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CHAPTER 4: ACCOUNT SERVICING 

4.1 INTRODUCTION 

To ensure that program objectives are met and that borrowers do not default on their 

loans, the Agency has specific procedures for servicing borrower accounts. These procedures 

are designed to ensure that loan payments are received on time and in the proper amounts; 

payments are properly applied to the appropriate account; past due accounts are serviced 

correctly; late fees are assessed for late payments; and procedures for final loan payments are 

followed. Diligent management of the account servicing process through promptly and 

accurately recording payments and tracking late payments is an effective method to reduce 

unnecessary delinquencies. 

This chapter presents the Agency’s procedures for servicing borrower accounts. It 

describes the procedures that all Loan Servicers must follow when servicing accounts to protect 

the Government’s interest in the loan and the property. 

4.2 OVERVIEW 

Agency regulations in 7 CFR 3560.401 through 7 CFR 3560.403 establish borrowers’ 

responsibilities and the actions the Agency may take to collect timely loan payments from 

borrowers, protect its interests and the security of its loan, and assist borrowers in meeting the 

objectives and requirements of the loan. These regulations require that borrowers repay their 

loans to the Agency according to the specific provisions of their debt instruments and operate 

their facilities in accordance with requirements of the rule and other applicable Federal, State, 

and Local laws. The Agency may reject any servicing request by a borrower if it is not in the 

best interest of the Government or tenants. 

Most servicing requirements and procedures are the same for Daily Interest Accrual 

System (DIAS) accounts and Predetermined Amortization Schedule System (PASS) accounts, 

with the exception of the assessment of late fees, which only applies to PASS accounts. 

Payments under DIAS are not assessed late fees because additional interest is charged 

automatically, based on the number of days the past due balance is outstanding. 

SECTION 1: ACCOUNT SERVICING REQUIREMENTS 

[7 CFR 3560.403 AND 7 CFR 3560.404]

The Agency’s regular account servicing requirements cover the following major topic 

areas: loan payments, late fees, waivers, servicing past due accounts, conversion of accounts 

from DIAS to PASS, and final loan payments. This section describes the regulatory 

requirements for each area. 

4.3 LOAN PAYMENTS 

Borrower loan payments are due on the first day of each month unless otherwise 

established in the debt instrument executed with the Agency. A borrower is in default of loan 

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agreements when the Agency has not received the full payment by the first day of the month. 

The Agency is under no obligation to offer borrowers loan servicing other than actions consistent 

with debt instruments and other agreements. However, the Agency does not pursue legal action 

to cure the default until a borrower is 60 days delinquent. If a borrower with a PASS account has 

not paid the full amount by the tenth day of the month, a late fee may be incurred. 

4.4 LATE FEES (PASS ACCOUNTS ONLY) 

The Agency will charge a fee for late payments under PASS accounts, equal to 6 percent 

of the note installment. Late fees are charged if any portion of a note payment exceeding $15 is 

late (i.e., outstanding after the tenth day of the month). The Agency may charge late fees only 

once for each regular installment or portion thereof. 

Late fees are an owner expense and, as such, may not be charged to the project. The 

amount of the late fees is not appealable. The Finance Office notifies all late borrowers with 

PASS accounts of late fees and the payment due, not including overage and rental assistance 

calculations. The Loan Servicer should follow up with the borrower on this notification in an 

effort to collect the amount due before an account becomes 30 days past due. 

4.5 LATE FEE WAIVERS 

The State Office may waive late fees only for circumstances beyond a borrower’s control 

or when granting the waiver is in the best interest of the Government. Waivers are issued at the 

Agency’s discretion and Field Office Staff are under no obligation to grant waivers. 

4.6 PAST DUE ACCOUNTS 

A. Past Due Payments 

The Agency considers a borrower to be delinquent if any past due amount remains 

after the payment due date. If a delinquency exists, the Agency immediately contacts the 

borrower and attempts to collect the amount due. 

