RD Instruction 1950-C

PART 1950 - GENERAL

Subpart C - Servicing Accounts of Borrowers Entering the Armed Forces

§1950.101 [Purpose]{.underline}.

Borrowers with accounts serviced by Rural Development or Farm Service
Agency, herein referred to as the "Agency", who have entered or who are
entering military service will require special treatment. This subpart
prescribes the authorities, policies, and routines for servicing such
cases in addition to those contained in other Rural Development
regulations. This subpart is inapplicable to Farm Service Agency, Farm
Loan Programs. (Revised 01-09-08, PN 417.)

§1950.102 [General]{.underline}.

\(a\) The Agency will do everything possible to assist borrowers
entering the armed forces to adjust their affairs in contemplation of
military service. It is not the policy of the Agency to renew, postpone,
or modify annual installments due under a promissory note because of the
borrower\'s entry into the armed services. However, under the Soldiers\'
and Sailors\' Civil Relief Act of 1940, the property of the borrower in
the armed forces cannot validly be seized or sold by foreclosure or
otherwise during the borrower\'s tenure of service, or for three months
thereafter, except (1) pursuant to an agreement entered into by the
borrower after having been accepted for service, or (2) by order of the
Court. Any person causing an invalid sale to be made is guilty of a
misdemeanor. Regardless of the foregoing, the long-time interest of the
borrower can best be served by prompt and satisfactory arrangements for
the use and protection, or disposition, of the security property in
accordance with the policies expressed herein. Upon request, OGC will
inform the State Director with respect to relief which may be secured by
a borrower under the Soldiers\' and Sailors\' Civil Relief Act of 1940.

\(b\) In connection with Multiple Housing Loans to individuals,
references to County Supervisor and County Office in this subpart will
be read as District Director and District Office.

§1950.103 [Borrower owing Agency loans which are secured by
chattels]{.underline}.

\(a\) [Policy]{.underline}.

\(1\) Borrowers who owe loans [other than]{.underline} Farm Ownership
(FO), Operating (OL), Soil and Water (SW), Recreation (RL), Emergency
(EM), Economic Emergency (EE), Economic Opportunity (EO), Special
Livestock (SL), Softwood Timber (ST) loans, and/or Rural Housing loans
for farm servicing buildings (RHF). When information is received that a
borrower is entering the armed forces, the County

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DISTRIBUTION: WSAL Account Servicing

General

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(10-4-90) SPECIAL PN

RD Instruction 1950-C

1950.103 (a)(1) (Cont.)

Supervisor will be responsible for contacting the borrower immediately
for the purpose of reaching an understanding concerning the actions to
take in connection with the Agency loan indebtedness. The borrower will
be permitted to retain the chattel security if arrangements can be
worked out which are satisfactory to the borrower and the Agency.
However, because of the nature of chattel security, the borrower will be
informed of the usual depreciation of such property and will be
encouraged to sell the property and apply the proceeds to the loan(s).
In most cases, the interests of both the borrower and the Government can
best be served by arranging for a voluntary sale of the security. A
borrower retaining security will be expected to make payments on the
loan(s) equal to the scheduled payments.

\(2\) [Borrowers who owe FO, SW, RL, OL, EE, EM, SL, EO, ST, and/or RHF
loans]{.underline}. If the borrower is delinquent in accordance with
Subpart S of Part 1951 of this chapter, or otherwise in default, the
County Supervisor will send Exhibit A and the appropriate attachments,
as outlined in Subpart S of Part 1951 of this chapter. The County
Supervisor will follow the directions in Subpart A of Part 1962 of this
chapter for liquidating chattel security. If the borrower is not
delinquent, the County Supervisor will explain the options set out in
paragraph (b) of this section.

\(b\) [Method of Handling]{.underline}. In Carrying out the above
policy, the cases of borrowers entering the armed forces will be handled
in accordance with one of the following methods:

\(1\) [Voluntary sale of security]{.underline}. This will be
accomplished in accordance with §1962.41 of Subpart A of Part 1962 of
this chapter. Any necessary forms will be signed:

\(i\) Before being accepted for service in the armed forces, if the sale
is to be completed before the borrower is accepted for service, or

\(ii\) After being accepted for service, if the sale cannot be completed
before the borrower is so accepted. For this purpose, an individual will
be considered as accepted for service after being ordered to report for
induction, or, if in the enlisted reserve, after being ordered to report
for service in the armed forces.

