[Code of Federal Regulations]

[Title 7, Volume 14]

[Revised as of January 1, 2007]

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

[CITE: 7CFR1965.12]



[Page 290-291]

 

                          TITLE 7--AGRICULTURE

 

   CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS--COOPERATIVE 

SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT OF 

                         AGRICULTURE (CONTINUED)

 

PART 1965_REAL PROPERTY--Table of Contents

 

Subpart A_Servicing of Real Estate Security for Farm Loan Programs Loans 

                       and Certain Note-Only Cases

 

Sec.  1965.12  Subordination of an Agency mortgage.



    (a) Conditions. A subordination may be granted if all of the 

following conditions are met:

    (1) The subordination is to refinance debt or for an authorized 

direct loan purpose;

    (2) The Agency debt cannot be refinanced without a subordination;

    (3) The borrower can document the ability to repay the total amount 

due under subordination and pay all other debt payments scheduled for 

the subject operating cycle;

    (4) The loan funds will not be used in such a way that will 

contribute to erosion of highly erodible land or conversion of wetlands 

for the production of an agricultural commodity according to subpart G 

of part 1940 of this chapter;

    (5) Any planned development is performed in a manner directed by the 

creditor and agreed to by the Agency



[[Page 291]]



and reasonably attains the objectives of subpart A of part 1924 of this 

chapter;

    (6) Funds to be used to develop or to acquire land will be deposited 

in a supervised bank account that is subject to signature by the Agency 

and the borrower, or in a similar arrangement, to ensure that funds will 

be spent for the planned purposes;

    (7) In cases of land purchase or exchange of property, the Agency 

will obtain a valid mortgage on the acquired land. Title clearance and 

loan closing will be required as for an initial or subsequent FO loan, 

as appropriate;

    (8) The borrower has not been convicted of planting, cultivating, 

growing, producing, harvesting or storing a controlled substance under 

Federal or state law. ``Borrower'' for purposes of this provision, 

specifically includes an individual or entity borrower and any member 

stockholder, partner, or joint operator, of an entity borrower and any 

member, stockholder, partner, or joint operator of an entity borrower. 

``Controlled substance'' is defined at 21 CFR part 1308. The borrower 

will be ineligible for a subordination for the crop year in which the 

conviction occurred and the four succeeding crop years. An applicant 

must attest on the Agency application form that it and its members, if 

an entity, have not been convicted of such a crime;

    (9) The Agency loan is still adequately secured after the 

subordination, or the value of the loan security will be increased by at 

least the amount of the advances to be made under the terms of the 

subordination;

    (10) The subordination is limited to a specific amount and the loan 

to be secured by the subordination is closed within a reasonable time; 

and

    (11) Only one subordination to one creditor may be outstanding at 

any one time in connection with the same security.

    (b) Subordination on real estate owned by an entity member. 

Notwithstanding the provisions of paragraph (a) of this section, when 

the borrower is an entity and the Agency has taken real estate as 

additional security on property owned by an entity member, a 

subordination for any authorized Farm Loan Programs loan purpose may be 

approved when it is needed for the entity member to finance a separate 

operation. The subordination, however, may be approved only if it does 

not cause the unpaid principal and accrued interest balance of the 

Agency loan to exceed the value of the loan security or otherwise 

adversely affect the security.

    (c) Request for subordination. A borrower must complete an 

application provided by the Agency to receive consideration for a 

subordination.

    (d) Notice of foreclosure. The lienholder requesting the 

subordination will agree to give notice of foreclosure as required by 

the Agency.

    (e) Appraisal. The Agency will prepare a current appraisal report in 

accordance with Sec.  761.7 of this title when property is to be 

purchased or exchanged, or when the existing appraisal report is more 

than 1 year old or is inadequate to make the determination required in 

this section. The Agency may use the appraisal report prepared for 

another lender if it complies with the requirements of Sec.  761.7 of 

this title.

    (f) Reamortizing existing Agency debts. The Agency may consent to a 

reamortization of an existing Agency debt when a subordination is 

granted to the debt of another lender. The reamortization will be 

allowed only when the borrower cannot reasonably be expected to meet all 

currently scheduled installments when due and the conditions of subpart 

S of part 1951 of this chapter are met.

    (g) Subordination to make a guaranteed loan. In addition to the 

requirements of this section, subordinations of liens on real estate 

security to make a guaranteed loan will be approved in accordance with 

Sec.  1980.108 of this chapter.



[63 FR 20297, Apr. 24, 1998, as amended at 64 FR 62569, Nov. 17, 1999]