of part 1951 of this chapter, when appropriate. X1--Property in inventory (from foreclosure, voluntary conveyance or bankruptcy) X2--Credit Sale finalized X3--Charge-off of account in process X4--Transfer or reamortization closed; waiting for F/O to process X5--Other (ii) if the report is in error, the District Director will immediately contact the Finance Office and provide any information necessary to correct the report and/or remove the account from the delinquent status. These communications with the Finance Office should be directed to the Multiple-Family Housing unit. Before contacting the Finance Office, the District Director must complete a field audit of the account to be submitted with the inquiry. (iii) If the report is accurate and a delinquency indeed exists, the District Director will immediately contact the borrower to determine the reason for the delinquency and will attempt to collect either in a lump sum or in additional monthly payments over a short period of time, usually not to exceed one year. This should include foregoing any cash return until the account is current. (iv) Within 30 days of receipt of the quarterly delinquency report, the District Director will submit to the State Director a detailed report with specific comments and recommendations for servicing each delinquent account. This report will classify the accounts and indicate which accounts are actually delinquent. Emphasis will be placed on performing delinquency servicing actions to reduce true delinquencies. The State Director will assist the District Director in developing a realistic servicing plan for each delinquent account. The State Director will prepare a statewide delinquency reduction plan annually and update it quarterly based on the delinquency reports and information provided by the District Directors. Appropriate consideration should be given to reamortizing, transferring, conveying or foreclosing accounts recognizing the willingness of the borrower to cooperate and comply with FmHA or its successor agency under Public Law 103-354 requirements and to meet the purposes for which the loan was made. Consideration should also be given to: (A) Adequate budgeting of project income and expenses. (B) Improving management and outreach. [[Page 389]] (C) Implementing interest credit and/or rental assistance if the borrower and project qualify. (D) Participating in the HUD Section 8 program for existing housing through the local Public Housing Agency (PHA). (E) Effecting a justified rent increase according to applicable program requirements. (F) Obtaining an assignment of project income. (2) District Directors should be firm in dealing with the borrower or the borrower's representative. However, the management agent is not the party ultimately responsible for the loan, and it is therefore imperative that the borrower fully understand the consequences of the default. Courtesy, cooperation and sound judgment must be involved. If the delinquent account cannot be brought current within a reasonable period, steps should be taken according to subpart A of part 1955 of this chapter to protect the Government's interest. (c) Failure to maintain reserves. A borrower's failure to maintain adequate reserves should be treated in a manner similar to delinquent accounts. The District Director should carefully monitor the required transfers to the reserve account. Borrowers who fail to make the required transfers or use reserve funds without prior FmHA or its successor agency under Public Law 103-354 authorizations should be carefully counseled. Demand should be made upon borrowers misusing the reserve account to promptly correct any deficiency. As appropriate, the District Director may request assistance from the State Director. As necessary to protect the Government's interests, assistance from OGC should be requested through the State Office. (d) Nonmonetary defaults. Attempts to resolve nonmonetary defaults should be handled whenever possible at the District Office level with appropriate guidance and assistance from the State Office. The State Director should counsel with OGC, to determine the appropriate servicing actions in those cases where nonmonetary defaults cannot be resolved at the District Office level. These actions may include liquidation of the account. (e) Liquidation. Liquidation of all multiple-family type loans will be handled according to the applicable portions of subpart A of part 1955 of this chapter. In cases of forced liquidation where the acceleration notice has been delivered and the borrower has willfully failed to make the required loan payments, eligible tenants are not occupying the units and/or the borrower is not collecting the approved rents or transmitting the required payments to FmHA or its successor agency under Public Law 103-354, any outstanding interest credit agreement will be cancelled after the appeal period prescribed in subpart B of part 1900 of this chapter has expired. However, the rental assistance agreement will not be cancelled until the foreclosure action has been completed and the redemption period has expired according to paragraph XIV B 5 of exhibit E of subpart C of part 1930 of this chapter. In no cases will RA be renewed during the redemption period. In all liquidation cases, the State Director will be responsible for the final decision to liquidate the account based upon an opinion from the OGC and the following information supplied by the District Director: (1) The specific recommendations of the District Director on the method of carrying out the liquidation, (2) The case file and any other pertinent information developed in support of the accusations, (3) A summary of FmHA or its successor agency under Public Law 103- 354 efforts to work out an acceptable solution short of liquidation, (4) A current appraisal of the security property as required by FmHA or its successor agency under Public Law 103-354 Instruction 1922-B (available in any FmHA or its successor agency under Public Law 103-354 office) will be completed by an FmHA or its successor agency under Public Law 103-354 official authorized to make that particular type of appraisal and an estimate of the net amount that may be realized from the sale of the assets, (5) The most recent balance sheet or financial statement from the borrower, (6) A current statement of account from the Finance Office, and (7) A problem case report using Form FmHA or its successor agency under [[Page 390]] Public Law 103-354 465-7, ``Report on Real Estate Problem Case,'' or exhibit A to subpart A of part 1955 of this chapter as appropriate. [49 FR 49587, Dec. 21, 1984, as amended at 50 FR 8605, Mar. 4, 1985; 51 FR 11564, Apr. 4, 1986]