\(2\) [Assumption of indebtedness]{.underline}. This will be
accomplished in accordance with §1962.34 of Subpart A of Part 1962 of
this chapter.

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§1950.103 (b) (Con.) RD Instruction 1950-C

\(3\) [Arrangements with third persons]{.underline}. When the borrower
arranges with a relative or other reliable person to maintain the
security in a satisfactory manner and to make scheduled payments, the
State Director is authorized to approve the arrangement. In such a case,
the borrower will be required to execute a power of attorney prepared or
approved by OGC, authorizing an attorney-in-fact to act for the borrower
during the latter\'s absence.

\(4\) [Possible legal actions]{.underline}. If the borrower fails or
refuses to cooperate in the servicing of the loan indebtedness secured
by chattels in accordance with one of the methods set forth in this
section, the borrower\'s case folder will be forwarded to the State
Director for referral to OGC for legal advice as to the steps to be
taken in protecting the Government\'s interest.

\(c\) [Statements of accounts and transfers]{.underline}. Borrowers
entering the armed forces will be requested to designate mailing
addresses for the delivery of statements of accounts. Any changes in
these addresses will be processed on Form RD 450-10, \"Advice of
Borrower\'s Change of Address or Name,\" with appropriate explanations.
Under this procedure, a statement of account may be mailed to a location
other than where the account is maintained and serviced. This is a
deviation from the established procedure. These cases will not be
transferred unless the security, when retained by the borrower in
accordance with paragraph (b)(3) of this section, is moved into another
County Office territory. Then the transfer will be processed through the
use of Form RD 450-5, \"Application to Move Security Property and
Verification of Address,\" and Form RD 450-10 with appropriate
explanations. In cases when assumption agreements have been executed,
statements of account will be mailed to the assuming borrower. Cases
involving assumption agreements will be transferred when the assuming
borrower moves from one County Office territory to another.

§1950.104 [Borrower owing Agency loans which are secured by real
estate]{.underline}.

County Supervisors, to the greatest extent possible, should keep
themselves informed of the plans of borrowers with Agency loans secured
by real estate who may enter the armed forces. They should encourage any
borrower who is definitely entering the armed forces to consult with
them before the borrower\'s military service begins concerning the most
advantageous arrangements that can be made regarding the security.
County Supervisors will assist these borrowers in working out mutually
satisfactory arrangements. Borrowers who owe FO, SW, RL, OL, EE, EM, SL,
EO, ST, and/or RHF loans and who are delinquent or otherwise in default
must be sent Exhibit A and the appropriate attachments, as outlined in
Subpart S of Part 1951 of this chapter. The County Supervisor will
follow the directions in Subpart A of Part 1965 of this chapter for
liquidating real estate security. FO, SW, RL,

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(10-4-90) SPECIAL PN

RD Instruction 1950-C

§1950.104 (Con.)

OL, EE, EM, SL, EO, ST, and/or RHF borrowers who are not delinquent will
have their accounts handled as set out in the following paragraphs.

\(a\) [Power of attorney]{.underline}. Borrowers entering the armed
forces who retain ownership of the security should be encouraged to
execute a power of attorney authorizing the person of their choice to
take any actions necessary to insure proper use and maintenance of the
security, payment of insurance and taxes, and repayment of the loan. No
Agency employee will act as attorney-in-fact for a borrower. The State
Director will consult with OGC concerning any limitations upon the use
of a power of attorney under local law and the circumstances under which
the power of attorney should be exercised. In general, either spouse may
act as attorney-in-fact for the other spouse, but, in a few States, a
spouse cannot exercise the power of attorney in connection with a sale
or encumbrance of the homestead. In a majority of States, a power of
attorney is revoked by the death of a person granting the power, but, in
some States, the power of attorney executed by a person in the armed
services remains valid until actual notice is received of the death of
the person granting the power. A power of attorney should not be used in
conveying title to the farm except in those States where the power is
good until actual notice of death. The State Director will request OGC
to prepare a satisfactory form of power of attorney which may be
duplicated in the State Office and furnished to County Supervisors with
a State supplement concerning its use.

\(b\) [Borrower retains ownership of the security]{.underline}. When a
borrower retains ownership of the security, the Agency will assist in
making arrangements for the use of the security which will protect the
interests of both the Government and the borrower.

