RD Instruction 4287-B
Table of Contents
Page 1



PART 4287 - SERVICING 

Subpart B - Servicing Business and Industry Guaranteed Loans


TABLE OF CONTENTS

Sec.		Page

4287.101	Introduction.	1
4287.102	Definitions.	1
4287.103	Exception Authority.	1
4287.104	- 4287.105  [Reserved]	1
4287.106	Appeals.	1
4287.107	Routine servicing.	2

	(a)  Lender reports.	2
	(b)  Loan classification.	2
	(c)  Agency/lender conference.	2
	(d)  Financial reports.	3
	(e)  Additional expenditures.	3
	(f)  Borrower visits.	3
	(g)  State Office reports.	4

4287.108	- 4287.111  [Reserved]	4
4287.112	Interest rate adjustments.	4
	
	(a)  Reductions.	4
	(b)  Increases.	5

4287.113	Release of collateral.	5
4287.114	- 4287.122  [Reserved]	6
4287.123	Subordination of lien position.	6
4287.124	Alterations of loan instruments.	7
4287.125	- 4287.133  [Reserved]	7
4287.134	Transfer and assumption.	7
	
	(a)  Documentation of request.	7
	(b)  Terms.	7
	(c)  Release of liability.	7
	(d)  Proceeds.	8
	(e)  Additional loans.	8
	(f)  Credit quality.	8
	(g)  Documents.	8



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RD Instruction 4287-B
Table of Contents
Page 2



Sec.		Page

4287.134	Transfer and assumption (Con.).

	(h)  Loss resulting from transfer.	8
	(i)  Related party.	9
	(j)  Payment requests.	9
	(k)  Cash downpayment.	9
	(l)  Transfer and assumption options.	10
	(m)  Bankruptcy.	10
	(n)  Approval.	10
	(o)  Environmental.	10

4287.135	Substitution of lender.	11
4287.136	Lender failure.	12

	(a)  Uninsured lender.	12
	(b)  Insured lender.	12

4287.137	- 4287.144  [Reserved]	13
4287.145	Default by borrower.	13
4287.146	- 4287.155  [Reserved]	14
4287.156	Protective advances.	14
4287.157	Liquidation.	15

	(a)  Decision to liquidate.	15 
	(b)  Liquidation by the Agency.	15
	(c)  Submission of liquidation plan.	16
	(d)  Lender's liquidation plan.	16
	(e)  Approval of liquidation plan.	17
	(f)  Acceleration.	18
	(g)  Filing an estimated loss claim.	18
	(h)  Accounting and reports.	18
	(i)  Transmitting payments and proceeds to the Agency.	19
	(j)  Abandonment of collateral.	19
	(k)  Disposition of personal or corporate guarantees.	19
	(l)  Compromise settlement.	20
	(m)  Bankruptcy.	21

4287.158	Determination of loss and payment.	21
	
	(a)  Report of loss form.	21
	(b)  Estimated loss.	21
	(c)  Final loss.	22
	(d)  Loss limit.	23
	(e)  Rent.	23
	(f)  Liquidation costs.	23
	(g)  Payment.	24


RD Instruction 4287-B
Table of Contents
Page 3



Sec.		Page

4287.159	- 4287.168  [Reserved]	24
4287.169	Future recovery.	24
4287.170	Bankruptcy.	24

	(a)  Lenders responsibilities.	25
	(b)  Reports of loss during bankruptcy.	25
	(c)  Legal expenses during bankruptcy proceedings.	27
	(d)  Agency monitoring.	27

4287.171	- 4287.179  [Reserved]	27
4287.180	Termination of guarantee.	27
4287.181	- 4287.199  [Reserved]	28
4287.200	OMB control number.	28

Appendix A - Modification or Administrative Action
Appendix B - Business and Industry Guaranteed Loan 
             Final Loss Settlement Checklist  










o0o

















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RD Instruction 4287-B


PART 4287 - SERVICING

Subpart B - Servicing Business and Industry Guaranteed Loans

 4287.101  Introduction.

(a)  This subpart supplements part 4279, subparts A and B, by providing 
additional requirements and instructions for servicing and liquidating 
all Business and Industry (B&I) Guaranteed Loans.  This includes Drought 
and Disaster (D&D), Disaster Assistance for Rural Business Enterprises 
(DARBE), and Business and Industry Disaster (BID) loans.

(b)  The lender will be responsible for servicing the entire loan and 
will remain mortgagee and secured party of record notwithstanding the 
fact that another party may hold a portion of the loan.  The entire loan 
will be secured by the same security with equal lien priority for the 
guaranteed and unguaranteed portions of the loan.  The unguaranteed 
portion of a loan will neither be paid first nor given any preference or 
priority over the guaranteed portion of the loan.  

(c)  Copies of all forms, regulations, and Instructions referenced in 
this subpart are available in any Agency office.  Whenever a form is 
designated in this subpart, that designation includes predecessor and 
successor forms, if applicable, as specified by the field or National 
Office.  Any portion of this Instruction appearing in italicized type is 
considered by the Agency to be administrative procedure and has not been 
published as part of the regulation in the Federal Register.

 4287.102  Definitions.

	The definitions and abbreviations contained in  4279.2 of subpart A of 
part 4279 of this chapter apply to this subpart.

 4287.103  Exception authority.
	Section 4279.15 of subpart A of part 4279 of this chapter applies to this 
subpart.

 4287.104 - 4287.105  [Reserved]

 44287.106  Appeals.

	Section 4279.16 of subpart A of part 4279 of this chapter applies to this 
subpart.

______________________________________________________________________________
DISTRIBUTION:  WSDC                                  Guaranteed Loan Servicing
                                 
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RD Instruction 4287-B



 4287.107  Routine servicing.  

	The lender is responsible for servicing the entire loan and for taking 
all servicing actions that a prudent lender would perform in servicing its own 
portfolio of loans that are not guaranteed.  The Loan Note Guarantee is 
unenforceable by the lender to the extent any loss is occasioned by violation 
of usury laws, use of loan funds for unauthorized purposes, negligent 
servicing, or failure to obtain the required security interest regardless of 
the time at which the Agency acquires knowledge of the foregoing.  This 
responsibility includes but is not limited to the collection of payments, 
obtaining compliance with the covenants and provisions in the Loan Agreement, 
obtaining and analyzing financial statements, checking on payment of taxes and 
insurance premiums, and maintaining liens on collateral.  The State Director 
has the primary responsibility for ensuring that the lender is servicing the 
loan in a prudent manner as required by the Lender's Agreement, the 
regulations governing the program, and loan documents.  Loan servicing is 
intended to be preventive rather than curative.  Prompt followup on delinquent 
accounts and early recognition of and pursuing a solution to potential 
problems are keys to resolving many problem accounts.  The lender should be 
immediately notified in writing when the Agency suspects noncompliance with 
the legal instruments governing the loan.  The Regional Inspector General for 
Investigations, U.S. Department of Agriculture (USDA), should be contacted 
when fraud is suspected.  All servicing actions that are submitted to the 
National Office must be sent in the format set forth in appendix A of this 
subpart.

(a)  Lender reports.  The lender must report the outstanding principal 
and interest balance on each guaranteed loan semiannually using Form RD 
1980-41, "Guaranteed Loan Status Report."  

(b)  Loan classification.  Within 90 days of receipt of the Loan Note 
Guarantee, the lender must notify the Agency of the loan's 
classification or rating under its regulatory standards.  Should the 
classification be changed at a future time, the Agency must be notified 
immediately.  The Agency is required to classify all B&I loans within 
the B&I portfolio.  The Agency will classify B&I loans within 30 days of 
receiving the lender's classification in accordance with the internal 
system on the Rural Community Facilities Tracking System (RCFTS).  When 
the lender uses a classification system different than the internal 
system used in RCFTS, the Agency will convert the lender's 
classification to a corresponding RCFTS classification for data entry.
                                                               
(c)  Agency and lender conference.  At the Agencys request, the lender 
will meet with the Agency to ascertain how the guaranteed loan is being 
serviced and that the conditions and covenants of the Loan Agreement are 
being enforced.  The Agency will hold meetings with the lender at least 
annually.  The Agency, at a minimum, will remind the lender of its

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RD Instruction 4287-B
 4287.107(c) (Con.)


servicing responsibilities under the Lender's Agreement during the field 
visit, review the lender's latest financial analysis, and check the loan 
classification.  It is suggested that the application of loan payments 
also be reviewed.

(1)  Prepare for the visit by reviewing the previous field visit 
reports.

(2)  Coordinate the visit with the lender.

(3)  Before the visit, discuss with the lender the borrower's 
financial reporting and review the lender's analysis of the reports.

