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CHAPTER 9: UNAUTHORIZED ASSISTANCE 

AND CIVIL MONETARY PENALTIES 

9.1 INTRODUCTION 

During the term of an Agency loan, there may be cases when the borrower or tenants 

receive assistance to which they are not entitled, or a member of the borrower entity knowingly 

and materially participates in the violation of provisions of Title V of the Housing Act of 1949, 

the regulation, or agreements made in accordance with the Housing Act. 

 

When a borrower incurs unauthorized assistance, it may be due to intentional fraud, 

inadvertent submittal of inaccurate information by borrowers or tenants, Agency error in 

calculation or assignment of benefits, or other causes. In cases where unauthorized assistance is 

identified, the Agency seeks to collect the entire amount of assistance determined to be 

unauthorized. 

Civil Monetary Penalties may be imposed by the Agency due to submitting false 

information, submitting false certifications, failing to timely submit information, failing to 

maintain real property in good repair and condition, failing to provide acceptable management 

for a project, or failing to comply with applicable civil rights statutes and regulations. 

This chapter covers Agency procedures for identifying and collecting unauthorized 

assistance received from tenants, members, or borrowers, and the procedures for imposing and 

collecting civil monetary penalties from borrower entities and related parties. The Agency’s 

guidance on civil monetary penalties can be found in Section 8 of this chapter.

SECTION 1: TYPES OF UNAUTHORIZED ASSISTANCE 

9.2 OVERVIEW 

The Agency has established procedures for servicing its multi-family housing loans and 

grants when it determines that the borrower, grantee, or tenants were not eligible for all or part of 

the financial assistance received, or the project was not made subject to restrictive-use provisions 

required by law and/or regulation. Unauthorized assistance includes the following categories: 

 The recipient was not eligible for the assistance; 

 The property, as approved, does not qualify for the program (e.g., a property clearly 

above modest in size, design, or cost, or that was not located in an area designated as 

rural when the initial loan was made); 

 The loan or grant was made for unauthorized purposes (e.g., purchase of an excessive 

amount of land); 

 The recipient was granted unauthorized subsidy in the form of interest credits, rental 

assistance, or a subsidy benefit received through use of an incorrect interest rate; and 

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 The recipient was not subjected to obligations required by the assistance, such as 

restrictive-use provisions, at the time the assistance was provided. 

9.3 ADDRESSING UNAUTHORIZED ASSISTANCE 

Provisions in 7 CFR part 3560, subpart O establish the Agency’s authority to seek 

recapture of the full amount of unauthorized assistance regardless of whether receipt of the 

assistance is due to errors by the Agency, the borrower, or the tenant. In determining whether to 

recapture unauthorized assistance, the Agency will consider the cost-effectiveness of such action 

given the amount of unauthorized assistance, the availability of records to support the Agency’s 

determination, and any applicable statute of limitations. 

However, there are certain circumstances where repayment of the unauthorized assistance 

will not be the agreed-to corrective action. The Agency may forgo collection of unauthorized 

assistance if the following conditions are met: 

 A demand for recovery of the unauthorized assistance was made; 

 The unauthorized assistance did not result from inaccurate or false information 

knowingly or fraudulently provided by a borrower or tenant; 

 

 The Agency determines that the borrower or tenant is unable to comply with the 

unauthorized assistance repayment demand, but is otherwise willing and able to meet 

Agency requirements; and 

 The Agency determines that it is in the best interest of the Federal Government to 

forgo collection of the unauthorized assistance. 

At the other extreme, the Agency can also choose to initiate liquidation or enforcement 

proceedings against a recipient of unauthorized assistance on a case-by-case basis. 

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SECTION 2: IDENTIFYING UNAUTHORIZED ASSISTANCE 

[7 CFR 3560.703]

9.4 OVERVIEW 

Unauthorized assistance may be identified through audits conducted by the Office of the 

Inspector General (OIG), through reviews and federal and state database searches conducted by 

Loan Servicers, or through other means such as information provided by a private citizen that 

documents the receipt of unauthorized assistance by a recipient of Agency assistance. In 

addition, a borrower or management agent also may identify unauthorized assistance resulting 

from tenant error or fraud. 

If the Agency has reason to believe that unauthorized assistance was received but is 

unable to determine whether or not the assistance was in fact unauthorized, the case will be 

referred to Office of General Counsel (OGC), as appropriate, for review and advice. OIG 

investigation should be requested in every case where the Agency knows or believes that the 

assistance was based on false information. If OIG conducts an investigation, the Agency’s 

notification and collection procedures will be deferred until the investigation is completed. 

9.5 REQUIREMENTS FOR IDENTIFYING UNAUTHORIZED ASSISTANCE 

Identification of unauthorized assistance may be accomplished by the Agency or by 

borrowers in cases involving tenant fraud. The Agency may use all available means to identify 

unauthorized assistance, including audit reports, monitoring activities, and information provided 

by reliable sources including the Treasury Department’s Do Not Pay (DNP) Portal. Borrowers 

have the primary responsibility for identifying and pursuing cases of unauthorized assistance 

received by tenants. 

The Agency will take necessary actions to identify unauthorized assistance, provide 

notice of the unauthorized assistance to the borrower, and recapture that assistance. At its 

discretion, the Agency may choose to continue with the borrower following the receipt of 

unauthorized assistance if certain criteria are met. Section 7 of this chapter presents the 

requirements and procedures for continuation of accounts following the receipt of unauthorized 

assistance. 

9.6 METHODS OF IDENTIFYING UNAUTHORIZED ASSISTANCE 

The Agency uses a number of methods to identify unauthorized assistance, including: 

 Audits conducted by OIG; 

 Reviews by Agency personnel; 

 Search of the Department of the Treasury’s DNP Portal; or 

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 Other means (e.g., information provided by a private citizen that documents the 

unauthorized assistance). 

In addition, the Agency has the authority to pay a contractor (from authorized contracting 

funds) to conduct an audit to identify unauthorized assistance. In such cases, the State Office 

and Contracting Staff would work together to identify audit needs and a contractor to perform 

the audit. 

OIG audits can be random or targeted at projects or borrowers suspected of receiving 

unauthorized assistance. These audits may be either requested by Loan Servicers or conducted at 

OIG’s initiative. In every case where the Agency knows or believes that the unauthorized 

assistance was based on false information, OIG investigation will be requested by the Servicing 

Office as provided for in RD Instruction 2012-B. 

9.7 DOCUMENTATION OF UNAUTHORIZED ASSISTANCE 

Loan Servicers must document the reasons for unauthorized assistance in the case file, 

specifically stating whether the cause was error or submission of false or inaccurate information. 

The case file will specifically state whether the unauthorized assistance was a result of: 

 Submission of inaccurate information by the recipient; 

 Submission of false information by the recipient; 

 Submission of inaccurate or false information by another party on the recipient’s 

behalf, such as a loan packager, developer, or real estate broker, or professional 

consultants (e.g., engineers, architects, management agents, and attorneys), when the 

recipient did not know the other party had submitted inaccurate or false information; 

 Error by Agency personnel, either in making computations or failure to follow 

published regulations or guidance; or 

 Error in preparing a debt instrument that caused a loan to be closed at an interest rate 

lower than the correct rate in effect when the loan was approved or which was caused 

by omission from the instrument of language required by applicable regulation (e.g., 

restrictive-use provisions). 

9.8 NOTICE TO RECIPIENT 

A. Agency Notice to Borrower 

The Agency will provide notice to borrowers upon determining that unauthorized 

assistance was received. The notice will: 

 Specify in detail the reason(s) that the assistance was determined to be unauthorized; 

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 State the amount of unauthorized assistance to be repaid; 

 Establish a meeting for the borrower to discuss the basis for the claim and give the 

borrower an opportunity to provide facts, figures, written records, or other 

information that might alter the determination that the assistance was unauthorized; 

and 

 Outline borrower’s appeal rights. 

Upon request, the Agency may grant additional time for the borrower to assemble the 

necessary documentation. 

B. Borrower Notice to Tenant 

The borrower will provide notice to tenants upon determining that a household 

received unauthorized assistance. The notice will: 

 Specify in detail the reason(s) that the assistance was determined to be unauthorized; 

 State the amount of unauthorized assistance to be repaid; and 

 Establish a meeting for the tenant to discuss the basis for the claim and give the tenant 

an opportunity to provide facts, figures, written records, or other information that 

might alter the determination that the assistance was unauthorized. 

Upon request, the borrower may grant additional time for the tenant to assemble the 

necessary documentation. 

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SECTION 3: CORRECTING UNAUTHORIZED ASSISTANCE 

9.9 OVERVIEW 

After confirming and documenting receipt of unauthorized assistance, the next step is to 

end the flow of unauthorized assistance to the borrower or tenant receiving it. This section 

outlines the procedures employed to correct unauthorized assistance, including procedures for 

both audit and nonaudit cases. 

9.10 ACCOUNT ADJUSTMENTS – AUDIT CASES 

When a final determination has been 

made through an OIG audit that unauthorized 

assistance has been granted, the Field Office will 

be notified of necessary account adjustments by 

OIG and the State Office. 

Only cases of unauthorized assistance 

identified by OIG audits are reported to the Field 

Office. In such cases, the Automated MultiFamily Housing Accounting System (AMAS) will be updated with the correct information, if the 

unauthorized assistance affects establishment of the loan interest rate or closing information. 

 

The chosen method of corrective action depends on the type of unauthorized assistance. 

The following text describes the actions that Loan Servicers must take to correct each type of 

unauthorized assistance. 

A. Unauthorized Loan 

For an active borrower with an unauthorized loan, if the problem causing the 

assistance to be unauthorized can be corrected, appropriate corrective action will be 

required. For example: 

 Where a loan was in excess of the authorized amount, the Agency will require the 

recipient to refund the difference; 

 Where the loan included funds for purchase of excess land, the Agency will require 

the recipient to sell the excess land and apply the proceeds to the account as an extra 

payment; and 

 Where a restrictive-use provision was omitted from a loan document, the Agency will 

insert the provision. 

Types of Unauthorized Assistance 

 Unauthorized loan 

 Unauthorized subsidy benefits 

received through use of incorrect interest rate 

 Unauthorized interest credit or rental 

assistance 

 Unauthorized grant assistance 

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B. Unauthorized Subsidy Benefits Received Through Use of Incorrect Interest Rate 

When the recipient was eligible for the loan but should have been charged a higher 

interest rate than that shown in the debt instrument, resulting in the receipt of 

unauthorized subsidy benefits, the Agency must correct the interest rate to that which was 

in effect when the loan was approved. 

