57866 Federal Register / Vol. 75, No. 184 / Thursday, September 23, 2010 / Proposed Rules 

treatment in accordance with § 319.40- 

7(c) or with heat treatment with 

moisture reduction in accordance with 

§ 319.40-7(d). However, as we 

mentioned above, these paragraphs no 

longer contain heat treatment schedules; 

all approved schedules now are listed 

only in the PPQ Treatment Manual. 

Accordingly, under this supplemental 

proposal, paragraph (o)(1)(i) would now 

require that wooden handicrafts be 

treated with heat treatment or heat 

treatment with moisture reduction as 

specified in the PPQ Treatment Manual, 

in accordance with 7 CFR part 305. If 

we finalize our April 2009 proposed 

rule and this supplemental proposal, we 

would add heat treatment that raises the 

center of Chinese wooden handicrafts to 

at least 60 °C and maintains the 

handicrafts at that center temperature 

for at least 60 minutes to the PPQ 

Treatment Manual as an approved 

treatment for these handicrafts, and 

modified paragraph (o)(1)(i) would 

require such a treatment. 

Executive Order 12866 and Regulatory 

Flexibility Act 

This proposed rule has been 

determined to be not significant for the 

purposes of Executive Order 12866, and 

therefore, has not been reviewed by the 

Office of Management and Budget. 

This action supplements a proposed 

rule published in the Federal Register 

on April 9, 2009. We prepared an initial 

regulatory flexibility analysis for the 

proposed rule that considered the 

potential effects of the rule on small 

entities. The analysis identified 

individuals engaged in wood product 

manufacturing, importing of the 

regulated articles, or furniture and 

related products manufacturing as the 

entities most likely to be affected by the 

proposed rule. 

The analysis took into consideration 

that the cost of treating Chinese 

handicrafts could be passed on to 

certain of these entities. However, it also 

noted that China already has in place 

the heat treatment facilities necessary to 

conduct treatment, and expected that, 

because of this, any increase in prices 

due to individual treatments would not 

be significant. 

In assessing the possible cost of heat 

treatment, we determined that, because 

China already has heat treatment 

facilities at their disposal, a range of 

treatment schedules and durations 

would cost approximately the same 

amount per treatment, and would 

accordingly result in the same cost passthrough. The treatment schedule that we 

would authorize in this supplemental 

proposal—one that raises the center of 

Chinese wooden handicrafts to at least 

60 °C and maintains the handicrafts at 

that center temperature for at least 60 

minutes—falls within this range. 

Therefore, we believe that the 

findings of the initial regulatory 

flexibility analysis prepared for the 

proposed rule are still accurate and 

appropriate. 

That analysis was included in the 

proposed rule in its entirety, and is 

available on the Internet at the 

Regulations.gov Web site (see 

ADDRESSES at the beginning of this 

document for a link to Regulations.gov). 

Paperwork Reduction Act 

This action supplements a proposed 

rule published in the Federal Register 

on April 9, 2009, that would amend the 

regulations to provide for the 

importation of wooden handicrafts from 

China under certain conditions. That 

proposed rule would necessitate the use 

of certain information collection 

activities, including the completion of 

phytosanitary certificates and 

identification tags of packages of 

wooden handicrafts. 

This supplemental proposed rule 

contains no new information collection 

or recordkeeping requirements under 

the Paperwork Reduction Act of 1995 

(44 U.S.C. 3501 et seq.). 

List of Subjects in 7 CFR Part 319 

Coffee, Cotton, Fruits, Imports, Logs, 

Nursery stock, Plant diseases and pests, 

Quarantine, Reporting and 

recordkeeping requirements, Rice, 

Vegetables. 

■ For the reasons set forth in the 

preamble, we propose to amend 7 CFR 

part 319 as set out in the proposed rule 

published on April 9, 2009 (74 FR 

16146-16151, Docket No. APHIS-2007- 

0117), as follows: 

PART 319—FOREIGN QUARANTINE 

NOTICES 

■ 1. The authority citation for part 319 

continues to read as follows: 

Authority: 7 U.S.C. 450, 7701-7772, and 

7781-7786; 21 U.S.C. 136 and 136a; 7 CFR 

2.22, 2.80, and 371.3. 

■ 2. In § 319.40-5, paragraph (o)(1)(i) is 

revised to read as follows: 

§ 319.40-5 Importation and entry 

requirements for specified articles. 

* * * * * 

(o) * * * 

(1) * * * 

(i) Wooden handicrafts must be 

treated with heat treatment or heat 

treatment with moisture reduction as 

specified in the PPQ Treatment Manual 

in accordance with part 305 of this 

chapter. 

* * * * * 

Done in Washington, DC, this 17th 

day of September 2010. 

Kevin Shea, 

Acting Administrator, Animal and Plant 

Health Inspection Service. 

[FR Doc. 2010–23817 Filed 9–22–10; 8:45 am] 

BILLING CODE 3410–34–S 

DEPARTMENT OF AGRICULTURE 

Farm Service Agency 

7 CFR Parts 761, 763, and 764 

RIN 0560–AI03 

Farm Loan Programs Loan Making 

Activities 

AGENCY: Farm Service Agency, USDA. 

ACTION: Proposed rule. 