(4)  Check the condition of the business premises and the collateral 
and observe how the borrower is maintaining and utilizing the 
equipment.

(5)  Check for potential hazardous contamination.

(6)  Determine the economic impact of the B&I program.

(7)  Document the findings in written correspondence with the 
lender.

(d)  Financial reports.  The lender must obtain and forward to the 
Agency the financial statements required by the Loan Agreement.  The 
lender must submit annual financial statements to the Agency within 120 
days of the end of the borrower's fiscal year.  The lender must analyze 
the financial statements and provide the Agency with a written summary 
of the lenders analysis and conclusions, including trends, strengths, 
weaknesses, extraordinary transactions, and other indications of the 
financial condition of the borrower.  Spreadsheets of the new financial 
statements must also be included.  The State Director should handle 
public body financial reporting requirements generally the same as for 
Community Programs.  Office of Management and Budget (OMB) Circular A-
128 requires an audit for the fiscal year in which the Loan Note 
Guarantee was issued.  OMB Circular A-133 applies to nonprofits.

(e)  Additional expenditures.  The lender will not make additional loans 
to the borrower without first obtaining the prior written approval of 
the Agency, even though such loans will not be guaranteed.  

(f)  Borrower visits.  Periodic borrower visits should be coordinated 
whenever possible with the lender.  It is strongly encouraged that the 
lender accompany the Agency on all borrower visits.  Borrower visits

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RD Instruction 4287-B
 4279.107(f) (Con.)

should be scheduled during the first year of operation after issuance of 
the Loan Note Guarantee.  For all current borrowers, a field visit 
should be done at least once every 3 years.  Problem accounts should be 
visited as frequently as the Agency deems necessary.  Field visits 
should be documented on Form 4279-15, "Business and Industry Field 
Office Review," or a similar format.  

(g)  State Office reports.  All problem loans that are in excess of the 
State's loan servicing authority, all delinquent loans, and any loans in 
bankruptcy will be reported on a quarterly basis to the National Office 
using Form 4279-16, "Quarterly Delinquent/Problem Loan Report (Business 
and Industry)."

 4287.108 - 4287.111  [Reserved]

 4287.112  Interest rate adjustments.

(a)  Reductions.  The borrower, lender, and holder (if any) may 
collectively initiate a permanent or temporary reduction in the interest 
rate of the guaranteed loan at any time during the life of the loan upon 
written agreement among these parties.  The Agency must be notified by 
the lender, in writing, within 10 calendar days of the change.  If any 
of the guaranteed portion has been purchased by the Agency, then the 
Agency will affirm or reject interest rate change proposals in writing.  
The Agency will concur in such interest-rate changes only when it is 
demonstrated to the Agency that the change is a more viable alternative 
than initiating or proceeding with liquidation of the loan or continuing 
with the loan in its present state.    

(1)  Fixed rates can be changed to variable rates to reduce the 
borrowers interest rate only when the variable rate has a ceiling 
which is less than or equal to the original fixed rate.

(2)  Variable rates can be changed to a fixed rate which is at or 
below the current variable rate.  

(3)  The interest rates, after adjustments, must comply with the 
requirements for interest rates on new loans as established by 
 4279.125 of subpart B of part 4279.

(4)  The lender is responsible for the legal documentation of 
interest-rate changes by an endorsement or any other legally 
effective amendment to the promissory note; however, no new notes 
may be issued.  Copies of all legal documents must be provided to 
the Agency. 

(5)  Factors which will be considered in making such determinations 
include whether:  

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RD Instruction 4287-B
 4287.112(a)(5) (Con.)


(i) continuing with the loan would realistically promote or 
enhance rural development and employment in rural areas; 

(ii) recovery is maximized and the monetary recovery would be 
increased by proceeding immediately to liquidation (if 
applicable) or allowing the borrower to continue at a reduced 
interest rate; and 

(iii) an in-depth financial analysis by the lender reasonably 
indicates that the business would be successful at a lower 
interest rate and reasonably indicates that the borrower could 
make the reduced payment and pay off amounts in arrears, if 
any.

(6)  The State Director will notify the Finance Office of any 
interest-rate change by using Form RD 1980-47, "Guaranteed Loan 
Borrower Adjustments," make corrections to RCFTS reflecting the 
change, and document the loan file to reflect the change.  A system 
must be established to monitor the receipt from the lender of 
interest-rate changes and the effective date of change on all 
guaranteed loans where the Agency is the holder or where other 
circumstances might dictate a change in the interest rate at some 
point in the future.

(b)  Increases.  No increases in interest rates will be permitted except 
the normal fluctuations in approved variable interest rates unless a 
temporary interest-rate reduction occurred.  

 4287.113  Release of collateral.

(a)  All releases of collateral with a value exceeding $100,000 must be 
supported by a current appraisal on the collateral released.  The 
appraisal will be at the expense of the borrower and must meet the 
requirements of  4279.144 of subpart B of part 4279 of this chapter.  
The remaining collateral must be sufficient to provide for repayment of 
the Agencys guaranteed loan.  The Agency may, at its discretion, 
require an appraisal of the remaining collateral in cases where it is 
determined that the Agency may be adversely affected by the release of 
collateral.  Sale of release of collateral must be based on an arms-
length transaction.  There must be adequate consideration for release of 
collateral and such release may include, but is not limited to:

(1)  Application of the net proceeds from the sale of collateral to 
the borrower's debts in order of lien priority (Application of sale


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RD Instruction 4287-B
 4287.113(a)(1) (Con.)


proceeds to the Agency guaranteed debt must be in inverse order of 
maturity);  

(2)  Use of the net proceeds from the sale of collateral to purchase 
other collateral of equal or greater value for which the lender will 
obtain for the benefit of the guaranteed loan a lien position equal 
or superior to the position previously held; 

(3)  Application of the net proceeds from the sale of collateral to 
the borrower's business operation in such a manner that a 
significant enhancement of the borrower's debt service ability will 
be clearly demonstrated.  (The lender's written request must detail 
how the borrower's debt service ability will be enhanced); or

(4)  Assurance that the release of collateral is essential for the 
success of the business, thereby furthering the goals of the B&I 
program.  Such assurance must be supported by written documentation 
from the lender.

(b)  Within the parameters of paragraph (a) of this section, lenders 
may, over the life of the loan, release collateral (other than personal 
and corporate guarantees) with a cumulative value of up to 20 percent of 
the original loan amount without Agency concurrence if the proceeds 
generated are used to reduce the guaranteed loan or to buy replacement 
collateral.

(c)  Within the parameters of paragraph (a) of this section, release of 
collateral with a cumulative value in excess of 20 percent of the 
original loan or when the proceeds will not be used to reduce the 
guaranteed loan or to buy replacement collateral must be requested in 
writing by the lender and concurred in by the Agency in writing in 
advance of the release.  A written evaluation will be completed by the 
lender to justify the release.

(d)  Government officers are neither authorized to modify the terms of a 
contract by the supplemental or substitute agreement if such 
modifications are prejudicial to the interest of the United States nor 
are they authorized to give away the property or claim of the 
Government.

 4287.114 - 4287.122  [Reserved]

 4287.123  Subordination of lien position.  

	A subordination of the lender's lien position must be requested in 
writing by the lender and concurred in by the Agency in writing in advance of 
the subordination.  The subordination must enhance the borrower's business,

6



RD Instruction 4287-B
 4287.123 (Con.)


and the Agency's interest.  After the subordination, collateral must be 
adequate to secure the loan.  The lien to which the guaranteed loan is 
subordinated must be for a fixed dollar limit and fixed or limited term, after 
which the guaranteed loan lien priority will be restored.  Subordination to a 
revolving line of credit will not exceed 1 year.  There must be adequate 
consideration for the subordination.  A subordination is considered a 
servicing action requiring the appropriate environmental review by the Agency 
in accordance with subpart G of part 1940.

 4287.124  Alterations of loan instruments.  

	The lender shall neither alter nor approve any alterations of any loan 
instrument without the prior written approval of the Agency.  The State 
Director will consult with the Regional Attorney and, if necessary, the 
National Office for additional guidance.

 4287.125 - 4287.133  [Reserved]

 4287.134  Transfer and assumption.

(a)  Documentation of request.  All transfers and assumptions must be 
approved in writing by the Agency and must be to eligible applicants in 
accordance with subpart B of part 4279 of this chapter.  An individual 
credit report must be provided for transferee proprietors, partners, 
officers, directors, and stockholders with 20 percent or more interest 
in the business, along with such other documentation as the Agency may 
request to determine eligibility.  Although a transfer and assumption is 
normally considered loan servicing, it should be processed in the same 
manner as a new loan.

