10118 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Parts 1951, 1956, 1962, 1965

RIN 0560–AE89

Implementation of the Delinquent

Account Servicing Provisions of the

Federal Agriculture Improvement and

Reform Act of 1996

AGENCIES: Rural Housing Service, Rural

Business-Cooperative Service, Rural

Utilities Service, Farm Service Agency,

USDA.

ACTION: Interim rule with request for

comments.

SUMMARY: The following changes

implement provisions of the Federal

Agriculture Improvement and Reform

Act of 1996 (1996 Act) that affect the

Farm Loan Programs of the Farm

Service Agency (FSA), formerly

administered by the Farmers Home

Administration (FmHA). The provisions

of this rule affect the direct and

guaranteed farm ownership (FO),

operating loan (OL) programs, and the

direct emergency (EM) loan program.

Implementation of these provisions will

result in the streamlining and

shortening of the loan servicing process

and result in reduced losses to the

Government.

DATES: Effective: March 14, 1997.

Comments must be submitted by May

13, 1997.

ADDRESSES: Submit written comments

to Director, Farm Service Agency,

United States Department of

Agriculture, Farm Loan Programs Loan

Servicing and Property Management

Division, Ag Code 0523, Post Office Box

2415, Washington, DC 20013.

FOR FURTHER INFORMATION CONTACT:

Kimberly R. Laris, Senior Loan Officer,

Farm Service Agency, U.S. Department

of Agriculture, Room 5449–S,

Washington, DC 20250–0523;

Telephone: 202–720–1659; Facsimile:

202–690–0949.

SUPPLEMENTARY INFORMATION

Executive Order 12866

This rule has been determined to be

significant and was reviewed by the

Office of Management and Budget under

Executive Order 12866.

Regulatory Flexibility Act

The Farm Service Agency certifies

that this rule will not have a significant

impact on a substantial number of small

entities as defined in the Regulatory

Flexibility Act, Pub. L. 96–534, as

amended (5 U.S.C. 601).

Environmental Impact Statement

This document has been reviewed in

accordance with 7 CFR part 1940,

subpart G, ‘‘Environmental Program.’’

The issuing agencies have determined

that this action does not significantly

affect the quality of human

environment, and in accordance with

the National Environmental Policy Act

of 1969, Pub. L. 91–190, an

Environmental Impact Statement is not

required.

Executive Order 12778

This interim rule has been reviewed

under Executive Order 12778, Civil

Justice Reform. In accordance with this

rule: (1) All state and local laws and

regulations that are in conflict with this

rule will be preempted; (2) no

retroactive effect will be given to this

rule; (3) administrative proceedings in

accordance with 7 CFR parts 11 and 780

must be exhausted before bringing suit

in court challenging action taken under

this rule unless those regulations

specifically allow bringing suit at an

earlier time.

Executive Order 12372

For reasons set forth in the notice to

7 CFR part 3015, subpart V (48 FR

29115, June 24, 1983), the programs

within this rule are excluded from the

scope of Executive Order 12372, which

requires intergovernmental consultation

with State and local officials.

The Unfunded Mandate Reform Act of

1995

Title II of the Unfunded Mandate

Reform Act of 1995 (UMRA), Pub. L.

104–4, establishes requirements for

Federal agencies to assess the effects of

their regulatory actions on state, local

and tribal governments and the private

sector of $100 million or more in any

one year. When such a statement is

needed for a rule, section 205 of the

UMRA, FSA generally must prepare a

written statement, including a costbenefit analysis, for proposed and final

rules with ‘‘Federal mandates’’ that may

result in expenditures to state, local, or

tribal governments, in the aggregate, or

to the private sector. When such a

statement is needed for a rule, section

205 of the UMRA generally requires

FSA to identify and consider a

reasonable number of regulatory

alternatives and adopt the least costly,

more cost-effective or least burdensome

alternative that achieves the objectives

of the rule.

This rule contains no Federal

mandates (under regulatory provisions

of title II of the UMRA) for state, local,

and tribal governments or the private

sector. Thus, this rule is not subject to

the requirements of sections 202 and

205 of the UMRA.

Paperwork Reduction Act

This interim rule does not impose any

new information collection or

recordkeeping requirements; however,

the provisions of the 1996 Act do

eliminate the need for some information

previously collected and result in a

revision to the number of estimated

respondents from whom information

will be collected. Therefore, the agency

will revise the information collection

currently approved in support of its

regulations pertaining to Farm Loan

Programs account servicing policies

under the Office of Management and

Budget (OMB) control number 0560–

0161 and debt settlement regulations

under OMB control number 0575–0118.

The agency will publish a Federal

Register notice in the near future

requesting comments for a 60-day

period regarding revisions resulting

from the 1996 Act; increases or

decreases in program activity; and

changes to the estimated responses per

respondent and estimated average hours

per response. OMB emergency clearance

has been obtained to allow continued

use of the affected regulations and forms

under OMB control numbers 0560–0172

and 0560–0173.

Federal Assistance Programs

10.404—Emergency Loans

10.406—Farm Operating Loans

10.407—Farm Ownership Loans

10.416—Soil and Water Loans.

Discussion of the Interim Rule

Enacted on April 4, 1996, the Federal

Agriculture Improvement and Reform

Act (1996 Act) changed the

qualifications for loan servicing benefits

for borrowers with farm loans from FSA,

formerly FmHA. The specific changes to

FSA Farm Loan Programs are as follows:

Leaseback/Buyback Program

The 1996 Act terminated the

Leaseback/Buyback program effective

April 4, 1996. Borrowers, former owners

and their spouses, children, or former

operators no longer have any priority

right to purchase FSA inventory

property or to lease such property with

an option to purchase. This action will

remove the regulations for this program.

A transition rule provides that

borrowers who had submitted a

complete application for leaseback/

buyback before the date of enactment
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10119

may still be considered for the program.

The regulations governing leaseback/

buyback for these applications can be

found in the previous CFR volume

containing revisions as of January 1,

1996 and the Agency’s procedures,

(available in any county office.)

Homestead Protection

The application period for this

program was changed by the 1996 Act

from 90 to 30 days after notification of

the former owner of FSA inventory

property. The Agency is now required to

advise the owner of program availability

on or before the date that it acquires the

property, instead of within 30 days of

acquisition as was required by 7 CFR

1951.911(b)(2)(iii).

Primary Loan Servicing

The 1996 Act requires notification of

loan servicing programs to borrowers

who are 90 days past due on their FLP

loan payment (or 60 days delinquent,

since accounts are not considered

delinquent until they are 30 days past

due). Formerly, these packets were sent

when borrowers were 180 days

delinquent (210 days past due).

Application requirements have been

modified to eliminate some forms and

clarify that borrowers do not need to

provide information that is already in

their case files and still current, as

determined by the approval official.

Borrowers who request servicing before

they become delinquent are required to

pay at least a portion of the interest due

on the account as a condition of

rescheduling or reamortization. In

making restructuring decisions, FSA

will assume that the borrower needs up

to 110 percent of the amount indicated

for payment of farm operating expenses,

debt service obligations, and family

living expenses, instead of the 105

percent required before the 1996 Act.

Failure to achieve this 110 percent

margin will not make a borrower

ineligible for loan servicing, but in no

case will the account be restructured

with a cash flow of less than 100

percent. Borrowers who qualify for debt

writedown, but whose accounts could

be restructured without writedown at a

margin of less than 110 percent, will be

allowed to choose between the two

options: (1) Restructuring with

writedown, or (2) restructuring without

writedown at a margin of less than 110

percent. Since section 645 of the 1996

Act, which establishes the 110 percent

cash flow, is not mandatory, FSA is

offering borrowers the option to forego

writedown. Thus, they would avoid the

statutory debt forgiveness limitation

explained below. Borrowers who choose

writedown (with a higher cash flow

margin than restructuring without

writedown) will not be able to receive

any additional debt forgiveness from

FSA.

Debt Forgiveness

Under the 1996 Act, borrowers can

receive only one reduction or

termination of a direct FLP loan in a

manner that results in a loss to the

Government. Those who have received

debt forgiveness on a direct loan at any

time in the past are no longer eligible for

such relief on another loan. Pursuant to

section 640(2) of the 1996 Act, debt

forgiveness is defined as writing down

or writing off a direct loan, debt settling

a direct loan, paying a loss claim on a

loan guarantee pursuant to section 357

of the Consolidated Farm and Rural

Development Act (Con Act) and

discharging a debt as a result of

bankruptcy.

Buyout of Debt

The loan servicing option of buying

out a debt at its net recovery value was

changed by the Act to buyout at current

market value. The requirement for a

recapture agreement, under which the

Agency could recover a portion of its

loss if the property is sold within 10

years, was eliminated.

Conservation Contracts

Based on section 642 of the 1996 Act,

the Agency has revised Exhibit H of this

subpart to change the conservation

easement program to a conservation

contract program. Since section 642(1)

of the 1996 Act removed the

requirement that the program restrict

the usage of the property for not less

than 50 years, FSA has exercised its

discretion to provide a graduated

reduction in the amount of debt written

off, based on the time period that usage

is restricted. Borrowers who agree to a

50-year contract will receive the

maximum amount of debt writedown.

Borrowers who agree to a 30-year

contract will receive 60 percent of the

maximum writedown. Borrowers who

agree to a 10-year contract will receive

20 percent of the maximum writedown.

Graduation

When reviewing accounts for possible

graduation from direct FLP credit, the

Agency is authorized by the Act to

submit a borrower prospectus to

potential commercial lenders without

the borrower’s approval. Borrowers

must be notified that such information

has been provided. If an approved

lender agrees to provide credit to that

borrower in accordance with the terms

of the prospectus, that borrower is

ineligible for Farm Ownership or Farm

Operating direct loan credit.

Annual Reviews and Eligibility

Under section 635 of the 1996 Act, the

County Committee must certify

annually that a review has been made of

each borrower’s operation and of

continued eligibility for Agency

assistance. This is an internal agency

requirement and therefore regulations

governing this requirement are not

published in the CFR.

Electronic Filing of Financing

Statements

Pursuant to section 662 of the 1996

Act, all lenders are authorized to file

financing statements electronically in

states having Uniform Commercial Code

(UCC) laws allowing that practice.

Appeals

The Agency has removed from this

regulation the requirement that the

borrower be notified of appeal rights in

numerous instances where it previously

appeared following authorization for an

adverse decision. A guide to the

mediation, appeals and review

processes has been added as section

1951.904.

Miscellaneous

Some material which was obsoleted,

outdated, or repetitive has been omitted.

Some references to other sections of the

CFR have been revised for conformity

purposes.

List of Subjects

7 CFR Part 1951

Account servicing, Accounting, Debt

restructuring, Foreclosure, Government

acquired property, Credit, Loan

programs—agriculture, Loan programs—

housing and community development,

Low and moderate income housing

loans—servicing, Mortgages, Rural

areas, Sale of government acquired

property, Surplus government property.

7 CFR Part 1956

Accounting, Loan programs—

agriculture, Rural areas.

7 CFR Part 1962

Crops, Government property,

Livestock, Loan programs—agriculture,

Rural areas.

7 CFR Part 1965

Foreclosure, Loan programs—

agriculture, Rural areas.

Accordingly, chapter XVIII, title 7,

Code of Federal Regulations is amended

as follows:
10120 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

PART 1951—SERVICING AND

COLLECTIONS

1. 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 F—Analyzing Credit Needs

and Graduation of Borrowers

2. Section 1951.262 is amended by

revising paragraphs (f)(1) and (f) (2) to

read as follows:

§ 1951.262 Farm Loan Programs—

graduation of borrowers.

* * * * *

(f) * * *

(1) The Agency will distribute a

borrower’s prospectus to local lenders

for possible refinancing. The borrower’s

permission is not required, however, the

borrower must be notified of this action.

(2) The borrower is responsible for

any application fees. The borrower has

30 days from the date the borrower is

notified of lender interest in refinancing

to make application, if required by the

lender, and refinance the FLP loan. For

good cause, the borrower may be

granted a reasonable amount of

additional time by the Agency.

Subpart J—Management and

Collection of Nonprogram (NP) Loans

§ 1951.454 [Amended]

3. Section 1951.454 is amended by

revising the words ‘‘chapter; except that

a borrower does have appeal rights if the

decision involves the denial of NP loan

assistance under the Leaseback/Buyback

and Homestead Protection provisions of

subpart S of this Part 1951’’ to read

‘‘chapter or parts 11 and 780 of this

title.’’

§ 1951.455 [Amended]

4. Section 1951.455 is amended by:

a. In paragraph (a) by removing

‘‘Leaseback/Buyback and’’ in the second

sentence; by revising the words

‘‘Leaseback/Buyback and Homestead

Protection programs,’’ to read

‘‘Homestead Protection program’’ in the

fourth sentence; by removing the words

‘‘FmHA or its successor agency under

Public Law 103–354’’ in the fifth

sentence; by revising the words ‘‘FmHA

or its successor agency under Public

Law 103–354’’ to read ‘‘the Agency’’ in

the sixth sentence;

b. In paragraph (b) by removing the

first sentence; by revising the words

‘‘FmHA or its successor agency under

Public Law 103–354’’ to read ‘‘FLP’’ in

the second sentence; by removing the

words ‘‘FmHA or its successor agency

under Public Law 103–354’’ in the

fourth sentence; by revising the words

‘‘FmHA or its successor agency under

Public Law 103–354’’ and ‘‘FP’’ to read

‘‘FLP’’ in the fifth sentence;

c. In paragraph (c) by revising the

words ‘‘FmHA or its successor agency

under Public Law 103–354 office’’ to

read ‘‘agency office’’ and the words

‘‘FmHA or its successor agency under

Public Law 103–354 credit’’ to read

‘‘FLP credit’’ in the first sentence;

d. In paragraph (e) by revising the

words ‘‘FmHA or its successor agency

under Public Law 103–354 office’’ to

read ‘‘agency office’’ in the first

sentence and removing the words

‘‘FmHA or its successor agency under

Public Law 103–354’’ in the fourth

sentence;

e. In paragraph (f) by removing the

first and third sentence;

f. In paragraph (g) by revising the

words ‘‘FmHA or its successor agency

under Public Law 103–354’’ to read

‘‘FLP’’ in the introductory text; by

removing paragraphs (g) (1) and (4); by

revising the words ‘‘FmHA or its

successor agency under Public Law

103–354 may’’ to read ‘‘the agency may’’

and the words ‘‘FmHA or its successor

agency under Public Law 103–354

retains’’ to read ‘‘the agency retains’’ in

the second sentence of paragraph (g)(2);

and by redesignating paragraphs (g) (2),

(3) and (5) as (g) (1) through (3);

g. In paragraph (h) by revising the

word ‘‘FP’’ to read ‘‘FLP’’;

h. In paragraph (i) by removing the

first sentence;

i. In paragraph (j) by revising the

words ‘‘an FmHA or its successor

agency under Public Law 103–354’’ to

read ‘‘a’’.

5. Section 1951.457 is amended by

revising paragraph (a) to read as follows:

§ 1951.457 Payments.

(a) Receiving payments. Borrowers

will mail or bring their payments to the

county office. Borrowers will be

responsible for any fees associated with

converting cash payments to money

orders. If the fee is not paid, it will be

deducted from the payment.

* * * * *

6. Section 1951.458 is revised to read

as follows:

§ 1951.458 Servicing real estate taxes.

Refer to subpart A of part 1925 of this

chapter for servicing real estate taxes.

Subpart S—Farmer Program Account

Servicing Policies

7. Section 1951.901 is revised to read

as follows:

§ 1951.901 Purpose.

This subpart describes the policies

and procedures that the agency will use

in servicing most Farm Loan Program

(FLP) loans. The loans include

Operating Loan (OL), Farm Ownership

Loan (FO), Soil and Water Loan (SW),

Softwood Timber Production Loan (ST),

Emergency Loan (EM), Economic

Emergency Loan (EE), Economic

Opportunity Loan (EO), Recreation Loan

(RL), and Rural Housing Loan for farm

service buildings (RHF) accounts. Cases

involving unauthorized assistance will

be serviced as described in subpart L of

this part. When it has been determined

that all the conditions outlined in

§ 1951.558(b) of subpart L of this part

have been met, the loan will be treated

as an authorized loan and may be

serviced under this subpart. Cases

involving graduation of borrowers to

other sources of credit will be serviced

as described in subpart F of this part.

This subpart does not apply to FLP NonProgram (NP) loans. Examples of

Primary Loan Servicing actions are:

consolidation, rescheduling and/or

reamortization, deferral of principal and

interest payments, reclassifying to ST

loans, reducing interest rate on the loan,

writedown of debt and conservation

contract, or a combination of these

actions. Preservation loan servicing is

the Homestead Protection program. Any

processing or servicing activity

conducted pursuant to this subpart

involving authorized assistance to

agency employees, members of their

families, known close relatives, or

business or close personal associates, is

subject to the provisions of subpart D of

part 1900 of this chapter. Applicants for

this assistance are required to identify

any known relationship or association

with an agency employee.

8. Section 1951.902 is revised to read

as follows:

§ 1951.902 General.

Supervision and Servicing. It is a

primary objective of the Agency to

provide supervised credit to borrowers

in financial, production or other

difficulty in a manner that will assure

the maximum opportunity for their

recovery and, at the same time, get the

best recovery for the Government.

Supervision and servicing are

continuing processes that begin the day

a farmer comes into the office. Providing

supervised credit has two objectives:

(a) To help farmers set goals, work on

problem areas and work toward

graduation to commercial credit;

(b) To recover the maximum possible

amount for the Government.

9. Section 1951.903 is revised to read

as follows:
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10121

§ 1951.903 Authorities and

responsibilities.

(a) Responsibilities. Servicing officials

will make full use of the National

automated tracked system to track and

manage the FLP primary and

preservation loan servicing and debt

settlement programs.

(b) Authorities. All loan servicing

decisions except as set forth in this

section will be made by the servicing

official except the approval of

writedown and buyout of a borrower’s

debt. Also, all applications for debt

settlement of FLP loans must be

recommended by the County Committee

(except where the debt has been

discharged through bankruptcy),

approved by the State Executive

Director or the Administrator

(depending upon the amount of debt to

be settled), and processed in accordance

with the provisions of subpart B of part

1956 of this chapter. Servicing officials

are authorized to accept a buyout

payment when the borrower(s) pays the

current market value of the security set

forth in § 1951.909 of this Instruction.

Only State Executive Directors are

authorized to approve writedown and

buyout in accordance with § 1951.909 of

this part and release a divorced spouse

from liability on the debt in accordance

with § 1951.909(a) of this part.

10. Section 1951.904 is added to read

as follows:

§ 1951.904 Mediation, reviews and

appeals.

(a) Participant rights. (1) For loan

servicing under this subpart, mediation

or a voluntary meeting of creditors will

be offered if the DALR$ calculations

indicate that a feasible plan of operation

cannot be developed considering all

primary loan service programs,

Softwood Timber, and Conservation

Contracts. In states with a USDA

Certified Mediation Program, mediation

will be offered. In all other states, a

voluntary meeting of creditors will be

offered.

(2) Any negotiation of an Agency

appraisal must be completed prior to the

meeting of creditors or mediation.

(3) If the borrower does not request

mediation or a voluntary meeting of

creditors as offered in Exhibit E of this

subpart within 45 days, the servicing

official will issue the appropriate

‘‘Notice of Intent to Accelerate or to

Continue Acceleration and Notice of

Borrowers’ Rights.’’

(4) Whenever the servicing official

makes a decision that will adversely

affect a participant, the participant will

be informed that the decision can be

reviewed in accordance with 7 CFR part

780 and indicate whether it can be

appealed to the USDA National Appeals

Division (NAD) according to regulations

set forth in 7 CFR part 11. Nonprogram

(NP) participants are not entitled to

appeal rights.

(b) Non-appealable decisions. The

following types of decisions are not

appealable:

(1) Decisions made by parties outside

the agency, even when those decisions

are used as a basis for the agency’s

decisions.

(2) Decisions that do not meet the

eligibility requirements of 7 CFR part

11.

(3) Interest rates as set forth in Agency

procedures, except appeals alleging

application of the incorrect interest rate.

(4) Refusal to request or grant an

administrative waiver permitted by

program regulations.

(5) Denials of assistance due to lack of

funds.

(6) In cases where the adverse

decision is based on both appealable

and non-appealable actions, the adverse

action is not appealable.

(7) Determinations previously made

by the Agency that have been appealed,

and a NAD decision adverse to the

participant has been entered; or upon

which the time frame for appeal has

expired with no appeal being requested.

(c) Next-level review. Any adverse

decision, whether appealable or nonappealable, may be reviewed in

accordance with 7 CFR part 780.

(d) NAD review. (1) A participant may

request that NAD review the Agency’s

determination that the decision may not

be appealed.

(2) A participant may request that

NAD review any decision that is

appealable.

(3) NAD will review the participant’s

request in accordance with 7 CFR part

11.

(e) Agency actions pending outcome

of appeal. Assistance will not be

discontinued pending the outcome of an

appeal of any adverse action. Releases

for essential family living and farm

operating expenses will not be

terminated until the account has been

accelerated.

(f) Time limits. Time limits for action

under this subpart will be tolled during

the pendency of an appeal, but not

during the pendency of a request that

NAD determine that a matter is or is not

appealable.

11. Section 1951.906 is revised to read

as follows:

§ 1951.906 Definitions.

As used in this subpart, the following

definitions apply:

Borrower. An individual or entity

which has outstanding obligations to the

agency under any Farm Loan Programs

(FLP) loan, without regard to whether

the loan has been accelerated. This does

not include any such debtor whose total

loans and accounts have been foreclosed

or liquidated, voluntarily or otherwise.

Collection-only borrowers are

considered borrowers. Borrower also

includes any other party liable for the

FLP debt. Nonprogram (NP) borrowers

are not considered borrowers for the

purposes of this subpart.

CONACT or CONACT property.

Property which secured a loan made or

insured under the Consolidated Farm

and Rural Development Act. Within this

part, it shall also be construed to cover

property which secured other FLP

loans.

Conservation contract. A contract

under which a borrower agrees to set

aside land for conservation, recreation

or wildlife purposes in exchange for

cancellation of a portion of an

outstanding FLP debt. Relief obtained in

this manner is not considered debt

forgiveness as defined in this section.

Consolidation. The combining and

rescheduling of the rates and terms of

two or more notes of the same type of

OL or EO loans, EE operating-type loans

or EM loans. EM actual loss loans will

not be consolidated.

Current market value buyout.

Termination of a borrower’s loan

obligations to the agency in exchange

for payment of the current appraised

value of the security property, less any

prior liens.

Debt forgiveness. For the purposes of

loan servicing, debt forgiveness is

defined as a reduction or termination of

a direct FLP loan in a manner that

results in a loss to the Agency. Included,

but not limited to, are losses from a

writedown or writeoff under this

subpart, subpart J of this part, subpart B

of part 1956 of this chapter, after

discharge under the bankruptcy code,

and associated with release of liability.

Debt cancellation through conservation

contracts is not considered debt

forgiveness under this subpart.

Debt settlement. The settlement of

debts owed the United States for FLP

loans. The types of debt settlement

programs are: compromise, adjustment,

cancellation and chargeoff.These

programs are administered in

accordance with subpart B of part 1956

of this chapter. Any action through debt

settlement which results in a loss to the

Agency will be considered debt

forgiveness.

Deferral. An approved delay in

making regularly scheduled payments,

including softwood timber (ST) loans.

Deferral is not considered debt

forgiveness.
10122 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

Delinquent borrower. A borrower who

has failed to make all or part of a

payment which is due for 30 or more

calendar days after the due date.

Entity. A corporation, partnership,

joint operation, or cooperative.

Farm Loan Programs (FLP) loans. This

refers to Farm Ownership (FO), Soil and

Water (SW), Recreation (RL), Economic

Opportunity (EO), Operating (OL),

Emergency (EM), Economic Emergency

(EE), Softwood Timber (ST) loans, and

Rural Housing loans for farm service

buildings (RHF).

Farm plan. Form FmHA 431–2, ‘‘Farm

and Home Plan,’’ or other plans or

documents acceptable to the agency that

will accurately reflect the production

and financial management of the

farming operation for one production

cycle. The agency will not require the

use of consolidated financial statements.

Feasible plan. A feasible plan must be

based upon the applicant or borrower’s

actual records that show the farming

operation’s actual income, production

and expenses. These records will

include income tax returns and

supporting documents (hereafter called

income tax records). The records must

be for the most recent five-year period

or, if the borrower has been farming less

than five years, for the period which the

borrower has farmed. For borrowers

who have been farming for less than five

years, other available records will be

used in the order listed in section

§ 1924.57(d)(1) of subpart B of part 1924

of this chapter to complete a five-year

history. Future production yields will

be based on an average of the most

recent past five years’ actual production

yields. Borrowers with yields affected

by disasters in at least two of the five

most recent years may exclude the crop

year with the lowest actual yield. In

addition, in accordance with section

§ 1924.57(d)(1) of subpart B of part 1924

of this chapter, if the applicant’s

remaining disaster years’ yields are less

than the County average yield, and the

borrower’s yields were affected by the

disaster, County average yields will be

used for those years. If County average

yields are not available, State average

yields will be used. These records will

be used along with realistic anticipated

prices, including any planned FLP loan

payments, to determine that the income

from the farming operation, and any

reliable off-farm income, will provide

the income necessary for an applicant or

borrower to at least be able to:

(1) Pay all operating expenses and

taxes which are due during the

projected farm business accounting

period.

(2) Meet scheduled payments on all

debts.

(3) Meet up to 110 percent, but not

less than 100 percent, of the amount

indicated for payment of farm operating

expenses, debt servicing obligations and

family living expenses. The Agency will

assume that a borrower needs this

margin to meet all obligations and

continue farming. However, this will

not prohibit a borrower from receiving

debt restructuring because the farm and

home plan shows less than such a

margin. In no case will a borrower with

a cash flow of less than 100 percent

receive restructuring.

(d) Provide living expenses for the

family members of an individual

borrower or a wage for the farm operator

in the case of a cooperative, corporation,

partnership, or joint operation borrower,

which is in accordance with the

essential family needs. Family members

include the individual borrower or farm

operator in the case of an entity, and the

immediate members of the family which

reside in the same household.

Financially distressed. A financially

distressed borrower is one who will not

be able to make payments as planned for

the current or next business accounting

period. Borrowers will also be

considered as in financial distress if it

is determined that they will not be able

to project a feasible plan of operation for

the next business accounting period.

Foreclosed. The completed act of

selling security either under the ‘‘power

of sale’’ in the security instrument or

through court proceedings.

Good faith. An eligibility requirement

for Primary Loan Servicing and Current

Market Value Buyout. Borrowers are

considered to have acted in ‘‘good faith’’

if they have demonstrated ‘‘honesty’’

and ‘‘sincerity’’ in complying with the

requirements of Form 1962–1,

‘‘Agreement for the Use of Proceeds/

Release of Chattel Security,’’ and any

other written agreements made with the

agency, as documented in the case file.

In addition, the agency must

substantiate any allegations of fraud,

waste, or conversion with a written legal

opinion from the Office of the General

Counsel (OGC) when such allegations

are used to deny a servicing request. A

borrower will not be considered to lack

‘‘good faith’’ if the sole basis for such a

determination was the disposition of

normal income security (§ 1962.4 of

subpart A of part 1962 of this chapter)

prior to October 14, 1988, without the

Agency’s consent and the borrower

demonstrates that the proceeds were

used to pay essential family living and

farm operating expenses that could have

been approved according to § 1962.17 of

subpart A of part 1962 of this chapter.

Homestead Protection. The right of a

former owner to apply to lease, with an

option to purchase the Homestead

Protection property, not to exceed 10

acres.

Homestead Protection property. This

refers to the principal residence which

secured a FLP loan.

Indian Reservation. Indian reservation

means all land located within the limits

of any Indian reservation under the

jurisdiction of the United States,

notwithstanding the issuance of any

patent, and including rights-of-way

running through the reservation; trust or

restricted land located within the

boundaries of a former reservation of a

Federally recognized Indian tribe in the

State of Oklahoma; or all Indian

allotments the Indian titles to which

have not been extinguished if such

allotments are subject to the jurisdiction

of a Federally recognized Indian Tribe.

Limited Resource Program. A

reduction of interest rates for operating

loans (OL), farm ownership loans (FO)

and soil and water loans (SW).

Liquidated. The completed act of

voluntarily selling security to end the

obligation for the debt, or involuntarily

as the result of a completed civil suit

against a borrower to recover collateral

against the debt. The filing of a claim in

a bankruptcy action is not a complete

liquidation of the borrower’s accounts.

Collection-only accounts are not

considered liquidated.

Loan service program. A Primary

Loan Servicing program or a

Preservation Loan Servicing program

(Homestead Protection) for FLP loan

borrowers.

New application. An application

submitted on or after November 28,

1990, for loan servicing programs. This

does not include an application

reconsidered after an appeal or revision

of an application submitted before

November 28, 1990.

Nonessential assets. Nonessential

assets are those in which the borrower

has an ownership interest, that:

(1) do not contribute a net income to

pay essential family living expenses or

to maintain a sound farming operation

(see 1962.17 of subpart A of part 1962

of this chapter); and

(2) are not exempt from judgment

creditors or in a bankruptcy action. Each

State Executive Director, with the

guidance of the Office of the General

Counsel, will issue a State Supplement

to establish guidelines on items that are

exempt from judgment creditors and are

exempt under bankruptcy law in

accordance with statute.

Nonprogram (NP) loan. An NP loan

results when a loan is made to an

ineligible applicant or transferee in

connection with a loan assumption and

sale of inventory properties at ineligible
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10123

terms. Borrowers originally determined

eligible by the agency and found to be

ineligible after the loan was made due

to an agency error are not considered to

have nonprogram loans.

Preservation loan service program.

See Homestead Protection.

Primary loan service program.

Primary loan service program means:

(1) loan consolidation, rescheduling,

or reamortization;

(2) interest rate reduction, including

use of the limited resource program;

(3) loan restructuring, including

deferral, or writing down of the

principal or accumulated interest; or

(4) any combination of the above.

Reamortization. Reamortization is

rearranging the installment payments of

a real estate loan, and may include

changing the interest rate and terms of

a loan made for Subtitle A purposes.

Rescheduling. Rescheduling is

rewriting the rates and/or terms of OL,

SL, EO loans, EE operating-type loans or

EM loans made for Subtitle B purposes.

Writedown. For purposes of this

subpart, writedown is reducing a

borrower’s debt to an amount that will

result in a feasible plan of operation.

12. In § 1951.907, paragraphs (c), (d)

and (e) are revised to read as follows

and paragraph (f) is removed:

§ 1951.907 Notice of loan service

programs.

* * * * *

(c) Notification of borrowers 90 days

past due on payments. FLP borrowers

who are at least 90 days past due (60

days delinquent) will be sent Exhibit A

of this subpart with attachments 1 and

2 by certified mail, return receipt

requested. If the borrower submits an

incomplete application, see paragraph

(e) of this section for procedures on

requesting additional information.

Delinquent borrowers who have also

violated their loan agreements with the

agency will be handled in accordance

with § 1951.907(e). In addition to the

requirements set forth above, servicing

officials will provide Attachments 1 and

2 of Exhibit A of this subpart to these

borrowers, as set forth below:

(1) At the time an application is made

for participation in an FLP loan service

program, unless such application is the

result of the notice provided to the

borrower in accordance with this

section,

(2) On written request of any FLP

borrower, whether delinquent or not,

prior to the sending of a packet under

paragraph (c) of this section, and

(3) If a borrower has not previously

received exhibit A and attachments 1

and 2 of this subpart, such exhibit and

attachments will be provided before the

earliest of:

(i) Initiating any liquidation action,

(ii) Accepting a voluntary conveyance

of security, or the borrower requesting

permission to sell security,

(iii) Accelerating payments on the

loan,

(iv) Repossessing the borrower’s

property,

(v) Foreclosing on property, or

(vi) Taking any other collection

action.

(d) Notification of borrowers in nonmonetary default; delinquent borrowers

also in non monetary default, or when

a junior or senior lienholder is

foreclosing. FLP borrowers who are in

non-monetary default will be sent

attachments 1, 3, and 4 of exhibit A of

this subpart by certified mail, return

receipt requested. If a case is in the

hands of the Department of Justice or in

litigation, no loan servicing action will

be taken without Department of Justice

or OGC concurrence (see 1962.49 of this

chapter). Any servicing request will be

processed as indicated in § 1951.909.

The account will not be liquidated until

the borrower has the opportunity to

appeal any adverse decision. After any

final appeal decision that does not

result in a resolution of the loan

defaults, the account will be

accelerated.

(e) Request for primary and

preservation loan service programs.(1)

To request consideration for Primary

and Preservation Loan Service

programs, borrowers who are sent

exhibit A, with attachments 1 and 2 or

attachments 1, 3, and 4 must complete

and return attachment 2 or attachment

4, as appropriate, to the local county

office within 60 days after receiving

those documents, with the forms

required by this paragraph for a

completed application.

(2) If borrowers are sent attachments

3 and 4 and do not request servicing

within 60 days, the agency will proceed

with liquidation in accordance with

§ 1955.15 of this chapter.

(3) If borrowers are sent exhibit A and

attachments 1 and 2 of this subpart and

do not submit a completed application

within the 60-day time period, the

servicing official will send attachments

9 and 10, or 9–A and 10–A of exhibit

A of this subpart, as applicable. These

attachments will not be sent to

borrowers who are being serviced in

accordance with § 1951.908. For

borrowers receiving attachments 9 and

10 or 9–A and 10–A, the agency will

proceed with liquidation in accordance

with § 1955.15 of this chapter.

