[Code of Federal Regulations]
[Title 7, Volume 15]
[Revised as of January 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR4279.72]

[Page 568-569]
 
                          TITLE 7--AGRICULTURE
 
  CHAPTER XLII--RURAL BUSINESS-COOPERATIVE SERVICE AND RURAL UTILITIES 
                   SERVICE, DEPARTMENT OF AGRICULTURE
 
PART 4279_GUARANTEED LOANMAKING--Table of Contents
 
                            Subpart A_General
 
Sec. 4279.72  Conditions of guarantee.

    A loan guarantee under this part will be evidenced by a Loan Note 
Guarantee issued by the Agency. Each lender will execute a Lender's 
Agreement. If a valid Lender's Agreement already exists, it is not 
necessary to execute a new Lender's Agreement with each loan guarantee. 
The provisions of this part and part 4287 of this chapter will apply to 
all outstanding guarantees. In the event of a conflict between the 
guarantee documents and these regulations as they exist at the time the 
documents are executed, the regulations will control.
    (a) Full faith and credit. A guarantee under this part constitutes 
an obligation supported by the full faith and credit of the United 
States and is incontestable except for fraud or misrepresentation of 
which a lender or holder has actual knowledge at the time it becomes 
such lender or holder or which a lender or holder participates in or 
condones. The guarantee will be unenforceable to the extent that any 
loss is occasioned by a provision for interest on interest. In addition, 
the guarantee will be unenforceable by the lender to the extent any loss 
is occasioned by the violation of usury laws, negligent servicing, or 
failure to obtain the required security regardless of the time at which 
the Agency acquires knowledge thereof. Any losses occasioned will be 
unenforceable to the extent that loan funds are used for purposes other 
than those specifically approved by the Agency in its Conditional 
Commitment. The Agency will guarantee payment as follows:
    (1) To any holder, 100 percent of any loss sustained by the holder 
on the guaranteed portion of the loan and on interest due on such 
portion.
    (2) To the lender, the lesser of:
    (i) Any loss sustained by the lender on the guaranteed portion, 
including principal and interest evidenced by the notes or assumption 
agreements and secured advances for protection and preservation of 
collateral made with the Agency's authorization; or
    (ii) The guaranteed principal advanced to or assumed by the borrower 
and any interest due thereon.
    (b) Rights and liabilities. When a guaranteed portion of a loan is 
sold to a holder, the holder shall succeed to all rights of the lender 
under the Loan Note Guarantee to the extent of the portion purchased. 
The lender will remain bound to all obligations under the Loan Note 
Guarantee, Lender's Agreement, and the Agency program regulations. A 
guarantee and right to require purchase will be directly enforceable by 
a holder notwithstanding any fraud or misrepresentation by the lender or 
any unenforceability of the guarantee by the lender, except for fraud or 
misrepresentation of which the holder had actual knowledge at the time 
it became the holder or in which the holder participates or condones. In 
the event of material fraud, negligence or misrepresentation by the 
lender or the lender's participation in or condoning of such material 
fraud, negligence or misrepresentation, the lender will be liable for 
payments made by the Agency to any holder.
    (c) Payments. A lender will receive all payments of principal and 
interest on account of the entire loan and will promptly remit to the 
holder its pro

[[Page 569]]

rata share thereof, determined according to its respective interest in 
the loan, less only the lender's servicing fee.