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B. Interest on Past Due Payments 

(PASS Accounts Only) 

When a regular payment continues 

to be past due on the first day of the 

month following the payment due date, 

the Agency charges interest at the note 

rate on the unpaid delinquent principal 

amount. Interest is charged from the 

date the principal was due until all 

applicable payments are current in 

accordance with the number of full 

installments required by the Form RD 

3560-52, Promissory Note, and is in 

addition to the scheduled interest of the 

regular payment. The interest on 

delinquent principal, the unpaid 

delinquent principal, any applicable late 

fees, and recoverable cost charges are 

added to the regular payment amount 

due for the next month to determine the total amount due as of the first of the month 

following the delinquency. 

C. Special Servicing Action 

Borrowers with accounts 30 days past due may be subject to the special servicing 

provisions outlined in Chapters 10 and 12 of this handbook. 

4.7 CONVERSION FROM DIAS TO PASS 

To facilitate and standardize its servicing efforts, the Agency requires that all new loans 

be closed and serviced using PASS. The only exceptions are off-farm and on-farm labor housing 

loans, which may be closed on either DIAS or PASS. Farm labor loans may be closed on DIAS 

if the farm operation is such that the annual payment corresponds to the timing of usual farm 

income. 

Borrowers with DIAS accounts, except for farm labor housing loans, must convert to 

PASS if they request servicing actions that involve a change in the terms of their loan (e.g., 

credit sales, reamortizations, equity incentive loans, loan consolidations, and project transfers) or 

if they request subsequent loans. 

4.8 FINAL LOAN PAYMENTS 

Before the Loan Servicer begins the final loan payment process, they must determine if 

the final loan payment is a prepayment, as covered in Chapter 15. 

A borrower’s final loan payment must include repayment of all outstanding obligations to 

the Agency. The Agency will apply any remaining supervised funds to the borrower’s account 

Example – Determining Days for Past Due 

Accounts 

If a borrower fails to make a scheduled 

payment in full due on June 1, the following 

example demonstrates how the Agency 

calculates past due charges: 

June 1 – Payment due date. 

June 2 – Payment is 1 day past due. No 

Agency action taken. 

June 11 – Payment is 11 days past due. Late 

charge applied on overdue payments. 

June 30 – Borrower is delinquent and 30 days 

past due. Agency begins special servicing 

actions in accordance with Chapters 10 and 12. 
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or return such funds to the borrower following acceptance of final payment. At the borrower’s 

request, the Agency will provide a written statement indicating the amount necessary to pay the 

account in full. 

Suitable forms of payment include cashier’s check, money order, or bank draft. If a 

borrower uses forms of payment that require special handling, the borrower is responsible for the 

cost of such handling. When payment is provided in a form that is not the equivalent of cash, the 

Agency will consider a payment to be received at the time the funds have been successfully 

transferred to the Agency. This can now be accomplished electronically through Pre-Authorized 

Debit (PAD). 

The Agency will release security instruments when full payment of all outstanding 

obligations to the Agency have been received and accepted. If the Agency and the borrower 

agree to settle the account for less than the full amount owed, the Agency may release security 

instruments when the borrower has paid all agreed-upon obligations in full. Recording costs for 

the release of the security instruments will be the responsibility of the borrower, except where 

State law requires the mortgagee to record or file the satisfaction. 

If the entire principal of the loan is refunded after the loan is closed, the borrower must 

pay interest from the date of the note to the date of receipt of the refund. 

The Agency may collect any account balance that results from an error by the Agency in 

handling final payments. 

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______________________________________________________________________________ 

SECTION 2: PROCESSING TENANT CERTIFICATIONS 

4.9 OVERVIEW 

For borrowers to qualify for interest credit or rental assistance, they must demonstrate 

that their tenants meet the income and household size eligibility limits delineated by the Agency. 

This section describes the Agency’s policies and procedures for processing tenant certifications, 

including verification that the information is true and accurate. 

4.10 REQUIREMENTS OF THE RULE 

For each occupied unit under lease, borrowers must have a current tenant certification or 

recertification on file with the Agency to be eligible for interest credit or rental assistance. The 

Agency may charge borrowers overage and withhold rental assistance payments for units without 

a valid and current tenant certification. These requirements protect the Government’s interest by 

ensuring that only eligible units benefit from Agency subsidy payments. They also protect 

tenants’ interest by reserving subsidy benefits for those who actually qualify for them. 