SUMMARY: The Farm Service Agency 

(FSA) is proposing to amend the Farm 

Loan Programs (FLP) loan making 

regulations to implement four 

provisions of the Food, Conservation, 

and Energy Act of 2008 (2008 Farm 

Bill). The first proposed amendment 

renames, expands, and makes the 

Beginning Farmer and Rancher Land 

Contract Guarantee Pilot Program 

permanent. The next two proposed 

amendments change the farm 

experience requirements in the 

regulations for direct Farm Operating 

Loans (OL) and direct Farm Ownership 

Loans (FO). The fourth proposed 

amendment makes some equine farmers 

and certain equine losses eligible for 

Emergency Loans (EM). 

DATES: We will consider comments on 

the rule that we receive by November 

22, 2010. 

ADDRESSES: We invite you to submit 

written comments to this proposed rule 

and information collection. In your 

comment, include the volume, date, and 

page number of this issue of the Federal 

Register. You may also send comments 

about the information collection to the 

Desk Officer for Agriculture, Office of 

Information and Regulatory Affairs, 

Office of Management and Budget, 

Washington, DC 20503. You may submit 

comments by any of the following 

methods: 

• E-mail: 

connie.holman@wdc.usda.gov. 

• Fax: (202) 720–6797. 

• Mail: Director, Loan Making 

Division (LMD), FSA, USDA, 1400 

Independence Avenue, SW., Stop 0522, 

Washington, DC 20250–0522. 

• Hand Delivery or Courier: Deliver 

comments to FSA, LMD, 1280 Maryland 

Avenue, SW., Suite 240, Washington, 

DC 20024. 


wwoods2 on DSK1DXX6B1PROD with PROPOSALS_PART 1
Federal Register / Vol. 75, No. 184 / Thursday, September 23, 2010 / Proposed Rules 57867 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov. Follow the 

online instructions for submitting 

comments. 

Comments may be inspected in the 

Office of the Director, LMD, FSA, at 

1280 Maryland Avenue, SW., Suite 240, 

Washington, DC between 8 a.m. and 

4:30 p.m., except holidays. 

FOR FURTHER INFORMATION CONTACT: 

Connie Holman, Senior Loan Officer, 

LMD, FSA; telephone: (202) 690–0756; 

fax: (202) 720–6797; e-mail: 

connie.holman@wdc.usda.gov. Persons 

with disabilities or who require 

alternative means for communication 

(Braille, large print, audio tape, etc.) 

should contact the USDA Target Center 

at (202) 720–2600 (voice and TDD). 

SUPPLEMENTARY INFORMATION: 

Background 

This rule is proposing to implement 

four provisions of the 2008 Farm Bill 

(Pub. L. 110–246) concerning FSA’s 

loan making activities. 

Land Contract Guarantee Program 

The Beginning Farmer and Rancher 

Land Contract Guarantee Pilot Program 

(pilot program) was originally 

authorized by section 5006 of the Farm 

Security and Rural Investment Act of 

2002 (Pub. L. 107–171) as an 

amendment to section 310F of the 

Consolidated Farm and Rural 

Development Act (7 U.S.C. 1936 

(CONACT)). The pilot program was 

initially implemented in six States 

through a notice of funds availability 

(NOFA) published in the Federal 

Register on September 4, 2003 (68 FR 

52557–52562) and further expanded to 

add three additional States through a 

notice published in the Federal Register 

on September 15, 2005 (70 FR 54520). 

The pilot program called the 

Beginning Farm and Rancher Land 

Contract Guarantee Pilot Program was 

authorized in specified States for up to 

five guarantees of land contracts entered 

into by private sellers of farms to 

qualified beginning farmers each year 

from fiscal year 2003 through 2007. A 

land contract is a contract between a 

willing buyer and seller through which 

the buyer makes principal and interest 

payments to the seller over a specified 

time period while the seller retains title 

to the property until all payments are 

made. For the Land Contract Guarantee 

Program, land contract sales will be for 

land transfers of farmland. The pilot 

program provided the seller of the land 

a 10-year ‘‘prompt payment’’ guarantee 

of an amount not to exceed the total 

monetary amount of two amortized 

annual installments, plus the amount of 

two years’ property taxes and hazard 

insurance premiums. 

The pilot program produced very 

limited activity with only 2 guarantees 

made. 

Based on 2008 Farm Bill amendment 

(section 5005) to section 310F of the 

CONACT, FSA proposes expanding 

eligibility for land contract guarantees 

from the pilot program eligibility of only 

beginning farmers. In brief, a beginning 

farmer is someone who has not operated 

a farm for more than 10 years, does not 

own real farm property that aggregate 

acreage exceeds 30 percent of the 

median farm acreage of the farms in the 

county where the property is located 

and will substantially participate in the 

operation of the farm. Eligibility for the 

new Land Contract Guarantee Program 

also will include socially disadvantaged 

applicants who are members of a group 

whose members have been subject to 

racial, ethnic, or gender prejudice. (See 

definitions of beginning farmer and 

socially disadvantaged group in 7 CFR 

761.2.) As in the pilot program and 

consistent with other FSA loan 

programs, eligibility will continue to be 

limited to family farms, which are farms 

in which the majority of the labor and 

management decisions are provided by 

the farm family and other regulatory 

criteria are met. (See FSA definitions for 

family farm, family member, and farm 

in 7 CFR 761.2.) FSA believes that the 

proposed Land Contract Guarantee 

Program will provide another 

alternative for intergenerational 

transitioning of farm real estate to help 

ensure the future viability of family 

farms for beginning farmers and socially 

disadvantaged farmers. 