 Loan Servicers must ensure that all payments made are reversed and reapplied at the 

correct interest rate and future installments will be scheduled at the correct interest 

rate; 

 The Agency will service any delinquency thus created in accordance with applicable 

Agency procedures; 

 After reapplication of payments, the Agency will service the loan as an authorized 

loan; and 

 Continuation of existing terms is authorized when the recipient is a public body with 

loans secured by bonds on which the interest rate cannot legally be changed or 

payments reversed or reapplied. 

C. Unauthorized Interest Credit or Rental Assistance 

In cases involving rental assistance or interest credit, the subsidy benefits should be 

terminated as provided in Form RD 3560-9. The Agency will service unauthorized rental 

assistance as a delinquent account, see Chapter 10. 

D. Unauthorized Grant Assistance 

When the recipient will repay unauthorized grant assistance over a period of time, the 

Agency will charge interest at the rate specified in the grant agreement for default from 

the date received until paid. 

 The Agency will schedule repayment over a period consistent with the recipient’s 

repayment ability but not to exceed 10 years; 

 The Loan Servicer must maintain collection records, as the St. Louis Office cannot 

set up an account for repayment of a grant. The Loan Servicer will attempt to collect 

the monies due, and all collections data will be entered into AMAS as a 

“Miscellaneous Collection;” 

 The Loan Servicer will report quarterly to the State Office on cases identified in OIG 

audits; 

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 If the Agency determines that the recipient cannot repay unauthorized grant 

assistance, the Agency may leave the assistance outstanding under the terms of the 

grant agreement; and 

 In the case of committed funds not yet disbursed, the Agency will make no further 

disbursements without prior consent of the Administrator. 

E. Cases Where Recipient Has Both Authorized and Unauthorized Loans 

Outstanding 

When a recipient has both authorized and unauthorized loans outstanding, the Agency 

will schedule installments to be paid concurrently on all loans. The Agency will service 

each loan according to the loan servicing regulations in effect for an authorized loan of its 

type. 

F. Liquidation Pending 

When the Agency initiates liquidation, Loan Servicers enter data into AMAS and the 

account will be flagged accordingly. The account is overseen by the Loan Servicer. 

G. Liquidation Not Initiated 

Cases in which liquidation have not been initiated because the outstanding amount is 

less than $1,000 or it would not be in the Agency’s best interest to do so will be adjusted, 

and the adjustments will be entered into AMAS. In this instance only, State Office staff 

may make adjustments without the recipient’s signature. 

As requested, the State Office will report to OIG on the status of cases of 

unauthorized assistance identified in OIG audit reports and tracked by Loan Servicers. 

The amounts to be reported will be determined by the Field Office after servicing actions 

have been completed. 

9.11 ACCOUNT ADJUSTMENTS – NONAUDIT CASES 

Servicing procedures are essentially the same for audit and nonaudit cases. However, 

when the Agency identifies receipt of unauthorized assistance by a means other than an OIG 

audit report, the St. Louis Office will be notified only if adjustments to an active account or 

reinstatement of an inactive account are needed or grant funds are repaid. 

Once the appropriate adjustments are made, the Agency will treat the loan(s) as an 

authorized loan(s). Any payment reversed will be reapplied as of the original date of credit. 

 

The Agency will handle nonaudit account adjustments as follows:

 When a change in interest rate retroactive to the date of loan closing is necessary, the 

borrower will initial changes to Form RD 3560-52, Promissory Note. Loan Servicers 

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will update AMAS with the correct information. AMAS will automatically will 

reverse and reapply payments accordingly. 

 When an inactive borrower agrees to repay unauthorized assistance, the Loan 

Servicer will notify the St. Louis Office by memo, attaching a copy of Form RD 

3560-52. The St. Louis Office will establish or reinstate the account according to the 

terms of Form RD 3560-52. 

 If a loan is paid in full, the Agency will handle the remittance like any other final 

payment. 

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SECTION 4: RECAPTURE OF UNAUTHORIZED 

ASSISTANCE TO BORROWERS 

9.12 OVERVIEW 

To ensure that borrowers do not benefit from unauthorized assistance at the expense of 

others who truly need and qualify for such assistance, the Agency seeks to recover all 

unauthorized assistance from borrowers. The Agency has established a set of detailed 

procedures that Loan Servicers must follow in each case of unauthorized assistance. 

9.13 REQUIREMENTS FOR COLLECTING UNAUTHORIZED ASSISTANCE 

[7 CFR 3560.705] 

The Agency will seek repayment of all unauthorized assistance received by a borrower, 

plus the cost of collection, to the fullest extent permitted by law. In doing so Loan Servicers 

should be guided by the following: 

 The amount due will be the amount stated in the notice letter (Handbook Letter 304 

or Handbook Letter 305, or 305-A (3560); 

 No interest will be charged against the debt if the borrower agrees to repay the money 

in a lump sum or by payment plan within 90 days from the date of debt on Form RD 

3560-65, “MFH Miscellaneous Receivable Notification/Repayment Agreement.” 

Otherwise, a repayment plan longer than 90 days will charge a fixed interest rate 

of 1%. 

 When the borrower cannot repay the money in a lump sum, but will repay over a 

period of time, the Loan Servicer may allow no more than 60 monthly payments 

beginning with the date of the first payment due. However, the debt will be 

submitted to Treasury for Cross Servicing if the borrower: (a) does not agree or 

respond to a repayment agreement, or (b) agrees to a lump sum repayment and the 

debt is not fully paid within 90 days, or (c) agrees to a repayment agreement and the 

remaining debt balance becomes 30 days delinquent at anytime during the agreed 

upon repayment period. 

In determining how to recapture unauthorized assistance, the Agency will consider: 

 The cost effectiveness of recapture efforts relative to the amount of unauthorized 

assistance to be repaid; 

 The availability of records to support the Agency’s unauthorized assistance 

determination; 

 Any applicable Federal, state, or local statute of limitations;

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Steps for Recapturing Unauthorized Assistance 

from Borrowers 

 Coordination with OGC (needed to 

determine appropriate statute of limitations) 

 Notification to recipient (HB Letter 

304(3560)) 

 Recipient response and Agency follow-up 

 Collection 

 Whether the unauthorized assistance resulted from the provision of inaccurate or false 

information knowingly or fraudulently provided by the borrower or tenant; and 

 The ability of the borrower or tenant to repay. 

9.14 AGENCY RECAPTURE OF UNAUTHORIZED ASSISTANCE 

A. Overview 

To collect unauthorized assistance, Loan Servicers must follow the following steps 

described in subparagraph 9.14 A.1 through A.5: 

1. Coordination with OGC 

Loan Servicers may need to work with OGC to determine the appropriate statute of 

limitations before making a decision to collect. 

2. Notification to Recipient 

The Agency will seek to collect 

unauthorized assistance from borrowers, 

up to the applicable statute of limitations 

for any particular amount of unauthorized 

assistance. 

 

Coordination with OGC (if needed to 

determine the appropriate statute of limitations) and the State Office via e-mail must 

occur before proceeding with the initial notification to the recipient when: (a) the debt 

extends beyond one year, and (b) the amount of unauthorized assistance for that year is 

greater than or equal to $1,000. The period of review for cases meeting the criteria of (a) 

and (b) will extend to 3 years. 

The Loan Servicer will initiate collection efforts in the notice described in the Section 3 

of this chapter. Handbook Letter 304 (3560) will be used for this notice. The Loan 

Servicer mails the notice to the recipient by certified mail, with a copy to the State 

Director and, for a case identified in an OIG audit report, a copy to the OIG office that 

conducted the audit and the Financial Management Division of the National Office. The 

Loan Servicer will send the notice to all recipients who received unauthorized assistance, 

regardless of the amount. If the recipient responds to the initial notification within 15 

days and agrees to repay, the Form RD 3560-65, is submitted to the National Financial 

and Accounting Operations Center (NFAOC) in St. Louis. 

3. Recipient Response and Agency Follow-Up 

If the recipient does not agree with the Agency’s determination, or if the recipient 

fails to respond to the initial letter within 15 days, the Loan Servicer will notify the 

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recipient of the following in a second certified letter, using Handbook Letter 305 or 305-

A (3560): 

 The amount of unauthorized assistance to be repaid and the basis for the unauthorized 

assistance determination; 

 A statement of further actions to be taken by the Agency if repayment is not made by 

a certain date; and 

 The recipient’s appeal rights. 

As with the first notice, the Loan Servicer sends copies of the second letter to the 

State Office and will additionally send copies to OIG and the Financial Management 

Division in the National Office if the unauthorized assistance was the result of any audit 

findings. If the borrower does not respond to the second certified letter after 30 days and 

no appeal was received, the Loan Servicer will continue servicing with Handbook Letters 

301, 302, and 303 (3560), Servicing Letters #1, #2, and #3 as appropriate. When all 

attempts to obtain a repayment agreement fail or if a repayment agreement is reached, the 

Form RD 3560-65, is completed and submitted to NFAOC in St. Louis. 

4. Collection 

If the recipient does not prevail in an appeal, or when an appeal is not requested 

during the time allowed, the Loan Servicer will proceed with either liquidation or legal 

action to enforce collection. The Agency allows for repayment of all unauthorized 

assistance either in a lump sum or from a monthly repayment schedule without the 

charging of interest if the recipient pays the debt in full within 90 days from the date of 

debt on Form RD 3560-65. Interest is charged on repayment agreements where the final 

due date is greater than 90 days. Otherwise, the debt will be submitted by NFAOC to 

Treasury Cross Servicing if the debtor has been afforded due process notifications 

resulting in no repayment agreement or a debt with a repayment agreement and a full 

payment is missed or is delinquent more than 30 days from the due date. 

 

5. Restriction on Loan Servicer’s Actions 

When the Loan Servicer is the same person who approved the unauthorized 

assistance, the State Office must review the case before further actions are taken by the 

Loan Servicer. 

B. Procedures for Collection of Unauthorized Assistance 

Following the final Agency determination of unauthorized assistance, Loan Servicers 

must take the following steps: 

 Notify the NFAOC, Multi-Family Housing Servicing Branch (MFHSB) of the debt to 

be established by email to RD.NFAOC.MFHSB@stl.usda.gov or fax to 314-457-

4282 using Form RD 3560-65. MFHSB may also receive a signed memo for any 

correction adjustments to the debt (initialed by Debtor and Agency). Payments are to 

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be mailed to Unauthorized Assistance lockbox address: Rural Development, P.O. 

Box 970005, St. Louis, MO 63197-0005. In all communications, precaution must be 

taken to prevent the distribution of any Personally Identifiable Information (PII). 