4.11 GENERAL PROCEDURES 

A. Timely Submission and Overage Charges for Late Submissions 

Borrowers must submit tenant certifications for new tenants and required 

recertifications for existing tenants no later than the tenth day of the month for the 

certification to be effective for that month. This deadline applies regardless of whether 

the certifications are being submitted through electronic transmission or in hard copy. 

Tenant certifications received after the tenth day of the month will be considered late. 

Borrowers are not eligible for interest credit or rental assistance for units with late 

certifications, and the Agency will charge the appropriate amount of overage until valid 

certifications are received in a timely manner for all units. 

The tenth-day-of-the-month deadline applies regardless of whether the late 

certification in question relates to a new certification or a recertification. Any changes to 

tenant certifications that are effective as of the first day of the month must be submitted 

to the Agency by the tenth day of that month for the affected units to qualify for interest 

credit or rental assistance. If the changes are submitted after the tenth day of the month, 

the Agency will charge overage and the changes will be effective the first day of the 

following month. The Agency may remove a management agent if there is a pattern of 

failure to submit tenant certifications on time that results in excessive overage charges. 

B. Waivers of Overage 

The State Director may grant a waiver of overage charges resulting only from the late 

submission of tenant certifications in the following instances: 

• Circumstances existed that were beyond the borrower’s control (e.g., natural 

disaster or undetected transmission failures due to network interruption); 

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• It would place an unfair burden on the borrower; 

• It is in the best financial interest of the Government to grant the waiver; or 

• The charges were a result of an Agency error. 

In order for a waiver of overage charge to be considered, the borrower must submit a 

written request to the Servicing Office justifying the reasons for the waiver. For each 

waiver requested, the borrower must provide a written explanation of the circumstances 

that caused the late submission of the tenant certification, proof that these circumstances 

were beyond the borrower’s control and a description of the actions taken to prevent the 

situation from occurring in the future. 

To recommend the approval of a request for waiver of overage, the Servicing Official 

will attach a completed copy of Form RD 3560-23, Multi-Family Housing Waiver of 

Overage, to the borrower’s request and forward to the State Office. Only the State 

Director has the authority to grant a waiver of overage. Once the waiver is approved, the 

State Office is responsible for making the appropriate entries in AMAS and MFIS. 

If a request for waiver of overage is denied, the charge must be paid as a borrower 

expense. With prior Agency approval, nonprofit borrowers and cooperatives may treat 

the charge as a project expense. If a request for an overage waiver is denied, the 

borrower will be given appeal rights. 

C. Verification and Processing of Certifications 

In the case of projects with eight units or more, Borrowers are required to provide the 

data for all tenant certification forms to the Servicing Office through electronic 

transmission via MINC. Borrowers with less than eight units may submit hard copies. 

The Servicing Office processes these transmissions through the Industry Interface page of 

MFIS, providing assistance where needed with rejected entries. In the event of the 

receipt of hard copies of Form RD 3560-8, the Servicing Office will process manually the 

data into MFIS. MFIS calculates interest credit and rental assistance due the borrower, as 

well as overage due the Agency in cases of late certifications. These calculations are 

reflected on Form RD 3560-29. All subsidy payments are based on tenants’ occupying 

the units as of the first day of the month prior to the payment due date. For example, a 

payment due on July 1 is based on tenants’ occupying the units June 1. 

The Loan Servicer verifies the accuracy of the tenant data transmitted by the 

borrower through a random review of selected tenant files during the Supervisory Visit. 

Corrective action is initiated for any discrepancies revealed during this review. 

D. Approval of Subsidy 

The Agency will certify for interest credit or rental assistance only those tenants with 

current tenant certifications showing on MFIS when payments are being processed. 

MFIS retains a copy of Form RD 3560-29, to document the approved subsidies. 

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SECTION 3: LOAN PAYMENT PROCESSING 

4.12 OVERVIEW 

The Agency processes loan payments and subsidy requests according to the servicing and 

collection requirements of the individual loan. The requirements are established by the loan 

agreement or loan resolution, and Form RD 3560-52. There are a number of steps common to 

the processing of any loan payment, as outlined below. 

4.13 NOTIFICATION TO BORROWERS OF PAYMENTS DUE 

A. Factors Used to Determine Payment Amount 

The amount of each borrower’s monthly payment is automatically calculated by 

MFIS based on the tenant information received from the borrower and summarized on 

Form RD 3560-29. The Servicing Office releases this form to MINC on or about the 

seventeenth day of the month, where borrowers are able to view and approve the 

information for processing. 

