Title 7 Part 762
Title 7 → Subtitle B → Chapter VII → Subchapter D → Part 762
Electronic Code of Federal Regulations e-CFR
Title 7 Part 762
PART 762—GUARANTEED FARM LOANS
§762.102 Abbreviations and definitions.
§762.103 Full faith and credit.
§762.105 Eligibility and substitution of lenders.
§762.106 Preferred and certified lender programs.
§762.107 Micro Lender Program.
§762.110 Loan application.
§762.120 Applicant eligibility.
§762.121 Loan purposes.
§762.122 Loan limitations.
§762.123 Insurance and farm inspection requirements.
§762.124 Interest rates, terms, charges, and fees.
§762.125 Financial feasibility.
§762.126 Security requirements.
§762.127 Appraisal requirements.
§762.128 Environmental and special laws.
§762.129 Percent of guarantee and maximum loss.
§762.130 Loan approval and issuing the guarantee.
§762.140 General servicing responsibilities.
§762.141 Reporting requirements.
§762.142 Servicing related to collateral.
§762.143 Servicing distressed accounts.
§762.144 Repurchase of guaranteed portion from a secondary market holder.
§762.145 Restructuring guaranteed loans.
§762.146 Other servicing procedures.
§762.147 Servicing shared appreciation agreements.
§762.150 Interest assistance program.
§762.159 Pledging of guarantee.
§762.160 Assignment of guarantee.
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
Source: 64 FR 7378, Feb. 12, 1999, unless otherwise noted.
Editorial Note: Nomenclature changes to part 762 appear at 72 FR 63297, Nov. 8, 2007.
(a) Scope. This subpart contains regulations governing Operating loans, Farm Ownership loans, and Conservation loans guaranteed by the Agency. This subpart applies to lenders, holders, borrowers, Agency personnel, and other parties involved in making, guaranteeing, holding, servicing, or liquidating such loans.
(b) Lender list. The Agency maintains a current list of lenders who express a desire to participate in the guaranteed loan program. This list is made available to farmers upon request.
(c) Lender classification. Lenders who participate in the Agency guaranteed loan program will be classified into one of the following categories:
(1) Standard Eligible Lender under §762.105;
(2) Certified Lender;
(3) Preferred Lender under §762.106; or
(4) Micro Lender under §762.107.
(d) Type of guarantee. Guarantees are available for both a loan note or a line of credit. A loan note is used for a loan of fixed amount and term. A line of credit has a fixed term, but no fixed amount. The principal amount outstanding at any time, however, may not exceed the line of credit ceiling contained in the contract. Both guarantees are evidenced by the same loan guarantee form.
(e) Termination of loan guarantee. The loan guarantee will automatically terminate as follows:
(1) Upon full payment of the guaranteed loan. A zero balance within the period authorized for advances on a line of credit will not terminate the guarantee;
(2) Upon payment of a final loss claim; or
(3) Upon written notice from the lender to the Agency that a guarantee is no longer desired provided the lender holds all of the guaranteed portion of the loan. The loan guarantee will be returned to the Agency office for cancellation within 30 days of the date of the notice by the lender.
[64 FR 7378, Feb. 12, 1999, as amended at 72 FR 63297, Nov. 8, 2007; 75 FR 54013, Sept. 3, 2010; 81 FR 72690, Oct. 21, 2016]
§762.102 Abbreviations and definitions.
Abbreviations and definitions for terms used in this part are provided in §761.2 of this chapter.
[72 FR 63297, Nov. 8, 2007]
§762.103 Full faith and credit.
(a) Fraud and misrepresentation. The loan guarantee constitutes an obligation supported by the full faith and credit of the United States. The Agency may contest the guarantee only in cases of fraud or misrepresentation by a lender or holder, in which:
(1) The lender or holder had actual knowledge of the fraud or misrepresentation at the time it became the lender or holder, or
(2) The lender or holder participated in or condoned the fraud or misrepresentation.
(b) Lender violations. The loan guarantee cannot be enforced by the lender, regardless of when the Agency discovers the violation, to the extent that the loss is a result of:
(1) Violation of usury laws;
(2) Negligent servicing;
(3) Failure to obtain the required security; or,
(4) Failure to use loan funds for purposes specifically approved by the Agency.
(c) Enforcement by holder. The guarantee and right to require purchase will be directly enforceable by the holder even if:
(1) The loan guarantee is contestable based on the lender's fraud or misrepresentation; or
(2) The loan note guarantee is unenforceable by the lender based on a lender violation.
(a) A decision made by the lender adverse to the borrower is not a decision by the Agency, whether or not concurred in by the Agency, and may not be appealed.
(b) The lender or Agency may request updated information from the borrower to implement an appeal decision.
(c) Appeals will be handled in accordance with parts 11 and 780 of this title.
[64 FR 7378, Feb. 12, 1999, as amended at 72 FR 63297, Nov. 8, 2007]
§762.105 Eligibility and substitution of lenders.
(a) General. To participate in FSA guaranteed farm loan programs, a lender must meet the eligibility criteria in this part. The standard eligible lender must demonstrate eligibility and provide such evidence as the Agency may request.
(b) Standard eligible lender eligibility criteria. (1) A lender must have experience in making and servicing agricultural loans and have the capability to make and service the loan for which a guarantee is requested;
(2) The lenders must not have losses or deficiencies in processing and servicing guaranteed loans above a level which would indicate an inability to properly process and service a guaranteed agricultural loan.
(3) A lender must be subject to credit examination and supervision by an acceptable State or Federal regulatory agency;
(4) The lender must maintain an office near enough to the collateral's location so it can properly and efficiently discharge its loan making and loan servicing responsibilities or use Agency approved agents, correspondents, branches, or other institutions or persons to provide expertise to assist in carrying out its responsibilities. The lender must be a local lender unless it:
(i) Normally makes loans in the region or geographic location in which the applicant's operation being financed is located, or
(ii) Demonstrates specific expertise in making and servicing loans for the proposed operation.
(5) The lender, its officers, or agents must not be debarred or suspended from participation in Government contracts or programs or be delinquent on a Government debt.
(c) Substitution of lenders. A new eligible lender may be substituted for the original lender, upon the original lender's concurrence, under the following conditions:
(1) The Agency approves of the substitution in writing by executing a modification of the guarantee to identify the new lender, the amount of debt at the time of the substitution and any new loan terms if applicable.
(2) The new lender agrees in writing to:
(i) Assume all servicing and other responsibilities of the original lender and to acquire the unguaranteed portion of the loan;
(ii) Execute a lender's agreement if one is not in effect;
(iv) Give any holder written notice of the substitution. If the rate and terms are changed, written concurrence from the holder is required.
(3) The original lender will:
(i) Assign their promissory note, lien instruments, loan agreements, and other documents to the new lender.
(ii) If the loan is subject to an existing interest assistance agreement, submit a request for subsidy for the partial year that it has owned the loan.
(d) Lender name or ownership changes. (1) When a lender begins doing business under a new name or undergoes an ownership change the lender will notify the Agency.
(2) The lender's CLP, PLP, or MLP status is subject to reconsideration when ownership changes.
(3) The lender will execute a new lender's agreement when ownership changes.
[64 FR 7378, Feb. 12, 1999, as amended at 66 FR 7567, Jan. 24, 2001; 81 FR 72690, Oct. 21, 2016]
§762.106 Preferred and certified lender programs.
(a) General. (1) Lenders who desire PLP or CLP status must prepare a written request addressing:
(i) The States in which they desire to receive PLP or CLP status and their branch offices which they desire to be considered by the Agency for approval; and
(ii) Each item of the eligibility criteria for PLP or CLP approval in this section, as appropriate.
(2) The lender may include any additional supporting evidence or other information the lender believes would be helpful to the Agency in making its determination.
(3) The lender must send its request to the Agency State office for the State in which the lender's headquarters is located.
(4) The lender must provide any additional information requested by the Agency to process a PLP or CLP request if the lender continues with the approval process.
(b) CLP criteria. The lender must meet the following requirements to obtain CLP status:
(1) Qualify as a standard eligible lender under §762.105;
(2) Have a lender loss rate not in excess of the maximum CLP loss rate established by the Agency and published periodically in a Federal Register Notice. The Agency may waive the loss rate criteria for those lenders whose loss rate was substantially affected by a disaster as defined in §761.2(b) and part 759 of this chapter.
(3) Have proven an ability to process and service Agency guaranteed loans by showing that the lender:
(i) Submitted substantially complete and correct guaranteed loan applications; and
(ii) Serviced all guaranteed loans according to Agency regulations;
(4) Have made the minimum number of guaranteed OL, FO, CL, or SW loans established by the Agency and published periodically in a Federal Register Notice.
(5) Not be under any regulatory enforcement action such as a cease and desist order, written agreement, or an appointment of conservator or receiver, based upon financial condition;
(6) Designate a qualified person or persons to process and service Agency guaranteed loans for each of the lender offices which will process CLP loans. To be qualified, the person must meet the following conditions:
(i) Have attended Agency sponsored training in the past 12 months or will attend training in the next 12 months; and
(ii) Agree to attend Agency sponsored training each year;
(7) Use forms acceptable to the Agency for processing, analyzing, securing, and servicing Agency guaranteed loans and lines of credit;
(c) PLP criteria. The lender must meet the following requirements to obtain PLP status:
(1) Meet the CLP eligibility criteria under this section.
(2) Have a credit management system, satisfactory to the Agency, based on the following:
(i) The lender's written credit policies and underwriting standards;
(ii) Loan documentation requirements;
(iii) Exceptions to policies;
(iv) Analysis of new loan requests;
(v) Credit file management;
(vi) Loan funds and collateral management system;
(vii) Portfolio management;
(viii) Loan reviews;
(ix) Internal credit review process;
(x) Loan monitoring system; and
(xi) The board of director's responsibilities.
(3) Have made the minimum number of guaranteed OL, FO, CL, or SW loans established by the Agency and published periodically in a Federal Register Notice.
(4) Have a lender loss rate not in excess of the rate of the maximum PLP loss rate established by the Agency and published periodically in a Federal Register Notice. The Agency may waive the loss rate criteria for those lenders whose loss rate was substantially affected by a disaster as defined in §761.2(b) and part 759 of this chapter.
(5) Show a consistent practice of submitting applications for guaranteed loans containing accurate information supporting a sound loan proposal.
(6) Show a consistent practice of processing Agency guaranteed loans without recurring major or minor deficiencies.
(7) Demonstrate a consistent, above average ability to service guaranteed loans based on the following:
(i) Borrower supervision and assistance;
(ii) Timely and effective servicing; and
(iii) Communication with the Agency.
(8) Designate a person or persons, either by name, title, or position within the organization, to process and service PLP loans for the Agency.
(d) CLP and PLP approval. (1) If a lender applying for CLP or PLP status is or has recently been involved in a merger or acquisition, all loans and losses attributed to both lenders will be considered in the eligibility calculations.
(2) The Agency will determine which branches of the lender have the necessary experience and ability to participate in the CLP or PLP program based on the information submitted in the lender application and on Agency experience.
(3) Lenders who meet the criteria will be granted CLP or PLP status for a period not to exceed 5 years.
(4) PLP status will be conditioned on the lender carrying out its credit management system as proposed in its request for PLP status and any additional loan making or servicing requirements agreed to and documented the PLP lender's agreement. If the PLP lender's agreement does not specify any agreed upon process for a particular action, the PLP lender will act according to regulations governing CLP lenders.
(e) Monitoring CLP and PLP lenders. CLP and PLP lenders will provide information and access to records upon Agency request to permit the Agency to audit the lender for compliance with these regulations.
(f) Renewal of CLP or PLP status. (1) PLP or CLP status will expire within a period not to exceed 5 years from the date the lender's agreement is executed, unless a new lender's Agreement is executed.
(2) Renewal of PLP or CLP status is not automatic. A lender must submit a written request for renewal of a lender's agreement with PLP or CLP status which includes information:
(i) Updating the material submitted in the initial application; and,
(ii) Addressing any new criteria established by the Agency since the initial application.
(3) PLP or CLP status will be renewed if the applicable eligibility criteria under this section are met, and no cause exists for denying renewal under paragraph (g) of this section.
(g) Revocation of PLP or CLP status. (1) The Agency may revoke the lender's PLP or CLP status at any time during the 5 year term for cause.
(2) Any of the following instances constitute cause for revoking or not renewing PLP or CLP status:
(i) Violation of the terms of the lender's agreement;
(ii) Failure to maintain PLP or CLP eligibility criteria. The Agency may allow a PLP lender with a loss rate which exceeds the maximum PLP loss rate, to retain its PLP status for a two-year period, if:
(A) The lender documents in writing why the excessive loss rate is beyond their control;
(B) The lender provides a written plan that will reduce the loss rate to the PLP maximum rate within two years from the date of the plan, and
(C) The Agency determines that exceeding the maximum PLP loss rate standard was beyond the control of the lender. Examples include, but are not limited to, a freeze with only local impact, economic downturn in a local area, drop in local land values, industries moving into or out of an area, loss of access to a market, and biological or chemical damage.
(D) The Agency will revoke PLP status if the maximum PLP loss rate is not met at the end of the two-year period, unless a second two year extension is granted under this subsection.