 Restructure accounts so that all money owed is collected and no borrowers are 

receiving assistance to which they are not entitled. This is normally accomplished on 

a case-by-case basis, with appropriate involvement of the management agent and 

tenant in cases where the tenant receives unauthorized assistance. Otherwise, it is 

accomplished on a case-by-case basis for repayment by the borrower in 3 months or 

less. Upon demand, borrowers must repay any unauthorized rental assistance and/or 

return on investment; sometimes this may be achieved through a workout agreement 

with the Agency. If 3 months is not a feasible timeframe for complete repayment, the 

State Director can make an exception where justified. 

 After submitting the agreement, Form RD 3560-65 to NFAOC, the Loan Servicers 

may view the Account in CLSS and MFIS. 

The specific procedures to be followed in each case will depend on the reason for the 

unauthorized assistance (i.e., borrower error or Agency error). The procedures associated 

with each cause of unauthorized assistance are discussed below.

1. Borrower Error 

 Borrower actions that require borrower repayment of unauthorized assistance 

received by tenants include, but are not limited to: 

a) Incorrect determination of tenant income or household status by the borrower, 

resulting in rental assistance or interest credit that is not allowable under the 

provisions of subparts D, E, or F of 7 CFR part 3560, as applicable; or 

b) Assignment of rental assistance to a household that is ineligible under the 

requirements of subpart F of 7 CFR part 3560. If the borrower assigned rental 

assistance incorrectly even though the tenant correctly reported income and 

household size, the borrower will first notify the Loan Servicer. If the Loan 

Servicer verifies that the error was made based on information that was available 

at the time the unit was assigned, the borrower or management agent will give the 

tenant a 30-day written notice that the unit was assigned in error and that the 

rental assistance benefit will be canceled effective on the next monthly rental 

payment due after the end of the 30-day notice period. In such cases, Loan 

Servicers must insure that borrowers grant tenants the chance to cancel their lease 

without penalty at the time the rental assistance is canceled or appeal the decision. 

The written notice will provide that: the rental assistance will be assigned to the 

next eligible household based on Form RD 3560-29, from which the original 

priority was established when the unit was erroneously assigned. The rental 

assistance will not be retroactive unless the reassignment was based on an appeal 

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by the tenant. Retroactive rental assistance may not exceed the project’s 

remaining rental assistance obligation balance. 

 Borrowers should not charge tenants amounts due to the Agency as a result of 

unauthorized assistance to tenants through borrower error. (See 7 CFR section 

3560.708(d)). 

 Restitution for unauthorized rental assistance that is the borrower’s fault will be 

handled as a refund. 

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 Exhibit 9-1 lists the specific actions that Loan Servicers must take to attempt to recapture 

unauthorized assistance to borrowers. 

Exhibit 9-1 

Loan Servicer Actions to Recapture Unauthorized Assistance to Borrowers 

Specific Agency actions to be taken in order to recapture unauthorized assistance in cases of borrower error include the 

following: 

 Notify the borrower of the Agency’s finding in Handbook Letter 304 (3560), Preliminary Determination Notice. 

Include in the letter a specific dollar amount and timeframe for response on or before 15 days from receipt of the letter. 

Schedule a meeting time. This letter is the initial notification to the recipient and considered the first demand letter. 

 If the borrower responds to the first demand letter within 15 days and agrees to repay the unauthorized amount, 

complete Form RD 3560-65, with borrower signature as debtor, Agency signature, and mail the payment to: Rural 

Development, P.O. Box 970005, St. Louis, MO 63197-0005, or fax it to MFHSB at 314-457-4282. NFAOC will send 

out a billing notice. A lump sum or monthly payment may be made to repay the debt within 90 days of the date of the 

first demand letter without interest. Failure of the recipient to fully pay the debt by 90 days will result in the debt being

submitted to Treasury for Cross-Servicing. 

 If the borrower does not respond within 15 days to the first demand letter or disagrees with the findings, send 

Handbook Letter 305 or 305-A (3560), Final Determination/Demand Letter. This second letter should include a final 

demand and a description of the collection and enforcement action(s) the Agency plans to take if there is no response. 

Appeal Rights will be provided. 

 If the borrower does not respond or appeal within 30 days from the date of the Final Determination/Demand Letter, 

continue servicing with Handbook Letters 301, 302, & 303 (3560), Servicing Letter #1, #2, & #3 as appropriate. Each 

successive letter requests a response time from the recipient within 15 days. Borrowers have 30 days from the date of 

the Final Determination/Demand letter to appeal the Agency’s decision. 

 If the borrower does not respond or appeal after 90 days when all demand letters have been sent, complete Form RD 

3560-65 without signature from the recipient, include Agency signature and mail or fax to the MFHSB. The debt will 

be submitted to Treasury for Cross-Servicing, as well as referred to OGC for collection as appropriate. 

 If the borrower agrees to a repayment agreement as a result of the Final Determination/Demand letter or any servicing 

letter, complete and submit Form RD 3560-65 with borrower signature as debtor, and Agency signature to the 

NFAOC/MFHSB. If repayment is more than 90 days, the debt will accrue interest, calculated at 1%, from the date of 

debt established on Form RD 3560-65. No repayment period may have a final due date longer than 60 months from the 

date of the first due date. 

 Any repayment agreement with the borrower will have the date of first payment due on the 15th of the month and at 

least 21 days from the fax date of Form RD 3560-65. The repayment period may be no longer than 60 months from the 

date of the first payment due and interest will be charged on repayment periods more than 90 days. Equal installments 

rounded up to the nearest dollar will be used to repay by the final due date. The NFAOC/DCIB will mail a monthly 

billing invoice directly to the borrower for all repayment agreements. NFAOC/DCIB will begin Treasury Referral, 

including mailing the 60-day due process letter to the debtor, on all unpaid debt balances that are delinquent more than 

30 days from the due date. If the debt has been referred to Treasury, borrowers should send the payments to Treasury. 

Instructions will be provided on the billing invoice for payment to be mailed by the borrower to the CSC/MFH 

Lockbox. Any payment received by the servicing office, will be mailed to the Unauthorized Assistance lockbox: Rural 

Development, P.O. Box 970005, St. Louis, MO 63197-0005, along with the completed MFH Payment Transmittal 

Cover Sheet, Form RD 1944-63. 

 Unauthorized assistance should not be repaid from project funds due to borrower fraud, but only if the project received 

a monetary benefit from the unauthorized assistance. See 7 CFR section 3560.705(g). 

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2. Agency Error 

There are several types of Agency error that may result in unauthorized assistance. 

 The most common include: 

 Use of incorrect interest rate; 

 Assignment of unauthorized rental assistance; 

 Improper issuance of interest credit; 

 Non-application of recoverable cost changes; 

 Approving a loan for ineligible purposes; and 

 Other errors (e.g., failure to apply use restrictions). 

Exhibit 9-2 describes the actions that Loan Servicers must take to attempt to recapture 

unauthorized assistance in the event of Agency error. 

Exhibit 9-2 

Actions to Recapture Unauthorized Assistance 

due to Agency Error 

Specific Agency actions to be taken in order to correct cases of Agency 

error include the following: 

 Identify the mistake and the amount of assistance involved; 

 Provide notice to the borrower of the Agency’s intent to correct its 

mistake and collect the unauthorized amount. This notice will 

include a description of where corrections to documents are 

required, if applicable; 

 Contact OGC for advice if needed; 

 Request repayment based on OGC advice regarding the feasibility

of collection and any applicable collection threshold. The State 

Director retains the authority to decide not to pursue any 

unauthorized amounts below the applicable collection threshold. If 

the unauthorized amount is above the applicable collection 

threshold, no OGC review is required; 

 Take all appropriate actions to correct the original error that led to 

the unauthorized assistance, and negotiate terms of repayment (if 

applicable) with the borrower; and 

 If there is no response from the borrower, follow the procedures 

outlined in Exhibit 9-1. 

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9.15 REPAYMENT METHODS 

Repayment of unauthorized assistance may be accomplished by voluntary repayment 

from the borrower, full prepayment governed by the prepayment regulations at 7 C.F.R. part 

3560, Subpart N, or methods allowed by the Debt Collection Improvement Act of 1996 (DCIA). 

The best approach will depend largely on case-specific circumstances. 

9.16 FULL PREPAYMENT 

 

If full prepayment is determined to be the optimal servicing solution, the Agency will 

accept the prepayment in accordance with applicable requirements under 7 CFR part 

3560, subpart N. Prepayment would be an acceptable solution if there is an adequate supply of 

decent, safe, and sanitary rental housing affordable to program eligible tenants in the area, and if 

there would be no adverse impact to low- or moderate-income housing or minority segments of 

the community. Appropriate restrictive-use provisions, if applicable, must remain in the deeds of 

release following prepayment. 

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SECTION 5: RECAPTURE OF UNAUTHORIZED 

ASSISTANCE TO TENANTS 

9.17 OVERVIEW 

Section 4 of this chapter addressed the requirements and procedures for recapturing 

unauthorized assistance from borrowers. The Agency also established requirements that 

borrowers identify unauthorized assistance to tenant households. This section addresses those 

requirements and procedures. 

 

9.18 REQUIREMENTS FOR COLLECTION OF UNAUTHORIZED ASSISTANCE 

TO TENANTS [7 CFR 3560.708] 

Any assistance resulting from misrepresentation of tenant income or status that varies 

from the allowable amounts set forth under the occupancy requirements is unauthorized and 

must be repaid. Tenant’s failure to pay monthly rent according to their lease is not a part of 

unauthorized assistance and should be properly serviced by the management company. The 

borrower will inform the Agency of any identified unauthorized assistance and should assist the 

Agency in establishing a repayment agreement with the tenant. Borrowers and Loan Servicers 

will be guided by the following: 

 The amount due will be the amount stated in the notice letter (Handbook Letter 304 or 

Handbook Letter 305 or 305-A (3560)); 

 No interest will be charged against the debt if the tenant agrees to repay the money in a lump 

sum or by payment plan within 90 days from the date of debt on Form RD 3560-65, “MFH 

Miscellaneous Receivable Notification/Repayment Agreement”. Otherwise, a repayment 

plan longer than 90 days will charge a fixed interest rate of 1%. 

 

 When the tenant cannot repay the money in a lump sum, but will repay over a period of time, 

the Loan Servicer may allow no more than 60 monthly payments beginning with the date of 

the first payment due. However, the debt will be submitted to Treasury for Cross Servicing, 

by NFAOC if the tenant: (a) does not agree or respond to a repayment agreement, or (b) 

agrees to a lump sum repayment and the debt is not fully paid within 90 days, or (c) agrees to 

a repayment agreement and is delinquent more than 30 days from the due date. 

 If an agreement is made between the Tenant and Agency and the Tenant later requests a 

change to the agreement, the Loan Servicer will review the request and if approved, revise 

the original agreement, initialed by debtor and Agency, and fax to NFAOC. 

