RD Instruction 1902-A

PART 1902 - SUPERVISED BANK ACCOUNTS

Subpart A -- Supervised Bank Accounts of Loan, Grant, and Other Funds

[TABLE OF CONTENTS]{.underline}

[Sec]{.underline}. [Page]{.underline}

1902.1 General. 1

1902.2 Policies concerning disbursement of funds. 2

1902.3 Procedures to follow in fund disbursement. 3

1902.4 Establishing MFH reserve accounts in

a supervised bank account. 3

\(a\) General requirements. 4

\(b\) Deposits and account activity statements. 5

1902.5 \[Reserved\] 5

1902.6 Establishing supervised bank accounts. 5

1902.7 Pledging collateral for deposit of funds in supervised

bank accounts. 7

1902.8 Authority to establish and administer supervised bank

accounts. 8

1902.9 Deposits. 8

\(a\) Deposit by Rural Development personnel. 8

\(b\) Deposits by borrowers. 10

1902.10 Withdrawals. 10

1902.11 Servicing Office records. 12

1902.12 - 1902.13 \[Reserved\] 12

1902.14 Reconciliation of accounts. 13

1902.15 Closing accounts. 13

1902.16 Request for withdrawals by State Director. 16

1902.17 - 1902.49 \[Reserved\] 16

1902.50 OMB control number. 16

Exhibit A - \[Reserved\]

Exhibit B - Interest-Bearing Deposit Agreement

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(10-12-05) SPECIAL PN

RD Instruction 1902-A

PART 1902 - SUPERVISED BANK ACCOUNTS

Subpart A - Supervised Bank Accounts of Loan, Grant, and Other Funds

§ 1902.1 [General]{.underline}.

This subpart prescribes the policies and procedures in establishing and
using supervised bank accounts, and in placing Multi-Family Housing
(MFH) reserve accounts in supervised bank accounts. RD Instruction
2018-D provides the procedures Servicing Officials should follow in
ordering loan and grant disbursements.

\(a\) Borrowers as referred to in this instruction include both loan and
grant recipients. They are referred to as \"depositors\" in the deposit
agreements hereinafter described. References herein and in deposit
agreements to \"other lenders\" include lenders and grantors other than
Rural Development.

\(b\) Banks and savings associations referred to in this subpart are
those in which deposits are insured by the Federal Deposit Insurance
Corporation (FDIC).

\(c\) Credit unions referred to in this subpart are those in which
deposits are insured by the National Credit Union Administration (NCUA).

\(d\) Financial institutions as referred to in this subpart include
banks, savings associations, and credit unions which are covered by the
proper insurance coverage cited in paragraphs (b) and (c) of this
section.

\(e\) Supervised bank accounts referred to in this subpart are bank,
savings association, or credit union accounts established through
deposit agreements entered into between the borrower, the United States
of America acting through Rural Development, and the Financial
Institution on Form RD 402-1, \"Deposit Agreement.\"

\(f\) Form RD 402-1 provides for the deposit of funds in a supervised
bank account to ensure the performance of the borrower\'s obligation to
Rural Development in connection with a loan and/or grant.

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

DISTRIBUTION: WSAL General

Supervised Bank Accounts

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RD Instruction 1902-A

§ 1902.1 (Con.)

\(g\) \"Interest-Bearing Deposit Agreement\" (Exhibit B of this
subpart), provides for the deposit of loan or grant funds that are not
required for immediate disbursement in specified interest-bearing
deposits, and it is executed in conjunction with Form RD 402-1.

\(h\) Servicing officials referred to in this subpart include county
supervisors, district directors, local supervisors, area supervisors,
and National Office grant program managers.

\(i\) Automated systems referred to in this subpart refers to the loan
accounting systems; e.g., Program Loan Accounting System, Automated
Multi-Housing Accounting System, and Dedicated Loan Origination System,
from which loan and grant disbursements are ordered.

\(j\) This subpart includes the National Office directly servicing a
grant recipient or recipient of cooperative agreement funds.

§ 1902.2 [Policies concerning disbursement of funds]{.underline}.