B. Calculating Payment Amount 

To determine the amount of the payment that is due from the borrower, MFIS sums 

the total of the following components: 

• Audit receivables (e.g., excess rental assistance, unauthorized assistance) as 

determined by MFIS; 

• Late fees as determined by AMAS; 

• Unamortized cost items (e.g., taxes, insurance, protective advances) as determined by 

AMAS; 

• Amortized cost item loan installments as determined by AMAS and reflected on the 

MFIS Form RD 3560-29 (included in the project payment) and in the project payment 

amount on Form RD 3560-29; 

• Overage; and 

• Debt service (i.e., interest and principal as determined by AMAS). 

Note that audit receivables and cost items may be either unamortized or amortized. If 

they are amortized, a borrower may have up to five years to pay under the terms of an 

approved work-out agreement (see Chapter 10 for more information on workout 

agreements). 

The Agency will count only those tenants who have current tenant certifications on 

MFIS for interest credit or rental assistance when processing payments. For a project 

receiving rental assistance, the rental assistance amount is applied as a credit to the total 

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amount due as calculated on the project worksheet. The remaining balance is the net 

amount due. 

Exhibit 4-1 illustrates how rental assistance and overage are calculated and the impact 

they have on the tenant’s rent and the borrower’s loan payment. If the amount of rental 

assistance exceeds the borrower’s loan payment, the Agency will make a rental assistance 

payment to the borrower. In accordance with the Debt Collection Improvement Act of 

1996, the Agency is required to send rental assistance checks via an electronic funds 

transfer to the borrower’s bank account. 

Exhibit 4-1 

Overage and Rental Assistance

30% of Tenant 

Monthly Adjusted 

Income 

Rental 

Assistance 

Basic 

Rent Note Rent Overage 

Actual Rent Paid by 

Tenant 

$180 Not available 

($0) $200 $500 $0

Tenant pays Basic 

Rent, $200. Tenant is 

rent overburdened. 

$180 $20 $200 $500 $0 Tenant pays $180. 

$200 $0 $200 $500 $0 Tenant pays Basic 

Rent, $200. 

$230 $0 $200 $500 $30 Tenant pays $230; $30 

is considered overage. 

$500 $0 $200 $500 $300 Tenant pays $500; $300 

is considered overage. 

C. Borrower Verification Of Payment Data 

Form RD 3560-29 is released to MINC for verification by the borrower on or about 

the seventeenth day of the month. It is the borrower’s responsibility to access this form 

and verify that the data contained therein is accurate. Should discrepancies be found, the 

borrower must transmit corrected data through MINC or contact the Servicing Office for 

assistance. 

4.14 PAYMENT DUE DATES 

The regular payment due date is established in the Agency Form RD 3560-52 for the 

project and is generally the first day of each month. The first regular amortized payment after 

loan closing for transfers, reamortizations, voluntary conversions, credit sales, or loans closed 

after interim financing must be at least 1 month from closing. For example, if a loan is closed on 

January 31, the first regular amortized payment will be due March 1. For multiple advance 

loans, the first payment must be at least 1 month after the final advance. 

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4.15 PROCEDURES FOR PROCESSING PAYMENTS 

A. Overview 

Loan Servicers are responsible for administering the requirements for payment 

processing under the guidance and supervision of the State Director. Key steps in 

processing regular payments and advance regular payments are listed in Exhibit 4-2. 

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Exhibit 4-2 

Key Steps in Processing Loan Payments 

• Process payments that are submitted to the Servicing Office through MFIS. 

• Review payments for accuracy, balance totals, access the accounting system, and 

enter appropriate amounts in the proper fields; 

• When a payment is processed, the system will apply subsidy credit to the loan 

account before any payment or other credit is applied to the account. Subsidy 

credit will be applied first to accrued interest and then to principal after all 

interest is paid. Subsidy credit will not be applied to late fees, audit receivables, 

or recoverable cost charges; 

• After a payment has been processed, any change in application that does not 

involve changes in cash may be made in the Servicing Office by properly trained 

and certified staff. If changes need to be made in a cash field, the AMAS 

Coordinator in the State Office can process the charge after performing a cursory 

review of account information; and 

• Make modifications to the payment as necessary. Some examples of situations 

where modifications might be made include wrong date of credit, key punch 

errors, incorrect recording of rental assistance, and duplicate payments (see 

AMAS instructions for more information). 