(b)  Terms.  Loan terms must not be changed unless the change is 
approved in writing by the Agency with the concurrence of any holder and 
the transferor (including guarantors) if they have not been or will not 
be released from liability.  Any new loan terms must be within the terms 
authorized by  4279.126 of subpart B of part 4279 of this chapter.  The 
lender's request for approval of new loan terms will be supported by an 
explanation of the reasons for the proposed change in loan terms.  (The 
maximum terms authorized by  4279.126 of subpart B of part 4279 may be 
considered when new terms are being offered.)
                                                                                                                                
(c)  Release of liability.  The transferor, including any guarantor, may 
be released from liability only with prior Agency written concurrence 
and only when the value of the collateral being transferred is at least 
equal to the amount of the loan being assumed and is supported by a 
current appraisal and a current financial statement.  The Agency will

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RD Instruction 4287-B
 4287.134(c) (Con.)


not pay for the appraisal.  If the transfer is for less than the debt, 
the lender must demonstrate to the Agency that the transferor and 
guarantors have no reasonable debt-paying ability considering their 
assets and income in the foreseeable future.

(d)  Proceeds.  Any proceeds received from the sale of collateral before 
a transfer and assumption will be credited to the transferor's 
guaranteed loan debt in inverse order of maturity before the transfer 
and assumption are closed. 

(e)  Additional loans.  Loans to provide additional funds in connection 
with a transfer and assumption must be considered as a new loan 
application under subpart B of part 4279 of this chapter.  

(f)  Credit quality.  The lender must make a complete credit analysis 
which is subject to Agency review and approval. 
	
(g)  Documents.  Prior to Agency approval, the lender must advise the 
Agency, in writing, that the transaction can be properly and legally 
transferred, and the conveyance instruments will be filed, registered, 
or recorded as appropriate.

(1)  The assumption will be done on the lender's form of assumption 
agreement and will contain the Agency case number of the transferor 
and transferee.  The lender will provide the Agency with a copy of 
the transfer and assumption agreement.  The lender must ensure that 
all transfers and assumptions are noted on all original Loan Note 
Guarantees.

(2)  A new Loan Agreement, consistent in principle with the original 
Loan Agreement, should be executed to establish the terms and 
conditions of the loan being assumed.  An assumption agreement can 
be used to establish the loan covenants.  

(3)  The lender will provide to the Agency a written certification 
that the transfer and assumption is valid, enforceable, and complies 
with all Agency regulations.

(h)  Loss resulting from transfer.  If a loss should occur upon 
consummation of a complete transfer and assumption for less than the 
full amount of the debt and the transferor (including personal 
guarantors) is released from liability, the lender, if it holds the 
guaranteed portion, may file an estimated report of loss to recover its 
pro rata share of the actual loss.  If a holder owns any of the 
guaranteed portion, such portion must be repurchased by the lender or 
the Agency in accordance with  4279.78(c) of subpart A of part 4279.


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RD Instruction 4287-B
 4287.134(h) (Con.)


In completing the report of loss, the amount of the debt assumed will be 
entered as net collateral (recovery).  Approved protective advances and 
accrued interest thereon made during the arrangement of a transfer and 
assumption will be included in the calculations.

(i)  Related party.  If the transferor and transferee are affiliated or 
related parties, any transfer and assumption must be for the full amount 
of the debt.

(j)  Payment requests.  Requests for a loan guarantee to provide equity 
for a transfer and assumption must be considered as a new loan under 
subpart B of part 4279.    

(k)  Cash downpayment.  When the transferee will be making a cash 
downpayment as part of the transfer and assumption:  

(1)  The lender must have an appropriate appraiser, acceptable to 
both the transferee and transferor and currently authorized to 
perform appraisals, determine the value of the collateral securing 
the loan.  The appraisal fee and any other costs will not be paid by 
the Agency.  

(2)  The market value of the collateral, plus any additional 
property the transferee proposes to offer as collateral, must be 
adequate to secure the balance of the guaranteed loans.  

(3)  Cash downpayments may be paid directly to the transferor 
provided:

(i)  The lender recommends that the cash be released, and the 
Agency concurs prior to the transaction being completed.  The 
lender may wish to require that an amount be retained for a 
defined period of time as a reserve against future defaults.  
Interest on such account may be paid periodically to the 
transferor or transferee as agreed;

(ii)  The lender determines that the transferee has the 
repayment ability to meet the obligations of the assumed 
guaranteed loan as well as any other indebtedness;  

(iii)  Any payments by the transferee to the transferor will 
not suspend the transferee's obligations to continue to meet 
the guaranteed loan payments as they come due under the terms 
of the assumption; and 


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RD Instruction 4287-B
 4287.134(k)(3) (Con.)


(iv)  The transferor agrees not to take any action against the 
transferee in connection with the assumption without prior 
written approval of the lender and the Agency.  

(l)  Transfer and assumption options.

(1)  Transfer the total indebtedness on the same terms.

(2)  Transfer the total indebtedness on different terms.

(3)  Transfer for less than all of the debt on the same terms.

(4)  Transfer for less than all of the debt on different terms.

(m)  Bankruptcy.  The bankruptcy court does not have any jurisdiction to 
require a lender to accept another debtor or to transfer a loan to 
another entity.  In such a case, contact your Regional Attorney 
immediately. 

(n)  Approval.  The Agency will handle a transfer and assumption as a 
new loan, and the transfer and assumption must be approved by the State 
Director within the positions loan approval authority.  If there will 
be a loss or if the guaranteed loan balance is in excess of the State 
Director's loan approval authority, the request must be submitted to the 
National Office for review and concurrence.  The Regional Attorney will 
review all legal instruments used in the transfer and assumption prior 
to the transaction being consummated.  A copy of the assumption 
agreement must be placed in the case file.  The Finance Office must be 
notified and the following information should be transmitted to the 
Finance Office:

(1)  Form RD 1980-7, "Notification of Transfer and Assumption of a 
Guaranteed Loan;"

(2)  Form RD 1980-50, "Add, Delete, or Change Guaranteed Loan 
Borrower Information;" and  

(3)  Form RD 1980-51, "Add, Change or Delete Guaranteed Loan 
Record," for the transferee.  

(o)  Environmental.  Transfers and assumptions are considered servicing 
actions requiring the appropriate environmental review by the Agency in 
accordance with subpart G of part 1940.





10



RD Instruction 4287-B



 4287.135  Substitution of lender.  

	After the issuance of a Loan Note Guarantee, the lender shall not sell or 
transfer the entire loan without the prior written approval of the Agency.  
The Agency will not pay any loss or share in any costs (i.e., appraisal fees, 
environmental studies, or other costs associated with servicing or liquidating 
the loan) with a new lender unless a relationship is established through a 
substitution of lender in accordance with paragraph (a) of this section.  This 
includes cases where the lender has failed and been taken over by a regulatory 
agency such as the Federal Deposit Insurance Corporation (FDIC) and the loan 
is subsequently sold to another lender.

(a)  The Agency may approve the substitution of a new lender if:
                                                              
(1)  the proposed substitute lender:

(i)  is an eligible lender in accordance with  4279.29 of 
subpart A of part 4279; 
	
(ii)  is able to service the loan in accordance with the 
original loan documents; and

(iii)  agrees in writing to acquire title to the unguaranteed 
portion of the loan held by the original lender and assumes all 
original loan requirements, including liabilities and servicing 
responsibilities.

(2)  the substitution of the lender is requested in writing by the 
borrower, the proposed substitute lender, and the original lender if 
still in existence.

(b)  Where the lender has failed and been taken over by FDIC and the 
guaranteed loan is liquidated by FDIC rather than being sold to another 
lender, the Agency will pay losses and share in costs as if FDIC were an 
approved substitute lender.

(c)  The Regional Attorney should be requested to review the proposed 
substitution documents to ascertain that the documents will comply with 
all legal requirements.  State Directors may approve a substitution of 
lender for loans where the outstanding loan balance is within the 
State's delegated servicing authority.  

(d)  RCFTS should be updated to reflect the change, and the Finance 
Office should be notified using Form RD 1980-42, "Notice of Substitution 
of Lender."  

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RD Instruction 4287-B



 4287.136  Lender failure.  

	For financial institutions that have failed, the following procedure 
should be followed:

(a)  Uninsured lender.  When an uninsured lender with an Agency 
guaranteed loan fails, the Agency must notify both the National Office 
and the Regional Attorney, in writing, at once.  The Agency will likely 
be dealing with a bankruptcy situation where the receiver will control 
any B&I Guaranteed Loan and sell it as part of the liquidation process.  
These are lengthy, complicated affairs and the Agency needs to keep 
track of the B&I Guaranteed Loan and monitor the bankruptcy progress.  
The Agency should make any successor to the failed institution aware 
that the lender or insuring agency cannot arbitrarily change the 
Lender's Agreement and related documents on the guaranteed loan.  