(4) If a borrower has moved and left

a forwarding address, the certified mail

will be forwarded. If no forwarding

address is given, the mail will be

returned to the county office. The

servicing official will immediately send

the documents from the certified mail

package to the borrower’s last known

address, first class mail. The borrower’s

response date for a completed

application will begin on the date of

receipt of the certified mail or 3 days

following the date of first class mailing,

whichever is earlier.

(5) An application for loan service

programs must include the following

forms (available in any agency office),

and data, unless the information is

already in the borrower’s case file and

still current, as determined by the

approval official:

(i) Attachment 2 or 4 of exhibit A to

this subpart, response form to apply for

loan servicing.

(ii) Form 410–1, ‘‘Application for

FmHA Services,’’ including a current

(within 90 days) financial statement of

all individuals and entities personally

liable for the FLP debt.

(iii) Form 431–2, ‘‘Farm and Home

Plan,’’ or any other form or submission

acceptable to the agency that sets forth

a plan of operation and the necessary

information. Commodity prices

supplied by the agency will be used to

complete the forms.

(iv) Form 440–32, ‘‘Request for

Statement of Debts and Collateral.’’

(v) Form RD 1910–5, ‘‘Request for

Verification of Employment.’’

(vi) Form AD–1026, ‘‘Highly Erodible

Land Conservation (HELC) and Wetland

Conservation (WC) Certification,’’ if the

one on file with the agency does not

reflect all the land owned and leased by

the borrower.

(vii) Form SCS CPA–26, ‘‘Highly

Erodible Land and Wetland

Determination,’’ if not previously on file

with the agency for the farm operation.

This form is included as part of the

application after being completed by

NRCS. (This form is available at NRCS

local offices.)

(viii) If the applicant wants to be

considered for a conservation contract,

a map or copy of an aerial photo of the

farm, on which the applicant must show

that portion of the farm and

approximate acres to be considered in a

request for debt restructuring provided

for in the conservation contract

program.

(ix) The most recent five years’

income tax returns and supporting

documents, unless the borrower has

been farming for less than five years. In

such case, income tax returns and

supporting documents for the tax years

that the borrower farmed.

(x) If the borrower is applying for debt

settlement, Form RD1956–1,
10124 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

‘‘Application for Settlement of

Indebtedness.’’

(6) The borrower will be provided

with copies of these forms when Exhibit

A is sent, and may request copies of

regulations and the forms manual

inserts (FMI) in writing within 30 days

of receipt of the loan servicing notice. If

these latter items are not provided

within 10 days of such a request, the

borrower’s time for submission of a

complete application will be increased

by the period of delay in excess of 10

days caused by the Agency.

(7) Not more than one 60-day period

will be provided to a borrower to

respond to the notice of loan service

programs except in accordance with

§ 1951.908. Subsequent notices as

provided for in this section will not be

issued until the first notice is resolved.

13. Section 1951.908 is revised to read

as follows:

§ 1951.908 Servicing financially distressed

current borrowers.

A borrower who is financially

distressed, but is not yet delinquent on

FLP payments, may request servicing at

any time.

(a) Notification. If a current plan of

operation demonstrates that the

borrower is or will be financially

distressed, as defined in § 1951.906, or

if the borrower otherwise requests

servicing, the servicing official will

provide attachments 1 and 2 of exhibit

A of this subpart.

(b) Eligibility. To be considered for

servicing in accordance with this

section, the borrower must submit to the

county office within 60 days

Attachment 2 of exhibit A of this

subpart and a complete application in

accordance with the requirements of

§ 1951.907(e).

(1) The eligibility requirements of

§ 1951.909(c) (1) and (2) apply to

servicing under this section.

(2) Eligible financially distressed

borrowers who are current on their FLP

loan payments may be considered for

the Primary Loan Service programs

described in §§ 1951.909(e) (1), (2) and

(3).

(3) Financially distressed borrowers

who are not delinquent are not eligible

for writedown of debt or buyout as

described in 1951.909.

(c) Processing the application. The

servicing official must process a

completed application and notify the

borrower of the decision.

(1) Current borrowers will be

considered only for the Primary Loan

Servicing programs described in

§§ 1951.909 (e) (1), (2), and (3). The

servicing official must use the Debt and

Loan Restructuring System (DALR$)

program, in accordance with exhibit J–

1 of this subpart, to determine if a

feasible plan can be developed as

defined in § 1951.906.

(2) If a feasible plan can be developed,

the borrower will be sent exhibit B of

this subpart with attachment 1 and the

printout of the DALR$ calculations as

notification of the favorable decision.

The borrower must accept the offer

within 45 days of its receipt by

returning attachment 1 to exhibit B of

this subpart or the offer will expire. If

the borrower accepts, loan restructuring

will be processed in accordance with

§§ 1951.909 (e) (1), (2), or (3), as

applicable.

(3) If a feasible plan cannot be

developed, the borrower will be

informed of the reasons for the adverse

decision. The DALR$ printout will be

attached.

(4) Current borrowers who have

received notices under this section and

who do not apply for primary loan

servicing, or who refuse an offer to

restructure their debt, and later become

90 days past due on the FLP loan

payment, will be sent notices as

described in § 1951.907.

(5) Borrowers whose accounts are not

delinquent may receive rescheduling,

reamortization, consolidation, or

deferral under this subpart only after

they have paid at least a portion of the

interest due on their FLP debt. The

portion due will be based on the

applicant’s ability to pay, as determined

by thoroughly analyzing the farm

operation, including any off-farm

income. The payment must be made on

or before the date that restructuring is

closed. Borrowers in non-monetary

default, but not delinquent on their FLP

debt, must cure the non-monetary

default before they may be considered

for servicing under this paragraph.

14. Section 1951.909 is revised to read

as follows:

§ 1951.909 Processing primary loan

service programs requests.

(a) Servicing official responsibilities.

(1) After receipt of attachment 2 or 4

and a completed application in

accordance with § 1951.907(e), the

servicing official will consider all

primary service programs options in this

subpart. That official must use the Debt

and Loan Restructuring System (DALR$)

computer program, in accordance with

exhibit J–1 of this subpart for borrowers

who submit a new application, to

attempt to find the combination of loan

service programs that will result in a

feasible plan. Borrowers who request

loan servicing and who have disposed

of all the FLP loan security, including

Collection-Only borrowers, will be

processed in accordance with part 1956,

subpart B, of this chapter. If the

application includes a request for the

Conservation Contract program, as

indicated by the submission of the

information required in

§ 1951.907(e)(5)(viii), the servicing

official will determine whether the

borrower is eligible, based on criteria as

set forth in exhibit H of this subpart. If

the borrower is eligible, the servicing

official will make an estimate of the

information needed to permit the

DALR$ program to make the

calculations of feasibility of the

Conservation Contract. The assumptions

used to establish the estimates will be

based on the servicing official’s

knowledge of the farmland values, the

borrower’s repayment ability, and the

proposed contract acreage. When the

DALR$ calculations for restructuring are

completed, the borrower will be notified

as set forth in paragraph (h) of this

section.

(2) When jointly liable individual

borrowers have been divorced and one

has withdrawn from the operation, the

State Executive Director will consider,

upon the recommendation of the

servicing official, the release of liability

for the individual who has withdrawn if

the following conditions are met.

(i) A divorce decree or property

settlement document held the

withdrawing party not responsible for

the loan payments;

(ii) The withdrawing party’s interest

in the security is conveyed to the

borrower with whom the loan will be

continued;

(iii) The person withdrawing does not

have any repayment ability for the loan,

and does not own any nonessential

assets, as defined in § 1951.906;

(iv) The individual withdrawing has

never received debt forgiveness on

another direct loan; and.

(v) The withdrawing party provides a

copy of the divorce decree and property

settlement, evidence of conveyance, a

current financial statement, verification

of income and debts, and Form 431–2 or

Form RD–1944–3 as applicable.

(3) If a completed application

includes a request for a waiver from the

training required by paragraph (c)(5) of

this section, the County Committee will,

prior to any offer of Primary Loan

Servicing, evaluate the borrower’s

knowledge and ability in production

and financial management and

determine the need for additional

training as set out in § 1924.74 of this

chapter.

(b) Adverse determination. (1) If the

approval official determines that the

borrower is not eligible for any of the

Primary Loan Service programs or
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10125

restructuring is not feasible because of

debt held by other lenders, the borrower

will be advised of mediation or meeting

of creditors as provided in paragraph

(h)(3) of this section. If mediation or the

meeting of creditors does not result in

a feasible plan, the borrower will be sent

attachments 5 and 6, or 5–A and 6–A,

of exhibit A of this subpart, as

applicable.

(2) Borrowers who do not buy out

their debt at its current market value, or

who indicate in writing that they do not

wish to buy out, will automatically be

considered for debt settlement if they

submitted an ‘‘Application For Debt

Settlement.’’ Any appeal of a primary

loan servicing denial will be completed

before the servicing official begins any

further processing of a Debt Settlement

or Homestead Protection request. If the

adverse decision on restructuring is

upheld on appeal, the borrower will be

considered for these options. The

servicing official will complete the

processing of the borrower’s application

for Debt Settlement in accordance with

part 1956 of this chapter. Homestead

Protection will be processed in

accordance with § 1951.911. No

acceleration or foreclosure will occur

until the appeal process has been

completed for servicing or debt

settlement requests timely submitted

under this subpart.

(3) Applicants may request a

negotiated appraisal in accordance with

paragraph (i) of this section if they

object to the agency’s appraisal.

Negotiation of the appraisal, if requested

by the borrower, will take place before

mediation or a voluntary meeting of

creditors.

(c) Eligibility. Applicants will be

eligible for Primary Loan Service

programs if the servicing official has

determined that they meet all of the

following requirements:

(1) The delinquency or financial

distress does exist and is due to

circumstances beyond the control of the

borrower, due to a reduction in income

which reduces cash flow to a point

where outflows exceed inflows, only as

follows:

(i) The reduction in essential income

from a non-farm job due to

unemployment or underemployment of

the borrower-operator or spouse is

caused by circumstances beyond their

control;

(ii) Illness, injury, or death of an

individual borrower, stockholder,

member or partner who operates the

farm;

(iii) Natural disasters, an outbreak of

uncontrollable disease, or

uncontrollable insect damage which

caused severe loss of agricultural

production that reduced repayment

ability so that scheduled payments

cannot be made; or

(iv) Economic factors that are

widespread and not limited to an

individual case, such as high interest

rates or low market prices for

agricultural commodities as compared

to production costs, that reduce

repayment ability so that the scheduled

payments cannot be made.

(2) The borrower has acted in good

faith.

(3) Borrowers who do not meet the

eligibility requirements of this section

will be notified of the adverse decision

by sending attachments 5 and 6, or 5–

A and 6–A, of exhibit A of this subpart,

as appropriate.

(4) Borrowers with sufficient

nonessential assets to bring the FLP loan

account current are not eligible for

assistance under this subpart and will

be processed in accordance with

§ 1951.910 of this subpart.

(5) The borrower must agree to meet

the training requirements of § 1924.74 of

this chapter unless a waiver is granted

in accordance with that section. The

training requirement applies to all

primary loan servicing programs.

(d) Feasibility determinations. The

servicing official must determine:

(1) That the borrower will be able to

develop a feasible plan.

(2) If restructured, the loan will result

in a net recovery to the Government that

will be equal to or greater than the net

recovery value from involuntary

liquidation or foreclosure as calculated

in accordance with paragraph (f) of this

section. A comparison with net recovery

to the Government, however, will not be

made when establishing conservation

contracts under exhibit H of this

subpart.

(e) Primary loan service programs.

Any FLP borrower may request Primary

Loan Servicing Programs described in

this subpart at any time prior to

becoming 90 days past due. However,

borrowers must show that they are not

able to pay their debt as scheduled

before the agency will approve Primary

Loan Servicing Programs. The agency

will consider the borrower’s other assets

in accordance with § 1951.910 of this

subpart. Rescheduling, reamortization,

consolidation, or deferral may be

utilized for any eligible borrower.

Existing deferrals will be cancelled at

the same time additional primary loan

servicing is received. The loan will be

entered into DALR$ as if the deferral

were already cancelled. If DALR$ shows

that a borrower can develop a feasible

plan without a writedown at a lower

cash flow margin than with a

writedown, that borrower will be

provided the opportunity to choose

between restructuring with or without a

writedown.

(1) Consolidation and rescheduling of

OL and EO loans, EE operating-type

loans and EM loans made for subtitle B

purposes including EM loss loans. This

subsection explains how to consolidate

and/or reschedule existing loans,

providing the borrower agrees to such

actions. When the servicing official

determines that consolidation and/or

rescheduling will assist in the orderly

collection of the loan, the servicing

official should take such action

provided all of the following conditions

exist:

(i) The borrower meets the eligibility

requirements in paragraph (c) of this

section;

(ii) Such action is not taken to

circumvent the FLP graduation

requirements;

(iii) The borrower’s account is not

being serviced by the OGC or the U.S.

Attorney and there are no plans to have

the account serviced by either of these

offices in the near future;

(iv) Loans may be rescheduled or

reamortized, as appropriate, to bring the

account current or to keep the account

from becoming delinquent. A sufficient

number of notes including all

delinquent notes will be rescheduled to

permit the development of a feasible

plan of operation;

(v) The borrower will comply with the

highly Erodible Land and Wetland

Conservation provisions of exhibit M of

subpart G of part 1940 of this chapter,

if applicable;

(vi) Loans secured by real estate will

not be consolidated and/or rescheduled,

until the servicing official reviews the

Government’s real estate lien priority

and value of security and decides that

such an action will be in the best

interest of the Government and the

borrower. If there are any liens which

were not in existence at the time the

note was signed, the servicing official

will ask the OGC for an opinion as to

what lien position the Government will

have if a new note is taken unless a

State supplement authorizing this action

has been issued on this subject;

(vii) Only loans of the same type will

be consolidated;

(viii) EM actual loss loans will not be

consolidated;

(ix) Loans serviced under subpart L of

this part will not be consolidated with

another loan;

(x) Loans that have been deferred

under this section will not be

consolidated and/or rescheduled during

the deferral period;

(xi) Terms of consolidated and/or

rescheduled loans are as follows:
10126 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

(A) Consolidated and/or rescheduled

loans will be repaid according to the

borrower’s repayment ability, but will

not exceed 15 years from the date of the

consolidation and/or rescheduling

action, except:

(B) Repayment of loans solely for

recreation and/or nonfarm enterprise

purposes may not exceed seven years

from the date of the consolidation and/

or rescheduling action (the date the new

note is signed).

(C) Repayment of EE loans may not

exceed 15 years from the date of

rescheduling.

(xii) Interest rates of consolidated

and/or rescheduled loans will be as

follows:

(A) The interest rate for consolidated

and/or rescheduled loans will be the

lesser of the current interest rate for that

type of loan or the lowest original loan

note rate on any of the original notes

being consolidated and/or rescheduled.

In the case of an OL-limited resource

loan, it will be the lesser of the current

limited resource OL loan rate or the

original note rate. The interest rate for

loans rescheduled but not consolidated

will be the lesser of the current interest

rate for that type of loan or the original

loan note rate.

(B) At the time of the consolidation

and/or rescheduling action, OL loans

that were not assigned a limited

resource rate when the loan was

received, may be assigned a limited

resource rate if:

(1) The borrower meets the

requirements for the limited resource

interest rate, and

(2) A feasible plan cannot be

developed at regular interest rates and

maximum terms permitted in this

section.

(xiii) The original (old) note(s) will be

marked ‘‘Rescheduled’’ and stapled to

the new rescheduled promissory note

and will be filed in the operation file.

Copy(ies) for the borrower’s(s’) case file

should be marked and stapled the same

and filed in position 2 of the case file.

If a transfer is involved, assumption

agreement(s) will be marked and stapled

with the note(s) and copies filed as

indicated above. If part of a note is

written down, the written down note

will be marked ‘‘Rescheduled with Debt

Write Down,’’ and will be filed in the

operation file.

(xiv) For applications received before

November 28, 1990, the amount of

outstanding accrued interest more than

90 days overdue and any outstanding

protective advances, as defined in

§ 1965.11(b) of subpart A of part 1965 of

this chapter, made on the loan will be

added to the principal at the time of

consolidation and/or rescheduling (the

date the new note is signed by the

borrower). Protective advances are not

authorized for the payment of prior or

junior liens except real estate tax liens.

See section II E of exhibit J of this

subpart for an explanation of how to

schedule payment of interest not more

than 90 days overdue; and

(xv) For new applications, the amount

of outstanding accrued interest and any

outstanding protective advances, as

defined in § 1965.11(b) subpart A of part

1965 of this chapter, made on the loan

will be added to the principal at the

time of consolidation and/or

rescheduling (the date the new note is

signed by the borrower) in accordance

with the provisions of exhibit J–1 of this

subpart. Protective advances are not

authorized for the payment of prior or

junior liens except real estate tax liens.

(2) Reamortization of FO, SW, RL,

RHF, EE, or EM loans made for real

estate purposes. When the servicing

official determines that a reamortization

action will assist in the orderly

collection of the loan, the servicing

official should take such action,

provided:

(i) The borrower meets the eligibility

requirements of 1951.909(c) of this

subpart;

(ii) Such action is not taken to

circumvent the FLP graduation

requirements;

(iii) The borrower’s account is not

being serviced by the OGC or the U.S.

Attorney, and there are no plans to have

the account serviced by either of these

offices in the foreseeable future;

(iv) A feasible plan for the borrower

cannot be developed with the existing

repayment schedule. A sufficient

number of notes, including all

delinquent notes, will be reamortized to

permit the development of a feasible

plan of operation;

(v) The borrower will comply with the

Highly Erodible Land and Wetland

Conservation requirements of exhibit M

of subpart G of part 1940 of this chapter,

if applicable;

(vi) Loans that have been deferred in

this supbart will not be reamortized

during the deferral period unless the

deferral is cancelled;

(vii) Terms of repayment of

reamortized loans are as follows:

(A) Reamortized installments usually

will be scheduled for repayment within

the remaining time period of the note or

assumption agreement being

reamortized. If repayment terms are

extended, the new repayment period

may not exceed 40 years from the date

of the original note or assumption

agreement or the useful life of the

security, whichever is less. EE loans for

real estate purposes, which are secured

by chattels only, may be reamortized

over a period not to exceed 20 years

from the date of the original note or

assumption agreement, or the useful life

of the security, whichever is less. RHF

loans may not exceed 33 years from the

date of the original note or assumption

agreement.

(B) The Agency’s lien priority may be

affected if the final due date of the

original loan is extended. A State

supplement will be issued to provide

instructions on the effect that a change

in the final due date has on security

instruments and the actions necessary to

retain the Government’s lien priority.

The State supplement will also include

instructions for releasing the original

security instrument when a new one is

obtained.

(viii) Interest:

(A) The interest rate will be the

current interest rate in effect on the date

of reamortization (the date the new note

is signed by the borrower), or the

interest rate on the original Promissory

Note to be reamortized, whichever is

less. In the case of a limited resource

loan, it will be the limited resource FO

or SW loan rate or the original loan note

rate, whichever is less.

(B) At the time of the reamortization,

an FO or SW loan that was not assigned

a limited resource rate when the loan

was received, may be changed to a

limited resource interest rate if:

(1) The borrower meets the

requirements for a limited resource

interest rate,

(2) A feasible plan cannot be

developed at regular interest rates and at

the maximum terms permitted in this

section, and

(3) For SW loans, the loans funds

were used for soil and water

conservation and protection purposes as

set forth in § 1943.66 (a)(1) through

(a)(5) of subpart B of part 1943 of this

chapter.

(C) For applications received before

November 28, 1990, the amount of

accrued interest more than 90 days

overdue and any protective advances, as

defined in § 1965.11(b) of subpart A of

part 1965 of this chapter, charged to the

borrower’s account, will be added to the

principal at the time of the

reamortization action (the date the new

note is signed by the borrower).

Protective advances are not authorized

for the payment of prior or junior liens

except real estate tax liens. If there are

no deferred installments, the first

installment payment under the

reamortization will be at least equal to

the interest amount which will accrue

on the new principal between the date

the Form 1940–17 is processed and the

next installment due date. See section II
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10127

E of exhibit J of this subpart for an

explanation of how to schedule

payments of interest not more than 90

days overdue. For new applications, the

amount of outstanding accrued interest

and any outstanding protective

advances made on the loan will be

added to the principal at the time of

reamortization (the date the new note is

signed by the borrower) in accordance

with the provisions of exhibit J–1 of this

subpart.

(ix) The original (old) note(s) will be

marked ‘‘Reamortized’’ and will be

stapled to the new promissory note and

filed in the operational file. Copies for

the borrower(s) case file should be

marked and stapled the same and filed

in position 2 of the case file. If a transfer

is involved, assumption agreement(s)

will be marked and stapled with the

note(s) and copies filed as indicated

above. If a part of a note is written

down, the written down note will be

marked ‘‘Reamortized with Debt

Writedown’’ and will be filed as

indicated above in this paragraph.

(3) Deferral of existing OL, FO, SW,

RL, EM, EO, RHF, and EE loans.—(i)

Loan deferrals. Deferrals will be

considered only after it has been

determined that consolidation,

rescheduling, and reamortization, in

accordance with this subpart, will not

provide a feasible plan.

(ii) Conditions. In order to be

considered for a deferral, the borrower

must meet both of the following

conditions:

(A) The need for the deferral must be

temporary. To be temporary means that

the borrowers will be able to show to

the satisfaction of the servicing official

that they will be able to resume

payment on the debt by the end of the

deferral period, or the new payments, as

established by using consolidation,

rescheduling, or reamortization can be

resumed at the end of the deferral

period; and

(B) Continuation of loan payments as

presently scheduled without change,

will unduly impair the borrower’s

standard of living. An unduly impaired

standard of living is a condition

whereby the borrower, due to

circumstances beyond the borrower’s

control, is unable to pay essential family

living expenses (partnerships, joint

operators, corporations, and

cooperatives do not have family living

expenses), pay normal farm operating

expenses, including reasonable and

customary hired labor and/or salary

paid to the operator(s) of a partnership,

a joint operation, a corporation, or a

cooperative, maintain essential chattels

and real estate, and meet the scheduled

payments of all debts.

(iii) Approval offical determinations.

The approval official must:

(A) Determine that the borrower meets

the eligibility requirements of

§ 1951.909(c) of this subpart;

(B) Determine that a deferral of

payments is necessary and

appropriately document the conditions

causing the need for deferral;

(C) If a borrower owns 50 acres or

more of marginal land as defined in

exhibit G of this subpart and a feasible

plan cannot be developed after

consideration of a deferral, the servicing

official will inform the borrower about

the Softwood Timber (ST) loan program

authorized by exhibit G of this subpart

by sending Attachment 1 of exhibit G of

this subpart by certified mail, return

receipt requested, within 5 days after

the adverse deferral determination. If

the borrower requests the servicing

official to determine that an ST loan

may allow the borrower to continue to

farm, within 15 days of the borrower’s

receipt of attachment 1, the servicing

official will determine if the borrower is

eligible, based on criteria as set forth in

exhibit G of this subpart. If the borrower

is eligible the servicing official will help

the borrower to develop a plan to

determine if a feasible operation can be

developed utilizing this program. The

discussion will be documented in the

borrower’s case file.

(iv) Loan deferral considerations. The

servicing official will assist the

borrower in completing a typical-year

plan. If there is no typical year, the

servicing official will assist the

borrower with completing a plan of

operation for each year of the deferral.

The plans must be considered in

DALR$.

(A) A sufficient number of loans must

be considered for deferral to permit the

borrower to have a feasible plan.

(B) A deferral plan may include a

reorganization of the farming operation,

including the use of new enterprises, to

overcome existing financial, economic

or other limitations of the operation. If

the proposed restructuring requires

capital expenditures, a subordination or

additional loan will be considered.

Deferral of additional loan installments

beyond those needed to allow the

borrower to develop a feasible plan will

not be used to create additional cash

reserve for capital purchases. Such

purchases are not considered operating

expenses.

(C) A typical year during the deferral

period is a year which most closely

represents the borrower’s average

operation for the entire deferral period.

There may be no typical year for

farming or ranching operations

undergoing a major reorganization. If

there is no typical year, then it will be

necessary to develop a plan of operation

for each year of the deferral. The plans

must be considered in DALR$ to

determine if each plan is feasible.

(D) The deferral of loan installments

is not intended to create a high net cash

reserve where revenue substantially

exceeds expenses. If the deferral of a

complete note would cause a high net

cash reserve during the entire deferral

period, a full deferral should not be

granted. In such a case, a partial deferral

should be considered to obtain a

feasible plan of operation. The same

approach should be used for situations

in which there is no typical year and

debt payments must vary throughout the

deferral period.

(E) The borrower must have feasible

plans of operation to support any

deferral request. Plans of operation in

conjunction with loan deferrals must be

realistic and supported by the

borrower’s actual records.

(v) Additional and subsequent

deferrals. If, during the period of the

initial deferral, the borrower is unable to

make the scheduled payments, the

borrower may again request primary

loan service actions. When considering

primary servicing actions, existing

deferred notes must be entered into

DALR$ as if they had not been deferred.

If it is necessary to defer additional

loans to develop a feasible plan, such

action will be taken if the deferral will

result in a greater net recovery to the

Government than debt writedown.

Borrowers may obtain subsequent

deferrals after the deferral period

provided the conditions of this

subsection are met.

(vi) Term and interest rate. A deferral

period will not exceed five (5) annual

installments. Deferral interest rates will

be determined as specified in

paragraphs (e)(1)(xii) and (e)(2)(viii) of

this section.

(A) All loans being deferred will be

consolidated, rescheduled or

reamortized, as applicable. The

promissory note rescheduled,

reamortized or consolidated for the

deferral will show ‘‘zero’’ as the

installments due during the period of

the deferral if the whole note is deferred

and will not be changed during the

deferral period unless the conditions of

paragraph (e)(3)(v) of this section are

met. The servicing official will

determine the amount of interest that

will accrue during the deferred period.

This interest will be repaid in equal

amortized installments during the term

of the loan remaining after the deferral

period. The calculated installments will

be added to the remaining installments

for the remaining principal balance and
10128 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

inserted on the promissory note as a

scheduled installment for the remaining

period of the loan. The Finance Office

will apply the payments made on the

note in accordance with subpart A of

this part. For applications received

before November 28, 1990, the amount

of outstanding accrued interest more

than 90 days overdue and any

outstanding protective advances, as

described in § 1965.11(b) of subpart A of

part 1965 of this chapter, made on the

loan will be added to the principal at

the time of the deferral (the date the

new note is signed by the borrower).

Protective advances are not authorized

for the payment of prior or junior liens

except real estate taxes. See section II E

of exhibit J of this subpart for an

explanation of how to schedule

payment of interest not over 90 days

overdue. For new applications, the

amount of outstanding accrued interest

and any outstanding protective

advances made on the loan will be

added to the principal at the time of

deferral (the date the new note is signed

by the borrower).

(B) The field office will process the

deferral via the Automated Discrepancy

Processing System (ADPS).

(C) If a deferral is approved, the

borrower’s name and the date of

approval will be recorded and

maintained in accordance with subpart

A of part 1905 of this chapter. The

Finance Office will provide the county

office with a quarterly status report for

each borrower who has received a

deferral.

(D) Six months prior to the end of the

deferral period the servicing official will

notify the borrower in writing of the

expiration of the deferral and the

amount and date of the borrower’s first

upcoming installment of the debt.

(E) A deferral will be cancelled if the

loan is later restructured in accordance

with this subpart. The cancellation will

be processed via ADPS.

(vii) Increase in repayment ability. At

the time the servicing official makes the

analysis required by § 1924.60 of

subpart B of part 1924 of this chapter,

the servicing official will determine

whether the borrower has had an

increase in income and repayment

ability. If an income increase is

substantial enough to enable the

borrower to graduate, the case will be

handled in accordance with subpart F of

this part. If an increase would enable

the borrower to make some payments

during the deferral period, the servicing

official will, in writing, ask the borrower

to sign a Form 440–9, ‘‘Supplementary

Payment Agreement,’’ within 30 days of

the date of the written request. The

borrower will be provided appeal rights.

When doing the analysis to determine

whether there is a substantial increase

in income and repayment ability, the

servicing official will determine

whether this increase exists by

comparing it to the original plan

developed in the deferral application

and also to plans developed for the

current operating year to determine that

the excess income is not needed for

essential living and operating expenses

or scheduled debt payment. Refusal to

sign Form 440–9 will be considered a

non-monetary default and will be

handled as set forth in § 1951.907(e) of

this subpart. If the borrower signs Form

440–9 and later does not honor the

terms and conditions of the repayment

agreement, the borrower’s account will

be handled as set forth in § 1951.907 of

this subpart.

(4) Writedown. The following

conditions shall be met in order for a

borrower to receive writedown of FLP

debts:

(i) No other Primary Loan Service

programs, including deferral, nor any

combination thereof, will produce a

feasible plan that will permit the

borrower to continue the operation.

However, if DALR$ shows that a

borrower can develop a feasible plan

without a writedown at a lower cash

flow margin than with a writedown,

then the borrower will be provided the

opportunity to choose between

restructuring with or without a

writedown;

(ii) The borrower must never have

received debt forgiveness on another

direct loan at any time;

(iii) The amount written off may not

exceed $300,000.

(iv) A feasible plan must be developed

that will result in a present value of

loans to be repaid to the Government

which is equal to or more than a net

recovery from an involuntary

liquidation or foreclosure;

(v) The borrower must comply with

the Highly Erodible Land and Wetland

Conservation requirements of exibibit M

of subpart G of part 1940 of this chapter,

if applicable;

(vi) The borrower must agree to a

Shared Appreciation Agreement if the

loan is secured by real estate;

(vii) Loans written down with the

Primary Loan Servicing programs will

be rescheduled, reamortized, or deferred

in accordance with paragraph (e) of this

section; and

(viii) Borrower must agree to a lien on

certain assets as provided in 1951.910 of

this subpart, including nonessential

assets, where the net recovery value of

these assets was not paid to the Agency.

(The Agency’s lien will be taken only at

the time of closing the restructured

loans); and

(ix) Debt reduction received through

conservation easements or contracts will

not be counted toward the limitations in

paragraphs (e)(4) (ii) and (iii) of this

section.

(f) Determining value of net recovery

from involuntary liquidation. After

receipt of a complete application for

Primary and Preservation Loan Service

programs, the servicing official will

make the calculations required in this

section and notify the borrower of the

result. For New Applications,

nonessential assets will be considered

in accordance with § 1951.910(a) of this

subpart.

(1) The servicing official will use the

computer program, DALR$, to

determine the net recovery to the

Government equivalent to involuntary

liquidation of the collateral securing the

FLP debt in accordance with Exhibit J

or J–1 of this subpart, ‘‘Debt and Loan

Restructuring System,’’ as applicable,

and will follow the guidance provided

by State supplements and Exhibit I of

this subpart, ‘‘Guidelines for

Determining Adjustments for Net

Recovery Value of Collateral.’’ The

servicing official will determine the

current market value of the collateral in

the borrower’s possession including

tangible property in existence and of

record in accordance with subpart E of

part 1922 of this chapter for real estate

property, and on Form 440–21,

‘‘Appraisal of Chattel Property.’’ The

servicing official also will determine the

current market value of any bank

accounts, stocks and bonds, certificates

of deposit and the like pledged to and/

or in the possession of the Agency.

Collateral may include real estate,

chattels, tangible property and property

such as bank accounts, stocks and

bonds, certificates of deposit, and the

like. Chattels include machinery,

equipment, livestock, growing crops,

and crops in storage. Tangible property

may include accounts receivable

(including Government payments),

inventories, supplies, feed, etc. From

the current market value of the

collateral in the borrower’s possession,

or pledged to and/or in the possession

of the Agency (in the case of bank

accounts, stock and bonds, certificates

of deposit, and the like), the following

adjustments will be made:

(i) Subtract the amount which would

be required to pay prior liens on the

collateral;

(ii) Subtract taxes and assessments,

depreciation, management costs, and

interest cost to the Government based

on the 90-day Treasury Bills (published

in a National Office issuance). Taxes
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10129

and assessments, depreciation,

management costs, as well as interest

costs will be calculated on the current

market value of the property for the

average inventory holding period. The

holding period for suitable inventory

farm property will be established by

each State as of July 1 each year using

Report Code 597. The months that the

suitable property is under lease will not

be included in determining the average

holding period for purposes of this

subpart;

(iii) Adjust the current market value

for estimated increases or decreases in

value of the property for the holding

period specified in paragraph (f)(1)(ii) of

this section;

(iv) Subtract resale expenses, such as

repairs, commissions, and advertising;

(v) Other administrative and

attorney’s expenses;

(vi) Add income which will be

received after acquisition; and

(vii) For a borrower who submits a

‘‘new application’’ as defined in

§ 1951.906 of this subpart, add the value

of any collateral that is not in the

borrower’s possession and that has not

been approved on the Form 1962–1 or

released in writing by the Agency,

minus the value of any prior

lienholder’s interest. Collateral not in

possession of the borrower is defined as

any property specified in any agency

security instruments for such borrower’s

FLP debt that the borrower has disposed

of and that the Agency has not approved

or released in writing. The value of

normal income security not in

possession of the borrower will not be

added to the NRV if it could be postapproved for release in accordance with

§ 1962.17 of subpart A of part 1962. The

value of any collateral that is not in the

possession of the borrower will be

determined by the servicing official

based upon the best information

available about the value of the

collateral on or about the time of its

disposition. In determining the value of

such property, the Agency will use such

sources as the publications Hotline

(Farm Equipment Guide) and Official

Guide (Tractor and Farm Equipment),

sale prices at local public auctions,

public livestock sale barn prices,

comparable real estate sales, etc. Agency

appraisal forms will be used to record

the value of the missing collateral and

the basis for the valuation.