When a borrower remits a payment, AMAS will net enough rental assistance to bring 

the account status current and pay any unpaid overage, late fees, or interest on delinquent 

principal based on the date payment is received. If the account is on or ahead of schedule 

when the payment is received, enough rental assistance will be netted to pay one full 

installment and any unpaid overage, interest, or other obligation. 

B. Borrower Submission 

Borrowers must prepare and submit Form RD 3560-29 providing the following 

information: 

• Only tenants’ occupying units the first day of the month prior to the payment due 

date; 

• Interest credit and rental assistance only for tenants with current tenant certifications; 

• Overage up to the market rent that must be paid to the Agency by the borrower for 

tenants without current tenant certifications unless there is a formal eviction in 

process. In that case, the payment will be based on the expired tenant certification; 

and 

• The borrower may subtract any rental assistance due the project (supported by current 

tenant certifications) from the payment due and remit a net payment. Calculations 

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supporting the net payment must be shown on Part I of Form RD 3560-29. AMAS 

will net enough rental assistance to bring the account status current and pay any 

unpaid overage, late fees, or interest on delinquent principal based on the payment 

receipt date. 

• If the RA due the borrower exceeds the balance of scheduled loan payments, 

delinquent payments and other charges, no additional payment is due from the 

borrower and an RA check for the excess will be issued. 

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Examples 

Example 1: Borrower Olson shows on Form RD 3560-29 for the 

month of May a loan payment due to the Agency of $1,865 and 

RA due from the Agency of $3,600. The Finance Office sends 

Olson a check for $1,735.

Example 2: Borrower Johnson shows on Form RD 3560-29 for 

the month of May a loan payment of $2,200 due to the Agency and 

RA of $1,200 due from the Agency. Johnson must attach a check 

made out to the Agency in the amount of $1,000.

C. Application of Payments 

1. Regular Payments 

The Agency has developed specific priorities for applying regular payments. 

Exhibit 4-3 lists these priorities in descending order. 

AMAS also will apply regular payments on projects with an initial and subsequent 

loan according to the priorities in Exhibit 4-3. Each priority item will be paid for all 

project loans before moving to the next item. AMAS will apply payments for each 

priority item in accordance with the loan number, beginning with the initial loan and 

ending with the highest-numbered subsequent loan. 

Exhibit 4-3 

Priorities for Application of Borrower Payments 

to Outstanding Obligations 

From highest to lowest, the priorities are: 

• Amortized audit receivables; 

• Unamortized audit receivables; 

• All project late fees due; 

• Amortized recoverable costs due; 

• Unamortized recoverable costs due; 

• Overage; 

• All other interest due; 

• Principal; and 

• Any remaining regular payment, which will be applied as an advance 

regular payment unless specifically designated otherwise. 

2. Advance Payments and Additional Principal Payments 

The Agency also has established specific procedures for applying advance payments 

and additional principal payments. Advance regular payments are applied as such only 

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when the loan account is current. The payment effective date will be the due date of the 

next regular payment that is not fully paid. Extra payments are applied as principal to the 

last installment to become due under the note. Voluntary additional principal payments 

will only be credited to the account when all regularly scheduled payments on the 

account have been paid. These payments are credited to all principal, as of the payment 

effective date, and do not affect the payment status of the loan. Any amount paid by the 

borrower in excess of the amount owed will be refunded to the borrower if the excess 

amount is over $10. 

4.16 ASSESSMENT OF LATE FEES 

Payments for loans closed on PASS and DIAS are due on the first day of the month. The 

Agency charges late fees on PASS payments received after the tenth day of the month. The 

Finance Office automatically notifies each borrower of late fees for PASS payments that were 

outstanding as of the tenth day of the month. On or about the eleventh day of each month, Form 

RD 3560-29A, Multiple Family Housing Statement of Payment Due, will be mailed to each 

borrower who is 30 days past due and/or owes late fees, showing the current monthly payment 

due, unpaid late fees, and past due payments due on the first day of the following month. This 

payoff statement will be determined from current Finance Office records but will not reflect 

overage due from the borrower or rental assistance due the borrower. A copy is also mailed to 

the Servicing Office. 