(b)  Insured lender.  When an insured lender fails, its assets, 
including its loans, are normally taken over by the insuring agency such 
as the FDIC.  The B&I Guaranteed Loan will usually be acquired by either 
the insuring agency or a private institution.  

(1)  Initial action.  As soon as the Agency becomes aware that a 
lender has failed, the Agency should contact the FDIC office (if 
there is one) or the State agency servicing the lender's area at 
once.  The Agency should brief the FDIC or State agency on the 
requirements contained in the Lender's Agreement as well as any 
other Agency regulations that apply.  The Regional Attorney should 
be contacted for legal advice, including determining the time period 
established by applicable law in which a proof of claim can be 
filed.

(2)  Recovery by the Agency.  When the Agency has repurchased the 
guaranteed portion of the loan, the lender has failed, and the 
Agency suspects that the guarantee is unenforceable due to negligent 
servicing, unauthorized use of loan funds, fraud, or 
misrepresentation by the lender.

(i)  Involve the National Office and Regional Attorney as soon 
as it is suspected that the Loan Note Guarantee may be 
unenforceable.

(ii)  Determine and document the exact amount of loss paid by 
the Agency as a result of negligent servicing.





12



RD Instruction 4287-B
 4287.136(b)(2) (Con.)

(iii)  Locate the name and address of the insurance company 
covering the failed institution and its officers for errors and 
omissions.  The Agency loan officer should contact the Regional 
Attorney to structure a demand letter for payment of the loss 
associated with the negligence.

(iv)  If the financial institution has been taken over by a 
Federal or State regulatory agency, the Agency should request 
ettlement of the loss from the assets of the failed institution 
by filing a timely proof of claim.  

(v)  If the failed institution's operations and the Agency 
guaranteed loan were sold to another institution, with the 
concurrence of the Regional Attorney and the National Office, a 
timely appropriate demand for payment should be made from the 
new entity.  A detailed analysis substantiated with any 
supporting documents should accompany the demand for payment 
within the time constraints established by law.  

(vi)  Should the demand on the successor financial institution 
be denied, the Agency should obtain the documented reasons in 
writing.  The Regional Attorney should be consulted to prepare 
the rebuttal and request for reconsideration of payment.  

 4287.137 - 4287.144  [Reserved]

 4287.145  Default by borrower.

(a)  The lender must notify the Agency when a borrower is 30 days past 
due on a payment or is otherwise in default of the Loan Agreement.  Form 
RD 1980-44, "Guaranteed Loan Borrower Default Status," will be used and 
the lender will continue to submit this form bimonthly until such time 
as the loan is no longer in default.  If a monetary default exceeds 60 
days, the lender will arrange a meeting with the Agency and the borrower 
to resolve the problem.

(b)  In considering options, the prospects for providing a permanent 
cure without adversely affecting the risk to the Agency and the lender 
is the paramount objective.  

(1)  Curative actions include but are not limited to:  

(i)  deferment of principal (subject to rights of any holder); 

(ii)  an additional unguaranteed temporary loan by the lender 
to bring the account current; 

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RD Instruction 4287-B
 4287.145(b)(1) (Con.)


(iii)  reamortization of or rescheduling the payments on the 
loan (subject to rights of any holder); 

(iv)  transfer and assumption of the loan in accordance with 
 4287.134 of this subpart; 

(v)  reorganization; 

(vi)  liquidation; 

(vii)  subsequent loan guarantees; and 

(viii)  changes in interest rates with the Agency's, the 
lender's, and the holder's approval, provided that the interest 
rate is adjusted proportionately between the guaranteed and 
unguaranteed portion of the loan and the type of rate remains 
the same.

(2)  In the event a deferment, rescheduling, reamortization, or 
moratorium is accomplished, it will be limited to the remaining life 
of the collateral or remaining limits as contained in  4279.126 of 
subpart B of part 4279 of this chapter whichever is less.  

(c)  Any fully justified rescheduled, deferred, or reamortized loan 
which meets the revised performance agreed to by the lender and the 
Agency will no longer be classified as delinquent but should be 
considered a problem loan for a reasonable period of time and watched 
closely.  The Agency will notify the Finance Office, in writing, of any 
changes in payment terms (interest-rate adjustment and reamortizations) 
as well as the effective dates of such changes.

 4286.146 - 4287.155  [Reserved]

 4287.156  Protective advances.  

	Protective advances are advances made by the lender for the purpose of 
preserving and protecting the collateral where the debtor has failed to, will 
not, or cannot meet its obligations.  Sound judgment must be exercised in 
determining that the protective advance preserves collateral and recovery is 
actually enhanced by making the advance.  Protective advances will not be made 
in lieu of additional loans. 

(a)  The maximum loss to be paid by the Agency will never exceed the 
original principal plus accrued interest regardless of any protective 
advances made.


14



RD Instruction 4287-B
 4287.156 (Con.)


(b)  Protective advances and interest thereon at the note rate will be 
guaranteed at the same percentage of loss as provided in the Loan Note 
Guarantee.  

(c)  Protective advances must constitute an indebtedness of the borrower 
to the lender and be secured by the security instruments.  Agency 
written authorization is required when cumulative protective advances 
exceed $5,000.  

 4287.157  Liquidation.  

	In the event of one or more incidents of default or third party actions 
that the borrower cannot or will not cure or eliminate within a reasonable 
period of time, liquidation may be considered.  If the lender concludes that 
liquidation is necessary, it must request the Agency's concurrence.  The 
lender will liquidate the loan unless the Agency, at its option, carries out 
liquidation.  When the decision to liquidate is made, if the loan has not 
already been repurchased, provisions will be made for repurchase in accordance 
with  4279.78 of subpart A of part 4279.

(a)  Decision to liquidate.  A decision to liquidate shall be made when 
it is determined that the default cannot be cured through actions 
contained in  4287.145 of this subpart or it has been determined that 
it is in the best interest of the Agency and the lender to liquidate.  
The decision to liquidate or continue with the borrower must be made as 
soon as possible when any of the following exist:

(1)  A loan has been delinquent 90 days and the lender and borrower 
have not been able to cure the delinquency through one of the 
actions contained in  4287.145 of this subpart.

(2)  It has been determined that delaying liquidation will 
jeopardize full recovery on the loan.

(3)  The borrower or lender has been uncooperative in resolving the 
problem and the Agency or the lender has reason to believe the 
borrower is not acting in good faith, and it would enhance the 
position of the guarantee to liquidate immediately.

(b)  Liquidation by the Agency.  The Agency may require the lender to 
assign the security instruments to the Agency if the Agency, at its 
option, decides to liquidate the loan.  When the Agency liquidates, 
reasonable liquidation expenses will be assessed against the proceeds 



15


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RD Instruction 4287-B
 4287.157(b) (Con.)


derived from the sale of the collateral.  Form RD 1980-45, "Notice of 
Liquidation Responsibility," will be forwarded to the Finance Office 
when the Agency liquidates the loan.  The State Director has no 
authority to exercise the option to liquidate by the Agency without 
National Office concurrence.

(c)  Submission of liquidation plan.  The lender will, within 30 days 
after a decision to liquidate, submit to the Agency in writing its 
proposed detailed method of liquidation.  Upon approval by the Agency of 
the liquidation plan, the lender will commence liquidation.

(d)  Lender's liquidation plan.  The liquidation plan must include, but 
is not limited to, the following:

(1)  Such proof as the Agency requires to establish the lender's 
ownership of the guaranteed loan promissory note and related 
security instruments and a copy of the payment ledger if available 
which reflects the current loan balance and accrued interest to date 
and the method of computing the interest.

(2)  A full and complete list of all collateral including any 
personal and corporate guarantees.

(3)  The recommended liquidation methods for making the maximum 
collection possible on the indebtedness and the justification for 
such methods, including recommended action:

(i)  for acquiring and disposing of all collateral; and 

(ii)  to collect from guarantors.

(4)  Necessary steps for preservation of the collateral.

(5)  Copies of the borrower's latest available financial statements.

(6)  Copies of the guarantor's latest available financial 
statements.

(7)  An itemized list of estimated liquidation expenses expected to 
be incurred along with justification for each expense.

(8)  A schedule to periodically report to the Agency on the progress 
of liquidation.

(9)  Estimated protective advance amounts with justification.



