**[Leveraged Loan Foreclosure Process]{.underline}**

I.  **[PURPOSE]{.underline}:** This instruction supplements
    Handbook-1-3550, Chapter 10, "Leveraged Loans".

II. **[PARAGRAPH 10.3 F. 2. SPECIAL SERVICING]{.underline}**: Procedure
    for processing a leveraged loan foreclosure.

The following situations apply only to those cases where the leveraged
lender has a first lien position and Rural Development has a second lien
position:

### PAYING OFF THE PRIOR LIENHOLDER. The only time Rural Development will pay off a prior lienholder before the foreclosure sale is if Rural Development decides to continue to work with the borrower. For example if the borrower encounters a situation beyond their control in which they can no longer afford the full-note rate prior lienholder payment and the subsidized Rural Development payment. In this case, protective advance funds may be used to pay the prior lienholder debt in full. The protective advance will get charged to the borrower's account and is immediately due and payable within 30 days. The Local Office will work with the Centralized Servicing Center to reamortize the loan account and offer other servicing options as needed. 

# 

The Local Office must contact the Management Control division to verify
there are sufficient L/R funds. The Local Office will complete form AD
700, "Procurement Request" and RD Instruction 2024A, Exhibit K, "Request
for Emergency Payment". The Local Office must include the borrower's
primary account number and the tax id number of the prior lienholder on
Exhibit K. Provide this information to Management Controls a week prior
to the desired electronic fund transfer date.

# 

### RURAL DEVELOPMENT FORECLOSURE

# Rural Development will foreclose its' junior mortgage subject to the prior lienholder mortgage. This foreclosure action will not affect the prior-lienholder mortgage. The prior lienholder will remain secured. The foreclosure action will wipe out the Rural Development mortgage(s), and any other junior mortgages. 

# The prior lienholder will typically be paid once redemption rights have expired and Rural Development has sold the property. Sale proceeds will first be applied to the outstanding prior lienholder debt. Remaining funds will be applied to the Rural Development debt. **NOTE: RD may consider paying off the prior lienholder immediately upon expiration of the redemption period** **if the Rural Development Manager believes the house can be more easily sold.** 

Rural Development should review this process with the prior lienholder
and encourage them to initiate the foreclosure process.

The Rural Development bid will consist of the lower of the net recovery
value or the outstanding Rural Development debt. Subtract the Prior Lien
debt in line 7A.of the net recovery value worksheet.

[PRIOR LIENHOLDER FORECLOSURE]{.underline}

The following is a checklist for processing those foreclosures that the
prior lienholder initiates.

1.  \_\_\_\_ Complete a Transaction Screen Questionnaire to identify
    potential environmental hazards and

determine if it is in the Agency's best interest to bid on the property
at the foreclosure sale.

2.  \_\_\_\_ Order a foreclosure appraisal

3\. \_\_\_\_ Determine the date of the prior lienholder foreclosure sale
and obtain the amount required to payoff the prior lienholder. This
should include principal, interest, and all other fees the lender may
have incurred.

4.  \_\_\_\_ Determine the Rural Development bid. This will consist of
    the lower of the prior lienholder debt plus Rural Development debt
    OR the prior lienholder debt plus the net recovery value.

PLEASE NOTE: The Rural Development bid and the check taken to the
foreclosure sale will be two different amounts . The check that is
ordered and taken to the sale will be for the amount of the Prior
Lienholder's bid only. A check for the additional amount is usually not
needed because as the second lienholder, we would be ordering additional
funds to pay ourselves. HOWEVER, ALWAYS BE SURE THE SHERIFF'S DEED
REFLECTS THE RURAL DEVELOPMENT FINAL BID AMOUNT IN ITS ENTIRETY.

For example, the prior lienholder bid will be \$10,000. The Rural
Development bid will be \$40,000. Our Sheriff's deed will be in the
amount of \$40,000. The Rural Development check taken to the sale will
be in the amount of \$10,000.