(2) The State Executive Director will

determine costs of involuntary

liquidation of collateral for farm loans

by analyzing the costs of involuntary

liquidation within the geographic areas

of their jurisdiction. The State Executive

Director also will issue a State

supplement of estimated costs and

average holding time to be used as

guidelines by servicing officials in

making calculations of net recovery

value under this subsection. Such cost

analyses will be carried out in July of

each year. The State Executive Director

will consult with State Executive

Directors of adjoining States, other

lenders, real estate agents, auctioneers,

and others in the community to gather

and analyze the information specified in

this subpart.

(g) Determining net recovery value

resulting from primary servicing. The

value of the restructured debt will be

based on the present value of payments

the borrower would make to the Agency

using any combination of primary loan

service programs that will provide a

feasible plan. Present value is a

calculation concept which assigns a

lower current value to dollars received

in later years than to dollars received at

the present time. Servicing officials will

use a discount rate based on 90-day

Treasury Bills as of the date the

borrower files the application for

restructuring. The National Office will

publish the 90-day Treasury Bill rate in

a National Office issuance.

(h) Notification requirements. In those

instances where the applicable notice is

sent certified mail, and the certified

mail is not accepted by the borrower,

the servicing official will immediately

send the documents from the certified

mail package to the borrower’s last

known address, first class mail. The

appropriate response time will

commence 3 days following the date of

mailing.

(1) Offer. If the calculations show that

the value of the restructured debt is

greater than or equal to the NRV as

determined in paragraph (f) of this

section, the servicing official will

forward to the State Executive Director

the borrower’s Farm and Home Plan and

the original printout of the DALR$

calculations. The servicing official will

certify that the borrower meets all

requirements for debt restructuring with

the writedown amount specified on the

printout. The State Executive Director’s

authorization to the servicing official to

proceed with the writedown will be

evidenced by the State Executive

Director’s signature affixed to the

original copy of the DALR$ printout

returned to the servicing official. Within

60 days after receiving a complete

application, the servicing official will

notify the borrower of the results of the

calculations by sending Exhibit F of this

subpart, certified mail, return receipt

requested, and offer to restructure the

debt. A printout of the DALR$

calculations will be attached to Exhibit

F of this subpart.

(i) Exhibit F of this subpart will

inform the borrower(s) of the Agency’s

offer to restructure the debt, the right to

request a copy of the agency’s appraisal,

and other options which may include

payment of nonessential assets and

negotiation of the appraisal. If the

borrower accepts the offer within 45

days following any appeal, the servicing

official will restructure the debt within

45 days after receipt of the written

notice of the borrower’s acceptance.

(ii) If the borrower does not respond

to exhibit F within 45 days, or declines

the Agency’s offer to restructure the

debt without requesting an appeal or

negotiation, the servicing official will

send attachments 9 and 10, or 9–A and

10–A of exhibit A of this subpart, as

applicable. If the borrower requests an

appeal and the Agency is upheld,

attachments 9–A and 10–A will not be

sent until the borrower is given the

opportunity to accept the original offer

within 45 days following the final

appeal decision. These borrowers will

not have an additional opportunity to

appeal the offer in attachments 9–A and

10–A. If attachment 10 or 10–A is not

returned within 30 days of the

borrower’s receipt of the attachments,

the account will be accelerated or

foreclosed in accordance with § 1955.15

of subpart A of part 1955 of this chapter.

(iii) If the borrower submitted a new

application and requests a negotiated

appraisal within 30 days of receiving

exhibit F, the negotiation of the

appraisal will be completed in

accordance with paragraph (i) of this

section.

(A) After completing a negotiation of

the appraisal, if the debt can be

restructured, the servicing official will

send exhibit F to the borrower making

the new offer in accordance with

paragraph (h)(1)(i) of this section.

(B) If the negotiated appraisal changes

the DALR$ calculations so that the debt

cannot be restructured, the borrower

will be sent exhibit E, ‘‘Notification of

Adverse Decision for Primary Loan

Servicing, Mediation or Meeting of

Creditors and Other Options,’’ in

accordance with paragraph (h)(3) of this

section. The appraisal cannot be

negotiated again and is not subject to

appeal.

(2) Conservation contracts. If the

borrower returned attachment 2 or 4 to

Exhibit A of this subpart within 60 days,

requesting a conservation contract by

submitting a map or aerial photo

showing the portion of the farm and

approximate acres to be considered in

the request, the servicing official will

proceed with processing the request for

debt relief as set forth in Exhibit H of

this subpart. Borrowers who did not
10130 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

previously ask for this option can make

a request for the contract at this time by

submitting a map or copy of an aerial

photo indicating that portion of the farm

and appropriate acres to be considered.

Borrowers must submit the photo

within 30 days of receiving Exhibit E of

this subpart.

(3) Mediation/voluntary meeting of

creditors. If the DALR$ calculations

indicate a feasible plan of operation

cannot be developed considering all

Primary Loan Service Programs,

Softwood Timber, or Conservation

Contracts, the servicing official will take

the following actions within 15 days

from the date of the determination that

the borrower’s debt cannot be

restructured as requested:

(i) Exhibit E, ‘‘Notification of Adverse

Decision for Primary Loan Servicing,

Mediation or Meeting of Creditors and

Other Options,’’ of this subpart will be

sent to the borrower in all cases by

certified mail, return receipt requested.

A printout of the DALR$ calculations

will be attached to exhibit E of this

subpart.

(A) When the borrower is in a State

with a USDA Certified Mediation

Program, paragraph I in exhibit E will be

used. Paragraph I tells the borrower that

the Agency is requesting mediation with

the borrower’s creditors in an effort to

obtain debt adjustment which would

permit the development of a feasible

plan of operation. If the borrower

submitted a new application, the

borrower must respond to exhibit E of

this subpart if the borrower wants to

negotiate the Agency’s appraisal in

accordance with paragraph (i) of this

section. The borrower may request a

copy of the Agency’s appraisal. The

Agency must participate in USDA

Certified Mediation Programs whether

or not the borrower responds to exhibit

E of this subpart. Any negotiation of the

appraisal must be completed prior to

any mediation.

(B) In States without a certified

mediation program, exhibit E of this

subpart will be sent by certified mail,

return receipt requested, to inform the

borrower about the applicable options

which may include a request for a copy

of the Agency’s appraisal, a meeting of

creditors, payment of nonessential

assets, negotiation of the appraisal and

a request for an independent appraisal.

Paragraph I of exhibit E of this subpart

will be deleted. The purpose of the

voluntary meeting of creditors is to

develop a feasible plan. Paragraph II of

exhibit E of this subpart, therefore, will

be used to offer a voluntary meeting of

creditors when the borrower has

undersecured creditors who hold a

substantial part of the borrower’s total

debt. A ‘‘substantial part of the

borrower’s total debt’’ means that the

debt of the undersecured creditors is

large enough so that if it were written

down to zero, a feasible plan could be

developed considering all primary

servicing options. The servicing official

will document such determination in

the case file, and the servicing official

will not offer to carry out a voluntary

meeting of creditors when the

undersecured debt is not a substantial

part of the borrower’s total debt. Such

borrower will be informed later of

additional rights, including appeal

rights, when the Agency sends

attachments 5 and 6, or attachments 5–

A and 6–A, of exhibit A of this subpart.

Any appeal may challenge the Agency’s

determination not to offer a voluntary

meeting of creditors because the

undersecured debt is not a substantial

part of the borrower’s total debt.

(C) Any negotiation of the Agency’s

appraisal must be completed prior to the

meeting of creditors or mediation. If the

borrower does not request any of the

options offered in exhibit E of this

subpart within 45 days, the servicing

official will send attachments 5 and 6,

or 5–A and 6–A of exhibit A of this

subpart, as applicable, certified mail,

return receipt requested.

(ii) If mediation or the voluntary

meeting of creditors is held but is not

successful, the borrower will be sent

attachments 5 and 6, or 5–A and 6–A,

of exhibit A of this subpart, as

applicable, certified mail, return receipt

requested, within 15 days of the

unsuccessful mediation or meeting. The

DALR$ computer printout will be

attached to attachment 5 or 5–A of

exhibit A of this subpart.

(4) Buyout of loans. The following

notification and processing provisions

also apply to buyout as offered in

Attachments 5 and 5–A of Exhibit A of

this subpart. After July 3, 1996, buyout

will be at the Current Market Value

(CMV) of the security.

(i) Eligible borrowers will have 90

days after the receipt of the notification

of ineligibility for Primary Loan Service

programs to buy out their loans at

Current Market Value, or the balance of

their unpaid FLP debt, whichever is

lower.

(ii) The present value of the

restructured loan must be less than the

net recovery value to receive buyout.

(iii) The Agency will not provide

direct or guaranteed credit for a buyout.

(iv) The borrower must never have

received debt forgiveness on another

direct loan. (Applies if any debt will be

written off.)

(v) The amount written off may not

exceed $300,000.

(vi) The borrower must have acted in

good faith.

(vii) Debt reduction received through

conservation easements or contracts will

not be counted toward the limitations in

paragraphs (h)(4) (iv) and (v) of this

section.

(viii) The mortgage or deed of trust

will be released in accordance with

paragraph (k) of this section.

(ix) The State Executive Director must

approve the buyout prior to offering

buyout to the borrower if the Agency

will be writing off any debt.

(i) Administrative appeals and

negotiation of appraisals.—(1) Appeals.

The time limit to pay the current market

value of the security, as set out in

paragraph (h)(4) of this section, will

start on the day the borrower receives

the final appeal or review decision

upholding the initial decision. The

borrower will have conclusively

presumed to have received that decision

within 3 days of mailing.

(2) Appeal process. (i) If the

administrative appeal process results in

a determination that the borrower is

eligible for Primary Loan Servicing, the

servicing official will process the

request pursuant to § 1951.909 of this

subpart. The information used will be

that which the appeal officer used in

making the decision on the appeal,

unless stated otherwise in the final

appeal decision letter. In cases of debt

restructure resulting from appeals, the

interest rate will be the lesser of the

current rate or the original note rate on

the date of the closing of the transaction.

If implementation of the appeal decision

would cause writedown or writeoff of

more than $300,000 because of interest

accrued after the adverse decision, the

servicing official will process the action

so as to complete the transaction.

(ii) If the administrative appeal

process results in a determination that

the borrower is ineligible for Primary

Loan Servicing, the servicing official

will send Exhibit K and Attachment 1

of this subpart and continue processing

any application for debt settlement that

may have been submitted in accordance

with subpart B of part 1956 of this

chapter. If the borrower does not return

Attachment 1 of Exhibit K within 15

days of the date that it is sent, the

servicing official will continue to

process the application for Preservation

Loan Servicing and any debt settlement.

The account will not be accelerated or

foreclosure will not continue until the

borrower has the opportunity to appeal

any denial of the Preservation Loan

Servicing and any Debt Settlement

request. If the borrower returns

Attachment 1 of Exhibit K within 15
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10131

days of its mailing, the account will be

accelerated.

(3) Appraisal appeals. (i) Borrowers

appealing the current market appraisal

completed by the Agency may obtain an

appraisal by an independent appraiser

selected from a list of at least three

names provided by the servicing

official. A borrower who submitted a

new application may appeal the

Agency’s appraisal, if it has not

previously been negotiated under

paragraph (i)(4) of this section, and the

denial of other issues of Primary Loan

Service programs in which the

appraisal, as part of the NRV

calculation, is relevant. The cost of the

independent appraisal must be paid by

the borrower. The borrower will, upon

request, have access to the case file and

receive a copy of the Agency’s appraisal.

The independent appraiser must be a

State certified general appraiser.

(ii) The appraisal report must conform

to subpart E of part 1922 of this chapter

for real estate and Form 440–21 for

chattels.

(iii) If either the servicing official or

the borrower discovers any

mathematical or property description

errors in the appraisal prior to or at the

time of the review and comparison,

necessary corrections may be made if

both parties agree. The party

discovering the error must contact the

other for a meeting to approve the

corrections.

(iv) If the Agency’s appraisal and the

borrower’s independent appraisal vary

in value by five percent or less, the

borrower will select the appraisal to be

used for servicing under this subpart.

(4) Negotiation of appraisals. A

borrower who submits a new

application may request to negotiate the

appraisal one time only. Negotiation of

appraisals is offered in Exhibits E and

F of this subpart, as discussed in

paragraph (h) of this section. All

appraisals used in the negotiations must

reflect the value of the property as of the

same time frame as the Agency’s initial

appraisal. Errors will be handled in

accordance with paragraph (i)(3)(iii) of

this section.

(i) The borrower can request the list

of independent appraisers from the

servicing official on Attachment 2 of

Exhibits E and F of this subpart. The

borrower must provide the servicing

official with a copy of his or her

independent appraisal within 30 days of

requesting negotiation. The borrower

must pay for this independent appraisal.

The borrower’s independent appraiser

and appraisal report must meet the

qualifications described in paragraph

(i)(3)(ii) of this section, but the

independent appraiser need not be on

the Agency’s list of qualified appraisers.

If the Agency’s appraisal and the

borrower’s independent appraisal vary

in value by five percent or less, the

borrower will select the appraisal to be

used for servicing under this subpart.

No further negotiation will occur.

(ii) If the two appraisals differ by

more than five percent, the servicing

official will give the borrower a list of

qualified, independent appraisers. The

borrower will select one appraiser from

the Agency’s list to conduct a third

appraisal. The appraiser cannot have

conducted either the Agency’s or the

borrower’s independent appraisal, and

must meet the qualifications set out in

paragraph (i)(3) of this section. The

borrower, the appraiser and the

servicing official will complete and sign

the Appraisal Agreement (Attachment 3

of Exhibit F of this subpart). The

appraiser will be sent a copy of the

appraisal standards, subpart E of part

1922 of this chapter, for real estate and

Form 440–21 for chattels. The borrower

will submit to the servicing official the

original or a copy of the third appraisal

and its attachments and the appraiser’s

bill. The Agency will pay 50 percent of

the cost. The borrower is responsible for

paying the appraiser directly the

remaining 50 percent of the cost.

(iii) Following the completion of the

third appraisal, the three appraisals will

be compared by the servicing official,

who will average the two that are the

closest in value. The average of the two

closest in value will become the final

appraised value. Errors will be handled

in accordance with paragraph (i)(3)(iii)

of this section.

(j) Processing of writedown. Borrowers

who are eligible for Primary Loan

Service Programs with writedown will

have their loans rescheduled or

reamortized in accordance with this

subpart. All loan servicing actions

approved in connection with the

writedown must take place

simultaneously. The borrower and

servicing official will complete exhibit

D to this subpart, ‘‘Shared Appreciation

Agreement.’’ Exhibit D provides for

recapture as specified in 1951.914 of

this subpart of a portion of any

appreciation in the value of the real

property securing the debt remaining

after the writedown. The DALR$

computer program will be used to

determine the notes to be written down.

(1) A separate Form 1940–17,

‘‘Promissory Note,’’ will be used for

each note or assumption agreement

being reamortized.

(2) A Form 1940–17 will be

completed, signed, and distributed as

provided in the FMI.

(3) The loan servicing action date of

approval is also the date that will be

inserted on the rescheduled or

reamortized Form 1940–17 in

accordance with the provisions in the

ADPS manual when establishing an

equity record.

(4) A Form 1940–17 may be processed

provided the County Office has

possession of the original note being

reamortized. If the County Office does

not have possession of the original note,

the servicing official will ask the

Finance Office to return the original

note so that it is in the County Office

before Form 1940–17 is processed.

(5) The field office will process the

reamortization or consolidation via the

Automated Discrepancy Processing

System (ADPS) in accordance with

Form 1940–17, and complete exhibit D

of this subpart.

(6) The original (old) note(s) will be

marked ‘‘Rescheduled or Reamortized

with Writedown of Debt’’ and stapled to

the new rescheduled or reamortized

promissory note(s) and will be filed in

the promissory note file in the operation

file. Copies for the borrower(s) case file

should be marked and stapled the same

and filed in position 2 of the case file.

If a transfer is involved, assumption

agreement(s) will be marked and stapled

with the note(s) and copies will be filed

as indicated above.

(7) A lien will be taken on assets in

accordance with § 1951.910 of this

subpart.

(k) Real estate liens. The Agency’s

real estate liens will be maintained even

if the writedown of the borrower’s real

estate debt results in all real estate debts

to the Agency being written down. The

Agency’s real estate lien will not be

subordinated to increase the amount of

the prior liens during the shared

appreciation period. Shared

appreciation agreements will be

serviced in accordance with § 1951.914

of this subpart. Upon payment by the

borrower of current market value in a

buyout, the original mortgage or deed of

trust will be released on real estate for

the FLP loans bought out. The notes will

be marked ‘‘Satisfied at Current Market

Value’’ and returned to the debtor or the

debtor’s legal representative. Existing

net recovery buyout recapture

agreements will be serviced in

accordance with § 1951.913 of this

subpart.

(l) Non-real estate liens. If a

borrower’s FLP loan(s) were not secured

by real estate, there will be no recapture

and the borrower will not be required to

enter into a recapture agreement. Upon

payment by the borrower of the current

market value in a buyout, the original

security instruments will be released on
10132 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

chattel security for the FLP loans bought

out. These notes will be marked

‘‘Satisfied at Current Market Value’’ and

returned to the debtor or the debtor’s

legal representative.

(m) Notes. Notes evidencing real

estate debts written down in full or

written off as a result of Primary

Servicing will be returned to the debtor

at the end of any recapture period. If

there is no recapture period, the notes

will be returned when the County Office

verifies that the transaction has been

recorded in the Finance Office. For a

market value buyout, the original and

copies of the notes will be marked

‘‘Satisfied by Approved Current Market

Value Buyout.’’ For writedown in full,

the original and copies of the notes will

be marked ‘‘Satisfied by Approved Debt

Writedown.’’ If a note is only partially

written-down, it will be returned to the

debtor when paid in full. The original

and copies of such notes will be marked

‘‘Satisfied by Approved Partial

Writedown.’’ Original chattel security

notes will be marked ‘‘Satisfied at

Current Market Value’’ and released to

the debtor upon payment of their

current market value in a buyout.

15. Section 1951.910 is revised to read

as follows:

§ 1951.910 Consideration of borrower’s

other assets for new applications.

If a delinquent borrower has other

assets that are not serving as collateral

for the FLP debt, the servicing official

will determine whether these assets are

nonessential, as defined in § 1951.906 of

this subpart.

(a) Nonessential assets. The net

recovery value (NRV) of nonessential

assets must be considered when the

borrower’s application is processed for

loan servicing in accordance with this

subpart. The Agency will not write

down or write off any debt or portion of

a debt that could be paid by liquidation

of nonessential assets, or by payment of

the loan value of the assets that could

be received from non-Agency sources.

The loan value of the assets will be

considered as the same as the NRV of

the assets.

(1) Determining the value of

nonessential assets. The NRV of the

nonessential assets is the market value

less any prior liens and any selling costs

which may include such items as taxes

due, commissions and advertising costs.

The determination of NRV of

nonessential assets does not include a

deduction for carrying the property in

inventory. The market value of the

nonessential assets must be estimated

by a current appraisal in accordance

with subpart E of part 1922 of this

chapter for real estate property, and on

Form 440–21, ‘‘Appraisal of Chattel

Property,’’ for chattels. Borrowers who

disagree with the Agency’s appraisal

may request a negotiated appraisal or

appeal in accordance with § 1951.909(i)

of this subpart.

(2) Eligibility. If the NRV of the

nonessential assets is sufficient to bring

the delinquent FLP account current, the

borrower is not eligible for primary loan

servicing including buyout in

accordance with this subpart. The

borrower, instead, will be sent

attachments 5–A and 6–A of exhibit A

of this subpart. The servicing official

will indicate the values of both the NRV

of nonessential assets and the FLP

security on attachment 5–A. The

borrower’s nonessential assets and their

NRVs also will be listed on attachment

5–A. The borrower will have 90 days to

bring the FLP account current from the

date of the receipt of attachments 5–A

and 6–A. If the borrower does not pay

current within this time period, the

account will be accelerated after all

appeal rights have been exhausted. If

the NRV of the nonessential assets is not

sufficient to bring the FLP account

current, then the nonessential assets

will be considered as set out in

paragraph (a)(3) of this section.

(3) Inclusion in NRV. If the NRV of

the nonessential assets is not sufficient

to bring the FLP account current, then

the servicing official will add the NRV

of these assets to the NRV of the FLP

collateral according to § 1951.909(f) of

this subpart. The servicing official will

encourage, but not require the borrower

to liquidate those nonessential assets

and apply the proceeds to his/her

outstanding debts. If the borrower

liquidates the nonessential assets, or

obtains a loan against the equity in such

assets, and pays the Agency the NRV of

the nonessential assets within 45 days

of receiving exhibit E or F of this

subpart, as appropriate, the payment

will be subtracted from the FLP debt

and then the servicing official will

recalculate the debt restructuring

without considering the NRV of the

nonessential assets. If the borrower does

not sell these assets, the servicing

official will include their NRV in

calculating the debt restructuring and

take a lien on the assets at the time of

closing the restructured loan.

(b) Lien on certain assets. Delinquent

borrowers must pledge certain assets,

essential and nonessential,

unencumbered to the Agency as security

at the time FLP loans are restructured,

as follows:

(1) The best lien obtainable will be

taken on all assets owned by the

borrower. When the borrower is an

entity, the best lien obtainable will be

taken on all assets owned by the entity,

and all assets owned by all members of

the entity. Different lien positions on

real estate are considered separate and

identifiable collateral.

(2) Security will include, but is not

limited to, the following: land,

buildings, structures, fixtures,

machinery, equipment, livestock,

livestock products, growing crops,

stored crops, inventory, supplies,

accounts receivable, certain cash or

special cash collateral accounts,

marketable securities, certificates of

ownership of precious metals, and cash

surrender value of life insurance.

(3) Security will also include

assignments of leases or leasehold

interests having mortgageable value,

revenues, royalties from mineral rights,

patents and copyrights, and pledges of

security by third parties.

(4) The exceptions set forth in

§ 1941.19(c) of subpart A of part 1941 of

this chapter apply.

(5) These assets will be considered as

additional security for the loans as well

as any shared appreciation agreement.

The value of the essential assets will not

be included in the NRV calculation to

determine restructuring. The Agency’s

lien will be taken only at the time of

closing the restructured FLP loans.

16. Section 1951.911 is revised to read

as follows:

§ 1951.911 Homestead protection.

(a) General. If the Agency has only

chattel property as security,

preservation servicing will not be

offered. Borrowers who submitted a

complete application prior to April 4,

1996 will be considered for leaseback/

buyback in accordance with the

previous CFR volume containing

revisions as of January 1, 1996 and

Agency procedures, (available in any

county office.) Inventory property

which is located within the boundaries

of an Indian reservation of a Federally

recognized Indian Tribe and the

previous owner is a member of the

Indian Tribe that has jurisdiction over

that reservation should be handled in

accordance with § 1955.66(d) of subpart

A of part 1955 of this chapter.

(b) Homestead protection. Borrowers

and former borrowers who had or have

an FLP loan secured by the real property

containing the dwelling owned by them

and used as their principal residence

may apply for homestead protection

before or after the Agency acquires the

property. Real property that is in

inventory as of the effective date of the

statute or is acquired in the future will

be considered for homestead protection

as set forth in this subpart.
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10133

(1) Purpose. The purpose of the

Homestead Protection Program is to

permit borrowers or former borrowers to

retain their dwellings through a lease or

purchase. Such lease or purchase could

permit these individuals to have a home

and providing an opportunity to

continue to farm.

(2) Notification and processing. If a

feasible plan for restructuring debt

cannot be developed using Primary

Loan Service programs, the borrower

will be advised by the use of Exhibit K

with Attachment 1 of this subpart that

the Agency will continue with the

processing of Preservation Service

programs, if applicable. A borrower who

desires homstead protection must

request it in accordance with

§ 1951.907. A borrower who meets the

eligibility requirements of paragraph

(b)(3) of this section will be permitted

to retain possession of the homestead, in

accordance with paragraph (b)(2)(ii) of

this section, before title is acquired or

under a lease with an option to

purchase after title is acquired.

(i) Determining homestead protection

property. (A) The homestead protection

property will include the borrower’s

principal residence and not more than

10 acres of adjoining land that is used

to maintain the borrower’s family and a

reasonable number of farm service

buildings located on land adjoining the

residence which are useful to the

occupants of the dwelling.

(B) The servicing official will review

the proposed homestead protection

property. If the servicing official does

not agree with the proposed shape or

size of the property, an alternate

configuration will be negotiated with

the borrower.

(C) If the borrower and the servicing

official cannot agree on the proposed

shape and size of the property, the

servicing official will make the

determination.

(D) When the size and shape of the

property is agreed upon and the

borrower has been found eligible, the

servicing official will request a licensed

surveyor to survey the property, have a

legal description prepared, and mark the

property lines with permanent type

markers.

(E) Appraisals will be completed in

accordance with paragraphs (b)(6) and

(b)(7)(ii)(B) of this section.

(ii) Processing homestead protection

before the Agency acquires title. (A) A

borrower will be considered for

homestead protection when it is

determined that the Primary Loan

Service programs cannot resolve the

delinquency. To process an application,

the borrower must indicate the

buildings and land to be included in the

request for homestead protection. If

determined eligible for homestead

protection, the borrower and the

servicing official will enter into a

Homestead Protection Program

Agreement (Exhibit L of this subpart) to

lease the property if and when the

Agency acquires title. A copy of Form

1955–20, ‘‘Lease of Real Property,’’ will

be attached to the agreement as an

exhibit.

(B) Concurrently with the execution

of the preacquisition Homestead

Protection Program Agreement, the

borrower will deliver a completed Form

RD 1955–1 to the Agency. The

Agreement is subject to the provisions

of subpart A of part 1955 of this chapter.

If the Agency acquires title during the

processing of a preacquisition

Homestead Protection Agreement,

processing of the agreement will be

terminated and the owner will be given

homestead protection rights pursuant to

paragraph (b)(2)(iii) of this section.

(C) The Agency’s obligation to lease

the dwelling to the borrower will be

contingent on the Agency’s prior

compliance with all State and local

laws, ordinances and regulations

governing the subdivision of land. If the

Agency cannot satisfy the conditions

within 2 years from the date of the

agreement, the agreement (and the

Agency’s obligation to lease with option

to purchase) will terminate. If an

agreement has been entered into, but

title to the property has not been

conveyed to the Agency (or acquisition

has been determined not to be in its

financial interest), the Agency will

continue with acceleration and

foreclosure of the property. It is not the

intent of the 2-year term of the

agreement to limit the Agency’s ability

to foreclose on the property, provided

that all the terms have been met except

that title has not been conveyed.

(iii) Application for homestead

protection when the Agency acquires

title. When the Agency acquires title to

the farm property, the borrower will be

sent Exhibit M of this subpart, by

certified mail, return receipt requested,

no later than the date of acquisition. The

borrower must request homestead

protection by notifying the servicing

official in writing not later than 30 days

after the date of acquisition and must

provide the information set forth in

§ 1951.907(e) of this subpart and

indicate the buildings and land to be

included in the request.

(iv) Lease with option. A lease with an

option to purchase will be entered into

with an eligible borrower on Form

1955–20 after the Agency acquires title

to the property. Form 1955–20 will be

completed in accordance with

§ 1951.911 (b)(8) of this subpart.

(3) Eligibility. The servicing official

will make the determination on

eligibility. To qualify for homestead

protection, the borrower must meet the

following requirements:

(i) An applicant must be an individual

who is or was personally liable for the

Farm Loan Programs (FLP) loan that was

secured in part by the Homestead

Protection property, or, if a nonborrower pledged the property to secure

the FLP loan, the owner of the property.

In either case, the applicant must be or

have been the owner of the Homestead

Protection property. A member of an

entity who is or was personally liable

for a loan that is or was secured by the

Homestead protection property is

considered an owner for homestead

protection purposes, so long as either

the member of the entity or the entity

itself held fee title to the property.

(ii) When more than one member of

an entity was personally liable for an

FLP loan, each such member who

possessed and occupied a separate

dwelling as his or her principal

residence, on property that is or was

security for the loan may apply

separately for homestead protection of

their individual dwellings;

(iii) The applicant and any spouse

must have received, from the farming or

ranching operations, gross farm income

reasonably commensurate with the size

and location of the farm and reasonably

commensurate with local agricultural

conditions (including natural and

economic conditions) in at least 2

calendar years during the 6-year period

preceding the calendar year in which

the application is made. Farms used for

comparison purposes must be of similar

size, type of operation and locality. For

the purposes of §§ 1951.911(b)(3) (iii)

and (iv) of this subpart, income from

farming or ranching operations will

include rent paid by a lessee of

agricultural land during any period in

which the borrower, due to

circumstances beyond his or her

control, such as economic, natural

disaster or health problems, was unable

to actively farm that property. The

borrower’s records will be used in

determining whether the gross farm

income was reasonably commensurate

with the farm size and location and

local agricultural conditions. When

applying for homestead protection, the

borrower will give the servicing official

at least 2 calendar years of records of

planned and actual gross farm income

for the 6-year period preceding the

calendar year in which the application

is made. If such records do not exist,

they may be developed by the applicant
10134 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

and servicing official from information

relating to yields, expenses and prices

found in the borrower’s county office

case file, agency records, or other

reliable sources;

(iv) The applicant and any spouse

must have received, from the farming or

ranching operations, at least 60 percent

of their gross annual income in at least

2 of the 6 calendar years preceding the

calendar year in which the application

is made;

(v) The applicant must have

continuously occupied the homestead

protection property during the 6-year

period preceding the calendar year in

which the application is made, unless it

was necessary to leave for a period of

time not to exceed 12 months during the

6-year period due to circumstances

beyond the borrower’s control, such as

illness, employment, or conditions that

made the dwelling uninhabitable; and

(vi) The applicant must have

sufficient income to make rental

payments for the term of the lease and

the ability to maintain the property in

good condition, and must agree to all

the terms and conditions set forth in

paragraph (b)(7) of this section and in

Form 1955–20.

(4) Transfer of homestead protection.

An applicant’s right to request

homestead protection and rights under

the Agreement or lease entered into

pursuant to this section are not

transferable or assignable by the

applicant or by operation of law, except

that, in the case of death or

incompetency of the applicant, such

rights and agreements shall be

transferable to the spouse upon

agreement to comply with the terms and

conditions of the lease.

(5) Property requirements. (i) The

proposed homestead protection

property tract must meet all

requirements for the division into a

separate legal lot as required by State

and local laws. All environmental

considerations required under subpart G

of part 1940 of this chapter will be

complied with.

(ii) Costs for a survey, legal

description or other service needed to

establish, appraise, define or describe

the homestead protection property as a

separate tract, will be paid for by the

Agency. No repairs or improvements

will be paid for by the Agency except

as provided for in § 1955.64 (a) of

subpart A of part 1955 of this chapter.

(iii) If necessary, the Agency will

grant or retain for the benefit of

adjoining property reasonable

easements for ingress, egress, utilities,

water rights, etc.

(6) Appraisal. The current market

value of the homestead protection

property shall be determined by an

independent appraisal made within 6

months from the date of the borrower’s

application for homestead protection.

The applicant will select an

independent real estate appraiser from a

list of appraisers approved by the

servicing official. The cost of such an

appraisal will be handled in accordance

with paragraph (b)(5)(ii) of this section.

(7) Terms of the lease and exercising

the option. (i) All leases will have an

option to purchase. Any reference to a

lease for homestead protection purposes

will mean a lease with an option to

purchase. The lease will be offered with

an option to purchase on Form 1955–20

and will be for a period of not more than

5 years as requested by the applicant. A

lease of less than 5 years may be

extended, but not beyond 5 years from

the date of the beginning of the term of

the original lease.

(A) The amount of the rent will be

based upon equivalent rents charged for

similar residential properties in the area

in which the dwelling is located.

(B) Lease payments will be retained

by the Government.

(C) Failure to make lease payments as

scheduled or to maintain the property in

good condition shall constitute cause for

the termination of all rights of the lessee

to possession and occupancy of the

dwelling and property under this

section. If a lease default is not cured

within 30 days of notice, the servicing

official will notify the lessee in writing

of the termination of the lease and

option.

(D) Any interference by the lessee

with the Government’s efforts to lease or

sell the remainder of farm inventory

property shall constitute cause for the

termination of all rights of the lessee to

possession and occupancy of the

dwelling and property including the

right to exercise the option to purchase.

(ii) Exercising the option to purchase.

(A) The lessee may exercise the

option in writing at any time prior to the

expiration of the lease by delivering to

the servicing official a signed, written

statement notifying the Agency that the

lessee is exercising the option to

purchase the property. Failure to

exercise the option within the lease

period will end the lessee’s rights under

the option to purchase.

(B) When the lessee exercises the

option to purchase the property, the

purchase price will be the current

market value of the property. That value

will be determined by an appraisal in

accordance with paragraph (b)(6) of this

section providing the appraisal is not

more than 1 year old. If the appraisal is

more than 1 year old, the current market

value will be determined by a new

appraisal requested in accordance with

paragraph (b)(6) of this section.

(C) At the time the lessee exercises the

option, the lessee must notify the

servicing official if he or she wants to

purchase the property for cash or

finance it through a credit sale from the

Agency.

(D) If a credit sale is involved, the

applicant must furnish the servicing

official the information required by

§ 1951.907 (e) to assist in determining

whether or not the applicant has

adequate repayment ability.

(8) Rates and terms for a credit sale.

Terms for a credit sale of homestead

protection property when the lessee is

exercising the option to purchase will

be in accordance with subpart J of this

part.

(9) Closing. A credit sale will be

closed in accordance with subpart J of

this part.

(10) Conflict with State law. In the

event of a conflict between a borrower’s

homestead protection rights and any

provisions of the law of any State

relating to the right of a borrower to

designate for separate sale or redeem

part or all of the property securing a

loan foreclosed on by a lender, such

provision of State law shall prevail. A

State supplement will be prepared as

necessary to supplement paragraph (b)

of this section.