16



RD Instruction 4287-B

 4287.157(d) (Con.)


(10)  Proposed protective bid amounts on collateral to be sold at 
auction and a breakdown to show how the amounts were determined.

(11)  If a voluntary conveyance is considered, the proposed amount 
to be credited to the guaranteed debt.

(12)  Legal opinions, if needed.

(13)  If the outstanding balance of principal and accrued interest 
is less than $200,000, the lender will obtain an estimate of fair 
market and potential liquidation value of the collateral.  If the 
outstanding balance of principal and accrued interest is $200,000 or 
more, the lender will obtain an independent appraisal report meeting 
the requirements of  4279.144 of subpart B of part 4279 on all 
collateral securing the loan which will reflect the fair market 
value and potential liquidation value.  In order to formulate a 
liquidation plan which maximizes recovery, collateral must be 
evaluated for the release of hazardous substances, petroleum 
products, or other environmental hazards which may adversely impact 
the market value of the collateral.  The appraisal shall consider 
this aspect.  The independent appraiser's fee, including the cost of 
the environmental site assessment, will be shared equally by the 
Agency and the lender.

(e)  Approval of liquidation plan.  The Agency will inform the lender in 
writing whether it concurs in the lender's liquidation plan within 30 
days after receipt of the liquidation plan from the lender.  If the 
Agency needs additional time to respond to the liquidation plan, it will 
advise the lender of a definite time for such response.  Should the 
Agency and the lender not agree on the liquidation plan, negotiations 
will take place between the Agency and the lender to resolve the 
disagreement.  When the liquidation plan is approved by the Agency, the 
lender will proceed expeditiously with liquidation.  The liquidation 
plan will be approved within the State Directors delegated loan 
servicing authority.  In the event the loan balance is in excess of the 
State Director's delegated authority, the liquidation plan must be 
forwarded to the National Office in the appropriate format identified in 
appendix A of this Instruction with supporting documentation for review 
and concurrence.  The liquidation plan may be modified when conditions 
warrant.  All modifications must be approved in writing by the Agency 
prior to implementation.




17


(12-23-96)  SPECIAL PN


RD Instruction 4287-B
 4287.157(e) (Con.)


(1)  A transfer and assumption of the borrower's operation can be 
accomplished before or after the loan goes into liquidation.  
However, if the collateral has been purchased through foreclosure or 
the borrower has conveyed title to the lender, no transfer and 
assumption is permitted.

(2)  A protective bid may be made by the lender, with prior Agency 
written approval, at a foreclosure sale to protect the lender's and 
the Agency's interest.  The protective bid will not exceed the 
amount of the loan, including expenses of foreclosure, and should be 
based on the liquidation value considering estimated expenses for 
holding and reselling the property.  These expenses include, but are 
not limited to, expenses for resale, interest accrual, length of 
time necessary for resale, maintenance, guard service, 
weatherization, and prior liens.  If the liquidation value is not 
more than the sale expenses plus any liens superior to the lien of 
the guaranteed loan, normally, a protective bid should not be made.

(f)  Acceleration.  The lender, or the Agency if it liquidates, will 
proceed to accelerate the indebtedness as expeditiously as possible when 
acceleration is necessary including giving any notices and taking any 
other legal actions required.  A copy of the acceleration notice or 
other acceleration document will be sent to the Agency (or lender if the 
Agency liquidates).  The guaranteed loan will be considered in 
liquidation once the loan has been accelerated and a demand for payment 
has been made upon the borrower.  

(g)  Filing an estimated loss claim.  When the lender is conducting the 
liquidation and owns any or all of the guaranteed portion of the loan, 
the lender will file an estimated loss claim once a decision has been 
made to liquidate if the liquidation will exceed 90 days.  The estimated 
loss payment will be based on the liquidation value of the collateral.  
For the purpose of reporting and loss claim computation, the lender will 
discontinue interest accrual on the defaulted loan in accordance with 
Agency procedures, and the loss claim will be promptly processed in 
accordance with applicable Agency regulations as set forth in 
 4279.78(b)(6) of subpart A of part 4279 of this chapter.

(h)  Accounting and reports.  When the lender conducts liquidation, it 
will account for funds during the period of liquidation and will provide 
the Agency with reports at least quarterly on the progress of 
liquidation including disposition of collateral, resulting costs, and 
additional procedures necessary for successful completion of the 
liquidation.




18



RD Instruction 4287-B
 4287.157 (Con.)


(i)  Transmitting payments and proceeds to the Agency.  When the Agency 
is the holder of a portion of the guaranteed loan, the lender will 
transmit to the Agency its pro rata share of any payments received from 
the borrower, liquidation, or other proceeds using Form RD 1980-43, 
"Lender's Guaranteed Loan Payment to FmHA."  

(j)  Abandonment of collateral.  There may be instances when the cost of 
liquidation would exceed the potential recovery value of the collection.  
The lender, with proper documentation and concurrence of the Agency, may 
abandon the collateral in lieu of liquidation.  A proposed abandonment 
will be considered a servicing action requiring the appropriate 
environmental review by the Agency in accordance with subpart G of part 
1940 of this title.  Examples where abandonment may be considered 
include, but are not limited to:

(1)  The cost of liquidation is increased or the value of the 
collateral is decreased by environmental issues;   

(2)  The collateral is functionally or economically obsolete;

(3)  There are superior liens held by other parties in excess of the 
value of the collateral;

(4)  The collateral has deteriorated; or

(5)  The collateral is specialized and there is little or no demand 
for it.

(k)  Disposition of personal or corporate guarantees.  The lender should 
take action to maximize recovery from all collateral, including personal 
and corporate guarantees.  The lender will seek a deficiency judgment 
when there is a reasonable chance of future collection of the judgment.  
The lender must make a decision whether or not to seek a deficiency 
judgment when:  

(1)  a borrower voluntarily liquidates the collateral, but the sale 
fails to pay the guaranteed indebtedness; 

(2)  the collateral is voluntarily conveyed to the lender, but the 
borrower and personal and corporate guarantors are not released from 
liability; or

(3)  a liquidation plan is being developed for forced liquidation.  



19


(12-23-96)  SPECIAL P


RD Instruction 4287-B
 4287.157 (Con.)


(l)  Compromise settlement.  A compromise settlement may be considered 
at any time.

(1)  The lender and the Agency must receive complete financial 
information on all parties obligated for the loan and must be 
satisfied that the statements reflect the true and correct financial 
position of the debtor including all assets.  Adequate consideration 
must be received before a release from liability is issued.  
Adequate consideration includes money, additional security, or other 
benefit to the goals and objectives of the Agency.  

(2)  Before a personal guarantor can be released from liability, the 
following factors must be considered.

(i)  Cash, either lump sum or over a period of time, or other 
consideration offered by the guarantor;

(ii)  Age and health of the guarantor;

(iii)  Potential income of the guarantor;

(iv)  Inheritance prospects of the guarantor;

(v)  Availability of the guarantor's assets.

(vi)  Possibility that the guarantor's assets have been 
concealed or improperly transferred; and

(vii)  Effect of other guarantors on the loan.  (Consent of 
other guarantors may be needed.)

(3)  Once the Agency and the lender agree on a reasonable amount 
that is fair and adequate, the lender can proceed to effect the 
settlement compromise.  Releases should not be executed until all 
payments or other considerations have been received by the lender 
and the Agency.  Such cases involving fraud, negligent servicing, or 
misrepresentation must be reviewed by the Regional Attorney and have 
the concurrence of the National Office.

(4)  A compromise will only be accepted if it is in the best 
interest of the Agency.







20



RD Instruction 4287-B
 4287.157 (Con.)


(m)  Bankruptcy.  

(1)  If a trustee is appointed by the bankruptcy court to sell the 
collateral, the trustee rather than the lender is responsible for 
the liquidation.  Normally, no liquidation expenses will be incurred 
by the lender.

(2)  Pursuit of personal and corporate guarantors who are not the 
borrower and not in bankruptcy is a matter outside of the 
jurisdiction of the court.  Reasonable expenses incurred in pursuit 
of such guarantors would be allowable provided there was sufficient 
collateral sold or collections made on the loan to cover such 
expenses.

 4287.158  Determination of loss and payment.  

	In all liquidation cases, final settlement will be made with the lender 
after the collateral is liquidated, unless otherwise designated as a future 
recovery or after settlement and compromise of all parties has been completed.  
The Agency will have the right to recover losses paid under the guarantee from 
any party which may be liable.  State Directors are authorized to approve 
estimated and final reports of loss within the positions delegated loan 
servicing authority.  Approval of estimated and final reports of loss that 
exceed the State Director's delegated loan servicing authority must be 
forwarded to the National Office for review and concurrence in the format set 
forth in appendix A of this Instruction.  

