[Code of Federal Regulations]

[Title 7, Volume 7]

[Revised as of January 1, 2006]

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

[CITE: 7CFR762.140]



[Page 148-149]

 

                          TITLE 7--AGRICULTURE

 

       CHAPTER VII--FARM SERVICE AGENCY, DEPARTMENT OF AGRICULTURE

 

PART 762_GUARANTEED FARM LOANS--Table of Contents

 

Sec. 762.140  General servicing responsibilities.



    (a) General. (1) Lenders are responsible for servicing the entire 

loan in a reasonable and prudent manner, protecting and accounting for 

the collateral, and remaining the mortgagee or secured party of record.

    (2) The lender cannot enforce the guarantee to the extent that a 

loss results from a violation of usury laws or negligent servicing.

    (b) Borrower supervision. The lender's responsibilities regarding 

borrower supervision include, but are not limited to the following:

    (1) Ensuring loan funds are not used for unauthorized purposes.

    (2) Ensuring borrower compliance with the covenants and provisions 

contained in the promissory note, loan agreement, mortgage, security 

instruments, any other agreements, and this part. Any violations which 

indicate non-compliance on the part of the borrower must be reported, in 

writing, to both the Agency and the borrower.

    (3) Ensuring the borrower is in compliance with all laws and 

regulations applicable to the loan, the collateral, and the operations 

of the farm.

    (4) Receiving all payments of principal and interest on the loan as 

they fall due and promptly disbursing to any holder its pro-rata share 

according to the amount of interest the holder has in the loan, less 

only the lender's servicing fee.



[[Page 149]]



    (5) Performing an annual analysis of the borrower's financial 

condition to determine the borrower's progress. The annual analysis will 

include:

    (i) For loans secured by real estate only, the analysis for standard 

eligible lenders must include an analysis of the borrower's balance 

sheet. CLP lenders will determine the need for the annual analysis based 

on the financial strength of the borrower and document the file 

accordingly. PLP lenders will perform an annual analysis in accordance 

with the requirements established in the lender's agreement.

    (ii) For loans secured by chattels, all lenders will review the 

borrower's progress regarding business goals, trends and changes in 

financial performance, and compare actual to planned income and expenses 

for the past year.

    (iii) An account of the whereabouts or disposition of all 

collateral.

    (iv) A discussion of any observations about the farm business with 

the borrower.

    (c) Monitoring of development. The lender's responsibilities 

regarding the construction, repairs, or other development include, but 

are not limited to:

    (1) Determining that all construction is completed as proposed in 

the loan application;

    (2) Making periodic inspections during construction to ensure that 

any development is properly completed within a reasonable period of 

time; and

    (3) Verification that the security is free of any mechanic's, 

materialmen's, or other liens which would affect the lender's lien or 

result in a different lien priority from that proposed in the request 

for guarantee.

    (d) Loan installments. When a lender receives a payment from the 

sale of encumbered property, loan installments will be paid in the order 

of lien priority. When a payment is received from the sale of 

unencumbered property or other sources of income, loan installments will 

be paid in order of their due date. Agency approval is required for any 

other proposed payment plans.



[64 FR 7378, Feb. 12, 1999, as amended at 69 FR 44579, July 27, 2004]