(11) Servicing homestead protection

loans. Homestead protection loans will

be serviced as set forth in subpart J of

this part.

§ 1951.914 [Amended]

17. Section 1951.914 is amended by

removing paragraph (a)(5)(iii) and

redesignating paragraphs (a)(5)(iv)

through (a)(5)(vi) to (a)(5)(iii) through

(a)(5)(v) respectively.

§§ 1951.917 and 1951.918 [Removed and

reserved]

18. Sections 1951.917 and 1951.918

are removed and reserved.

19. Exhibit A is revised to read as

follows:

Exhibit A—Notice of the Availability of

Loan Servicing and Debt Settlement

Programs for Delinquent Farm

Borrowers

Dear (Borrower’s Name):

This notice is to inform you that you are

behind with your loan payments and to

inform you of your options.

I. Loan Servicing Programs Available

Primary loan servicing programs are

intended to adjust the debt so that you can

continue farming and the Agency will receive

a better recovery on the money it loaned you.

The Preservation loan servicing program

(Homestead Protection) is intended to help
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10135

farmers who may lose their land to the

Agency get their home back through a lease

with an option to buy.

II. Application Information

Time Limits

You must notify the county office within

60 days of getting this notice if you want to

be considered for these programs.

How to Apply

To apply, you must complete and return

the required forms enclosed with this notice,

including your signed Acknowledgment Of

Notice Of Program Availability within the 60-

day time limit. The county office will process

your completed forms and let you know if

you qualify.

Included With This Notice You Will Find:

(1) A summary of primary loan servicing

programs options;

(2) A summary of the preservation loan

servicing program;

(3) A summary of debt settlement

programs;

(4) The forms you need to apply for

services;

(5) Information on how to get copies of the

Agency’s regulations;

(6) A description of the National Appeals

Division appeal process.

III. Foreclosure and Liquidation

What Happens if You Do Not Apply Within

60 Days?

The Agency will accelerate your loan if

you continue to be delinquent or in

nonmonetary default. Acceleration of your

loan is very severe. This means the Agency

will take legal action to collect all the money

you owe them.

After acceleration, the Agency will start

foreclosure proceedings. They will repossess

or take legal action to take any real estate,

personal property, crops, livestock,

equipment, or any other assets in which the

Agency has a security interest. The Agency

will also stop allowing you to use your crop,

livestock, and milk checks to pay living and

operating expenses. The Agency will also

take by administrative offset money which

other federal agencies owe you.

Sincerely,

Attachment 1—Primary and Preservation

Loan Servicing and Debt Settlement

Programs Purpose

Purpose

These programs are to help you repay the

loan and keep your farm property and settle

your Farm Loan Programs loan debt. This

notice tells you:

(1) How To get more information

(2) How to apply

(3) Your appeal rights if you apply and are

turned down

How To Get More Information

Ask at any county office for copies of the

rules describing these programs. These rules

must be given to you within 10 days of when

we receive your request.

Who Can Apply?

All ‘‘farm loan programs borrowers’’ who

have one of the following loans:

Operating (OL)

Farm Ownership (FO)

Emergency (EM)

Economic Emergency (EE)

Soil and Water (SW)

Recreation (RL)

Rural Housing Loans made for farm service

buildings (RHF)

Economic Opportunity (EO)

Borrowers that are current on their

scheduled payments but are financially

distressed through no fault of their own may

be eligible for some assistance to restructure

their debt.

You May Need Help in Applying

The legal requirements for these programs

are very complicated. You may need help to

understand them. You may want to ask an

attorney to help you. If you cannot get an

attorney, there are organizations that give free

or low-cost advice to farmers. Ask your State

Department of Agriculture or the USDA

Extension Service what services are available

to your state.

Note: Agency employees cannot

recommend a particular attorney or

organization.

I. Primary Loan Service Programs

(1) Loan Consolidation

Two or more of the same type of loans can

be combined into one larger loan. For

example, operating loans can only be joined

with operating loans.

(2) Loan Rescheduling

The payment schedule can be altered to

give you longer to repay loans secured by

equipment, livestock, or crops. For example,

the time for repayment of an operating-type

loan can be extended up to 15 years from the

date the loan is rescheduled. When a loan is

rescheduled, the interest rate may be

reduced.

(3) Loan Reamortization

The payment schedule can be changed to

give you longer to repay loans secured by real

estate. For example, a Farm Ownership loan

payback period may be extended to 40 years

from the date the original loan was signed.

When a loan is reamortized, the interest rate

may be reduced.

(4) Interest Rate Reduction

Regular Interest Rate

FSA has specific interest rates for each

type of loan. These interest rates change quite

often. They depend on what it costs the

Government to borrow money. Each type of

loan will have a regular rate.

Limited Resource Interest Rate

If you have an Operating Loan (OL), Soil

and Water (SW) loan or a Farm Ownership

(FO) loan, it may be possible for you to get

a ‘‘limited resource interest rate.’’ The

limited resource interest rate can be as low

as 5 percent. It changes quite often and

depends on what it cost the Government to

borrow money.

Interest Rate for Loan Servicing

When loans are consolidated, rescheduled,

or reamortized, the interest rate on the new

loan will be either the interest rate on the

original loan or the current regular rate of

interest for that type of loan, whichever is

less. The borrower may be able to get the

limited resource interest rate on OL, SW, or

FO loans.

For information about current interest

rates, contact the FSA county office.

(5) Loan Deferral

Payments of principal and interest can be

temporarily delayed for up to 5 years. You

must show that you cannot pay essential

living expenses or maintain your property

and pay your debts. You must also show you

will be able to pay at the end of the deferral

period.

The interest rate on a deferred loan will be

either the current rate of interest for loans of

the same type or the original rate on the loan,

whichever one is lower.

The interest that builds up during the

deferral period will be added to the principal

of the loan. You must pay this interest in

yearly payments for the rest of the loan term.

Note: You can only get a loan deferral if

the FSA determines options 1–4 will not

work for you.

(6) Softwood Timber Program

Marginal land including highly erodible

land and pasture can be planted in softwood

timber. If you qualify, a debt of up to $1000

an acre can be deferred up to 45 years.

Interest will be charged during the deferral

period. The debt must be paid when the

timber is sold.

(7) Conservation Contract Program

You may enter into a contract with the

Secretary of Agriculture to protect highly

erodible land, wetlands, or wildlife habitat

located on your property that serves as

security for your farm loan debt. In exchange

for the contract, FSA will reduce your FSA

debt. The amount of land left after the

contract must be enough to continue your

farming operation.

(8) Debt Writedown

This is not available to borrowers who are

current in their loan payments or to

borrowers who have had previous debt

forgiveness on another direct loan.

Debt writedown means the FSA debt you

owe is reduced. FSA can reduce both the

principal and interest of your debt. Your debt

can be reduced to the recovery value.

Recovery value. The recovery value is the

fair market value of the collateral pledged as

security for FSA loans minus all of the

expenses such as sale costs, attorneys fees,

management costs, taxes and payment of

prior liens on the collateral that FSA would

have to pay if it foreclosed on and sold the

collateral. The fair market value of any

collateral that is not in your possession and

has not been released for sale by FSA in

writing will also be used in determining

recovery value.

Also considered, will be the fair market

value of any other assets that you may own

that are not essential for family living or for

farm operation, and are not exempt from your

judgment creditors or in a bankruptcy action,

minus the value of any creditors’ prior

security interests and your selling costs. The
10136 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

value of the collateral and any other assets

must be decided by a qualified appraiser.

In order to get debt writedown, you must

show that after the writedown, you will have

up to 110 percent, but not less than 100

percent, of income available to pay all of

your family living and farming operating

expenses and scheduled debt payments. This

means you must have a feasible plan of

operation. FSA will not write down more of

the debt than is necessary for you to show

a feasible plan. You have the choice to select

a smaller cash flow margin without a

writedown. If you choose to do this, you will

avoid taking your one time debt forgiveness

as explained below.

The writedown is used only when the loan

servicing programs listed in 1–7 above alone

will not be enough for you to have a feasible

plan. If you get writedown, some of the

principal and interest on your loans will be

written down in addition to changing the

payback period, and possibly the interest

rate, using 1–7 above.

You can receive a writedown if you have

not previously received any form of debt

forgiveness from FSA on any other direct

farm loan. The maximum debt that can be

written down on all loans is $300,000.

II. Who Can Qualify for Primary Loan Service

Programs

To qualify you must prove that:

(1) You cannot repay your FSA debt due

to circumstances beyond your control. If you

have certain nonessential assets with a value

high enough to bring your account current,

then you are not eligible for Primary Loan

Service Programs. These assets are only those

that are not essential for necessary family

living or for your farm operation. FSA cannot

reduce or write off any of your debt that you

could pay by selling any of these assets or

borrowing against your equity in the assets.

You must have had less income than

expected due to such things as:

(a) A natural disaster, weather, or insect

problems;

(b) Family illness or injury;

(c) Loss or reduction of off-farm income;

(d) Disease in your livestock;

(e) Low commodity prices and high operating

expenses in your local area; or

(f) Other circumstances beyond your control.

(2) You have acted in ‘‘good faith’’ to keep

your agreements with FSA in that you have

kept all written agreements with FSA

including those for the use of proceeds and

release of property used to secure the loan,

and your file shows no fraud, waste, or

conversion.

You must agree to give FSA a lien on

certain other assets for additional security for

the FSA debt. If you are offered restructuring

and accept the offer, you must provide this

lien at closing.

You must agree to meet, at your own cost,

FSA’s training requirements in production

and financial management. The cost will be

included in your farm plan as an operating

expense. The training must be completed

within 2 years from the date of restructuring.

This requirement may be waived if you are

able to demonstrate that you have adequate

training in this area. To request a waiver of

this training requirement, complete Form

FmHA 1924–27, ‘‘Request for Waiver of

Borrower Training Requirements,’’ and

submit with your request for FSA servicing.

This training requirement is not applicable if

you have previously received a waiver or you

have successfully completed the required

FSA Borrower Training program.

Who Will Decide if You Qualify?

The FSA servicing official will decide if

you qualify. The servicing official will decide

whether you can pay as much or more on the

loan as FSA would get if they foreclosed and

sold the collateral for the loan plus the value

of any nonessential assets. To do this, the

servicing official must decide whether the

total payments of principal and interest on

your adjusted debt will be at least as much

as the ‘‘recovery value’’ defined in part I

above.

Can You Get Your Debts Written Down?

Only if FSA will get as much or more by

writing down part of your debt than through

foreclosure or sale of the collateral for the

loan and any nonessential assets. You also

must be delinquent on your FSA debt

payments.

Conditions of the New Agreement if You

Qualify

You must sign a shared appreciation

agreement for 10 years. Under the terms of

the agreement:

• You must repay a part of the sum written

down.

• The amount you must repay depends on

how much your real estate collateral

increases in value.

During this 10 years, FSA will ask you to

repay part of the debt written down if you

do one of the following:

(1) Sell or convey the real estate

(2) Stop farming

(3) Pay off the entire debt

If you do not do one of these things during

the 10 years, FSA will ask you to repay part

of the debt written down at the end of the

10 year period.

FSA can only ask you to repay if the value

of your real estate collateral goes up.

If either 1, 2, or 3 above occurs in the first

four years of the agreement, FSA will ask you

to pay 75 percent of the increase in value of

the real estate. In the last 6 years, you will

be asked to pay only 50 percent of the

increase in value. FSA will not ask you to

pay more than the amount of the debt written

down.

Date To Begin Restructured Agreement

If you are found eligible, you will be

informed of the date for an appointment so

your debt can be restructured. You must

notify FSA that you accept its offer to

restructure your debt within 45 days of when

you receive the offer.

III. Preservation Loan Servicing Program

Purpose

This program applies when the primary

loan service programs cannot help you.

Homestead Protection. (Keeping your farm

home.) You may lease your farm home,

certain outbuildings and up to 10 acres of

land. The lease time will be for up to 5 years.

The lease will include an option for you to

purchase the property you lease.

IV. Who Can Qualify for Homestead

Protection?

(1) Your gross annual income from your

farm or ranch must have been similar to other

comparable operations in your area. This

must be true for at least 2 years of the last

6 years.

(2) Sixty percent (60%) of your gross

annual income in at least 2 of the last 6 years

must have come from the farming operation.

(3) You must have lived in your homestead

property for 6 years immediately before your

application. If you had to leave for less than

12 months during the 6-year period and you

had no control over the circumstances, you

still may qualify.

(4) You must be the owner or former owner

of the property.

(5) If FSA has already taken your property,

you must apply within 30 days of the date

FSA took your property.

How To Lease Your Dwelling

(1) You may lease your home and up to 10

acres if you pay FSA reasonable rent. The

rent prices FSA charges you will be similar

to comparable property in your area.

(2) You must maintain the property in good

condition during the term of the lease.

(3) You may lease for up to 5 years.

(4) You cannot sublease your property.

(5) If you do not keep up your rental

payments to FSA, FSA will force you to

leave.

You can buy back your homestead property

at current market value at any time during

the lease. FSA may place an easement on

your property to protect and restore any

wetlands or converted wetlands. Current

market value will be decided by an

independent appraiser. The appraisal will be

made within 6 months of your application for

homestead protection. The appraised value of

your property will reflect the value of the

land after any placement of a wetland

conservation easement.

You should be aware that any real

property, located in special areas or having

special characteristics, which comes into

FSA’s inventory, may have restrictions or

easements placed on the property which

prevent your use of all or a portion of the

property, should you choose to lease or buy

your former dwelling. These restrictions and

encumbrances will be placed in leases and in

deeds on properties containing wetlands,

floodplains, endangered species, wild and

scenic rivers, historic and cultural properties,

coastal barriers, and highly erodible soils.

V. Debt Settlement Programs.

Purpose

These programs apply after it has been

determined that primary loan service

programs cannot help you. You may be

eligible for both debt settlement and

homestead protection. If you do not have

FSA collateral you will need to apply for

debt settlement only. Under these programs,

the debt you owe FSA may be settled for less

than the amount you owe. You may apply for

debt settlement at any time by submitting an

application for debt settlement on Form
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10137

FmHA 1956–1. These programs are subject to

the discretion of the agency and are not a

matter of entitlement or right.

Programs Available

(1) Compromise offer: A lump-sum

payment of less than the total FSA debt

owed.

(2) Adjustment offer: One or more

payments of less than the total amount owed

to FSA. Your payments can be spread out

over a maximum of five years if FSA decides

you will be able to make the payments as

they become due.

(3) Cancellation: The final settlement of a

debt without any payment. FSA must decide

there is no FSA security or other asset from

which FSA can collect. You must be unable

to pay any part of the debt now or in the

future.

Approval Requirements

If you sell your collateral, you must apply

the proceeds from the sale to your FSA

account before you can be considered for

debt settlement. In the case of compromise

and adjustment, however, you may keep your

collateral if you are unable to pay your total

FSA debt and pay FSA the present fair

market value of your collateral along with

any additional amount you are able to pay as

determined by FSA. You will be allowed to

retain a reasonable equity in essential

nonsecurity property to continue your

normal operations and meet minimum family

living expenses. FSA will not finance a

compromise or adjustment offer.

All debt settlements of FLP loans must be

recommended by the County Committee with

a finding that the statements on your

application are true. The committee must

certify that you do not have assets or income

in addition to what you stated in your

application. You must also have not

previously received any form of debt

forgiveness from FSA on any other direct

farm loan. If you qualify, your application

must also be approved by the FSA State

Executive Director or the FSA Administrator

depending on the amount of the debt to be

settled.

VI. How to Apply for Primary and

Preservation Loan Servicing Programs.

Application Forms and Information Needed

The forms set out below should be

included with this notice. If they are not, you

can obtain them from the FSA county office

or as directed below.

(1) Attachment 2 or 4 of Exhibit A

Response form to apply for loan services.

(2) FmHA 410–1 Application for FSA

Services (The financial statement on this

form must include information no more than

90 days old. The financial statement must be

for all individuals and entities personally

liable for the FSA debt.

(3) FmHA 431–2 Farm and Home Plan, or

other acceptable plan of operation. The

commodity prices to use for this plan of

operation or Farm and Home Plan are

included with the form. You may request the

servicing official to assist you in completing

your plans.

(4) FmHA 440–32 Request for Statement of

Debts and Collateral. Complete the name and

address of the creditor, account number, if

applicable, and your name. All parties liable

to the creditor must sign and date the forms.

FSA will obtain the creditor information.

(5) FmHA 1910–5 Request for Verification

of Employment. Complete employer’s name

and address, employee’s name and address,

social security number, sign and date. FSA

will send the form to your employer to obtain

the needed information.

(6) SCS–CPA–026 Highly Erodible Land

and Wetland Conservation Determination

(This form must be obtained from and

completed by the Natural Resources

Conservation Service office, if not already on

file with FSA.)

(7) AD–1026 Highly Erodible Land

Conservation (HELC) and Wetland

Conservation (WC) Certification (You will be

required to complete this form in the FSA

office if the one you have on file does not

reflect all the land you own and lease.)

(8) FmHA 1960–12 Financial and

Production Farm Analysis Summary

(Complete the backside of the form or other

similar type worksheets to provide

production and expense history for crops,

livestock, livestock products, etc. for each of

the five years immediately preceding the year

of application or the years you have been

farming, whichever is less and if not already

in the FSA case file. You must be able to

support this information with farm or income

tax records.)

(9) Copies of income tax records and any

supporting documents for the last five years

immediately preceding the year of

application if not already on file with the

FSA county office. (If you have been farming

for less than 5 years, submit the tax records

for the tax years immediately preceding the

year of application during which you farmed.

If copies of tax records are not readily

available, you can obtain copies from the

Internal Revenue Service (IRS).)

(10) Map or aerial photo of your farm from

FSA or Natural Resources Conservation

Service if you are applying for the

conservation contract program. (Identify on

the map or photo the portion of the land and

approximate number of acres to be

considered in the contract.)

(11) RD 1956–1 Application for Settlement

of Indebtedness (Complete this form only if

you wish to apply for debt settlement.)

Time to Apply for Primary and Preservation

Loan Servicing Programs

To apply, you must complete the

appropriate forms and return them and the

required information to the FSA county

office within 60 days from the date you

received this notice.

VII. What Happens When You Are Not

Eligible for Primary Loan Service Programs?

If the servicing official decides you are not

eligible, you may request a meeting with that

official so the official can explain the

decision.

If you do not agree with the FSA servicing

official’s decision, you can tell the official

why. If you can make the necessary realistic

changes to your Farm and Home Plan to

show a feasible plan, you should show these

changes to the servicing official.

Negotiation of the Appraisal

A negotiation of the appraisal is a process

whereby the borrower objects to the FSA

appraisal, obtains an independent appraisal

at the borrower’s own costs, pays one-half of

the cost for a third appraisal, and the average

of the two appraisals closest in value is taken

as the final appraised value to be used in

considering restructuring. In all cases of

primary and preservation loan servicing

where the borrower presents an independent

appraisal which is conducted by a qualified

appraiser and is within 5 percent of the value

of the FSA appraisal, the borrower must

choose one of these two appraisals for the

servicing official to use to continue

processing the request. Negotiation of

appraisal may affect your right to appeal the

appraisal.

You May Request Mediation of Other Loans

If you cannot show a feasible farm plan

because you owe too much to other creditors

and suppliers, FSA will help you try to get

your other creditors to adjust your debts.

This will be done by FSA asking for

mediation if your State has a mediation

program approved by the United States

Department of Agriculture. If there is no State

mediation program, FSA will try to set up a

meeting with your other creditors and

suppliers if it can be shown that a reduction

in these debts can provide a feasible farm

plan.

You Have the Right to Appeal

Appeal. Appeal rights will be provided to

you after FSA has made a decision on your

request for primary loan servicing. If you first

request a meeting with the servicing official

instead of an appeal, the time for requesting

an appeal will be extended until you are

advised of the results of your meeting. You

will be provided with the address of USDA’s

National Appeals Division. Your request for

an appeal must be postmarked no later than

30 days from the date you received the

agency’s adverse decision. If you disagree

with FSA’s determination that any

determination is not appealable, you may

request a determination of appealability from

the National Appeals Division.

You May Buyout (Pay Off) Your Loan at the

‘‘Current Market Value’’

(1) Current market Value. If the analysis of

your debt shows that you cannot ‘‘cash flow’’

even if your debt to FSA is reduced to the

value of the collateral, the servicing official

will advise you in writing that you can

buyout the loan by paying the ‘‘current

market value’’ minus any prior liens. The

current market value is determined by a

current appraisal completed by a qualified

appraiser.

(2) Limits. You may receive a buyout if you

have not previously received any form of

debt forgiveness from FSA on any other

direct farm loan. The maximum debt that can

be written off with buyout is $300,000.

(3) Eligibility. To qualify you must prove

that:

You cannot repay your FSA delinquent

debt and the reason you cannot repay was

due to circumstances beyond your control,

You have acted in good faith, and
10138 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

The value of your restructured loan is less

than the recovery value.

(4) Time Limit. If you want to buy out your

farm loan debt at the current market value,

you must pay FSA within 90 days of the date

you receive the offer. If you appeal the

servicing official’s decision not to give you

primary loan servicing, this 90 days will not

start until the administrative appeal process

ends.

(5) Cash. If you pay off the loan at the

current market value, you must pay in cash.

FSA will not make or guarantee a loan for

this purpose.

Consideration for Preservation Loan Service

Program

(Homestead Protection)

You will be considered for homestead

protection if:

(1) You applied for primary loan servicing

as required and did not qualify.

(2) You do not appeal your primary loan

servicing denial, or do not win your appeal.

(3) You do not pay off the loan through

buyout.

(4) You agree to give FSA title to your land

at the time FSA signs the written homestead

protection agreement with you. FSA will not

accept title and will deny your preservation

request if it is not in FSA’s best financial

interest to accept title. FSA will compute the

costs of taking title including the cost of

paying other creditors who have outstanding

liens on the property. FSA will take title only

if it can obtain a recovery on its cost. Any

written agreement for preservation loan

servicing will include the amount you must

pay for rent, the number of years you can

rent, and an option to purchase the property

at the fair market value at the time you

exercise the option to purchase.

(5) You must request Homestead Protection

within 30 days of FSA obtaining title to the

property.

Consideration for Debt Settlement Programs

If you wish to be considered for debt

settlement, you will need to request and

return a completed Form RD 1956–1. You

may request debt settlement at any time.

Usually, the most appropriate time for

making this request is when FSA has

determined that Primary Loan Servicing

options will not provide the best net recovery

to the Government and you are requesting

preservation loan servicing. If you no longer

have any security remaining for the

outstanding FSA loans, you may want to

request debt settlement instead of primary

and preservation loan servicing.

VIII. What Happens When You Are Turned

Down for Homestead Protection or Debt

Settlement Programs?

If FSA decides that you cannot get

homestead protection or debt settlement you

can ask for

(1) A meeting with FSA to discuss the

decision, or

(2) Appeal the determination.

The Right to a Meeting

The servicing official will send you a letter

telling you why FSA decided not to give you

homestead protection or debt settlement.

That letter will give you 15 days to ask for

a meeting with FSA.

The Right to an Appeal

Appeal rights will be provided to you after

FSA has made a decision on your request for

homestead protection. If you first request a

meeting with the servicing official instead of

an appeal, the time for requesting an appeal

will be extended until you are advised of the

results of your meeting. You will be provided

with the address of USDA’s National Appeals

Division. Your request for an appeal must be

postmarked no later than 30 days from the

date you received the final determination.

On appeal, you can contest FSA’s rental

amount and its decision not to give you

homestead protection. You can also contest

FSA’s decision to reject your debt settlement

application.

IX. Acceleration and Foreclosure

If you do not appeal an adverse

determination or if you are denied relief on

appeal, FSA will accelerate your loan

account and make demand for payment of

the whole debt. FSA will stop allowing you

to use any of your crop, livestock, and milk

checks, on which they have a claim, to pay

for living and operating expenses. FSA will

repossess the collateral or start legal

foreclosure or liquidation proceedings to take

and sell the collateral, including your

equipment, livestock, crops, and land. FSA

will also take by administrative offset money

which FSA and other Federal Government

agencies owe you.

FSA may refrain from taking these actions

if you agree to do one, or a combination of

the following actions, within an agreed upon

time, with FSA’s approval:

(1) Sell all the collateral for the loan at

market value.

(2) Convey (legally transfer) the collateral

to FSA.

(3) Apply to transfer the collateral to

someone else and have that person assume

all or part of the FSA debt. (This is called

transfer and assumption.)

If any of these options result in payment

of less than you owe, you may apply or

reapply for debt settlement. You may apply

or reapply for homestead protection even if

you applied before and were not accepted.

However, applications for homestead

protection or debt settlement filed after the

60-day time period provided in this notice

will not delay acceleration, offset, and

foreclosure.

Attachment 2—Acknowledgment of Notice

of Program Availability

I have been given a notice explaining the

primary and preservation loan service and

debt settlement programs.

The date on the notice was

llllllll.

This notice explained that FSA programs

are available to help me keep my property or

settle my debt with FSA.

I ask FSA to consider me for all of these

programs.

I understand that I will be notified of my

rights to appeal after FSA decides on my

request.

Signature llllllllllllllll

Date llllllllllllllllll

Attachment 3—Notice to Borrowers With

Non-Monetary Defaults, Non-Monetary

Defaults and Delinquency, or That a Prior

Lienholder or Junior Lienholder is

Foreclosing

Dear

FSA has reviewed your loan account. Our

record shows:

[ ] You are now $llll behind on your

payments. This is a violation of your loan

agreement.

[ ] You have disposed of some of your

property used to secure your loan. You did

not get written approval for this. This

property is

lllllllllllllllllllll

(Describe property.)

[ ] You have stopped farming or ranching.

This is a violation of your loan agreement.

[ ] A foreclosure action has been filed

against you by llllll. This is a

violation of your loan agreement.

[ ] You have llllllllllllllllllll

(Insert reasons for proposed action.)

FSA Will Accelerate Your Loans

FSA will take legal action to collect the

money you owe. They will foreclose on real

estate and repossess equipment and other

property used to secure your loans. They will

also stop the release of money from the sale

of crops or other property. They will take by

administrative offset money you are owed by

other Federal agencies.

Steps You Can Take Before FSA Accelerates

Your Loans

You can apply for the programs described

in Attachment 1. These are called Primary

and Preservation Loan Service and Debt

Settlement Programs. You can also ask for a

meeting. At this meeting you can explain

why you think FSA’s records, as indicated on

this Notice, are wrong. You can also suggest

things you can do to correct these problems,

so as to avoid acceleration and foreclosure.

You can request loan servicing, debt

settlement and a meeting at the same time.

For example, if this Notice states that you are

delinquent, and also have disposed of

property without FSA’s written consent, you

can request servicing to deal with the

delinquency problem and request a meeting

on the question of unauthorized disposition

of property. Please read the section on debt

settlement programs for guidance in

requesting and receiving consideration of a

request for debt settlement.

Forms Attached to This Notice

You will find:

(1) A summary of all primary loan service

programs;

(2) A summary of the preservation loan

servicing program;

(3) A summary of all debt settlement

programs;

(4) Copies of the forms needed to apply;

and

(5) Advice on how to get copies of FSA

regulations.
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10139

Purpose of Primary Service Programs

These loan service programs are to help

you repay the loan and keep your farm

property.

Purpose of the Preservation Loan Service

Program

This program is intended to help farmers

who may lose their land to FSA to get their

home back, either by purchase or through a

lease with an option to purchase.

Purpose of Debt Settlement Programs

These programs apply after it has been

determined that primary loan service

programs cannot help you. You may be

eligible for both debt settlement and

preservation loan service programs. If you no

longer have FSA collateral you will need to

apply for debt settlement only. Under these

programs, the debt you owe FSA may be

settled for less than the amount you owe.

You may apply for debt settlement at any

time by requesting and submitting an

application for debt settlement on Form RD

1956–1.

How to Apply for Loan Servicing

Complete Attachment 4 and the

appropriate forms included with this notice.

You must return these within 60 days of

receiving this notice.

Right to a Meeting

You have the right to meet with your FSA

servicing official before they decide to

accelerate your loan. You must check the box

on Attachment 4 saying you want a meeting.

(Attachment 4 is the ‘‘Response to Notice of

Intent to Accelerate and Notice of Borrower

Rights.’’)

How to Ask for a Meeting

You must check the box on Attachment 4

asking for a meeting within 15 days from the

date of this notice. Return it to your county

office. Do this as soon as possible. It is wise

to call also to set up the meeting.

The Right to Appeal

• You can ask for an administrative appeal

even if the meeting does not resolve your

problems.

• You can ask for an appeal even if you do

not have a meeting.

• You have the right to appeal even if you

do not want to apply for loan servicing

programs or debt settlement.

How to Ask for an Appeal

Your request for appeal must be in writing

and sent directly to the National Appeals

Division, (NAD), <NAD Area Director’s

address>. Your letter must describe FSA’s

decision and why you believe the decision

was not correct. In order for this decision to

be changed, you will have to show why the

decision should be reversed. Mail a copy of

your request to the FSA county office. Your

request for appeal must be postmarked no

later than 30 days from the date you receive

this notice.

Note: If you do not check the box on the

Attachment 4 to ask for primary and

preservation loan service programs, you will

not be considered for those programs.

If you do not ask for a meeting to try and

resolve the issues, you will not get another

chance later.

The Right Not To Be Discriminated Against

Federal law does not allow discrimination

of any kind. You cannot be denied a loan

because of your race, color, religion, national

origin, sex, marital status, handicap, or age (if

you can legally sign a contract). You cannot

be denied a loan because all or part of your

income is from a public assistance program.

If you believe that you have been

discriminated against for any of these

reasons, you can write the Secretary of

Agriculture, Washington, D.C. 20250.

You cannot be denied a loan because you

exercised your rights under the Consumer

Credit Protection Act. You must have

exercised these rights in good faith. The

Federal Agency responsible for seeing this

law is obeyed is the Federal Trade

Commission, Washington, DC 20580.

Sincerely,

Attachment 4—Response to Notice

Informing Me of FSA’s Intent To Accelerate

My Loan

Notice of My Rights

TO: Farm Service Agency

FROM: lllllllllllllllll

(Please print your name and

address.)

I have read the notice informing me of

FSA’s intent to accelerate my loan which I

received with this form.

I want to: (Check one or more of the

following boxes).

[ ] 1. Request a meeting with the FSA

servicing official.

My phone number is llllll.

I must return this form in 15 days. I

understand I do not lose my right to appeal

by asking for a meeting.

[ ] 2. Be considered for all primary and

preservation loan service and debt settlement

programs. I must return this form along with

all applicable forms in 60 days.

I understand that if I want to appeal FSA’s

decision to accelerate my loan, I must send

a letter requesting an appeal to the National

Appeals Division. My letter must describe

FSA’s decision and why I believe the

decision was not correct. I should also send

the FSA county office a copy of my appeal

request. I understand that I will be contacted

by the National Appeals Division to set up

the appeal hearing date and give me more

information. My request for an appeal must

be postmarked no later than 30 days from the

date I received this notice.

Date: llllllllllllllllll

Signature: llllllllllllllll

(Sign here.)

Attachment 5—Notice of Intent To

Accelerate or To Continue Acceleration and

Notice of Borrowers’ Rights

Name and Address

Dear (Borrower’s Name):

You are not eligible for debt restructuring.

I. [ ] FSA has reviewed your application

for primary loan servicing (debt

restructuring) and based upon the

information available, you are not eligible.

Your Farm and Home Plan does not show

you can pay all your family living expenses,

farm operating expenses, and scheduled debt

repayments even with FSA help.

The attached computer printout shows that

in order to develop a feasible plan and

receive primary loan servicing, you would

need to increase your cash available to pay

your debts by $llll.

II. [ ] FSA has reviewed your application

and your case file. You have broken your

agreement with FSA. Your Farm and Home

Plans shows you can pay all of your family

living expenses, farm operating expenses,

and scheduled debt repayments if FSA uses

primary loan servicing, softwood timber, and

conservation contract programs to restructure

your loans.

You have broken loan agreements with

FSA in the following way:

[ ] You are $llll behind in your

scheduled loan payments.

[ ] You have sold or otherwise disposed

of property you used to secure the FSA loan

without proper approval from FSA. This

property is lllllllllllllll

(Describe property.)

[ ] You no longer are farming or ranching.

[ ] You have

lllllllllllllllllllll

III. [ ] You have already received your

lifetime limit of at least one form of debt

forgiveness on other direct loans.

IV. FSA Intends to Foreclose

FSA will accelerate your loan because you

are not eligible for primary loan servicing.

FSA will take legal action to collect the

money you owe.

FSA may:

(1) Repossess and sell your equipment,

crops, livestock, livestock products, and

other personal property used to secure your

FSA loan;

(2) Foreclose and sell your real estate

mortgaged to FSA;

(3) Stop any release of money from the sale

of crops, livestock, livestock products, or

other property you need to live and operate

your farm;

(4) Take by administrative offset any

money you are owed by Federal agencies;

(5) File lawsuits to collect money you owe

to FSA.

V. WHAT YOU CAN DO TO STOP

FORECLOSURE

Before FSA can take action against you,

you can:

(1) Request a meeting with the FSA

servicing official.

If you disagree with FSA’s decision that

you broke your loan agreement or the

decision not to give you debt restructuring,

you should request a meeting with the FSA

servicing official. The servicing official can

explain the FSA decision. You can also

present changes in your Farm and Home Plan

which may show that you can make the

amount of payment listed above in Section I.

To ask for this meeting, check the box #1

on the Response Form: (Attachment 6).

Time limit: You must return the ‘‘Response

Form’’ to the county FSA office within 15

days from the date you get this letter. You

should also call the county office to set up

the meeting.
10140 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

(2) Appeal.