In this rule, FSA proposes regulations 

for the Land Contract Guarantee 

Program in 7 CFR part 763. As 

proposed, the new Land Contract 

Guarantee Program will be similar to the 

pilot program, with amendments 

needed to comply with section 310F of 

the CONACT. The program will become 

permanent in the final rule and expand 

nationwide. As required by the 

CONACT, FSA proposes expanding the 

guarantee available to give the seller the 

option of choosing either a: 

(1) Prompt payment guarantee of three 

years’ amortized annual installments 

plus the amount of three years’ real 

estate taxes and hazard insurance 

premiums (instead of two under the 

pilot), or 

(2) Standard 90 percent guarantee of 

outstanding principal on the land 

contract. 

As proposed, the Land Contract 

Guarantee Program will be consistent 

with other FSA farm loan programs as 

to general eligibility criteria and most 

servicing options. 

As in the pilot program, the guarantee 

may only be used for financing the 

purchase of a farm on a new land 

contract basis. Existing contracts are not 

eligible for a guarantee since the 

purpose of the guarantee is to facilitate 

sales that would not occur without the 

guarantee. 

Section 310F of the CONACT 

prohibits a loan guarantee ‘‘if the 

purchase price or the appraisal value of 

the farm or ranch that is the subject of 

the contract land sale is greater than 

$500,000.’’ 

In addition, these guarantees, like 

other Farm Loan Programs guarantees, 

will not be used to establish or support 

a non-eligible enterprise. A non-eligible 

enterprise is defined in 7 CFR 761.2 as 

a business that produces exotic animals, 

birds and fish; produces non-farm 

animals ordinarily used for pets, 

companionship or pleasure; markets 

non-farm goods; or processes farm 

products when the majority of the 

commodities are not produced by the 

farming operation. 

Terms and Definitions 

Definitions used throughout FSA farm 

loan programs are in 7 CFR 761.2; the 

Land Contract Guarantee Program will 

also use those definitions. Section 310F 

of the CONACT uses the words 

‘‘farmers’’ and ‘‘ranchers.’’ For 

consistency with existing FLP 

regulations, for the Land Contract 

Guarantee Program the word ‘‘farm’’ will 

also include the word ‘‘ranch’’, and the 

use of the word ‘‘farmer’’ will also 

include ‘‘rancher.’’ 

The Agency proposes to add the 

definition of ‘‘land contract’’ to 7 CFR 

761.2 as follows: 

Land contract is an installment contract 

drawn between a buyer and a seller for the 

sale of real property, in which complete fee 

title ownership of the property is not 

transferred until all payments under the 

contract have been made. 

Guarantee Plan Options 

As specified in section 310F of the 

CONACT, the prompt payment 

guarantee plan will cover three annual 

amortized installments, or an amount 

equal to three annual installments 

including an amount equal to the total 

cost of any tax and insurance incurred 

during the period covered by the annual 

installment (rather than 2 years under 

the pilot). The standard guarantee plan 

is similar to FSA’s regular guarantee 

program except that as specified in 

section 310F, it will cover an amount 

equal to 90 percent of the outstanding 

principal only and will not cover 


wwoods2 on DSK1DXX6B1PROD with PROPOSALS_PART 1
57868 Federal Register / Vol. 75, No. 184 / Thursday, September 23, 2010 / Proposed Rules 

interest. The seller selects which plan 

when applying for the Land Contract 

Guarantee Program. 

When the Standard Guarantee Plan is 

requested, an appraisal will be 

completed as specified in 7 CFR 761.7. 

To allow flexibility, the appraisal may 

be completed prior to, or as a condition 

of approval. The appraisal will be 

obtained and paid for by FSA. The 

requirement for an appraisal is 

necessary to establish the Agency’s 

initial commitment for the standard 

guarantee made under the Land 

Contract Guarantee Program. FSA will 

not guarantee a land contract under 

either the prompt payment guarantee 

plan or the standard guarantee if the 

sales price of the real estate exceeds the 

appraised value. 

Eligibility 

The seller in the land contract 

receives benefits from the guarantee, 

therefore, FSA is proposing eligibility 

requirements for sellers. These 

requirements apply to private sellers, 

and to each entity member, in the case 

of an entity seller. The private seller 

and, if the seller is an entity, each 

member of the entity must: 

(1) Possess the legal capacity to enter 

into a legally binding agreement; 

(2) Not have provided false 

documents or statements during past or 

present dealings with FSA; 

(3) Not be ineligible due to 

disqualifications resulting from Federal 

Crop Insurance violation in accordance 

with 7 CFR part 718, and 

(4) Not be suspended or debarred 

under 7 CFR part 3017. 

FSA does not intend to evaluate the 

financial strength of the seller. Contracts 

entered into by FSA with the seller as 

a result of an approved land contract 

guarantee will be written to sufficiently 

protect the Government’s interest in 

case of financial failure of the seller. 

The buyer will be expected to conduct 

an adequate investigation of the seller to 

protect their own interests. 

FSA proposes buyer eligibility 

requirements that will mirror the 

eligibility requirements established for 

the Guaranteed Farm Loan program 

involving conventional lenders and 

found in 7 CFR part 762. The buyer: 

(1) Must be the owner and operator of 

a family farm after the contract is 

completed. In the case of an entity 

buyer: 

(i) Each entity member’s ownership 

interest may not exceed the amount 

specified in the family farm definition 

in 7 CFR 761.2. 

(ii) The entity members cannot 

themselves be entities. 

(iii) The entity must be authorized to 

own and operate a farm in the State in 

which the farm is located. 

(iv) If the entity members holding a 

majority interest are related by blood or 

marriage, at least one member of the 

entity must: 

(A) Operate the farm; and 

(B) Own the farm. 