(a)  Report of loss form.  Form RD 449-30, "Loan Note Guarantee Report 
of Loss," will be used for calculations of all estimated and final loss 
determinations.  Estimated loss payments may only be approved by the 
Agency after the Agency has approved a liquidation plan.

(b)  Estimated loss.  In accordance with the requirements of 
 4287.157(g) of this subpart, an estimated loss claim based on 
liquidation appraisal value will be prepared and submitted by the 
lender. 

(1)  The estimated loss payment shall be applied as of the date of 
such payment.  The total amount of the loss payment remitted by the 
Agency will be applied by the lender on the guaranteed portion of 
the loan debt.  Such application does not release the borrower from 
liability.




21


(12-23-96)  SPECIAL PN


RD Instruction 4287-B
 4287.158(b) (Con.)


(2)  An estimated loss will be applied first to reduce the principal 
balance on the guaranteed loan and the balance, if any, to accrued 
interest.  Interest accrual on the defaulted loan will be 
discontinued.  

(3)  A protective advance claim will be paid only at the time of the 
final report of loss payment except in certain transfer and 
assumption situations as specified in  4287.134 of this subpart. 

(c)  Final loss.  Within 30 days after liquidation of all collateral, 
except for certain unsecured personal or corporate guarantees as 
provided for in this section, is completed, a final report of loss must 
be prepared and submitted by the lender to the Agency.  The Agency will 
not guarantee interest beyond this 30-day period other than for the 
period of time it takes the Agency to process the loss claim.  Before 
approval by the Agency of any final loss report, the lender must account 
for all funds during the period of liquidation, disposition of the 
collateral, all costs incurred, and any other information necessary for 
the successful completion of liquidation.  Upon receipt of the final 
accounting and report of loss, the Agency may audit all applicable 
documentation to determine the final loss.  The lender will make its 
records available and otherwise assist the Agency in making any 
investigation.  The documentation accompanying the report of loss must 
support the amounts shown on Form RD 449-30.

(1)  A determination must be made regarding the collectibility of 
unsecured personal and corporate guarantees.  If reasonably 
possible, such guarantees should be promptly collected or otherwise 
disposed of in accordance with  4287.157(k) of this subpart prior 
to completion of the final loss report.  However, in the event that 
collection from the guarantors appears unlikely or will require a 
prolonged period of time, the report of loss will be filed when all 
other collateral has been liquidated, and unsecured personal or 
corporate guarantees will be treated as a future recovery with the 
net proceeds to be shared on a pro rata basis by the lender and the 
Agency.  The State Office will establish a follow-up system to 
ensure that the lender is making reasonable collection efforts and 
distributing any collections properly.

(2)  The lender must document that all of the collateral has been 
accounted for and properly liquidated and that liquidation proceeds 
have been properly accounted for and applied correctly to the loan.  

(3)  The lender will show a breakdown of any protective advance 
amount as to the payee, purpose of the expenditure, date paid, and 
evidence that the amount expended was proper and that payment was 
actually made.

22



RD Instruction 4287-B
 4287.158(c) (Con.)

(4)  The lender will show a breakdown of liquidation expenses as to 
the payee, purpose of the expenditure, date paid, and evidence that 
the amount expended was proper and that payment was actually made.  
The Agency should review all liquidation expenses to determine if 
the expenses were proper, reasonable, and in accordance with the 
approval given by the Agency.  Liquidation expenses are recoverable 
only from collateral proceeds.  Attorney fees may be approved as 
liquidation expenses provided the fees are reasonable and cover 
legal issues pertaining to the liquidation that could not be 
properly handled by the lender and its in-house counsel.

(5)  Accrued interest will be supported by documentation as to how 
the amount was accrued.  If the interest rate was a variable rate, 
the lender will include documentation of changes in both the 
selected base rate and the loan rate.

(6)  Loss payments will be paid by the Agency within 60 days after 
the review of the final loss report and accounting of the 
collateral.

(7)  Should there be a circumstance where the lender cannot or will 
not sign a final report of loss, the State Director may complete the 
final report of loss and submit it to the Finance Office without the 
lender's signature.  Before this action can be taken, all collateral 
must be disposed of or accounted for; there must be no evidence of 
fraud, misrepresentation, or negligent servicing by the lender; and 
all efforts to obtain the cooperation of the lender must have been 
exhausted and documented.

(8)  Appendix B of this subpart will be completed on each final 
report of loss and a copy placed in the loan file.

(d)  Loss limit.  The amount payable by the Agency to the lender cannot 
exceed the limits set forth in the Loan Note Guarantee.  

(e)  Rent.  Any net rental or other income that has been received by the 
lender from the collateral will be applied on the guaranteed loan debt.

(f)  Liquidation costs.  Liquidation costs will be deducted from the 
proceeds of the disposition of primary collateral.  If changed 
circumstances after submission of the liquidation plan require a 
substantial revision of liquidation costs, the lender will procure the 
Agency's written concurrence prior to proceeding with the proposed 
changes.  No in-house expenses of the lender will be allowed.  In-house 
expenses include, but are not limited to, employee's salaries, staff 
lawyers, travel, and overhead.

23


(12-23-96)  SPECIAL PN


RD Instruction 4287-B
 4287.158 (Con.)


(g)  Payment.  When the Agency finds the final report of loss to be 
proper in all respects, it will approve Form RD 449-30 and proceed as 
follows:

(1)  If the loss is greater than any estimated loss payment, the 
Agency will pay the additional amount owed by the Agency to the 
lender.  

(2)  If the loss is less than the estimated loss payment, the lender 
will reimburse the Agency for the overpayment plus interest at the 
note rate from the date of payment.

(3)  If the Agency has conducted the liquidation, it will pay the 
lender in accordance with the Loan Note Guarantee.

 4287.159 - 4287.168  [Reserved]

 4287.169  Future recovery.  

	After a loan has been liquidated and a final loss has been paid by the 
Agency, any future funds which may be recovered by the lender will be pro 
rated between the Agency and the lender based on the original percentage of 
guarantee.

 4287.170  Bankruptcy.  

	The lender is responsible for protecting the guaranteed loan and all 
collateral securing the loan in bankruptcy proceedings.

(a)  Lenders responsibilities.  It is the lenders responsibility to 
protect the guaranteed loan debt and all of the collateral securing it 
in bankruptcy proceedings.  These responsibilities include, but are not 
limited to the following:

(1)  The lender will file a proof of claim where necessary and all 
the necessary papers and pleadings concerning the case.

(2)  The lender will attend and, where necessary, participate in 
meetings of the creditors and all court proceedings.

(3)  When permitted by the Bankruptcy Code, the lender will request 
modification of any plan of reorganization whenever it appears that 
additional recoveries are likely.

(4)  The Agency will be kept adequately and regularly informed in 
writing of all aspects of the proceedings.


24



RD Instruction 4287-B
 4287.170(a) (Con.)


(5)  In a Chapter 11 reorganization, if an independent appraisal of 
collateral is necessary in the Agencys opinion, the Agency and the 
lender will share such appraisal fee equally.

(b)  Reports of loss during bankruptcy.  When the loan is involved in 
reorganization proceedings, payment of loss claims may be made as 
provided in this section.  For a liquidation proceeding, only paragraphs 
(b)(3) and (5) of this section are applicable.

(1)  Estimated loss payments.

(i)  If a borrower has filed for protection under Chapter 11 
of the United States Code for a reorganization (but not 
Chapter 13) and all or a portion of the debt has been 
discharged, the lender will request an estimated loss payment 
of the guaranteed portion of the accrued interest and principal 
discharged by the court.  Only one estimated loss payment is 
allowed during the reorganization.  All subsequent claims of 
the lender during reorganization will be considered revisions 
to the initial estimated loss.  A revised estimated loss 
payment may be processed by the Agency, at its option, in 
accordance with any court-approved changes in the 
reorganization plan.  Once the reorganization plan has been 
completed, the lender is responsible for submitting the 
documentation necessary for the Agency to review and adjust the 
estimated loss claim to reflect any actual discharge of 
principal and interest and to reimburse the lender for any 
court-ordered interest-rate reduction under the terms of the 
reorganization plan.

(ii)  The lender will use Form RD 449-30 to request an 
estimated loss payment and to revise any estimated loss 
payments during the course of the reorganization plan.  The 
estimated loss claim, as well as any revisions to this claim, 
will be accompanied by documentation to support the claim.

(iii)  Upon completion of a reorganization plan, the lender 
will complete a Form RD 1980-44 and forward this form to the 
Finance Office.

