[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: 7CFR762.149]



[Page 160-163]

 

                          TITLE 7--AGRICULTURE

 

       CHAPTER VII--FARM SERVICE AGENCY, DEPARTMENT OF AGRICULTURE

 

PART 762_GUARANTEED FARM LOANS--Table of Contents

 

Sec. 762.149  Liquidation.



    (a) Mediation. When it has been determined that default cannot be 

cured through any of the servicing options available, or if the lender 

does not wish to utilize any of the authorities provided in this part, 

the lender must:

    (1) Participate in mediation according to the rules and regulations 

of any State which has a mandatory farmer-creditor mediation program;



[[Page 161]]



    (2) Consider private mediation services in those States which do not 

have a mandatory farmer-creditor mediation program; and

    (3) Not agree to any proposals to rewrite the terms of a guaranteed 

loan which do not comply with this part. Any agreements reached as a 

result of mediation involving defaults and or loan restructuring must 

have written concurrence from the Agency before they are implemented.

    (b) Liquidation plan. If a default cannot be cured after considering 

servicing options and mediation, the lender will proceed with 

liquidation of the collateral in accordance with the following:

    (1) Within 30 days of the decision to liquidate, standard eligible 

and CLP lenders will submit a written liquidation plan to the Agency 

which includes:

    (i) Current balance sheets from all liable parties or, if the 

parties are not cooperative, the best information available, or in 

liquidation bankruptcies, a copy of the bankruptcy schedules or 

discharge notice;

    (ii) A proposed method of maximizing the collection of debt which 

includes specific plans to collect any remaining loan balances on the 

guaranteed loan after loan collateral has been liquidated, including 

possibilities for judgment;

    (A) If the borrower has converted loan security, the lender will 

determine whether litigation is cost effective. The lender must address, 

in the liquidation plan, whether civil or criminal action will be 

pursued. If the lender does not pursue the recovery, the reason must be 

documented when an estimated loss claim is submitted.

    (B) Any proposal to release the borrower from liability will be 

addressed in the liquidation plan in accordance with Sec. 

762.146(c)(2);

    (iii) An independent appraisal report on all collateral securing the 

loan that meets the requirements of Sec. 762.127 and a calculation of 

the net recovery value of the security as defined in Sec. 762.102. The 

appraisal requirement may be waived by the Agency in the following 

cases:

    (A) The bankruptcy trustee is handling the liquidation and the 

lender has submitted the trustee's determination of value;

    (B) The lender's proposed method of liquidation rarely results in 

receipt of less than market value for livestock and used equipment; or

    (C) A purchase offer has already been received for more than the 

debt;

    (iv) An estimate of time necessary to complete the liquidation;

    (v) An estimated loss claim if the liquidation period is expected to 

exceed 90 days.

    (vi) An estimate of reasonable liquidation expenses; and

    (vii) An estimate of any protective advances.

    (2) PLP lenders will submit a liquidation plan as required by their 

lender's agreement.

    (c) Agency approval of the liquidation plan. (1) CLP lender's or 

standard eligible lender's liquidation plan, and any revisions of the 

plan, must be approved by the Agency.

    (2) If, within 20 calendar days of the Agency's receipt of the 

liquidation plan, the Agency fails to approve it or fails to request 

that the lender make revisions, the lender may assume the plan is 

approved. The lender may then proceed to begin liquidation actions at 

its discretion as long as it has been at least 60 days since the 

borrower's eligibility for interest assistance was considered.

    (3) At its option, the Agency may liquidate the guaranteed loan as 

follows:

    (i) Upon Agency request, the lender will transfer to the Agency all 

rights and interests necessary to allow the Agency to liquidate the 

loan. The Agency will not pay the lender for any loss until after the 

collateral is liquidated and the final loss is determined; and

    (ii) If the Agency conducts the liquidation, interest accrual will 

cease on the date the Agency notifies the lender in writing that it 

assumes responsibility for the liquidation.

    (d) Estimated loss claims. An estimated loss claim will be submitted 

by the lender with the liquidation plan if the liquidation is expected 

to exceed 90 days. The estimated loss will be based on the following:

    (1) The Agency will pay the lender the guaranteed percentage of the 

total



[[Page 162]]



outstanding debt, less the net recovery value of the remaining security, 

less any unaccounted for security; and

    (2) The lender will discontinue interest accrual on the defaulted 

loan at the time the estimated loss claim is paid by the Agency. If the 

lender estimates that there will be no loss after considering the costs 

of liquidation, interest accrual will cease 90 days after the decision 

to liquidate or an estimated loss of zero will be submitted.

    (3) Packager fees and outside consultant fees for servicing of 

guaranteed loans are not covered by the guarantee, and will not be paid 

in an estimated loss claim.

    (e) Protective advances. (1) Prior written authorization from the 

Agency is required for all protective advances in excess of $5,000 for 

CLP lenders and $3,000 for standard eligible lenders. The dollar amount 

of protective advances allowed for PLP lenders will be specified when 

PLP status is awarded by the Agency or as contained in the lender's 

agreement.

    (2) The lender may claim recovery for the guaranteed portion of any 

loss of monies advanced as protective advances as allowed in this part, 

plus interest that accrues on the protective advances.

    (3) Payment for protective advances is made by the Agency when the 

final loss claim is approved, except in bankruptcy actions.

    (4) Protective advances are used only when the borrower is in 

liquidation, liquidation is imminent, or when the lender has taken title 

to real property in a liquidation action.

    (5) Legal fees are not a protective advance.