You may appeal FSA’s decision. On

appeal, you may challenge the ways FSA

says you broke your loan agreement. You

may also challenge FSA’s decision that you

cannot present a feasible Farm and Home

Plan for primary loan servicing if your notice

states FSA believes you cannot present a

feasible plan.

You may also ask for an independent

appraisal of your property used to secure the

FSA loan. This independent appraisal may

be important if you think FSA has put too

high or too low a value on your property

when it considered you for primary loan

servicing. You will have to pay for this

appraisal. FSA will give you three names of

appraisers to choose from. Check box #2 on

the ‘‘Response Form’’ if you want the

independent appraisal.

If you request a meeting with the FSA

servicing official, you will be given another

chance to appeal after that meeting. If you do

not want to request the meeting but do want

to appeal, you must send a letter requesting

appeal directly to the National Appeals

Division, (NAD), <NAD Area Director’s

address>. Your letter must describe FSA’s

decision and why you believe the decision

was not correct. In order for this decision to

be changed, you will have to show why the

decision should be reversed. Mail a copy of

your request to the FSA county office. Your

request for appeal must be postmarked no

later than 30 days from the date you receive

this notice.

If you want to request a meeting and

appeal at the same time, you must request the

meeting on the ‘‘Response Form’’ and appeal

in writing to NAD.

(3) Buy Out the Loan at the Current Market

Value.

You have this option if you meet the

eligibility requirements and the recovery

value is greater than the value of the

restructured loan. The recovery value is

$llll. The restructured loan value is

$llll.

You [may] or [may not] buy out your FSA

loans at the current market value of the

property securing the loan, minus prior liens,

in the amount of $llll. (This amount

could change if the prior lien indebtedness

changes before the buyout date.)

Note: The attached computer printout

summarizes FSA’s calculations.

If you are eligible and pay the buyout

amount, FSA will write off the rest of your

debt.

Time Limit. If you are eligible and want to

buy out your FSA debt, you must pay FSA

the above amount within 45 days from the

date you received this letter. You must pay

FSA in cash, legal money order, or certified

check.

If you appeal FSA’s adverse decision, the

45-day period to buy out will not start until

all of the appeals are completed. Check box

#3 on the ‘‘Response Form’’ if you want to

buy out.

(4) Consideration for Homestead Protection

After all appeals are concluded, and your

time to buy out, if eligible, has expired, FSA

will automatically consider you for

Homestead protection if your home is

mortgaged to FSA. [You applied for this

program when you applied for primary loan

servicing (debt restructuring).] FSA will

notify you that it will be considering you for

this program and will request some

additional information when the time comes

to consider you.

VI. What Happens If You Do Not Cure Your

Default or Buyout?

If you do not cure your default or buyout,

FSA will accelerate or continue with

acceleration of your FSA debts. This is a very

severe action. FSA will take any of the

actions listed above to collect on your debt.

The Right Not to Be Discriminated Against

Federal law does not allow discrimination

of any kind. You cannot be denied a loan

because of your race, color, religion, national

origin, sex, marital status, handicap, or age (if

you can legally sign a contract.) You cannot

be denied a loan because all or part of your

income is from a public assistance program.

If you believe you have been discriminated

against for any of these reasons, you can

write the Secretary of Agriculture,

Washington, DC 20250.

You cannot be denied a loan because you

exercised your rights under the Consumer

Credit Protection Act. You must have

exercised these rights in good faith. The

Federal Agency responsible for seeing that

this law is obeyed is the Federal Trade

Commission, Washington, DC 20580.

Sincerely,

Attachment 5–A—Notice of Intent To

Accelerate or To Continue Acceleration

and Notice of Borrowers’ Rights

(To Be Used for Applications Submitted On

or After November 28, 1990)

Name and Address

Dear (Borrower’s Name):

You are not eligible for debt restructuring.

I. [ ] FSA has reviewed your application

for primary loan servicing (debt

restructuring) and based upon the

information available, you are not eligible.

Your Farm and Home Plan does not show

you can pay all your family living expenses,

farm operating expenses, and scheduled debt

repayments even with FSA help.

The attached computer printout shows that

in order to develop a feasible plan and

receive primary loan servicing, you would

need to increase your cash available to pay

your debts by $llll.

II. [ ] FSA has reviewed your application

and your case file. Your Farm and Home

Plans shows you can pay all of your family

living expenses, farm operating expenses,

and scheduled debt repayments if FSA uses

primary loan servicing, softwood timber, and

conservation contract programs to restructure

your loans.

But you have not acted in good faith.

You have broken loan agreements with

FSA in the following way:

[ ] You are $llllbehind in your

scheduled loan payments.

[ ] You have sold or otherwise disposed

of property you used to secure the FSA loan

without proper approval from FSA.

This property is lllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

(Describe property.)

[ ] You no longer are farming or ranching.

[ ] You have llllllllllllll

lllllllllllllllllllll

III. [ ] FSA has reviewed your application

and case file. You have sufficient

nonessential assets to bring your FSA

account current. The net recovery value

(NRV) of the nonessential assets is $llll.

Your nonessential assets and their NRVs are

as follows:

Nonessential Assets lllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

NRVs llllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

The NRV is the current appraised market

value minus any prior liens and any costs of

sale such as taxes due, commissions and

advertising costs.

The amount needed to bring your FSA

account current is $lll.

If you intend to sell the nonessential assets

or borrow against their value to obtain the

money to pay FSA current, you must do so

immediately so that you can pay FSA current

within 90 days from the date you receive this

letter.

If you do not pay FSA current within 90

days or appeal this adverse decision (see part

VI of this notice), FSA will accelerate your

account (see part V). If you appeal the

decision, the 90-day period to pay FSA

current will not start until all the appeals are

completed. You must check the appropriate

block on the response form and return it to

FSA within the specified time limit. Since

FSA believes you have sufficient

nonessential assets to bring your FSA

account current, you are not now eligible for

buyout (option 3 on Attachment 6–A). If you

disagree, see part VI for an explanation of

your rights.

IV. [ ] You have already received your

lifetime limit of at least one form of debt

forgiveness for which you are entitled.

[ ] Your writedown or writeoff of debt

exceeded $300,000.

V. FSA Intends to Foreclose

FSA will accelerate your loan because you

are not eligible for primary loan servicing.

FSA will take legal action to collect the

money you owe.

FSA may:

(1) Repossess and sell your equipment,

crops, livestock, livestock products, and

other personal property used to secure your

FSA loan;

(2) Foreclose and sell your real estate

mortgaged to FSA. This could include your

dwelling, if it was used to secure your farm

loan;

(3) Stop any release of money from the sale

of crops, livestock, livestock products, or

other property you need to live and operate

your farm;

(4) Take by administrative offset any

money you are owed by Federal agencies;

(5) File lawsuits to collect money you owe

to FSA.

VI. What You Can Do To Stop Foreclosure

Before FSA can take action against you,

you can:
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10141

(1) Pay your FSA account current.

(2) Request a meeting with the FSA

servicing official.

If you disagree with FSA’s decision that

you broke your loan agreement or the

decision not to give you debt restructuring,

you should request a meeting with the FSA

servicing official. The servicing official can

explain the FSA decision. You can also

present changes in your Farm and Home Plan

which may show that you can make the

amount of payment listed above in section I.

To ask for this meeting, check the box #1

on the Response Form: (Attachment 6–A).

Time limit: You must return the ‘‘Response

Form’’ to the county FSA office within 15

days from the date you get this letter. You

should also call the county office to set up

the meeting.

(3) Appeal.

You may appeal FSA’s decision. On

appeal, you may challenge the ways FSA

says you broke your loan agreement. You

may challenge FSA’s decision that you

cannot present a feasible Farm and Home

Plan for primary loan servicing if your notice

states FSA believes you cannot present a

feasible plan. You may challenge FSA’s

decision that you are ineligible for debt

restructuring because you have already

received a writedown, buyout, or other form

of debt forgiveness from FSA on another

direct farm loan.

If you did not previously negotiate your

appraisal, you may ask for an independent

appraisal of your property including any

nonessential assets that FSA says you own.

This independent appraisal may be

important if you think FSA has put too high

or too low a value on your property. You will

have to pay for this appraisal. The FSA

servicing official will give you a list of three

appraisers to choose from. Check box #2 on

the ‘‘Response Form’’ if you want the

independent appraisal. If the FSA appraisal

contains mathematical or property

description errors, you and the servicing

official can make the necessary corrections if

you both agree to such changes.

If you submit an independent appraisal

and it is within five percent of the value of

the FSA appraisal, you must select which of

the two appraisals you want FSA to use for

your request. This will be the final appraisal.

It cannot be appealed.

If you request a meeting with the FSA

servicing official, you will be given a chance

to appeal after that meeting. If you do not

want to request the meeting but do want to

appeal, you must send a letter requesting

appeal directly to the National Appeals

Division, <NAD Area Director’s address>.

Your letter must describe FSA’s decision and

why you believe the decision was not correct.

In order for this decision to be changed, you

will have to show why the decision should

be reversed. A copy of your request should

be sent to the FSA county office. Your

request for an appeal must be postmarked no

later than 30 days from the date you received

this notice.

If you want to request a meeting and

appeal at the same time, you must request the

meeting on the ‘‘Response Form’’ and appeal

in writing to NAD.

(4) Buy Out the Loan at the Current Market

Value.

You have this option if the recovery value

is greater than the value of the restructured

loan, you cannot repay your FSA debt due to

circumstances beyond your control, and you

have acted in good faith and tried to keep

your loan agreements with FSA. The

recovery value in this case is $llll. The

restructured loan value is $llll.

In addition, buyout is subject to certain

lifetime limitations regarding the maximum

amount and number of benefits that can be

received. A further explanation of these

limits can be found in the Primary and

Preservation Loan Service and Debt

Settlement Programs Purpose notice which

was sent to you earlier.

You [may] or [may not] buy out your FSA

debt at the current market value of the

property securing the loan and any

nonessential assets, minus prior liens, in the

amount of $lll. (This amount could

change if the prior lien indebtedness changes

before the buyout date.)

Note: The attached computer printout

summarizes FSA’s calculations.

If you are eligible and pay the buyout

amount, FSA will write off the rest of your

debt up to $300,000.

Time Limit. If you are eligible and want to

buy out your FSA debt, you must pay FSA

the above amount within 90 days from the

date you received this letter. You must pay

FSA in cash, legal money order, or certified

check.

If you appeal FSA’s adverse decision, the

90-day period to buy out will not start until

all of the appeals are completed. Check box

#3 on the ‘‘Response Form’’ if you want to

buy out.

(5) Consideration for Homestead Protection

and Debt Settlement.

After all appeals are concluded and your

time to buyout, if eligible, has expired, FSA

will automatically consider you for

Homestead protection if your home is

mortgaged to FSA. [You applied for this

program when you applied for primary loan

servicing (debt restructuring).] FSA will

notify you that it will be considering you for

this program and will request some

additional information when the time comes

to consider you. If you applied for Debt

Settlement by returning Form FmHA 1956–

1, will also consider you for this option at

this time. If you did not apply for Debt

Settlement before, you can apply now.

Copies of Form FmHA 1956–1 are available

at your FSA County Office.

VII. WHAT HAPPENS IF YOU DO NOT

CURE THE DEFAULT OR BUYOUT?

If you do not cure the default or buyout,

or if you do not respond to this letter by

completing and returning the enclosed

Attachment 6–A, FSA will accelerate or

continue with acceleration of your FSA

debts. This is a very severe action. FSA will

take any of the actions listed in section V

above to collect on your debt.

The Right Not To Be Discriminated Against

Federal law does not allow discrimination

of any kind. You cannot be denied a loan

because of your race, color, religion, national

origin, sex, marital status, handicap, or age (if

you can legally sign a contract.) You cannot

be denied a loan because all or part of your

income is from a public assistance program.

If you believe you have been discriminated

against for any of these reasons, you can

write to the Secretary of Agriculture,

Washington, D.C. 20250.

You cannot be denied a loan because you

exercised your rights under the Consumer

Credit Protection Act. You must have

exercised these rights in good faith. The

Federal Agency responsible for seeing this

law is obeyed is the Federal Trade

Commission, Washington, DC 20580.

Sincerely,

Attachment 6—Response to Notice

Informing Me of FSA’S Intent To

Accelerate or Continue With

Acceleration and Notice of My Rights

TO: Farm Service Agency

FROM: lllllllllllllllll

(Please print your name and

address.)

I have read the notice informing me of

FSA’s intent to accelerate or continue with

acceleration of my loan which I received

with this response form.

I want to:

[Check appropriate box or boxes.]

[ ] (1) Request a meeting with an FSA

servicing official.

My current telephone number is

llllll.

I understand that I do not lose my appeal

rights by asking for this meeting.

[ ] (2) Request an independent appraisal

of my property that secures the FSA loans.

I understand that I must pay for this

appraisal. I understand that the FSA

servicing official will give me the names of

three appraisers, from which I must choose

one.

[ ] (3) Buy out my loan at the current

market value.

I understand that I must pay FSA llll

in cash, certified check, or legal money order.

I understand I should contact the servicing

official when I am ready to pay this amount

as it may be different if my prior lien

indebtedness changes before the buyout date.

I understand that I must pay FSA within 45

days of the date I received this letter, or if

I appeal, I must pay within 45 days from the

adverse decision on appeal. I understand that

if I pay this amount FSA will write off the

rest of my debt.

I understand that if I want to appeal FSA’s

decision to accelerate my loan, I must send

a letter requesting an appeal to the National

Appeals Division. My letter must describe

FSA’s decision and why I believe the

decision was not correct. I should also send

the FSA county office a copy of my appeal

request. I understand that I will be contacted

by the National Appeals Division to set up

the appeal hearing date and give me more

information. My request for an appeal must

be postmarked no later than 30 days from the

date I received this notice.

Borrower’s signature lllllllllll

Date llllllllllllllllll
10142 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

Attachment 6–A— Response to Notice

Informing Me of FSA’S Intent To

Accelerate or Continue With

Acceleration and Notice of My Rights

TO: Farm Service Agency

FROM: lllllllllllllllll

(Please print your name and

address.)

I have read the notice informing me of

FSA’s intent to accelerate or continue with

acceleration of my loan which I received

with this response form.

I want to:

[Check appropriate box or boxes.]

[ ] (1) Request a meeting with an FSA

servicing official.

I must return this ‘‘Response Form’’ within

15 days to request a meeting.

My current telephone number is

llllll.

I understand that I do not lose my appeal

rights by asking for this meeting.

[ ] (2) Request an independent appraisal

of my property including any nonessential

assets.

I must return this ‘‘Response Form’’ within

30 days to request an independent appraisal.

I understand that I must pay for this

appraisal. I understand that the FSA

servicing official will give me names of three

appraisers, from which I must choose one if

I am also requesting an appeal.

[ ] (3) Buy out my loans at the current

market value.

I understand that I must pay FSA

$llllll in cash, certified check, or

legal money order. I understand I should

contact the servicing official when I am ready

to pay this amount as it may be different if

my prior lien indebtedness changes before

the buyout date. I understand that I must pay

FSA within 90 days of the date I received this

letter, or if I appeal the FSA decision, I must

pay within 90 days from the end of the

appeal of the FSA decision.

[ ] (4) Pay my FSA account current.

I understand that I must pay FSA

$llllll to pay my account current. I

will pay this amount to FSA within 90 days

of the date I received this letter, or if I appeal

the FSA decision, I will pay within 90 days

from the end of the appeal process on the

FSA decision. I understand that when I pay

this amount FSA will continue with my

account.

I understand that if I want to appeal FSA’s

decision to accelerate my loan, I must send

a letter requesting an appeal to the National

Appeals Division. My letter must describe

FSA’s decision and why I believe the

decision was not correct. I should also send

the FSA county office a copy of my appeal

request. I understand that I will be contacted

by the National Appeals Division to set up

the appeal hearing date and give me more

information. My request for an appeal must

be postmarked no later than 30 days from the

date I received this notice.

Borrower’s signature lllllllllll

Date llllllllllllllllll

Attachments 7 and 8—Obsolete

Attachment 9—Notification of Intent To

Accelerate or Continue Acceleration of

Loans and Notice of Your Rights

Name and Address

Date

Dear (Borrower’s Name):

FSA will accelerate your loan because you

have not asked or have not accepted the offer

for primary loan service programs.

You can:

(1) Ask for meeting with your FSA

servicing official.

(2) Appeal FSA’s decision.

(3) Ask to voluntarily convey to FSA the

property used to secure your loan and ask to

be released from your debt.

(4) Ask to keep your home if the FSA

acquires ownership of it.

You are behind with your payments to

FSA, and a review of your account shows:

[ ] You are llllll behind in your

FSA loan payments.

This is a violation of your loan agreement.

[ ] You have sold or otherwise disposed

of property used to secure your FSA loan.

You did not get written approval for this.

The property is lllllllllllll

lllllllllllllllllllll

(Describe property.)

[ ] You are no longer farming or

ranching.

This is a violation of your loan agreement.

[ ] You have llllllllllllll

lllllllllllllllllllll

(Insert reason for proposed action.)

FSA Will Accelerate Your Loans

FSA will take legal action to collect the

money you owe. They will foreclose on real

estate and other property used to secure your

loans. They may also stop the release of

money from the sale of crops or other

property. They will take by administrative

offset any money you are owed by other

Federal agencies.

Steps You Can Take Before FSA Accelerates

or Continues Acceleration of Your Loans

(1) Ask for a meeting. You can ask to meet

with your FSA servicing official before they

decide to accelerate or continue acceleration

of your loan. You must check the box on

Attachment 10 saying you want a meeting.

[Attachment 10 is the ‘‘Response to Notice of

Intent to Accelerate or Continue Acceleration

of My Loan.’’]

How Soon Must I Ask for a Meeting? You

must ask for a meeting within 15 days from

the date of this notice. Check the box on

Attachment 10. Return it to your county

office. Do this as soon as possible.

(2) Appeal. You can ask for an

administrative appeal. On appeal, you can

contest FSA’s decision to accelerate or

continue acceleration of your loan. You can

ask for an independent appraisal of your

land. You will have to pay for this appraisal.

FSA will give you three names of approved

appraisers to choose from. Check box 3 if you

want an independent appraisal.

You can ask for an administrative appeal,

even if you have asked for a meeting and

your problems were not resolved at that

meeting. However, you only have the

opportunity to appeal an issue once. For

example, if you previously appealed or had

the opportunity to appeal a favorable debt

restructuring offer and were not successful

on appeal, or did not appeal within the time

alloted, you cannot appeal this offer again.

You can ask for an appeal even if you do not

have a meeting.

How to Ask for an Appeal. Your request for

appeal must be in writing and sent directly

to the National Appeals Division, (NAD),

<NAD Area Director’s address>. Your letter

must describe FSA’s decision and why you

believe the decision was not correct. In order

for this decision to be changed, you will have

to show why the decision should be reversed.

Mail a copy of your request to the FSA

county office. Your request for appeal must

be postmarked no later than 30 days from the

date you receive this notice.

What Happens if You Do Not Respond? If

you do not respond to this notice by filling

out Attachment 10, or requesting an appeal,

FSA will accelerate or continue acceleration

of any loans. This means they will take legal

action to collect the unpaid loan, including

foreclosure as described above.

Note: Foreclosure means you lose the title

to your land. But you can still apply for

homestead protection to keep possession of

your house. [See Exhibit A, Attachment 1

sent to you on llll. If you did not get

these forms, contact your county office

within 15 days of this notice.]

The Right Not to Be Discriminated Against

Federal law does not allow discrimination

of any kind. You cannot be denied a loan

because of your race, color, religion, national

origin, sex, marital status, handicap, or age (if

you can legally sign a contract). You cannot

be denied a loan because all or a part of your

income is from a public assistance program.

If you believe you have been discriminated

against for any of these reasons, you can

write to the Secretary of Agriculture,

Washington, D.C. 20250.

You cannot be denied a loan because you

exercised your rights under the Consumer

Credit Protection Act. You must have

exercised these rights in good faith. The

Federal Agency responsible for seeing this

law is obeyed is the Federal Trade

Commission, Washington, DC 20580.

Sincerely,

Attachment 9–A—Notification of Intent

To Accelerate or Continue Acceleration

of Loans and Notice of your Rights

(To Be Used for Borrowers Receiving Notices

on or After November 28,1990)

Name and Address

Date

Dear (Borrower’s Name):

FSA will accelerate your loan because you

have not asked or have not accepted the offer

for primary loan service programs.

You can:

(1) Ask for meeting with your FSA

servicing official.

(2) Appeal FSA’s decision.

(3) Ask to voluntarily sign over to FSA the

property used to secure your loan and ask to

be released from your debt.
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10143

(4) Ask to keep your home if the FSA

acquires ownership of it.

You are behind with your payments to

FSA, and a review of your account shows:

[ ] You are $llllll behind in your

FSA loan payments.

This is a violation of your loan agreement.

[ ] You have sold or otherwise disposed

of property used to secure your FSA loan.

You did not get written approval for this.

The property is lllllllllllll

lllllllllllllllllllll

(Describe property.)

[ ] You are no longer farming or ranching.

This is a violation of your loan agreement.

[ ] You have llllllllllllll

lllllllllllllllllllll

(Insert reason for proposed action.)

FSA Will Accelerate Your Loans

FSA will take legal action to collect the

money you owe. They will foreclose on real

estate and other property used to secure your

loans. They may also stop the release of

money from the sale of crops or other

property. They will take by administrative

offset any money you are owed by other

Federal agencies.

Steps You Can Take Before FSA Accelerates

or Continues Acceleration of Your Loans

(1) Ask for a meeting. You can ask to meet

with your FSA servicing official before they

decide to accelerate or continue acceleration

of your loan. You must check the box on

Attachment 10–A saying you want a meeting.

[Attachment 10–A is the ‘‘Response to Notice

of Intent to Accelerate or Continue

Acceleration of My Loan.’’]

How Soon Must I Ask for a Meeting? You

must ask for a meeting within 15 days from

the date of this notice. Check the box on

Attachment 10–A. Return it to your county

office. Do this as soon as possible.

(2) Appeal. You can ask for an

administrative appeal. On appeal, you can

contest FSA’s decision to accelerate or

continue acceleration of your loan. You can

ask for an administrative appeal, even if you

have asked for a meeting and your problems

were not resolved at that meeting. However,

you only have the opportunity to appeal an

issue once. For example, if you previously

appealed or had the opportunity to appeal a

favorable debt restructuring offer and were

not successful on appeal, or did not appeal

within the time alloted, you cannot appeal

this offer again. You can ask for an appeal

even if you do not have a meeting.

How to Ask for an Appeal. Your request for

appeal must be in writing and sent directly

to the National Appeals Division, (NAD),

<NAD Area Director’s address>. Your letter

must describe FSA’s decision and why you

believe the decision was not correct. In order

for this decision to be changed, you will have

to show why the decision should be reversed.

Mail a copy of your request to the FSA

county office. Your request for appeal must

be postmarked no later than 30 days from the

date you receive this notice.

What Happens if You Do Not Respond? If

you do not respond to this notice by filling

out Attachment 10–A, or request an appeal,

FSA will accelerate or continue acceleration

of any loans. This means they will take legal

action to collect the unpaid loan, including

foreclosure as described above.

Note: Foreclosure means you lose the title

to your land. But you can still apply for

homestead protection to keep possession of

your house. [See Exhibit A, Attachment 1

sent to you on llll. If you did not get

these forms, contact your county office

within 15 days of this notice.]

The Right Not To Be Discriminated Against

Federal law does not allow discrimination

of any kind. You cannot be denied a loan

because of your race, color, religion, national

origin, sex, marital status, handicap, or age (if

you can legally sign a contract). You cannot

be denied a loan because all or a part of your

income is from a public assistance program.

If you believe you have been discriminated

against for any of these reasons, you should

write to the Secretary of Agriculture,

Washington, DC 20250.

You cannot be denied a loan because you

exercised your rights under the Consumer

Credit Protection Act. You must have

exercised these rights in good faith. The

Federal Agency responsible for seeing this

law is obeyed is the Federal Trade

Commission, Washington, DC 20580.

Sincerely,

Attachment 10—Response to Notice

Informing Me of FSA’S Intent To

Accelerate or Continue To Accelerate

My Loan

Notice of My Rights

TO: Farm Service Agency

FROM: lllllllllllllllll

(Please print your name and

address.)

I want to: (Check one or more of the

following boxes)

[ ] (1) Request a meeting with the FSA

servicing official.

My telephone number is llllll.

I understand I do not lose my right to

appeal if I ask for a meeting.

[ ] (2) Voluntarily sign over to FSA all the

property used to secure my loan and settle

my debt.

[ ] (3) Request an independent appraisal

of property securing my loans. I understand

I must pay for this appraisal. I understand

FSA will give me names of three qualified

appraisers.

[ ] (4) Homestead Protection.

I understand that if I want to appeal FSA’s

decision to accelerate my loan, I must send

a letter requesting an appeal to the National

Appeals Division. My letter must describe

FSA’s decision and why I believe the

decision was not correct. I should also send

the FSA county office a copy of my appeal

request. I understand that I will be contacted

by the National Appeals Division to set up

the appeal hearing date and give me more

information. My request for an appeal must

be postmarked no later than 30 days from the

date I received this notice.

Signed lllllllllllllllll

Date llllllllllllllllll

Attachment 10–A—Response to Notice

Informing Me of FSA’S Intent To

Accelerate or Continue To Accelerate

My Loan

(To Be Used for Borrowers Receiving Notices

on or After November 28, 1990)

Notice of My Rights

TO: Farm Service Agency

FROM: lllllllllllllllll

(Please print your name and

address.)

I want to: (Check one or more of the

following boxes)

[ ] (1) Request a meeting with the FSA

servicing official.

My telephone number is llllll.

I must return this form within 15 days.

I understand I do not lose my right to

appeal if I ask for a meeting.

[ ] (2) Voluntarily sign over to FSA all the

property used to secure my loan and settle

my debt.

[ ] (3) Homestead Protection.

I understand that if I want to appeal FSA’s

decision to accelerate my loan, I must send

a letter requesting an appeal to the National

Appeals Division. My letter must describe

FSA’s decision and why I believe the

decision was not correct. I should also send

the FSA county office a copy of my appeal

request. I understand that I will be contacted

by the National Appeals Division to set up

the appeal hearing date and give me more

information. My request for an appeal must

be postmarked no later than 30 days from the

date I received this notice.

Signed lllllllllllllllll

Date llllllllllllllllll

20. Exhibit B is revised to read as follows:

Exhibit B—Notification of Offer To

Restructure Debt for Financially

Distressed Borrowers Current on Their

Loan Payments

(Borrower’s Name and Address)

(Date)

Dear (Borrower’s Name):

We have determined that the Farm Service

Agency (FSA) can approve your request for

primary loan servicing programs.

Our calculations indicate that you will be

able to make the necessary annual payment

on your FSA loan if your loan is restructured

through the use of primary loan servicing

programs. The attached computer printout

indicates the primary loan servicing program

that will help you overcome your financial

difficulty and provide the greatest net

recovery to the Government. Therefore, We

are offering to restructure your FSA debt in

the following fashion:

lllllllllllllllllllll

lllllllllllllllllllll

* As a condition of this restructuring, you

must agree to meet, at your own cost, FSA’s

training requirements which provide

instruction in production and financial

management within 2 years of the date your

loans are restructured. The cost will be

included in your farm plan as an operating

expense. Upon completion of the training,

the instructor will assign a score according to

the following criteria:
10144 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

Score

1 The borrower attended classroom

sessions as agreed, satisfactorily completed

all assignments, and demonstrated an

understanding of the course material.

2 The borrower attended classroom

sessions as agreed and attempted to complete

all assignments; however, the borrower does

not demonstrate an understanding of the

course material.

3 The borrower did not attend classroom

sessions as agreed or did not attempt to

complete assignments. In general, the

borrower did not make a good faith effort to

complete the training.

Attached is a list of courses you will be

required to complete to fulfill the training

requirement. A list of approved vendors in

your area for these courses is also attached.

Any denial of a request for a waiver of the

training requirement is not appealable. If you

fail to complete the training as agreed, you

will be ineligible for future FSA benefits

including future direct and guaranteed loans,

Primary Loan Servicing, Interest Assistance

renewals, and restructuring of guaranteed

loans.

* The County Committee has waived the

training requirement for the restructuring

offered in this notice.

If you want FSA to use the primary

servicing program identified on the computer

printout, you must accept this offer in

writing. Your acceptance must be received by

FSA not later than 45 days from your receipt

of this letter. You may accept this offer in

writing by signing and returning the attached

form titled ‘‘Acceptance of Offer to

Restructure my Debt.’’

If you do not accept this offer within 45

days, and your account becomes delinquent,

FSA will renotify you of all servicing options

available at that time.

Sincerely,

* Indicates optional paragraphs to fit the

individual circumstances.

Attachment 1—Acceptance of Offer to

Restructure My Debt

(Date)

TO: Farm Service Agency

FROM: (Please print your name and address)

I have received your offer to restructure my

FSA debt. I would like to accept that offer.

Sincerely,

(Borrower’s signature)

lllllllllllllllllllll

(Date)

21. Exhibit C is revised to read as follows:

Exhibit C—Net Recovery Buyout

Recapture Agreement

In consideration of the Farm Service

Agency (FSA) allowing me to purchase the

real estate property securing my FSA Farm

Loan Programs loan obligations at the net

recovery value of $ lll in accordance

with 7 CFR part 1951, subpart S, I agree to

pay to difference between the net recovery

value of the security of $ llll and the

fair market value of the real estate property

of $ llll as of the date of this agreement,

if I sell or otherwise convey the security

within 2 years of this agreement for an

amount which exceeds the net recovery

value. This amount is $ llll. I further

agree to give FSA a mortgage or deed of trust

to secure this amount for the best lien

obtainable which will be subordinate to any

purchase money security instrument which

does not exceed the fair market value of the

property to enable the borrower to purchase

the property from FSA at the net recovery

value. This mortgage or deed of trust will be

released 2 years from the date of this

agreement if I do not sell or convey the

property during the two year period.

I understand that the difference between

the net recovery value of the real estate

securing the FSA loan obligations and the

fair market value of the real estate security

specified above will all be due and payable

on the day of sale or conveyance if I sell or

otherwise convey the real estate property

within two (2) years from the date of this

agreement, if I realize a gain in this

transaction.

Loan Balance $ llll.

Amount of Buyout $ llll.

lllllllllllllllllllll

Date of Agreement

lllllllllllllllllllll

Borrower

22. Exhibit C–1 is revised to read as

follows:

Attachment C–1—Net Recovery Buyout

Recapture Agreement

Purpose

This agreement with FSA will allow you to

buy out your loan at the net recovery value.

1. I llllllll understand and agree

to the following conditions.

2. I will give FSA a lien (mortgage or deed

of trust) on the FSA real estate security

property I own to secure this agreement.

The lien is to secure the maximum

recapture amount listed in item 6.c. of this

agreement. This lien is secondary to the

following liens, including any lien used to

obtain the net recovery buyout amount up to

the net recovery value.

lllllllllllllllllllll

(name, address, and unpaid balance of liens)

3. I agree that if I do not sell or convey any

portion of the real estate used as security for

10 years, the agreement and any liability you

have under it will be satisfied at the end of

10 years, and then FSA will release its lien.

Note: Convey includes, but is not limited

to, any form of transfer in all or any portion

of the real estate property, including sale,

gift, Contract Sale or Purchase Agreement,

foreclosure, and below-fair-market sale, but

does not include a mortgage or deed of trust.

Transfer of title to property to a spouse or

child who is actively engaged in farming the

property upon the death or retirement of a

borrower will not be treated as a conveyance.

In such a transaction, FSA will not release its

lien, and the transferee will assume liability

under the agreement.

4. I agree that as of the date of this

agreement, the net recovery value of the real

estate is $ llll.

5. I agree that as of the date of this

agreement, the total amount of the FSA debt

secured by real estate including principal

and interest before buyout is $ llllll.

6. If I do sell or convey any part or all of

this real estate within 10 years of this

agreement, I must pay FSA the recapture

amount for that part sold or conveyed which

is the smaller of a., b., or c.

a. The Fair Market Value of the real estate

parcel at the time of the sale or conveyance,

as determined by an FSA appraisal, minus

that portion of the recovery value of the real

estate represented in item 4,

b. The Fair Market Value of the real estate

parcel at the time of the sale or conveyance,

as determined by an FSA appraisal, minus

the unpaid balance of prior liens at the time

of the sale or conveyance, minus the net

recovery value of the real estate in item 4 if

this amount has not been accounted for as a

prior lien, or

c. The total amount of the FSA debt written

off for loans secured by real estate.

I agree that the amount in Item 5 is the

outstanding balance of principal and interest

owed on the FSA Farm Loan Programs loans

as of the date of this agreement, minus the

net recovery value of the real estate in item

4. This amount is $ llllll and is the

maximum amount that can be recaptured.

7. When I pay the recapture amount due,

FSA will release its lien on the property sold

or conveyed. The agreement and any liability

I have under it will be satisfied at the end

of 10 years if I have made all the required

payments under the recapture agreement.

The agreement and any liability I have under

it will be satisfied before this time only if I

sell or convey all of the real estate securing

this agreement and make all the required

payments under the agreement.

8. This agreement is subject to FSA

regulations in 7 CFR part 1951, subpart S,

and any future regulations which are

consistent with this agreement.

9. The date of this agreement is the latest

date of the dates below.