\(a\) Generally, loan and grant disbursements may be requested on an as
needed basis thereby reducing the need for supervised bank accounts. For
all construction loans and those loans using multiple advances, only the
actual amount to be disbursed at loan closing will be requested through
the automated systems. Subsequent disbursements will be ordered as
needed. However, supervised bank accounts may be used in certain
circumstances. For example:

\(1\) When a construction loan is made and the construction is
substantially completed, but a small amount is being withheld pending
completion of landscaping or some similar item. In this case, funds not
disbursed may be placed in a supervised bank account for future
disbursement as appropriate.

\(2\) When a large number of checks will be issued in the construction
of a dwelling or other development. In such cases, loan and grant
disbursements will be requested in accordance with RD Instruction 2018-D
as necessary and deposited in a supervised bank account and disbursed as
necessary to suppliers, sub-contractors, etc.

\(3\) Association loan and grant funds made on a multiple advance basis
may be deposited in a supervised bank account when required by State
statutes or when determined necessary by the loan approval official.

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> RD Instruction 1902-A

§ 1902.2(a) (Con.)

\(4\) Supervised bank accounts may be used when needed as defined in
paragraph (a)(5) of this section to ensure the correct expenditures of
all or a part of loan and grant funds, borrower contributions, and
borrower income. Such accounts will be limited in amount and duration to
the extent feasible through the prudent disbursement of funds and the
prompt termination of the interests of Rural Development and other
lenders when the accounts are no longer required.

\(5\) When it is determined by the Servicing Official that special
supervision is needed in the management of the borrower\'s finances,
funds may be deposited in a supervised bank account. This supervisory
technique will be used for a temporary period to help the borrower learn
to properly manage his/her finances. Such a period will not exceed 1
year unless extended by the Servicing Official.

\(b\) Program instructions provide information as to the type of note to
be utilized and the method of handling advances and the interest
accrued.

\(c\) The debt instruments executed at the time of loan closing
constitute an obligation on the part of the Government to disburse all
funds at one time or in multiple advances provided the funds are for
purposes authorized by the Government at the time of loan closing. This
obligatory commitment takes priority over any intervening liens or
advances by other creditors regardless of the provisions of the State
laws involved.

§ 1902.3 [Procedures to follow in fund disbursement]{.underline}.

\(a\) The Servicing Official will determine during loan approval the
amount(s) of loan or grant disbursement(s) \-- full or partial\-- and
will process the request to the appropriate automated system in
accordance with RD Instruction 2018-D.

\(b\) When Treasury check(s) are delivered to the Servicing Official,
the Servicing Official will make sure that the name of the borrower and
the amount(s) of check(s) coincide with the request on file. The
Servicing Official should be sure that the check is properly endorsed to
ensure payment to the intended recipient. Examples of such restrictive
endorsements are:

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RD Instruction 1902-A

§ 1902.3(b) (Con.)

\(1\) \"For Deposit Only to Account No. (Number of Construction Account)
of ([Name of Borrower]{.underline}) in ([Name of Financial
Institution]{.underline}).\"

\(2\) \"Pay to the order of (3rd party payee)\" - (Contractor,
Developer, Sub-Contractor, Building Supply House, etc.) for the purpose
of\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

\(c\) When necessary and only under the circumstances listed in §
1902.2, the Servicing Official will establish, or cause to be
established, a supervised bank account. Funds deposited in a supervised
bank account are to be recorded and accounted for on Form RD 402-2,
\"Statement of Deposits and Withdrawals.\"

§ 1902.4 [Establishing MFH reserve accounts in a supervised bank
account]{.underline}.

> \(a\) [General requirements]{.underline}. All MFH borrowers required
> to maintain reserve accounts must place the reserve accounts in a
> supervised bank account(s) which meets the following requirements:

## 

> \(1\) [Countersignature requirements]{.underline}. The reserve account
> must require that any funds withdrawn be countersigned by an
> authorized Rural Development official.