(v) If the entity members holding a 

majority interest are not related by 

blood or marriage, the entity members 

holding a majority interest must: 

(A) Operate the farm; and 

(B) Own the farm, or the entity itself 

must own the farm. 

(2) Must have participated in the 

business operations of a farm for at least 

3 years out of the last 10 years prior to 

the date of the application; 

(3) And all entity members, in the 

case of an entity, must not have received 

debt forgiveness on any direct or 

guaranteed FLP loan (that was not 

repaid) on more than three occasions on 

or prior to April 4, 1996, or on any 

occasion after April 4, 1996; 

(4) And all entity members, in the 

case of an entity, must not be delinquent 

on Federal debt other than a debt under 

the Internal Revenue Code of 1986, 

when the guarantee is issued; 

(5) And all entity members, in the 

case of an entity, must have no 

outstanding unpaid judgment awarded 

to the United States in any non-tax 

court; 

(6) Must and in the case of an entity, 

the majority interest of the entity must, 

be held by members, who are a U.S. 

citizen, non-citizen national, or 

qualified alien; 

(7) And all entity members, in the 

case of an entity, must possess the legal 

capacity to enter into a legally binding 

agreement; 

(8) And all entity members, in the 

case of an entity, must not have 

provided false or misleading documents 

or statements during past or present 

dealings with FSA; 

(9) And all entity members, in the 

case of an entity, must not be ineligible 

as a result of a conviction for certain 

activities relating to controlled 

substances; 

(10) And all entity members, in the 

case of an entity, must have an 

acceptable credit history as required by 

section 310F; 

(11) Must be unable to enter into the 

land contract unless the seller can 

obtain a FSA guarantee as required by 

section 310F; 

(12) And all entity members in the 

case of an entity, must not be ineligible 

due to disqualification resulting from 

Federal Crop Insurance violation in 

accordance with 7 CFR part 718; 

(13) And all entity members in the 

case of an entity, must not be suspended 

or debarred under 7 CFR part 3017. 

In addition, buyer eligibility will be 

extended to include socially 

disadvantaged farmers (both beginning 

and non-beginning) as required by 

section 310F. 

Application Processing 

FSA proposes application 

requirements for both the seller and the 

buyer. The seller will be required to 

provide the completed letter of interest 

along with the name, address, and 

telephone number of the chosen 

servicing or escrow agent. 

FSA proposes the same procedure for 

the buyer to apply for the Land Contract 

Guarantee Program as is used under the 

direct loan program. Since the seller 

will not be governed by banking rules 

and eligibility requirements like 

approved lenders in FSA’s regular 

guaranteed loan program, FSA will take 

a greater role in reviewing the buyer’s 

financial capacity. Buyers must submit 

such information as: 

(1) The completed FSA application 

form (same form as used in direct loan 

programs); 

(2) If the applicant is an entity, other 

information such as a current personal 

financial statement from each member 

of the entity, a current financial 

statement for the entity itself, a copy of 

the entity’s charter or any entity 

agreement, articles of incorporations 

and bylaws, certificate or evidence of 

current registration, and a resolution 

adopted by the Board of Directors 

authorizing specified officers of the 

entity to execute the desire land 

contract; 

(3) Current financial information; 

(4) A current farm operating plan; 

(5) Brief description of the buyer 

proposed operation, farm training, and 

experience; 

(6) Prior 3 years income tax and other 

financial records; 

(7) Prior 3 years farm production 

records, if available; 

(8) Verification of income and debts; 

(9) Payment of credit report fee; 

(10) Documentation of compliance 

with FSA environmental regulations 

contained in subpart G of 7 CFR part 

1940; 

(11) A copy of the proposed land 

contract; and 

(12) Any other information FSA 

requires to process the application. 

FSA proposes the same procedure for 

processing an incomplete application 

specified in 7 CFR 764.52 for direct loan 

processing. The section specifies that 

within 10 days after receipt of 

incomplete application will notify they 


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Federal Register / Vol. 75, No. 184 / Thursday, September 23, 2010 / Proposed Rules 57869 

buyer of additional information needed 

to process the request and 20 days for 

the buyer to provide the needed 

information. If the information is not 

received within the initial 20 day 

timeframe, a subsequent letter will be 

sent and 10 additional days will be 

given to provide the missing 

information. The second letter will 

provide that if the information is not 

received within this 10 day timeframe, 

the incomplete application will be 

withdrawn without further notice. FSA 

proposes to adopt the same processing 

timeframes for a complete application 

specified in § 762.130 for standard 

eligible lenders in FSA’s regular 

Guaranteed Farm Loans Program. 

Downpayment, Rates, and Terms 

As in the pilot program, FSA proposes 

that the buyer will be required to 

provide a minimum down payment of 

five percent of the purchase price of the 

farm. This is the minimum requirement 

of section 310F. 

The interest rate charged by the seller 

to the buyer for the 10-year term of the 

contract cannot exceed FSA’s direct FO 

loan rate in effect at the time the 

guarantee is issued plus three 

percentage points and the rate must 

remain fixed during the 10-year 

guarantee period. Section 310F requires 

a 10-year guarantee. FSA’s direct loan 

interest rates may be obtained in any 

FSA office or by visiting the FSA Web 

site at: http://www.fsa.usda.gov/ 

daflp.rates.htm. 