(iii) Knowingly submitting false or misleading information to the Agency;
(iv) Basing a request on information known to be false;
(v) Deficiencies that indicate an inability to process or service Agency guaranteed farm loan programs loans in accordance with this subpart;
(vi) Failure to correct cited deficiencies in loan documents upon notification by the Agency;
(vii) Failure to submit status reports in a timely manner;
(viii) Failure to use forms, or follow credit management systems (for PLP lenders) accepted by the Agency; or
(ix) Failure to comply with the reimbursement requirements of §762.144(c)(7) and (c)(8).
(3) A lender which has lost PLP or CLP status must be reconsidered for eligibility to continue as a Standard Eligible Lender (for former PLP and CLP lenders), or as a CLP lender (for former PLP lenders) in submitting loan guarantee requests. They may reapply for CLP or PLP status when the problem causing them to lose their status has been resolved.
[64 FR 7378, Feb. 12, 1999; 64 FR 38298, July 16, 1999, as amended at 70 FR 56107, Sept. 26, 2005; 71 FR 43957, Aug. 3, 2006; 75 FR 54013, Sept. 3, 2010; 77 FR 41256, July 13, 2012]
§762.107 Micro Lender Program.
(a) General. The lenders must submit the following items:
(1) To request MLP Status, a lender must submit an application form to any local FSA office.
(2) The lender must provide any additional information requested by the Agency to process an MLP request, if the lender continues with the approval process.
(3) MLP lender authorities are limited to originating and servicing EZ Guarantee loans.
(b) MLP criteria. An MLP lender must satisfy the following requirements to obtain MLP Status:
(1) Have experience in making and servicing business loans.
(2) Have the staff and resources to properly and efficiently discharge its loan making and loan servicing responsibilities that may include use of Agency approved agents.
(3) Be subject to oversight as established and announced by the Agency on the FSA Web site (www.fsa.usda.gov).
(4) Have a loss rate not in excess of the maximum MLP loss rate established and announced by the Agency on the FSA Web site (www.fsa.usda.gov).
(5) Have made the minimum number of loans as established and announced by the Agency on the FSA Web site (www.fsa.usda.gov).
(6) Not be debarred or suspended from participation in Government contracts or programs or be delinquent on a Government debt. This includes the lender's officers and agents.
(c) Renewal of MLP Status. MLP Status will expire within a period not to exceed 5 years from the date the lender's agreement is executed, unless a new lender's agreement is executed.
(1) Renewal of MLP Status is not automatic. A lender must submit a new application for renewal.
(2) MLP Status will be renewed if the applicable eligibility criteria under this section are met, and no cause exists for denying renewal under paragraph (d)(1) of this section.
(d) Revocation of MLP Status. The Agency may revoke the lender's MLP Status at any time during the 5 year term for cause as specified in paragraph (d)(1) of this section.
(1) Any of the following instances constitutes cause for revoking or not renewing MLP Status:
(i) Violation of the terms of the lender's agreement;
(ii) Failure to maintain MLP eligibility criteria;
(iii) Knowingly submitting false or misleading information to the Agency;
(iv) Deficiencies that indicate an inability to process or service Agency guaranteed farm loan programs loans in accordance with this subpart;
(v) Failure to correct cited deficiencies in loan documents upon notification by the Agency;
(vi) Failure to submit status reports in a timely manner; or
(vii) Failure to comply with the reimbursement requirements of §762.144(c)(7) and (c)(8).
(2) A lender that has lost MLP Status may reapply for MLP Status once the problem that caused the MLP Status to be revoked has been resolved.
[81 FR 72690, Oct. 21, 2016]
§762.110 Loan application.
(a) General. This paragraph (a) specifies the general requirements for guaranteed loan applications:
(1) Lenders must perform at least the same level of evaluation and documentation for a guaranteed loan that the lender typically performs for non-guaranteed loans of a similar type and amount.
(2) The application thresholds in this section apply to any single loan, or package of loans submitted for consideration at any one time. A lender must not split a loan into two or more parts in order to fall below the threshold in order to avoid additional documentation.
(3) The Agency may require lenders with a lender loss rate in excess of the rate for CLP lenders to assemble additional documentation specified in paragraph (d) of this section.
(b) EZ Guarantee loans. MLP lenders may submit an EZ Guarantee application for loans up to $50,000. All other lenders may submit EZ Guarantee applications for loans up to $100,000. Lenders must submit:
(1) An EZ Guarantee application form.
(2) If the loan fails to pass the underwriting criteria for EZ Guarantee approval in §762.125(d), or the responses in the application are insufficient for the Agency to make a loan decision, the lender must provide additional information as requested by the Agency.
(c) Loans up to $125,000. Lenders must submit the following items for loans up to $125,000 (other than EZ Guarantees):
(1) The application form;
(2) Loan narrative, including a plan for servicing the loan;
(3) Balance sheet;
(4) Cash flow budget; and
(5) Credit report.
(d) Loans over $125,000. A complete application for loans over $125,000 will require items specified in paragraph (c) of this section, plus the following items:
(1) Verification of income;
(2) Verification of debts over $1,000;
(3) Three years financial history;
(4) Three years of production history (for standard eligible lenders only);
(5) Proposed loan agreements; and,
(6) If construction or development is planned, a copy of the plans, specifications, and development schedule.
(e) Applications from PLP lenders. Notwithstanding paragraphs (c) and (d) of this section, a complete application for PLP lenders will consist of at least:
(1) An application form;
(2) A loan narrative;
(3) Any other items agreed to during the approval of the PLP lender's status and contained in the PLP lender agreement.
(f) CL Guarantees. In addition to the other requirements in this section, the following items apply when a lender is requesting a CL guarantee:
(1) Lenders must submit a copy of the conservation plan or Forest Stewardship Management Plan;
(2) Lenders must submit plans to transition to organic or sustainable agriculture when the funds requested will be used to facilitate the transition and the lender is requesting consideration for priority funding;
(3) When CL guarantee applicants meet all the following criteria, the cash flow budget requirement in this section will be waived:
(i) Be current on all payments to all creditors including the Agency (if currently an Agency borrower);
(ii) Debt to asset ratio is 40 percent or less;
(iii) Balance sheet indicates a net worth of 3 times the requested loan amount or greater; and
(iv) FICO credit score is at least 700; for entity applicants, the FICO credit score of the majority of the individual members of the entity must be at least 700.
(g) Submitting applications. (1) All lenders must compile and maintain in their files a complete application for each guaranteed loan.
(2) The Agency will notify CLP lenders which items to submit to the Agency.
(3) PLP lenders will submit applications in accordance with their agreement with the Agency for PLP status.
(4) All lenders must certify that the required items, not submitted, are in their files.
(5) The Agency may request additional information from any lender or review the lender's loan file as needed to make eligibility and approval decisions.
(h) Incomplete applications. If the lender does not provide the information needed to complete its application by the deadline established in an Agency request for the information, the application will be considered withdrawn by the lender.
(i) Conflict of interest. (1) When a lender submits the application for a guaranteed loan, the lender will inform the Agency in writing of any relationship which may cause an actual or potential conflict of interest.
(2) Relationships include:
(i) The lender or its officers, directors, principal stockholders (except stockholders in a Farm Credit System institution that have stock requirements to obtain a loan), or other principal owners having a financial interest (other than lending relationships in the normal course of business) in the applicant or borrower.
(ii) The applicant or borrower, a relative of the applicant or borrower, anyone residing in the household of the applicant or borrower, any officer, director, stockholder or other owner of the applicant or borrower holds any stock or other evidence of ownership in the lender.
(iii) The applicant or borrower, a relative of the applicant or borrower, or anyone residing in the household of the applicant or borrower is an Agency employee.
(iv) The officers, directors, principal stockholders (except stockholders in a Farm Credit System institution that have stock requirements to obtain a loan), or other principal owners of the lender have substantial business dealings (other than in the normal course of business) with the applicant or borrower.
(v) The lender or its officers, directors, principal stockholders, or other principal owners have substantial business dealings with an Agency employee.
(3) The lender must furnish additional information to the Agency upon request.
(4) The Agency will not approve the application until the lender develops acceptable safeguards to control any actual or potential conflicts of interest.
(j) Market placement program. Except for CL guarantees, when the Agency determines that a direct applicant or borrower may qualify for guaranteed credit, the Agency may submit the applicant or borrower's financial information to one or more guaranteed lenders. If a lender indicates interest in providing financing to the applicant or borrower through the guaranteed loan program, the Agency will assist in completing the application for a guarantee.
[64 FR 7378, Feb. 12, 1999, as amended at 68 FR 7695, Feb. 18, 2003; 72 FR 63297, Nov. 8, 2007; 75 FR 54013, Sept. 3, 2010; 77 FR 15938, Mar. 19, 2012; 81 FR 72691, Oct. 21, 2016]]
§762.120 Applicant eligibility.
Unless otherwise provided, applicants must meet all of the following requirements to be eligible for a guaranteed OL, FO, or CL.
(a) Agency loss. (1) Except as provided in paragraph (a)(2) of this section, the applicant, and anyone who will execute the promissory note, has not caused the Agency a loss by receiving debt forgiveness on all or a portion of any direct or guaranteed loan made under the authority of the Act by debt write-down or write-off; compromise, adjustment, reduction, or charge-off under the provisions of section 331 of the Act; discharge in bankruptcy; or through payment of a guaranteed loss claim on:
(i) More than three occasions on or prior to April 4, 1996; or
(ii) Any occasion after April 4, 1996.
(2) The applicant may receive a guaranteed OL to pay annual farm operating and family living expenses, provided the applicant meets all other requirements for the loan, if the applicant and anyone who will execute the promissory note:
(i) Received a write-down under section 353 of the Act;
(ii) Is current on payments under a confirmed reorganization plan under chapter 11, 12, or 13 of title 11 of the United States Code; or
(iii) Received debt forgiveness on not more than one occasion after April 4, 1996, resulting directly and primarily from a Presidentially-designated emergency for a county or contiguous county in which the applicant operates. Only applicants who were current on all existing direct and guaranteed FSA loans prior to the beginning date of the incidence period for a Presidentially-designated emergency and received debt forgiveness on that debt within three years after the designation of such emergency meet this exception.
(b) Delinquent Federal debt. The applicant, and anyone who will execute the promissory note, is not delinquent on any Federal debt, other than a debt under the Internal Revenue Code of 1986. (Any debt under the Internal Revenue Code of 1986 may be considered by the lender in determining cash flow and creditworthiness.)
(c) Outstanding judgments. The applicant, and anyone who will execute the promissory note, have no outstanding unpaid judgment obtained by the United States in any court. Such judgments do not include those filed as a result of action in the United States Tax Courts.
(d) Citizenship. (1) The applicant must be a citizen of the United States, a United States non-citizen national, or a qualified alien under applicable Federal immigration laws. For an entity applicant, the majority interest of the entity must be held by members who are United States citizens, United States non-citizen nationals, or qualified aliens under applicable Federal immigration laws.
(2) United States non-citizen nationals and qualified aliens must provide the appropriate documentation as to their immigration status as required by the United States Department of Homeland Security, Bureau of Citizenship and Immigration Services.
(e) Legal capacity. The applicant and all borrowers on the loan must possess the legal capacity to incur the obligations of the loan.
(f) False or misleading information. The applicant, in past dealings with the Agency, must not have provided the Agency with false or misleading documents or statements.
(g) Credit history. (1) The individual or entity applicant and all entity members must have acceptable credit history demonstrated by debt repayment.
(2) A history of failures to repay past debts as they came due when the ability to repay was within their control will demonstrate unacceptable credit history.
(3) Unacceptable credit history will not include:
(i) Isolated instances of late payments which do not represent a pattern and were clearly beyond their control; or,
(ii) Lack of credit history.
(h) Test for credit. Except for CL guarantees,
(1) The applicant is unable to obtain sufficient credit elsewhere without a guarantee to finance actual needs at reasonable rates and terms.
(2) The potential for sale of any significant nonessential assets will be considered when evaluating the availability of other credit.
(3) Ownership interests in property and income received by an individual or entity applicant, and any entity members as individuals will be considered when evaluating the availability of other credit to the applicant.
(i) For OLs:
(1) The individual or entity applicant must be an operator of not larger than a family farm after the loan is closed.
(2) In the case of an entity borrower:
(i) The entity must be authorized to operate, and own if the entity is also an owner, a farm in the State or States in which the farm is located; and
(ii) If the entity members holding a majority interest are related by marriage or blood, at least one member of the entity must operate the family farm; or,
(iii) If the entity members holding a majority interest are not related by marriage or blood, the entity members holding a majority interest must also operate the family farm.
(j) For FOs:
(1) The individual must be the operator of not larger than a family farm and the owner of a farm after the loan is closed. Ownership of the family farm operation or the farm real estate may be held either directly in the individual's name or indirectly through interest in a legal entity.
(2) In the case of an entity borrower:
(i) An ownership entity must be authorized to own a farm in the state or states in which the farm is located. An operating entity must be authorized to operate a farm in the state or states in which the farm is located; and
(ii) If the entity members holding a majority interest are related by marriage or blood, at least one member of the entity must operate the family farm and at least one member of the entity or the entity must own the farm; or
(iii) If the entity members holding a majority interest are not related by marriage or blood, the entity members holding a majority interest must operate the family farm and the entity members holding a majority interest or the entity must own the farm.