## 

> \(2\) [Restrictions on collateral]{.underline}. The financial
> institution holding the reserve account must ensure that the funds are
> not pledged or taken as security without the Agency\'s prior consent.
>
> \(3\) [Interest bearing]{.underline}. The reserve account funds are
> encouraged to be maintained in an interest-bearing account. The
> \"Interest-Bearing Deposit Agreement\" set out in Exhibit B of this
> subpart is not required to be used for reserve accounts.
>
> \(4\) [Restricted investments]{.underline}. Reserve funds must be
> placed in investments authorized in 7 CFR part 3560, subpart G. The
> authorized investments are deemed to be of acceptable risk such that
> the potential for any loss is minimal.
>
> \(5\) [Financial institutions]{.underline}. The reserve account must
> be maintained in authorized financial institutions set out in 7 CFR
> part 3560, subpart G; e.g., banks, savings institutions, credit
> unions, brokerage firms, mutual funds. Generally, any financial
> institution may be used provided invested or deposited funds are
> insured to protect against theft and dishonesty. The reserve account
> funds need not be Federally insured, but must be otherwise covered by
> non-Federal insurance against theft and dishonesty.

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> RD Instruction 1902-A

§ 1902.4(a) (Con.)

\(6\) [Rules where multiple projects are involved]{.underline}. A
reserve account(s) must be maintained for each borrower. When a borrower
owns multiple projects, reserve accounts may be established for each
project. A single reserve account may also be established by a borrower
owning multiple projects, provided the conditions set out in 7 CFR part
3560, subpart G, are met.

\(7\) [Term]{.underline}. Reserve accounts are expected to be kept for
the full term of the loan.

\(b\) [Deposits and account activity statements]{.underline}.

\(1\) [Deposits]{.underline}. Generally, Rural Development will not
require the review or approval of deposits or the use of Form RD 402-1
or 402-2.

\(2\) [Account activity statements]{.underline}. Generally, Rural
Development will not monitor or reconcile the reserve account activity
statements issued periodically by the financial institutions holding the
funds. Rural Development will monitor reserve account levels through
budget reports, audits, and Agency reserve tracking systems. If disputes
arise or the borrower is in violation of Agency regulations, the Agency
may require account activity statements. When account activity
statements are sought, it will normally be sufficient to obtain the
statement which reflects balances as of the last activity statement
ending period. Form RD 402-2 is not required to be used.

§ 1902.5 \[Reserved\]

§ 1902.6 [Establishing supervised bank accounts]{.underline}.

\(a\) Each borrower will be given an opportunity to choose the financial
institution in which the supervised bank account will be established,
provided the financial institution is a member of the FDIC or NCUA, as
applicable.

\(b\) When accounts are established, it should be determined that:

\(1\) The financial institution is fully informed concerning the
provisions of the applicable deposit agreement,

\(2\) Agreements are reached with respect to the services to be provided
by the financial institution including the frequency and method of
transmittal of checking account statements, and

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RD Instruction 1902-A

§ 1902.6(b) (Con.)

\(3\) An agreement is reached with the financial institution regarding
the place where the counter-signature will be on the checks.

\(c\) When possible, Servicing Officials will make arrangements with
financial institutions to waive service charges in connection with
supervised bank accounts. However, there is no objection to the payment
by the borrower of a reasonable charge for such service.

\(d\) For each borrower, if the amount of any loan and grant funds, plus
any borrower contributions and funds from other sources to be deposited
in the supervised bank account will exceed \$100,000, the financial
institution will be required to pledge collateral for the excess over
\$100,000, before the deposit is made (see § 1902.7 of this subpart). If
the supervised bank account is a joint account, any amount over the FDIC
or NCUA-insured limit must be collateralized.

\(e\) Only one supervised bank account will be established for any
borrower regardless of the amount or source of funds, except for [Rural
Rental Housing]{.underline} loans where separate accounts will be
established for each project.

\(f\) When a supervised bank account is established, an original and two
copies of the applicable Deposit Agreement and the Interest-Bearing
Deposit Agreement (Exhibit B of this subpart), when applicable, will be
executed by the borrower, the financial institution, and a Servicing
Office employee. The original will be retained in the borrower\'s case
file, one executed copy will be delivered to the financial institution
and one executed copy to the borrower. An extra copy of the
Interest-Bearing Deposit Agreement, when applicable, will be prepared
and attached to the certificate, passbook, or other evidence of deposit
representing the interest-bearing deposit.