As in the pilot program, installments 

on land contracts must be amortized for 

a minimum of 20 years and must be 

equal installments. FSA proposes to 

prohibit balloon payments during the 

10-year term of the guarantee. These 

provisions will permit more realistic 

cash flow projections, improve the 

buyer’s chance of success, protect the 

Government’s interest, and limit the 

amount of FSA’s exposure due to the 

prompt payment guarantee plan. 

Fees 

FSA proposes that no guarantee fees 

be charged to obtain or execute the 

‘‘Land Contract Agreement for Prompt 

Payment Guarantee’’ or the ‘‘Land 

Contract Agreement for Standard 

Guarantee.’’ The seller and buyer will be 

responsible for payment of any expenses 

or local government fees necessary to 

process the land contract agreement or 

for the buyer to ensure that proper title 

is vested in the seller including, but not 

limited to, attorney fees, recording costs, 

and notary fees. 

Taxes and Insurance 

FSA proposes that maintenance of 

both annual property taxes and hazard 

insurance, if applicable, will be the 

responsibility of the seller. FSA believes 

that since maintenance of both of these 

items will be a stipulation for payment 

of the guarantee in the event of default, 

the ultimate responsibility should rest 

with the seller. Agreements regarding 

payment of taxes and insurance made 

between the buyer and seller should be 

part of the land contract. FSA will not 

be party to this agreement as the land 

contract is between the buyer and seller 

only. 

The land contract must contain 

language to ensure that any insurance 

proceeds received for real estate losses 

will be used only to replace or repair the 

real estate improvements that were 

damaged, to make other essential real 

estate improvements that they mutually 

agree on, or to pay a prior lien, with an 

equal amount credited to the land 

contract. FSA need not be named on the 

insurance policy, but will reduce a loss 

claim if insurance funds are not used to 

replace improvements that were 

damaged or used to make other essential 

real estate improvements. The seller 

will maintain flood insurance, if 

available, if buildings are located in a 

special 100-year floodplain as defined 

by FEMA flood hazard area maps. 

Approval and Executing the Guarantee 

FSA proposes to follow the 

procedures consistent with the pilot 

program for approving and executing 

the guarantee. Once the guarantee is 

approved, all parties including the 

seller, buyer, escrow or servicing agent, 

and FSA’s representative will execute 

either the ‘‘Land Contract Agreement for 

Prompt Payment Guarantee’’ or the 

‘‘Land Contract Agreement for Standard 

Guarantee’’ depending on the guarantee 

plan chosen by the seller. These 

agreements describe the conditions of 

the guarantee and the process for 

payment of claims under the respective 

plan. 

Servicing Agents and Escrow Agents 

The Land Contract Guarantee Program 

requires the use of a third party agent to 

service the loan. The distinction of 

‘‘escrow agent’’ versus ‘‘servicing agent’’ 

will be tied to the guarantee plan that 

the seller chooses and the duties that 

the agent performs. 

The prompt payment guarantee plan, 

as proposed requires use of a third party 

escrow agent. FSA proposes that escrow 

agents must be bonded and may include 

title insurance companies, attorneys, 

financial institutions, or any fiscally 

responsible institution as determined by 

FSA. If the terms of the land contract 

agreement allow, the escrow agent’s fee 

may be taken from each payment and a 

pro-rata share remitted to the seller, but 

FSA will not dictate how to establish 

payment to the escrow agent. The 

escrow agent for the seller must provide 

evidence to FSA that property taxes are 

paid and insurance is kept current on 

the security property. Although not 

required by section 310F of the 

CONACT for a prompt payment 

guarantee, this requirement will protect 

FSA from losses from third party taxing 

authorities and losses due to failure of 

either the buyer or the seller to maintain 

adequate insurance coverage. 

The standard guarantee plan, as 

proposed, requires use of a third party 

agent that FSA is proposing to call a 

‘‘servicing agent’’ rather than an escrow 

agent. This ‘‘servicing agent’’ would 

perform all the duties that the escrow 

agent performs under the prompt 

payment guarantee plan, but would also 

perform additional duties than an 

escrow agent does not normally 

perform, but that a lender under FSA’s 

traditional guarantee program would 

when servicing guaranteed loans. These 

additional duties include gathering 

financial information from the buyer, 

performing an annual analysis of the 

farming operation, doing an annual 

inspection of the farm, and preparing an 

annual inspection report. It is necessary 

to have a servicing agent perform these 

additional duties and provide the 

information to FSA because FSA has the 

potential for a much greater financial 

loss under the standard guarantee than 

under the prompt payment guarantee. If 

the terms of the land contract agreement 

allow, the servicing agent’s fee may be 

taken from each payment submitted by 

the buyer, and a pro-rata share remitted 

to the seller; but FSA will not dictate 

how to establish payment to the 

servicing agent. 

The proposed standard guarantee plan 

requires the servicing agent to handle 

transactions relating to the land contract 

between the buyer and seller, including 

receiving all contract installment 

payments and remitting them to the 

seller. The servicing agent must send 

the buyer a payment reminder letter 30 

days prior to the due date of each 

annual installment. The servicing agent 

is also responsible for providing 

evidence to FSA that property taxes 

have been paid and hazard insurance is 

kept in effect when insurable structures 

are on the security property. In most, 

but not all cases, provisions for payment 

of taxes and hazard insurance 

premiums, if applicable, will be 

included in the land contract; however, 


wwoods2 on DSK1DXX6B1PROD with PROPOSALS_PART 1
57870 Federal Register / Vol. 75, No. 184 / Thursday, September 23, 2010 / Proposed Rules 

under the standard guarantee plan, the 

seller is responsible for paying property 

taxes. The servicing agent also must 

submit a status report to FSA and to the 

seller semi-annually as of September 30 

and March 31 showing the outstanding 

principal and interest balance on the 

land contract agreement. This is the 

same report information that guaranteed 

lenders are required to submit semiannually to FSA for the regular 

guaranteed program in 7 CFR 762.141. 