Late fees collected by the Finance Office are deposited in the Rural Housing Insurance 

Fund (RHIF). 

A. Agency Approval of Waivers Procedures for Granting Late Fee Waivers 

Waivers to late fee charges may be granted only as follows: 

• The State Director may grant a waiver for as many late fee charges as are justified by 

the facts of the case, based on a determination that the late fees would place an unfair 

burden on the borrower. For each waiver requested, the borrower must provide a 

written explanation of the circumstances that caused the late payment, proof that they 

were beyond the borrower’s control, and a description of what actions will be taken to 

bring the account current. Waivers are granted on a case-by-case basis; 

• There are only two circumstances under which the Agency will grant a waiver to late 

fees. The first is when the borrower is a board-managed nonprofit or cooperative, 

because they are the only entities on which the assessment of late fees would place an 

unfair burden. The second is where the Agency has agreed to accept deferred 

payments or partial payments as part of an approved workout agreement. In such 

cases, the State Director can grant as many waivers as are justified by the facts of the 

case (i.e., there is no annual limit on the number of waivers that may be granted); 

• As noted above, late fees are an owner expense. As a result, they may not be charged 

to the project, except in the case of cooperatives, which can pay late fees from project 

expenses in cases where the fees are not waived; 

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• The Agency will not grant a waiver solely to correct a delinquency; and 

• The State Director may authorize late fee waivers in cases where Agency error (e.g., 

an incorrect statement of the date a payment is due) leads directly to the late payment. 

B. Required Submissions from Borrower to Receive a Waiver 

Borrowers must submit a number of items to the Agency in order to receive a waiver. 

These include: 

• A written explanation of the circumstances that caused the late payment; 

• A description of the factors beyond the borrower’s control (e.g., natural disaster); and 

• A description of the actions that will be taken to bring the account current. 

If the late payment is due to Agency error, the borrower need not submit the abovelisted items. In such cases, providing notification to the Agency of its error will suffice, 

and loan services will promptly correct the error in the appropriate automated system(s). 

C. Notification upon Granting A Waiver 

When a waiver to late fees is granted, the State Director will notify the Servicing 

Office and the borrower on Form RD 3560-28, Multi-Family Housing Exception to Late 

Fees, completed according to the Forms Manual Insert (FMI), and enter the change into 

AMAS and MFIS. 

D. Denying Waivers 

When an application for a late fee waiver is denied, the State Director must give the 

borrower appeal rights under 7 CFR Part 11. 

4.17 SPECIAL CIRCUMSTANCES 

A. Reapplication of Payments 

Loan Servicers may approve, with the authorization of the State Director, 

reapplication of payments between accounts when payments have been applied in error. 

However, no change may be made if the loan is paid in full, the canceled note or notes 

have been returned to the borrower, and the security instruments have been satisfied. The 

AMAS Coordinator will enter changes through Field Office terminals. 

B. Overpayments and Refunds 

Loan Servicers will process overpayments and refunds to borrowers according to the 

procedures outlined in 7 CFR 3560.401 through 7 CFR 3560.404, Account Servicing 

Policies. 

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C. Recoverable and Nonrecoverable Cost Items 

The Loan Servicer will service recoverable and nonrecoverable cost items according 

to the procedures outlined in 7 CFR 3560.403 and RD Instruction 2024-A. 

SECTION 4: ACCOUNT TRACKING AND SERVICING 

4.18 OVERVIEW 

The Agency must track borrower accounts to ensure that all payments are up-to-date and 

to identify any problems that could lead to delinquencies or defaults. Any transaction that affects 

an account must be tracked to ensure that it has been processed correctly and that it has not had a 

negative impact on the interests of the borrower, tenants, or the Government. 

The Agency has sought to facilitate and standardize the account tracking process by 

requiring that all new loans, and many existing loans, be closed and serviced using PASS. 