\(1\) If an agreement on the applicable Deposit Agreement has previously
been executed and Form RD 402-6, \"Termination of Interest in Supervised
Bank Account,\" has not been executed with respect to it, a new
agreement is not required when additional funds are to be deposited
unless requested by the financial institution.

\(2\) When the note and security instrument are signed by two joint
borrowers or by both husband and wife, a joint survivorship supervised
bank account will be established from which either can withdraw funds if
State laws permit such accounts. In such cases both parties will sign
the Deposit Agreement(s).

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RD Instruction 1902-A

§ 1902.7 [Pledging collateral for deposit of funds in supervised bank
accounts]{.underline}.

\(a\) Funds in excess of \$100,000, per financial institution, deposited
for borrowers in supervised bank accounts, must be secured by pledging
acceptable collateral with the Federal Reserve Bank (FRB) in an amount
not less than the excess. If the supervised bank account is a joint
account, any amount over the FDIC- or NCUA-insured limit must be
collateralized.

\(b\) As soon as it is determined that the loan will be approved and the
applicant has selected or tentatively selected a financial institution
for the supervised bank account, the Servicing Official will contact the
financial institution to determine:

\(1\) That the financial institution selected is insured by the FDIC
(banks and savings associations) or NCUA (credit unions).

\(2\) Whether the financial institution is willing to pledge collateral
with the FRB under 31 CFR Part 202 (Treasury Circular 176) to the extent
necessary to secure the amount of funds being deposited in excess of the
FDIC or NCUA insurance limit.

\(3\) If the financial institution is not a member of the Federal
Reserve System, it will be necessary for that financial institution to
pledge the securities with a correspondent bank who is a member of the
System. The correspondent bank should contact the FRB informing them
they are holding securities pledged for the supervised bank account
under 31 CFR Part 202 (Treasury Circular 176).

\(c\) If the financial institution agrees to pledge collateral, the
Servicing Official should complete RD Form Letter 1902-A-2, \"Designated
Financial Institution - Collateral Pledge,\" in an original and two
copies, the original for the National Office, Policy and Analysis
Division, the first copy for the State Office, and the second copy for
the Servicing Official. The RD Form Letter 1902-A-2 should be forwarded
to the National Office, Policy and Analysis Division, at least 30 days
before the date of loan closing.

\(d\) The National Office, Policy and Analysis Division, will arrange
for the financial institution under its designation as a depositary and
financial agent of the U.S. Government to pledge the requested
collateral.

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RD Instruction 1902-A

§ 1902.7 (Con.)

\(e\) If, two days before loan closing, the local Rural Development
office which requested the collateral has not received notification from
the National Office, Policy and Analysis Division, that collateral has
been pledged, contact should be made with the financial institution to
ascertain whether they have pledged collateral with their local FRB
under 31 CFR Part 202 (Treasury Circular 176). If the financial
institution has pledged collateral, the local Rural Development office
should contact the National Office, Policy and Analysis Division, who
will follow-up with the local FRB concerning the collateral.

\(f\) When the amount of deposit in the supervised bank account has been
reduced to a point where the financial institution desires part or all
of the collateral released, it should contact the National Office,
Policy and Analysis Division. The local Rural Development office will be
contacted for release authorization. The authorization release will be
made through the local FRB, with notification to the financial
institution. The local Rural Development office may also request release
through the National Office, Policy and Analysis Division.

§ 1902.8 [Authority to establish and administer supervised bank
accounts.]{.underline}

Servicing Officials are authorized to establish supervised bank
accounts, deposit loan checks and other funds, countersign checks, close
accounts, and execute all forms in connection with supervised bank
account transactions and redelegate this authority to a person under
their supervision who is considered capable of exercising such
authority. State Directors will make written demand upon the bank for
withdrawals outlined in § 1902.16.

§ 1902.9 [Deposits]{.underline}.

\(a\) [Deposit by Rural Development personnel]{.underline}.

\(1\) Checks made payable solely to the Federal Government or any Agency
thereof, and a joint check when the Treasurer of the United States is a
joint payee, may not be deposited in a supervised bank account.