(3) If the entity is an operator-only entity, the individuals that own the farm (real estate) must own at least 50 percent of the family farm (operating entity).
(4) All ownership may be held either directly in the individual's name or indirectly through interest in a legal entity.
(k) For entity applicants. Except for CL, entity applicants must meet the following additional eligibility criteria:
(1) Each entity member's ownership interest may not exceed the family farm definition limits;
(2) The collective ownership interest of all entity members may exceed the family farm definition limits only if the following conditions are met:
(i) All of the entity members are related by blood or marriage;
(ii) All of the members are or will be operators of the entity; and,
(iii) The majority interest holders of the entity must meet the requirements of paragraphs (d), (f), (g), and (i) through (j) of this section;
(3) The entity must be controlled by farmers engaged primarily and directly in farming in the United States after the loan is made; and
(4) If the applicant has one or more embedded entities, at least 75 percent of the individual ownership interests of each embedded entity must be owned by members actively involved in managing or operating the family farm.
(l) For CL entity applicants. Entity applicants for CL guarantees must meet the following eligibility criteria:
(1) The majority interest holders of the entity must meet the requirements of paragraph (d), (f), and (g) of this section;
(2) The entity must be controlled by farmers engaged primarily and directly in farming in the United States after the loan is made;
(3) If the applicant has one or more embedded entities, at least 75 percent of the individual ownership interests of each embedded entity must be owned by members actively involved in managing or operating the family farm; and
(4) The entity must be authorized to operate a farm in the State or States in which the farm is located.
(m) For CL individual applicants. Individual applicants for CL guarantees must be farmers in the United States.
(n) Controlled substances. The applicant, and anyone who will sign the promissory note, must not be ineligible as a result of a conviction for controlled substances according to 7 CFR part 718 of this chapter. If the lender uses the lender's Agency approved forms, the certification may be an attachment to the form.
[64 FR 7378, Feb. 12, 1999, as amended at 68 FR 62223, Nov. 3, 2003; 69 FR 5262, Feb. 4, 2004; 72 FR 63297, Nov. 8, 2007; 75 FR 54013, Sept. 3, 2010; 78 FR 65529, Nov. 1, 2013; 79 FR 60743, Oct. 8, 2014]
§762.121 Loan purposes.
(a) Operating Loan purposes. (1) Loan funds disbursed under an OL guarantee may only be used for the following purposes:
(i) Payment of costs associated with reorganizing a farm to improve its profitability;
(ii) Purchase of livestock, including poultry, and farm equipment or fixtures, quotas and bases, and cooperative stock for credit, production, processing or marketing purposes;
(iii) Payment of annual farm operating expenses, examples of which include feed, seed, fertilizer, pesticides, farm supplies, repairs and improvements which are to be expensed, cash rent and family subsistence;
(iv) Payment of scheduled principal and interest payments on term debt provided the debt is for authorized FO or OL purposes;
(v) Other farm needs;
(vi) Payment of costs associated with land and water development for conservation or use purposes;
(vii) Refinancing indebtedness incurred for any authorized OL purpose, when the lender and applicant can demonstrate the need to refinance;
(viii) Payment of loan closing costs;
(ix) Payment of costs associated with complying with Federal or State-approved standards under the Occupational Safety and Health Act of 1970 (29 U.S.C. 655, 667). This purpose is limited to applicants who demonstrate that compliance with the standards will cause them substantial economic injury; and
(x) Payment of training costs required or recommended by the Agency.
(2) Loan funds under a line of credit may be advanced only for the following purposes:
(i) Payment of annual operating expenses, family subsistence, and purchase of feeder animals;
(ii) Payment of current annual operating debts advanced for the current operating cycle; (Under no circumstances can carry-over operating debts from a previous operating cycle be refinanced);
(iii) Purchase of routine capital assets, such as replacement of livestock, that will be repaid within the operating cycle;
(iv) Payment of scheduled, non-delinquent, term debt payments provided the debt is for authorized FO or OL purposes.
(v) Purchase of cooperative stock for credit, production, processing or marketing purposes; and
(vi) Payment of loan closing costs.
(b) Farm ownership loan purposes. Guaranteed FO are authorized only to:
(1) Acquire or enlarge a farm; examples include, but are not limited to, providing down payments, purchasing easements for the applicant's portion of land being subdivided, and participating in the downpayment FO program under part 764 of this chapter;
(2) Make capital improvements; examples include, but are not limited to, the construction, purchase, and improvement of a farm dwelling, service buildings and facilities that can be made fixtures to the real estate, (Capital improvements to leased land may be financed subject to the limitations in §762.122);
(3) Promote soil and water conservation and protection; examples include the correction of hazardous environmental conditions, and the construction or installation of tiles, terraces and waterways;
(4) Pay closing costs, including but not limited to, purchasing stock in a cooperative and appraisal and survey fees; and
(5) Refinancing indebtedness incurred for authorized FO and OL purposes, provided the lender and applicant demonstrate the need to refinance the debt.
(c) CL purposes. Loan funds disbursed under a CL guarantee may be used for any conservation activities included in a conservation plan or Forestry Stewardship Management Plan including, but not limited to:
(1) The installation of conservation structures to address soil, water, and related resources;
(2) The establishment of forest cover for sustained yield timber management, erosion control, or shelter belt purposes;
(3) The installation of water conservation measures;
(4) The installation of waste management systems;
(5) The establishment or improvement of permanent pasture;
(6) Other purposes including the adoption of any other emerging or existing conservation practices, techniques, or technologies; and
(7) Refinancing indebtedness incurred for any authorized CL purpose, when refinancing will result in additional conservation benefits.
(d) Highly erodible land or wetlands conservation. Loans may not be made for any purpose which contributes to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity. A decision by the Agency to reject an application for this reason may be appealable. An appeal questioning whether the presence of a wetland, converted wetland, or highly erodible land on a particular property must be filed directly with the USDA agency making the determination in accordance with the agency's appeal procedures.
(e) Judgment debts. Loans may not be used to satisfy judgments obtained in the United States District courts. However, Internal Revenue Service judgment liens may be paid with loan funds.
[64 FR 7378, Feb. 12, 1999, as amended at 72 FR 63297, Nov. 8, 2007; 73 FR 74345, Dec. 8, 2008; 75 FR 54014, Sept. 3, 2010; 77 FR 15938, Mar. 19, 2012; 78 FR 65529, Nov. 1, 2013]
§762.122 Loan limitations.
(a) Dollar limits. The Agency will not guarantee any loan that would result in the applicant's total indebtedness exceeding the limits established in §761.8 of this chapter.
(b) Leased land. When FO or CL funds are used for improvements to leased land the terms of the lease must provide reasonable assurance that the applicant will have use of the improvement over its useful life, or provide compensation for any unexhausted value of the improvement if the lease is terminated.
(c) Tax-exempt transactions. The Agency will not guarantee any loan made with the proceeds of any obligation the interest on which is excluded from income under section 103 of the Internal Revenue Code of 1986. Funds generated through the issuance of tax-exempt obligations may not be used to purchase the guaranteed portion of any Agency guaranteed loan. An Agency guaranteed loan may not serve as collateral for a tax-exempt bond issue.
(d) Floodplain restrictions. The Agency will not guarantee any loan to purchase, build, or expand buildings located in a special 100 year floodplain as defined by FEMA flood hazard area maps unless flood insurance is available and purchased.
[64 FR 7378, Feb. 12, 1999; 64 FR 38298, July 16, 1999, as amended at 66 FR 7567, Jan. 24, 2001; 72 FR 63297, Nov. 8, 2007; 73 FR 74345, Dec. 8, 2008; 75 FR 54014, Sept. 3, 2010; 79 FR 78693, Dec. 31, 2014]
§762.123 Insurance and farm inspection requirements.
(a) Insurance. (1) Lenders must require borrowers to maintain adequate property, public liability, and crop insurance to protect the lender and Government's interests.
(2) By loan closing, applicants must either:
(i) Obtain at least the catastrophic risk protection (CAT) level of crop insurance coverage, if available, for each crop of economic significance, as defined by part 402 of this title, or
(ii) Waive eligibility for emergency crop loss assistance in connection with the uninsured crop. EM loan assistance under part 764 of this chapter is not considered emergency crop loss assistance for purposes of this waiver and execution of the waiver does not render the borrower ineligible for EM loans.
(3) Applicants must purchase flood insurance if buildings are or will be located in a special flood hazard area as defined by FEMA flood hazard area maps and if flood insurance is available.
(4) Insurance, including crop insurance, must be obtained as required by the lender or the Agency based on the strengths and weaknesses of the loan.
(b) Farm inspections. Before submitting an application the lender must make an inspection of the farm to assess the suitability of the farm and to determine any development that is needed to make it a suitable farm.
[64 FR 7378, Feb. 12, 1999, as amended at 70 FR 56107, Sept. 26, 2005; 72 FR 63297, Nov. 8, 2007]
§762.124 Interest rates, terms, charges, and fees.
(a) Interest rates. (1) The interest rate on a guaranteed loan or line of credit may be fixed or variable as agreed upon between the borrower and the lender. The lender may charge different rates on the guaranteed and the non-guaranteed portions of the note. The guaranteed portion may be fixed while the unguaranteed portion may be variable, or vice versa. If both portions are variable, different bases may be used.
(2) If a variable rate is used, it must be tied to an index or rate specifically agreed to between the lender and borrower in the loan instruments and the rate adjustments must be in accordance with normal practices of the lender for unguaranteed loans. Upon request, the lender must provide the Agency with copies of its written rate adjustment practices.
(3) At the time of loan closing or loan restructuring, the interest rate on both the guaranteed portion and the unguaranteed portion of a fixed or variable rate OL or FO loan may not exceed the following, as applicable:
(i) For lenders using risk-based pricing practices, the risk tier at least one tier lower (representing lower risk) than that borrower would receive without a guarantee. The lender must provide the Agency with copies of its written pricing practices, upon request.
(ii) For lenders not using risk-based pricing practices, for variable rate loans or fixed rate loans with rates fixed for less than five years, 650 basis points (6.5 percentage points) above the 3-month LIBOR.
(iii) For lenders not using risk-based pricing practices, for loans with rates fixed for five or more years, 550 basis points (5.5 percentage points) above the 5-year Treasury note rate.
(4) In the event the 3-month LIBOR is below 2 percent, the maximum rates specified in paragraph (a)(3) of this section do not apply. In that case, at the time of loan closing or loan restructuring, the interest rate on both the guaranteed portion and the unguaranteed portion of an OL or FO loan may not exceed 750 basis points above the 3-month LIBOR for variable rate loans and 650 basis points above the 5-year Treasury rate for fixed rate loans.
(5) Interest must be charged only on the actual amount of funds advanced and for the actual time the funds are outstanding. Interest on protective advances made by the lender to protect the security will be charged at the note rate but limited to paragraph (a)(3) of this section.
(6) The lender and borrower may collectively obtain a temporary reduction in the interest rate through the interest assistance program in accordance with §762.150.
(b) OL terms. (1) Loan funds or advances on a line of credit used to pay annual operating expenses will be repaid when the income from the year's operation is received, except when the borrower is establishing a new enterprise, developing a farm, purchasing feed while feed crops are being established, or recovering from disaster or economic reverses.
(2) The final maturity date for each loan cannot exceed 7 years from the date of the promissory note or line of credit agreement. Advances for purposes other than for annual operating expenses will be scheduled for repayment over the minimum period necessary considering the applicant's ability to repay and the useful life of the security, but not in excess of 7 years.
(3) All advances on a line of credit must be made within 5 years from the date of the Loan Guarantee.
(c) FO terms. Each loan must be scheduled for repayment over a period not to exceed 40 years from the date of the note or such shorter period as may be necessary to assure that the loan will be adequately secured, taking into account the probable depreciation of the security.
(d) CL terms. Each loan must be scheduled for repayment over a period not to exceed 30 years from the date of the note or such shorter period as may be necessary to assure that the loan will be adequately secured, taking into account the probable depreciation of the security.
(e) Balloon installments under loan note guarantee. Balloon payment terms are permitted on FO, OL, or CL subject to the following:
(1) Extended repayment schedules may include equal, unequal, or balloon installments if needed on any guaranteed loan to establish a new enterprise, develop a farm, or recover from a disaster or an economical reversal.
(2) Loans with balloon installments must have adequate collateral at the time the balloon installment comes due. Crops, livestock other than breeding livestock, or livestock products produced are not sufficient collateral for securing such a loan.
(3) The borrower must be projected to be able to refinance the remaining debt at the time the balloon payment comes due based on the expected financial condition of the operation, the depreciated value of the collateral, and the principal balance on the loan.
(f) Charges and fees. (1) The lender may charge the applicant and borrower fees for the loan provided they are no greater than those charged to unguaranteed customers for similar transactions. Similar transactions are those involving the same type of loan requested (for example, operating loans or farm real estate loans).