(2)  Interest loss payments.

(i)  Interest losses sustained during the period of the 
reorganization plan will be processed in accordance with 
paragraph (b)(1) of this section.

25


(12-23-96)  SPECIAL PN


RD Instruction 4287-B
 4287.170(b)(2) (Con.)


(ii)  Interest losses sustained after the reorganization plan 
is completed will be processed annually when the lender 
sustains a loss as a result of a permanent interest rate 
reduction which extends beyond the period of the reorganization 
plan.

(iii)  If an estimated loss claim is paid during the operation 
of the Chapter 11 reorganization plan and the borrower repays 
in full the remaining balance without an additional loss 
sustained by the lender, a final report of loss is not 
necessary.  The Finance Office will close out the estimated 
loss or final loss at the time of notification of payment in 
full. 

(iv)  A report of loss will be completed to compensate the 
lender for any excess in interest rate specified in the Loan 
Note Guarantee and the rate of interest specified in the plan.

(3)  Final loss payments.  Final loss payments will be processed 
when the loan is liquidated.  

(4)  Payment application.  The lender must apply estimated loss 
payments first to the unsecured principal of the guaranteed portion 
of the debt and then to the unsecured interest of the guaranteed 
portion of the debt.  In the event a bankruptcy court attempts to 
direct the payments to be applied in a different manner, the lender 
will immediately notify the Agency servicing office.  The Agency 
will immediately obtain advice from the Office of the General 
Counsel (OGC) on what action to take.

(5)  Overpayments.  Upon completion of the reorganization plan, the 
lender will provide the Agency with the documentation necessary to 
determine whether the estimated loss paid equals the actual loss 
sustained.  If the actual loss sustained as a result of the 
reorganization 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 payment of the estimated loss.  If the actual 
loss is greater than the estimated loss payment, the lender will 
submit a revised estimated loss in order to obtain payment of the 
additional amount owed by the Agency to the lender.  State Directors 
should carefully determine the amount of estimated loss payments to 
avoid litigation that may become necessary to recover overpayments 
from the lender.





26



RD Instruction 4287-B
 4287.170(b) (Con.)


(6)  Protective advances.  If approved protective advances were made 
prior to the borrower having filed bankruptcy, these protective 
advances and accrued interest will be considered in the loss 
calculations.

(c)  Legal expenses during bankruptcy proceedings.  

(1)  When a bankruptcy proceeding results in a liquidation of the 
borrower by a trustee, legal expenses will be handled as directed by 
the court.  

(2)  Chapter 11 generally pertains to a reorganization of a business 
contemplating an ongoing business rather than a termination and 
dissolution of the business where legal protection is afforded to 
the business as defined under Chapter 11 of the Bankruptcy Code.  
Consequently, expenses incurred by the lender in a Chapter 11 
reorganization can never be liquidation expenses unless the 
proceeding becomes a Chapter 11 liquidation.  If the proceeding 
should become a liquidating 11, reasonable and customary liquidation 
expenses may be deducted from proceeds of collateral as provided in 
the Lenders Agreement.  Chapter 7 pertains to a liquidation of the 
borrowers assets.  If, and when, liquidation of the borrowers 
assets under Chapter 7 is conducted by the bankruptcy trustee, then 
the lender cannot claim expenses.

(d)  Agency monitoring.  State Directors are responsible for seeing that 
the Agency is fully informed by the lender on all bankruptcy cases and
monitoring the lender's files to ensure timely action on bankruptcy 
cases.  The Agency may approve the repurchase of the unpaid guaranteed 
portion of the loan from the holders to reduce interest accrual during 
Chapter 7 proceedings or after a Chapter 11 proceeding becomes a 
liquidation proceeding.  State Directors must approve in advance and in 
writing the lender's estimated liquidation expenses on loans in 
liquidation bankruptcy.

 4287.171 - 4287.179  [Reserved]

 4287.180  Termination of guarantee.  

	A guarantee under this part will terminate automatically:  

(a) upon full payment of the guaranteed loan; 

(b) upon full payment of any loss obligation; or 


27


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RD Instruction 4287-B
 4287.170 (Con.)


(c) upon written notice from the lender to the Agency that the guarantee 
will terminate 30 days after the date of notice, provided that the 
lender holds all of the guaranteed portion and the Loan Note Guarantee 
is returned to the Agency to be canceled.  The Agency will notify the 
Finance Office that the Loan Note Guarantee has been terminated or the 
loan has been paid in full.

 4287.181 - 4287.199  [Reserved]

 4287.200  OMB control number.

	The information collection requirements contained in this regulation have 
been approved by OMB and have been assigned OMB control number 0575-0168.  
Public reporting burden for this collection of information is estimated to 
vary from 15 minutes to 8 hours per response, with an average of 4 hours per 
response, including time for reviewing the collection of information.  Send 
comments regarding this burden, estimate or any other aspect of this 
collection of information, including suggestions for reducing this burden to 
the Department of Agriculture, Clearance Officer, OIRM, Stop 7630, Washington, 
D.C. 20250.  You are not required to respond to this collection of information 
unless it displays a currently valid OMB control number.


Attachments:  Appendices A and B.







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RD Instruction 4287-B
Appendix A
Page 1

MODIFICATION OR ADMINISTRATIVE ACTION


BORROWER INFORMATION:

Name and Address of Borrower: ________________________________________________
______________________________________________________________________________

Number of Employees and Annual Payroll: ______________________________________

History of Account: __________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

LOAN INFORMATION:

Name and Address of Lender:  (If different from lender holding guarantee, has 
the lender been substituted as outlined in  4287.135 of this subpart?)  
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

Date Loan Note Guarantee was issued: _________________________________________

Original Amount of the Loan: _________________________________________________

Interest Rate and Terms: _____________________________________________________

Unpaid Balance: 
Principal: $________________________  Interest: $_____________________________

Status:  (  )Current    (  )Delinquent   (  )Liquidation  

         (  )Chapter 7  (  )Chapter 11   (  )Other (Specify) _________________

Use of Loan Funds: ___________________________________________________________
______________________________________________________________________________

Market and liquidation value of collateral: 
Collateral    Appraisal Date  Lien Position   Market Value   Liquidation Value
_____________    _________       _______     $______________ $______________
_____________    _________       _______     $______________ $______________
_____________    _________       _______     $______________ $______________
_____________    _________       _______     $______________ $______________


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RD Instruction 4287-B
Appendix A
Page 2



Who owns the guaranteed portion?  ___lender  ___Agency  ___holder

Has an estimated loss been paid? ______ Amount paid and date:_________________

FINANCIAL INFORMATION:

Credit quality review ratios and comments: 

Current Ratio: _________________  Industry Average: __________________________

Comments: ____________________________________________________________________

Equity: ________________________  Industry Average: __________________________

Comments: ____________________________________________________________________

Debt to Worth: _________________  Industry Average: __________________________

Comments: ____________________________________________________________________

Working Capital: _______________  Industry Average: __________________________

Comments: ____________________________________________________________________

Describe any loan covenant violations: _______________________________________
______________________________________________________________________________
______________________________________________________________________________

Is the cash flow adequate to satisfy current portion of long term debt? ______
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

Financial condition of personal guarantors:

Dates of latest financial statements: ______________________

Net worth: $_____________________    Outside net worth: $_____________________

Comments on collectibility: __________________________________________________
______________________________________________________________________________
______________________________________________________________________________



RD Instruction 4287-B
Appendix A
Page 3



SERVICING REQUEST:

Nature of request: ___________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

State Office analysis of request: __________________________________________
______________________________________________________________________________
______________________________________________________________________________
Lender recommendation: _______________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

Comments on regional attorney's review (Attach copy of opinions): ____________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

Environmental review: Type: _______________________  Adequacy: _______________
Comments: ____________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

State Director and Program Chief recommendations: ____________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________









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RD Instruction 4287-B
Appendix A
Page 4



NOTE:  For all modifications or administrative actions, the following 
information must be considered:

1.  Start with number 1 when the first modification is approved and enter this 
number in the upper right hand corner of the Letter of Concurrence and related 
Modification or Administrative Action sheet.

2.  Next to the modified wording on the work copy of the Conditional 
Commitment for Guarantee and the Term Loan Agreement or any form which has 
been modified, pencil in a short cross reference to the modification and 
identify the number given it.

3.  File the copies of the Modification or Administrative Action sheet and 
related Letters of Concurrence numerically in the docket directly on top of 
the affected original documents of conditions.