The report is used to keep FSA 

informed of its potential risk exposure 

and is required for FSA to complete its 

annual financial statement. The 

servicing agent also must perform an 

annual physical inspection of the 

collateral property and provide a 

written report to FSA. Annually, the 

servicing agent will also obtain from the 

buyer a current balance sheet, income 

statement, cash flow budget, along with 

any additional information needed, 

perform an analysis of the buyer’s 

financial condition, and provide the 

information to FSA. The servicing agent 

also must perform any other duties that 

may be required by State law or agreed 

to by the seller and the buyer in the land 

contract. 

The reason FSA is requiring more 

from the servicing agent for guarantees 

made under the standard guarantee plan 

is that FSA has greater potential 

financial risk exposure under this 

option than the prompt payment 

guarantee plan, where FSA’s exposure 

for possible loss claim is limited to three 

annual installments plus three years’ 

property taxes and hazard insurance 

premiums. Under the standard 

guarantee plan, FSA is liable for 90 

percent of the entire principal amount 

of the land contract, and is not limited 

to just three installments as it is under 

the prompt payment plan. 

FSA proposes that the servicing agent 

must be a bonded commercial lending 

institution or similar entity that is 

registered and authorized to provide 

escrow and collection services in the 

State in which the real estate is located. 

Land Contract Modification 

All modifications to the land contract 

will require FSA prior written approval 

except for a reduction in interest rate. 

Both the prompt payment guarantee 

plan and the standard guarantee plan 

allow the seller and buyer to lower the 

interest rate and the corresponding 

amortized payment schedule without 

FSA approval. FSA approval is not 

needed to lower the interest rate since 

that action is clearly in the best interest 

of both the buyer and FSA, and will not 

lead to an increased loss claim. 

With FSA’s prior written approval, 

the seller and the buyer may modify the 

land contract provided that a feasible 

plan can be reasonably projected 

throughout the remaining term of the 

guarantee and for the upcoming 

operating cycle. The seller and buyer 

may defer installments with prior 

approval from FSA. 

A partial release is a release of a 

portion of the real estate included in the 

land contract. Any partial release 

requires prior approval by FSA, the 

buyer, and the seller in writing. All 

proceeds from a partial release sale must 

be applied to a prior lien owed by the 

seller, if one exists. In addition, an 

amount equal to the value of the parcel 

being released must be credited to the 

principal balance of the land contract. 

This is necessary because otherwise the 

security for the land contract would be 

reduced without a corresponding 

reduction in the debt owed by the buyer 

if the seller in the land contract 

transaction sells part of the real estate 

security without crediting the amount of 

the released property to the land 

contract balance. 

All leasing or subleasing requests 

must be submitted to FSA for approval, 

and will only be approved if such action 

is determined not to be detrimental to 

FSA under the guarantee. Income 

received by the seller from royalties 

from mineral extraction must be applied 

to the principal balance of the land 

contract being guaranteed by FSA. If the 

landowner receives royalties from 

mineral extraction from the collateral 

property without crediting the amount 

to the land contract balance, the security 

for the land contract would be reduced 

without a corresponding reduction in 

debt owed by the buyer. 

The seller cannot assign interest in 

the FSA guarantee to another party 

without FSA’s written consent. The 

buyer can only transfer obligation in the 

land contract and the guarantee to an 

eligible applicant under the land 

contract program. The eligible applicant 

first must be approved by FSA and the 

seller in the land contract. If an eligible 

applicant cannot be found, the FLP 

Deputy Administrator may make an 

exception to this requirement. 

If a land contract is modified, the 

seller must provide FSA and the escrow 

or servicing agent with a copy of the 

modified contract. Modifications other 

than those listed above must be 

approved by the FLP Deputy 

Administrator and will be approved 

only if such action is determined not to 

be detrimental to FSA under the 

guarantee. 

Delinquent Account Servicing 

If the buyer fails to make a payment 

under either the Land Contract 

Agreement for Prompt Payment 

Guarantee or Land Contract Agreement 

for Standard Guarantee, the escrow or 

servicing agent will send the first 

delinquent notice to the buyer within 30 

days of the missed payment due date 

with a copy to FSA and the seller. 

Under the prompt payment guarantee 

plan, if the buyer does not resolve the 

default within 30 days of the written 

demand, the escrow agent must make 

demand on FSA to pay the defaulted 

amount plus property taxes and 

insurance premiums, if applicable. This 

demand on FSA must be made within 

90 days from the missed payment due 

date. 

Under the standard guarantee plan, if 

a missed payment is not resolved within 

60 days from the date of the demand 

letter, the seller has two options for 

determining the amount of the loss 

when a buyer defaults. The seller may 

either liquidate the real estate or have 

FSA establish the amount of loss by an 

appraisal. 

If the seller chooses the liquidation 

option, the servicing agent must 

liquidate the real estate. The servicing 

agent will be required to submit a 

liquidation plan to FSA for approval, 

just as lenders do for the regular FSA 

guarantee program as specified in 7 CFR 

762.149. This is necessary to assure FSA 

that the servicing agent is using a 

liquidation method that is likely to 

result in the greatest return on the sale 

of the property. The servicing agent will 

be required to have the liquidation 

completed within 12 months of the 

initial default unless prevented from 

doing so by bankruptcy action, 

redemption rights, or other legal action. 