\(2\) Rural Development personnel will accept funds for deposit in a
borrower\'s supervised bank account ONLY in the form of a check or money
order endorsed by the borrower \"For Deposit Only,\" or a check drawn to
the order of the financial institution in which the funds are to be
deposited, or a loan check drawn on the U.S. Treasury, or a Rural
Development electronic funds transfer disbursement.

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> RD Instruction 1902-A

§ 1902.9(a)(2) (Con.)

\(i\) A joint check that is payable to the borrower and Rural
Development will be endorsed by the Servicing Official as provided in RD
Instruction 1951-B, Exhibit B, Section 4.

\(ii\) Ordinarily, when deposits are made from funds which are received
as the result of consent or subordination agreements or assignments of
income, the check should be drawn to the order of the financial
institution in which the supervised bank account is established or
jointly to the order of the borrower and Rural Development. All such
checks should be delivered or mailed to the Servicing Office.

\(3\) If direct or insured loan funds or borrower contributions are to
be deposited in a supervised bank account, such funds will be deposited
on the date of loan closing after it has been determined that the loan
can be closed. However, if it is impossible to deposit the funds on the
day the loan is closed due to reasons such as distance from the
financial institution or banking hours, the funds will be deposited on
the first banking day following the date of loan closing.

\(4\) Grant funds will be deposited when such funds are delivered.

\(5\) When funds from any source in the form of cash, check, or money
order are deposited by Rural Development personnel in a supervised bank
account, a deposit slip will be prepared in an original and two copies
with distribution as follows: Original to the financial institution, one
copy to the borrower, and one copy for the borrower\'s case folder. The
names of the borrower, the sources of funds, and \"Subject to Rural
Development Countersignature,\" and if applicable, the account number
will be entered on each deposit slip.

\(6\) A loan or grant check drawn on the U.S. Treasury may be deposited
in a supervised bank account without endorsement by the borrower when it
will facilitate delivery of the check and is acceptable to the financial
institution. The borrower will be notified immediately of any deposit
made and will be furnished a copy of the deposit slip. When a deposit of
this nature is made, the following endorsement will be used:

\"For deposit only in the supervised bank account

of\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_[(name of
borrower)]{.underline}\_\_\_\_\_\_\_\_\_\_\_\_\_

in the [(name of financial institution and address when]{.underline}

[necessary for identification)]{.underline} pursuant to Deposit
Agreement dated \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.\"

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RD Instruction 1902-A

§ 1902.10(a) (Con.)

\(7\) Accounts established through the use of Interest-Bearing Deposit
Agreement will be in the name of the depositor and the Government.

\(b\) [Deposits by borrowers]{.underline}. Funds in the form of cash,
check, or money order may be deposited in the supervised bank account by
the borrower if authorized by Rural Development provided the financial
institution has agreed that when a deposit is made to the account by
other than Rural Development personnel, the financial institution will
promptly deliver or mail a copy of the deposit slip to the Rural
Development Servicing Office.

\(1\) A loan or grant check drawn on the U.S. Treasury may be deposited
in a supervised bank account by a borrower, provided the following
endorsement is used and is inserted thereon prior to delivery to the
borrower for signature:

\"For deposit only in my supervised bank account

in the (name of financial institution and address when

necessary for identification) pursuant to Deposit Agreement

dated
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.\"

\(2\) Funds other than loan or grant funds may be deposited by the
borrower in those exceptional instances where an agreement is reached
between the Servicing Official and the borrower, whereby the borrower
will make deposits of income from any source directly into the
supervised bank account. In such instances the borrower will be
instructed to prepare the deposit slip in the manner described in\
§ 1902.9(a)(5) of this subpart.

§ 1902.10 [Withdrawals]{.underline}.

\(a\) The Servicing Official will not countersign checks on the
supervised bank account for the use of funds unless the funds deposited
by the borrower from other sources were cash deposits, or checks which
the Servicing Official knows to be good, or until the deposit checks
have cleared.

\(b\) Withdrawals of funds deposited under the applicable deposit
agreement are permitted only by order of the borrower and
countersignature of authorized Rural Development personnel, or upon
written demand on the financial institution by the State Director.

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> RD Instruction 1902-A

§ 1902.10 (Con.)