(2) Late payment charges (including default interest charges) are not covered by the guarantee. These charges may not be added to the principal and interest due under any guaranteed note or line of credit. However, late payment charges may be made outside of the guarantee if they are routinely made by the lender in similar types of loan transactions.
(3) Lenders may not charge a loan origination and servicing fee greater than 1 percent of the loan amount for the life of the loan when a guaranteed loan is made in conjunction with a down payment FO under part 764 of this chapter.
[64 FR 7378, Feb. 12, 1999, as amended at 72 FR 17358, Apr. 9, 2007; 72 FR 63297, Nov. 8, 2007; 73 FR 74345, Dec. 8, 2008; 75 FR 54014, Sept. 3, 2010; 77 FR 15938, Mar. 19, 2012; 78 FR 14005, Mar. 4, 2013]
§762.125 Financial feasibility.
(a) General. Except for streamlined CL guarantees (see §762.110(f)), the following requirements must be met:
(1) Notwithstanding any other provision of this section, PLP lenders will follow their internal procedures on financial feasibility as agreed to by the Agency during PLP certification.
(2) The applicant's proposed operation must project a feasible plan.
(3) For standard eligible lenders, the projected income and expenses of the borrower and operation used to determine a feasible plan must be based on the applicant's proven record of production and financial management.
(4) For CLP lenders, the projected income and expenses of the borrower and the operation must be based on the applicant's financial history and proven record of financial management.
(5) For those farmers without a proven history, a combination of any actual history and any other reliable source of information that are agreeable with the lender, the applicant, and the Agency will be used.
(6) The cash flow budget analyzed to determine a feasible plan must represent the predicted cash flow of the operating cycle.
(7) Lenders must use price forecasts that are reasonable and defensible. Sources must be documented by the lender and acceptable to the Agency.
(8) When a feasible plan depends on income from other sources in addition to income from owned land, the income must be dependable and likely to continue.
(9) The lender will analyze business ventures other than the farm operation to determine their soundness and contribution to the operation. Except for CL, guaranteed loan funds will not be used to finance a nonfarm enterprise. Nonfarm enterprises include, but are not limited to: raising earthworms, exotic birds, tropical fish, dogs, or horses for nonfarm purposes; welding shops; boarding horses; and riding stables.
(10) When the applicant has or will have a cash flow budget developed in conjunction with a proposed or existing Agency direct loan, the two cash flow budgets must be consistent.
(b) Estimating production. Except for streamlined CL guarantees (see §762.110(f)), the following requirements must be met:
(1) Standard eligible lenders must use the best sources of information available for estimating production in accordance with this subsection when developing cash flow budgets.
(2) Deviations from historical performance may be acceptable, if specific to changes in operation and adequately justified and acceptable to the Agency.
(3) For existing farmers, actual production for the past 3 years will be utilized.
(4) For those farmers without a proven history, a combination of any actual history and any other reliable source of information that are agreeable with the lender, the applicant, and the Agency will be used.
(5) When the production of a growing commodity can be estimated, it must be considered when projecting yields.
(6) When the applicant's production history has been so severely affected by a declared disaster that an accurate projection cannot be made, the following applies:
(i) County average yields are used for the disaster year if the applicant's disaster year yields are less than the county average yields. If county average yields are not available, State average yields are used. Adjustments can be made, provided there is factual evidence to demonstrate that the yield used in the farm plan is the most probable to be realized.
(ii) To calculate a historical yield, the crop year with the lowest actual or county average yield may be excluded, provided the applicant's yields were affected by disasters at least 2 of the previous 5 consecutive years.
(c) Refinancing. Loan guarantee requests for refinancing must ensure that a reasonable chance for success still exists. The lender must demonstrate that problems with the applicant's operation that have been identified, can be corrected, and the operation returned to a sound financial basis.
(d) EZ Guarantee feasibility. Notwithstanding any other provision of this section:
(1) The Agency will evaluate EZ Guarantee application financial feasibility using criteria determined and announced by the Agency on the FSA Web site (www.fsa.usda.gov).
(2) EZ Guarantee applications that satisfy the criteria will be determined to meet the financial feasibility standards in this section.
(3) EZ Guarantee applications that do not satisfy the criteria will require further documentation as determined by the Agency and announced on the FSA Web site (www.fsa.usda.gov).
[64 FR 7378, Feb. 12, 1999, as amended at 66 FR 7567, Jan. 24, 2001; 75 FR 54014, Sept. 3, 2010; 81 FR 72691, Oct. 21, 2016]
§762.126 Security requirements.
(a) General. (1) The lender is responsible for ensuring that proper and adequate security is obtained and maintained to fully secure the loan, protect the interest of the lender and the Agency, and assure repayment of the loan or line of credit.
(2) The lender will obtain a lien on additional security when necessary to protect the Agency's interest.
(b) Guaranteed and unguaranteed portions. (1) All security must secure the entire loan or line of credit. The lender may not take separate security to secure only that portion of the loan or line of credit not covered by the guarantee.
(2) The lender may not require compensating balances or certificates of deposit as means of eliminating the lender's exposure on the unguaranteed portion of the loan or line of credit. However, compensating balances or certificates of deposit as otherwise used in the ordinary course of business are allowed for both the guaranteed and unguaranteed portions.
(c) Identifiable security. The guaranteed loan must be secured by identifiable collateral. To be identifiable, the lender must be able to distinguish the collateral item and adequately describe it in the security instrument.
(d) Type of security. (1) Guaranteed loans may be secured by any property if the term of the loan and expected life of the property will not cause the loan to be undersecured.
(2) For loans with terms greater than 7 years, a lien must be taken on real estate.
(3) Loans can be secured by a mortgage on leasehold properties if the lease has a negotiable value and is subject to being mortgaged.
(4) The lender or Agency may require additional personal and corporate guarantees to adequately secure the loan. These guarantees are separate from, and in addition to, the personal obligations arising from members of an entity signing the note as individuals.
(e) Lien position. All guaranteed loans will be secured by the best lien obtainable. Provided that:
(1) Any chattel-secured guaranteed loan must have a higher lien priority (including purchase money interest) than an unguaranteed loan secured by the same chattels and held by the same lender.
(2) Junior lien positions are acceptable only if the total amount of debt with liens on the security, including the debt in junior lien position, is less than or equal to 85 percent of the value of the security. Junior liens on crops or livestock products will not be relied upon for security unless the lender is involved in multiple guaranteed loans to the same borrower and also has the first lien on the collateral.
(3) When taking a junior lien, prior lien instruments will not contain future advance clauses (except for taxes, insurance, or other reasonable costs to protect security), or cancellation, summary forfeiture, or other clauses that jeopardize the Government's or the lender's interest or the borrower's ability to pay the guaranteed loan, unless any such undesirable provisions are limited, modified, waived or subordinated by the lienholder for the benefit of the Agency and the lender.
(f) Additional security, or any loan of $10,000 or less may be secured by the best lien obtainable on real estate without title clearance or legal services normally required, provided the lender believes from a search of the county records that the applicant can give a mortgage on the farm and provided that the lender would, in the normal course of business, waive the title search. This exception to title clearance will not apply when land is to be purchased.
(g) Multiple owners. If security has multiple owners, all owners must execute the security documents for the loan.
(h) Exceptions. The Deputy Administrator for Farm Loan Programs has the authority to grant an exception to any of the requirements involving security, if the proposed change is in the best interest of the Government and the collection of the loan will not be impaired.
[64 FR 7378, Feb. 12, 1999, as amended at 70 FR 56107, Sept. 26, 2005]
§762.127 Appraisal requirements.
(a) General. The general requirements for an appraisal are:
(1) Value of collateral. The lender is responsible for ensuring that the value of chattel and real estate pledged as collateral is sufficient to fully secure the guaranteed loan.
(2) Additional security. The lender is not required to complete an appraisal or evaluation of collateral that will serve as additional security, but the lender must provide an estimated value.
(3) Appraisal cost. Except for authorized liquidation expenses, the lender is responsible for all appraisal costs, which may be passed on to the borrower or transferee in the case of a transfer and assumption.
(b) Chattel security. The requirements for chattel appraisals are:
(1) Need for chattel appraisal. A current appraisal (not more than 12 months old) of primary chattel security is required on all loans except loans or lines of credit for annual production purposes secured by crops, which require an appraisal only when the guarantee is requested late in the current production year and actual yields can be reasonably estimated. An appraisal is not required for loans of $50,000 or less if a strong equity position exists.
(2) Basis of value. The appraised value of chattel property will be based on public sales of the same or similar property in the market area. In the absence of such public sales, reputable publications reflecting market values may be used.
(3) Appraisal form. Appraisal reports may be on the Agency's appraisal of chattel property form or on any other appraisal form containing at least the same information.
(4) Experience and training. Chattel appraisals will be performed by appraisers who possess sufficient experience or training to establish market (not retail) values as determined by the Agency.
(c) Real estate security. The requirements for real estate appraisals are:
(1) Loans of $250,000 or less. The lender must document the value of the real estate by applying the same policies and procedures as their non-guaranteed loans.
(2) Loans greater than $250,000. The lender must document the value of real estate using a current appraisal (not more than 12 months old) completed by a State Certified General Appraiser. Real estate appraisals must be completed in accordance with USPAP. Restricted reports as defined in USPAP are not acceptable. The Agency may allow an appraisal more than 12 months old to be used only if documentation provided by the lender reflects each of the following:
(i) Market conditions have remained stable or improved based on sales of similar properties,
(ii) The property in question remains in the same or better condition, and
(iii) The value of the property has remained the same or increased.
(3) Agency determinations under paragraph (c)(2) of this section to permit appraisals more than 12 months old are not appealable.
[78 FR 65529, Nov. 1, 2013]
§762.128 Environmental and special laws.
(a) Environmental requirements. The requirements found in part 799 of this chapter must be met for guaranteed OL, FO, and CL. CLP, PLP, and MLP lenders may certify that they have documentation in their file to demonstrate compliance with paragraph (c) of this section. Standard eligible lenders must submit evidence supporting compliance with this section.
(b) Determination. The Agency determination of whether an environmental problem exists will be based on:
(1) The information supplied with the application;
(2) The Agency Official's personal knowledge of the operation;
(3) Environmental resources available to the Agency including, but not limited to, documents, third parties, and governmental agencies;
(4) A visit to the farm operation when the available information is insufficient to make a determination;
(5) Other information supplied by the lender or applicant upon Agency request. If necessary, information not supplied with the application will be requested by the Agency.
(c) Special requirements. Lenders will assist in the environmental review process by providing environmental information. In all cases, the lender must retain documentation of their investigation in the applicant's case file.
(1) A determination must be made as to whether there are any potential impacts to a 100 year floodplain as defined by Federal Emergency Management Agency floodplain maps, Natural Resources Conservation Service data, or other appropriate documentation.
(2) The lender will assist the borrower in securing any applicable permits or waste management plans. The lender may consult with the Agency for guidance on activities which require consultation with State regulatory agencies, special permitting or waste management plans.
(3) The lender will examine the security property to determine if there are any structures or archeological sites which are listed or may be eligible for listing in the National Register of Historic Places. The lender may consult with the Agency for guidance on which situations will need further review in accordance with the National Historical Preservation Act and part 799 of this chapter.
(4) The applicant must certify they will not violate the provisions of §363 of the Act, the Food Security Act of 1985, and Executive Order 11990 relating to Highly Erodible Land and Wetlands.
(5) All lenders are required to ensure that due diligence is performed in conjunction with a request for guarantee of a loan involving real estate. Due diligence is the process of evaluating real estate in the context of a real estate transaction to determine the presence of contamination from release of hazardous substances, petroleum products, or other environmental hazards and determining what effect, if any, the contamination has on the security value of the property. The Agency will accept as evidence of due diligence the most current version of the American Society of Testing Materials (ASTM) transaction screen questionnaire available from 100 Barr Harbor Drive, West Conshohocken, Pennsylvania 19428-2959, or similar documentation, approved for use by the Agency, supplemented as necessary by the ASTM phase I environmental site assessments form.
(d) Equal opportunity and nondiscrimination. (1) With respect to any aspect of a credit transaction, the lender will not discriminate against any applicant on the basis of race, color, religion, national origin, sex, marital status, or age, provided the applicant can execute a legal contract. Nor will the lender discriminate on the basis of whether all or a part of the applicant's income derives from any public assistance program, or whether the applicant in good faith, exercises any rights under the Consumer Protection Act.
(2) Where the guaranteed loan involves construction, the contractor or subcontractor must file all compliance reports, equal opportunity and nondiscrimination forms, and otherwise comply with all regulations prescribed by the Secretary of Labor pursuant to Executive Orders 11246 and 11375.
(e) Other Federal, State and local requirements. Lenders are required to coordinate with all appropriate Federal, State, and local agencies and comply with special laws and regulations applicable to the loan proposal.
[64 FR 7378, Feb. 12, 1999, as amended at 72 FR 63297, Nov. 8, 2007; 75 FR 54014, Sept. 3, 2010; 81 FR 51284, Aug. 3, 2016; 81 FR 72691, Oct. 21, 2016]
§762.129 Percent of guarantee and maximum loss.
(a) Percent of guarantee. The percent of guarantee will not exceed 90 percent based on the credit risk to the lender and the Agency both before and after the transaction. The Agency will determine the percentage of guarantee. See paragraph (b) of this section for exceptions.