FSA believes that under normal 

circumstances, this is an adequate 

amount of time to prepare a plan of 

liquidation, secure FSA approval of the 

plan, and complete liquidation. It will 

also prevent the possible deterioration 

of security property and keep loss 

claims to a minimum. A credit of an 

amount equal to the sales price received 

in a liquidation of the security property, 

with no deduction for expenses must be 

applied to the principal balance of the 

land contract. This differs from the 

regular guarantee loan program because 

in the guarantee loan program a loan is 

guaranteed, and the guarantee could 

include principal and interest, along 

with selling expenses and other charges 

to the account. In the Land Contract 

Guarantee program, FSA is guaranteeing 

only the principal amount of a land 

contract. To allow a deduction for 


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expenses would in effect be 

guaranteeing those expenses whereas 

this program only guarantees the 

principal amount of the land contract 

according to section 310F of the 

CONACT. The servicing agent must 

submit the loss claim to FSA along with 

a complete ledger of all transactions 

from the date the guarantee began. 

FSA may require, but will pay for, an 

appraisal prior to approval of the 

liquidation plan. The amount of a loss 

claim is determined by the sale price, so 

before a loss claim is paid, FSA must be 

satisfied that the servicing agent 

received a realistic price for the security 

property. If the seller reacquires the 

property through liquidation, the loss 

claim amount will be based on the 

appraisal method, and the seller will 

give FSA a lien on the property for that 

amount. The reason for this is the 

original seller in the land contract 

agreement will be retaining the 

property, and will be required to sign a 

Shared Appreciation Agreement so that 

if the seller sells the property within 5 

years for more than the amount FSA 

loss payment was based on, FSA will be 

able to enforce a future recovery. This 

is consistent with other FSA programs 

where a claim is paid on property the 

owner is retaining. It would not be a 

good use of taxpayer money to pay the 

seller for his loss, then have him turn 

around in a short time and sell at a 

profit, in effect collecting when he did 

not actually suffer a loss, and in effect 

double dipping. 

If the seller chooses to have the 

amount of the loss established by an 

appraisal rather than liquidation of real 

estate, the servicing agent must inform 

FSA that the seller has chosen this 

method. FSA will obtain an appraisal 

and the loss will be based on the 

difference between that appraised 

valued at the time the loss is calculated 

and the unpaid principal balance of the 

land contract at that time. For the 

resulting appraisal amount, the seller 

will only be allowed to appeal whether 

the appraisal is Uniform Standards of 

Professional Appraisal Practice (USPAP) 

compliant, as proposed in § 763.19. 

In exchange for payment of the loss 

claim when the appraisal method is 

used, the seller must give a lien to FSA 

on the security property in the amount 

of the loss claim. If the property is sold 

within 5 years for more than the 

appraised value at the time of the loss 

claim, the seller must repay the 

difference, up to the amount of the loss 

claim. For purposes of determining the 

amount to be repaid (recapture), the 

market value of the property may be 

reduced by the value of certain capital 

improvements made by the seller to the 

property in the time period from the 

payment of the loss claim to final 

disposition. This 5 year recapture 

period is consistent with FSA’s direct 

loan program and with FSA’s other 

guaranteed loan programs. 

The original buyer in the land 

contract also has a responsibility to 

repay the loss claim, and is required to 

begin repaying the loss payment within 

a short time after it is paid. If the buyer 

has already paid back part of the loss 

claim to FSA and the seller sells the real 

estate for more than the appraised value 

when the claim was originally paid, the 

seller will only be required to repay the 

remaining unpaid balance. If the former 

buyer has paid back the entire claim, the 

seller will not be required to pay back 

any of the claim. If the seller in the 

original land contract does not sell the 

property within 5 years from the date of 

the loss claim, the lien will be released 

and the seller will have no further 

obligation to FSA. 

Without a lien on the property, there 

is no realistic method of enforcing 

repayment from a sale of the property. 

This also prevents the seller from 

collecting on a loss and turning around 

in a short time period and selling the 

property for an amount higher than the 

appraised value, essentially obtaining a 

loss payment from the government 

when no loss really occurred. These 

provisions are consistent with other 

FSA loan programs. 

Federal Debt and FSA Recovery of Loss 

Claim Payments 

Any amount paid by FSA as a result 

of an approved loss claim is 

immediately due and payable by the 

buyer after FSA notifies the buyer that 

a loss claim has been paid to the seller. 

If the debt is not restructured into a 

repayment plan or the obligation 

otherwise cured, FSA may use all 

remedies available, including offset as 

authorized by the Debt Collection 

Improvement Act of 1996, to collect the 

debt. The amount paid on behalf of the 

buyer, and not yet repaid to FSA, will 

bear interest from the date of the FSA 

advance at the FLP non-program credit 

sales real property loan rate (available in 

local FSA offices) in effect at the time 

the first loss claim is paid. 

The debt may be scheduled for 

repayment consistent with the buyer’s 

repayment ability not to exceed 7 years 

from the date of the first FSA payment 

of a claim. Before a repayment plan can 

be approved, the buyer must provide 

FSA with the best lien obtainable on all 

of the buyer’s assets. This includes 

ownership interest in the real estate 

under contract for guarantees using the 

prompt payment guarantee plan, if State 

law permits. When the buyer is an 

entity, the best lien obtainable will be 

taken on all of the entity’s assets, and all 

assets owned by the individual 

members of the entity, including their 

interest in the guaranteed land contract. 