\(c\) Upon withdrawal or maturity of interest-bearing accounts
established through the use of an Interest-Bearing Deposit Agreement,
such funds will be credited to the supervised bank account established
through the use of Form RD 402-1.

\(d\) The issuance of checks on the supervised bank account will be kept
to the minimum possible without defeating the purpose of such accounts.
When major items of capital goods are being purchased, or a limited
number of relatively costly items of operating expenses are being paid,
or when debts are being refinanced, the checks will be drawn to the
vendors or creditors. If minor capital items are being purchased or
numerous items of operating and family living expenses are involved as
in connection with a monthly budget, a check may be drawn to the
borrower to provide the funds to meet such costs.

\(1\) A check will be issued payable to the appropriate payee but will
never be issued to \"cash.\" The purpose of the expenditure will be
clearly shown on Form RD 402-2 and indicated on the face of the check.
When checks are drawn in favor of the borrower to cover items too
numerous to identify, the expenditure will be identified on the check,
as \"miscellaneous.\"

\(2\) Ordinarily, a check will be countersigned before it is delivered
to the payee. However, in justifiable circumstances such as when
excessive travel on the part of the borrower or Servicing Official would
be involved, or purchase would be prevented, and the borrower can be
relied upon to select goods and services in accordance with the plans, a
check may be delivered to the payee by the borrower before being
countersigned.

\(i\) When a check is to be delivered to the payee before being
countersigned, the Servicing Official must make it clear to the borrower
and to the payee, if possible, that the check will be countersigned only
if the quantity and quality of items purchased are in accordance with
approved plans.

\(ii\) Checks delivered to the payee before counter-signature will bear
the following legend in addition to the legend for countersignature:
\"Valid only upon countersignature of Rural Development.\"

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RD Instruction 1902-A

§ 1902.10(d)(2) (Con.)

\(iii\) The check must be presented by the payee or a representative to
the Rural Development Servicing Office for the required
countersignature.

\(iv\) Such check must be accompanied by a bill of sale, invoice, or
receipt signed by the borrower identifying the nature and cost of goods
or services purchased, or similar information must be indicated on the
check.

\(3\) For real estate loans or grants, whether the check is delivered to
the payee before or after countersignature, the number and date of the
check will be inserted on all bills of sale, invoices, receipts, and
itemized statements for materials, equipment, and services.

\(4\) Bills of sale, invoices, receipts, or itemized statements may be
returned to the borrower with the canceled check for the payment of the
bill.

\(5\) Checks to be drawn on a supervised bank account will bear the
legend:

> \"Countersigned,\" not as co-maker or endorser.

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

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

(Title)

Rural Development

§ 1902.11 [Servicing Office records]{.underline}.

A record of funds deposited in a supervised bank account will be
maintained on Form RD 402-2 in accordance with the Forms Manual Insert.
The record of funds provided for operating purposes by another creditor
or grantor will be on a separate Form RD 402-2 so that they can be
clearly identified.

§§ 1902.12 - 1902.13 \[Reserved\]

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RD Instruction 1902-A

§ 1902.14 [Reconciliation of accounts]{.underline}.

\(a\) A checking account statement will be obtained periodically in
accordance with established practices in the area. If the checking
statement does not include sufficient information to reconcile the
account (the name of the payee or the check number and the amount of
each check, i.e., a negotiable demand draft drawn on a financial
institution), the original cancelled check or either a copy or other
reasonable facsimile of the cancelled check must be provided to the
Servicing Office with the statement. Checking account statements will be
reconciled promptly with Servicing Office records. The person making the
reconciliation will initial the record and indicate the date of the
action.

\(b\) All checking account statements and, if necessary, original
cancelled checks or either a copy or other reasonable facsimile of the
cancelled checks will be forwarded immediately to the borrower when bank
statements and Servicing Office records are in agreement. If a
transmittal is used, Form RD 140-4, \"Transmittal of Documents,\" is
prescribed for that purpose.

\(c\) If the financial institution did not return the original cancelled
check(s) to the Agency with the statements, and Rural Development has a
need for the original cancelled check(s), the financial institution,
upon request by the Agency, will furnish to the Agency the requested
original cancelled check(s) or a certified copy or other reasonable
certified facsimile of the cancelled check(s) and will provide this
service to Rural Development with no fees being assessed the Agency or
the Depositor\'s account for the service.

