[Code of Federal Regulations]
[Title 25, Volume 1]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 25CFR103.30]

[Page 312-313]
 
                            TITLE 25--INDIANS
 
     CHAPTER I--BUREAU OF INDIAN AFFAIRS, DEPARTMENT OF THE INTERIOR
 
PART 103--LOAN GUARANTY, INSURANCE, AND INTEREST SUBSIDY--Table of Contents
 
                 Subpart F--Loan Servicing Requirements
 
Sec. 103.30  What standard of care must a lender meet?


    Lenders must service all loans guaranteed or insured under the 
Program in a commercially reasonable manner, in accordance with 
standards and procedures adopted by prudent lenders in the BIA region in 
which the borrower's business is located, and in accordance with this 
part. If the lender fails to follow any of these standards, BIA may 
reduce or eliminate entirely the amount payable under its guaranty or 
insurance coverage to the extent BIA can reasonably attribute the loss 
to the lender's failure. BIA also may deny payment completely if the 
lender gets a loan guaranty or insurance coverage through fraud, or 
negligently allows a borrower's fraudulent loan application or use of 
loan funds to go undetected. In particular, and without limitation, 
lenders must:
    (a) Check and verify information contained in the borrower's loan 
application, such as the borrower's eligibility, the authority of 
persons acting on behalf of the borrower, and the title status of any 
proposed collateral;
    (b) Take reasonable precautions to assure that loan proceeds are 
used as specified in BIA's guaranty certificate or written insurance 
approval, or if not so specified, then in descending order of 
importance:
    (1) BIA's written loan guaranty approval;
    (2) The loan documents;
    (3) The terms of the lender's final loan commitment to the borrower; 
or
    (4) The borrower's loan application;
    (c) When feasible, require the borrower to use automatic bank 
account debiting to make loan payments;
    (d) Require the borrower to take title to real and personal property 
purchased with loan proceeds in the borrower's own name, except for real 
property to be held in trust by the United States for the benefit of a 
borrower that is a tribe;
    (e) Promptly record all security interests and subsequently keep 
them in effect. Lenders must record all mortgages and other security 
interests in accordance with State and local law, including the laws of 
any tribe that may have jurisdiction. Lenders also must record any 
leasehold mortgages or assignments of income involving individual Indian 
or tribal trust land with the BIA office having responsibility for 
maintaining records on that trust land;
    (f) Assure, to the extent reasonably practicable, that the borrower 
and any guarantor of the loan (other than BIA) keep current on all taxes 
levied on real

[[Page 313]]

and personal property used in the borrower's business or as collateral 
for the loan, and on all applicable payroll taxes;
    (g) Assure, to the extent reasonably practicable, that all required 
insurance policies remain in effect, including hazard, liability, key 
man life, and other kinds of insurance, in amounts reasonably necessary 
to protect the interests of the borrower, the borrower's business, and 
the lender;
    (h) Assure, to the extent reasonably practicable, that the borrower 
remains in compliance with all applicable Federal, State, local and 
tribal laws, including environmental laws and laws concerning the 
preservation of historical and archeological sites and data;
    (i) Assure, to the extent reasonably practicable, that the borrower 
causes any construction, renovation, or demolition work funded by the 
loan to proceed in accordance with approved construction contracts and 
plans and specifications, which must be sufficient in scope and detail 
to adequately govern the work;
    (j) Reserve for itself and BIA the right to inspect the borrower's 
business records and all loan collateral at any reasonable time;
    (k) Promptly notify the borrower in writing of any material breach 
by the borrower of the terms of its loan, with specific instructions on 
how to cure the breach and a deadline for doing so;
    (l) Participate in any probate, receivership, bankruptcy, or similar 
proceeding involving the borrower and any guarantor or co-maker of the 
borrower's debt, to the extent necessary to maintain the greatest 
possible rights to repayment; and
    (m) Otherwise seek to avoid and mitigate any potential loss arising 
from the loan, using at least that level of care the lender would use if 
it did not have a BIA loan guaranty or insurance coverage.