Signed lllllllllllllllll

(borrower or obligor)

Date llllllllllllllllll

Signed lllllllllllllllll

(borrower or obligor)

Date llllllllllllllllll

lllllllllllllllllllll

(FSA)

Date llllllllllllllllll

23. Exhibit E is revised to read as follows:

Exhibit E—Notification of Adverse

Decision for Primary Loan Servicing,

Mediation or Meeting of Creditors and

Other Options

(Borrower’s Name and Address)

Dear (Borrower’s Name):

The Farm Service Agency (FSA) has

carefully considered your request for primary

loan servicing programs. Due to your debt

with lenders other than FSA, you are unable

to develop a feasible plan. Your Farm and

Home Plan must show that you have enough

income after payment of your essential living

and operating expenses and other non-FSA

debts to make an annual payment to FSA of

at least $ llllll. The attached

computer printout shows that in order to

develop a feasible plan and receive primary
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10145

loan servicing, you would need to increase

your cash available to pay FSA and your

other debts by $ llllll.

If you did not previously request a

Conservation Contract, you may request this

servicing action by submitting a map or FSA

aerial photo indicating that portion of the

farm and the appropriate acres to be

considered. You must submit this

information to FSA within 30 days of

receiving this notice.

(To be used when Certified State Mediation

is available)

Certified State Mediation

We are requesting mediation under the

(Name) State Certified Mediation Program.

We will work with you and your creditors to

determine if your debts can be adjusted

sufficiently to permit you to develop a

feasible plan of operation. If, with the

adjustment of your debt, you are able to

develop a feasible plan of operation which

shows that you can make an annual payment

to FSA of at least $lll, FSA will

reconsider your application for primary loan

servicing.

(To be used when Certified State Mediation

is not available and undersecured creditors

have a substantial part of the total borrower’s

debt.)

Meeting of Creditors

If you request, we will schedule a meeting

with you and your other creditors in an effort

to reach agreements with them to adjust your

debts sufficiently to permit you to develop a

feasible plan of operation. The FSA State

Executive Director will contract for a

mediator or appoint an FSA representative

not previously involved in servicing of your

account upon your written request to

participate in the meeting with creditors.

Sign the attached acknowledgement within

30 days of the date of this letter. The

acknowledgment will be your written request

and consent to FSA releasing information

concerning your account to other creditors

who participate in the meeting.

(To be used when Certified State Mediation

is not available and undersecured creditors

do not hold a substantial part of the total

borrower’s debt.)

We will not be scheduling a meeting with

you and your other creditors in an effort to

reach agreements with them to adjust your

debts. We have determined that your other

creditors do not hold a sufficient amount of

your total debt to permit you to develop a

feasible plan of operation even if their debts

are entirely written off. You may object to our

determination not to give you a voluntary

meeting of creditors in any appeal you may

have. You will be notified of your appeal

rights in a later notice.

(The following paragraphs will be removed

if the application was submitted before

November 28, 1990, or the borrower does not

have any nonessential assets.)

Nonessential Assets

FSA has determined that you have

nonessential assets that do not contribute

income to pay essential family living and

farm operating expenses. The net recovery

value (NRV) of the nonessential assets has

been added to the NRV of the FSA collateral

for the calculation on the attached printout.

The NRV of the nonessential assets is

$llll. Your nonessential assets and their

NRVs are as follows:

Nonessential Assets

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

NRVs

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

FSA encourages you to sell the

nonessential assets or borrow against their

value. If you pay the NRV of the nonessential

assets on your FSA debt, that amount will be

subtracted from your debt and FSA will

reevaluate your servicing request. If you are

going to pay FSA the NRV of your

nonessential assets, you must do so within 45

days of the date of receiving this letter. You

must check the appropriate block on the

response form and return it to FSA within 45

days with $llll for payment of the NRV

of the nonessential assets. If you want to

reduce the NRV, you must pay FSA before

any mediation or meeting of creditors.

If you wish to dispute FSA’s decision that

you own nonessential assets, you will be

given the opportunity to appeal if mediation

or the meeting of creditors is unsuccessful. If

mediation or a meeting of creditors is not

held, you will be notified of your appeal

rights in a later notice.

Negotiation of the Appraisal

If you object to the FSA appraisal of your

property, you may ask the FSA by returning

the ‘‘Response Form’’ to negotiate the

appraisal with you. You must ask to negotiate

the FSA appraisal within 30 days from the

date you receive this notice. To do this you

must provide FSA with a copy of your

current independent appraisal or you must

now obtain, at your cost, an independent

appraisal of your property. The appraisal and

the appraiser must meet certain standards

published in FSA regulations.

If you do not have a current independent

appraisal and wish FSA to assist you, check

option 2 of the ‘‘Response Form’’ and FSA

will provide you with a list of such

appraisers.

You must provide FSA a copy of your

independent appraisal within 30 days of

requesting negotiation.

If your current independent appraisal is

within five percent of the FSA appraisal, you

must select which appraisal of the two you

want FSA to use in processing your request.

The appraisal you select will be the final

appraisal. It cannot be further negotiated or

appealed. If the difference is more than five

percent and you have requested a negotiated

appraisal, you and FSA will choose an

independent appraiser to complete a third

appraisal. You must pay one-half of the cost

of the third appraisal. FSA will pay for the

other half of the third appraisal. You, the

appraiser and the servicing official must

complete and sign an appraisal agreement.

Following the completion of the third

appraisal, the average of the two appraisals

that are closest in value, as determined by

FSA, shall establish the appraised value to be

used. This final negotiated appraisal is not

appealable. Do not select this option of the

‘‘Response Form’’ if you and FSA have

already negotiated your appraisal.

If you choose not to negotiate and wish to

dispute FSA’s appraisal, you will be given

the opportunity to appeal in a later notice. If

you believe there are mathematical or

property description errors in the appraisals,

you should immediately contact the servicing

official. If you and the servicing official

agree, the corrections will be made and

initialed by both you and the servicing

official.

If you want information on the

requirements of an FSA appraisal, you may

request a copy of the FSA appraisal

regulations from the servicing official.

Sincerely,

Attachment

Attachment 1—Borrower’s Request for

Meeting of Creditors and Acknowledgment

I have been given a notice explaining that

I am not eligible for primary loan service

programs. FSA has told me that due to my

debt with other lenders it does not believe I

can develop a feasible plan. I request that you

schedule a meeting with my undersecured

creditors to assist me in developing a feasible

plan of operation. I consent to FSA releasing

information concerning my FSA account to

these creditors to assist me in developing a

feasible plan.

(Date) llllllllllllllllll

(Borrower’s signature) llllllllll

Attachment 2—Borrower’s Request for

Meeting of Creditors or Request to Negotiate

the FSA Appraisal and Acknowledgment

I have been given a notice explaining that

I am not eligible for primary loan service

programs.

I want to:

[Check the appropriate box or boxes.]

[ ] (1) Request an independent appraisal

of my property including any nonessential

assets.

I must return this ‘‘Response Form’’ within

30 days to request an independent appraisal.

I understand that I must pay for this

appraisal. I understand that the FSA

servicing official will give me a list of

appraisers.

If the independent appraisal is within five

percent of the FSA appraisal, I must select

which of the two appraisals I want to be used

for processing my request.

[ ] (2) Request Negotiation of the

Appraisal.

I must return this ‘‘Response Form’’ within

30 days to request a negotiation of my

appraisal.

I understand that I must provide FSA with

a copy of my independent appraisal within

30 days of requesting negotiation. I

understand that I must pay for this appraisal

and one-half of a third appraisal, if necessary.

I understand that FSA will not negotiate the

appraisal more than once.

[ ] (3) I request a copy of the recent FSA

appraisal of my property.

[ ] (4) I am paying FSA the net recovery

value of any nonessential assets that FSA has
10146 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

said I own. I will pay this amount within 45

days.

Please recalculate the restructuring of the

FSA debt.

* [ ] (5) Request that you schedule a

meeting with my undersecured creditors to

assist me in trying to develop a feasible plan

of operation. I consent to FSA releasing

information concerning my FSA account to

these creditors to assist me in developing a

feasible plan. I must return this ‘‘Response

Form’’ within 30 days if I want a meeting.

(Date) llllllllllllllllll

(Borrower’s signature) llllllllll

* Optional paragraph depending on the

circumstances.

24. Exhibit F is revised to read as follows:

Exhibit F—Notification of Offer to

Restructure Debt

(Borrower’s Name and Address)

Date

Dear (Borrower’s Name):

We have determined that the Farm Service

Agency (FSA) can approve your request for

primary loan servicing programs.

Offer

Our calculations indicate that you will be

able to develop a feasible plan and make the

necessary annual payment on your FSA loan

if your loan is restructured in the following

fashion:

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

The attached computer printout indicates

the primary loan servicing program that will

keep you on the farm and provide the

greatest net recovery to the Government.

* Our calculations indicate that a feasible

plan can be found with or without a

writedown, as described below. However,

with a writedown, your cash flow margin

would be lll percent, whereas without a

writedown, your cash flow margin would

only be lll percent. You can choose to

accept the restructuring offer with or without

a writedown on the attached response form.

If you choose a writedown, you will not be

able to receive future loans through FSA,

except for annual operating loans.

* As a condition of this restructuring, you

must agree to meet, at your own cost, FSA’s

training requirements which provide

instruction in production and financial

management within 2 years of the date your

loans are restructured. The cost will be

included in your farm plan as an operating

expense. Upon completion of the training,

the instructor will assign a score according to

the following criteria:

Score

1 The borrower attended classroom

sessions as agreed, satisfactorily completed

all assignments, and demonstrated an

understanding of the course material.

2 The borrower attended classroom

sessions as agreed and attempted to complete

all assignments; however, the borrower does

not demonstrate an understanding of the

course material.

3 The borrower did not attend classroom

sessions as agreed or did not attempt to

complete assignments. In general, the

borrower did not make a good faith effort to

complete the training.

Attached is a list of courses you will be

required to complete to fulfill the training

requirement. A list of approved vendors in

your area for these courses is also attached.

Any denial of a request for a waiver of the

training requirement is not appealable. If you

fail to complete the training as agreed, you

will be ineligible for future FSA benefits

including future direct and guaranteed loans,

Primary Loan Servicing, Interest Assistance

renewals, and restructuring of guaranteed

loans.

* The County Committee has waived the

training requirement for the restructuring

offered in this notice.

If you want FSA to use the primary

servicing program identified on the computer

printout to restructure your debt, you must

accept this offer in writing. Your acceptance

must be received by FSA no later than 45

days from your receipt of this letter. You may

accept this offer in writing by signing and

returning the attached form titled

‘‘Acceptance of Offer to Restructure my

Debt.’’

* Nonessential Assets

FSA has determined that you have

nonessential assets that do not contribute a

net income to pay essential family living

expenses or maintain a sound farming

operation. The net recovery value (NRV) of

the nonessential assets has been added to the

NRV of the FSA collateral for the calculation

on the attached printout. The NRV of the

nonessential assets is $ lll. Your

nonessential assets and their NRVs are as

follows:

Nonessential Assets

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

NRVs llllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

FSA encourages you to sell the

nonessential assets or borrow against their

value. If you pay the NRV of the nonessential

assets, the amount will be subtracted from

your debt and FSA will recalculate the value

of your FSA debt. If you are going to pay FSA

the NRV of your nonessential assets, you

must do so within 45 days of the date of

receiving this letter. You must check the

appropriate block on the response form and

return it to FSA within 45 days with your

payment for the NRV of the nonessential

assets of $llllll.

If you wish to dispute FSA’s decision that

you own nonessential assets or disagree with

the offer presented, you may request a

meeting and/or an appeal.

Negotiation of the Appraisal

If you object to the FSA appraisal of your

property, you may ask the FSA to negotiate

the appraisal with you by returning the

‘‘Response Form.’’ You must ask to negotiate

the FSA appraisal within 30 days from the

date you receive this notice. To do this, you

must provide FSA with a copy of your

current independent appraisal or you must

now obtain, at your cost, an independent

appraisal of your property. The appraisal and

the appraiser must meet certain standards

published in FSA regulations.

If you do not have a current appraisal and

wish FSA to assist you, check option 2 of the

‘‘Response Form’’ and FSA will provide you

with a list of such appraisers.

You must provide FSA a copy of your

independent appraisal within 30 days of

requesting negotiation.

If your current independent appraisal is

within five percent of the FSA appraisal, you

must select which appraisal of the two you

want FSA to use in processing your request.

The appraisal you select will be the final

appraisal. It cannot be further negotiated or

appealed. If the difference is more than five

percent and you have requested a negotiated

appraisal, you and FSA will choose an

independent appraiser to complete a third

appraisal. You must pay one-half of the cost

of the third appraisal. You, the appraiser and

the servicing official must complete and sign

an appraisal agreement for this appraisal.

FSA will pay for the other half of the third

appraisal. Following the completion of the

third appraisal, the average of the two

appraisals that are closest in value, as

determined by FSA, shall establish the

appraised value to be used. This final

negotiated appraisal is not appealable. Do not

select this option on the ‘‘Response Form’’ if

you and FSA have already negotiated your

appraisal.

If you wish to dispute FSA’s appraisal, but

do want to reach agreement with FSA by

negotiating the appraisal, you may also

request a meeting or appeal of other items of

the decision that you do not agree with by

checking the appropriate box on the attached

response form. If you believe there are

mathematical or property description errors

in the appraisals, you should immediately

contact the servicing official. If you and the

servicing official agree, the corrections will

be made and initialed by both you and the

servicing official.

If you want information on the

requirements of an FSA appraisal, you may

request a copy of the FSA appraisal

regulations from the servicing official.

What Happens If You Do Not Accept the

Offer

If you do not accept the restructuring offer

on page 1, FSA will deny your request for

primary loan servicing and send you an

additional notice stating that FSA intends to

liquidate your account. You can appeal

FSA’s offer by sending a letter requesting

appeal directly to the National Appeals

Division, (NAD), <NAD Area Director’s

address>. Your letter must describe FSA’s

decision and why you believe the decision

was not correct. In order for this decision to

be changed, you will have to show why the

decision should be reversed. A copy of your

request should be sent to the FSA county

office. Your request must be postmarked no

later than 30 days from the date you received

this notice.

YOU MAY HAVE A FEDERAL INCOME

TAX LIABILITY IF FSA RESTRUCTURES

YOUR FSA INDEBTEDNESS WITH A
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10147

WRITEDOWN. YOU SHOULD CONTACT

THE INTERNAL REVENUE SERVICE (IRS)

FOR INFORMATION.

Sincerely,

* Optional paragraphs depending on

circumstance.

Attachment 1—Acceptance of Offer To

Restructure My Debt

TO: Farm Service Agency

FROM: (Please print your name and address)

I have received your offer to restructure my

FSA debt.

I would like to accept that offer.

Sincerely.

(Borrower’s signature)

(Date) llllllllllllllllll

Attachment 2—Acceptance of

Restructuring Offer, Request To

Negotiate Appraisal or Pay FSA the

NRV of Nonessential Assets

(This Attachment Will Be Used Instead of

Attachment 1 for Borrowers Who Submitted

Applications On or After November 28, 1990)

TO: Farm Service Agency

FROM: (Please print your name and address)

I have received your offer to restructure my

FSA debt.

(Check the appropriate blocks.)

* [ ](1) I accept FSA’s offer to restructure

my debt. I understand that I must accept

FSA’s offer within 45 days of receiving

Exhibit F.

* [ ](1) I accept FSA’s offer to restructure

my debt as follows: (Put an ‘‘X’’ in Block (a)

or (b).) I undestand I must accept FSA’s offer

within 45 days of receiving Exhibit F.

(a) [ ] With a writedown giving me a

higher cash flow margin than without a

writedown.

(b) [ ] Without a writedown giving me a

lower cash flow margin than if I would take

the writedown.

[ ](2) I request an independent appraisal

of my property including any nonessential

assets. If the difference between my

independent appraisal and the FSA appraisal

is not more than five percent, I understand

that I must select which of the two appraisals

I want to be used for reconsidering my

request. In such a case, there will not be an

appeal of the appraisal or any further

negotiation of the appraisal.

I must return this ‘‘Response Form’’ within

30 days to request an independent appraisal.

I understand that I must pay for this

appraisal. I understand that the FSA

servicing official will give me a list of

appraisers.

[ ](3) I request a copy of the FSA recent

appraisal of my property.

[ ](4) Request Negotiation of the

Appraisal.

I must return this ‘‘Response Form’’ within

30 days to request a negotiation of my

appraisal.

I understand that I must provide FSA with

a copy of my independent appraisal within

30 days of requesting negotiation. I

understand that I must pay for this appraisal

plus one-half of a third appraisal, if

necessary. I understand that FSA will not

negotiate the appraisal more than once.

[ ](5) I intend to pay FSA the net recovery

value of any nonessential assets that FSA has

said I own.

I understand that I must pay the net

recovery value of the nonessential assets

within 45 days of receiving Exhibit F.

I understand that if I want to appeal FSA’s

offer to restructure, I must send a letter

requesting an appeal to the National Appeals

Division. My letter must describe FSA’s

decision and why I believe the decision was

not correct. I should also send the FSA

county office a copy of my appeal request. I

understand that I will be contacted by the

National Appeals Division to set up the

appeal hearing date and give me more

information. My request for an appeal must

be postmarked no later than 30 days from the

date I received this notice. If possible, I

should submit a copy of my independent

appraisal to the FSA servicing official and

the hearing officer prior to the appeal hearing

if I am appealing the appraisal.

Sincerely,

(Borrower’s signature)

lllllllllllllllllllll

(Date)

* Optional paragraphs depending on the

circumstance.

25. Exhibit H is revised to read as

follows:

Exhibit H—Conservation Contract

Program

I. General

A Conservation Contract (CC) may be

exchanged, when requested by a borrower

(current or delinquent), for a cancellation of

a portion of the borrower’s FSA

indebtedness. The CC may be considered

alone, or with other Primary Loan Servicing

Programs as set forth in 7 CFR 1951.909.

These contracts can be established for

conservation, recreational, and wildlife

purposes on farm property that is wetland,

wildlife habitat, upland or highly erodible

land. Such land must be suitable for the

purposes involved. All Farm Loan Programs

loans which are secured by real estate may

be considered for a CC. Non-program loan

debtors are not eligible to receive any

benefits under this section.

Definitions

(1) Conservation purposes. These include

protecting or conserving any of the following

environmental resources or land uses:

(a) Wetland, except when such term is part

of the term Converted wetland, is land that

the Natural Resources Conservation Service

(NRCS) has determined has a predominance

of hydric soils and that is inundated or

saturated by surface or ground water at a

frequency and duration sufficient to support,

and that under normal circumstances does

support, a prevalence of hydrophytic

vegetation typically adapted for life in

saturated soil conditions, except that this

term does not include lands in Alaska

identified as having a high potential for

agricultural development and a

predominance of permafrost soils.

(i) Hydric soils means soils that, in an

undrained condition, are saturated, flooded,

or ponded long enough during a growing

season to develop an anaerobic condition

that supports the growth and regeneration of

hydrophytic vegetation;

(ii) Hydrophytic vegetation means a plant

growing in—

(A) Water; or

(B) A substrate that is at least periodically

deficient in oxygen during a growing season

as a result of excessive water content;

(b) Highly erodible land is land that NRCS

has determined has an erodibility index of 8

or more.

(c) Upland is a term used in the law to refer

to land other than highly erodible land and

wetland. Although upland in its normal use

implies many types of land, it has been more

narrowly defined for this purpose to include

land or water areas that meet any one of the

following criteria:

(i) One-hundred year floodplain,

(ii) Aquatic life, or wildlife habitat or

endangered plant habitat of local, regional,

State or Federal importance,

(iii) Aquifer recharge area of local, regional

or State importance, including lands in the

wellhead protection program for public water

supplies authorized by the Safe Drinking

Water Act Amendments of 1986,

(iv) Area of high water quality or scenic

value,

(v) Area containing historic or cultural

property, which is listed in or eligible for the

National Register of Historic Places, as

provided by the National Historic

Preservation Act (NHPA),

(vi) Area that provides a buffer zone

necessary for the adequate protection of

proposed conservation contract areas,

(vii) Area within or adjacent to a National

Park, U.S. Fish and Wildlife Service

administered area, State Fish and Wildlife

agency administered area, a National Forest,

a Bureau of Land Management administered

area, a Wilderness Area, a National Trail, a

unit of the Coastal Barrier Resource System,

abandoned railroad corridors contained in

local, State or Federal open space, recreation

or trail plans, Federal or State Wild or Scenic

River, U.S. Army Corps of Engineers land

designated for flood control or recreation

purposes, State and local recreation, natural

or wildlife areas or State Conservation

Agency administered areas.

(viii) Area that NRCS determines contains

soils that are generally not suited for

cultivation such as soils in land capability

classes IV, V, VI, VII or VIII in the NRCS’s

Land Capability Classification System.

(d) Wildlife habitat is a term used to

include the area that provides direct support

for given wildlife species, species life stages,

populations, or communities determined

appropriate by the Conservation Agency

within the State as being of State, regional or

local importance or as determined by the

Fish and Wildlife Service to be of national

importance. This wildlife habitat area

includes all acceptable environmental

features such as air quality, water quality,

vegetation, and soil characteristics.

(2) Management authority. Any agency of

the United States, a State, or a unit of local

Government of a State, a person, or an
10148 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

individual that is designated in writing by

FSA to carry out all or a portion of the

activities necessary to manage and

implement the terms and conditions of a

contract or its management plan. The

borrower whose land is subject to the

contract may be eligible to be designated as

a management authority.

(3) Person. Any agency of the United

States, a State, a unit of local Government

within a State, or a private or public

nonprofit organization.

(4) Recreational purposes. These activities

include providing public use for both

consumption (e.g. hunting, fishing) and

nonconsumption (e.g. camping, hiking)

recreational activities, in a manner that

conserves wildlife and their habitats, ensures

public safety, complies with applicable laws,

regulations, and ordinances and permits the

operation of the remaining farm enterprise.

(5) Wildlife. Means any wild animal,

whether alive or dead, including any wild

mammal, bird, reptile, amphibian, fish,

mollusk, crustacean, arthropod, coelenterate,

or other invertebrate, whether or not bred,

hatched, or born in captivity, and includes

any part, product, egg, or offspring.

(6) Wildlife purposes. These program

objectives include establishing and managing

areas that contain fish and wildlife habitats

of local, regional, State or Federal

importance.

II. Eligibility

The following steps must be taken to

determine if the borrower is eligible for a

conservation contract. If the borrower is

found to be ineligible, the FSA servicing

official will notify the borrower of the

opportunity to appeal the adverse decision

on the eligibility for the contract after a final

decision is made on whether the borrower

qualifies for any other servicing options. The

servicing official must find that:

(1) All Farm Loan Programs loans which

are secured by real estate may be considered

for a CC. A real estate mortgage or deed of

trust taken on a borrower’s real estate as

additional security for a Farm Loan Programs

loan qualifies as real estate security.

(2) The proposed contract helps a qualified

borrower to repay the loan in a timely

manner.

(3) If the land being proposed for the

contract is within the FSA Conservation

Reserve Program, both the requirements of

that program and this section can be met.

III. Establishing the Contract Review Team

The servicing official will establish a

contract review team by notifying the

appropriate field offices of the Natural

Resources Conservation Service (NRCS), U.S.

Fish and Wildlife Service (FWS), State Fish

and Wildlife Agencies, Conservation

Districts, National Park Service, Forest

Service (FS), State Historic Preservation

Officer, State Conservation Agencies, State

Environmental Protection Agency, State

Natural Resource Agencies, adjacent public

landowner, and any other entity that may

have an interest and qualifies to be a

management authority for a contract. The

notified parties may in turn notify other

eligible entities. NRCS, for example, may

want to notify the appropriate Conservation

District. As part of the notification, the

servicing official will provide an

approximate location and a general

description of the potentially affected land.

All notified parties will be invited to serve

on the contract review team.

IV. Responsibilities of the Contract Review

Team

NRCS will lead the contract review team

which in every case will be composed of an

NRCS, FSA and FWS representative, plus all

other parties that accepted the invitation to

participate. To the extent practicable, a site

visit will be conducted within fifteen days

from the date the review team members are

invited to participate. Any lien holder and

the borrower will be informed of the site visit

time and invited to attend. Within thirty days

after the site visit, a report will be developed

by the review team and provided to the

servicing official. The report will cover the

items listed in paragraphs (A) through (F) of

this paragraph and will be prepared by the

review team. The items to be addressed in

the review team report are:

(A) The amount of land, if any, which is

wetland, wildlife habitat, upland or highly

erodible land and the approximate

boundaries of each type of land. If applicable,

contract boundaries may be recommended

which go beyond the wetland, upland, or

highly erodible land but are necessary for

either the establishment of identifiable

contract boundaries or are required for the

efficient management of the contract’s terms

and conditions.

(B) A finding of whether the land is

suitable for conservation, recreation or

wildlife habitat purposes and a priority

ranking of purposes included, if the land can

be so classified and ranked.

First, priority will be given to land contract

opportunities to benefit wildlife species of

Federal Trust responsibility (e.g., migratory

birds and endangered species) and their

habitats (e.g., wetlands). Special

consideration will be given to opportunities

to benefit a combination of conservation,

recreation and wildlife habitat purposes.

When there are other land contracts already

established or under review within the local

area and the intent of these contracts has

been established, the review team will

consider these actions as purpose rankings

are developed.

(C) If appropriate, any special terms or

conditions that would need to be placed on

the contract plus unique or important

features of the property which would not be

adequately addressed by the standard

contract terms and conditions.

(D) A proposed management plan

consistent with the purpose or purposes for

which the contract would be established. The

management plan will outline the various

management alternatives for the proposed

contract. The selection of the alternatives to

be followed will be based upon future needs,

fund availability, and identification within

the management plan. The management plan

will provide guidance as to the conservation

practices to be followed and the costs which

may occur in the establishment and

maintenance of the contract. This

management plan will specifically

recommend whether or not public

recreational use and public hunting should

be allowed on the contract and provide

supporting reasons for the recommendation

made. Whenever changes are required in the

management plan, FSA, may update the

management plan to reflect the changes.

V. FSA’s Review of Contract Team’s Report

Upon receipt, the Servicing Official will

review the contract team’s report. If the

report indicates that a contract is not feasible

given the nature of the land, or other factors,

the servicing official will inform the

borrower of the reasons that the contract has

been denied and that the borrower may

appeal the denial of the contract or meet with

the servicing official.

VI. Terms of Contracts

Borrowers participating in the debt

cancellation conservation contract program

will be given the option of selecting a 50, 30

or 10 year contract term. The amount of debt

to be canceled will be directly proportional

to the length of the contract. The area placed

under the conservation contract cannot be

used for the production of agricultural

commodities during the term of the contract.

VII. Determining the Amount of Farm Loan

Programs (FLP) Debt That Can Be Canceled

(A) Calculate the amount of debt to be

canceled for a delinquent borrower as

follows:

(1) Step 1. Determine what percent the

number of contract acres is of the total acres

of land that secures the borrower’s FLP loans

by dividing the contract acres that secure the

borrower’s FLP loans by the total acres that

secure the borrower’s FLP loans.

Contract acres divided by Total Farm and

Ranch Acres = Percent of Contract Acres to

Total Acres.

(2) Step 2. Determine the amount of FLP

debt that is secured by the contract acreage

by multiplying the borrower’s total unpaid

FLP loan balance (principal, interest and

recoverable costs already paid by FSA) by the

percentage calculated in step 1. Total FLP

Debt × Percent Calculated in step 1 =

llll

(3) Step 3. Determine the current value of

the land in the contract by multiplying the

present market value of the farm that secures

the borrower’s FLP loans by the percent

calculated in step 1. PMV of Total Farm ×

Percent Calculated in step 1 = llll

(4) Step 4. Subtract the current value of the

contract acres in step 3 from the FLP debt

that is secured by the contract acres in step

2. Result from step 2¥Result from step 3 =

llll

(5) Step 5. Select the greater of the amounts

calculated in step 3 and step 4.

(6) Step 6. Select the lessor of the amounts

calculated in steps 2 and 5. This will be the

maximum amount of debt that can be

canceled for a 50-year contract term.

(7) Step 7. For a 30-year contract term, the

borrower will receive 60 percent of the

amount calculated in step 6. Result from Step

6 × 60% = llll

(8) Step 8. For a 10-year contract term, the

borrower will receive 20 percent of the
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10149

amount calculated in step 6. Result from Step

6 × 20% = llll

(B) Calculate the amount of debt to be

canceled for a current borrower as follows:

(1) Step 1. Determine what percent the

number of contract acres is of the total acres

of land that secures the borrower’s FLP loans

by dividing the contract acres that secure the

borrower’s FLP loans by the total acres that

secure the borrower’s FLP loans. Contract

Acres divided by Total Farm and Ranch

Acres = llll%

(2) Step 2. Determine the amount of FLP

debt that is secured by the contract acreage

by multiplying the borrower’s total unpaid

FLP loan balance (principal, interest and

recoverable costs already paid by FSA) by the

percentage calculated in step 1. Total FLP

Debt × Percent Calculated in step 1 =

llll

(3) Step 3. Multiply the borrower’s total

unpaid FLP loan balance (principal, interest

and recoverable costs already paid by thirtythree (33) percent. Total FLP Debt × 33% =

llll

(4) Step 4. Select the lessor of the amounts

calculated in steps 2 and 3. This is the

maximum amount of debt that can be

canceled for a current borrower receiving a

50-year contract.

(5) Step 5. For a 30-year contact term, the

borrower will receive 60 percent of the

amount calculated in step 4. Amount

calculated in step 4 × 60% = llll

(6) Step 6. For a 10-year contract term, the

borrower will receive 20 percent of the

amount calculated in step 4. Amount

calculated in Step 4 X 20% = llll

(C) Feasibility of debt cancellation. The

servicing official will determine whether or

not the borrower, if provided the amount of

debt cancellation allowed by paragraph (VII)

coupled with other servicing options will be

able to develop a feasible plan for farm

operations for the current and coming year.

In no instance will the total debt cancellation

exceed the maximum amount calculated in

paragraphs (A) or (B) above. If the borrower

would not be able to develop a feasible plan,

the servicing official will notify the borrower

of the reason that the contract has been

denied and that the borrower may appeal this

adverse decision after the servicing official

has decided whether the borrower qualifies

for the additional servicing programs in this

subpart.

(D) The boundaries of the contract area

will be determined by the most appropriate

method including rectangular surveys, and

aerial photographs. A professional survey of

the contract area will not be required but can

be used where needed.

(E) Reaching an agreement with the

borrower. The borrower will be informed of

the contract’s value, the impact on the

remaining financial obligation, and the terms

and conditions of the contract. The borrower

also will be provided a copy of the contract

review team’s report. If the borrower decides

to enter into the contract, approval will be

made by the servicing official, and the

borrower by signing Form FSA 1951–39.

(F) Recording of noncash credit. The total

credit to the borrower’s account will not

exceed the greater of the value of the land on

which the contract is acquired; or the

difference between the amount of the

outstanding indebtedness secured by the real

estate, and the value of the real estate taking

into consideration the term of the contract. In

the case of a non-delinquent borrower, the

amount to be credited will not exceed 33

percent of the amount of the loan secured by

the real estate on which the contract is

obtained taking into consideration the term

of the contract. In all cases, the amount

credited will be applied on the FSA loan as

an extra payment in order of lien priority on

the security. The loan may be reamortized if

needed for both current and delinquent

borrowers.

(H) Contract Records. If State law allows,

the CC will be recorded in the real estate

records.

VIII. Violation of Terms and Conditions

If the borrower violates any of the terms or

conditions of the contract, the violations will

be handled in accordance with the provisions

outlined in the contract.

IX. Authorization Requests

When under the circumstances stated in

the contract’s terms and conditions (Form

FSA 1951–39), the grantor needs the

Government’s written authorization to

proceed with an action, a written request for

such authorization must be provided by the

grantor to the servicing official. In order to

provide the requested written authorization,

the servicing official must determine that the

request does not violate the contract’s terms

and conditions and must receive the written

concurrence of the enforcement authority.

26. Exhibit J–1 is revised to read as follows:

EXHIBIT J–1—The Debt and Loan

Restructuring System (DALR$) (For

applications filed for primary loan

servicing on or after November 28,

1990)

I. INTRODUCTION TO DALR$.

Farm Service Agency (FSA) primary loan

service programs provide a large number of

alternatives for restructuring an agency loan.

Additionally, borrowers may request

consideration for the Softwood Timber (ST)

and Conservation Contract (CC) Programs.

The number of loans a borrower has

increases the number of combinations of

possible servicing alternatives. It is difficult

and virtually impossible to manually

calculate all the potential combinations of

servicing actions. To assure that all the

various possible combinations of programs

are considered, FSA has developed the Debt

and Loan Restructuring System (DALR$) for

operation on the county office computer

system.

DALR$ is a menu driven computerized

support tool that assists FSA field offices in

determining and evaluating the effects of

primary loan servicing in accordance with 7

CFR part 1951, subpart S. DALR$ will

complete a series of mathematical

calculations based on information regarding

the borrower’s cash flow and loan status

obtained from the borrower’s case file. This

information is used in attempting to

restructure the borrower’s debt and maximize

their repayment ability, while avoiding or

minimizing loss to the Government. DALR$

will provide a printed summary of the

computations and outcome of the

calculations.

FSA personnel will not manually perform

the calculations in this exhibit. This exhibit

is provided as a benefit to those who may

want to perform manual calculations, or

understand the procedures DALR$ utilizes

during the execution of the program.

II. ADVANTAGES OF DALR$

The DALR$ system provides the following

benefits to FSA borrowers:

A. Speed of Calculation—Calculations

which would take hours or days are reduced

to minutes. This not only speeds the

processing of servicing requests, but provides

the flexibility to consider several alternative

plans of operation within the same time

constraints.

B. Consistency—The use of DALR$ assures

that the feasibility of all requests for primary

loan servicing will be evaluated on using the

same calculation methods.

C. Full Consideration—DALR$ considers

primary loan service programs and

combinations of those programs for every

borrower entered into the system. Thus,

borrowers can be assured that they will be

considered for as many of these actions as

necessary to develop a feasible plan, if a

feasible plan is possible.

