[Federal Register Volume 69, Number 219 (Monday, November 15, 2004)]
[Proposed Rules]
[Pages 65546-65554]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-25247]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / 
Proposed Rules

[[Page 65546]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Parts 1782, 1951, 1955, and 1956

RIN 0572-AB59


Servicing of Water Programs Loans and Grants

AGENCY: Rural Utilities Service, USDA.

ACTION: Proposed rule.

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SUMMARY: The Rural Utilities Service (RUS) proposes to consolidate and 
amend the regulations utilized to service water and waste loan and 
grant programs. The proposed rule will combine the water and waste loan 
and grant servicing regulations found in 7 CFR parts 1951, 1955 and 
1956 into one regulation. Unnecessary and burdensome requirements for 
water and waste loan and grant servicing under the program will be 
eliminated. The streamlining of the water and waste loan and grant 
servicing regulation will allow RUS to provide better service to 
entities needing assistance in resolving financial and economic 
problems in their communities and in general improve the quality of 
life in rural areas. Additionally, this rule proposes to implement 
Section 6018 of the Farm Security and Rural Investment Act of 2002 (7 
U.S.C. 1936a) for the Rural Business-Cooperative Service (RBS), Rural 
Housing Service (RHS) and RUS.

DATES: Comments on the proposed rule must be received on or before 
January 14, 2005.

ADDRESSES: You may submit comments by any of the following methods:
    <bullet> Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting 
comments.
    <bullet> Agency Web Site: http://www.usda.gov/rus/index2/Comments.htm. Follow the instructions for submitting comments.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#4614131505292b2b23283235063335222768212930"><span class="__cf_email__" data-cfemail="c496919787aba9a9a1aab0b784b1b7a0a5eaa3abb2">[email protected]</span></a>. Include in the subject line 
of the message ``7 CFR 1782.''
    <bullet> Mail: Addressed to Richard Annan, Acting Director, Program 
Development and Regulatory Analysis, Rural Utilities Service, United 
States Department of Agriculture, 1400 Independence Avenue, SW., STOP 
1522, Washington, DC 20250-1522.
    <bullet> Hand Delivery/Courier: Addressed to Richard Annan, Acting 
Director, Program Development and Regulatory Analysis, Rural Utilities 
Service, United States Department of Agriculture, 1400 Independence 
Avenue, SW., Room 5168-S, Washington, DC 20250-1522.
    Instructions: All submissions received must include the agency name 
and the subject heading ``7 CFR 1782''. All comments received must 
identify the name of the individual (and the name of the entity, if 
applicable) who is submitting the comment. All comments received will 
be posted without change to http://www.usda.gov/rus/index2/Comments.htm, including any personal information provided.

FOR FURTHER INFORMATION CONTACT: Anita O'Brien, Loan Specialist, Water 
and Environmental Programs, Rural Utilities Service, Room 2230 South 
Building, Stop 1570, 1400 Independence Ave., SW., Washington, DC 20250-
1570. Telephone: (202) 690-3789, FAX: (202) 690-0649, e-mail: 
<a href="/cdn-cgi/l/email-protection#91f0fff8e5f0bffef3e3f8f4ffd1e4e2f5f0bff6fee7"><span class="__cf_email__" data-cfemail="45242b2c31246b2a27372c202b05303621246b222a33">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

Classification

Executive Order 12866

    This proposed rule has been determined to be not significant for 
purposes of Executive Order 12866 and, therefore, has not been reviewed 
by the Office of Management and Budget (OMB).

Executive Order 12988

    This proposed rule has been reviewed in accordance with Executive 
Order 12988, Civil Justice Reform. RUS has determined that this 
proposed rule meets the applicable standards provided in section 3 of 
the Executive Order. In addition, all State and local laws and 
regulations that are in conflict with this rule will be pre-empted; no 
retroactive effect will be given to the rule; and in accordance with 
sec. 212(e) of the Department of Agriculture Reorganization Act of 1994 
(7 U.S.C. sec. 6912(e)), appeal procedures must be exhausted before an 
action against the Department or its agencies may be initiated.

Regulatory Flexibility Act Certification

    It has been determined that the Regulatory Flexibility Act is not 
applicable to this rule since the Rural Utilities Service is not 
required by 5 U.S.C. 551 et seq. or any other provision of law to 
publish a notice of proposed rulemaking with respect to the subject 
matter of this rule.

Information Collection and Recordkeeping Requirements

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
chapter 35), RUS is requesting comments on the collection of 
information incorporated in this proposed rule. The reporting burden 
will be transferred from nine existing regulations into regulation 1782 
and where possible, the reporting burden will be reduced.
    Title: Servicing of Water and Waste Programs.
    Type of Request: New collection.
    Abstract: RUS' Water and Environmental Programs (WEP) provide 
financing and technical assistance for development and operation of 
safe and affordable water supply systems and sewage and other waste 
disposal facilities. WEP provides loans, guaranteed loans and grants 
for water, sewer, storm water, and solid waste disposal facilities in 
rural areas and towns of up to 10,000 people. The recipients of the 
assistance covered by 7 CFR part 1782 must be public entities. These 
can include municipalities, counties, special purpose districts; 
federally designated Indian tribes, land corporations not operated for 
profit, including cooperatives. The information, which is for the most 
part financial in nature, is needed by the Agency to determine if 
borrowers, based on their individual situations, qualify for the 
various servicing options.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 30 hours per response.

[[Page 65547]]

    Respondents: Business or other for profit and non-profit 
institutions, and state and local governments.
    Estimated Number of Respondents: 2,000.
    Estimated Number of Responses per Respondents: 1.35.
    Estimated Total Annual Burden on Respondents: 80,976 hours.
    The subject regulation is published for public review and comment. 
Copies of this information collection can be obtained from Michele 
Brooks, Program Development and Regulatory Analysis, Rural Utilities 
Service. Telephone: (202) 690-1078.
    Comments on this information collection must be received by January 
14, 2005.
    Comments are invited on: (a) Whether the proposed collection of 
information is necessary for the proper performance of the functions of 
the agency, including whether the information will have practical 
utility; (b) the accuracy of the agency's estimate of the burden of the 
proposed collection of information including the validity of the 
methodology and assumptions used; (c) ways to enhance the quality, 
utility, and clarity of the information to be collected; and (d) ways 
to minimize the burden of the collection of information on respondents, 
including the use of automated collection techniques or other forms of 
information technology.
    Send comments regarding this information collection requirement to 
Michele Brooks, Program Development and Regulatory Analysis, USDA, 
Rural Utilities Service, 1400 Independence Ave., SW., Room 5166, Stop 
1522, Washington, DC 20250-1522.
    Comments are best assured of having full effect if OMB receives 
them within 30 days of publication in the Federal Register. All 
comments will be summarized, included in the request for OMB approval, 
and will become a matter of public record.