# 5. \_\_\_\_ Find a lending institution willing to accept an electronic funds transfer for the Prior Lienholder bid amount and issue a check made payable to the Sheriff for the Prior Lienholder bid amount. If the Prior Lienholder is unable or unwilling to perform this service, the Local Office must contact one of their partners; a lender or loan closing agent that would be willing to provide this service. The partner may charge a small fee for this transaction. Add the cost of this fee to the amount of protective advance funds being requested. 

6.  \_\_\_\_\_ Contact the Management Control division to verify there
    are sufficient L/R funds.

The Local Office will complete form AD 700, "Procurement Request" and RD
Instruction 2024A, Exhibit K, "Request for Emergency Payment". The Local
Office must include the borrower's primary account number and tax id
number of the Prior Lienholder. Provide this information to Management
Control a week prior to the desired electronic fund transfer date.

7.  \_\_\_\_ Contact both the person conducting the foreclosure sale
    (the Sheriff or their representative) and the attorney processing
    the foreclosure sale for the prior lienholder. Discuss with them
    what action Rural Development will take at the foreclosure sale and
    try to resolve potential issues.

Explain to them that Rural Development has a mortgage interest in the
property being foreclosed on, what our bid amount will be, and the
amount of the check that will be presented. Contact the SFH Division if
an issue arises that cannot readily be resolved.

8.  \_\_\_\_ Prepare the Deed, Affidavit of Sale by Sheriff, Affidavit
    of Non-Military, and the Claim for Surplus Foreclosure Sale
    Proceeds. Sign and notarize these forms in advance of the sale.
    Attach copies of all Rural Development mortgages to the Claim.
    Verify the Sheriff's Deed refers to and lists the prior lienholder's
    mortgage, not the Rural Development mortgage. (Page 36, paragraph
    1.)

9\. \_\_\_\_ Take the check, Sheriff's Deed, Affidavits, and Claim for
Surplus Foreclosure Sale Proceeds to the foreclosure sale and place the
Rural Development bid.

**A) IF RURAL DEVELOPMENT IS THE SUCCESSFUL BIDDER:**

A.1. \_\_\_\_ Obtain the Affidavit of Publication, Affidavit of Posting
and the Notice of Mortgage Foreclosure Sale from the Sheriff's
representative conducting the sale or from the prior lienholder's
attorney.

A.2. \_\_\_\_ Record the following documents at the Register of Deeds
Office: Sheriff's deed, Affidavit of Sale by Sheriff, Affidavit of
Publication, Notice of Mortgage Foreclosure Sale, Affidavit of Posting,
Affidavit of Non-Military. Rural Development should be prepared to
record these documents the day of the foreclosure sale. If there is a
problem, Rural Development does have up to 20 days from the date of the
sale to record these documents. Determine the cost of recording these
documents and increase the amount of your L/R fund request to include
this amount.

A.3. \_\_\_\_ Document the outcome of the foreclosure sale in global
notes

A.4. \_\_\_\_ Send Task 229 to the Centralized Servicing Center (CSC)
requesting the CSC to setup the foreclosure template. The Local Office
should verify that the template has been created.

WHEN RURAL DEVELOPMENT ACQUIRES THE PROPERTY AT THE END OF REDEMPTION,
the Local Office should work with their Guarantee Office to input the
information needed to complete the foreclosure template. Completion of
the foreclosure template will lead to the creation of the REO template.

**B) IF RURAL DEVELOPMENT IS NOT THE SUCCESSFUL BIDDER:**

B.1. \_\_\_\_ Hand deliver TWO original Claim for Surplus Foreclosure
Sale Proceeds affidavits to the Sheriff and keep two photocopies. Sign
and notarize these forms in advance of the sale. Attach copies of all
Rural Development mortgages to the Claim. Request that the Sheriff
deliver one surplus claim form to the prior lienholder when he/she gives
them the check for the foreclosure sale.