 When a tenant moves out of a property, the borrower will submit copies of all documents 

demonstrating attempts to establish a repayment agreement at the Agency’s request. At that 

point, the Agency will assume all collection actions in accordance with the DCIA, and 7 CFR 

section 3560.705(e). 

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 With all debts identified, the borrower will submit copies of all documentation supporting the 

debt amount to the Agency for their files. (e.g.: documentation of phone calls, 

correspondence, signed tenant certification and lease, how unauthorized assistance was 

discovered and calculated.) 

9.19 PROCEDURES FOR COLLECTION OF UNAUTHORIZED ASSISTANCE TO 

TENANTS 

When unauthorized assistance was determined as received by the tenant, and the 

determination was made by: 

A. The borrower 

The borrower will notify the tenant in writing the unauthorized assistance was 

received by the tenant. Per 7 CFR Section 3560.704(b), the borrower will complete 

and send Handbook Letter 304-A, Borrower Preliminary Determination Notice to the 

tenant, and simultaneously send a copy of this letter to the Agency. 

When the tenant’s unauthorized assistance is determined to have exceeded $100 for at 

least one month, the borrower must review at least the previous three tenant 

certifications for possible unauthorized assistance, when applicable. 

If the tenant agrees to repay the unauthorized assistance, the borrower will inform the 

Agency of the unauthorized assistance and of the agreement made by the tenant to 

repay with a signed Form RD 3560-65, MFH Miscellaneous Receivable 

Notification/Repayment Agreement. If lump sum payment is not feasible, a 

repayment schedule may be allowed, which will require Agency approval prior to 

implementation. The debt and repayment schedule will be reported, and will not 

exceed 60 months from the date of the first payment due which will be the 15th of the 

month and at least 21 days from the fax date of Form RD 3560-65. Any repayment 

schedule that may exceed 60 months will require approval by the MFH National 

Office. The borrower and tenant must complete a new tenant recertification for as of 

the first of the month after the unauthorized assistance was discovered. No 

modifications to tenant certifications will be made in Management Interactive 

Network Connection (MINC). 

When the tenant disagrees, fails to respond to notice, or fails to agree to a repayment 

schedule, the borrower will send Handbook Letter 305-A, Borrower Sent Final 

Determination/Demand Letter, and should issue a notice of lease violation to the 

tenant (according to lease requirements in 7 CFR Section 156). The notice informs 

the tenant of 1) the amount of unauthorized assistance and the basis for the 

unauthorized assistance determination; 2) the actions to be taken if repayment is not 

made by a specific date, and tenant grievance procedures pursuant to 7 CFR section 

3560.160. If no agreement is made and the debt becomes delinquent, Form RD 3560-

65 must be completed, without tenant signature, and sent to the Agency for 

approval/signature and transmission to NFAOC/MFHSB for transfer to Treasury debt 

cross-servicing. 

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B. The Agency 

If the Agency (Loan Servicer) determines the unauthorized assistance, they will 

notify Borrower requesting response to either confirm or dispute Agency finding. If 

the borrower agrees, the Agency will send the tenant Handbook Letter 304, 

Preliminary Determination Notice. 

If the tenant agrees to repay the unauthorized assistance, Form RD 3560-65 must be 

completed, with tenant signature, signed by the Agency, and emailed or faxed to the 

NFAOC/MFHSB. 

If the tenant does not agree to repay, or no agreement is made, Form RD 3560-65 

must be completed, without tenant signature, signed by the Agency, and emailed or 

faxed to the NFAOC/MFHSB, for submission to Treasury for debt collection, as 

allowed by DCIA. The servicing office will take actions to pursue the debt from the 

tenant when the tenant moves out of the unit, using information provided by the 

borrower. 

Immediately after submitting the agreement, Form RD 3560-65, NFAOC/MFHSB 

will create a Tenant Tracked Account in CLSS. As payments are made, 

NFAOC/MFHSB will update the tracked account. If the account is turned over to 

Treasury for Cross Servicing, CSC will update the tracked account to indicate 

referral. 

Any adjustments to an incorrectly calculated debt or debt repayment by the Agency 

(with any applicable approval from MFH National Office) will be made by 

amending Form RD 3560-65, adding “CORRECTED” across the top of the form, 

and sending to NFAOC/MFHSB for notification. 

Exhibit 9-3 summarizes the steps that must be taken by Loan Servicers and borrowers to 

recapture unauthorized assistance from tenants 

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Exhibit 9-3 

Actions to Recapture Unauthorized Assistance from Tenants 

The following steps should be taken by the borrower to correct cases of unauthorized assistance due to tenant 

error: 

 If the Agency/borrower determines that a tenant misrepresented income or the number of occupants in the 

unit and has received unauthorized assistance, the borrower will determine the reason for the unauthorized 

assistance and issue a notice of intent to recapture unauthorized assistance (Handbook Letter 304, 

Preliminary Notice) which provides an opportunity for repayment by the tenant, with a copy to the Agency. 

If the tenant agrees to the income calculation, a tenant recertification will be completed as of the first of the 

month after the unauthorized assistance was discovered. No modifications to tenant certifications will be 

made in MINC. 

 If either the borrower or the tenant disputes the Agency’s findings, they may provide evidence for 

consideration by the Agency. An OGC opinion and/or concurrence for pursuit or dismissal of the 

unauthorized assistance may be submitted to support the decision for any subsequent audit. 

 If the borrower and the tenant agree to the unauthorized assistance as a result of any notice or demand 

letter, the borrower and Agency will negotiate the repayment terms with the tenant, complete Form RD 

3560-65 with tenant signature as debtor and email to RD.NFAOC.MFHSB@stl.usda.gov, or fax it to 

NFAOC/MFHSB at 314-457-4282. The original will be retained by the servicing office and a copy given 

to the tenant. 

 Any repayment agreement with the tenant will have the date of first payment due on the 15th of the month 

and at least 21 days from the fax date of Form RD 3560-65. The repayment period may be no longer than 

60 months from the date of the first payment due and interest, calculated at 1%, will be charged on 

repayment periods more than 90 days. Equal installments rounded up to the nearest dollar will be used to 

repay by the final due date. The NFAOC/DCIB will mail a monthly billing invoice directly to the tenant 

for all repayment agreements. NFAOC/DCIB will begin Treasury Referral, including mailing the 60-day 

due process letter to the tenant, on all unpaid debt balances that are delinquent more than 30 days from 

the due date. 

 Instructions will be provided on the billing invoice for payment to be mailed by the tenant to the CSC/MFH 

Lockbox. If any payment is received by the servicing office, a MFH Payment Transmittal Cover Sheet, 

Form RD 1944-63, will be completed and mailed with payment to the Unauthorized Assistance lockbox: 

Rural Development, P.O. Box 970005, St. Louis, MO 63197-0005. 

 If the borrower agrees to the unauthorized assistance and the tenant fails to respond to the notice or fails to 

agree to a repayment schedule, the borrower will send the tenant Handbook Letter 305, or 305-A, Final 

Determination/Demand letter. Appeal rights will be provided pursuant to 7 CFR 3560.160. If there is no 

response or appeal from the tenant after 30 days from the date of the Final Determination/Demand Letter, 

the borrower will again initiate eviction proceedings and complete Form RD 3560-65 without tenant 

signature as debtor, without interest (indicated by a “0” in the interest field) or installment amount, include 

Agency signature, and email to RD.NFAOC.MFHSB@stl.usda.gov, or fax it to NFAOC/MFHSB at 314-

457-4282. The original will be retained at the servicing office. The NFAOC/DCIB will follow procedures 

for submission of the debt to Treasury Cross Servicing. 

 If tenant has moved out of the unit, the borrower must turn over copies of relevant tenant records upon 

request (e.g., signed tenant certification and lease, how much unauthorized assistance was discovered, 

calculation of unauthorized assistance, eviction notice, and tenant move-out form) to the Agency. The 

servicing office will, if necessary, send the Final Determination/Demand Letter to the tenant, process any 

appeal, and complete Form RD 3560-65 for faxing to the NFAOC/MFHSB. The NFAOC will refer the debt 

to Treasury for collection as allowed by DCIA. 

 For all debts identified, the borrower will submit documentation supporting the debt amount to the Agency 

(e.g. documentation of phone calls, correspondence, signed tenant certification and lease, how unauthorized 

assistance was discovered and calculated.) 

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SECTION 6: REFERRAL OF DEBT TO THE 

UNITED STATES DEPARTMENT OF TREASURY (TREASURY) 

9.20 GENERAL TREASURY REFERRAL REQUIREMENTS 

Treasury referral is a process by which delinquent debts can be collected from borrowers, 

grantees, or tenants through means other than a direct payment. Agencies are required by law to 

transfer debts that are 180 days delinquent, nontax, legally enforceable to Treasury for collection. 

Exhibit 9-4 lists the general procedures that Loan Servicers must follow when 

implementing Treasury Referral. 

9.21 GENERAL TREASURY REFERRAL PROCESS 

The Agency does not perform Administrative Offsets, Salary Offsets, or IRS Offsets. 

These tools are used by the U.S. Treasury once a debt has been determined eligible and 

subsequently referred to Treasury. In addition to the various types of offsets, the U.S. Treasury 

may also use wage garnishment and private collection agencies, to attempt collection of a debt. 

A brief process is as follows: 

• The Debt Collection Improvement Act of 1996 (DCIA) provides additional collection 

remedies to Treasury for collecting delinquent debts Government wide. 

• Prior to submitting the debt to Treasury, NFAOC/DCIB issues the debtor a 60-Day Due 

Process Letter. This letter explains the debt and rights of the debtor as required by law. 

DCIA requires debts to be referred for Cross Servicing at 180 days delinquent. Debts that 

are referred to the Treasury Offset Program are referred at 120 days delinquent. See 7 

CFR section 3.30. If the debtor begins making full payments as agreed upon by the 

repayment plan as a result of the 60-day notice, the debt will not be referred. 

• Once the debt is referred for Cross Servicing, Treasury begins collecting the debt. CrossServicing is the process whereby federal agencies refer delinquent debts to Treasury for 

collection. Treasury will use various tools in an attempt to collect these debts. Some of 

these tools are such things as offsetting any government payments (tax refunds, federal 

salary payroll, all vendor payments, etc.), wage garnishment and the use of private 

collection agencies, to attempt collection of a debt. 

• NFAOC/DCIB is responsible for maintaining communications with Treasury on all 

aspects of the debts referred, including but not limited to full collection of the debt. 

• Once a debt goes to Treasury, it can only be recalled if it was referred in error or under 

other extenuating circumstances. If the debtor starts to make payments again, if paid to 

Treasury, part of the collection goes back to Treasury. Payments made to the Agency will 

be processed and notification of the payment will be sent to Treasury. Resuming 

payments requires that a revised form RD 3560-65 be sent to NFAOC. 