National Environmental Policy Act Certification

    The Administrator of RUS has determined that this proposed rule 
will not significantly affect the quality of the human environment as 
defined by the National Environmental Policy Act of 1969 (42 U.S.C. 
4321 et seq.). Therefore, this action does not require an environmental 
impact statement or assessment.

Catalog of Federal Domestic Assistance

    The program described by this proposed rule is listed in the 
Catalog of Federal Domestic Assistance Programs under numbers (1) 
10.760--Water and Waste Disposal System for Rural Communities, (2) 
10.761--Technical Assistance and Training Grants, (3) 10.762--Solid 
Waste Management Grants (4) 10.763--Emergency Community Assistance 
Grants, and (5) 10.770--section 306C Water and Waste Loans and Grants. 
This catalog is available on a subscription basis from the 
Superintendent of Documents, the United States Government Printing 
Office, Washington, DC 20402-9325, telephone number (202) 512-1800.

Executive Order 12372

    This program is listed in the Catalog of Federal Domestic 
Assistance under numbers (1) 10.760--Water and Waste Disposal (WWD) 
System for Rural Communities, (2) 10.763--Emergency Community 
Assistance Grants, and (3) 10.770--Water and Waste Loans and Grants 
(section 306C), and is subject to the provisions of Executive Order 
12372 which requires intergovernmental consultation with State and 
local officials.

Unfunded Mandates

    This rule contains no Federal mandates (under the regulatory 
provision of title II of the Unfunded Mandates Reform Act of 1995) for 
State, local, and tribal governments or the private sector. Therefore, 
this rule is not subject to the requirements of section 202 and 205 of 
the Unfunded Mandates Reform Act.

Executive Order 13132, Federalism

    The policies contained in this proposed rule do not have any 
substantial direct effect on states, on the relationship between the 
national government and the states, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
proposed rule impose substantial direct compliance costs on state and 
local governments. Therefore, consultation with states is not required.

Background

    RUS' water and waste program is administered by Water and 
Environmental Programs (WEP). The water and waste loan and grant 
programs are authorized by various sections of the Consolidated Farm 
and Rural Development Act (7 U.S.C. 1921 et seq.), as amended. The 
regulations for these programs have not been completely reviewed for 
many years. The 1994 streamlining and reorganization of the Department 
of Agriculture provided an opportunity to review and rewrite the water 
and waste loan and grant servicing regulations. A task force was formed 
for that purpose. The aim of the task force was to make the regulations 
easier to understand, eliminate unnecessary requirements, and continue 
to protect the interest of the U. S. taxpayer. The program provides 
loan servicing options for communities facing financial problems. 
Servicing options should result in reasonable user costs for rural 
residents, rural businesses, and other rural users. Additionally, in 
order to provide uniformity, servicing provisions for grants are 
addressed in the Departmental Grant Regulations listed cited in 1782.7.
    Major changes are:
    1. Combines servicing regulations found in 7 CFR parts 1951, 1955 
and 1956 into one regulation.
    2. The field staff is provided with more authority to service water 
and waste loans and grants.
    3. The application process for servicing actions has been 
streamlined to reduce unnecessary paperwork and improve service to the 
rural communities. There will be fewer regulations and the number of 
pages in the Code of Federal Regulations will be greatly reduced.
    4. The functions of the former Farmers Home Administration (FmHA) 
and the Rural Development Administration (RDA) relating to the water 
and waste loan and grant programs authorized by various sections of the 
Consolidated Farm and Rural Development Act, (7 U.S.C. 1926(a)), have 
been transferred to RUS based on the Department of Agriculture 
Reorganization Act of 1994, 7 U.S.C. 6942. Therefore in order to 
enhance the delivery of borrower services and better assist the public, 
RUS is simplifying and rewriting regulations originally published by 
FmHA and RDA. All parts pertaining to the water and waste loan program 
will be moved into 7 CFR part 1782. This action will have no effect on 
the Rural Housing Services (RHS) community facilities loan program, as 
this action makes no policy changes in the regulation with the 
exception of implementing section 6018 of the Farm Security and Rural 
Investment Act of 2002 (7 U.S.C. 1936a). The following programs are 
affected by these amendments: (1) Water and Waste Disposal Loans and 
Grants, (2) Watershed loans and advances, (3) Resource Conservation and 
Development loans, (4) Technical Assistance and Training grants, (5) 
Emergency Community Assistance grants, (6) Solid Waste Management 
grants, and (7) Section 306C Water and Waste Facility Loans and Grants 
to Alleviate Health Risks.

[[Page 65548]]

    5. Implement Sec. 6018 of the Farm Security and Rural Investment 
Act of 2002. This change will allow the borrower or grant recipient to 
use property (real and personal) purchased or improved with the loan or 
grant funds or proceeds from the sale of property (real and personal) 
purchased with such funds, for another project or activity. The RUS 
proposes to include language to implement this provision in 7 CFR 
1782.23. These provisions will also be applicable to the RBS and RHS 
programs by adding Sec.  1951.218 to 7 CFR part 1951, subpart E.