4.19 ACCOUNT TRACKING PROCEDURES 

A. Conditions for Conversion from DIAS to PASS 

Conversion of accounts from DIAS to PASS may be either voluntary or involuntary. 

An involuntary conversion may occur at the time of a servicing action such as a 

subsequent loan, transfer, or reamortization. In such cases, the Servicing Office 

completes Form RD 3560-50, Conversion Agreement, and submits it to the State AMAS 

Coordinator for entry into AMAS. The terms for the converted loan will be the same as 

for the original loan. 

B. Procedures for Conversion from DIAS to PASS 

The following actions must be taken to convert an account from DIAS to PASS: 

• The Loan Servicer will complete Form RD 3560-50, except for loans converted on 

Form RD 3560-21, Assumption Agreement, or Form RD 3560-16, Reamortization 

Agreement (which converts the account to PASS); 

• When the borrower will continue to receive interest credit following conversion, the 

current interest credit plan type will be passed through to the PASS loan. A new 

Form RD 3560-9, Interest Credit and Rental Assistance Agreement, must be prepared 

by the borrower and the Loan Servicer to reflect the PASS payment and subsidy 

amount; 

• The Loan Servicer will document on the back of the original note or assumption 

agreement that the payment schedule was modified; and 

• The Loan Servicer will establish principal balance converted to PASS according to 

the FMI for Forms RD 3560-21 or 3560-16, and specific requirements based on 

whether the transaction is on the same terms or new terms. 

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C. Account Reviews 

The foundation for proper and timely debt payment is sound budgeting and monthly 

review of income and expenses by the borrower and, as necessary, by Loan Servicers. 

Account maintenance must begin with initial planning and must be an integral part of 

ongoing analysis, planning, and follow-up management assistance. 

Loan Servicers must review each loan account at least monthly by accessing AMAS 

and carefully reviewing the status screens showing account status and other relevant 

account information. Accounts that are 30 days past due are subject to special servicing 

actions, as outlined in Paragraph 4.21 and in Chapter 10 of this handbook. 

4.20 SERVICING ACCOUNTS THAT ARE 30 DAYS PAST DUE 

When tracking borrowers’ accounts, Loan Servicers must identify all accounts that are 30 

days past due. The Loan Servicer will service these delinquent accounts according to the 

procedures in this handbook, with guidance and assistance as necessary from the State Director. 

If a borrower’s delinquency is not corrected by the time the account is 60 days past due, the 

Agency initiates legal action to cure the borrower’s default. In such cases, Loan Servicers will 

follow the procedures described in Chapter 10 and any additional procedures established by the 

State Director for the particular type of loan. 

4.21 SPECIAL CIRCUMSTANCES 

A. Same Terms Transfers 

Same terms transfers, when the transferor has been converted to PASS, must take 

place in a current loan status on the date of the transfer. Borrowers must bring current 

any delinquent principal and interest before the conversion can occur. 

B. Overpayments and Advance Regular Payments 

Overpayments and advance regular payments made on PASS accounts result in the 

creation of a “future paid” status account under AMAS. Loan Servicers must reverse and 

apply such advance payments to the transferor’s principal balance prior to determining 

the loan balance to be transferred. If the future payments have been made through RA, 

they must be refunded to the transferor and reapplied in the form of cash on the loan 

balance. 

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SECTION 5: FINAL LOAN PAYMENT [7 CFR 3560.404]

4.22 OVERVIEW 

Because the final payment on an Agency loan signifies the end of the borrower—Agency 

relationship and opens a number of legal questions, it is important that the Agency has specific 

requirements and procedures for accepting and processing final loan payments. The Agency’s 

procedures ensure that payments are received in the proper amount and suitable form, that 

security instruments are released only when all obligations are satisfied, and that special 

circumstances are handled appropriately. 

Before the Loan Servicer begins the final loan payment process, they must determine if 

the final loan payment is a prepayment, as covered in Chapter 15. If the final payment is an 

advanced payment of the account, the borrower must complete the prepayment process as 

outlined in 7 CFR part 3560, subpart N, and Chapter 15 of this handbook before the Agency will 

process a final loan payment. 

4.23 PROCESSING FINAL LOAN PAYMENTS 

There are a number of steps that Loan Servicers must follow when accepting and 

processing a final loan payment. 