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Exhibit 9-4 

General Procedures for Implementing Treasury referral 

 Notify debtors of intent to use Treasury referral. Notify debtors of the Agency’s intent to use Treasury 

referral. If the debtor requests a meeting to discuss the matter, schedule the meeting and advise the debtor of 

the date, time, and place. This does not replace the 60-day due process letter sent by NFAOC. 

 Inform debtor of their rights. Inform debtor that they have 15 days after receipt of notification to 

inspect/copy records, and 30 days to either make a written submission, request a meeting, or appeal. Inform 

debtors of when and where records may be inspected and/or copied. 

 Respect debtors’ rights. Ensure that debtors’ rights are respected (e.g., the right to inspect and copy 

records, the right to avoid Treasury referral by paying debts in full within 30 days, the right to present reasons 

why Treasury referral should not be used, the right to request meetings with the decision-making official, and 

the right to appeal the decision). 

 Communicate effectively with debtors. Make decisions promptly, within 15 days, after a meeting with

the debtor and communicate them in writing to the debtor. If a request from a debtor not to use Treasury 

referral is denied, the letter communicating that decision should advise the debtor of their rights to appeal to 

the National Appeals Division. 

 Follow appropriate hearing procedures. Inform debtors that they may request a hearing if they dispute 

any Agency finding. Hearings can include consideration of any issues concerning the debt that the debtor 

wishes to raise. Respond promptly to all written or oral requests or presentations made by debtors; 

 Complete Form RD 3560-65. If it is determined that the debt is valid, complete Form RD 3560-65, 

following the guidelines defined in the FMI. 

 Notify NFAOC of course of actions. Provide the completed Form RD 3560-65 to NFAOC who 

will establish the debt as a receivable. The information on the Form RD 3560-65 will be the 

determining factor when and whether or not to begin Treasury Referral, including mailing the 60-

Day Due Process Letter to the debtor(s). The NFAOC group e-mailbox for MFH is 

rd.nfaoc.mfhsb@usda.gov. 

 If the debtor begins full payments as agreed upon by the repayment plan after the 60-day due process letter, 

then the debt will not be referred. However, if the debtor becomes delinquent again, a second 60-day notice 

will not be provided and the debt will go directly to Treasury.

 Credit collections to debtor’s account. NFAOC will receive and process transactions to the debtor’s 

receivable record that are received from Treasury or through repayment agreements with the Agency. 

 Request Debt Recall from Treasury. Once it is referred, debt may only be called once and only under 

extenuating circumstances. If the debtor requests to begin making payments and the Agency decides that the 

debt should be recalled from Treasury, a new agreement, Form RD 3560-65 must be signed and submitted to 

NFAOC with a request to recall from Treasury. Debts will not be recalled more than once unless extenuating 

circumstances exist. 

 

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HB-3-3560 

SECTION 7: CONTINUATION OF LOAN ACCOUNTS 

9.22 OVERVIEW 

The Agency realizes that it would be counterproductive to liquidate the account of each 

borrower that receives unauthorized assistance. Thus, a much more common scenario is to 

continue the loan account with a stipulation that some or all of the unauthorized assistance will 

be collected, either immediately or over time. This way, the Agency can continue to meet the 

needs of low-income tenants while still responsibly protecting the taxpayers’ interest in the RHS 

portfolio. 

9.23 REQUIREMENTS FOR CONTINUATION OF LOAN ACCOUNTS 

[7 CFR 3560.707] 

If a recipient of unauthorized assistance is willing to pay the amount in question but 

cannot repay within a reasonable period of time, the Agency may continue to service the account 

if the recipient has the legal and financial capabilities to continue. 

When the borrower is responsible for the circumstances causing the assistance to be 

unauthorized, the borrower must take appropriate action to correct the problem. When 

unauthorized assistance is due to Agency actions, the Agency will correct the problem. When 

circumstances resulting in a determination of unauthorized assistance cannot be corrected, the 

Agency may, at its discretion, decide that continuation on existing terms is appropriate. 

9.24 AGENCY DECISION TO CONTINUE SERVICING ACCOUNT 

If a recipient is willing to pay the amount in question but cannot repay within a 

reasonable period of time, the Agency can continue to service the account. The Agency can take 

appropriate servicing actions to continue the account if: 

 The recipient did not provide false information; 

 Requiring prompt repayment of the unauthorized assistance would be highly 

inequitable; and 

 Failure to collect the unauthorized assistance in full will not adversely affect the 

Agency’s financial interest. 

9.25 SERVICING OPTIONS IN LIEU OF LIQUIDATION OR LEGAL ACTION TO 

COLLECT 

When the conditions for continuation of the account are met, the Loan Servicer will 

service an unauthorized loan or grant, provided the recipient has the legal and financial 

capabilities to continue. Agency actions will depend on whether the case involves an active or 

inactive borrower or grantee and the type of unauthorized assistance received. 

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A. Agency Actions 

Generally, borrower accounts need to be restructured so that the Agency collects all 

money due it and so that no borrower is receiving assistance to which they are not 

entitled. The Loan Servicer accomplishes this result through the account adjustments 

described below. In most cases requiring such corrective actions, the Loan Servicer 

reports to the State Director, who often consults with OGC on further actions. 

B. Notice of Determination When Agreement is Not Reached 

If the recipient does not agree with the Agency determination of unauthorized 

assistance or does not respond to the initial letter within 30 days, the Loan Servicer must 

send a second certified letter (to the same recipients) specifying the final amount 

determined by the Agency to be unauthorized, further actions to be taken by the Agency, 

and the recipient’s appeal rights. 

C. Reporting to OIG 

At prescribed intervals, the St. Louis Office will report to OIG on the status of cases 

involving unauthorized assistance which were identified by OIG in audit reports. The 

St. Louis Office will determine the amounts to be reported to OIG after account servicing 

actions have been completed. For reporting purposes, the procedures outlined below 

apply. 

1. Unauthorized Loan 

When a borrower repays an unauthorized loan account in full (if allowed under the 

prepayment regulations found at 7 CFR 3560, Subpart N.) Loan Servicers should include 

that payment in the next scheduled report only. When the Agency approves continuation 

with the loan on existing terms, Loan Servicers will report the case as resolved on the 

next scheduled report. No further reporting is required. 

2. Unauthorized Subsidy 

For unauthorized subsidy cases, after the borrower has repaid the unauthorized 

amount or payments have been reversed and reapplied at the correct interest rate, Loan 

Servicers should include the unauthorized subsidy as resolved in the next scheduled 

report. No further reporting is required. 

3. Liquidation Pending 

When the Agency establishes an account with liquidation action pending, Loan 

Servicers will include the status in each scheduled report until the liquidation is 

completed or the account is otherwise paid in full. 

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4. Liquidation Not Initiated 

When liquidation is not initiated, Loan Servicers should report so in the next 

scheduled report, along with collections (if any). No further reporting is required. 

5. Unauthorized Grant 

When unauthorized grant assistance is scheduled to be repaid, the collections and 

status reported by the State Office to the St. Louis Office by memorandum are included 

in the OIG report until the account is paid in full. 

6. Inactive Borrower 

When an inactive borrower has agreed to repay unauthorized assistance, Loan 

Servicers will report the account initially, and include collections and status in each 

scheduled report until the account is paid in full. 

D. Quarterly Reporting to the State Office 

The Loan Servicer will report to the State Office by the first day of March, June, 

September, and December of each year the repayment of unauthorized rental assistance 

by account name, case number, account code, audit report number, finding number, date 

of claim, amount of claim, amount collected during period, and balance owed at the end 

of the reporting period. The State Office will forward a consolidated report to the St. 

Louis Office no later than the fifteenth day of March, June, September, and December of 

each year for inclusion in the OIG report. 

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SECTION 8: ENFORCEMENT 

9.26 OVERVIEW 

If all of the Agency actions described in this chapter fail to result in an acceptable 

resolution to the unauthorized assistance or borrower violations, enforcement actions may be 

considered. Most enforcement actions will require close coordination with OGC, which will 

develop the Agency’s enforcement approach based on information supplied by Loan Servicers. 

It is the Agency’s goal to resolve all cases, when possible, before they reach this stage. 

9.27 AGENCY ACTIONS FOR ENFORCEMENT AGAINST RECIPIENTS OF 

UNAUTHORIZED ASSISTANCE AND FOR IMPOSING CIVIL MONETARY 

PENALTIES AGAINST BORROWER ENTITIES AND RELATED PARTIES 

If a recipient of unauthorized assistance is unwilling or unable to arrange for repayment, 

or continuation is not feasible, or after working with a borrower or any individual or entity, 

including its officers, general partners, limited partners, or employees, who knowingly and 

materially violate, or participate in committing programmatic violations, the Agency may take 

one of the following actions, as appropriate. 

A. Liquidation (7 CFR 3560.456) 

In the case of an active borrower with a secured loan, the Loan Servicer will attempt 

to have the recipient liquidate voluntarily subject to compliance with prepayment 

requirements. If the recipient agrees, the Loan servicer will document the agreement 

with an entry in the running record of the case file. 

Where real property is involved, the Loan Servicer will prepare a letter to be signed 

by the recipient agreeing to voluntary liquidation. If the recipient does not agree to 

voluntary liquidation, or agrees but is unable to accomplish it within a reasonable period 

of time (usually not more than 90 days), the Agency will initiate forced liquidation 

action, unless the amount of unauthorized assistance outstanding totals less than $1,000 

or it can be clearly documented that it would not be in the best financial interest of the 

Government to force liquidation. If a borrower meets either of the two criteria to forego 

forced liquidation, the Agency will make all necessary account adjustments without the 

recipient’s signature and notify the recipient by letter of the actions taken. 

B. Legal Action to Enforce Collection 

In the case of a grantee, inactive borrower, or active borrower with an unsecured loan 

(e.g., collection-only or unsatisfied balance after liquidation), the Loan Servicer will 

document the facts in the case file and submit it to the State Director, who will request 

the advice of OGC on pursuing legal action to effect collection. The State Director will 

tell OGC what assets, if any, are available from which to collect. The State Director will 

forward the case file, recommendation of the State Director, and OGC comments to the 

National Office for review and authorization to implement recommended servicing 

actions. 

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C. Double Damages (7 CFR 3560.460) 

1. Action to Recover Assets or Income 

The Agency may request to the Attorney General to bring an action in a U.S. District 

Court to recover any assets or income used by any person in violation of the provisions of 

a loan made by the Agency under this section or in violation of any applicable statute or 

regulation. 