The Regulations

    RUS has completed a consolidation of regulations affecting WEP 
loans and grants. Prior to this rule becoming effective, WEP borrowers 
were affected, in part, by the following regulations:
    7 CFR part 1951, subpart A--Account Servicing Policies.
    7 CFR part 1951, subpart D--Final Payment on Loans.
    7 CFR part 1951, subpart E--Servicing of Community and Direct 
Business Programs Loans and Grants.
    7 CFR part 1951, subpart F--Analyzing Credit Needs and Graduation 
of Borrowers.
    7 CFR part 1951, subpart O--Servicing Cases Where Unauthorized 
Loan(s) or Other Financial Assistance Was Received--Community and 
Insured Business Programs.
    7 CFR part 1955, subpart A--Liquidation of Loans Secured by Real 
Estate and Acquisition of Real and Chattel Property.
    7 CFR part 1955, subpart B--Management of Property.
    7 CFR part 1955, subpart C--Disposal of Inventory Property.
    7 CFR part 1956, subpart C--Debt Settlement--Community and Business 
Programs.
    All of the above mentioned regulations include regulatory 
provisions of other programs of the former FmHA such as farm loans, 
business and industrial loans, single family housing, and multi-family 
housing. RUS is consolidating all regulatory actions in the above 
mentioned regulations which affect WEP loan and grant servicing into 
one new regulation--7 CFR part 1782. This consolidated regulation will 
clarify for our borrowers and grantees, the available servicing tools 
and the requirements to utilize these tools.
    Additionally, RUS proposes to remove all administrative processes 
from the regulations, leaving only regulatory actions that impact the 
public. This streamlining will make the regulation more concise and 
much easier to read and understand. The Agency will issue a Staff 
Instruction that will include the administrative portion, which 
outlines the Agency's internal processing procedures. The Staff 
Instruction will be available to the public upon request at no cost.

Conclusion

    RUS believes the consolidation and streamlining of the regulations 
for this program will maximize the ability of the Borrowers to use and 
understand the available servicing tools under this program. This 
consolidation is consistent with the Administration's efforts to 
streamline Government functions, improve the efficiency and 
effectiveness of Government activities, and strive to be more borrower 
friendly. This effort will enable the Agency to reduce regulations, 
streamline Agency operations and provide servicing assistance with 
fewer staff resources.

List of Subjects

7 CFR Part 1782

    Accounting, Appeal procedures, Auditing, Debts, Delinquency, Grant 
programs--Agriculture, Insurance, Loan programs--Agriculture.

7 CFR Part 1951

    Accounting, Credit, Grant programs--Agriculture, Loan Programs--
Agriculture, Low and moderate-income housing loans--Rent subsidies, 
reporting, and recordkeeping requirements, Rural areas.

7 CFR Part 1955

    Government property, Government property management, Surplus 
government property.

7 CFR Part 1956

    Accounting, Loan programs--Agriculture, Rural areas.

    Therefore, chapters XVII and XVIII of title 7, Code of Federal 
Regulations are proposed to be amended as follows:

CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE

    1. Part 1782 is added to read as follows:

PART 1782--SERVICING OF WATER AND WASTE PROGRAMS

Sec.
1782.1 Purpose.
1782.2 Objectives.
1782.3 Definitions.
1782.4 Availability of forms and regulations.
1782.5 Nondiscrimination.
1782.6 [Reserved].
1782.7 Grants.
1782.8 Payments.
1782.9 Environmental requirements.
1782.10 Audit requirements.
1782.11 Refinancing requirements.
1782.12 Sale or exchange of security property.
1782.13 Transfer of Security and Assumption of Loans.
1782.14 Protection of Service Areas--7 U.S.C. 1926(b).
1782.15 Mergers and consolidations.
1782.16 Defeasance of RUS indebtedness.
1782.17 Subordination of security or parity lien.
1782.18 [Reserved].
1782.19 Third party agreements.
1782.20 Debt Settlement.
1782.21 [Reserved]
1782.22 Exception authority.
1782.23 Use of Rural Development Loans and Grants for Other 
Purposes.
1782.24--1782.99 [Reserved].
1782.100 OMB Control Number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1981; 16 U.S.C. 1005.


Sec.  1782.1  Purpose.

    This part outlines the Rural Utilities Service's (RUS) policies and 
procedures for servicing direct and insured Water and Waste Disposal 
loans and grants; Watershed loans and advances; Resource Conservation 
and Development loans; Technical Assistance and Training grants; 
Emergency Community Water Assistance grants; Solid Waste Management 
grants; and section 306C WWD loans and grants.


Sec.  1782.2  Objectives.

    Loan and grant servicing is provided by RUS in order to assist 
recipients in complying with the established objectives and 
requirements for loans and grants, repaying loans on schedule, acting 
in accordance with any necessary agreements, and protecting RUS' 
financial interest. Servicing by RUS includes, but is not limited to, 
the review of budgets, management reports, audits and financial 
statements; performing security inspections; providing, arranging or 
recommending technical assistance; evaluating environmental impacts of 
proposed actions by the Borrower; and performing civil rights 
compliance and graduation reviews.


Sec.  1782.3  Definitions.

    Acceleration. A written notice informing the borrower that the 
total unpaid principal and interest is due and payable immediately.
    Adjustment. Satisfaction of a debt, including release of liability, 
when acceptance by the agency is conditioned upon completion of payment 
of the adjusted amount at a specific time or times; with or without the 
payment of

[[Page 65549]]

any consideration when the adjustment offer is approved. An adjustment 
is not a final settlement until all payments under the adjustment 
agreement have been made.
    Administrator. Administrator of RUS.
    Agency. RUS or any employee acting on its behalf in accordance with 
appropriate delegations of authority.
    Assumption of debt. Agreement by one party to legally bind itself 
to pay the debt incurred by another.
    Borrower. Recipient of RUS or predecessor agency loan assistance.
    Cancellation. Final discharge of debt with a release of liability.
    Chargeoff. Write off of a debt and termination of servicing 
activity without release of liability. A Chargeoff is a decision upon 
the part of the Agency to remove debt from Agency receivables; however, 
future payments may be received.
    Compromise. Satisfaction of a debt including a release of liability 
by accepting a lump-sum payment of less than the total amount owed.
    Defeasance. Defeasance is the use of invested proceeds from a new 
bond issue to repay outstanding bonds in accordance with the repayment 
schedule of the outstanding bonds. The new issue supersedes the 
contractual agreements from the prior issue.
    Disposition of facility. Relinquishing control of a facility to 
another entity.
    False information. Information, known to be incorrect, provided 
with the intent to obtain benefits which would not have been obtainable 
based on correct information.
    Government. The United States of America acting through the RUS, 
USDA. USDA and RUS may be used interchangeably throughout this part.
    Grantee. Recipient of RUS or predecessor agency grant assistance, 
technical assistance, or services.
    Letter of Conditions. A written document that describes the 
conditions which the borrower and/or grantee must meet for funds to be 
advanced and the loan and/or grant to be closed.
    Liquidation. To satisfy a debt through the sale of a borrower's 
assets and discharge of liabilities.
    Parity Lien. A lien having an equal lien position to another 
lender's lien on a borrower's asset.
    Reasonable rates and terms. Commercial rates and terms borrowers 
are expected to pay when borrowing for similar purposes and periods of 
time.
    Rural Development. The mission area of the Under Secretary for 
Rural Development. Rural Development State and local offices administer 
the water and waste programs on behalf of RUS.
    Rural Utilities Service (RUS). An Agency of the USDA established 
pursuant to section 232 of the Department of Agriculture Reorganization 
Act of 1994 (Pub. L. 103-354).
    Servicing office. The USDA office which maintains the official file 
of the borrower or grantee and is responsible for the routine servicing 
of the loan and grant account.
    Servicing official. A USDA official who has been delegated loan and 
grant approval and servicing authorities subject to any dollar 
limitations within applicable programs.
    Settlement. Compromise, adjustment, cancellation, or chargeoff of a 
debt owed USDA. The term ``settlement'' is used for convenience in 
referring to compromise, adjustment, cancellation, or chargeoff action, 
individually or collectively.
    Subordination agreement. A formal agreement whereby RUS permits 
another lender to have a senior or prior lien position on a borrower's 
assets to facilitate the borrower's obtaining financing from another 
source of credit. A subordinate lien position is an inferior or junior 
lien position.
    USDA. United States Department of Agriculture.
    Unliquidated obligations. Obligated loan or grant funds that have 
not been advanced.
    Voluntary conveyance. A method by which title to security is 
voluntarily transferred to the Government.