(b) Exceptions. The guarantee will be determined by the Agency except:
(1) For OLs and FOs, the guarantee will be issued at 95 percent if:
(i) The sole purpose of a guaranteed FO or OL is to refinance an Agency direct farm loan. When only a portion of the loan is used to refinance a direct Agency loan, a weighted percentage of a guarantee will be provided; or
(ii) When the purpose of a guaranteed FO is to participate in the downpayment loan program; or
(iii) When a guaranteed OL is made to a farmer who is participating in the Agency's down payment loan program. The guaranteed OL must be made during the period that a borrower has the down payment loan outstanding; or
(iv) When a guaranteed OL is made to a farmer whose farm land is subject to the jurisdiction of an Indian tribe and whose loan is secured by one or more security instruments that are subject to the jurisdiction of an Indian tribe.
(2) For CLs, the guarantee will be issued at 80 percent; however, the guarantee will be issued at 90 percent if:
(i) The applicant is a qualified SDA farmer; or
(ii) The applicant is a qualified beginning farmer.
(c) CLP and PLP guarantees. All guarantees issued to CLP or PLP lenders will not be less than 80 percent.
(d) Maximum loss. The maximum amount the Agency will pay the lender under the loan guarantee will be any loss sustained by such lender on the guaranteed portion including:
(1) The pro rata share of principal and interest indebtedness as evidenced by the note or by assumption agreement;
(2) Any loan subsidy due and owing;
(3) The pro rata share of principal and interest indebtedness on secured protective and emergency advances made in accordance with this subpart; and
(4) Principal and interest indebtedness on recapture debt pursuant to a shared appreciation agreement. Provided that the lender has paid the Agency its pro rata share of the recapture amount due.
[64 FR 7378, Feb. 12, 1999, as amended at 68 FR 7695, Feb. 18, 2003; 72 FR 63297, Nov. 8, 2007; 75 FR 54014, Sept. 3, 2010; 79 FR 78693, Dec. 31, 2014]
§762.130 Loan approval and issuing the guarantee.
(a) Processing timeframes. (1) Standard eligible lenders. Complete applications from Standard Eligible Lenders will be approved or rejected, and the lender notified in writing, no later than 30 calendar days after receipt.
(2) CLP and PLP lenders.
(i) Complete applications from CLP or PLP lenders will be approved or rejected not later than 14 calendar days after receipt.
(ii) For PLP lenders, if the 14 day time frame is not met, the proposed guaranteed loan will automatically be approved, subject to funding, and receive an 80 or 95 percent guarantee for FO or OL loans, and 80 or 90 percent guarantee for CL, as appropriate.
(3) Complete applications. For purposes of determining the application processing timeframes, an application will be not be considered complete until all information required to make an approval decision, including the information for an environmental review, is received by the Agency.
(4) The Agency will confirm the date an application is received with a written notification to the lender.
(b) Funding preference. Loans are approved subject to the availability of funding. When it appears that there are not adequate funds to meet the needs of all approved applicants, applications that have been approved will be placed on a preference list according to the date of receipt of a complete application. If approved applications have been received on the same day, the following will be given priority:
(1) An application from a veteran
(2) An application from an Agency direct loan borrower
(3) An application from a applicant who:
(i) Has a dependent family,
(ii) Is an owner of livestock and farm implements necessary to successfully carry out farming operations, or
(iii) Is able to make down payments.
(4) Any other approved application.
(c) Conditional commitment. (1) The lender must meet all of the conditions specified in the conditional commitment to secure final Agency approval of the guarantee.
(2) The lender, after reviewing the conditions listed on the conditional commitment, will complete, execute, and return the form to the Agency. If the conditions are not acceptable to the lender, the Agency may agree to alternatives or inform the lender and the applicant of their appeal rights.
(d) Lender requirements prior to issuing the guarantee—(1) Lender certification. The lender will certify as to the following on the appropriate Agency form:
(i) No major changes have been made in the lender's loan or line of credit conditions and requirements since submission of the application (except those approved in the interim by the Agency in writing);
(ii) Required hazard, flood, crop, worker's compensation, and personal life insurance (when required) are in effect;
(iii) Truth in lending requirements have been met;
(iv) All equal employment and equal credit opportunity and nondiscrimination requirements have been or will be met at the appropriate time;
(v) The loan or line of credit has been properly closed, and the required security instruments have been obtained, or will be obtained, on any acquired property that cannot be covered initially under State law;
(vi) The borrower has marketable title to the collateral owned by the borrower, subject to the instrument securing the loan or line of credit to be guaranteed and subject to any other exceptions approved in writing by the Agency. When required, an assignment on all USDA crop and livestock program payments has been obtained;
(vii) When required, personal, joint operation, partnership, or corporate guarantees have been obtained;
(viii) Liens have been perfected and priorities are consistent with requirements of the conditional commitment;
(ix) Loan proceeds have been, or will be disbursed for purposes and in amounts consistent with the conditional commitment and as specified on the loan application. In line of credit cases, if any advances have occurred, advances have been disbursed for purposes and in amounts consistent with the conditional commitment and line of credit agreements;
(x) There has been no material adverse change in the borrower's condition, financial or otherwise, since submission of the application; and
(xi) All other requirements specified in the conditional commitment have been met.
(2) Inspections. The lender must notify the Agency of any scheduled inspections during construction and after the guarantee has been issued. The Agency may attend these field inspections. Any inspections or review performed by the Agency, including those with the lender, are solely for the benefit of the Agency. Agency inspections do not relieve any other parties of their inspection responsibilities, nor can these parties rely on Agency inspections for any purpose.
(3) Execution of lender's agreement. The lender must execute the Agency's lender's agreement and deliver it to the Agency.
(4) Closing report and guarantee fees. (i) The lender must complete an Agency closing report form and return it to the Agency along with any guarantee fees.
(ii) The guarantee fee is established by the Agency at the time the guarantee is obligated. The current fee schedule is available at http://www.fsa.usda.gov and any FSA office. Guaranteed fees may be adjusted annually based on factors that affect program costs. The nonrefundable fee is paid to the Agency by the lender. The fee may be passed on to the borrower and included in loan funds. The guarantee fee for the loan type will be calculated as follows:
(A) FO guarantee fee = Loan Amount × % guaranteed × (FO percentage established by FSA).
(B) OL guarantee fee = Loan Amount × % guaranteed × (OL percentage established by FSA).
(C) CL guarantee fee = Loan Amount × % guaranteed × (CL percentage established by FSA).
(iii) The following guaranteed loan transactions are not charged a fee:
(A) Loans involving interest assistance;
(B) Loans where a majority of the funds are used to refinance an Agency direct loan; and
(C) Loans to beginning or socially disadvantaged farmers involved in the direct Downpayment Loan Program or beginning farmers participating in a qualified State Beginning Farmer Program.
(e) Promissory notes, line of credit agreements, mortgages, and security agreements. The lender will use its own promissory notes, line of credit agreements, real estate mortgages (including deeds of trust and similar instruments), and security agreements (including chattel mortgages), provided:
(1) The forms meet Agency requirements;
(2) Documents comply with State law and regulation;
(3) The principal and interest repayment schedules are stated clearly in the notes and are consistent with the conditional commitment;
(4) The note is executed by the individual liable for the loan. For entity applicants, the promissory note will be executed to evidence the liability of the entity, any embedded entities, and the individual liability of all entity members. Individual liability can be waived by the Agency for members holding less than 10 percent ownership in the entity if the collectability of the loan will not be impaired; and
(5) When the loan purpose is to refinance or restructure the lender's own debt, the lender may continue to use the existing debt instrument and attach an allonge that modifies the terms of the original note.
(f) Replacement of loan guarantee, or assignment guarantee agreement. If the guarantee or assignment guarantee agreements are lost, stolen, destroyed, mutilated, or defaced, except where the evidence of debt was or is a bearer instrument, the Agency will issue a replacement to the lender or holder upon receipt of acceptable documentation including a certificate of loss and an indemnity bond.
[64 FR 7378, Feb. 12, 1999, as amended at 72 FR 63297, Nov. 8, 2007; 73 FR 74345, Dec. 8, 2008; 75 FR 54014, Sept. 3, 2010; 76 FR 58094, Sept. 20, 2011; 79 FR 60744, Oct. 8, 2014; 79 FR 78693, Dec. 31, 2014]
§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.
(5) Performing an annual analysis of the borrower's financial condition to determine the borrower's progress for all term loans with aggregate balances greater than $100,000 and all line of credit loans. 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.
(v) For borrowers with an outstanding loan balance for existing term loans of $100,000 or less, the need for an annual analysis will be determined by the Agency for SEL, CLP, and MLP lenders. The annual analysis for PLP lenders will be in accordance with requirements in lender's credit management system (CMS).
(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; 81 FR 72692, Oct. 21, 2016]
§762.141 Reporting requirements.
Lenders are responsible for providing the local Agency credit officer with all of the following information on the loan and the borrower:
(a) When the guaranteed loan becomes 30 days past due, and following the lender's meeting or attempts to meet with the borrower, all lenders will submit the appropriate Agency form showing guaranteed loan borrower default status. The form will be resubmitted every 60 days until the default is cured either through restructuring or liquidation.
(b) All lenders will submit the appropriate guaranteed loan status reports as of March 31 and September 30 of each year;
(c) CLP lenders also must provide the following:
(1) A written summary of the lender's annual analysis of the borrower's operation. This summary should describe the borrower's progress and prospects for the upcoming operating cycle. This annual analysis may be waived or postponed if the borrower is financially strong. The summary will include a description of the reasons an analysis was not necessary.
(2) For lines of credit, an annual certification stating that a cash flow projecting at least a feasible plan has been developed, that the borrower is in compliance with the provisions of the line of credit agreement, and that the previous year income and loan funds and security proceeds have been accounted for.
(d) In addition to the requirements of paragraphs (a), (b), and (c) of this section, the standard eligible lender also will provide:
(1) Borrower's balance sheet, and income and expense statement for the previous year.
(2) For lines of credit, the cash flow for the borrower's operation that projects a feasible plan or better for the upcoming operating cycle. The standard eligible lender must receive approval from the Agency before advancing future years' funds.
(3) An annual farm visit report or collateral inspection.
(e) PLP lenders will submit additional reports as required in their lender's agreement.
(f) A lender receiving a final loss payment must complete and return an annual report on its collection activities for each unsatisfied account for 3 years following payment of the final loss claim.
§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 §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:
(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 §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 §762.127.
(5) The Agency will review, approve or reject the request in accordance with the time frames in §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 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 from liability only if the requirements of §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]
§762.143 Servicing distressed accounts.
(a) A borrower is in default when 30 days past due on a payment or in violation of provisions of the loan documents.
(b) In the event of a borrower default, SEL and CLP lenders will:
(1) Report to the Agency in accordance with §762.141.
(2) Determine whether it will repurchase the guaranteed portion from the holder in accordance with §762.144, if the guaranteed portion of the loan was sold on the secondary market.
(3) Arrange a meeting with the borrower within 15 days of default (45 days after payment due date for monetary defaults) to identify the nature of the delinquency and develop a course of action that will eliminate the delinquency and correct the underlying problems. Non-monetary defaults will be handled in accordance with the lender's note, loan agreements and any other applicable loan documents.
(i) The lender and borrower will prepare a current balance sheet and cash flow projection in preparation for the meeting. If the borrower refuses to cooperate, the lender will compile the best financial information available.
(ii) The lender or the borrower may request the attendance of an Agency official. If requested, the Agency official will assist in developing solutions to the borrower's financial problems.
(iii) The lender will summarize the meeting and proposed solutions on the Agency form for guaranteed loan borrower default status completed after the meeting. The lender will indicate the results on this form for the lender's consideration of the borrower for interest assistance in conjunction with rescheduling under §762.145(b).
(iv) The lender must decide whether to restructure or liquidate the account within 90 days of default, unless the lender can document circumstances that justify an extension by the Agency.
(v) The lender may not initiate foreclosure action on the loan until 60 days after eligibility of the borrower to participate in the interest assistance programs has been determined by the Agency. If the lender or the borrower does not wish to consider servicing options under this section, this should be documented, and liquidation under §762.149 should begin.
(vi) If a borrower is current on a loan, but will be unable to make a payment, a restructuring proposal may be submitted in accordance with §762.145 prior to the payment coming due.
(c) PLP lenders will service defaulted loans according to their lender's agreement.
[64 FR 7378, Feb. 12, 1999, as amended at 72 FR 63297, Nov. 8, 2007]
§762.144 Repurchase of guaranteed portion from a secondary market holder.
(a) Request for repurchase. The holder may request the lender to repurchase the unpaid guaranteed portion of the loan when:
(1) The borrower has not made a payment of principal and interest due on the loan for at least 60 days; or
(2) The lender has failed to remit to the holder its pro-rata share of any payment made by the borrower within 30 days of receipt of a payment.
(b) Repurchase by the lender. (1) When a lender is requested to repurchase a loan from the holder, the lender must consider the request according to the servicing actions that are necessary on the loan. In order to facilitate servicing and simplified accounting of loan transactions, lenders are encouraged to repurchase the loan upon the holder's request.