For the purposes of this section, use of assets or income in violation of the applicable 

loan, statute, or regulation includes any use for which the documentation in the books and 

accounts does not establish that the use was made for a reasonable operating expense or 

necessary repair of the project or for which the documentation has not been maintained in 

accordance with the requirements of the Agency and in reasonable condition for proper 

audit. 

For the purposes of this section, the term “person” means: 

 Any individual or entity that borrows funds in accordance with programs authorized 

by this section; 

 Any individual or entity holding 25 percent or more interest in any entity that the 

Agency funds in accordance with programs authorized by section 3560.1; and 

 Any officer, director, or partner of an entity that borrows funds in accordance with 

programs authorized section 3560.1. 

2. Amount Recoverable 

In any judgment favorable to the United States entered under this subsection, the 

Attorney General may recover double the value of the assets and income of the project 

that the court determines to have been used in violation of the provisions of a loan made 

by the Agency under this section or any applicable statute or regulation, plus all costs 

related to the actions, including reasonable attorney and auditing fees. 

Notwithstanding any other provisions of law, the Agency may use amounts recovered 

under this section for activities authorized under section 3560.1, and such funds must 

remain available for such use until expended. 

3. Time Limitation 

Notwithstanding any other provisions of law, an action under section 3560.460 may 

be commenced at any time during the six-year period beginning on the date that the 

Agency discovered or should have discovered the violation of the provisions of this 

section or any related statutes or regulations. 

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HB-3-3560 

4. Continued Availability of Other Remedies 

The remedy provided in section 3560.460 is in addition to—not in substitution of—

any other remedies available to the Agency or the United States Government. 

D. Equity Skimming (7 CFR 3560.461(a)) 

1. Criminal penalty 

 

Whoever, as an owner, agent, employee, or manager, or is otherwise in custody, 

control, or possession of property that is security for a loan made under Title V of the 

Housing Act of 1949, as amended (Housing Act), willfully uses, or authorizes the use, of 

any part of the rents, assets, proceeds, income, or other funds derived from such property, 

for any purpose other than to meet actual, reasonable, and necessary expenses of the 

property, or for any other purpose not authorized by this title or the regulations adopted 

pursuant to this title, must be fined under title 18, United States Code (USC), or 

imprisoned not more than five years, or both. 

2. Civil sanctions 

 

An entity or individual who as an owner, operator, employee, or manager, or who acts 

as an agency for a property that is security for a loan made under this title where any part 

of the rents, assets, proceeds, income, or other funds derived from such property are used 

for any purpose other than to meet actual, reasonable, and necessary expenses of the 

property, or for any other purpose not authorized by the Housing Act and the regulations 

adopted pursuant to the Housing Act, must be subject to a fine of not more than $25,000 

per violation. The sanctions provided in this paragraph may be imposed in addition to 

any other civil sanctions or civil monetary penalties authorized by law. 

E. Civil Monetary Penalties (7 CFR 3560.461(b)) 

1. Overview 

Civil Monetary Penalties is authorized under section 543(b) of the Housing Act of 

1949, as amended (42 U.S.C. 1490s(b)), and provides a remedy for non-monetary 

compliance violations without imposing more severe actions such as acceleration, 

foreclosure and liquidation that may not be in the best interest of the Federal 

Government. It also allows the Agency to elicit compliance by the borrower when all 

other efforts for reestablishing program compliance have been exhausted. In order to 

avoid pursuing civil monetary penalties, Agency staff would prefer to work alongside 

borrowers to resolve outstanding violations of the Housing Act, the regulation issued by 

the Agency pursuant to the Housing Act, or agreements made in accordance to the 

Housing Act where there is an imminent or real threat of loss of financial integrity to the 

property or to the value of the Agency’s security. However, the decision to impose 

penalties should only be made after the Agency has made several unsuccessful attempts 

_________________________________________________________________________ 9-31 

(02-24-05) SPECIAL PN 

Revised (02-15-19) PN 521 
HB-3-3560 

to work with a borrower, such as entering into a workout agreement, new property 

management, or utilizing other available servicing options outlined in Chapter 10.13 

Selecting Servicing Options. This section provides guidance in support of Chapter 10.15 

Enforcement Actions. 

After following proper loan servicing procedures outlined in Chapter 10 and an 

opportunity for a hearing, the Department’s Office of Administrative Law Judges may 

impose a civil monetary penalty in accordance with section 3560.461(b) against any 

individual or entity, including its owners, officers, general partners, limited partners, or 

employees, who knowingly and materially violate, or participate in the violation of the 

provisions of the Housing Act, the regulation issued by the Agency pursuant to the 

Housing Act, or agreements made in accordance to the Housing Act by: 

 Submitting information to the Agency that is false; 

 Providing the Agency with false certifications; 

 Failing to submit information requested by the Agency in a timely manner; 

 Failing to maintain the property subject to loans made under the Housing Act in good 

repair and condition, as determined by the Agency; 

 Failing to provide management for a project that received a loan made under the 

Housing Act that is acceptable to the Agency. Acceptable management can include 

providing sound fiscal management, maintaining the required project accounts, 

maintaining the required occupancy, and handling rent collection, in accordance with 

Agency regulation 7 CFR 3560, Subpart C - Borrower Management and Operations 

Responsibilities. 

 Failing to comply with the provisions of 7 CFR 3560.2 Civil Rights and applicable 

statutes and regulations therein. 

2. Amount 

Civil penalties shall be assessed and adjusted in accordance with 7 CFR part 3, 

subpart I, Adjusted Civil Monetary Penalties (7 CFR 3.91(b)(8)) or its successor 

regulation, and 543 (b)(3)(A) of the Housing Act, which states that a civil penalty 

imposed under this subsection shall not exceed the greater of twice the damages the 

Agency, the lender, or the project that is secured for the loan under this section suffered 

or would have suffered under the violation. The current maximum penalty per violation is 

$70,881.00. 

In determining the amount of a civil monetary penalty under section 3560.461, the 

Agency must take into consideration: 

 The gravity of the offense; 

9-32 
HB-3-3560 

 Any history of prior offenses by the violator (including offenses occurring prior to the 

enactment of this section); 

 Any injury to tenants; 

 Any injury to the public; 

 Any benefits received by the violator as a result of the violation; 

 Deterrence of future violations; and 

 Such other factors as the Agency may establish by regulation. 

To aid Loan Servicers in evaluating the decision to pursue CMP, review Attachment 

9-A, “Guide for Civil Monetary Penalty Recommendation and Assessment.” 

3. Agency Actions and Responsibilities 

a. The Loan Servicer will verify that the steps outlined in Chapter 10.9 “Key Steps 

in Addressing Compliance Violations and Defaults,” and Chapter 10.10 

“Notification to Borrower of Servicing Problems” have been completed before 

conducting the necessary investigation and referral. 

b. Due to potentially serious consequences for a borrower resulting from a civil 

monetary penalty action, and the possibility of a challenge to the Agency action, it 

is important that all recommendations for these actions be fully supported with 

current documentation. If the recommendation is more than three years old after 

the alleged wrongdoing, explanatory documentation must be provided indicating 

the reason(s) for the delay. If the State Director and the Office of General Counsel 

have access to all relevant information supporting the recommendation, the 

Agency will be more likely to withstand challenges to impose civil monetary 

penalty at the hearing. 

c. The materials submitted to the State Director and the Office of General Counsel 

will comprise the Agency record. The quality and accuracy of the narrative 

record can ultimately determine the success or failure of a case appealed to 

federal district court. 

d. The Agency must include all documents relating to the relationship between the 

civil monetary penalty violator(s) and the Agency including, but not limited to: 

mortgages, notes, contracts, loan agreements, and management or partnership 

agreements, and documentation listed in paragraph 5.e. Care should be exercised 

in identifying the correct person(s) or entity for civil monetary penalty to prevent 

losing a case on procedural error for failure to provide proper and timely notice. 

_______________________________________________________________________________ 9-33 

(02-24-05) SPECIAL PN 

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HB-3-3560 

e. When a civil monetary penalty extends to partners or affiliates, including its 

owners, officers, directors, general partners, limited partners, or employees, any 

partnership agreements or articles of incorporation must be included to establish 

the relationship between parties. These documents are necessary to assist in 

correctly identifying the person(s) or entity to be penalized, and in making 

determinations about imputing actions to other individuals and affiliates. OGC 

can advise about whether and how such penalties may be enforced against entity 

members with limited liability. 

f. In addition to the causes outlined in to 7 CFR 3560.461 (b) and 7 CFR 3.91 (b) 

(8), it is imperative to compile civil monetary penalty file(s) in accordance with 

the standards outlined in paragraph 5 Format for Submission of Civil Monetary 

Penalties Case. 

g. Once the investigation and the assembly of documentation is completed, the Loan 

Servicer shall send the package of information to the State Director. The State 

Director will decide if the civil monetary penalty is appropriate. If so, the case 

will be forwarded to the appropriate local OGC office for a legal sufficiency 

review. 

4. Notification of Intent to Pursue Civil Monetary PenaltyAction (HB Letter 303-A) 

a. The Loan Servicer should follow the procedures for issuing Servicing Letters #1, 

#2, and #3, in accordance with HB-3-3560, Exhibit 10-2, Sequence of Servicing 

Letters. Handbook Letter 303-A (3560), “Notification Of Intent To Pursue Civil 

Monetary Penalty Action,” should be sent at least 60 days after the date of first 

letter and at least 15 days after Letter #2 notifying borrowers that they are in 

default and warning of enforcement action if problem is not corrected within 15 

days. Handbook Letter 303-A must be sent via Certified Mail. The Agency shall 

preserve all related documents and data upon the issuance of Handbook Letter 

303-A. 

 

______________________________________________________________________________ 9-34 
HB-3-3560 

b. During the 15-day response period, the Loan Servicer should begin assembling 

the documentary evidence supporting the case. The complete package of 

documentary evidence is needed by the State Director to submit to the RHS 

Administrator, the Regional OGC, and the Office of Administrative Law Judges 

for review and concurrence. 

c. Upon the expiration of the 15-day period in which the respondent is to contact the 

Agency, the Loan Servicer will develop a problem case report using Form RD 

3560-56, Report on Real Estate Problem Case, for the State Director’s approval. 