Sec.  1782.4  Availability of forms and regulations.

    Information about the availability of forms, regulations, 
bulletins, and procedures referenced in this chapter are available in 
any office of the USDA/Rural Development or RUS, United States 
Department of Agriculture, Washington, DC 20250-1500 or at the Web site 
http://www.usda.gov/rus/water.


Sec.  1782.5  Nondiscrimination.

    Each instrument of conveyance required for a transfer, assumption, 
sale of facility, or other servicing action under this subpart will 
comply with Title VI of the Civil Rights Act of 1964, Title IX of the 
Education Amendments of 1972, section 504 of the Rehabilitation Act of 
1973, and other similarly worded Federal statutes and regulations 
issued pursuant thereto that prohibits discrimination on the basis of 
race, color, national origin, handicap, religion, age, or sex in 
programs or activities receiving Federal financial assistance. Such 
provisions apply for as long as the property continues to be used for 
the same or similar purposes for which the Federal assistance was 
extended, or for so long as the purchaser owns it, whichever is later.


Sec.  1782.6  [Reserved]


Sec.  1782.7  Grants.

    Servicing actions relating to RUS grants are governed by the 
provisions of 7 CFR parts 3015, 3016, 3017, 3018, 3019, 3021, and 3052 
as applicable, and Executive Order (E.O.) 12803. Grantees remain 
responsible for property acquired with grant funds in accordance with 
terms of a grant agreement and applicable regulations.


Sec.  1782.8  Payments.

    Payments will be applied in accordance with the terms of the debt 
instrument. Information on non-typical payments can be obtained from 
the Servicing official or office. All new borrowers will use pre-
authorized debits as required in their Letter of Conditions.


Sec.  1782.9  Environmental requirements.

    Servicing actions involving subordination and lease or sale of RUS 
owned property will be reviewed for compliance with 7 CFR part 1794 as 
required in Sec.  1794.3. The appropriate environmental review will be 
completed prior to approval of the servicing action.


Sec.  1782.10  Audit requirements.

    Audits for loans will be required in accordance with Sec.  1780.47 
of this title. If the borrower becomes delinquent or is experiencing 
problems, the servicing official will require an audit or other 
documentation deemed necessary to resolve the delinquency. The 
provisions of 7 CFR part 3052 address audit requirements for recipients 
of federal grants.


Sec.  1782.11  Refinancing requirements.

    If at any time it appears to the Government that the borrower is 
able to refinance the amount of the indebtedness then outstanding, in 
whole or in part, by obtaining a loan for such purposes from 
responsible cooperative or private credit sources, at reasonable rates 
and terms, the borrower will, upon request of the Government, apply for 
and accept such loan in sufficient amount to repay the Government and 
will take all such actions as may be required in connection with such 
loan.


Sec.  1782.12  Sale or exchange of security property.

    A cash sale of all or a portion of a borrower's assets or an 
exchange of security property may be approved subject to the conditions 
set forth in this section.

[[Page 65550]]

    (a) Approval conditions. Approval may be given when the servicing 
official determines that:
    (1) The consideration is for the full amount of the debt or the 
present fair market value as determined by an appraisal completed by a 
qualified Rural Development employee or an independent appraiser as 
determined appropriate by the approval official;
    (2) The sale or exchange will not prevent carrying out the purpose 
of the loan;
    (3) The remaining property is adequate security for the loan and 
the transaction will not adversely affect RUS' security position;
    (4) If the property to be sold or exchanged will be used for 
similar purposes that the loan was made, the purchaser will:
    (i) Execute Form RD 400-4, ``Assurance Agreement.'' The instrument 
of conveyance will contain the civil rights covenant referenced in 7 
CFR 1901.202(e); and
    (ii) Provide RUS with a written agreement assuming all rights and 
obligations of the original borrower, and
    (5) Proceeds remaining after paying any reasonable and necessary 
selling expenses are to be used for one or more of the following 
purposes:
    (i) To pay RUS debt, pay on debts secured by a prior lien, and pay 
on debts secured by a parity or subsequent lien if it is to RUS' 
advantage;
    (ii) To purchase or acquire property more suited to the borrower's 
needs, providing RUS security position is maintained; and
    (iii) To develop or enlarge the facility if necessary to improve 
the borrower's debt-paying ability, place the operation on a sounder 
financial basis, or further the loan objectives and purposes.
    (b) Sale of assets financed with RUS grants. The requirements for 
the sale or disposition of assets financed with RUS grants are 
determined by the terms of the grant agreement, 7 CFR parts 3015, 3016, 
and 3019, and E.O. 12803, as applicable.
    (c) Release from liability. If a borrower can no longer meet the 
objectives of the loan, the property may be sold. If the full amount of 
the borrower's debt is paid or assumed, the State Director may release 
the borrower from liability.


Sec.  1782.13  Transfer of Security and Assumption of Loans.

