[Code of Federal Regulations]

[Title 7, Volume 15]

[Revised as of January 1, 2006]

From the U.S. Government Printing Office via GPO Access

[CITE: 7CFR3560.61]



[Page 490-491]

 

                          TITLE 7--AGRICULTURE

 

     CHAPTER XXXV--RURAL HOUSING SERVICE, DEPARTMENT OF AGRICULTURE

 

PART 3560_DIRECT MULTI-FAMILY HOUSING LOANS AND GRANTS--Table of Contents

 

               Subpart B_Direct Loan and Grant Origination

 

Sec. 3560.61  Loan security.



    (a) General. Each loan made by the Agency will be secured in a 

manner that adequately protects the financial interest of the Federal 

Government throughout the period of the loan.

    (b) Lien position. (1) The Agency will seek a first or parity lien 

position on Agency-financed property in all instances. The Agency may 

accept a junior lien position if the Federal Government's interests are 

adequately secured.

    (2) The Agency will seek a first or parity lien on revenue from 

rent; Agency, HUD, state or private rental subsidy payments; chattels; 

assignments; and operating and reserve accounts. The Agency will accept 

a junior lien position if the Federal Government's interests are 

adequately secured.

    (c) Liability. Personal liability will be required of all individual 

borrowers. Personal liability will not be required for the members or 

stockholders of any corporation or trust or any partners in a limited 

partnership.

    (d) Housing and land ownership. Applicants must own the MFH and 

related land for which the loan is being requested, or become the owner 

when the loan is closed or have a leasehold interest in the land. If an 

applicant is not the owner of the housing and the related land, the 

following conditions must be met prior to or at loan closing.

    (1) A recorded mortgage on the improvements is given as collateral.

    (2) The amount of the loan against the collateral does not exceed 

its estimated security value.

    (3) The unexpired term of the lease on the date of loan closing is 

at least 50 percent longer than the term of the loan and rent charged 

for the lease does not exceed the rate being paid for similar leases in 

the area.

    (4) The applicant's leasehold interest is not subject to summary 

foreclosure or cancellation.

    (5) The lease permits:

    (i) The Agency to foreclose the mortgage and to transfer the lease;

    (ii) The Agency to bid at a foreclosure sale or to accept voluntary 

conveyance of the security in lieu of foreclosure;

    (iii) The Agency to occupy the property, sublet the property, or 

sell the leasehold for cash or credit if the leasehold is acquired 

through foreclosure, if



[[Page 491]]



the Agency accepts voluntary conveyance in lieu of foreclosure, or if 

the borrower abandons the property; and

    (iv) The applicant, in the event of default or inability to continue 

with the lease and the loan, to transfer the leasehold subject to the 

mortgage to a transferee that will assume the property ownership 

obligations.