The problem case report contains the details of the case, and is used by Loan 

Servicers to recommend and obtain the State Director’s approval for an 

enforcement action. Loan Servicers will forward the problem case report 

describing the violations of Agency requirements by the borrower along with 

recommended enforcement actions within 120 days of concluding that efforts to 

achieve compliance have been unsuccessful. 

d. The State Director will review the problem case report and respond to the Loan 

Servicer within 30 days of receipt of the problem case report, indicating the action 

to be taken. Such determination shall be based upon a review of Handbook Letter 

303-A, the borrower’s response, if any, and the documents listed in paragraph 5, 

below. 

e. Upon the State Director’s consent to the civil monetary penalty action, indicated 

by marking the “Litigation For Performance” box on the problem case report, and 

absent any active settlement negotiations, the package of documentary evidence 

and the problem case report shall be submitted to the RHS Administrator for 

review and concurrence. Upon receiving concurrence from the RHS

Administrator, the State Director shall forward the recommendation and the 

package of documentary evidence to the local OGC office for legal sufficiency 

review and consent. Upon review by OGC, OGC shall draft a complaint, then 

forward it back to the State Director. The State Director shall review the 

complaint and forward it to the RHS Administrator for signature and filing with 

the Office of Administrative Law Judges, accompanied by a transmittal 

memorandum signed by the RHS Administrator recommending a civil monetary 

penalty. A copy of the signed transmittal memorandum should be sent to the local 

OGC office to serve as a notification that the case is moving forward and legal 

representation will be needed. 

5. Format for Submission of a Civil Monetary Penalties Case 

The documentary evidence package from the State Director to the RHS Administrator 

should be secured and tabbed, and in chronological order starting with the most recent 

documents, as follows: 

____________________________________________________________________________ 9-35 

(02-24-05) SPECIAL PN 

Revised (02-15-19) PN 521 
HB-3-3560 

a. Form RD 3560-56, “Report on Real Estate Problem Case,” which is the State 

Director’s recommendation and justification for a civil monetary penalty. A clear, 

cogent, and concise narrative setting out each person or entity in relation to the civil 

monetary penalty, the specific causes for civil monetary penalty, the specific actions 

which give rise to each specific cause for civil monetary penalty, an explanation as to 

why and how the specific action is a cause for civil monetary penalty. Include any 

weak points or extenuating circumstances which may be involved. Specific citations 

of each regulation at issue must also be included. 

b. Transmittal memorandums from the Servicing Office. 

c. Executive Summary, consisting of a brief history of events, and discussion of each 

factor going into fee determination. 

d. Include the following documents that are applicable to the civil monetary penalty plus 

any additional information that will support the State Office’s recommendation and 

assist the Administrator in the decision making process: 

 Agency letters to the respondents and their responses; 

 Borrower complaint letters to respondents and their responses;

 Copies of any articles of incorporation, loan agreements, by- laws or partnership 

agreements (including, but not limited to, documentation to establish relationships 

between the proposed civil penalty and the government and/or the transfer of 

federal funds); 

 Record of other Agency contacts with respondents (including printouts of emails/ 

notes from parties, if applicable); 

 Record of visits and copies of running record entries concerning aggrieved 

parties; 

 Inspection/Certifications; 

 Documentation concerning criminal indictments/convictions, Judgments, 

Settlements and Plea Bargain Agreements; recommendations of OIG

investigations; 

 Documentation to justify lapses in timeliness in the referral or processing of a 

case. 

 If Construction Matters are an issue include: 

___________________________________________________________________________ 9-36 
HB-3-3560 

o Contract and all written Agreements 

o Subcontracts 

o Amendments and Change Orders 

o Plans and Specifications 

o Warranty Documents 

o Payment Information Release of Claims, 

o Lien Waivers 

o Mechanics or Suppliers Liens and Judgments 

 If Application Matters are at issue also include: 

o Application 

o Verification of Employment 

o Interest Credit or 

o Subsidy Repayment Agreements 

o Conditional Commitment 

 OIG and Other Investigation Reports 

6. Complaint 

After allowing the violator the opportunity to offer a settlement, a complaint shall be 

served upon the respondent. The Agency, through the Regional OGC office, will follow 

the instructions provided by the Administrative Law Judges, in accordance with 7 C.F.R., 

part 1, subpart H of the Departmental Administrative Regulation. 

7. Response to the Complaint 

If the respondent does not respond to the Agency’s complaint as prescribed, then the 

Agency Official may file a motion for default judgment, in accordance with 7 C.F.R., 

Subtitle A, part 1, subpart H. 

8. Hearings 

Hearings under this part shall be conducted according to the procedures 

applicable to hearings, in accordance with 7 C.F.R., part 1, subpart H. A field office 

attorney will serve as the Agency representative for the hearing. 

9. Collection of Penalties 

 

No payment of a penalty assessed under section 3560.461(b) may be made from 

funds provided under the Housing Act or from funds of a project that serve as 

security for a loan made under the Housing Act. 

If the hearing results in a civil penalty assessed against the defendant, after such 

time as allowed in accordance with the administrative procedure in 7 C.F.R., part 1, 

subpart H, the Agency will proceed with seeking repayment of all penalties assessed, 

__________________________________________________________________________ 9-37 

(02-24-05) SPECIAL PN 

Revised (02-15-19) PN 521
HB-3-3560 

as a miscellaneous receivable through NFAOC. The collection of funds from the 

defendant may be either in a lump sum or from a monthly repayment schedule 

without the charging of interest if the defendant pays the debt in full within 90 days 

from the date of debt on Form RD 3560-65, “MFH Miscellaneous Receivable 

Notification/Repayment Agreement.” Otherwise, the debt will be submitted by the 

National Financial and Accounting Operations Center, Multi-Family Housing 

Servicing Branch (NFAOC/MFHSB) using Form RD 3560-65, to Treasury for Cross 

Servicing. 

10. Settlement of a Civil Money Penalty Action 

The State Director is authorized to enter into settlement agreements resolving 

civil money penalty actions that may be brought under this section. 

11. Remedies for Noncompliance 

If a person or entity fails to comply with a final determination by the Agency 

imposing a civil monetary penalty, the Agency may request the Attorney General of 

the United States to bring an action in an appropriate district court to obtain a 

monetary judgment against such an individual or entity and such other relief as may 

be available. The monetary judgment may, at the court’s discretion, include attorney’s 

fees and other expenses incurred by the United States in connection with the action. 

12. Conditions for Renewal Extension 

 

The Agency may require as part of the settlement process that expiring loan or 

assistance agreements entered into under the Housing Act must not be renewed or 

extended unless the owner executes an agreement to comply with additional 

conditions prescribed by the Agency or executes a new loan or assistance agreement 

in the form prescribed by the Agency. 

13. Appeal Rights

In an action under this paragraph, the validity and appropriateness of a 

determination by the Agency imposing the penalty will not be subject to 

administrative review before the National Appeals Division.

F. Money Laundering (7 CFR 3560.462) 

The Agency has the authority to pursue money laundering cases, when appropriate, 

per 11 U.S.C. section 1956(c)(7)(D). 

9-38 
HB-3-3560 

G. Obstruction of Federal Audits (7 CFR 3560.463) 

So long as the requirements of 18 U.S.C. section 1516(a) are met, the Agency will 

pursue a criminal action against a person who, with the intent to deceive or defraud the 

United States, endeavors to influence, obstruct, or impede a Federal Auditor. 

9-39 

(02-24-05) SPECIAL PN 

Revised (02-15-19) PN 521 
Guide for Civil Monetary Penalty Assessment and Recommendation 

Assessment of Civil Penalties 

Prior to recommending Civil Monetary Penalty (CMP) actions, Loan Servicers are required to make every 

possible effort to work with borrowers to resolve issues of noncompliance, including encouraging borrowers to 

enter into a Workout Agreement with the Agency. In accordance with 7 CFR 3560.461(b), the Agency may, 

after notice and opportunity for a hearing, impose a CMP against any individual or entity, including its owners, 

officers, general partners, limited partners, or employees, who knowingly and materially violate, or participate 

in the violation of, the provisions of this title, the regulation issued by the Agency pursuant to this title, or 

agreements made in accordance to this title by: 

 Submitting information to the Agency that is false. 

 Providing the Agency with false certifications. 

 Failing to submit information (such as annual financial reports) requested by the Agency in a 

timely manner. 

 Failing to maintain the property subject to loans made under this title in good repair and 

condition, as determined by the Agency. 

 Failing to provide management for a project that received a loan made under this title that is 

acceptable to the Agency. 

 Failing to comply with the provisions of applicable civil rights statutes and regulations. 

Factors for Consideration 

Civil penalties will be assessed in accordance with 7 CFR part 3, subpart I. In determining the amount of a civil 

monetary penalty under this section, the Agency must take into consideration: 

A. The gravity of the offense; 

B. Any history of prior offenses by the violator (including offenses occurring prior to the enactment 

of this section); 

C. Any injury to tenants; 

D. Any injury to the public; 

E. Any benefits received by the violator as a result of the violation; 

F. Deterrence of future violations. 

HB-3-3560 

Attachment 9-A 

Page 1 of 8 

(02‐24‐05) SPECIAL PN 

Added (02‐15‐19)   PN 521 
HB-3-3560 

Attachment 9-A 

Page 2 of 8 

The Factors for Consideration (A. through E. above) are discussed in the CMP Damage Factors Matrix 

Guidelines below. Sufficient evidence of one or more of the factors should lead to the conclusion that a 

violation is material. These should be the only factors that Loan Servicers are to consider when determining the 

amount of the penalty to assess. Rural Development may establish other factors to consider by regulation. 

Damages Calculation 

The CMP Damage Factors Matrix calculation shall not be a substitute for sound judgement and reasoning. The 

Matrix calculation is a scoring method to ensure a degree of consistency in the civility penalty amounts. The 

Matrix score is calculated by using the best estimate of the actual cost to cure the violation, assessing the degree 

of potential risk or harm for each violation based on the individual circumstances and the Factors for 

Consideration. You would then apply the best and most appropriate Weight Level. Identical violations that span 

multiple years should be considered together as one violation. Different violation types should not be combined. 

Civil penalties typically should not be recommended for only a single violation, unless the dire nature of the 

severity, such as a criminal offense or heightened risk of financial or physical harm to tenants exists. Please see 

the “CMP Damage Factors Matrix Guidelines” and the “Penalty Assessment Calculation Worksheet” at the end 

of this attachment for instructions on calculating civil penalties. The State’s National Office loan servicing 

Portfolio Management Analyst should be contacted if there are questions. 

Non-Monetary Violations 

As stated in Chapter 10.7 of HB-3-3560, the Loan Servicer must determine whether an unresolved nonmonetary finding of non-compliance should be elevated to a violation status. A non-monetary finding may be 

elevated to a violation because of the severity of the finding or because of the type of servicing effort that will 

be utilized to obtain compliance. Borrowers who fail to fully correct a finding by a date specified by the Agency 

in a written notice may be heading towards a default of their loan or grant documents, as stated in Chapter 10.5 

of this Handbook. 