    It is RUS policy to approve transfers and assumptions to 
transferees that will continue the original purpose of the loan. 
Assistant Administrator written concurrence is required when the 
transfer exceeds the State Director's loan approval authority. The 
transfer will be approved in accordance with the following 
requirements:
    (a) General requirements for transferees. The fulfillment of the 
following requirements for transfers will be determined by the approval 
official, in his or her discretion:
    (1) The transferees must meet the eligibility requirements of 7 CFR 
1780.7 and provide the same information required in 7 CFR Part 1780, 
subpart B for application processing.
    (2) The transfer will not be disadvantageous to the Government as 
determined by the approval official.
    (3) If the RUS debt(s) exceeds the present market value of the 
security as determined by an appraisal, the transferee will assume an 
amount at least equal to the present market value.
    (4) RUS must concur in plans for disposition of funds in any 
reserve account, including project construction bank accounts. A 
reserve account may be considered as a transferable asset.
    (5) The transferee will assume all of the borrower's 
responsibilities regarding loans. The transferee will also agree to 
accept the original loan conditions plus any conditions set forth by 
RUS with regard to the transfer.
    (6) A current appraisal will be completed to establish the present 
market value of the security when the full debt is not being assumed.
    (7) There must be no lien, judgement, or similar claims of other 
parties against the RUS security being transferred unless the 
transferee is willing to accept such claims. RUS must also determine 
that the claims will not prevent the transferee from repaying the RUS 
debt, meeting all operating and maintenance costs, and maintaining 
required reserves. The written consent of any other lienholder will be 
obtained where required.
    (8) A letter of conditions establishing requirements to be met in 
connection with the transfer will be issued, and the transferee will be 
required to execute Form RD 1942-46, ``Letter of Intent to Meet 
Conditions,'' prior to closing of the transfer.
    (9) The transferee will obtain insurance according to RUS 
requirements.
    (10) The effective date of the transfer is the date the transfer is 
closed, which is the same date Form RD 1951-15, ``Community Programs 
Assumption Agreement,'' or other appropriate assumption agreement, 
which is executed and delivered by all necessary parties.
    (11) Title to all assets will be conveyed from the transferor to 
the transferee unless all parties concerned, including RUS, agree upon 
other arrangements. All instruments of conveyance will contain the 
necessary nondiscrimination covenant as referred to in Sec.  1782.5.
    (12) If the transfer and assumption is to one or more members of 
the borrower's organization, there must not be a loss to the 
Government.
    (13) The State Director is authorized to approve transfers to 
eligible transferees at the same interest rate as on the borrower's 
note(s) or bond(s). The maturity of the debt instrument for the assumed 
debt may not exceed the lesser of the repayment period authorized in 7 
CFR 1780.13(e) for a ``new'' loan or the expected life of the facility.
    (14) RUS National Office concurrence is required for transfers not 
in compliance with paragraphs (a)(1) through (14) of this section.
    (b) Loan requirements for eligible transferees. If a loan is 
evidenced and secured by a note and lien on real or chattel property, 
Form RD 1951-15, or other appropriate assumption agreement will be 
executed by the transferee. If a bond secures a loan, transfer 
documents will be developed by bond counsel and approved by Office of 
the General Counsel, USDA (OGC).
    (1) Loans being transferred and assumed may be combined when the 
security is the same, new terms are being provided, a new debt 
instrument will be issued, and the loans have the same interest rate 
and are for the same purpose. If applicable, 7 CFR 1780.94(l) will 
govern the preparation of any new debt instruments required.
    (2) A loan may be made in connection with a transfer if the 
transferee meets all eligibility and other requirements for the kind of 
loan being made. Such a loan will be considered as a separate loan, and 
must be evidenced by a separate debt instrument. However, it is 
permissible to have one authorizing loan resolution or ordinance if 
permitted by State statutes.
    (3) Any development funds remaining in a bank account that are not 
refunded to RUS will be transferred to a bank account for the 
transferee. This will occur simultaneously with the closing of the 
transfer and the funds will be used in completing planned development.
    (c) Release from liability. Transferors may be released from 
liability when their debt is paid in full or when the debt is settled 
in accordance with Sec.  1782.20 of this part.
    (d) Transfer of facility financed with RUS grants. The requirements 
for the sale or disposition of assets financed with RUS grants are 
determined by the terms of the grant agreement, 7 CFR

[[Page 65551]]

parts 3015, 3016, and 3019, and E.O. 12803, as applicable.


Sec.  1782.14  Protection of Service Areas--7 U.S.C. 1926(b).

    (a) 7 U.S.C. 1926(b) was enacted to protect the service area of RUS 
borrowers with outstanding loans, or those loans sold in the sale of 
assets authorized by the ``Joint Resolution Making Continuing 
Appropriations for the Fiscal Year 1987, Pub. L. 99-591, 100 Stat. 3341 
(1986),'' from loss of users due to actions or activities of other 
entities in the service area of the RUS financed system. Without this 
protection, other entities could extend service to users within the 
service area and thereby undermine the purpose of the congressionally 
mandated water and waste loan and grant programs; and jeopardize the 
borrower's ability to repay its RUS debt.
    (b) Responsibility for initiating action in response to those 
actions prohibited by 7 U.S.C. 1926(b) rests with the borrower.


Sec.  1782.15  Mergers and consolidations.

    Mergers and consolidations will be processed the same as a transfer 
and assumption, although approvals by RUS will give consideration to 
the differences under the applicable law regarding the type of 
transaction under consideration. Mergers occur when two or more 
entities combine in such a manner that only one remains in existence. 
Consolidations occur when two or more entities combine to form a new 
consolidated entity, and the original entities cease to exist. In both 
mergers and consolidations, the surviving or emerging entity acquires 
the assets and assumes the liabilities of the entity or entities that 
ceased to exist.


Sec.  1782.16  Defeasance of RUS indebtedness.

    Defeasance, or amending outstanding loan instruments and agreements 
to permit defeasance of RUS debt instruments, is not authorized.


Sec.  1782.17  Subordination of security or parity lien.