\(1\) [Leasing]{.underline}. It will be more satisfactory if the
security is leased under a written lease in accordance with equitable
leasing policies and applicable Agency procedures. The borrower should
make arrangements for the rental income to be used for regular payments
on the loan in order to avoid the accumulation of unpaid interest. The
borrower also should make arrangements for the payment of taxes and
insurance and maintenance of the security to avoid having these charges
paid by the Government and then charged to the account. It would be
desirable to provide that the lease will continue for the duration of
the borrower\'s military service unless either party gives written
notice of earlier cancellation of the lease.

\(2\) [Operation by family]{.underline}. When a borrower wishes to have
the farm occupied and operated by family members or relatives without a
written lease, the County Supervisor should advise the borrower as to
whether or not the proposed arrangements will be in the best

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RD Instruction 1950-C

§ 1950.104(b)(2) (Con.)

interests of the borrower and the Government. When the farm is to be
operated by relatives, the hazards and disadvantages to the borrower and
the Government which are inherent in unwritten contracts will be
discussed, and every effort will be made to induce the borrower to enter
into formal contractual arrangements whenever possible to do so.

\(c\) [Borrower does not retain ownership of the security]{.underline}.
The security may be transferred to another approved applicant or sold in
accordance with applicable procedures.

\(d\) [Borrower abandons the security or fails to make satisfactory
arrangements]{.underline}. This paragraph does [not]{.underline} apply
to borrowers with FO, SW, RL, OL, EE, EM, SL, EO, ST, and/or RHF loans.
Those borrowers should be sent Exhibit A and the appropriate attachments
as outlined in Subpart S of Part 1951 of this chapter. When a borrower
abandons the security or fails to make satisfactory arrangements for
maintenance of the security and payment of taxes, insurance, and
installments on the loan, the County Supervisor will send a complete
report on the case to the State Director. The report will include all
the information that can be obtained regarding the borrower\'s plans for
the security and any evidence to indicate that abandonment has, in fact,
taken place. In these instances, it must be recognized that the borrower
may have entered into verbal arrangements for the care of the security
without properly advising the County Supervisor. Whether such cases may
be construed to be in violation of the provisions of the mortgage, so as
to support foreclosure by order of the Court under the provisions of the
Soldiers\' and Sailors\' Civil Relief Act of 1940, will need to be
determined on an individual case basis by the State Director and OGC.
Clear-cut abandonment cases or instances in which the borrower fails to
take action to transfer or sell the property, while evidencing no
interest in it or desire to retain it, will be processed in accordance
with applicable procedures.

\(e\) [Statement of account]{.underline}. Borrowers entering the armed
forces who retain ownership of the security will be requested to
designate mailing addresses for the delivery of statements of accounts.
Any changes in address will be processed on Form RD 450-10 with
appropriate explanations.

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(10-4-90) SPECIAL PN

RD Instruction 1950-C

§ 1950.105 [Interest Rate]{.underline}.

\(a\) The Soldiers and Sailors Relief Act requires that the effective
interest rate charged a borrower who enters active military duty after a
loan is closed will not exceed 6 percent. This applies only to full-time
active military duty and does not include military reserve status or
National Guard participation.

\(b\) As soon as the County Supervisor verifies that a borrower is on
active duty, the County Supervisor will send the borrower a letter which
states that the interest rate on the borrower\'s loans will not exceed 6
percent. At the same time, the County Supervisor will send the Finance
Office a memorandum which states that the borrower is on active duty and
that interest of not more than 6 percent should accrue on the
borrower\'s loans, effective as of the date of the memorandum or as of
the date of the last payment, whichever is later, until further notice.
If a borrower\'s interest on any loan is less than 6 percent, the loan
will continue to accrue interest at the lower rate. The assistance under
this section may not be retroactively applied.

\(c\) As soon as the County Supervisor verifies that a borrower is no
longer on active duty, the County Supervisor will send the Finance
Office a memorandum advising them to terminate the 6 percent interest
rate. The rate will revert to the note rate (or the payment assistance
rate), effective with the next scheduled payment. The 6 percent interest
rate will not be cancelled retroactively. (Revised 10-27-95, SPECIAL
PN.)

\(d\) Additional directions for handling Single Family Housing Loans are
contained in 7 CFR part 3550. (Revised 01-23-03, SPECIAL PN.)

§§ 1950.106 - 1950.150 \[Reserved\]

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