The county will issue a check to the prior lienholder that initiated the
foreclosure sale. Most counties will issue a second check to Rural
Development for the remainder of our bid. Some counties are not that
cooperative and require us to establish our debt means of this Claim
affidavit. In these cases, RD may have to go through the Circuit Court
to obtain these funds. Contact the SFH Division for assistance.

B.2. \_\_\_\_ Return the check on a remittance and apply it to the
borrower's account.

B.3. \_\_\_\_ Obtain information on the third party bidder including
name, complete address including zip code, and the telephone number.
This information is entered into the foreclosure template.

B.4. \_\_\_\_ Document the outcome of the foreclosure sale in global
notes.

FORM FmHA MICH. 427-5

(REVISED 4-11-80)

[DEED]{.underline}

THIS INDENTURE, made «fclday», «fclyear»,

between
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
Sheriff, in and for the County of «fclcounty» in the State of Michigan,
of the First part, and the United States of America, United States
Department of Agriculture, Rural Development (RD), «coffice», Michigan,
party of the Second part, WITNESSETH, That Whereas «borrowerNOTICE»,
made a certain INDENTURE(S) OF MORTGAGE to «priorlienholder», which
was/were duly recorded in the Office of the Register of Deeds, in and
for the County of «fclcounty» «docnumbers», which said Indentures(s) of
Mortgage contained a power of sale, which has become operative by reason
of a default in the condition of said Mortgage(s);

And Whereas, by virtue of said power of sale, and in pursuance of the
Statute in such case made and provided no proceeding at law having been
instituted to recover the debts secured by said Mortgage(s), or any part
thereof, a notice was duly published and a copy of said notice was duly
posted in a conspicuous place upon said premises and that the said
premises in said Indenture(s) of Mortgage would be sold on «fclday»,
«fclyear», at «fcltime» o'clock in the forenoon at «salelocation»,
Michigan, that being the place of holding the Circuit Court in
«fclcounty» County where the premises are situated;

And Whereas, In pursuance of said notice, I did on «fclday», «fclyear»
at «fcltime» o'clock in the forenoon of said day expose for sale, at
Public Vendue, the lands and tenements hereinafter particularly
described, and on such sale did strike off and sell the lands and
tenements to the party of the Second part for the sum of «firstbidwords»
and «firstbidcents»/100 Dollars (\$«firstbidnumbers»), that being the
highest bid therefore and the party of the Second part being the highest
bidder, which said lands and tenements are situated in the Township(s)
of «fcltownship», County of «fclcounty», State of Michigan, and more
particularly described as follows, to wit:

\*\*\*«fcldescription»

\*\*\*See Real Estate Description (separate page for long descriptions)

This property may be located within the vicinity of farm land or a farm
operation. Generally accepted agricultural and management practices
which may generate usual and ordinary noise, dust, odors and other
associated conditions may be used and are protected under the Michigan
Right to Farm Act.

The Grantor grants unto the Grantee the right to make the maximum
divisions allowed under Section 108 of the Land Division Act, Act Number
288 of the Public Acts of 1967.

-2-

This instrument is exempt from County Transfer Tax under M.S.A.
7.456(5)(h)(i)

This instrument is exempt from the Michigan Transfer Tax under M.S.A.
207.505(i) and 207.526(i).

Now, this Indenture Witnesseth, That I,
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
Sheriff aforesaid, by virtue and in pursuance of the Statute in such
case made and provided, and in consideration of the said sum of money so
paid aforesaid, have granted, conveyed, bargained and sold, and by this
Deed do grant, convey, bargain and sell unto the said United States of
America Forever, All the said land and tenements herein described, with
the appurtenances and all the estate, right, title, and interest which
the said Mortgagor had in the said lands and tenements, and every part
thereof, on «mortgagedates», this/these being the date(s) of said
Mortgage(s); or at any time thereafter, to Have to Hold the said lands
and tenements and every part thereof to the said United States of
America to its sole and only use, benefit and behoove forever, as fully
and absolutely as I,
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ ,
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Sheriff aforesaid, under the authority
aforesaid, might,

In Witness Whereof, I have hereunto set my hand and seal the day and
year first above written.