    In order for RUS to agree to either a subordination or to a parity 
lien position, the borrower must submit a written request to the 
servicing office.
    (a) The written request for parity or subordination must contain 
the following items:
    (1) An explanation of the purpose of the request for parity or 
subordination; amount of loan for which parity or subordination is 
requested; description of security property; type of security 
instrument; name, and address of financial institution requesting the 
transaction; and other information determined necessary by the 
servicing official to evaluate the request.
    (2) Current financial statements or an audit, if available or 
determined necessary by the servicing official.
    (3) An annual operating budget which projects income and expenses 
for a typical year's operation. If construction is involved, the budget 
must be projected through the first full year of operation following 
completion of the planned improvements.
    (4) A copy of the proposed security instrument.
    (5) A certification from the borrower that the RUS debt cannot be 
refinanced at reasonable rates and terms.
    (6) An appraisal, when the primary security is real estate or 
determined necessary by the servicing official in order to determine 
the adequacy of loan security or repayment ability.
    (7) A certification that any development work will comply with 
subpart C of part 1780 of this chapter.
    (8) Requests for a subordination of security are subject to the 
appropriate environmental review as required by Sec.  1794.3 of this 
chapter.
    (b) Requests for parity or subordination must comply with 
requirements of paragraph (a) of this section, requirements as 
specified in the bond or loan documents, the requirements as specified 
in Sec.  1780.94(i) of this chapter, and as provided in applicable 
State law.
    (c) Proposals for tax exempt issues will be considered for parity 
only.
    (d) Once the borrower has met all of the requirements in paragraphs 
(a), (b) and (c) of this section and the proposal is determined to be 
in the Government's interest, RUS will then grant approval of the 
borrower's request for parity or subordination.


Sec.  1782.18  [Reserved]


Sec.  1782.19  Third party agreements.

    The State Director may authorize third party operation, 
maintenance, and management of an RUS financed facility. The borrower's 
attorney must review the contract, management agreement, written lease 
or other third party agreement and issue an opinion to the agency as to 
their legal sufficiency. The borrower shall retain the legal authority 
necessary for owning, constructing, operating and maintaining the 
facility.


Sec.  1782.20  Debt settlement.

    Pursuant to 7 U.S.C. 1981 this section prescribes policies for debt 
settlement of Water and Waste Disposal Loans; Watershed loans and 
advances; Resource Conservation and Development loans; and 306(c) Water 
and Waste Facility loans.
    (a) General requirements for debt settlement. (1) The debt or any 
extension thereof on which settlement is requested must be due and 
payable. The debt will be due and payable either under the terms of the 
note or other instrument, or by acceleration, unless the debt is to be 
cancelled without application under paragraph (e)(2) of this section or 
charged off under paragraph (f) of this section.
    (2) Normally, all security will be disposed of prior to the date of 
application for debt settlement unless it is necessary to abandon 
security through the debt settlement process. In such cases, debt 
settlement may proceed if the servicing official determines that 
further collection efforts would be ineffective, uneconomical, and not 
in the best interests of the Government.
    (3) Debtors will not be permitted to sell security and use the 
proceeds as part or all of a compromise/adjustment debt settlement 
offer.
    (4) Request for debt settlement will consist of Form RD 1956-1 
``Application For Settlement of Indebtedness,'' current financial 
information, description and estimated market value of collateral, and 
status of operation (i.e. number of users, compliance with 
environmental issues, etc.).
    (5) OGC advice on compliance with State or Federal statutes that 
may affect the debt settlement action must be requested.
    (b) Debts ineligible for settlement. Debts will not be settled if:
    (1) Referral to OIG and/or to OGC is contemplated or pending 
because of suspected criminal violation, or
    (2) Civil action to protect the interest of the Government is 
contemplated or pending, or
    (3) An investigation for suspected fiscal irregularity is 
contemplated or pending, or
    (4) The debtor requests settlement of a claim that has been 
referred to or a judgment obtained by the United States Attorney. The 
settlement offer and any related payment must be submitted directly to 
the United States Attorney for consideration.
    (c) Types of debt settlement. Typically, debt settlement will be 
accomplished through compromise/adjustment, chargeoff, or cancellation. 
Any debt remaining after the security has been liquidated, by sale or 
transfer, will be cancelled if there are no other assets from which to 
collect the debt. The servicing official will proceed with

[[Page 65552]]

advice from OGC and the National Office, as required.
    (d) Compromise and adjustment. Debts may be compromised or adjusted 
and security retained by the debtor, provided:
    (1) The debtor is unable to pay the indebtedness in full, and
    (2) The debtor has offered an amount equal to the present fair 
market value of all security or facility financed, and
    (3) The debtor has offered any additional amount that the debtor is 
able to pay.
    (e) Cancellation. Nonjudgment debts, regardless of the amount, may 
be cancelled with or without application by the debtor.
    (1) With application by the debtor. Debts may be cancelled upon 
application of the debtor, subject to the following conditions:
    (i) The servicing official furnishes a favorable recommendation 
concerning the cancellation;
    (ii) There is no known security for the debt and the debtor has no 
other assets from which the debt could be collected;
    (iii) The debtor is unable to pay any part of the debt and has no 
reasonable prospect of being able to do so; and
    (iv) The debt or any extension thereof is due and payable under the 
terms of the note or other instrument, or due to acceleration by 
written notice prior to the date of application.
    (2) Without application by debtor. Debts may be cancelled upon a 
favorable recommendation of the servicing official in the following 
instances:
    (i) Debtors discharged in bankruptcy. If there is no security for 
the debt, debts discharged in bankruptcy shall be cancelled by the use 
of Form RD 1956-1. A copy of the Bankruptcy Court's Discharge Order 
must be attached.
    (ii) Impractical to obtain debtor's signature. Debts may be 
cancelled if it is impractical to obtain a signed application and the 
requirements of paragraphs (e)(1) of this section are met. Form RD 
1956-1 will document the specific reason(s) why it was impossible or 
impracticable to obtain the signature of the debtor. If the debtor 
refused to sign the application, the reason(s) should be documented.
    (f) Chargeoff. (1) Judgment debts. Judgment debts, regardless of 
the amount, may be charged off without the debtor's signature upon a 
favorable recommendation of the servicing official provided:
    (i) The United States Attorney's file is closed, and
    (ii) The requirements of paragraph (e)(2)(ii) of this section, if 
applicable, have been met, or 2 years have elapsed since any 
collections were made on the judgment. The debtor must also have no 
equity in the property subject to the lien or upon which a lien can be 
obtained.
    (2) Nonjudgment debts. Debts that cannot be settled under other 
sections of this part may be charged off without the debtor's signature 
upon a favorable recommendation of the servicing official in the 
following instances:
    (i) When OGC advises in writing that the claim is legally without 
merit, or that evidence necessary to prove the claim in court cannot be 
provided; or
    (ii) When there is no known security for the debt, the debtor has 
no other assets from which the debt could be collected, and the debtor:
    (A) Is unable to pay any part of the debt and has no reasonable 
prospect of being able to do so; or
    (B) Is able to pay part or all of the debt but refuses to do so, 
and OGC provides an opinion to the effect that the Government cannot 
enforce collection of a significant amount from assets or income.