§ 1902.15 [Closing accounts]{.underline}.

When Rural Development loans or grant funds and those of any other
lender or grantor have all been properly expended or withdrawn, Form RD
402-6, "Termination of Interest in Supervised Bank Account," may be used
to give Rural Development consent (and or another lender or grantor, if
involved) to close the supervised bank account in the following
situations:

\(a\) When Rural Development loan funds in the supervised bank account
of a borrower have been reduced to \$100 or less, and a check for the
unexpended balance has been issued to the borrower to be used for
authorized purposes.

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RD Instruction 1902-A

§ 1902.15 (Con.)

\(b\) For all loan accounts, after completion of authorized loan funds
expenditures, and after promptly refunding any remaining unexpended loan
funds on the borrower\'s loan account with Rural Development or another
lender, as appropriate.

\(c\) Promptly upon death of a borrower, except when the loan is being
continued with a joint debtor, when a borrower is in default and it is
determined that no further assistance will be given, or when a borrower
is no longer classified as \"active.\"

\(1\) [Deceased borrowers]{.underline}.

\(i\) Ordinarily, upon notice of the death of a borrower, the Servicing
Official will request the State Director to make demand upon the bank
for the balance on deposit and apply all the balance after payment of
any bank charges to the borrower\'s Rural Development indebtedness. When
the State Director approves continuation with a survivor, the supervised
bank account of a deceased borrower may be continued with a remaining
joint debtor who is liable for the loan and agrees to use the unexpended
funds as planned, provided:

\(A\) The account is a joint survivorship supervised bank account, or

\(B\) If not a joint survivorship account, the financial institution
will agree to permit the addition of the surviving joint debtor\'s name
to the existing signature card and the appropriate Deposit Agreement and
continue to disburse checks out of the existing account upon Rural
Development countersignature and the joint debtor\'s signature in place
of the deceased borrower, or

\(C\) The financial institution will permit the State Director to
withdraw the balance from the existing supervised bank account with a
check jointly payable to Rural Development and the surviving joint
debtor and deposit the money in a new supervised bank account with a
surviving joint debtor, and will disburse checks from this new account
upon the signature of such survivor and the countersignature of an
authorized Rural Development official.

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RD Instruction 1902-A

§ 1902.15(c)(1) (Con.)

\(ii\) The State Director, before applying the balance remaining in the
supervised bank account to the Rural Development indebtedness, is
authorized upon approval by the Office of the General Counsel (OGC) to
refund any unobligated balances of funds from other lenders to the Rural
Development borrower for specific operating purposes in accordance with
subordination agreements or other arrangements between Rural
Development, the lender and the borrower.

\(iii\) The State Director, upon the recommendation of an authorized
representative of the estate of the deceased borrower and the approval
of the OGC, is authorized to approve the use of deposited funds for the
payment of commitments for goods delivered or services performed in
accordance with the deceased borrower\'s plans approved by Rural
Development.

\(2\) [Borrowers in default]{.underline}. Whenever it is impossible or
impractical to obtain a signed check from a borrower whose supervised
bank account is to be closed, the Servicing Official will request the
State Director to make demand upon the financial institution for the
balance on deposit in the borrower\'s supervised bank account for
application as appropriate:

\(i\) To the borrower\'s Rural Development indebtedness, or

\(ii\) As refunds of any obligated advance provided by other lenders
which were deposited in the account, or

\(iii\) For the return of Rural Development grant funds in accordance
with RD Instruction 1951-B, or

\(iv\) For the return of grant funds to other grantors.

\(3\) [Inactive borrowers]{.underline}. An inactive borrower is one
whose loan has not been paid in full, but is no longer classified as
\"active.\"

\(4\) [Paid up borrowers]{.underline}. A paid-up borrower is one who has
a balance remaining in the supervised bank account and has repaid the
entire indebtedness to Rural Development and has properly expended all
funds advanced by other lenders. In such cases the Servicing Official
will:

## 15

## 

(10-12-05) SPECIAL PN

RD Instruction 1902-A

§ 1902.15(c)(4) (Con.)

