HB-3-3560

CHAPTER 5: OWNERSHIP AND ORGANIZATION 

CHANGES [7 CFR 3560.405]

5.1 INTRODUCTION 

During the term of an Agency loan, changing circumstances may lead borrowers to seek 

Agency approval of a change in the structure of the ownership entity. For instance, partnerships 

may dissolve, or substitute individuals or entities may obtain an ownership interest in a property 

due to business reorganizations, retirements, or other reasons. To address these situations, the 

Agency has developed requirements and procedures for receiving notification of and reviewing 

proposed changes, as well as granting approval for such changes to ensure that the Agency’s 

security interest is protected. 

This chapter covers the Agency’s requirements regarding changes in a borrower’s 

ownership structure and Agency procedures for reviewing and accepting such changes. 

5.2 OVERVIEW OF CHANGES REQUIRING PRIOR AGENCY CONSENT 

The Agency imposes specific requirements on certain proposed changes in the structure 

of the borrower entity to ensure the adequacy of the new or substitute interests and thus protect 

the interests of tenants and the Government. 

The Agency requires that borrowers obtain prior Agency consent to organizational 

changes involving the controlling interests of the borrower entity to ensure that such changes will 

continue to serve the needs of tenants and protect the interest of the Government. For example, 

if one partner in a borrower entity decides to sell their interest to a new individual from outside 

the existing organizational structure, the Agency needs to review that individual’s prior history 

and qualifications to ensure that the person is eligible to participate in the program (i.e., is not 

under suspension, debarred, under Office of the Inspector General (OIG) review, or known to be 

in default on any Agency loan[s]). The purpose of this review is to evaluate that the borrower 

entity will continue to be eligible under program requirements and that any changes in the 

organizational structure do not adversely affect the Agency’s security interests. 

5.3 REQUIREMENTS FOR OBTAINING AGENCY CONSENT 

A. Overview

Certain changes in the structure and ownership interests in the borrower entity require 

Agency consent before they become effective. These include: 

• Any changes in the controlling interests of the borrower entity; 

• Changes in the ownership interests of the borrower entity that involve the transfer of 

stock to any individual or organization not previously listed in the ownership 

documents submitted to the Agency; or 

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• A 100 percent change in membership interest where the tax ID remains the same and 

the organizational entity remains the same during any 12-month period. 

Examples of such changes include changes in general partners, addition of new general 

partners, proprietorship as a result of death, divorce, or other applicable ownership 

changes. 

B. Written Request 

Requests for Agency consent to organizational changes must be submitted in writing,

along with Form RD 3560-1, Application for Partial Release, Subordination, or Consent,

to the Servicing Office. Each request must describe the proposed changes in the 

organizational structure of the borrower entity and provide the information shown in 

Exhibit 5-1 for each new or substitute ownership interest or member in the borrower 

entity. 

The information included with the written request must demonstrate that the proposed 

change will not adversely affect the Agency’s security interest in the property by 

illustrating that all key individuals would meet loan approval requirements. 

Exhibit 5-1 

Required Content of Requests for Agency Consent

to Changes in Borrower Entity 

• Form RD 3560-1, Application for Partial Release, Subordination, or Consent;

• The names, addresses, and taxpayer identification numbers of individuals with controlling 

interests in the new or substitute entity;

• Certification that the new interests and/or members are not suspended, debarred, or in default 

on Agency loan(s); 

• The organizational role of the new interest/member or changes in roles of existing individuals;

• Résumé, including experience managing real estate, business experience, and education; 

• Identity-of-interest (Forms RD 3560-30, Certification of No Identity of Interest (IOI), and 

3560-31, Identity of Interest Disclosure/Qualification Certificate);

• Personal financial statement; 

• Percentage of ownership of the new interest/members in the borrower entity;

• Proposed amendments to organizational documents; 

• Previous participation certification; 

• Opinion of the borrower's attorney stating that the changes are in accordance with reapproved 

organizational documents, are permitted by law, and comply with Agency regulations; and 

• Credit report fee, if applicable. 

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C. Assumption of All Applicable Responsibilities by New Interests 

If any portion of the controlling interest in the borrower entity is transferred to an 

individual or organization not previously holding a controlling interest, the new 

individual or organization must agree to assume the responsibilities and obligations 

established under the terms of the Form RD 3560-52, Promissory Note with the Agency, 

the mortgage, the loan agreement/resolution, and any applicable partnership documents 

for the entity. 

D. Assumption of Liability by Substitute General Partner 

In the case of substitution of any general partner, the substitute general partner must 

agree to assume the responsibilities and obligations of the original general partner under 

the terms of the Agency Form RD 3560-52, mortgage, and the borrower’s partnership 

agreement. 

In consultation with the Office of General Counsel (OGC), the State Director may 

require the substitute partner to sign an agreement to assume all applicable 

responsibilities. This agreement is placed in the case file. 

E. Satisfaction of Eligibility Requirements 

All proposed new individuals in the ownership entity must meet applicable eligibility 

requirements for borrowers under 7 CFR 3560.55. For further information on eligibility 

requirements, see Chapter 4 of HB-1-3560. 

5.4 BORROWER REQUESTS FOR CONSENT 

Borrowers must submit their written requests for Agency consent to organizational 

changes at least 45 days prior to the desired effective date of the change. Borrower requests 

must contain the information listed in Exhibit 5-1. 

5.5 AGENCY REVIEW OF BORROWER REQUESTS 

A. Overview

To ensure that all changes to borrower entities protect the interests of tenants and the 

Government, the Agency has developed procedures for review and approval of proposed 

changes. By preventing changes that do not further program objectives, the review 

process ensures that program implementation is consistent with Agency mandates. 

Loan Servicers need to take all actions necessary to determine that the changes will 

have no adverse impact on the loan or property. These actions will vary based on the

nature of the changes to the borrower entity. 

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The Agency may reject such requests if the borrower fails to adequately demonstrate 

that the proposed change will not adversely affect the interests of the Agency or the 

tenants of the property. 

B. Loan Servicer and State Director Actions 

Loan Servicers first review borrower submissions for completeness. Next, they 

perform a review to determine whether the new individuals or organizations proposed 

meet eligibility criteria (i.e., the same criteria required to qualify for a new Agency loan 

as set forth in the HB-1-3560). To determine that approval of the transaction will not 

adversely affect the objectives of the loan or the property, the State Director must 

consider past performance, experience, qualifications, and abilities of any individual or 

organization obtaining an interest in the borrower organization. Finally, Loan Servicers 

review all documentation to determine if the substitute general partners propose to 

assume all liability that had been assumed by the withdrawing entity. 

When the initial review has been completed, Loan Servicers process and submit 

Form RD 3560-1 to the State Director, who either approves or rejects the proposed 

transfers or changes. In cases where proposed membership changes are not covered in 

the organizational documents or appear to be in conflict with applicable regulatory 

requirements, Loan Servicers may submit case files to OGC for review and concurrence 

regarding a borrower’s legal sufficiency to assume the proposed role in the new 

organization. OGC does not override the decisions made by Loan Servicers with regard 

to organizational changes. 

5.6 DOCUMENTATION OF CHANGES 

To ensure that there is a running history of all changes made to the organization of a 

borrower entity, the Agency requires that all changes be adequately documented through both 

written notification to borrowers and maintenance of case files. Loan Servicers must respond to 

all requests for Agency consent to changes in a formal letter, a copy of which is placed in the 

borrower’s case file. Documentation allows the Agency to track the legality of the changes and 

the suitability of any new individuals or organizations added to the borrower entity over time. 

All changes must be entered into the MFIS so that the automated system is always up to date. 

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