Sec.  1782.21  [Reserved]


Sec.  1782.22  Exception authority.

    The Administrator may, in individual cases, make an exception to 
any requirement or provision of this part which is not inconsistent 
with the authorizing statute or other applicable law and is determined 
to be in the Government's interest. Requests for exceptions must be 
made in writing by the State Director and supported with documentation 
to explain the adverse effect on the Government's interest, propose 
alternative course(s) of action, and show how the adverse affect will 
be eliminated or minimized if the exception is granted. The exception 
decision will be documented in writing, signed by the Administrator, 
and retained in the files.


Sec.  1782.23  Use of Rural Development Loans and Grants for other 
purposes.

    (a) If, after making a loan or a grant, the Administrator 
determines that the circumstances under which the loan or grant was 
made have sufficiently changed to make the project or activity for 
which the loan or grant was made available no longer appropriate, the 
Administrator may allow the borrower or grantee to use property (real 
and personal) purchased or improved with the loan or grant funds, or 
proceeds from the sale of property (real and personal) purchased with 
such funds, for another project or activity that:
    (1) Will be carried out in the same area as the original project or 
activity;
    (2) Meets the criteria for a loan or grant described in section 
381E(d) of the Consolidated Farm and Rural Development Act, as amended; 
and
    (3) Satisfies such additional requirements as are established by 
the Administrator.
    (b) If the new use of the property is under the authority of 
another USDA Agency Administrator, the other Administrator will be 
consulted on whether the new use will meet the criteria of the other 
program. Since the new project or activity must be carried out in the 
same area as the original project or activity, a new rural area 
determination will not be necessary.
    (c) Borrowers and grantees that wish to use the proceeds for other 
purposes may make their request through the appropriate Rural 
Development State Office. Permission to use this option will be 
exercised on a case-by-case-basis on applications submitted through the 
State Office to the Administrator for consideration. If the proposal is 
approved, the Administrator will issue a memorandum to the State 
Director outlining the conditions necessary to complete the 
transaction.


Sec.  1782.24-1782.99  [Reserved]


Sec.  1782.100  OMB Control Number.

    The information collection requirements in this part are approved 
by the Office of Management and Budget (OMB) and assigned OMB Control 
Number 0572-XXXX.

CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS--COOPERATIVE 
SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT 
OF AGRICULTURE.

PART 1951--SERVICING AND COLLECTIONS

    2. The authority citation for part 1951 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

Subpart A--Account Servicing Policies

    3. Amend Sec.  1951.1 by adding the following sentence to the end 
of the section:


Sec.  1951.1  Purpose.

    * * * This subpart does not apply to Water and Waste Programs of 
the Rural Utilities Service, Watershed loans, or Resource Conservation 
and Development loans, which are serviced under part 1782 of this 
title.

Subpart D--Final Payment on Loans

    4. Revise Sec.  1951.151 to read as follows:

[[Page 65553]]

Sec.  1951.151  Purpose.

    This subpart prescribes authorizations, policies and procedures of 
the Farm Service Agency (FSA), Rural Housing Service (RHS), and Rural 
Business--Cooperative Service (RBS), herein referred to as ``Agency,'' 
for processing final payment of all loans. This subpart does not apply 
to direct Single Family Housing customers of the RHS. This subpart does 
not apply to Water and Waste Programs of the Rural Utilities Service, 
Watershed loans, Resource Conservation and Development loans, which are 
serviced under part 1782 of this title.

Subpart E--Servicing of Community and Direct Business Programs 
Loans and Grants

    5. Revise Sec.  1951.201 to read as follows:


Sec.  1951.201  Purposes.

    This subpart prescribes the Rural Development mission area 
policies, authorizations, and procedures for servicing Community 
Facility loans and grants; Rural Business Enterprise/Television 
Demonstration grants; Association Recreation loans; Direct Business 
loans; Economic Opportunity Cooperative loans; Rural Renewal loans; 
Energy Impacted Area Development Assistance Program grants; National 
Nonprofit Corporation grants; System for Delivery of Certain Rural 
Development Programs panel grants; and Rural Cooperative Development 
Grants in subpart F of part 4284 of this title. Rural Development State 
Offices act on behalf of the Rural Business-Cooperative Service, and 
the Farm Service Agency as to loan and grant programs formerly 
administered by the Farmers Home Administration and the Rural 
Development Administration. Loans sold without insurance to the private 
sector will be serviced in the private sector and will not be serviced 
under this subpart. The provisions of this subpart are not applicable 
to such loans. Future changes to this subpart will not be made 
applicable to such loans. This subpart does not apply to Water and 
Waste Programs of the Rural Utilities Service, Watershed loans, and 
Resource Conservation and Development Loans, which are serviced under 
part 1782 of this title.
    6. Add Sec.  1951.218 to read as follows:


Sec.  1951.218  Use of Rural Development Loans and Grants for other 
purposes.

    (a) If, after making a loan or a grant, the Administrator 
determines that the circumstances under which the loan or grant was 
made have sufficiently changed to make the project or activity for 
which the loan or grant was made available no longer appropriate, the 
Administrator may allow the loan borrower or grant recipient to use 
property (real and personal) purchased or improved with the loan or 
grant funds, or proceeds from the sale of property (real and personal) 
purchased with such funds, for another project or activity that:
    (1) Will be carried out in the same area as the original project or 
activity;
    (2) Meets the criteria for a loan or grant described in section 
381E(d) of the Consolidated Farm and Rural Development Act, as amended; 
and
    (3) Satisfies such additional requirements as are established by 
the Administrator.
    (b) For the purpose of this section, Administrator means the 
Administrator of the Rural Housing Service or Rural Business-
Cooperative Service that has the delegated authority to administer the 
loan or grant program that covers the property or the proceeds from the 
sale property proposed to be used in another way.
    (c) If the new use of the property is under the authority of 
another Administrator, the other Administrator will be consulted on 
whether the new use will meet the criteria of the other program. Since 
the new project or activity must be carried out in the same area as the 
original project or activity, a new rural area determination will not 
be necessary.
    (d) Borrowers and grantees that wish to take advantage of this 
option may make their request through the appropriate Rural Development 
State Office. Permission to use this option will be exercised on a 
case-by-case-basis on applications submitted through the State Office 
to the Administrator for consideration. If the proposal is approved, 
the Administrator will issue a memorandum to the State Director 
outlining the conditions necessary to complete the transaction.