When the Agency elevates a finding to a violation, it indicates a willingness to pursue the finding to the point of 

acceleration or civil monetary penalties. If the Servicing Office is unable to resolve non-compliance at the field 

office level, and concludes that a non-monetary finding should be viewed as a violation that could potentially 

lead to a recommendation for Civil Monetary Penalties, the Loan Servicer must complete the process of issuing 

Servicing Letters #1 and #2 as described in Chapter 10.10 of HB-3-3560, and Exhibit 10-2 Sequence of 

Servicing Letters. Servicing Letter #3-A (Handbook Letter 303-A (3560)), shall be used to notify the borrower 

of the Agency’s intent to pursue a civil monetary penalty enforcement action when there has been no response, 

or an inadequate response to Servicing Letters #1 and #2. 

The below table gives examples of potential non-monetary violations for which civil penalties may be 

considered. It should be noted that these are guidelines and are not requirements. The Agency will not pursue 

enforcement against a borrower in non-monetary violation if an approved Work-out Agreement is in place and 

is on schedule. As stated in HB-3-3560, Chapter 10.5, a borrower is considered to be in non-monetary default if 

the identified deficiencies are not cured within 60 days of notification and there is no Workout Agreement 

approved by the Agency, or the approved Workout Agreement is not on schedule 
Potential Non-Monetary Violations

Financial Reporting Violations Owner and Management Violations Property Violations  Delinquent or Unacceptable RD Form 

3560-7 or 3560-10 

 Delinquent or Unacceptable Management 

Documents 

o Management Certification 

 Refusing to address multiple 

findings, including accessibilhealth & safety 

 Delinquent or Unacceptable Audited 

Financial Statements, Year End Reports, or Borrower Certification of Performance Standards (Attachment 4-C) 

 Unacceptable Management 

o Unresponsive management 

o Refusing to place acceptable 

management 

 Failing to comply with enviro

mitigation requirements (Conyour State Environmental Cofurther guidance) 

o Unallowable project expenditures 

o Unauthorized or Fraudulent use of 

Reserve Account funds 

o Delinquent property taxes 

 Failing to meet Civil Rights o

Housing requirements (ConsNational Civil Rights Office guidance) 

o Delinquent property insurance o Forgery of supervised banking 

documents and transactions 

o Non-disclosure of IOI relationships o Use of an IOI without Agency 

consent

 Knowingly submitting false or altered 

statements, reports or documents to the Agency 

 Changes in Ownership and Security 

Structure 

o Unauthorized loans to property 

owner, including notes payable that become debts against property, and 3rd party debts 

o Unauthorized General Partner 

substitutions and ownership transfers 

(02‐24‐05) SPECIAL PN Added (02‐15‐19)   PN 521 
CMP Damage Factors Matrix Guidelines

 Use with the Penalty Calculation Worksheet. 

 Determine the best estimate of the actual cost to cure the violation for all consecutive years of noncompliance that are associated with t

best estimate for each category is: 

o Financial Reporting violations - The actual cost of delivery of the final report or reports. 

o Owner and Management violations – The actual amount of the unauthorized or fraudulent expense, withdraw, or disbursemento Property violations - The full actual repair or replacement cost of physical findings, accessibility, and health & safety items. F

Rights, or Fair Housing violations, consult with your State Environmental Coordinator or Headquarters Civil Rights Office, as 

guidance. 

 Assess the degree of potential risk or harm for each violation based on the individual circumstances using the Factors for Considerati

best and most appropriate Weight Level. Choose either column B, C, or D. Different violations within the same category should be ass

violations within a category that span multiple years should be considered as one violation and assessed as such. Do not combined diffe

 Generally, do not recommend civil penalties for only a single violation, unless the nature of the severity or risk of financial or physical 

otherwise. 

 The state’s HQ loan servicing contact should be notified if there are questions.

A. 

Factors for Consideration 

(7 CFR 3560.461(b)) 

B. 

Weight Level 1 (Penalty equals the cost 

to cure multiplied by 1) 

C. 

Weight Level 2 (Penalty equals the 

cost to cure multiplied by 1.5) 

Weight Level 3 

cure 

A. Gravity of the offense 

 Does the offense impede the 

government’s ability to perform regulatory oversite, adequately assess risk, accurately determine fiscal or physical health, or measure performance? 

 Does the offense potentially 

jeopardize the value of RD’s security? 

Financial Violations - 1-2 years delinquent 

o Non-reporting o Unacceptable reporting 

Owner and Management Violations – 1-2 years delinquent 

o Non-submission of acceptable 

management documents 

o Unacceptable performance 

Financial Violations – 2-3 years delinquent 

o Non-reporting o Unacceptable reporting 

Owner and Management Violations – 2-3 years delinquent 

o Non-submission of 

acceptable management documents 

o Unacceptable performance 

Financial Violat

o Non-repo Unaccep

Owner and Man

years delinquent 

o Non-sub

documen

o Unaccep

HB-3-3560 Attachment 9-A Page 4 of 8 
Owner and Management Violation -no 

timeframe 

o Unauthorized use of reserve 

account funds 

Property Violations 

o Unresolved physical findings 

not related to health & safety or 

accessibility. 

Points = 2 

Owner and Management Violations – no timeframe 

o Non-disclosure of IOI 

relationships 

o Use of an IOI without 

Agency consent 

o Unallowable project 

expenditures 

Property Violations 

o Unresolved physical 

findings of accessibility, not related to health & safety. 

Points = 4 

Owner and Mantimeframe 

o Unautho

or securi

o Unautho

property 

o Knowin

or forger

Property Violati

o Unresolv

violation

o Failing t

environmrequiremState En

o Failing t

Housing with youOffice) 

Points = 6 

B. History of prior offenses 

 Are there repeated violations 

that remain after proper notice and opportunity to cure are given by the Agency? 

First offense. Owner/agent has a history of fully addressing open findings within the stated timeframe after the receipt of Servicing Letters. Points = 0 

Not a first offense. Agency has previously issued Servicing Letters, pursued civil monetary penalties or legal action for the same violation resulting in a partial resolution. Points = 2 

Not a first offenpreviously issuepursued civil maction for the saresolution. Points = 3 

(02‐24‐05) SPECIAL PN Added (02‐15‐19)   PN 521 
C. Injury to tenants 

 Violation of laws put into 

place to protect tenants. Physical or financial injury (includes increased rents or loss of housing). A breach of duty owed to tenants by not meeting the reasonable and expected standard of care (i.e., attentiveness, prudence, and caution). Injuries are foreseeable if left unresolved. 

Minimal likelihood of injury to tenants if left unresolved. Points = 3 

Reasonable expectation that if left unresolved the violation would result in injury to tenants. Points = 6 

Situation has retenants. Points = 9 

D. Injury to public 

 Assessment of the harm to/loss 

of program integrity, physical or financial injury, loss of security value, or an increase in program assistance/costs to the public. 

Minimal likelihood of injury to public if left unresolved. Points = 1 

Reasonable expectation that if left unresolved the violation would result in injury to public. Points = 2 

Situation has rePoints = 3 

E. Benefits received by 

violator 

 Implied or actual dollar value 

of benefit or savings realized by not complying. 

 Unauthorized distributions, 

increased cash position of project. 

There are no direct owner/agent benefits or the increase in cash position of project is $3000 or less. Points = 2 

There are no direct owner/agent benefits, but the benefit to the project is over $3000. Points = 4 

The owner/agenby unauthorized amount. Points = 6 

HB-3-3560 Attachment 9-A Page 6 of 8 
F. Deterrence from future 

violations 

 The likelihood that imposing 

civil monetary penalties will deter subsequent violations. 

The imposition of civil monetary penalties will likely deter subsequent offenses resulting in CMPs. Points = 1 

There is a reasonable expectation, but no certainty, that imposing civil monetary penalties will deter subsequent offenses resulting in CMPs. Points = 2 

It is unlikely thapenalties will deresulting in CMPoints = 3 

Minimum # of points = 09 Maximum # of points = 30 

Total points are 17 or less: Total points are 18-24: Total points ar

Level one violation. Penalty equals the cost to cure multiplied by a factor of 1 

Level two violation. Penalty equals the cost to cure multiplied 

by a factor of 1.5 

Level three violcost to cure mul

(02‐24‐05) SPECIAL PN Added (02‐15‐19)   PN 521 
Project Name_________________ 

RD Project ID________________ Date________________________ 

Penalty Assessment Calculation Worksheet 

(Use this worksheet to calculate civil penalty amounts.) 

Minimum # of points = 09 Maximum # of points = 30 

Total points are 17 or less: Total points are 18-24: Total points 

Level One Violation. Penalty equals the cost to cure multiplied by a factor of 1 

Level two violation. Penalty equals the cost to cure multiplied by a factor of 1.5 

Level three vito cure multip

Name of Non‐Monetary 

Violation 

Best Estimate of 

the Cost to Cure 

Severity Level based on CMP Damage 

Factors Matrix ( One, Two or Three) 

Severity Level 

Points Assessment 

Amount of 

_________________ 

FYs of violation 

$_____________ 

A. Gravity – Level _____ B. History – Level _____ C. Injury Tenants – Level _____ D. Injury Public – Level _____ E. Benefits – Level _____ F. Deterrence – Level _____ 

_____ pts _____ pts  _____ pts _____ pts _____ pts  _____ pts 

Total of Points Assessed                                    (froSeverity Level = ______                              (1, 1.5 Amount of Penalty = $_                                (cost t

_________________ 

FYs of violation 

$_____________ 

A. Gravity – Level _____ B. History – Level _____ C. Injury Tenants – Level _____ D. Injury Public – Level _____ E. Benefits – Level _____ F. Deterrence – Level _____ 

_____ pts _____ pts  _____ pts _____ pts _____ pts  _____ pts 

Total of Points Assessed                                    (fro

Severity Level = ______                              (1, 1.5 Amount of Penalty = $_                                (cost t

_________________ 

FYs of violation 

$_____________ 

A. Gravity – Level _____ B. History – Level _____ C. Injury Tenants – Level _____ D. Injury Public – Level _____ E. Benefits – Level _____ F. Deterrence – Level _____ 

_____ pts _____ pts  _____ pts _____ pts _____ pts  _____ pts 

Total of Points Assessed                                    (fro

Severity Level = ______                              (1, 1.5 Amount of Penalty = $_                                (cost t

_________________ 

FYs of violation 

$_____________ 

A. Gravity – Level _____ B. History – Level _____ C. Injury Tenants – Level _____ D. Injury Public – Level _____ E. Benefits – Level _____ F. Deterrence – Level _____ 

_____ pts _____ pts  _____ pts _____ pts _____ pts  _____ pts 

Total of Points Assessed                                    (fro

Severity Level = ______                              (1, 1.5 Amount of Penalty = $_                                (cost t

*Additional pages should be added as needed*