    (6) Protective advances may only be made when the lender can 

demonstrate the advance is in the best interest of the lender and the 

Agency.

    (7) Protective advances must constitute a debt of the borrower to 

the lender and be secured by the security instrument.

    (8) Protective advances must not be made in lieu of additional 

loans.

    (f) Unapproved loans or advances. The amount of any payments made by 

the borrower on unapproved loans or advances outside of the guarantee 

will be deducted from any loss claim submitted by the lender on the 

guaranteed loan, if that loan or advance was paid prior to, and to the 

detriment of, the guaranteed loan.

    (g) Acceleration. (1) If the borrower is not in bankruptcy, the 

lender shall send the borrower notice that the loan is in default and 

the entire debt has been determined due and payable immediately after 

other servicing options have been exhausted.

    (2) The loan cannot be accelerated until after the borrower has been 

considered for interest assistance and the conclusion of mandatory 

mediation in accordance with Sec. 762.149.

    (3) The lender will submit a copy of the acceleration notice or 

other document to the Agency.

    (h) Foreclosure. (1) The lender is responsible for determining the 

necessary parties to any foreclosure action, or who should be named on a 

deed of conveyance taken in lieu of foreclosure.

    (2) When the property is liquidated, the lender will apply the net 

proceeds to the guaranteed loan debt.

    (3) When it is necessary to enter a bid at a foreclosure sale, the 

lender may bid the amount that it determines is reasonable to protect 

its and the Agency's interest. At a minimum, the lender will bid the 

lesser of the net recovery value or the unpaid guaranteed loan balance.

    (i) Final loss claims. (1) Lenders may submit a final loss claim 

when the security has been liquidated and all proceeds have been 

received and applied to the account.

    (2) If a lender acquires title to property either through voluntary 

conveyance or foreclosure proceeding, the lender will submit a final 

loss claim after disposing of the property. The lender may pay 

reasonable maintenance expenses to protect the value of the property 

while it is owned by the lender. These may be paid as protective 

advances or deducted as liquidation expenses from the sales proceeds 

when the lender disposes of the property. The lender must obtain Agency 

written concurrence before incurring maintenance expenses which exceed 

the amounts allowed in Sec. 762.149(e)(1). Packager fees and outside 

consultant fees for servicing of guaranteed loans are



[[Page 163]]



not covered by the guarantee, and will not be paid in a final loss 

claim.

    (3) The lender will make its records available to the Agency for the 

Agency's audit of the propriety of any loss payment.

    (4) All lenders will submit the following documents with a final 

loss claim:

    (i) An accounting of the use of loan funds;

    (ii) An accounting of the disposition of loan security and its 

proceeds;

    (iii) A copy of the loan ledger indicating loan advances, interest 

rate changes, protective advances, and application of payments, rental 

proceeds, and security proceeds, including a running outstanding balance 

total; and

    (iv) Documentation, as requested by the Agency, concerning the 

lender's compliance with the requirements of this part.

    (5) The Agency will notify the lender of any discrepancies in the 

final loss claim or, approve or reject the claim within 40 days.

    (6) The Agency will reduce a final loss claim based on its 

calculation of the dollar amount of loss caused by the lender's 

negligent servicing of the account. Loss claims may be reduced or 

rejected as a result of the following:

    (i) A loss claim may be reduced by the amount caused by the lender's 

failure to secure property after a default, and will be reduced by the 

amount of interest that accrues when the lender fails to contact the 

borrower or takes no action to cure the default, once it occurs. Losses 

incurred as a result of interest accrual during excessive delays in 

collection, as determined by the Agency, will not be paid.

    (ii) Unauthorized release of security proceeds, failure to verify 

ownership or possession of security to be purchased, or failure to 

inspect collateral as often required so as to ensure its maintenance.

    (7) Losses will not be reduced for the following:

    (i) Servicing deficiencies that did not contribute materially to the 

dollar amount of the loss.

    (ii) Unaccounted security, as long as the lender's efforts to locate 

and recover the missing collateral was equal to that which would have 

been expended in the case of an unguaranteed loan in the lender's 

portfolio.

    (8) Default interest, late charges, and loan servicing fees are not 

payable under the loss claim.

    (9) The final loss will be the remaining outstanding balance after 

application of the estimated loss payment and the application of 

proceeds from the liquidation of the security.

    (10) If the final loss is less than the estimated loss, the lender 

will reimburse the Agency for the overpayment, plus interest at the note 

rate from the date of the estimated loss payment.

    (11) The lender will return the original guarantee marked paid after 

receipt of a final loss claim.

    (j) Future Recovery. The lender will remit any recoveries made on 

the account after the Agency's payment of a final loss claim to the 

Agency in proportion to the percentage of guarantee, in accordance with 

the lender's agreement, until the account is paid in full or otherwise 

satisfied.

    (k) Overpayments. The lender will repay any final loss overpayment 

determined by the Agency upon request.

    (l) Electronic funds transfer. The lender will designate one or more 

financial institutions to which any Agency payments will be made via 

electronic funds transfer.

    (m) Establishment of Federal debt. Any amounts paid by the Agency on 

account of liabilities of the guaranteed loan borrower will constitute a 

Federal debt owing to the Agency by the guaranteed loan borrower. In 

such case, the Agency may use all remedies available to it, including 

offset under the Debt Collection Improvement Act of 1996, to collect the 

debt from the borrower. Interest charges will be established at the note 

rate of the guaranteed loan on the date the final loss claim is paid.



[64 FR 7378, Feb. 12, 1999, as amended at 67 FR 44016, July 1, 2002; 69 

FR 44580, July 27, 2004]