(2) The repurchase by the lender will be for an amount equal to the portion of the loan held by the holder plus accrued interest.
(3) The guarantee will not cover separate servicing fees that the lender accrues after the repurchase.
(c) Repurchase by the Agency. (1) If the lender does not repurchase the loan, the holder must inform the Agency in writing that demand was made on the lender and the lender refused. Following the lender's refusal, the holder may continue as holder of the guaranteed portion of the loan or request that the Agency purchase the guaranteed portion. Within 30 days after written demand to the Agency from the holder with required attachments, the Agency will forward to the holder payment of the unpaid principal balance, with accrued interest to the date of repurchase. If the holder does not desire repurchase or purchase of a defaulted loan, the lender must forward the holder its pro-rata share of payments, liquidation proceeds and Agency loss payments.
(2) With its demand on the Agency, the holder must include:
(i) A copy of the written demand made upon the lender.
(ii) Originals of the guarantee and note properly endorsed to the Agency, or the original of the assignment of guarantee.
(iii) A copy of any written response to the demand of the holder by the lender.
(iv) An account to which the Agency can forward the purchase amount via electronic funds transfer.
(3) The amount due the holder from the Agency includes unpaid principal, unpaid interest to the date of demand, and interest which has accrued from the date of demand to the proposed payment date.
(i) Upon request by the Agency, the lender must furnish upon Agency request a current statement, certified by a bank officer, of the unpaid principal and interest owed by the borrower and the amount due the holder.
(ii) Any discrepancy between the amount claimed by the holder and the information submitted by the lender must be resolved by the lender and the holder before payment will be approved by the Agency. The Agency will not participate in resolution of any such discrepancy. When there is a discrepancy, the 30 day Agency payment requirement to the holder will be suspended until the discrepancy is resolved.
(iii) In the case of a request for Agency purchase, the Agency will only pay interest that accrues for up to 90 days from the date of the demand letter to the lender requesting the repurchase. However, if the holder requested repurchase from the Agency within 60 days of the request to the lender and for any reason not attributable to the holder and the lender, the Agency cannot make payment within 30 days of the holder's demand to the Agency, the holder will be entitled to interest to the date of payment.
(4) At the time of purchase by the Agency, the original assignment of guarantee will be assigned by the holder to the Agency without recourse, including all rights, title, and interest in the loan.
(5) Purchase by the Agency does not change, alter, or modify any of the lender's obligations to the Agency specified in the lender's agreement or guarantee; nor does the purchase waive any of the Agency's rights against the lender.
(6) The Agency succeeds to all rights of the holder under the Guarantee including the right of set-off against the lender.
(7) Within 180 days of the Agency's purchase, the lender will reimburse the Agency the amount of repurchase, with accrued interest, through one of the following ways:
(i) By liquidating the loan security and paying the Agency its pro-rata share of liquidation proceeds; or
(ii) Paying the Agency the full amount the Agency paid to the holder plus any accrued interest.
(8) The lender will be liable for the purchase amount and any expenses incurred by the Agency to maintain the loan in its portfolio or liquidate the security. While the Agency holds the guaranteed portion of the loan, the lender will transmit to the Agency any payment received from the borrower, including the pro-rata share of liquidation or other proceeds.
(9) If the borrower files for reorganization under the provisions of the bankruptcy code or pays the account current while the purchase by the Government is being processed, the Agency may hold the loan as long it determines this action to be in the Agency's interest. If the lender is not proceeding expeditiously to collect the loan or reimbursement is not waived under this paragraph, the Agency will demand payment by the lender and collect the purchase amount through administrative offset of any claims due the lender.
(10) The Agency may sell a purchased guaranteed loan on a non-recourse basis if it determines that selling the portion of the loan that it holds is in the Government's best interest. A non-recourse purchase from the Agency requires a written request to the Agency from the party that wishes to purchase it, and written concurrence from the lender;
(d) Repurchase for servicing. (1) If, due to loan default or imminent loan restructuring, the lender determines that repurchase is necessary to adequately service the loan, the lender may repurchase the guaranteed portion of the loan from the holder, with the written approval of the Agency.
(2) The lender will not repurchase from the holder for arbitrage purposes. With its request for Agency concurrence, the lender will notify the Agency of its plans to resell the guaranteed portion following servicing.
(3) The holder will sell the guaranteed portion of the loan to the lender for an amount agreed to between the lender and holder.
[64 FR 7378, Feb. 12, 1999, as amended at 69 FR 44579, July 27, 2004]
§762.145 Restructuring guaranteed loans.
(a) General. (1) To restructure guaranteed loans standard eligible lenders must:
(i) Obtain prior written approval of the Agency for all restructuring actions; and,
(ii) Provide the items in paragraph (b) and (e) of this section to the Agency for approval.
(2) If the standard eligible lender's proposal for servicing is not agreed to by the Agency, the Agency approval official will notify the lender in writing within 14 days of the lender's request.
(3) To restructure guaranteed loans CLP lenders must:
(i) Obtain prior written approval of the Agency only for debt write down under this section.
(ii) Submit all calculations required in paragraph (e) of this section for debt writedown.
(iii) For restructuring other than write down, provide FSA with a certification that each requirement of this section has been met, a narrative outlining the circumstances surrounding the need for restructuring, and copies of any applicable calculations.
(4) PLP lenders will restructure loans in accordance with their lender's agreement.
(5) All lenders will submit copies of any restructured notes or lines of credit to the Agency.
(b) Requirements. For any restructuring action, the following conditions apply:
(1) The borrower meets the eligibility criteria of §762.120, except the provisions regarding prior debt forgiveness and delinquency on a federal debt do not apply.
(2) The borrower's ability to make the amended payment is documented by the following:
(i) A feasible plan.
(ii) Current financial statements from all liable parties.
(iii) Verification of nonfarm income.
(iv) Verification of all debts of $1,000 or more.
(v) Applicable credit reports.
(vi) Financial history (and production history for standard eligible lenders) for the past 3 years to support the cash flow projections.
(3) A final loss claim may be reduced, adjusted, or rejected as a result of negligent servicing after the concurrence with a restructuring action under this section.
(4) Loans secured by real estate and/or equipment can be restructured using a balloon payment, equal installments, or unequal installments. Under no circumstances may livestock or crops alone be used as security for a loan to be rescheduled using a balloon payment. If a balloon payment is used, the projected value of the real estate and/or equipment security must indicate that the loan will be fully secured when the balloon payment becomes due. The projected value will be derived from a current appraisal adjusted for depreciation of depreciable property, such as buildings and other improvements, that occurs until the balloon payment is due. For equipment security, a current appraisal is required. The lender is required to project the security value of the equipment at the time the balloon payment is due based on the remaining life of the equipment, or the depreciation schedule on the borrower's Federal income tax return. Loans restructured with a balloon payment that are secured by real estate will have a minimum term of 5 years, and other loans will have a minimum term of 3 years before the scheduled balloon payment. If statutory limits on terms of loans prevent the minimum terms, balloon payments may not be used. If the loan is rescheduled with unequal installments, a feasible plan, as defined in §762.2(b), must be projected for when installments are scheduled to increase.
(5) If a borrower is current on a loan, but will be unable to make a payment, a restructuring proposal may be submitted prior to the payment coming due.
(6) The lender may capitalize the outstanding interest when restructuring the loan as follows:
(i) As a result of the capitalization of interest, a rescheduled promissory note may increase the amount of principal the borrower is required to pay. However, in no case will such principal amount exceed the statutory loan limits contained in §761.8 of this chapter.
(ii) When accrued interest causes the loan amount to exceed the statutory loan limits, rescheduling may be approved without capitalization of the amount that exceeds the limit. Noncapitalized interest may be scheduled for repayment over the term of the rescheduled note.
(iii) Only interest that has accrued at the rate indicated on the borrower's original promissory notes may be capitalized. Late payment fees or default interest penalties that have accrued due to the borrower's failure to make payments as agreed are not covered under the guarantee and may not be capitalized.
(iv) The Agency will execute a modification of guarantee form to identify the new loan principal and the guaranteed portion if greater than the original loan amounts, and to waive the restriction on capitalization of interest, if applicable, to the existing guarantee documents. The modification form will be attached to the original guarantee as an addendum.
(v) Approved capitalized interest will be treated as part of the principal and interest that accrues thereon, in the event that a loss should occur.
(7) The lender's security position will not be adversely affected because of the restructuring. New security instruments may be taken if needed, but a loan does not have to be fully secured in order to be restructured, unless it is restructured with a balloon payment. When a loan is restructured using a balloon payment the lender must take a lien on all assets and project the loan to be fully secured at the time the balloon payment becomes due, in accordance with paragraph (b)(4) of this section.
(8) Any holder agrees to any changes in the original loan terms. If the holder does not agree, the lender must repurchase the loan from the holder for any loan restructuring to occur.
(9) After a guaranteed loan is restructured, the lender must provide the Agency with a copy of the restructured promissory note.
(10) For CL, the lender must ensure that the borrower is maintaining the practice for which the CL was made.
(c) Rescheduling. The following conditions apply when a guaranteed loan is rescheduled or reamortized:
(1) Payments will be rescheduled within the following terms:
(i) FO and existing SW may be amortized over the remaining term of the note or rescheduled with an uneven payment schedule. The maturity date cannot exceed 40 years from the date of the original note.
(ii) OL notes must be rescheduled over a period not to exceed 15 years from the date of the rescheduling. An OL line of credit may be rescheduled over a period not to exceed 7 years from the date of the rescheduling or 10 years from the date of the original note, whichever is less. Advances cannot be made against a line of credit loan that has had any portion of the loan rescheduled.
(iii) CL will be amortized over the remaining term or rescheduled with an uneven payment schedule. The maturity date cannot exceed 30 years from the date of the original note.
(2) The interest rate for a rescheduled loan is the negotiated rate agreed upon by the lender and the borrower at the time of the action, subject to the loan limitations for each type of loan.
(3) A new note is not necessary when rescheduling occurs. However, if a new note is not taken, the existing note or line of credit agreement must be modified by attaching an allonge or other legally effective amendment, evidencing the revised repayment schedule and any interest rate change. If a new note is taken, the new note must reference the old note and state that the indebtedness evidenced by the old note or line of credit agreement is not satisfied. The original note or line of credit agreement must be retained.
(d) Deferrals. The following conditions apply to deferrals:
(1) Payments may be deferred up to 5 years, but the loan may not be extended beyond the final due date of the note.
(2) The principal portion of the payment may be deferred either in whole or in part.
(3) Interest may be deferred only in part. Payment of a reasonable portion of accruing interest as indicated by the borrower's cash flow projections is required for multi-year deferrals.
(4) There must be a reasonable prospect that the borrower will be able to resume full payments at the end of the deferral period.
(e) Debt writedown. The following conditions apply to debt writedown:
(1) A lender may only write down a delinquent guaranteed loan or line of credit in an amount sufficient to permit the borrower to develop a feasible plan as defined in §762.102(b).
(2) The lender will request other creditors to negotiate their debts before a writedown is considered.
(3) The borrower cannot develop a feasible plan after consideration is given to rescheduling and deferral under this section.
(4) The present value of the loan to be written down, based on the interest rate of the rescheduled loan, will be equal to or exceed the net recovery value of the loan collateral.
(5) The loan will be restructured with regular payments at terms no shorter than 5 years for a line of credit and OL term note; and no shorter than 20 years for FO and CL, unless required to be shorter by paragraphs (c)(1)(i) through (iii) of this section.
(6) No further advances may be made on a line of credit that is written down.
(7) Loans may not be written down with interest assistance. If a borrower's loan presently on interest assistance requires a writedown, the writedown will be considered without interest assistance.
(8) The writedown is based on writing down the shorter-term loans first.
(9) When a lender requests approval of a writedown for a borrower with multiple loans, the security for all of the loans will be cross-collateralized and continue to serve as security for the loan that is written down. If a borrower has multiple loans and one loan is written off entirely through debt writedown, the security for that loan will not be released and will remain as security for the other written down debt. Additional security instruments will be taken if required to cross-collateralize security and maintain lien priority.
(10) The writedown will be evidenced by an allonge or amendment to the existing note or line of credit reflecting the writedown.
(11) The borrower executes an Agency shared appreciation agreement for loans which are written down and secured by real estate.
(i) The lender will attach the original agreement to the restructured loan document.
(ii) The lender will provide the Agency a copy of the executed agreement, and
(iii) Security instruments must ensure future collection of any appreciation under the agreement.
(12) The lender will prepare and submit the following to the Agency:
(i) A current appraisal of all security in accordance with §762.127.
(ii) A completed report of loss on the appropriate Agency form for the proposed writedown loss claim.
(iii) Detailed writedown calculations as follows:
(A) Calculate the present value.
(B) Determine the net recovery value.
(C) If the net recovery value exceeds the present value, writedown is unavailable; liquidation becomes the next servicing consideration. If the present value equals or exceeds the net recovery value, the debt may be written down to the present value.
(iv) The lender will make any adjustment in the calculations as requested by the Agency.