Signed, Sealed and Delivered in the Presence of:

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_)

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_)
SS. \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Sheriff in and

\* for the County of «fclcounty»

Address:

STATE OF MICHIGAN )
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

) SS. \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_, MI
\_\_\_\_\_\_\_\_\_\_\_\_\_\_

COUNTY OF «fclcountyCAPS» )

On «fclday», «fclyear», before me a notary public in and for the said
County came \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_, \_\_\_\_\_\_\_\_\_\_ Sheriff
of said County, known to me to be the individual described in and who
executed the above conveyance, and acknowledge that (s)he executed the
same as his/her free act and deed.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\*

Notary Public

«fclcounty» County, Michigan

My commission expires: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

The form of this instrument was prepared by the Office of General
Counsel, United States Department of Agriculture, and the material in
the blank spaces of the form was inserted by or under the direction of
DALE SHERWIN, State Director, Rural Development (RD), United States
Department of Agriculture, 3001 Coolidge Road, Suite 100, East Lansing,
Michigan 48823.

\* NAMES OF WITNESSES, NOTARY PUBLIC AND PERSONS EXECUTING THE
INSTRUMENTS MUST BE PRINTED, TYPEWRITTEN, OR STAMPED IMMEDIATELY BENEATH
THE SIGNATURE OF SUCH PERSON.

FORM FmHA MICH. 427-5

(Revised 4-11-80)

-3-

[AFFIDAVIT OF SALE BY SHERIFF]{.underline}

STATE OF MICHIGAN )

) SS.

COUNTY OF «fclcountyCAPS» )

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
being duly sworn, deposes and says that (s)he is the
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Sheriff, of said County
of«fclcounty», that (s)he acted as Auctioneer, and made the sale as
described in the annexed Deed pursuant to a certain foreclosure sale
notice, a copy of which is hereunto annexed, that the sale was opened at
«fcltime» o'clock in the forenoon on «fclday», «fclyear», at
«salelocation», Michigan, that being the place of holding the Circuit
Court in the said County of «fclcounty» and was kept open for the space
of [ONE]{.underline} hour, that the highest bid for said lands and
tenements was the sum of «firstbidwords» and «firstbidcents»/100 Dollars
(\$«firstbidnumbers») made by the United States of America and that the
sale was in all respects open and fair, and did strike off and sell the
said lands and premises to the said United States of America which
purchased the said premises fairly, and in good faith, as deponent
verily believes.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\*

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Sheriff

Subscribed and Sworn to before me, on «fclday», «fclyear».

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\*

Notary Public

«fclcounty» County, Michigan

My commission expires:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

STATE OF MICHIGAN )

) SS.

COUNTY OF «fclcountyCAPS» )

I do Hereby Certify, That the within Deed will become operative at the
expiration of «redemption» from the «nthday» day of «fclmonth»,
«fclyear», unless otherwise redeemed according to law, in such case made
and provided.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\*

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Sheriff

\* NAMES OF WITNESSES, NOTARY PUBLIC, AND PERSONS EXECUTING THIS
INSTRUMENT MUST BE PRINTED, TYPEWRITTEN, OR STAMPED IMMEDIATELY BENEATH
THE SIGNATURE OF SUCH PERSON.

PAGE 4

AFFIDAVIT

OF

PUBLICATION

OBTAIN AFFIDAVIT OF PUBLICATION FROM THE PRIOR LIENHOLDER'S ATTORNEY AT
THE FORECLOSURE SALE AND INSERT INTO OUR SHERIFF'S DEED. THIS AFFIDAVIT
SHOULD FOLLOW THE AFFIDAVIT OF SALE BY THE SHERIFF AND PRECEDES THE
NOTICE OF SALE.