A. Payment Amount Determined 

Loan Servicers will obtain and provide to the borrower the amount to be collected for 

payment in full of all loans by accessing the relevant AMAS status inquiry screens on the 

Field Office terminal. Loan Servicers will furnish requests for payoff balances on all 

accounts in writing. Such requests require verification of the payoff amount by two 

employees in the Field Office. 

B. Funds from Supervised Bank Account 

When a borrower is ready to pay a loan in full, Loan Servicers must withdraw any 

funds remaining in the supervised bank account for the initial loan and remit this amount 

for application to the borrower’s account. Note: This requirement does not include the 

supervised bank account for reserves. Any amount remaining in the reserve account 

above the required level and unused is the borrower’s money and may be released to the 

borrower following receipt of the initial payment.

C. Forms Processed 

When the Field Office receives final payment, the Loan Servicer processes it in 

AMAS as a paid-in-full payment. The payment must be loan specific. 

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D. Payments Applied 

Loan Servicers apply final payments on the next payment due date or the final due 

date shown on Form RD 3560-52, assumption agreement, or reamortization agreement, 

whichever is sooner. 

E. Security Documents Released 

1. General 

When the Finance Office verifies that all amounts owed to the Government have been 

paid in full, or a compromise or adjusted agreement has been accepted and approved by 

the appropriate official, it will release security documents to the borrower, along with 

Form RD 140-4, Transmittal of Documents. 

If the Agency receives final payment in cash, U.S. Treasury check, cashier’s check, 

certified check, money order, or bank draft, Loan Servicers will give the security 

documents to the borrower at the time of final payment. If not, the Agency will release 

the documents after a 30-day waiting period. 

2. Loans Secured by Both Real Estate and Chattels 

If a loan secured by both real estate and chattels is paid in full, the chattel security 

instrument will be satisfied or released by the Loan Servicer in accordance with 

RD Instruction 1962-A. 

3. Loans Where Mortgagee Is Required to Record or File a Satisfaction 

If State law requires the mortgagee to record or file a satisfaction, the Agency will do 

so consistent with the State supplement. The Agency will deliver the form of satisfaction 

to the borrower for recordation at the borrower’s expense. 

4. Loans to Insured Borrowers Whose Note and Security Instrument Are Held by a 

Lender 

For an insured borrower whose note and security instrument are held by a lender, the 

Loan Servicer will deliver to the borrower the note and other documents upon receipt 

from the lender of Form RD 3560-52, marked “paid in full,” the original security 

instrument, and the instruments of satisfaction or release. 

F. Release of Interest in Insurance 

When the borrower’s loan has been paid in full and the satisfaction or release of the 

mortgage has been executed, the Loan Servicer is authorized to release the mortgagee 

interest in the insurance policy as provided in Chapter 3 of HB-2-3560. 

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G. Special Circumstances 

1. Refunded Principal 

If the entire principal of the loan is refunded after the loan is closed, the borrower 

must pay interest from the date of the note to the date of the receipt of the refund. 

2. Overpayment 

If the borrower’s final loan payment is greater than the amount due to close the loan, 

the Agency will process a refund to the borrower 30 days after receipt of the final 

payment. 

3. Agency Error in Handling Final Payments 

If the Agency makes an error in handling final payments and the error results in an 

account balance, the Loan Servicer may attempt to collect that amount from the 

borrower. 

4. Note-Only Cases 

When a loan is evidenced only by a note (i.e., no security instruments are evident) 

and the note is paid in full, the Agency will deliver the note to the borrower. 

5. Other Situations 

If a situation develops that is not covered by regulations, the Loan Servicer forwards 

the borrower’s case file to the State Director, who may offer assistance and special 

instructions after consultation with the Office of General Counsel (OGC). 

H. State Supplements 

The State Director, with the advice of OGC, will issue a State supplement and the 

necessary forms for releasing or satisfying real estate security instruments. Any unusual 

cases that are not covered by the State supplement will be handled in accordance with 

advice from OGC. 

I. Redelegation of Authority 

Field Office Directors are authorized to redelegate to Field Office Staff the authority 

to execute releases and satisfactions associated with final payments, provided it is 

determined that the individual to whom such authority is being redelegated has had 

sufficient training and experience to properly exercise such authority. 

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