D. Reduction of Errors—Use of DALR$

greatly reduces the potential for errors and

inadvertent denial of assistance due to those

errors. DALR$ eliminates errors in the

calculations. The only potential errors related

to the calculations are input errors, which are

much easier to detect and correct than

calculation errors. However, DALR$ results

are only as reliable as the input data.

IV. OVERVIEW

When computing debt restructuring,

DALR$ will consider all primary loan service

programs, if necessary in attempting to

develop a feasible plan. A combination of

loan service programs may be necessary.

DALR$ will consider each combination until

a feasible plan is developed, or it is

determined that a feasible plan is not

possible with full utilization of primary loan

servicing, ST and CC.

DALR$ will attempt to provide the

maximum margin available up to ten percent

above the total amount needed for payment

of farm operating, family living expenses and

debt repayment after restructuring. If a

feasible plan cannot be developed, DALR$

will determine if the writeoff with market

value buyout (less prior liens) is less than or

equal to the statutory ceiling for writedown

and writeoff. A DALR$ report can be printed

which will detail the offer to restructure the

borrower’s FSA debt, offer to buyout the FSA

Farm Loan Programs (FLP) loans at the

market value, less prior liens, or inform the

borrower that the borrower is not eligible for

primary loan servicing or debt forgiveness.

The DALR$ calculations proceed in the

following general order:

A. DALR$ calculates the net recovery value

(NRV) for FSA security and nonessential

assets.

B. DALR$ computes new loan and annual

operating expense payments at regular

interest rates.
10150 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

C. DALR$ applies loan payments that will

pay loans in full on the proposed restructure

date.

D. DALR$ considers conservation contract,

if requested, to the maximum extent

permitted under the regulations.

Conservation contract (CC) will not be

provided unless a feasible plan is developed

after considering CC and other loan servicing

options.

E. DALR$ reschedules or reamortizes all

delinquent loans at the maximum term with

an interest rate at the lower of the original

note rate or current loan program rate.

Limited resource rate loans will be

rescheduled or reamortized at the lower of

the original note rate or the current limited

resource loan rate. After rescheduling or

reamortizing all delinquent loans, DALR$

will determine if a feasible plan has been

developed with the appropriate debt service

margin.

F. DALR$ reschedules or reamortizes nondelinquent loans at the maximum term and

with an interest rate at the lower of the

original note rate or the current loan program

rate. Limited resource rate loans will be

rescheduled or reamortized at the lower of

the original note rate or the current limited

resource rate. Non-delinquent loans are

rescheduled or reamortized one loan at a

time until a feasible plan is developed with

the appropriate debt service margin, or until

all non-delinquent loans have been

processed.

G. DALR$ reschedules or reamortizes

limited resource eligible loans at the

maximum term and with an interest rate at

the lower of the original note rate or the

current limited resource program interest

rate. Limited resource eligible loans are

rescheduled or reamortized one at a time

until a feasible plan has been developed with

the appropriate debt service margin, or all

limited resource eligible loans have been

processed.

H. DALR$ reschedules or reamortizes

unequal payment loans at the maximum term

and with an interest rate at the lower of the

original note rate or the current loan program

rate (limited resource, if applicable). Unequal

payment loans are rescheduled or

reamortized one at a time until a feasible

plan has been developed with the

appropriate debt service margin, or all

unequal payment loans have been processed.

I. DALR$ determines the cash available to

repay the FSA debt for the first year and the

year after the deferral period by subtracting

non-FSA payments, farm operating expenses,

excluding interest, and family living

expenses from the adjusted balance available.

If the first year cash available is negative,

DALR$ will proceed with paragraph M of

this section. If the first year cash available is

positive and less than the cash available for

the year after the deferral period, DALR$ will

consider loan deferral. Loans will be selected

for deferral so as to minimize the debt

repayment in the year after the deferral

period. If the full deferral of a loan will result

in a cash flow for the first year that exceeds

the appropriate debt service margin, a partial

deferral of the loan is used to eliminate the

excess cash flow margin. A partial deferral

has the added benefit of reducing the

payment amount in the years after the

deferral period.

J. DALR$ considers ST loan deferral, when

requested by the borrower, to the maximum

limits permitted. Previously calculated

regular deferrals will be cancelled prior to

DALR$ considering ST loan deferral. If the

cash available after the deferral period is

greater than the first year cash available, and

ST loan deferral fails to produce a feasible

plan at the applicable debt service margin,

non-ST deferred loans will be reconsidered.

Regular loan deferrals are recalculated after

selecting loans for ST to:

1. Minimize any decrease in present value

caused by the conversion to ST, and

2. Minimize the increase in payments in

the year after the deferral period.

A ST loan deferral has the same effect on

the debt repayment ability as a writedown of

the same amount. However, a ST loan

deferral will always have a greater present

value. Therefore, after a loan is selected for

ST loan deferral, it will not be considered for

writedown since this will always decrease

the present value of restructured loans.

K. DALR$ considers writedown of FSA

debt for those borrowers who have not

received their lifetime limit for writedown

and writeoff (with market value buyout).

1. If the cash available for the first year is

greater than the cash available for the year

after the deferral period, DALR$ considers

writedown, in combination with other

primary loan service programs (except ST

deferrals as noted in paragraph K of this

section). When considering a borrower for

writedown, DALR$ will attempt to maximize

the borrower’s repayment ability and

minimize losses to the Government.

The amount of writedown cannot exceed

the $300,000 limitation. In addition, the

present value of the restructured loan plus

the amount of the CC cannot be less than the

total NRV of the FSA security and nonessential assets.

2. If the cash available after the deferral

period is greater than the cash available in

the first year, DALR$ will consider a

combination of deferral and writedown.

Loans are selected for deferral to achieve

a cash flow in the first year. If deferral of

loans will result in a cash flow in the first

year that exceeds the applicable debt service

margin, DALR$ partially defers the loan to

reduce the excess cash flow. If there is a

negative cash flow after the expiration of the

deferral period, DALR$ provides writedown

of one loan to attempt to develop a feasible

plan in the year after the deferral period. This

process is repeated until a feasible plan is

developed for both the first year and the year

after the deferral period, or until all loans

have been processed. The amount of the

writedown cannot exceed the $300,000

limitation and the present value of the

restructured loans plus the value of the CC

cannot be less than the total NRV of the

FmHA security and non-essential assets.

L. DALR$ considers market value buyout

when a feasible plan cannot be developed

after considering the borrower for all

combinations of the above servicing options

and the borrower has not received the

lifetime limitation for writedown and

writeoff. The amount of FSA debt to be

written off must be less than or equal to the

$300,000 limitation, otherwise the borrower

is not eligible for primary loan servicing or

market value buyout.

M. DALR$ determines the amount of cash

improvement needed in the first year Balance

Available to cash flow with a zero percent

debt service margin when a feasible plan

cannot be developed.

N. DALR$ offers to print a servicing report

which provides a summary of the

computations and the outcome of the

calculations.

V. Information Entered in DALR$

The following information will be entered

in DALR$ prior to beginning the calculations.

A. Borrower Case Number and Name—The

borrower’s case number is a concatenation of

the State Code, County Code, and Borrower

ID (usually the borrower’s social security

number or tax identification number).

Borrowers are entered as either an individual

or entity.

B. Date Servicing Actions Requested—This

is the date that the borrower submitted a

complete application for primary loan

servicing. The discount rate used in the

calculations of the present value of

restructured loans and the NRV will be the

rate in effect on this date.

C. Proposed Restructure Date—This is the

projected effective date of the restructuring.

The interest rate used for restructuring loans

and the net recovery constants used in the

calculation of the NRV will be those in effect

on this date as of the date DALR$ was

prepared.

D. Eligibility for Writedown or Writeoff—

This field determines if writedown or

writeoff (with buyout) should be considered

when attempting to restructure the

borrower’s debt. Borrowers that are not

delinquent, or that have met the lifetime

limitation regarding writedown and writeoff

are not eligible for writedown or writeoff. If

the borrower is not eligible, DALR$ will

consider the borrower for all primary loan

servicing except writedown and market value

buyout.

E. Period of Deferral—DALR$ will default

to the maximum deferral period of 5 years.

The field can be cleared and a lessor period

entered if applicable.

F. Adjusted Balance Available—The

adjusted balance available for the first year is

obtained from Form FmHA 431–2, ‘‘Farm

and Home Plan’’ developed for the current

production cycle or the typical plan, if

applicable. Adjusted balance available is the

sum of total planned family living expenses

from Table F, total planned cash farm

operating expenses, less interest from Table

G, and line 16, ‘‘Balance Available,’’ from

Table J of the Farm and Home Plan. If loan

deferral or debt writedown is anticipated or

needed, the balance available for the year

after the deferral period must also be

calculated and entered.

G. Non-Agency Debts, Family Living

Expenses and Adjusted Operating

Expenses—This is the sum of total planned

family living expenses from Table F, total

planned cash farm operating expenses, less

interest, from table G, and total non-Agency

debt repayment (principal and interest) from

Table K of Form FmHA 431–2, ‘‘Farm and
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10151

Home Plan’’. If future non-agency loans are

planned that will affect the first year or the

year after the deferral, the annual debt

repayment for these loans should be

included. Debt repayment on FSA

nonprogram loans should be included when

determining this amount. FSA nonprogram

debts must be entered here to assure that

these loans are not included in the present

value calculations or when determining if the

$300,000 writedown or writeoff limitation

was exceeded.

H. FSA Loan for Annual Operating

Expense—The amount of FSA loan for

annual operating expenses is the amount of

annual operating expense loan principal

which is due in the applicable planning year.

The estimated average number of months the

annual operating loan will be outstanding is

also entered.

If some of the principal will be carried over

to future years, then that amount is either:

1. Included in the new loan payments

computed using the amortization factor over

the applicable loan term at the regular loan

program interest rate, or

2. If the amount to be carried over was

entered as an existing loan, it is rescheduled

with the applicable term and interest rate

permitted by the program regulation.

I. New FSA Loans and Scheduled

Advances—The amount of the loan, loan

type, regular program interest rate, and year

that the cash flow will be affected will be

entered. DALR$ will consider a reduction

from the regular program interest rate to the

limited resource interest rate (if applicable)

during the rescheduling or reamortizing

process if necessary to develop a feasible

plan.

J. NRV Data—Information pertaining to

FSA security and nonessential assets owned

by the borrower will be entered in

accordance with Exhibit I of part 1951,

subpart S. Prior liens will include other

creditors debts that hold a prior lien to FSA

on the security property. Prior liens may also

include FSA nonprogram loans if the same

security is cross-collateralized with the

program loans and they hold a prior lien to

the program loans.

K. Existing Loan Data—Loan information

will be obtained from the borrower’s case file

and Finance Office status inquiry screens.

The date of status screens must be after the

date of the last payment or other transaction

on the loan. The loan information includes

the consideration for servicing actions,

unpaid principal and interest, amount of next

payment, maximum term, original and

existing interest rate, security priority,

information regarding any portion of the loan

not to be rescheduled, and proposed payment

in full on the restructure date.

1. If the interest accrual date of the status

screen precedes the proposed restructure

date, DALR$ will calculate the additional

interest accrual. Interest accrual is calculated

in accordance with section I of attachment 1

to this exhibit.

2. Loan selection for many of the

calculation processes is based partly on the

security priority identified for each loan.

There are three priorities:

a. Low—These loans are unsecured. If FSA

loan security was liquidated, the proceeds

would not be sufficient to result in a payment

on this loan.

b. Medium—These loans are undersecured.

If FSA security was liquidated, the proceeds

would be sufficient to result in a partial

payment on this loan.

c. High—These loans are fully secured. If

FSA security was liquidated, the proceeds

would be sufficient to pay this loan in full.

L. Conservation Contract Data—If the

borrower requested a conservation contract,

the total acreage of the farm, acres to be

included in the conservation contract,

unpaid debt secured by the farm, and the

current market value of the farm must be

entered.

M. Softwood Timber (ST) Loan Data—If ST

deferral was requested by the borrower, the

acreage eligible for ST must be entered.

N. Interest Rate Tables—Interest rates and

the effective date provided in Exhibit B of

FmHA Instruction 440.1 will be entered.

O. Discount Rate Tables—The discount

rate and the effective date provided in

Exhibit B of FmHA Instruction 440.1 will be

entered.

P. Net Recovery Constants Tables—Net

Recovery Constants and the effective date

determined in accordance with exhibit I of

part 1951, subpart S will be entered.

VI. CALCULATION PROCESS.

As described in section IV of this exhibit,

the DALR$ calculations are a repetitive

process. During the first phase of the

calculations, DALR$ will attempt to

restructure the borrower’s debt utilizing all

necessary combinations of loan servicing and

provide a ten percent debt service margin.

Debt service margin is calculated in

accordance with section II of attachment A of

this exhibit. If a feasible plan cannot be

developed after considering all combinations

of loan servicing, the debt service margin will

be reduced to nine percent and all

combinations of servicing will again be

considered. DALR$ will continue to reduce

the debt service margin by one percent until

a feasible plan is developed or the debt

service margin falls below zero and a feasible

plan is not possible with any combination of

servicing options.

The calculation process proceeds as

follows:

A. Calculation of NRV

As required by §§ 1951.909 and 1951.910

of title 7, DALR$ computes total NRV of

agency loan security and non-essential assets.

Exhibit I of part 1951, subpart S, ‘‘Guidelines

for Determining Adjustments for Net

Recovery Value’’, provides guidance in

determining the value of specific items

utilized in the net recovery calculations

outlined below.

NRV is computed for all Farm Loan

Programs loan security, other non-essential

assets owned by the borrower, and assets not

in the borrower’s possession. If the agency’s

lien position, or the amount of prior liens

vary from item to item, separate NRV will be

computed for each item which has a different

lien structure.

Example: FSA has a first lien on a

borrower’s equipment, except for two

tractors. One tractor was financed by nonagency credit, and FSA has a junior lien

subject to the purchase money financing. In

the case of the second tractor, FSA

subordinated its lien to another lender to

finance repairs, thus, FSA has a junior lien

to the amount subordinated. In this example,

there would be three net recovery

calculations. One for each tractor, and one for

the remaining equipment. The same logic

applies to real estate security. The total of all

net recovery calculations will be the total

NRV.

The general formula for calculating NRV is

as follows:

* Current market value of the security

* Minus prior liens

* Minus property taxes while in

inventory

* Minus depreciation on buildings

and improvements

* Minus management charges

* Minus repairs necessary for resale

* Minus legal and administrative

costs

* Minus sales cost

* Minus advertising cost

* Minus miscellaneous expenses

* Minus interest cost while in

inventory

* Plus or minus the increase or

decrease, as applicable, in value while

in inventory

* Plus anticipated income while in

inventory

* Equals NRV of the individual

property items

The sum of the NRV of individual property

items minus:

* Real estate property management costs

* Real estate or real estate and chattel

costs, and

* Chattel only costs as applicable, equals

the total NRV of FSA security, non-essential

assets, and assets not in possession.

The factors listed above do not apply to the

calculation of NRV for non-essential assets

and assets not in possession.

B. Calculation of Payments for New FSA

Loans

DALR$ calculates debt repayment for new

FSA term loans and FSA loans for annual

operating expenses as follows:

1. Repayment for new term loans will be

calculated based on the regular loan program

interest rate and the term of the loan. The

payment will be calculated in accordance

with section III A of attachment 1 to this

exhibit.

2. Repayment of loans for annual operating

expenses will be calculated based on the

regular interest rate and the projected

number of months the loan will be

outstanding determined in accordance with

section III B of attachment 1 to this Exhibit.

DALR$ will calculate interest accrual for the

annual operating loan by multiplying the

amount of principal to be repaid during the

period of the plan by the monthly decimal

equivalent for the regular program interest

rate. This amount is then multiplied by the

average number of months that the loan will

be outstanding. The amount of debt

repayment due on annual operating expense

will be the total of interest accrual plus the

principal amount of the loan.
10152 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

DALR$ will initially calculate payments

for new FSA loans and FSA loans for annual

operating expenses at the regular program

interest rate. If a feasible plan cannot be

developed, DALR$ will reduce the interest

rate to limited resource rates (if applicable)

during the calculations completed in

paragraph F of this section.

C. Application of Payment on the Effective

Date of Servicing.

DALR$ will apply loan payments to be

made on the effective date of loan servicing.

DALR$ can only consider a full payoff of a

loan. If a payment for less than the full

amount of the loan is expected or received,

the payment must be applied to the loan

prior to completing the DALR$ calculations.

If after the application of payments to pay

loans in full, there is a debt repayment

margin of ten percent or more and none of

the borrowers remaining loans are

delinquent, no further servicing action in

DALR$ is required.

D. Conservation Contract.

DALR$ will consider Conservation

Contract (CC), if requested by the borrower,

prior any other loan servicing option. CC can

be requested by both current and delinquent

borrowers. Only FLP loans secured by real

estate are eligible. A borrower will not be

offered CC unless, the CC or CC in

combination with other loan servicing

options results in a feasible plan. Debt

cancellation as a result of CC will be applied

against the borrowers loans as a noncash

credit and will not affect the borrowers debt

repayment unless the loan is fully written

down.

CC eligible loans will be selected in the

order of lowest security priority first. For

loans with equal security priority, the

secondary selection will be the loan with the

largest amortization factor determined in

accordance with section IV of attachment 1

to this Exhibit.

The calculations completed during this

process are as follows:

1. Determine the maximum amount of CC

in accordance with attachment 1 of exhibit H

of part 1951, subpart S.

2. Deduct the lessor of the unpaid loan

balance or the maximum CC from the first

loan selected. Repeat this step until the

maximum CC debt cancellation has been

deducted, or all CC eligible loans have been

written down in full.

3. If a feasible plan was developed with a

debt service margin greater than or equal to

ten percent, and the borrower does not have

any remaining delinquent loans, no further

servicing is required. DALR$ will offer the

user the opportunity to print the servicing

report.

4. If the borrower has delinquent loans, or

the debt service margin is less than five

percent after consideration of CC, DALR$

will proceed with paragraph E of this section.

E. Rescheduling or Reamortization of

Delinquent Loans

DALR$ will reschedule or reamortize

existing loans to eliminate any delinquency.

All delinquent loans will be restructured.

Loans with regular interest rates will be

restructured at the lower of the original note

rate or the current program rate. Loans that

currently have a limited resource rate will be

restructured at the lower of the original note

rate or the current limited resource rate.

Only loans that are delinquent will be

restructured during this process. Loans will

be selected in the order of lowest security

priority first. For loans with equal security

priorities, the secondary selection will be

based on the loan with the lowest

amortization factor. For loans with an equal

amortization factor, the final selection will be

based on the loan with the lowest present

value calculated in accordance with section

V of attachment 1 of this Exhibit.

The calculations completed during this

process are as follows:

1. Combine recoverable cost items with

parent loans.

2. Reschedule or reamortize the delinquent

loan over the maximum term entered for the

loan.

3. Calculate debt repayment for the first

year for the rescheduled or reamortized loan

based on the new interest rate and term.

4. Repeat steps 2 and 3 until all delinquent

loans have been processed.

5. Determine if a feasible plan was

developed with the appropriate debt service

margin by rescheduling or reamortizing all

delinquent loans.

6. If a feasible plan was developed, no

further servicing is required. The

combination of a recoverable cost item with

the parent loan will be reversed if the

combined loans did not require servicing.

DALR$ will provide the user with the

opportunity to print the servicing report.

7. If a feasible plan was not found, DALR$

will reschedule or reamortize non-delinquent

loans in accordance with paragraph F of this

section.

F. Reschedule or Reamortize Non-Delinquent

Loans

DALR$ will reschedule or reamortize nondelinquent loans one at a time to attempt to

develop a feasible plan. Loans with regular

interest rates will be restructured at the lower

of the original note rate, or the current

program rate. Loans that currently have a

limited resource rate will be restructured at

the lower of the original note rate or current

limited resource rate.

Loans will be selected in the order of

lowest security priority first. For loans with

equal security priorities, the secondary

selection will be based on the loan with the

lowest amortization factor. For loans with

equal amortization factors, the final selection

will be based on the loan with the lowest

present value.

After each non-delinquent loan has been

rescheduled or reamortized, DALR$ will

determine if a feasible plan was developed

with the appropriate debt service margin

prior to proceeding to the next loan.

The calculations completed during this

process are as follows:

1. Reschedule or reamortize the nondelinquent loan over the maximum term

entered for the loan.

2. Calculate debt repayment for the first

year for the restructured loan based on the

new interest rate and term.

3. Determine if a feasible plan was

developed with the appropriate debt

repayment margin.

4. If a feasible plan was developed, no

further servicing is required. The

combination of a recoverable cost item with

the parent loan will be reversed if the

combined loans did not require servicing.

DALR$ will provide the user with the

opportunity to print the servicing report.

5. If a feasible plan is not found, repeat

steps 1 through 3 until a feasible plan is

found with the appropriate debt service

margin, or all non-delinquent loans have

been rescheduled.

6. If a feasible plan was not found, DALR$

will reschedule or reamortize delinquent and

non-delinquent loans at limited resource

rates (if applicable), in accordance with

paragraph G of this section.

G. Rescheduling or Reamortization of

Limited Resource Eligible Loans at Limited

Resource Rates

DALR$ will attempt to reschedule or

reamortize limited resource eligible loans at

the limited resource rate to develop a feasible

plan. Debt repayment for new FSA term

loans and for annual operating expenses will

be recalculated at limited resource rates (if

applicable). The interest rate for existing

loans will be the lessor of the original note

rate or the current limited resource rate.

Loans will be selected in the order of

lowest security priority first. For loans with

equal security priorities, the secondary

selection will be based on the loan with the

lowest amortization factor. For loans with

equal amortization factors, the final selection

will be based on the loan with the lowest

present value.

After each limited resource eligible loan

has been rescheduled or reamortized at the

limited resource rate, DALR$ will determine

if a feasible plan was developed with the

appropriate debt service margin prior to

proceeding to the next loan.

The calculations completed during this

process are as follows:

1. Recalculate repayment for new FSA term

loans and annual operating loans at the

limited resource rate.

2. Determine if a feasible plan was found

with the appropriate debt service margin

after reducing the interest rate on new loans.

3. If a feasible plan was developed, no

further servicing is required. Proceed to step

7.

4. Reschedule or reamortize an existing

limited resource eligible loan at the limited

resource interest rate.

5. Calculate debt repayment for the first

year for the rescheduled or reamortized loan

at the maximum term entered for the loan

with limited resource rates.

6. Determine if a feasible plan was found

with the appropriate debt service margin.

7. If a feasible plan was developed, no

further servicing is required. The

combination of a recoverable cost item with

the parent loan will be reversed if the

combined loans did not require servicing.

DALR$ will provide the user with the

opportunity to print the servicing report.

8. If a feasible plan was not found, repeat

steps 4 through 6 until a feasible plan is

found with the appropriate debt service
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10153

margin, or until all limited resource eligible

loans have been processed.

9. If a feasible plan was not found, DALR$

will reschedule or reamortize loans with

unequal payment schedules in accordance

with paragraph H of this section.

H. Rescheduling or Reamortizing Loans with

Unequal Payment Schedules

DALR$ will reschedule or reamortize loans

with unequal payment schedules. These

loans were not previously restructured in

sections F or G as rescheduling or

reamortization would have resulted in an

increase in debt repayment in the first year.

However, if the loan was delinquent, the loan

would have been rescheduled or reamortized

under section E regardless of the impact on

the first year debt repayment. Loans will be

restructured at the lower of the original note

rate or the current loan program rate (limited

resource if applicable).

Loans selected for rescheduling or

reamortization in this process will not have

been restructured during any of the earlier

calculations and cannot be a ST loan.

Loans will be selected in the order of

lowest security priority first. For loans with

equal security priorities, the secondary

selection will be based on the loan with the

lowest amortization factor. For loans with

equal amortization factors, the final selection

will be based on the loan with the lowest

present value.

After each loan with an unequal payment

schedule has been rescheduled or

reamortized, DALR$ will determine if a

feasible plan was developed with the

appropriate debt service margin prior to

proceeding to the next loan.

The calculations completed during this

process are as follows:

1. Reschedule or reamortize an unequal

payment loan over the maximum term.

2. Calculate the debt repayment for the first

year for the restructured loan based on the

new term and interest rate.

3. Determine if a feasible plan was

developed with the appropriate debt service

margin.

4. If a feasible plan was developed, no

further servicing is required. The

combination of a recoverable cost item with

the parent loan will be reversed if the

combined loans did not require servicing.

DALR$ will offer the user the opportunity to

print the servicing report.

5. If a feasible plan is not developed, repeat

steps 1 through 3 until a feasible plan is

developed with the appropriate debt service

margin, or until all unequal payment

schedule loans have been processed.

6. If a feasible plan is not developed,

calculate the necessary cash improvement

required to cash flow in the first year using

the rescheduling or reamortization process.

Retain this amount for later use in the cash

improvement process.

7. If a feasible plan was not developed,

DALR$ will consider deferrals in accordance

with paragraph I of this section.

Rescheduling or Reamortization with

Deferral

If a feasible plan cannot be developed by

utilization of rescheduling or reamortizing

delinquent and non-delinquent loans with

the maximum terms and lowest interest rates

available under the regulations with a ten

percent margin, deferral data must be entered

in DALR$. DALR$ will not consider the

borrower for writedown (discussed in

paragraph J of this section) unless deferral

data has been entered.

DALR$ will attempt to develop a feasible

plan for the first year by deferring payments

on FSA loans until the end of the deferral

period (1–5 years). A deferral will decrease

the payment during the period of the

deferral, and increase the payment for the

remaining term after the deferral period.

Deferrals will only be beneficial if the debt

repayment margin increases in the year after

the deferral period. This improvement must

be no later than six years after the current

planning year, since the maximum deferral

period is five years.

To determine the appropriate deferral

period, the servicing official and borrower

will review the farm operation over the next

five years. Loans should be deferred to the

year when the improvement from the first

planning year is the greatest and the

improvement in the following years are at

least as good.

Loans will be deferred at the lower of the

original note rate, or current program interest

rate (limited resource, if applicable). ST will

not be considered for regular deferral.

To select loans for deferral, DALR$ will

calculate the payment after the deferral

period for each loan as if the loan had been

fully deferred. (This is only a side calculation

to determine the best order of selection.) The

ratio of the difference between the post

deferral year payment and first year payment

will be calculated as follows:

(Post Deferral Payment—First Year Payment)

First Year Payment

The loan with the smallest ratio will be

deferred first and so forth.

The calculations completed during this

process are as follows:

1. Defer the selected loan and calculate

debt repayment in the first year and the year

after the deferral period.

2. Determine if a feasible plan was

developed for the first year with the

appropriate debt service margin. If a feasible

plan was developed proceed with step three,

otherwise, repeat step one until a feasible

plan for the first year is developed or all

loans have been deferred.

3. If the applicable debt service margin for

the first year was exceeded (this indicates

that the last loan deferred did not require a

full deferral), the following will occur:

a. DALR$ will determine the amount of the

partial deferral needed on the last loan

selected to maintain the feasible plan

developed for the first year. See section VI of

attachment 1 of this Exhibit for formulas

used in calculating partial deferral.

b. DALR$ will calculate the debt

repayment for this loan for the first year and

the year after the deferral period.

4. Calculate total debt repayment for the

year after the deferral period.

5. If a feasible plan exists for the year after

the deferral period, then no further servicing

actions are required. DALR$ will offer the

user the opportunity to print the servicing

report.

6. If the deferral of loans will not permit

the borrower to cash flow in the first year,

DALR$ will calculate the cash improvement

required to cash flow in the first year using

deferral. This amount will be retained for

later use in the cash improvement process.

7. If a feasible plan does not exist for the

year after the deferral period, DALR$ will

consider the borrower for ST, if requested in

accordance with paragraph J of this section.

Otherwise, DALR$ will consider the

borrower for debt writedown in accordance

with paragraph K of this section.

J. Softwood Timber (ST)

DALR$ will consider ST, if requested by

the borrower, to the maximum limit

permitted under the regulations. Deferral of

payment on ST until the end of the ST

deferral period must improve the borrowers

debt repayment ability during the first year

and the year after the deferral period. All

previously calculated regular deferrals will

be cancelled. Only loans eligible for ST will

be considered. If the entire unpaid balance of

a loan is not converted to a ST loan, the loan

will be split into two loans. The interest rate

for the ST portion will be the lessor of the

original note rate or the current ST loan

program interest rate. The non ST portion of

the loan will retain the interest rate and term

determined prior to ST consideration.

Loans will be selected to maximize the

present value of the loan after ST deferral.

This will minimize or eliminate loss to the

Government. DALR$ will calculate the

present value for each eligible loan before

and after ST and compute the decrease in

present value using the following formula:

(Present Value w/ Full ST Deferral—Present

Value if not Deferred)

Nondeferred First Year Payment

Note: For loans in which the present value

increases, this will be a negative number.

The ratio of the decrease in present value

to the first year payment will be calculated.

The loan with the smallest (or most negative)

ratio will be selected first. For loans with

equal ratios, the secondary selection will be

based on the loan with the lowest security

priority.

The calculations completed during this

process are as follows:

1. Starting with the first loan selected for

ST, defer the loan. The amount of ST deferral

cannot exceed the maximum limit permitted

under the regulations.

2. Determine if a feasible plan was

developed for the first year with the

appropriate debt service margin. If a feasible

plan was found, proceed with step three,

otherwise, repeat step one until a feasible

plan is found or the maximum for ST deferral

has been reached.

3. If the full deferral of a loan results in the

applicable debt service margin being

exceeded, DALR$ will determine the amount

of partial deferral required for a feasible plan.

If a loan is only partially deferred, DALR$

will create a new loan identity for the

partially deferred portion of the loan. The

portion not deferred will maintain the

interest rate and term prior to the deferral.

4. If full utilization of the ST program does

not result in a positive cash flow in the first
10154 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

year, repeat the regular deferral process (see

paragraph J of this section. Loans selected for

ST will not be deferred when repeating the

regular deferral calculations.

5. If the deferral of loans under the ST

program results in a positive cash flow with

the applicable debt service margin for the

first year, no further servicing is required.

DALR$ will provide the user with the

opportunity to print the servicing report.

6. If the deferral of loans under the ST

program will not permit the borrower to cash

flow in the first year, DALR$ will calculate

the cash improvement required to cash flow

in the first year using the ST program. This

amount will be retained for later use in the

cash improvement process.

7. If a feasible plan is not found, DALR$

will consider the borrower for writedown in

accordance with paragraph K of this section.

K. Writedown

If a feasible plan could not be developed

utilizing CC, rescheduling or reamortization,

limited resource rates, regular deferral and

ST deferral, and the borrower is eligible for

writedown or writeoff, DALR$ will attempt

to develop a feasible plan by writing down

the borrower’s FSA debt. Borrowers who

have met the lifetime limitation for

writedown or writeoff will not be considered

for writedown. The amount of the writedown

necessary to develop a feasible plan must be

less than or equal to $300,000 in accordance

with section 1951.909 of part 1951, subpart

S.

DALR$ will prioritize the loans for

writedown and attempt to develop a feasible

plan (pass one). If a feasible plan is not

found, DALR$ will re-order the loans based

on different criteria and again attempt to

develop a feasible plan with writedown (pass

two). Loans deferred under the ST program

will not be considered for writedown.

For the first attempt to writedown (pass

one), loan selection will be based on an

attempt to maximize the amount of

writedown. The loan with the lowest security

priority will be selected first. For loans with

an equal security priority, the secondary

selection will be based on the loan with the

largest amortization factor.

If a feasible plan was not developed,

DALR$ will re-order the loans based on new

criteria, and will again attempt writedown

(pass two). Loan selection will be based on

lowest security priority. For loans with equal

security priority, the secondary selection will

be based on the loan with the smallest

present value factor. For loans with an equal

present value factor, the final selection will

be based on the loan with the highest

amortization factor.

The calculations completed during this

process are as follows:

1. From the list of loans for the first

method of loan prioritization (pass one),

select the first from the list ordered and

apply writedown. This step will be repeated

until the borrower cash flows in the first

year, or until all selected loans have been

written down. The writedown amount for

each loan will be retained and added to the

total writedown amount.

2. If a cash flow for the first year was

achieved and the full writedown of the last

loan selected results in the applicable debt

service margin being exceeded, this implies

that a full writedown was not required.

DALR$ will compute the amount of partial

writedown on the last loan selected

necessary to achieve a cash flow in the first

year at the appropriate debt service margin

and reschedule or reamortize the remaining

unpaid balance.

3. If the present value of all FSA remaining

debt plus the total CC equals or exceeds the

NRV, and the total writedown amount is less

than or equal to $300,000, no further serving

is required. DALR$ will offer the user the

opportunity to print the servicing report.

If this step fails, the process will be

repeated from step one using the second

method for ordering loans for writedown.

4. If step three fails after repeating the

writedown calculations based on the second

method of prioritizing loans for writedown,

DALR$ will consider the borrower for a

combination of deferral and writedown in

accordance with paragraph L of this section.

L. Writedown with Deferral

This process will defer payment on FSA

loans in combination with debt writedown in

an effort to develop a feasible plan for the

first year and the year after the deferral

period. Regular and ST deferrals did not

result in a feasible plan for the first year and

the year after the deferral period.

The deferral period will be 1–5 years as

entered by the user.

To select loans for deferral, DALR$ will

calculate the payment for each loan as if it

had been fully deferred. (This is a side

calculation used only to prioritize the loans.)

The ratio between the post deferral year

payment and the first year payment will be

calculated as follows:

(Post Deferral Payment—First Year Payment)

First Year Payment

The loan with the smallest ratio is deferred

first and so on until the borrower cash flows

in the first year with the appropriate debt

service margin or all loans have been

deferred.

Loans will be selected for writedown based

on the selection criteria established in

paragraph J of this section. The deferred

portion of the loan is considered a separate

loan in this process and must be prioritized

for selection with the remaining loans.