4.  The order of recordingkeeping should include any requests which were 
declined by the National Office.



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RD Instruction 4287-B
Appendix B
Page 1



BUSINESS AND INDUSTRY GUARANTEED LOAN
FINAL LOSS SETTLEMENT CHECKLIST

I.  General Information:

Date ______________________________  State ______________________________

Name of Borrower ________________________________________________________
Case Number _____________________________________________________________
Type of Project _________________________________________________________
Type Organization _______________________________________________________
Servicing Office ________________________________________________________
Original Loan Amount ____________________________________________________
Date of Loan ____________________________________________________________
Loan Number _____________________________________________________________
Repayment Period ________________________________________________________
Interest Rate ___________________________________________________________
Fixed ___________________________________________________________________
* Variable ______________________________________________________________
Daily Accrual 360 or 365 days ___________________________________________
Percent of Guarantee ____________________________________________________

Subsequent Loan Amount __________________________________________________
Date of Subsequent Loan _________________________________________________
Repayment Period ________________________________________________________
Interest Rate ___________________________________________________________
Fixed ___________________________________________________________________
* Variable ______________________________________________________________
Daily Accrual 360 or 365 days ___________________________________________
Percent of Guarantee ____________________________________________________

Type of Security:
GO Bond _________________________________________________________________
Revenue Bond ____________________________________________________________
Real Estate _____________________________________________________________
Machinery and Equipment _________________________________________________
Accounts Receivable _____________________________________________________
Inventory _______________________________________________________________
Furniture and Fixtures __________________________________________________
Personal Guarantee ______________________________________________________
Other ___________________________________________________________________
Name of Lender __________________________________________________________
Percent of Loan Held by Lender __________________________________________




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RD Instruction 4287-B
Appendix B
Page 2



Name of Holder __________________________________________________________
Percent of Loan Held by Holder __________________________________________
Amount of Holder's interest repurchased by Lender _______________________
_________________________________________________________________________
Percent of Holder's interest repurchased by Lender ______________________
_________________________________________________________________________
Amount of Holder's interest repurchased by Agency _______________________
_________________________________________________________________________
Percent of Holder's interest repurchased by Agency ______________________
_________________________________________________________________________

* List below the dates and interest rate changes for variable rate loans  
  from the date the loan was last current through the settlement date.

Exact Date of     Interest       Guaranteed       Unguaranteed
 Rate change       Rate             Note               Note

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________


II.  Collateral for the Loan:

      	   Appr.   Value at   Date 
of     Appr. Value	   Appr.
	         Loan    Approval   Appraisal   at Liquidation   Date

Current Market or Liquidation  _________________________________________

Land-Buildings _________________________________________________________

Machinery and
  Equipment    _________________________________________________________

Accounts       _________________________________________________________
Receivable 

Inventory      _________________________________________________________

Furniture and
  Fixtures     _________________________________________________________

Other          _________________________________________________________




RD Instruction 4287-B
Appendix B
Page 3



III.  Loan Balance at Liquidation

Date Liquidation Plan Submitted ____________________	__________________

Date of Liquidation Plan ___________________________	__________________

Effective Date of Liquidation ______________________	__________________

Principal Balance at Liquidation ___________________	__________________

Interest Balance at Liquidation ____________________	__________________

Total Balance at Liquidation _______________________	__________________

Daily Interest Accrual _____________________________	__________________


IV.  LIQUIDATION COSTS:

Phase I Assessment Cost _____________________  ________________________
Phase II Assessment Cost ____________________  ________________________
Legal Fees __________________________________  ________________________
Sheriff's Cost ______________________________  ________________________
Taxes Due and Paid __________________________  ________________________
Auction Cost ________________________________  ________________________
Broker Cost _________________________________  ________________________
Other fees (identify below):_________________  ________________________
                            _________________  ________________________      
                            _________________  ________________________

Total Liquidation Expenses __________________   _______________________

Appraisal Fees ______________________________   _______________________
Date Appraisal Fees Paid ____________________   _______________________
Protective Advances _________________________   _______________________
Dates Protective Advances Paid _________      (1)  __________________
                                              (2)  __________________

V.  USE OF LIQUIDATION PROCEEDS:

Net Proceeds Applied to Guaranteed Loan ____   ________________________

Proceeds Applied to Liquidation Expenses ___   ________________________

Other Applications (identify) ______________   ________________________


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RD Instruction 4287-B
Appendix B
Page 4



VI.  SOURCE OF LIQUIDATION PROCEEDS:

Sale Proceeds Received           _____________

Land-Building                    _____________

Machinery and Equipment          _____________

Furniture and Fixtures           _____________

Inventory                        _____________

Other (identify)                 _____________

Collection on Personal Guarantee _____________


VII.  Summary (circle the proper answer)

NOTE:  All questions answered with "NO" must be explained and fully
       documented to support the reason for the "NO" answer.

1.  (YES - NO - NA)  Did the borrower comply with all applicable laws 	
                     and provisions of the Loan Agreement?

2.  (YES - NO - NA)  Were copies of the borrower's financial statements	
                     submitted to the Agency as required by the Lender's
                     Agreement?

3.  (YES - NO - NA)  Did the lender submit and follow a plan of 	
                     liquidation?

4.  (YES - NO - NA)  Did the Agency approve, in writing, the lender's plan
                     of liquidation and any subsequent revision?

5.  (YES - NO - NA)  Is documentation for justification and 		
                     authorization of all liquidation expenses and
                     protective advances attached?

6.  (YES - NO - NA)  Was a determination made that the lender did not
                     charge for "in house" fees in connection with the
                     liquidation?

7.  (YES - NO - NA)  Did the Agency approve protective advances in
                     writing?



RD Instruction 4287-B
Appendix B
Page 5



8.  (YES - NO - NA)  Were all liquidation appraisal fees shared equally
                     between the lender and the Agency?

9.  (YES - NO - NA)  Did the lender obtain the proper security and lien
                     position at loan closing?

10. (YES - NO - NA)  Did the lender maintain proper liens and security 	
                     instruments on security?

11. (YES - NO - NA)  Was adequate insurance coverage as required by the
                     Conditional Commitment maintained at all times?

12. (YES - NO - NA)  Was all collateral disposed of and accounted for?

13. (YES - NO - NA)  Has a list of all unaccounted for security been 	
                     provided and has the value been taken into account
                     for the final loss settlement amount?

14. (YES - NO - NA)  Have all proceeds been accounted for from the sale 
                     of collateral?

15. (YES - NO - NA)  Have all liquidation costs been deducted from the 	
                     sale proceeds?

16. (YES - NO - NA)  If the lender had other loans with the borrower, 	
                     did the lender apply proceeds to the appropriate
                     loans?

17. (YES - NO - NA)  Have lender payment records been reviewed to 	
                     determine that payments were applied correctly and
                     interest was properly accrued and posted to the
                     borrower's account?

18. (YES - NO - NA)  Has a determination been made whether to pursue the   
                     personal guarantee, if one was taken, and is a 	
                     deficiency judgment warranted?

19. (YES - NO - NA)  Have all personal guarantees been accounted for and 
                     and are the lender's actions documented?

20. (YES - NO - NA)  Have required signatures been obtained on Form 
                     RD 449-30, "Loan Note Guarantee Report of Loss"?





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RD Instruction 4287-B
Appendix B
Page 6



21. (YES - NO - NA)  Has the settlement date been agreed to by the 	
                     lender and the Agency and is it entered on Form RD 
                     449-30?

22. (YES - NO - NA)  Has the proper report code been entered on Form 
                     RD 449-30?

23. (YES - NO - NA)  Have interest computations been verified?

24. (YES - NO - NA)  Is there additional interest to be paid to the 	
                     check date?

25. (YES - NO - NA)  If payment is to be wired to the lender, has the 	
                     lender's routing information been provided?

26. (YES - NO - NA)  Has the Office of Inspector General and the Office 
                     of the General Counsel approved payment where 	
                     applicable?

27. (YES - NO - NA)  Was the loan properly closed in accordance with the 
                     Conditional Commitment?

28. (YES - NO - NA)  Were loan funds used for authorized purposes?

29. (YES - NO - NA)  If loan funds were not used for authorized 	
                     purposes, has the unauthorized use of funds been 	
                     taken into consideration?

30. (YES - NO - NA)  If a future recovery possibility exists, has the
                     Agency set up a monitoring system to followup with
                     the lender?

31. (YES - NO - NA)  Have overpayments of estimated loss requests 	
                     been taken into consideration?

32. (YES - NO - NA)  If the Agency has a receivable, has the lender
                     remitted to the Agency its pro rata share of funds?

33. (YES - NO - NA)  Has pro rata application of funds been made to the 
                     guaranteed or unguaranteed loan?



DATE _________________           AGENCY APPROVAL OFFICIAL ____________________



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