[64 FR 7378, Feb. 12, 1999; 64 FR 38298, July 16, 1999, as amended at 66 FR 7567, Jan. 24, 2001; 69 FR 44579, July 27, 2004; 70 FR 56107, Sept. 26, 2005; 72 FR 17358, Apr. 9, 2007; 75 FR 54014, Sept. 1, 2010; 77 FR 15938, Mar. 19, 2012; 78 FR 65530, Nov. 1, 2013]
§762.146 Other servicing procedures.
(a) Additional loans and advances. (1) Notwithstanding any provision of this section, the PLP lender may make additional loans or advances in accordance with the lender's agreement with the Agency.
(2) SEL and CLP lenders must not make additional loans or advances without prior written approval of the Agency, except as provided in the borrower's loan or line of credit agreement.
(3) In cases of a guaranteed line of credit, lenders may make an emergency advance when a line of credit has reached its ceiling. The emergency advance will be made as an advance under the line and not as a separate note. The lender's loan documents must contain sufficient language to provide that any emergency advance will constitute a debt of the borrower to the lender and be secured by the security instrument. The following conditions apply:
(i) The loan funds to be advanced are for authorized operating loan purposes;
(ii) The financial benefit to the lender and the Government from the advance will exceed the amount of the advance; and
(iii) The loss of crops or livestock is imminent unless the advance is made.
(4) Protective advance requirements are found in §762.149.
(b) Release of liability upon withdrawal. An individual who is obligated on a guaranteed loan may be released from liability by a lender, with the written consent of the Agency, provided the following conditions have been met:
(1) The individual to be released has withdrawn from the farming operation;
(2) A divorce decree or final property settlement does not hold the withdrawing party responsible for the loan payments;
(3) The withdrawing party's interest in the security is conveyed to the individual or entity with whom the loan will be continued;
(4) The ratio of the amount of debt to the value of the remaining security is less than or equal to .75, or the withdrawing party has no income or assets from which collection can be made; and
(5) Withdrawal of the individual does not result in legal dissolution of the entity to which the loans are made. Individually liable members of a general or limited partnership may not be released from liability.
(6) The remaining liable party projects a feasible plan (see §761.2(b) of this chapter).
(c) Release of liability after liquidation. After a final loss claim has been paid on the borrower's account, the lender may release the borrower or guarantor from liability if;
(1) The Agency agrees to the release in writing;
(2) The lender documents its consideration of the following factors concerning the borrower or guarantors:
(i) The likelihood that the borrower or guarantor will have a sufficient level of income in the reasonably near future to contribute to a meaningful reduction of the debt;
(ii) The prospect that the borrower or guarantor will inherit assets in the near term that may be attached by the Agency for payment of a significant portion of the debt;
(iii) Whether collateral has been properly accounted for, and whether liability should be retained in order to take action against the borrower or a third party for conversion of security;
(iv) The availability of other income or assets which are not security;
(v) The possibility that assets have been concealed or improperly transferred;
(vi) The effect of other guarantors on the loan; and
(vii) Cash consideration or other collateral in exchange for the release of liability.
(3) The lender will use its own release of liability documents.
(d) Interest rate changes. (1) The lender may change the interest rate on a performing (nondelinquent) loan only with the borrower's consent.
(2) If the loan has been sold on the secondary market, the lender must repurchase the loan or obtain the holder's written consent.
(3) To change a fixed rate of interest to a variable rate of interest or vice versa, the lender and the borrower must execute a legally effective allonge or amendment to the existing note.
(4) If a new note is taken, it will be attached to and refer to the original note.
(5) The lender will inform the Agency of the rate change.
(e) Consolidation. Two or more Agency guaranteed loans may be consolidated, subject to the following conditions:
(1) The borrower must project a feasible plan after the consolidation. See §761.2(b) of this chapter for definition of feasible plan.
(2) Only OL may be consolidated.
(3) Existing lines of credit may only be consolidated with a new line of credit if the final maturity date and conditions for advances of the new line of credit are made the same as the existing line of credit.
(4) Guaranteed OL may not be consolidated with a line of credit, even if the line of credit has been rescheduled.
(5) Guaranteed loans made prior to October 1, 1991, cannot be consolidated with those loans made on or after October 1, 1991.
(6) OL secured by real estate or with an outstanding interest assistance agreement or shared appreciation agreement cannot be consolidated.
(7) A new note or line of credit agreement will be taken. The new note or line of credit agreement must describe the note or line of credit agreement being consolidated and must state that the indebtedness evidenced by the note or line of credit agreement is not satisfied. The original note or line of credit agreement must be retained.
(8) The interest rate for a consolidated OL loan is the negotiated rate agreed upon by the lender and the borrower at the time of the action, subject to the loan limitations for each type of loan.
(9) The Agency approves the consolidation by executing a modification of guarantee. The modification will indicate the consolidated loan amount, new terms, and percentage of guarantee, and will be attached to the originals of the guarantees being consolidated. If loans with a different guarantee percentage are consolidated, the new guarantee will be at the lowest percentage of guarantee being consolidated
(10) Any holders must consent to the consolidation, or the guaranteed portion must be repurchased by the lender.
[64 FR 7378, Feb. 12, 1999, as amended at 66 FR 7567, Jan. 24, 2001; 78 FR 65530, Nov. 1, 2013]
§762.147 Servicing shared appreciation agreements.
(a) Lender responsibilities. The lender is responsible for:
(1) Monitoring the borrower's compliance with the shared appreciation agreement;
(2) Notifying the borrower of the amount of recapture due; and,
(3) Beginning October 1, 1999, a notice of the agreement's provisions not later than 12 months before the end of the agreement; and
(4) Reimbursing the Agency for its pro-rata share of recapture due.
(b) Recapture. (1) Recapture of any appreciation of real estate security will take place at the end of the term of the agreement, or sooner if the following occurs:
(i) On the conveyance of the real estate security (or a portion thereof) by the borrower.
(A) If only a portion of the real estate is conveyed, recapture will only be triggered against the portion conveyed. Partial releases will be handled in accordance with §762.142(b).
(B) Transfer of title to the spouse of the borrower on the death of such borrower will not be treated as a conveyance under the agreement.
(ii) On repayment of the loan; or
(iii) If the borrower ceases farming.
(2) Calculating recapture.
(i) The amount of recapture will be based on the difference between the value of the security at the time recapture is triggered and the value of the security at the time of writedown, as shown on the shared appreciation agreement.
(ii) Security values will be determined through appraisals obtained by the lender and meeting the requirements of §762.127.
(iii) All appraisal fees will be paid by the lender.
(iv) The amount of recapture will not exceed the amount of writedown shown on the shared appreciation agreement.
(v) If recapture is triggered within 4 years of the date of the shared appreciation agreement, the lender shall recapture 75 percent of any positive appreciation in the market value of the property securing the loan or line of credit agreement.
(vi) If recapture is triggered after 4 years from the date of the shared appreciation agreement, the lender shall recapture 50 percent of any positive appreciation in the market value of the property securing the loan or line of credit agreement.
(3) Servicing recapture debt.
(i) If recapture is triggered under the shared appreciation agreement and the borrower is unable to pay the recapture in a lump sum, the lender may:
(A) Reschedule the recapture debt with the consent of the Agency, provided the lender can document the borrower's ability to make amortized payments on the recapture debt, plus pay all other obligations. In such case, the recapture debt will not be covered by the guarantee;
(B) Pay the Agency its pro rata share of the recapture due. In such case, the recapture debt of the borrower will be covered by the guarantee; or
(C) Service the account in accordance with §762.149.
(ii) If recapture is triggered, and the borrower is able but unwilling to pay the recapture in a lump sum, the lender will service the account in accordance with §762.149.
(4) Paying the Agency. Any shared appreciation recaptured by the lender will be shared on a pro-rata basis between the lender and the Agency.
[64 FR 7378, Feb. 12, 1999, as amended at 75 FR 54014, Sept. 3, 2010]
(a) Lender responsibilities. The lender must protect the guaranteed loan debt and all collateral securing the loan in bankruptcy proceedings. The lender's responsibilities include, but are not limited to:
(1) Filing a proof of claim where required and all the necessary papers and pleadings;
(2) Attending, and where necessary, participating in meetings of the creditors and court proceedings;
(3) Protecting the collateral securing the guaranteed loan and resisting any adverse changes that may be made to the collateral;
(4) Seeking a dismissal of the bankruptcy proceeding when the operation as proposed by the borrower to the bankruptcy court is not feasible;
(5) When permitted by the bankruptcy code, requesting a modification of any plan of reorganization if it appears additional recoveries are likely.
(6) Monitor confirmed plans under chapters 11, 12 and 13 of the bankruptcy code to determine borrower compliance. If the borrower fails to comply, the lender will seek a dismissal of the reorganization plan; and
(7) Keeping the Agency regularly informed in writing on all aspects of the proceedings.
(i) The lender will submit a default status report when the borrower defaults and every 60 days until the default is resolved or a final loss claim is paid.
(ii) The default status report will be used to inform the Agency of the bankruptcy filing, the reorganization plan confirmation date and effective date, when the reorganization plan is complete, and when the borrower is not in compliance with the reorganization plan.
(b) Bankruptcy expenses. (1) Reorganization.
(i) Expenses, such as legal fees and the cost of appraisals incurred by the lender as a direct result of the borrower's chapter 11, 12, or 13 reorganization, are covered under the guarantee, provided they are reasonable, customary, and provide a demonstrated economic benefit to the lender and the Agency.
(ii) Lender's in-house expenses, which are those expenses which would normally be incurred for administration of the loan, including in-house lawyers, are not covered by the guarantee.
(2) Liquidation expenses in bankruptcy.
(i) Reasonable and customary liquidation expenses may be deducted from the proceeds of the collateral in liquidation bankruptcy cases.
(ii) In-house expenses are not considered customary liquidation expenses, may not be deducted from collateral proceeds, and are not covered by the guarantee.
(c) Estimated loss claims in reorganization—(1) At confirmation. The lender may submit an estimated loss claim upon confirmation of the reorganization plan in accordance with the following:
(i) The estimated loss payment will cover the guaranteed percentage of the principal and accrued interest written off, plus any allowable costs incurred as of the effective date of the plan.
(ii) The lender will submit supporting documentation for the loss claim, and any additional information requested by the Agency, including justification for the legal fees included on the claim.
(iii) The estimated loss payment may be revised as consistent with a court-approved reorganization plan.
(iv) Protective advances made and approved in accordance with §762.149 may be included in an estimated loss claim associated with a reorganization, if:
(A) They were incurred in connection with the initiation of liquidation action prior to bankruptcy filing; or
(B) The advance is required to provide repairs, insurance, etc. to protect the collateral as a result of delays in the case, or failure of the borrower to maintain the security.
(2) Interest only losses. The lender may submit an estimated loss claim for interest only after confirmation of the reorganization plan in accordance with the following:
(i) The loss claims may cover interest losses sustained as a result of a court-ordered, permanent interest rate reduction.
(ii) The loss claims will be processed annually on the anniversary date of the effective date of the reorganization plan.
(iii) If the borrower performs under the terms of the reorganization plan, annual interest reduction loss claims will be submitted on or near the same date, beyond the period of the reorganization plan.
(3) Actual loss.
(i) Once the reorganization plan is complete, the lender will provide the Agency with documentation of the actual loss sustained.
(ii) If the actual loss sustained is greater than the prior estimated loss payment, the lender may submit a revised estimated loss claim to obtain payment of the additional amount owed by the Agency under the guarantee.
(iii) If the actual loss is less than the prior estimated loss, the lender will reimburse the Agency for the overpayment plus interest at the note rate from the date of the payment of the estimated loss.
(4) Payment to holder. In reorganization bankruptcy, if a holder makes demand upon the Agency, the Agency will pay the holder interest to the plan's effective date. Accruing interest thereafter will be based upon the provisions of the reorganization plan.
(d) Liquidation under the bankruptcy code. (1) Upon receipt of notification that a borrower has filed for protection under Chapter 7 of the bankruptcy code, or a liquidation plan under chapter 11, the lender must proceed according to the liquidation procedures of this part.
(2) If the property is abandoned by the trustee, the lender will conduct the liquidation according to §762.149.
(3) Proceeds received from partial sale of collateral during bankruptcy may be used by the lender to pay reasonable costs, such as freight, labor and sales commissions, associated with the partial sale. Reasonable use of proceeds for this purpose must be documented with the final loss claim in accordance with §762.149(i)(4).
[64 FR 7378, Feb. 12, 1999, as amended at 71 FR 43957, Aug. 3, 2006; 73 FR 32637, June 10, 2008; 75 FR 54014, Sept. 3, 2010]
(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;
(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 150 days after the payment due date, all lenders will prepare a liquidation plan. 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 §762.146(c)(2);
(iii) An independent appraisal report on all collateral securing the loan that meets the requirements of §762.127 and a calculation of the net recovery value of the security as defined in ;§761.2(b) of this chapter. 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 must be filed no later than 150 days past the payment due date unless the account has been completely liquidated and then a final loss claim must be filed.