\(i\) Notify the borrower in writing that the interests in the account
of Rural Development have been terminated, and

\(ii\) Inform the borrower of the balance remaining in the supervised
bank account.

§ 1902.16 [Request for withdrawals by State Director]{.underline}.

When the State Director is requested to make written demand upon the
financial institution for the balance on deposit in the supervised bank
account, or any part thereof, the request will be accompanied by the
following information.

\(a\) Name of borrower as it appears on the applicable Deposit
Agreement.

\(b\) Name and location of financial institution.

\(c\) Amount to be withdrawn for refund to another lender of any balance
that may remain of funds received by the borrower from such lender as a
loan or grant, or under a subordination agreement or other arrangement
between Rural Development, the other lender, and the borrower.

\(d\) Amount to be withdrawn, excluding any service charges, for a
refund due to Rural Development.

\(e\) Other pertinent information including reasons for the withdrawal.

§§ 1902.17 - 1902.49 \[Reserved\]

§ 1902.50 [OMB control number]{.underline}.

The reporting and recordkeeping requirements contained in this
regulation have been approved by the Office of Management and Budget
(OMB) and have been assigned OMB control number 0575-0158.

## 

Exhibit A - \[Reserved\]

Exhibit B - Interest-Bearing Deposit Agreement

## oOo

## 16

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> RD Instruction 1902-A

Exhibit B

Page 1

## UNITED STATES DEPARTMENT OF AGRICULTURE

## RURAL DEVELOPMENT

## INTEREST-BEARING DEPOSIT AGREEMENT

BECAUSE certain funds of
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
referred to as the \"Depositor,\" are now on deposit with the
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ referred to
as the \"Financial Institution,\" under a Deposit Agreement dated
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_, 20\_\_\_, providing for supervision
by the United States of America, acting through Rural Development,
referred to as the \"Government,\" which Deposit Agreement grants to the
Government security and/or other interest in the funds covered by that
Deposit Agreement, and

BECAUSE certain of these funds are not now required for immediate
disbursement and it is the desire of the Depositor to place these funds
in interest-bearing deposits with the Financial Institution:

THEREFORE, the Depositor and the Government authorize and direct the
Financial Institution to place
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Dollars (\$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_) of the funds subject to
that Deposit Agreement in interest-bearing deposits as follows:

\$ \_\_\_\_\_\_\_\_\_\_\_\_ for a period of \_\_\_\_\_\_\_ months at
\_\_\_\_\_\_\_\_\_\_\_% interest

\$ \_\_\_\_\_\_\_\_\_\_\_\_ for a period of \_\_\_\_\_\_\_ months at
\_\_\_\_\_\_\_\_\_\_\_% interest

\$ \_\_\_\_\_\_\_\_\_\_\_\_ for a period of \_\_\_\_\_\_\_ months at
\_\_\_\_\_\_\_\_\_\_\_% interest

These interest bearing deposits and the income earned on them at all
times shall be considered a part of the account covered by said Deposit
Agreement except that the right of the Depositor and the Government to
jointly withdraw all or a portion of the funds in the account covered by
the Deposit Agreement by an order of the Depositor countersigned by a
representative of the Government, and the right of the Government to
make written demand for the balance or any portion of the balance, is
modified by the above time deposit maturity schedule. The evidence of
such time deposits shall be issued in the names of the Depositor and
Rural Development.

(10-12-05) SPECIAL PN

RD Instruction 1902-A

Exhibit B

Page 2

A copy of this Agreement shall be attached to and become a part of each
certificate, passbook, or other evidence of deposit that may be issued
to represent such interest-bearing deposits.

Executed this\_\_\_\_\_\_\_\_ day of \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
20\_\_.

UNITED STATES OF AMERICA
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(Depositor)

By:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
By:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Servicing Official
Title:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Rural Development

U.S. Department of Agriculture

Accepted on the above terms and conditions this \_\_\_\_\_\_\_\_\_ day
of \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_, 20\_\_\_.

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

(Financial Institution)

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

(Office or Branch)

By:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Title:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

## Position 2

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## oOo