INSERT A COPY OF THE NOTICE OF SALE AFTER THE AFFIDAVIT OF PUBLICATION

PAGE 5

AFFIDAVIT

OF

POSTING

OBTAIN AFFIDAVIT OF POSTING FROM THE PRIOR LIENHOLDER'S ATTORNEY AT THE
FORECLOSURE SALE AND INSERT INTO OUR SHERIFF'S DEED. THIS AFFIDAVIT
SHOULD FOLLOW THE NOTICE OF SALE BY THE SHERIFF AND PRECEDES THE
AFFIDAVIT OF NON-MILITARY.

FORM FmHA MICH. 427-12(S)

(2-17-78)

AFFIDAVIT OF NON-MILITARY

STATE OF MICHIGAN )

) SS.

COUNTY OF «fclcountyCAPS» )

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Community Development
Manager, Rural Development (RD), United States Department of
Agriculture, being first duly sworn on oath says that

according to his/her belief «borrowersNONMIL» who was/were the owner(s)
of the mortgaged premises described in a certain Sheriff's Deed for
«fclcounty» County, Michigan on «fclday», «fclyear» was/were not in the
military service or the armed forces of the United State of America or
other friendly powers on «fclday», «fclyear», the date of the mortgage
foreclosure sale and for a three month period prior to the foreclosure
sale.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\* «flm»

Community Development Manager

Rural Development, (RD)

United States Department of Agriculture

Subscribed and sworn to before me this «nthday» day of «fclmonth»,
«fclyear».

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\*

Notary Public

«fclcounty» County, Michigan

My commission expires:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

NAMES OF WITNESSES, NOTARY PUBLIC, AND PERSONS EXECUTING THIS INSTRUMENT
MUST BE PRINTED, TYPEWRITTEN, OR STAMPED IMMEDIATELY BENEATH THE
SIGNATURE OF SUCH PERSON.

**[CLAIM FOR SURPLUS FORECLOSURE SALE PROCEEDS]{.underline}**

DATE OF SALE: «fclday», «fclyear» TIME OF SALE: «fcltime»o'clock in the
forenoon

PLACE OF SALE:«salelocation», MI

MORTGAGOR(s): «borrowersNONMIL»

FORECLOSING MORTGAGEE: «priorlienholder»

**[TO THE SHERIFF OF «fclcountyCAPS» COUNTY, MICHIGAN]{.underline}**:

Pursuant to MSA 27A.3252, notice is hereby given that the United States
of America, United States Department of Agriculture (herein after
"USA"), holds one or more junior mortgage liens on all or part of the
real estate which is the subject of the above described foreclosure
sale. A copy of each mortgage held by the USA is attached to this Claim.
As of the date of the sale, the following amounts were owed to the USA
on its mortgage(s):

**UNPAID PRINCIPLE: \$ [«unpn»]{.underline} UNPAID INTEREST: [\$
«unpn»]{.underline}**

Demand is hereby made that any surplus foreclosure sale proceeds
remaining after satisfaction of the foreclosing mortgagee's mortgage and
payment of costs and expense of the foreclosure sale be paid to, and
this claim be filed with, the Clerk of the Court of «fclcounty» County
as required by the statute.

\* «flm»

Community Development Manager

Rural Development, (RD)

United States Department of Agriculture

Subscribed and sworn to before me this «nthday» day of «fclmonth»,
«fclyear».

STATE OF MICHIGAN )

) SS.

COUNTY OF «fclcountyCAPS» )

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\*

Notary Public

«fclcounty» County, Michigan

My commission expires:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

**III. [PARAGRAPH NOTATIONS: ]{.underline}** Please mark
Handbook-1-3550, Chapter 10, paragraph 10.3 F.2, Special

Servicing supplemented by Michigan Instruction".

III. **[FILING INSTRUCTIONS:]{.underline}** File this Instruction in
     Appendix 7