The calculations completed during this

process are as follows:

1. Loans are deferred to obtain a positive

cash flow in the first year as described in

paragraph J of this section.

2. DALR$ will create a new loan identity

for the partially deferred portion of any loan.

3. If the borrower cash flows with the

appropriate debt service margin in both the

first year and the year after the deferral

period, no further servicing is required.

DALR$ will offer the user the opportunity to

print the servicing report.

Otherwise, using the first method of loan

selection (pass one) described in paragraph L

of this section, DALR$ will select one loan

at a time and attempt to develop a feasible

plan by utilization of full or partial

writedown.

4. If the borrower does not cash flow in the

year after the deferral period, or the cash flow

in the first year exceeds the appropriate debt

service margin, DALR$ retains the writedown

amount, all loans not completely written

down are converted to non-deferred status,

and the process will begin again at step one.

5. If the present value of all FSA remaining

debt plus the total CC equals or exceeds the

NRV, and if the writedown amount is less

than or equal to $300,000, a feasible plan has

been found and no further servicing is

required. Otherwise, repeat this process

beginning from step one using the second

method of prioritizing loans for writedown

described in paragraph L of this section.

6. If step three fails after repeating the

writedown calculations based on the second

method of prioritizing loans for writedown,

DALR$ will determine if the borrower will be

offered buyout at the current market value. If

the writeoff amount (total principal and

interest minus the total market value) is less

than or equal to $300,000, DALR$ will

compute an offer to the borrower for buyout

at the current maket value. Otherwise, the

borrower is not eligible for debt forgiveness.

DALR$ will offer the user the opportunity to

print the servicing report.

M. Cash Improvement

If a feasible plan could not be developed

after considering all available primary loan

servicing, DALR$ will provide the user with

the opportunity to determine the amount of

cash improvement in the first year balance

available to produce a feasible plan.

The calculations completed during this

process are as follows:

1. Collect cash improvement solutions

from the reschedule or reamortize debt

process, the regular deferral process, and the

softwood timber deferral process.

2. Determine the cash improvement

required in the first year to cash flow using

conservation contract, if applicable.

3. Determine the cash improvement

required in the first year to cash flow using

writedown, if applicable.

4. Determine the cash improvement

required in the first year to cash flow using

writedown with deferrals, if applicable.

5. Select the lowest of all the cash

improvements and display it to the screen.

DALR$ will offer the user the opportunity to

print the servicing report.

O. SUMMARY

At this point, DALR$ has finished its

calculations. A feasible plan has been

developed, or all possible combinations of

servicing actions has been considered.

DALR$ will provide a report of the results of

the calculations performed.

If DALR$ does not find a solution that will

provide a feasible plan, FSA will proceed

with the other actions authorized in this

subpart, including mediation, offer the

opportunity to purchase collateral for market

value, and consideration for Homestead

Protection.

Attachment 1—Formulas Used in

DALR$ Calculations

I. INTEREST ACCRUAL ON EXISTING

LOANS

If the interest accrual date for an existing

loan precedes the proposed restructure date,
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10155

DALR$ will determine the amount of

additional interest which will accrue

between these dates. This amount will be

added to the unpaid interest that was

outstanding as of the accrual date. The

calculations used are as follows:

A. Interest Accrual After the Loan Status Date

Equals

[(Principal × Interest Rate)/365] × (Effective

Date¥Accrual Date)

B. Total Accrued Interest Equals

Interest Accrual After the Loan Status Date +

Accrued Interest as of the Loan Status Date

II. DEBT SERVICE MARGIN

DALR$ will attempt to develop a feasible

plan that provides the borrower with a ten

percent margin above the amount needed for

family living expenses, farm operating

expenses and debt service obligations. If a

feasible plan cannot be found with a ten

percent debt service margin, DALR$ will

reduce the margin in increments of one

percent until a feasible plan is found, or the

debt service margin falls below zero. DALR$

will consider all loan servicing options prior

to reducing the debt service margin.

The debt service margin is applicable in

both the first year and the post deferral year

calculations if deferral is being considered.

The debt service margin is used to calculate

the cash available restructure FSA debt and

is calculated as follows:

Cash Available = ((balance available +

family living expenses + farm operating

expenses¥interest expense) / applicable debt

service margin)¥—family living

expenses¥farm operating expenses

(excluding interest)¥non-agency debt

repayment

The debt service margin used in the above

calculations is set initially at 1.10. If a

feasible plan is not found after consideration

of all loan servicing options, the margin is

reduced incrementally by .01. After the

reduction is completed, DALR$ will

reconsider the borrower for all loan servicing

requested. DALR$ will continue to reduce

the debt service margin until a feasible plan

is developed, or until it has been determined

that a feasible plan is not possible with a debt

service margin of 1.00.

III. LOAN PAYMENT CALCULATIONS

Loan payments are calculated using

amortization factors rounded to the nearest

five places. All payments are rounded up to

the next dollar. The equations used to

calculate loan payments are as follows:

A. Payments on New FSA Loans

Payment = Principal Amount × Amortization

Factor

B. Payments on FSA Loans for Annual

Operating Expenses

1. Determine the average number of

months that the loan for annual operating

expenses will be outstanding. It may be

estimated or calculated from the projected

advance and payment schedule for the loan.

For example, the loan for annual operating

expenses is estimated to be $15,000 and the

projected advance and repayment schedule is

planned as follows:

Principal balance outstanding

Number

of

months

outstanding

$15,000 ........................................... 3

$8,000 ............................................. 2

$6,000 ............................................. 4

Average Months = (3 × 15,000) + (2 × 8,000)

+ (4 × 6000) 15,000

Average Months = 45,000 + 16,000 + 24,000

15,000

Average Months = 85,000 15,000

Average Months = 5.7

2. Determine interest accrual on annual

operating expense loan.

Interest Accrual = [(Principal Amount ×

Interest Rate)/12] × Number of Months

Outstanding

3. Determine total payment.

Total Payment = Principal Amount + Interest

Accrual

C. Payments for Rescheduled or Reamortized

Loans

1. Determine interest accrual if loan status

date precedes the proposed restructure date

in accordance with section I of this

attachment.

2. Determine unpaid loan balance.

Unpaid Loan Balance = Principal Amount +

Unpaid Interest (as of the loan status

date) + Interest Accrual

3. Determine payment amount.

Payment = Unpaid Balance × Amortization

Factor

D. Payments for Deferred Loans

1. Determine term of loan entered in

DALR$.

2. Determine remaining term after deferral

period.

Remaining Term = Term—Deferral Period

Remaining Term = Term-Deferral Period

3. Determine payment during deferral period.

Payment = Nondeferred Principal x

Amortization Factor

Note: Amortization factor is based on the

full term of the loan.

4. Determine payment after deferral.

a. Determine interest accrual on deferred

principal.

Interest Accrual = Deferred Principal x

Interest Rate x Deferral Period

b. Determine payment on interest accrual.

Payment = Interest Accrual / Remaining

Term

c. Determine payment on deferred

principal.

Payment = Deferred Principal x Amortization

Factor

Note: Amortization factor is based on the

remaining term after the expiration of the

deferral period.

d. Determine total payment after deferral.

Payment = Payment of Nondeferred Principal

+ Payment on Interest Accrual +

Payment on Deferred Principal

IV. LOAN AMORTIZATION FACTORS

Loan amortization factors are calculated

using the following equations:

A. Non-deferred loan

A = [(i(l + i)n)/((l + i)n¥l)]

A—amortization factor

i—interest rate

n—term

B. Deferred loan

A = [((i(l + i)n¥t)/((l + i)n¥t¥l)) + ((i x

t)/(n-t))]

A—amortization factor

i—interest rate

n—term

t—deferral period

C. Deferred interest

A = l/(n¥t)

A—amortization factor

n—term

t—deferral period

V. Present value calculations

A. The net present value factors for each

loan are calculated using the following

equations:

1. Non-deferred loan

P = [((l+ i)n¥l/(i(l+ i)n)]

P—net present value factor

i—discount rate

n—term

2. Deferred loan

P = [[((l+ i)n¥t¥l/(i(l+ i)n¥t)]/(l+ i)t]

P—net present value factor

i—discount rate

n—term

t—deferral period

B. The loan net present is calculated using

the following equation:

NPV = (P)(p)

NPV—loan net present value

P—loan net present value factor

p—loan payment

VI. Partial deferral calculations

Whenever full deferral of a loan results in

excess cash flow (above the applicable debt

service margin) in the first year, a partial

deferral of that loan will decrease future

payments on that loan and eliminate the

excess cash flow in the first year. A partial

loan is created by apportioning the loan

balance into two distinct parts (nondeferred

and deferred).

Partial deferrals are calculated as follows:

A. Determine the amount of deferral

necessary to achieve cash flow in the

first year.

d = l¥(r/R)

d = The fraction of the loan which must

be deferred.

r = The amount of excess cash flow in the

first year with full deferral.

R = The debt repayment on the loan in the

first year with out deferral.

B. Determine the deferred and nondeferred

portion of the loan.

1. P1 = (1-d) x P

P1 = (r/R) x P

P1—Nondeferred Portion

d—Fraction of the Loan which must be

deferred
10156 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

P—Principal Balance

2. P2 = P—P1

P2—Deferred Portion

P—Principal Balance

P1—Nondeferred Portion

VII. $300,000 Debt writedown and buyout

limitation

DALR$ will attempt to develop a feasible

plan with a ten percent margin. All loan

servicing, including writedown will be

considered prior to reducing the debt service

margin. However, DALR$ will only consider

writedown for those borrowers that have not

received the lifetime limitations for

writedown or writeoff (with buyout). If a

feasible plan is found with writedown,

DALR$ will:

A. Writedown

1. Determine the amount of writedown that

was necessary for the borrower to have a

positive cash flow.

2. If the amount of the writedown is less

than or equal to $300,000, a feasible plan has

been found.

3. If the amount of the writedown is greater

than $300,000, and the debt service margin

exceeds 1.00, reduce the debt service margin

by .01 and repeat from step 1.

4. If the amount of writedown is greater

than $300,000, and the debt service margin

equals 1.00, or a feasible plan cannot be

developed, determine the amount of writeoff

(with buyout at the current market value).

5. If the amount of writeoff (with buyout

at the current market value) is less than or

equal to $300,000, the borrower will be

offered buyout.

6. If the amount of writeoff (with buyout

at the current market value) is greater than

$300,000, the borrower is not eligible for loan

servicing or buyout.

27. Exhibit K is revised to read as follows:

Exhibit K—Notification of

Consideration for Homestead Protection

Purpose: To notify borrowers of

preacquisition homestead protection

consideration when there is a dwelling on

the security property and a complete

application was submitted for primary and

preservation loan servicing or requested from

the notice of intent to accelerate notice.

Dear (Borrower’s Name)

This notice is to inform you that, per your

request, you are being considered for

Homestead Protection.

We will need the following additional

information to complete our processing of

your request:

1.

2.

3.

Please provide the above information

within 30 days from the date of this letter.

If we do not receive the above requested

information within 30 days, we will deny

your request for Homestead Protection.

If you wish to withdraw your request for

Homestead Protection, please complete and

return the enclosed Attachment 1, ‘‘Response

to Notification of Consideration for

Homestead Protection,’’ within 15 days of the

date of this letter.

[FOR INDIVIDUAL BORROWERS ONLY—

INSERT EQUAL CREDIT OPPORTUNITY

PARAGRAPH]

Sincerely,

Attachment 1—Response to Notification

of Consideration for Homestead

Protection

TO: Farm Service Agency

FROM: (Please Print your Name and

Address)

I have read the Notification of

Consideration for Homestead Protection

which I received with this response form.

I want to withdraw my request for

Homestead Protection.

lllllllllllllllllllll

Borrower’s Signature

lllllllllllllllllllll

(Date)

28. Exhibit L is revised to read as follows:

Exhibit L—Homestead Protection

Program Agreement

This agreement is entered into this

llll day of llll, 19 ll, by and

between the Farm Service Agency (FSA) of

the United States Department of Agriculture

and llllllll (’’Borrower’’).

Concurrently, with the execution of the

pre-acquisition Homestead Protection

Program Agreement, the borrower will

deliver a completed Form FmHA 1955–1 to

FSA. The Homestead Protection Program

Agreement is subject to the provisions of 7

CFR part 1955, subpart A.

A. Borrower has received a loan or loans

from FSA secured by real property which

includes the Borrower’s dwelling, and

adjoining land that is used to maintain the

Borrower and the Borrower’s family (the

Homestead Protection property). In some

cases the FSA loans may also have been

included one or more outbuildings that are

useful to the Borrower and the Borrower’s

family and in such cases these outbuildings

are included in the definition of Homestead

Protection property.

B. Borrower’s FSA loan is in default which

could result in the loss of the borrower’s

Homestead Protection property.

C. Borrower wants to continue to occupy

the Homestead Protection property after FSA

acquires title to it.

D. FSA has already determined that

Borrower has satisfied the requirements for

its Homestead Protection Program.

E. FSA agrees to permit Borrower to retain

occupancy of the Homestead Protection

property on the following terms and

conditions:

1. Subject to the terms and conditions set

forth below FSA agrees to lease the

Homestead Protection property, as more

particularly described in attachment 1 hereto,

to Borrower on the terms and conditions set

forth in the lease as attachment 2 (the

‘‘lease’’). Borrower agrees to enter into the

lease of the Homestead Protection property.

2. FSA’s obligation to enter into the lease

of the Homestead Protection property is

subject to the occurrence of the following

conditions:

a. FSA acquires fee title to the Homestead

Protection property in connection with the

liquidation of the farm property of which the

Homestead Protection property is a portion.

b. All State and local governmental laws,

ordinances and regulations concerning the

creation of the Homestead Protection

property as a separate legal parcel which can

be leased and sold have been satisfied.

3. The term of the lease will begin on the

date the later of the conditions set forth in

paragraph 2 is satisfied and such date will be

inserted into the lease.

4. The term of the lease will be ll years.

This term will be inserted in the lease.

5. The rent to be charged during the term

of the lease will be determined by FSA as of

the commencement date of the lease and will

be in an amount substantially equivalent to

rents charged for similar residential

properties in the area. The borrower will be

notified by letter of the amount of the rent

and the amount of the rent will be inserted

in the lease form, Form FmHA 1955–20.

6. Borrower agrees to cooperate with FSA

in applying for and securing whatever local

governmental approvals are necessary in

order for the Homestead Protection property

to be a separate legal parcel. FSA will bear

the cost and expense of obtaining such

approvals.

7. If the term of the lease has not begun on

or before 2 years from the date of this

agreement, the agreement shall end and be of

no further force or effect.

Farm Service Agency

By: lllllllllllllllllll

Borrower:

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

Attachment 1, Legal Description of the

Property.

Attachment 2, Lease Form, Form FmHA

1955–20.

29. Exhibit M is revised to read as

follows:

Exhibit M—Notice of the Availability of

Homestead Protection

(Insert Borrower’s Name and Address)

(Date)

On [acquisition date], FSA acquired the

property which was security for your FSA

loan. FSA has a program called the

Homestead Protection Program under which

you may be allowed to lease (with an option

to purchase) the house which you owned and

used as your principal residence, a

reasonable number of farm buildings located

near the house that are useful to the

occupants of the house, and not more than

10 acres of land adjoining the house. If you

would like to be considered for the

Homestead Protection Program, you must

notify this office, in writing, by [date 30 days

from acquisition date] of the buildings and

land you wish to retain.

If you would like more information about

the Homestead Protection Program, you

should contact the FSA servicing official at

[insert county office telephone number].

Failure to respond by the above date will

terminate any rights that you have to lease
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10157

and purchase the property under the

Homestead Protection Program.

Sincerely,

Exhibits N, O, P and Q [Removed]

30. Exhibits N, O, P and Q are

removed.

Subpart T—Disaster Set-Aside

Program

§ 1951.958 [Amended]

31. Section 1951.958 is amended in

paragraph (a)(2) by revising the words

‘‘net recovery buyout in accordance

with subpart S of part 1951, or operating

loan assistance in accordance with

§ 1941.14 of subpart A of 7 CFR part

1941’’ to read ‘‘buyout in accordance

with subpart S of this part.’’

PART 1956—DEBT SETTLEMENT

32. The authority citation for part

1956 is revised to read as follows:

Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 31

U.S.C. 3711; 42 U.S.C. 1480.

Subpart B—Debt Settlement—Farm

Loan Programs and Multi-Family

Housing

33. Subpart B is amended by revising

the heading of the subpart to read as set

forth above.

34. Section 1956.54 is amended in the

definition of ‘‘Farmer programs loans’’

by revising the words ‘‘Farmer programs

loans’’ to read ‘‘Farm Loan Programs

(FLP) loans;’’ and by adding a definition

of ‘‘Debt Forgiveness’’ as follows:

§ 1956.54 Definitions.

* * * * *

Debt forgiveness. For the purposes of

servicing Farm Loan Programs loans,

debt forgiveness is defined as a

reduction or termination of a direct FLP

loan in a manner that results in a loss

to the Government. Included, but not

limited to, are losses from a writedown

or writeoff under subpart S of part 1951

of this chapter, debt settlement, after

discharge under the provisions of the

bankruptcy code, and associated with

release of liability. Debt cancellation

through conservation easements or

contracts is not considered debt

forgiveness for loan servicing purposes.

* * * * *

35. Section 1956.57 is amended in

paragraph (b) by revising the words

‘‘Agricultural Stabilization and

Conservation Service’’ to read ‘‘Farm

Service Agency’’ in the second sentence

and by revising the term ‘‘FP’’ to read

‘‘FLP’’ in the third sentence and by

revising paragraph (k) and adding a

paragraph (l) to read as follows:

§ 1956.57 General provisions.

* * * * *

(k) Settlement where debtor owes

more than one type of Agency loan. It

is not the policy to settle any loan

indebtedness of a debtor who is also

indebted on another agency loan and

who will continue as an active

borrower. In such case, the facts will be

fully documented in part VIII of Form

RD 1956–1.

(l) No previous debt forgiveness. Debt

settlement may not be approved for any

direct Farm Loan Programs loan if the

borrower has received debt forgiveness

on any other direct loan as defined in

§ 1956.54 of this subpart.

§ 1956.66 [Amended]

36. Section 1956.66 is amended in the

introductory text by revising the words

‘‘FmHA or its successor agency under

Public Law 103–354’’ to read ‘‘RD’’ in

the second sentence and by revising the

words ‘‘FmHA or its successor agency

under Public Law 103–354’’ to read ‘‘the

Agency’’ in the fourth sentence and in

paragraph (a), introductory text, by

revising the term ‘‘FP’’ to read ‘‘FLP’’

each time it appears.

PART 1962—PERSONAL PROPERTY

37. The authority citation for part

1962 continues to read as follows:

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

U.S.C. 1480.

Subpart A—Servicing and Liquidation

of Chattel Security

§ 1962.13 [Amended]

38. Section 1962.13 is amended in

paragraph (a)(1) by removing the words

‘‘, with signature.’’

39. Section 1962.34 is amended in

paragraph (b)(3) by revising the words

‘‘exhibit B of Agency Instruction 440.1

(available in any Agency office) to read

‘‘a National Office issuance’’ and by

adding a new paragraph (b)(6) and a

new second sentence in paragraph (d) to

read as follows:

§ 1962.34 Transfer of chattel security and

EO property and assumption of debts.

* * * * *

(b) * * *

(6) The transferee has never been

liable for a previous Farm Loan

Programs (FLP) loan or loan guarantee

which was reduced or terminated in a

manner that resulted in a loss to the

Government.

* * * * *

(d) * * * However, no such release

will be granted to any borrower who

was liable for any direct FLP loan which

was reduced or terminated in a manner

that resulted in a loss to the

Government. * * *

* * * * *

§ 1962.40 [Amended]

40. Section 1962.40 is amended by

revising the words ‘‘FmHA or its

successor agency under Public Law

103–354’’ to read ‘‘the agency’’ every

time it is mentioned in paragraph (a)

and paragraph (b)(1) and by revising the

words ‘‘Farmer Program’’ to read ‘‘Farm

Loan Programs’’ in the heading and first

sentence of the introductory text of

paragraph (b)(2) and by revising the

words ‘‘180 days delinquent’’ to read

‘‘90 days past due (60 days delinquent)

on their payments’’ in the first sentence

of the introductory text of paragraph

(b)(2).

41. Section 1962.41 is amended by

revising in paragraph (a) the words

‘‘FmHA or its successor agency under

Public Law 103–354’’ to read ‘‘RD’’ in

the second sentence and by revising the

words ‘‘FmHA or its successor agency

under Public Law 103–354’’ to read

‘‘Agency’’ in the third and fourth

sentence and by revising the words

‘‘FmHA or its successor agency under

Public Law 103–354’’ to read ‘‘the

Agency’’ in the fifth sentence; and by

revising paragraphs (c), (d), (e), and (f)

to read as follows:

§ 1962.41 Sale of chattel security or EO

property by borrowers.

* * * * *

(c) Government takes possession. The

borrower may also turn over possession

of the chattels to the agency by signing

Form RD 455–4, ‘‘Agreement for

Voluntary Liquidation of Chattel

Security.’’ This form authorizes the

agency to sell the security at either

public or private sale. If the agency hires

a caretaker, services should be obtained

by use of Form AD–838, ‘‘Purchase

Order.’’

(d) Record of Sale. The sale will be

recorded on Form FmHA 1962–1.

(e) Unpaid debt. If the sale results in

less than full payment of the debt, the

servicing official will have the County

Committee review the case to determine

if the borrower can be released of

personal liability in accordance with

paragraph (f) of this section. The

borrower will be notified of the County

Committee’s recommendation for or

against a release of personal liability.

(f) Release of liability. The borrower

and any co-signer may be released from

personal liability to the agency when all

the chattel security or EO property is

sold at the present market value and the

proceeds are applied on the loan

accounts. If the County Committee

recommends a release of liability based

on the following comment, the comment

will be typed on the County Committee

Certification and executed by the

committee, and be further processed
10158 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

and approved in accordance with

§ 1962.34(h) of this subpart:

In our opinion (name of borrower and any

co-signer) does not have reasonable ability to

pay all or a substantial part of the balance of

the debt owed after the cash sale, taking into

consideration his or her assets and income at

the time of the conveyance. The borrower has

cooperated in good faith, used due diligence

to maintain property against loss, and has

otherwise fulfilled the convenants incident to

the loan to the best of his or her ability.

(Name of borrower and any cosigner) has not

been liable for a previous Farm Loan

Programs (FLP) loan which was reduced or

terminated in a manner that resulted in a loss

to the Government. Therefore, we

recommend that the borrower and any

cosigner be released from personal liability

for any balance due on the indebtedness

upon completion of the transaction.

Form RD 1965–8, ‘‘Release From

Personal Liability’’ will be given to the

borrower to release him/her from

liability. If a release from liability

cannot be granted, the borrower will be

sent a letter similar to exhibit F of

subpart A of part 1955 of this chapter

(available in any agency office). The

account will then be considered for debt

settlement.

42. Section 1962.42 is amended by

revising in the introductory text of

paragraph (a) the words ‘‘FmHA or its

sucessor agency under Public Law 103–

354’’ to read ‘‘agency’’ in the first

sentence; by revising in paragraphs

(a)(1)(i) and (a)(1)(iii) the words ‘‘FmHA

or its successor agency under Public

Law 103–354’’ to read ‘‘RD;’’ by revising

in paragraph (a)(1)(iv) the words

‘‘FmHA or its successor agency under

Public Law 103–354’’ to read ‘‘the

agency;’’ and by revising paragraphs

(a)(1)(v) and (a)(2) and the first sentence

in paragraph (b)(1) to read as follows:

§ 1962.42 Repossession, care, and sale of

chattel security or EO property by the

County Supervisor.

(a) * * *

(1) * * *

(v) When Form RD 455–5,

‘‘Agreement of Secured Parties to Sale of

SecurityProperty,’’ is executed by all

prior lienholders. If prior lienholders

will not agree to liquidate the property,

their liens may be paid if their notes and

liens are assigned to the agency on

forms prepared or approved by OGC.

When prior liens are paid, the payment

will be made in accordance with RD

Instruction 2024–A (available in any

agency office) and charged to the

borrower’s account.

* * * * *

(2) Recording. A list, dated and signed

by the servicing official, of all security

or EO property repossessed except for

those items on Form RD 455–4, will be

maintained in the borrower’s case file.

Whenever the servicing official is

transferred to another position or leaves

the agency or there is a change in

jurisdiction, the District Director will

give the succeeding servicing official in

writing, the names of such borrowers

and a list of the property repossessed in

the custody of the servicing official and

caretakers, its location, and the names

and addresses of the caretakers.

(b) * * *

(1) * * * Care and feeding of

livestock will be obtained by contract

pursuant to subpart B of part 1955 of

this chapter. * * *

* * * * *

43. Section 1962.46 is amended by

adding a new paragraph (g)(2)(iv) to

read as follows:

§ 1962.46 Deceased borrowers.

* * * * *

(g) * * *

(2) * * *

(iv) The transferee has never been

liable for a previous Farm Loan

Programs direct farm loan or loan

guarantee which was reduced or

terminated in a manner that resulted in

a loss to the Government.

* * * * *

Exhibit D–1 of Subpart A [Removed]

44. Exhibit D–1 of subpart A is

removed and reserved.

PART 1965—REAL PROPERTY

45. The authority citation for part

1965 continues to read as follows:

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

U.S.C. 1480.

Subpart A—Servicing of Real Estate

Security for Farm Loan Programs

Loans and Certain Note-Only Cases

46. Subpart A is amended to revise

the heading of the subpart to read as set

forth above.

47. Section 1965.26 is amended by

revising paragraph (a)(1)(iv), by revising

paragraph (a)(2), by revising paragraph

(b), by revising paragraphs (c)(1) and

(c)(3), by revising paragraphs (f)(4),

(f)(5)(ii), adding a new paragraph

(f)(5)(iii) and revising paragraph (f)(6) to

read as follows:

§ 1965.26 Liquidation action.

* * * * *

(a) * * *

(1) * * *

(iv) Refinancing the Farm Loan

Programs debt with another lender. The

servicing official will explain the

provisions of these regulations to the

borrower.

(2) Sale or transfer for less than

secured debt. If the property is to be

sold or transferred for less than the total

secured debts against it, the property

will be appraised immediately to

determine its present market value. The

appraisal will be completed by an

authorized agency employee in

accordance with subpart E of part 1922

of this chapter and placed in the

borrower’s case file. If a qualified

agency appraiser is not available, the

State Executive Director may contract

for an appraisal in accordance with RD

Instruction 2024–A (available in any

agency office).

(b) Involuntary liquidation—(1)

General. When the servicing official,

with the advice of the District Director,

determines that continued servicing of

the loan will not accomplish the

objectives of the loan, or that further

servicing cannot be justified under the

policy stated in § 1965.2 of this subpart,

liquidation of the account will be

accomplished as quickly as possible

under this section and subpart A of part

1955 of this chapter.

(2) Farm Loan Programs loan cases. In

Farm Loan Programs loan cases,

borrowers who are 90 days past due (60

days delinquent) on their payments,

must receive Exhibit A with

attachments 1 and 2, or attachments 1,

3, and 4 of exhibit A of subpart S of part

1951 of this chapter in cases involving

nonmonetary default. The servicing

official will send these forms to the

borrower as soon as a decision is made

to liquidate. The procedures set out in

subpart S of part 1951 of this chapter

shall be followed and any appeal must

be concluded before any liquidation

action, including termination of releases

of sales proceeds, is taken. If the

borrower fails to return attachment 2 of

exhibit A of subpart S of part 1951 of

this chapter and a complete application

within 60 days, the servicing official

will send attachments 9 and 10 or 9–A

and 10–A of exhibit A of subpart S of

part 1951 of this chapter. If the borrower

fails to return attachment 4, 6, 6–A, 10,

or 10–A of exhibit A of subpart S of part

1951 of this chapter within 60 days, the

servicing official will submit the case to

the District Director in accordance with

the provisions of § 1955.15 of subpart A

of part 1955 of this chapter.

(3) Reserved.

(4) Acceleration of account. When

foreclosure is approved, acceleration of

the account and demand for payment

will be accomplished according to the

applicable paragraphs of § 1955.15 of

subpart A of part 1955 of this chapter.

(c) * * *

(1) When a borrower is indebted to

the agency for more than one type of

FLP loan, a thorough study should be

made of each loan and the effect
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 10159

liquidation of one or more of the loans

would have on any and all other loans.

When liquidation of one or more FLP

loans secured by real estate and chattels

is necessary, and it will jeopardize the

repayment of or the accomplishment of

the purpose of the other loans,

liquidation of all real estate and all

chattel security for all loans will be

started at the same time. Chattel security

will be liquidated under subpart A of

part 1962 of this chapter, except when

real estate is transferred in accordance

with § 1965.27 of this subpart.

* * * * *

(3) RHS SFH loans on farm tracts

must be considered for payment

assistance and/or moratorium at the

time servicing options are being

considered for the FLP loan(s) prior to

acceleration. The RHS county office file

will be documented to show that

payment assistance and moratorium

were considered. When the Notice of

Intent notices, set forth in subpart S of

part 1951 of this chapter are sent to a

borrower who also has an RHS loan, and

the dwelling is security for the farm

loan(s) and is located on the farm tract,

it will not be necessary for RHS to meet

the additional requirements of subpart G

of part 1951 of this chapter prior to

accelerating the RHS loan accounts. The

RHS accounts will be accelerated at the

same time the Notice of Intent notices,

set forth in subpart S of part 1951 of this

chapter are sent to the borrower. If it is

later determined that the FLP loan(s) is

to receive additional servicing in lieu of

liquidation, the RHS loan will be

reinstated simultaneously with the FLP

servicing actions and may be

reamortized in accordance with

§ 1951.315 of subpart G of part 1951 of

this chapter.

* * * * *

(f) * * *

(4) The agency’s liens against the

security property are not released until

the appropriate sale proceeds for

application on the Government’s claim

are received. The release will be made

on forms approved or prepared by OGC.

(5) * * *

(ii) When the Agency debt less the

market value and prior liens is $1

million or more (including principal,

interest, and other charges), release of

liability must be approved by the

Administrator or designee; otherwise,

the State Executive Director must

approve the release of liability. All cases

requiring a release of liability will be

submitted in accordance with exhibit A

of subpart B of part 1956 of this chapter

(available in any agency office).

(iii) The borrower has never been

liable for any direct FLP loan or loan

guarantee which was reduced or

terminated in a manner resulting in a

loss to the Government.

(6) If a release from liability cannot be

granted, the borrowers will be sent a

letter similar to exhibit F of subpart A

of part 1955 of this chapter (available in

any agency office). The servicing official

will meet with the borrower within 30

days to assist the borrower in the

development of a debt settlement offer

in accordance with subpart B of part

1956 of this chapter. (available in any

agency office).

* * * * *

§ 1956.27 [Amended]

48. Section 1965.27 is amended by:

a. In the introductory paragraph by

revising the words ‘‘FmHA or its

successor agency under Public Law

103–354’’ to read ‘‘Agency’’ in the first

sentence; revising the words ‘‘Farmer

program’’ to read ‘‘Farm Loan Programs

(FLP)’’ in the second sentence; revising

the words ‘‘FmHA or its successor

agency under Public Law 103–354’’ to

read ‘‘FLP’’ in the third and fourth

sentence; by revising the words ‘‘FmHA

or its successor agency under Public

Law 103–354’’ to read ‘‘the Agency’s’’ in

the sixth sentence; by revising the

words ‘‘FmHA or its successor agency

under Public Law 103–354’’ to read

‘‘agency’’ in the seventh sentence; by

removing the words ‘‘FmHA or its

successor agency under Public Law

103–354’’ in the eighth sentence in both

places they appear;

b. In paragraph (c)(2) by revising the

words ‘‘FmHA or its successor agency

under Public Law 103–354’’ to read ‘‘the

agency’’ in the first sentence; by revising

the third sentence to read ‘‘Interest rates

are specified in agency National Office

issuances (available in any agency

office) for the type of loan involved.’’;

by revising the words ‘‘FmHA or its

successor agency under Public Law

103–354’’ to read ‘‘RD’’ in the fourth

sentence; by revising the fifth sentence

to read ‘‘The field office will process the

assumption via the field office terminal

system in accordance with Form 1965–

13.’’;

c. In paragraph (d) by adding a

sentence to the end of the paragraph to

read ‘‘No assumption can be approved

if the transferee has been liable for any

Farm Loan Program (FLP) loan or loan

guarantee which was reduced or

terminated in a manner resulting in a

loss to the Government.’’;

d. In paragraph (e) by revising the

words ‘‘FmHA or its successor agency

under Public Law 103–354’’ to read

‘‘agency’’;

e. In paragraph (f) by adding a new

sentence after the first sentence to read

‘‘Release shall not be granted to any

borrower or cosigner who was liable for

any FLP direct loan which was reduced

or terminated in a manner resulting in

a loss to the Government’’; by revising

the word ‘‘FP’’ to read ‘‘FLP’’ in the

third and fifth sentence; by revising the

words ‘‘FmHA or its successor agency

under Public Law 103–354’’ to read

‘‘agency’’ in the third sentence; by

removing the fourth sentence that read

‘‘SFH borrowers will be released from

liability in accordance with § 1965.127

of subpart C of part 1965 of this

chapter.’’; and by removing the words

‘‘FmHA or its successor agency under

Public Law 103–354’’ in the seventh

sentence.’’

Dated: February 13, 1997.

James W. Schroeder,

Acting Under Secretary for Farm and Foreign

Agricultural Services.

Dated: February 14, 1997.

Jill Long Thompson,

Under Secretary for Rural Development.

[FR Doc. 97–5115 Filed 3–4–97; 8:45 am]

BILLING CODE 3410–05–P