Subpart F--Analyzing Credit Needs and Graduation of Borrowers

    6. Revise Sec.  1951.251 to read as follows:


Sec.  1951.251  Purpose.

    This subpart prescribes the policies to be followed when analyzing 
a direct borrower's need for continued Agency supervision, further 
credit, and graduation. All loan accounts will be reviewed for 
graduation in accordance with this subpart, with the exception of 
Guaranteed, Rural Development Loan Funds, and Rural Rental Housing 
loans made to build or acquire new units pursuant to contracts entered 
into on or after December 15, 1989, and Intermediary Relending Program 
loans. The term ``Agency'' used in this subpart refers to the Farm 
Service Agency (FSA) (including its county and State committees and 
their personnel), Rural Housing Service (RHS), or Rural Business-
Cooperative Service (RBS), depending upon the loan program discussed 
herein. This subpart does not apply to RHS direct single family housing 
(SFH) customers. In addition, this subpart does not apply to Water and 
Waste Programs of the Rural Utilities Service, Watershed loans, 
Resource Conservation and Development loans, which are serviced under 
part 1782 of this title.

Subpart O--Servicing Cases Where Unauthorized Loan(s) or Other 
Financial Assistance Was Received--Community and Insured Business 
Programs

    7. Revise Sec.  1951.701 to read as follows:


Sec.  1951.701  Purpose.

    This subpart prescribes the policies and procedures for servicing 
Community and Business Program loans and/or grants made by Rural 
Development when it is determined that the borrower or grantee was not 
eligible for all or part of the financial assistance received in the 
form of a loan, grant, or subsidy granted, or any other direct 
financial assistance. It does not apply to guaranteed loans. Loans sold 
without insurance by the Rural Development to the private sector will 
be serviced in the private sector and will not be serviced under this 
subpart. The provisions of this subpart are not applicable to such 
loans. Future changes to this subpart will not be made applicable to 
such loans. This subpart does not apply to Water and Waste Programs of 
the Rural Utilities Service, Watershed loans, and Resource Conservation 
and Development Loans, which are serviced under part 1782 of this 
title.

PART 1955--PROPERTY MANAGEMENT

    8. The authority citation for part 1955 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1480.

Subpart A--Liquidation of Loans Secured by Real Estate and 
Acquisition of Real and Chattel Property

    9. Revise Sec.  1955.1 to read as follows:

[[Page 65554]]

Sec.  1955.1  Purpose.

    This subpart delegates authority and prescribes procedures for the 
liquidation of loans to individuals and to organizations as identified 
in Sec.  1955.3. It pertains to the Farm Credit programs of the Farm 
Service Agency (FSA), Multi-Family Housing (MFH) and Community 
Facilities (CF) programs of the Rural Housing Service (RHS), and direct 
programs of the Rural Business-Cooperative Service (RBS). Guaranteed 
RBS loans are liquidated upon direction from the Deputy Administrator, 
Business Programs, RBS. This subpart does not apply to RHS single 
family housing loans or to CF loans sold without insurance in the 
private sector. These CF loans will be serviced in the private sector 
and future revisions to this subpart no longer apply to such loans. In 
addition, this subpart does not apply to Water and Waste Programs of 
the Rural Utilities Service, Watershed loans, Resource Conservation and 
Development loans, which are serviced under part 1782 of this title.

Subpart B--Management of Property

    10. Revise the introductory text of Sec.  1955.51 to read as 
follows:


Sec.  1955.51  Purpose.

    This subpart delegates authority and prescribes policies and 
procedures for the Rural Housing Service (RHS), Rural Business-
Cooperative Service (RBS), and Farm Service Agency (FSA), herein 
referred to as ``Agency,'' and references contained in this subpart to 
the Farmers Home Administration (FmHA) are synonymous with ``Agency.'' 
This subpart does not apply to RHS single family housing loans or 
community program loans sold without insurance to the private sector. 
These community program loans will be serviced by the private sector 
and future revisions and this subpart no longer apply to such loans. In 
addition, this subpart does not apply to Water and Waste Programs of 
the Rural Utilities Service, Watershed loans, Resource Conservation and 
Development loans, which are serviced under part 1782 of this title. 
This subpart does cover:
* * * * *

Subpart C--Disposal of Inventory Property

    11. Revise Sec.  1955.101 to read as follows:


Sec.  1955.101  Purpose.

    This subpart delegates program authority and prescribes policies 
and procedures for the sale of inventory property including real 
estate, related real estate rights and chattels. It also covers the 
granting of easements and rights-of-way on inventory property. Credit 
sales of inventory property to ineligible (nonprogram (NP)) purchasers 
will be handled in accordance with subpart J of part 1951 of this 
chapter, except Community and Business Programs (C&BP) and Multi-Family 
Housing (MFH) which will be handled in accordance with this subpart. In 
addition, credit sales of Single-Family Housing (SFH) properties 
converted to MFH will be handled in accordance with this subpart. This 
subpart does not apply to SFH inventory property. In addition, this 
subpart does not apply to Water and Waste Programs of the Rural 
Utilities Service, Watershed loans, Resource Conservation and 
Development loans, which are serviced under part 1782 of this title.

PART 1956--DEBT SETTLEMENT

    12. The authority citation for part 1956 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1981; 31 U.S.C 3711; 42 U.S.C. 
1480.

Subpart C--Debt Settlement--Community and Business Programs

    13. Amend Sec.  1956.101 by adding the following sentence to the 
end of the section:


Sec.  1956.101  Purpose.

    * * * In addition, this subpart does not apply to Water and Waste 
Programs of the Rural Utilities Service, Watershed loans, Resource 
Conservation and Development loans, which are serviced under part 1782 
of this title.

    Dated: October 7, 2004.
Gilbert Gonzalez,
Acting Under Secretary, Rural Development.
[FR Doc. 04-25247 Filed 11-12-04; 8:45 am]
BILLING CODE 3410-15-P


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