[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: 7CFR762.142]



[Page 150-152]

 

                          TITLE 7--AGRICULTURE

 

       CHAPTER VII--FARM SERVICE AGENCY, DEPARTMENT OF AGRICULTURE

 

PART 762_GUARANTEED FARM LOANS--Table of Contents

 

Sec. 762.142  Servicing related to collateral.



    (a) General. The lender's responsibilities regarding servicing 

collateral include, but are not limited to, the following:

    (1) Obtain income and insurance assignments when required.

    (2) Ensure the borrower has or obtains marketable title to the 

collateral.

    (3) Inspect the collateral as often as deemed necessary to properly 

service the loan.

    (4) Ensure the borrower does not convert loan security.

    (5) Ensure the proceeds from the sale or other disposition of 

collateral are accounted for and applied in accordance with the lien 

priorities on which the guarantee is based or used for the purchase of 

replacement collateral.

    (6) Ensure the loan and the collateral are protected in the event of 

foreclosure, bankruptcy, receivership, insolvency, condemnation, or 

other litigation.

    (7) Ensure taxes, assessments, or ground rents against or affecting 

the collateral are paid.

    (8) Ensure adequate insurance is maintained.

    (9) Ensure that insurance loss payments, condemnation awards, or 

similar proceeds are applied on debts in accordance with lien priorities 

on which the guarantee was based, or used to rebuild or acquire needed 

replacement collateral.

    (b) Partial releases. (1) A lender may release guaranteed loan 

security without FSA concurrence as follows:

    (i) When the security item is being sold for market value and the 

proceeds will be applied to the loan in accordance with lien priorities. 

In the case of term loans, proceeds will be applied as extra payments 

and not as a regular installment on the loan.

    (ii) The security item will be used as a trade-in or source of down 

payment funds for a like item that will be taken as security.

    (iii) The security item has no present or prospective value.

    (2) A partial release of security may be approved in writing by the 

Agency upon the lender's request when:

    (i) Proceeds will be used to make improvements to real estate that 

increase the value of the security by an amount equal to or greater than 

the value of the security being released.

    (ii) Security will be released outright with no consideration, but 

the total unpaid balance of the guaranteed loan is less than or equal to 

75 percent of the value of the security for the loan after the release, 

excluding the value of growing crops or planned production, based on a 

current appraisal of the security.

    (iii) Significant income generating property will not be released 

unless it is being replaced and business assets will not be released for 

use as a gift or any similar purpose.

    (iv) Agency concurrence is provided in writing to the lender's 

written request. Standard eligible lenders and CLP lenders will submit 

the following to the Agency:

    (A) A current balance sheet on the borrower; and

    (B) A current appraisal of the security. Based on the level of risk 

and estimated equity involved, the Agency will determine what security 

needs to be appraised. Any required security appraisals must meet the 

requirements of Sec. 762.127; and

    (C) A description of the purpose of the release; and

    (D) Any other information requested by the Agency to evaluate the 

proposed servicing action.

    (3) The lender will provide the Agency copies of any agreements 

executed to carry out the servicing action.

    (4) PLP lenders will request servicing approval in accordance with 

their agreement with the Agency at the time of PLP status certification.

    (c) Subordinations. (1) The Agency may subordinate its security 

interest on a direct loan when a guaranteed loan is being made if the 

requirements of the regulations governing Agency direct loan 

subordinations are met and only in the following circumstances:



[[Page 151]]



    (i) To permit a guaranteed lender to advance funds and perfect a 

security interest in crops, feeder livestock, livestock offspring, or 

livestock products;

    (ii) When the lender requesting the guarantee needs the 

subordination of the Agency's lien position to maintain its lien 

position when servicing or restructuring;

    (iii) When the lender requesting the guarantee is refinancing the 

debt of another lender and the Agency's position on real estate security 

will not be adversely affected; or

    (iv) To permit a line of credit to be advanced for annual operating 

expenses.

    (2) The Agency may subordinate its basic security in a direct loan 

to permit guaranteed line of credit only when both of the following 

additional conditions are met:

    (i) The total unpaid balance of the direct loans is less than or 

equal to 75 percent of the value of all of the security for the direct 

loans, excluding the value of growing crops or planned production, at 

the time of the subordination. The direct loan security value will be 

determined by an appraisal. The lender requesting the subordination and 

guarantee is responsible for providing the appraisal and may charge the 

applicant a reasonable appraisal fee.

    (ii) The applicant cannot obtain sufficient credit through a 

conventional guaranteed loan without a subordination.

    (3) The lender may not subordinate its interest in property which 

secures a guaranteed loan except as follows:

    (i) The lender may subordinate its security interest in crops, 

feeder livestock, livestock offspring, or livestock products when no 

funds have been advanced from the guaranteed loan for their production, 

so a lender can make a loan for annual production expenses; or

    (ii) The lender may, with written Agency approval, subordinate its 

interest in basic security in cases where the subordination is required 

to allow another lender to refinance an existing prior lien, no 

additional debt is being incurred, and the lender's security position 

will not be adversely affected by the subordination.

    (iii) The Agency's national office may provide an exception to the 

subordination prohibition if such action is in the Agency's best 

interest. However, in no case can the loan made under the subordination 

include tax exempt financing.

    (d) Transfer and assumption. Transfers and assumptions are subject 

to the following conditions:

    (1) For standard eligible and CLP lenders, the servicing action must 

be approved by the Agency in writing.

    (2) For standard eligible and CLP lenders, the transferee must apply 

for a loan in accordance with Sec. 762.110, including a current 

appraisal, unless the lien position of the guaranteed loan will not 

change, and any other information requested by the Agency to evaluate 

the transfer and assumption.

    (3) PLP lenders may process transfers and assumptions in accordance 

with their agreement with the Agency.

    (4) Any required security appraisals must meet the requirements of 

Sec. 762.127.

    (5) The Agency will review, approve or reject the request in 

accordance with the time frames in Sec. 762.130.

    (6) The transferee must meet the eligibility requirements and loan 

limitations for the loan being transferred, all requirements relating to 

loan rates and terms, loan security, feasibility, and environmental and 

other laws applicable to a loan applicant under this part.

    (7) The lender will use its own assumption agreements or conveyance 

instruments, providing they are legally sufficient to obligate the 

transferee for the total outstanding debt. The lender will provide the 

Agency copies of any agreements executed to carry out the servicing 

action.

    (8) The Agency approves the transfer and assumption by executing a 

modification of the guarantee to designate the party that assumed the 

guaranteed debt, the amount of debt at the time of the assumption, 

including interest that is being capitalized, and any new loan terms, if 

applicable.

    (9) The lender must give any holder notice of the transfer. If the 

rate and terms are changed, written concurrence from the holder is 

required.

    (10) The Agency will agree to releasing the transferor or any 

guarantor



[[Page 152]]



from liability only if the requirements of Sec. 762.146(c) are met.



[64 FR 7378, Feb. 12, 1999, as amended at 66 FR 7567, Jan. 24, 2001; 69 

FR 44579, July 27, 2004]