(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 must be submitted by all lenders no later than 150 days after the payment due date unless the account has been completely liquidated and then a final loss claim must be filed. The estimated loss will be based on the following:
(1) The Agency will pay the lender the guaranteed percentage of the total 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. The Agency will not pay interest beyond 210 days from the payment due date. If the lender estimates that there will be no loss after considering the costs of liquidation, an estimated loss of zero will be submitted and interest accrual will cease upon the approval of the estimated loss and never later than 210 days from the payment due date. The following exceptions apply:
(i) In the case of a Chapter 7 bankruptcy, in cases where the lender filed an estimated loss claim, the Agency will pay the lender interest that accrues during and up to 45 days after the discharge on the portion of the chattel only secured debt that was estimated to be secured, but upon final liquidation was found to be unsecured, and up to 90 days after the date of discharge on the portion of real estate secured debt that was estimated to be secured, but was found to be unsecured upon final disposition.
(ii) The Agency will pay the lender interest that accrues during and up to 90 days after the time period the lender is unable to dispose of acquired property due to state imposed redemption rights on any unsecured portion of the loan during the redemption period, if an estimated loss claim was paid by the Agency during the liquidation action.
(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 §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 must submit a final loss claim when the security has been liquidated and all proceeds have been received and applied to the account. All proceeds must be applied to principal first and then toward accrued interest if the interest is still accruing. The application of the loss claim payment to the account does not automatically release the borrower of liability for any portion of the borrower's debt to the lender. The lender will continue to be responsible for collecting the full amount of the debt and sharing these future recoveries with the Agency in accordance with paragraph (j) of this section.
(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 §762.149(e)(1). Packager fees and outside consultant fees for servicing of guaranteed loans are 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. Failure to do so will result in additional interest being paid to the lender for the number of days over 40 taken to process the claim.
(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; 71 FR 43957, Aug. 3, 2006; 73 FR 32637, June 10, 2008; 78 FR 65530, Nov. 1, 2013]
§762.150 Interest assistance program.
(a) Requests for interest assistance. In addition to the loan application items required by §762.110, to apply for interest assistance the lender's cash flow budget for the guaranteed applicant must reflect the need for interest assistance and the ability to cash flow with the subsidy. Interest assistance is available only on new guaranteed Operating Loans (OL).
(b) Eligibility requirements. The lender must document that the following conditions have been met for the applicant to be eligible for interest assistance:
(1) A feasible plan cannot be achieved without interest assistance, but can be achieved with interest assistance.
(2) If significant changes in the borrower's cash flow budget are anticipated after the initial 12 months, then the typical cash flow budget must demonstrate that the borrower will still have a feasible plan following the anticipated changes, with or without interest assistance.
(3) The typical cash flow budget must demonstrate that the borrower will have a feasible plan throughout the term of the loan.
(4) The borrower, including members of an entity borrower, does not own any significant assets that do not contribute directly to essential family living or farm operations. The lender must determine the market value of any such non-essential assets and prepare a cash flow budget and interest assistance calculations based on the assumption that these assets will be sold and the market value proceeds used for debt reduction. If a feasible plan can then be achieved, the borrower is not eligible for interest assistance.
(5) A borrower may only receive interest assistance if their total debts (including personal debts) prior to the new loan exceed 50 percent of their total assets (including personal assets). An entity's debt to asset ratio will be based upon a financial statement that consolidates business and personal debts and assets of the entity and its members. Beginning farmers §761.2(b) of this chapter, as defined in §762.102, are excluded from this requirement.
(c) Maximum assistance. The maximum total guaranteed OL debt on which a borrower can receive interest assistance is $400,000, regardless of the number of guaranteed loans outstanding. This is a lifetime limit.
(d) Maximum time for which interest assistance is available. (1) A borrower may only receive interest assistance for one 5-year period. The term of the interest assistance agreement executed under this section shall not exceed 5 consecutive years from the date of the initial agreement signed by the applicant, including any entity members, or the outstanding term of the loan, whichever is less. This is a lifetime limit.
(2) Beginning farmers §761.2(b) of this chapter, as defined in §762.102, however, may be considered for two 5-year periods. The applicant must meet the definition of a beginning farmer and meet the other eligibility requirements outlined in paragraph (b) of this section at the onset of each 5-year period. A needs test will be completed in the fifth year of IA eligibility for beginning farmers, to determine continued eligibility for a second 5-year period.
(3) Notwithstanding the limitation of paragraph (d)(1) of this section, a new interest assistance agreement may be approved for eligible borrowers to provide interest assistance through June 8, 2009, provided the total period does not exceed 10 years from the effective date of the original interest assistance agreement.
(e) Multiple loans. In the case of a borrower with multiple guaranteed loans with one lender, interest assistance can be applied to each loan, only to one loan or any distribution the lender selects, as necessary to achieve a feasible plan, subject to paragraph (c) of this section.
(f) Terms. The typical term of scheduled loan repayment will not be reduced solely for the purpose of maximizing eligibility for interest assistance. A loan must be scheduled over the maximum term typically used by lenders for similar type loans within the limits in §762.124. An OL for the purpose of providing annual operating and family living expenses will be scheduled for repayment when the income is scheduled to be received from the sale of the crops, livestock, and/or livestock products which will serve as security for the loan. An OL for purposes other than annual operating and family living expenses (i.e. purchase of equipment or livestock, or refinancing existing debt) will be scheduled over 7 years from the effective date of the proposed interest assistance agreement, or the life of the security, whichever is less.
(g) Rate of interest. The lender interest rate will be set according to §762.124(a).
(h) Agreement. The lender and borrower must execute an interest assistance agreement as prescribed by the Agency.
(i) Interest assistance claims and payments. To receive an interest assistance payment, the lender must prepare and submit a claim on the appropriate Agency form. The following conditions apply:
(1) Interest assistance payments will be four (4) percent of the average daily principal loan balance prorated over the number of days the loan has been outstanding during the payment period. For loans with a note rate less than four (4) percent, interest assistance payments will be the weighted average interest rate multiplied by the average daily principal balance.
(2) The lender may select at the time of loan closing the date that they wish to receive an interest assistance payment. That date will be included in the interest assistance agreement.
(i) The initial and final claims submitted under an agreement may be for a period less than 12 months. All other claims will be submitted for a 12-month period, unless there is a lender substitution during the 12-month period in accordance with this section.
(ii) In the event of liquidation, the final interest assistance claim will be submitted with the estimated loss claim or the final loss claim if an estimated loss claim was not submitted. Interest will not be paid beyond the interest accrual cutoff dates established in the loss claims according to §762.149(d)(2).
(3) A claim should be filed within 60 days of its due date. Claims not filed within 1 year from the due date will not be paid, and the amount due the lender will be permanently forfeited.
(4) All claims will be supported by detailed calculations of average daily principal balance during the claim period.
(5) Requests for continuation of interest assistance for agreements dated prior to June 8, 2007 will be supported by the lender's analysis of the applicant's farming operation and need for continued interest assistance as set out in their Interest Assistance Agreements. The following information will be submitted to the Agency:
(i) A summary of the operation's actual financial performance in the previous year, including a detailed income and expense statement.
(ii) A narrative description of the causes of any major differences between the previous year's projections and actual performance, including a detailed income and expense statement.
(iii) A current balance sheet.
(iv) A cash-flow budget for the period being planned. A monthly cash-flow budget is required for all lines of credit and operating loans made for annual operating purposes. All other loans may include either an annual or monthly cash-flow budget.
(v) A copy of the interest assistance needs analysis portion of the application form which has been completed based on the planned period's cash-flow budget.
(6) Interest Assistance Agreements dated June 8, 2007 or later do not require a request for continuation of interest assistance. The lender will only be required to submit an Agency IA payment form and the average daily principal balance for the claim period, with supporting documentation.
(7) Lenders may not charge or cause a borrower with an interest assistance agreement to be charged a fee for preparation and submission of the items required for an annual interest assistance claim.
(j) Transfer, consolidation, and writedown. Loans covered by interest assistance agreements cannot be consolidated. Such loans can be transferred only when the transferee was liable for the debt on the effective date of the interest assistance agreement. Loans covered by interest assistance can be transferred to an entity if the entity is eligible in accordance with §§762.120 and 762.150(b) and at least one entity member was liable for the debt on the effective date of the interest assistance agreement. Interest assistance will be discontinued as of the date of any writedown on a loan covered by an interest assistance agreement.
(k) Rescheduling and deferral. When a borrower defaults on a loan with interest assistance or the loan otherwise requires rescheduling or deferral, the interest assistance agreement will remain in effect for that loan at its existing terms. The lender may reschedule the loan in accordance with §762.145. For Interest Assistance Agreements dated June 8, 2007 or later increases in the restructured loan amount above the amount originally obligated do not require additional funding; however, interest assistance is not available on that portion of the loan as interest assistance is limited to the original loan amount.
(l) Bankruptcy. In cases where the interest on a loan covered by an interest assistance agreement is reduced by court order in a reorganization plan under the bankruptcy code, interest assistance will be terminated effective on the date of the court order. Guaranteed loans which have had their interest reduced by bankruptcy court order are not eligible for interest assistance.
(m) Termination of interest assistance payments. Interest assistance payments will cease upon termination of the loan guarantee, upon reaching the expiration date contained in the agreement, or upon cancellation by the Agency under the terms of the interest assistance agreement. In addition, for loan guarantees sold into the secondary market, Agency purchase of the guaranteed portion of a loan will terminate the interest assistance.
(n) Excessive interest assistance. Upon written notice to the lender, borrower, and any holder, the Agency may amend or cancel the interest assistance agreement and collect from the lender any amount of interest assistance granted which resulted from incomplete or inaccurate information, an error in computation, or any other reason which resulted in payment that the lender was not entitled to receive.
(o) Condition for cancellation. The Interest Assistance Agreement is incontestable except for fraud or misrepresentation, of which the lender or borrower have actual knowledge at the time the interest assistance agreement is executed, or which the lender or borrower participates in or condones.
(p) Substitution. If there is a substitution of lender, the original lender will prepare and submit to the Agency a claim for its final interest assistance payment calculated through the effective date of the substitution. This final claim will be submitted for processing at the time of the substitution.
(1) Interest assistance will continue automatically with the new lender.
(2) The new lender must follow paragraph (i) of this section to receive their initial and subsequent interest assistance payments.
(q) Exception Authority. The Deputy Administrator for Farm Loan Programs has the authority to grant an exception to any requirement involving interest assistance if it is in the best interest of the Government and is not inconsistent with other applicable law.
[72 FR 17358, Apr. 9, 2007, as amended at 78 FR 14005, Mar. 4, 2013; 78 FR 65530, Nov. 1, 2013]
§762.159 Pledging of guarantee.
A lender may pledge all or part of the guaranteed or unguaranteed portion of the loan as security to a Federal Home Loan Bank, a Federal Reserve Bank, a Farm Credit System Bank, or any other funding source determined acceptable by the Agency.
[70 FR 56107, Sept. 26, 2005]
§762.160 Assignment of guarantee.
(a) The following general requirements apply to assigning guaranteed loans:
(1) Subject to Agency concurrence, the lender may assign all or part of the guaranteed portion of the loan to one or more holders at or after loan closing, if the loan is not in default. However, a line of credit cannot be assigned. The lender must always retain the unguaranteed portion in their portfolio, regardless of how the loan is funded.
(2) The Agency may refuse to execute the Assignment of Guarantee and prohibit the assignment in case of the following:
(i) The Agency purchased and is holder of a loan that was assigned by the lender that is requesting the assignment.
(ii) The lender has not complied with the reimbursement requirements of §762.144(c)(7), except when the 180 day reimbursement or liquidation requirement has been waived by the Agency.
(3) The lender will provide the Agency with copies of all appropriate forms used in the assignment.
(4) The guaranteed portion of the loan may not be assigned by the lender until the loan has been fully disbursed to the borrower.
(5) The lender is not permitted to assign any amount of the guaranteed or unguaranteed portion of the loan to the applicant or borrower, or members of their immediate families, their officers, directors, stockholders, other owners, or any parent, subsidiary, or affiliate.
(6) Upon the lender's assignment of the guaranteed portion of the loan, the lender will remain bound to all obligations indicated in the Guarantee, Lender's Agreement, the Agency program regulations, and to future program regulations not inconsistent with the provisions of the Lenders Agreement. The lender retains all rights under the security instruments for the protection of the lender and the United States.
(b) The following will occur upon the lender's assignment of the guaranteed portion of the loan:
(1) The holder will succeed to all rights of the Guarantee pertaining to the portion of the loan assigned.
(2) The lender will send the holder the borrower's executed note attached to the Guarantee.
(3) The holder, upon written notice to the lender and the Agency, may assign the unpaid guaranteed portion of the loan. The holder must assign the guaranteed portion back to the original lender if requested for servicing or liquidation of the account.
(4) The Guarantee or Assignment of Guarantee in the holder's possession does not cover:
(i) Interest accruing 90 days after the holder has demanded repurchase by the lender, except as provided in the Assignment of Guarantee and §762.144(c)(3)(iii).
(ii) Interest accruing 90 days after the lender or the Agency has requested the holder to surrender evidence of debt repurchase, if the holder has not previously demanded repurchase.
(c) Negotiations concerning premiums, fees, and additional payments for loans are to take place between the holder and the lender. The Agency will participate in such negotiations only as a provider of information.
[70 FR 56107, Sept. 26, 2005]