Defaulted buyers with an FSAapproved repayment plan will supply 

FSA with a current balance sheet, 

income statement, cash flow budget, 

complete copy of Federal income tax 

returns, and any additional information 

needed to analyze the buyer’s financial 

condition annually. If the buyer fails to 

perform as required on an FSAapproved repayment plan, the debt will 

be treated as a non-program loan debt, 

and servicing will proceed as specified 

in 7 CFR 766.351(c). 

Negligence and Negligent Servicing 

FSA may deny a loss claim in whole 

or in part due to seller negligence and 

negligent servicing that contributed to 

the loss claim. This also could include 

the escrow or servicing agent failing to 

seek payment of a missed installment 

from the buyer within the prescribed 

timeframes or otherwise failing to 

enforce the terms of the land contract; 

losing the collateral to a third party (for 

example, taxing authority, prior 

lienholder, etc.); not performing the 

duties and responsibilities required of 

the escrow or servicing agent; seller’s 

failing to disclose environmental issues; 

or any other action in violation of the 

land contract or guarantee agreement 

not resulting in terminating of the 

guarantee. 

Termination of Guarantee 

The land contract guarantee and 

FSA’s obligations under the agreement 

will terminate under the following 

scenarios: 

(1) At the end of the 10 year term of 

the guarantee, without notice; 

(2) When the land contract agreement 

is paid in full; 

(3) When there is a payment of a loss 

claim required by the standard 

guarantee plan; 

(4) If FSA pays 3 amortized annual 

installments or an amount equal to 3 

annual installments (including an 

amount equal to the total cost of any tax 

and insurance incurred during the 

period covered by the annual 

installments). An FSA-approved 

repayment plan will not constitute 

payment in full until such time as the 

entire amount due for the FSA-approved 

repayment plan is paid in full; 

(5) When the seller terminates the 

land contract for reasons other than 

monetary default; 


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(6) When there is a sale of the 

property without the guarantee being 

properly assigned; or 

(7) If for any reason the land contract 

becomes null and void. 

Eligibility Change for Direct Farm 

Ownership and Operating Loans 

Currently, for all direct loan 

programs, if an applicant is relying on 

past farm experience to demonstrate 

sufficient managerial ability, the 

experience must have been within the 

last 5 years. Sections 5001 and 5101 of 

the 2008 Farm Bill amended sections 

302 and 311 of the CONACT, 

respectively, to revise this eligibility 

requirement for FSA’s direct farm 

ownership loan (FO) program and direct 

farm operating loan (OL) program to 

require training or farm experience, that 

the Secretary determines is sufficient 

‘‘taking into consideration all farming 

experience of the applicant without 

regard to any lapse between farming 

experiences.’’ As a result, FSA proposes 

to amend the experience requirements 

in 7 CFR 764.101 to consider all prior 

farming. FSA proposes to require this 

broadened farm experience requirement 

to be supplemented by on-the-job 

training or education that occurred 

within the last 5 years prior to the date 

of the application if all prior farming 

occurred more than 5 years prior to 

application. 

FSA proposes to add the training or 

education requirement because the 

current technological innovations, 

market volatility, financial environment 

challenging today’s farmers, and recent 

knowledge of industry practices will 

better equip applicants with the tools 

necessary to ensure the greatest chance 

for success in the present agriculture 

business climate. While farm experience 

is one avenue for gaining this 

knowledge, recent on-the-job training 

and education can be an equally 

sufficient substitute for acquiring the 

knowledge and skills necessary to 

successfully operate a farm or ranch. 

These changes to FO and OL regulations 

will allow applicants previously 

ineligible due to their lack of recent 

farm experiences an opportunity to 

receive assistance. FSA believes that 

with its history of providing supervised 

credit, these applicants can be provided 

an adequate opportunity to thrive in 

today’s agribusiness industry. 

Emergency Loans 

FSA provides emergency loans to 

help producers recover from production 

and physical losses due to drought, 

flooding, other natural disasters, and 

certain quarantines. FSA proposes a 

number of changes in 7 CFR part 764, 

subpart H, ‘‘Emergency Loan Program,’’ 

to carry out section 5201 of the 2008 

Farm Bill that amends section 321 of the 

CONACT to expand EM eligibility to 

equine farmers. In addition, FSA 

proposes to amend 7 CFR 764.102 to 

add an exception to the limitation 

prohibiting the use of loan funds to 

support non-eligible enterprises as 

defined in § 761.2 that includes a 

business that produces nonfarm 

animals, birds, or aquatic organisms 

ordinarily used for pets, 

companionship, or pleasure. These 

proposed changes will make certain 

equine losses eligible under the EM 

Program. FSA proposes to expand EM 

eligibility criteria by amending 7 CFR 

764.352 to extend eligibility to equine 

farmers whose primary enterprise is to 

breed, raise, and sell horses. For farmers 

whose primary enterprise is to breed, 

raise and sell horses, losses will be 

treated the same as losses for other types 

of livestock operations with a minor 

difference intended to accommodate the 

unique nature of the equine industry. 

FSA is proposing this change to both 

broaden the potential eligibility pool of 

farmers for EM and to adequately define 

qualifying equine losses. FSA proposes 

this definition because Conference 

Report (No. 110–627) language on the 

section clearly indicates Congress’ 

intent to exempt losses associated with 

horses used for racing, showing, 

recreation, or pleasure and associated 

losses of income from eligibility under 

the EM Program. These losses will not 

be eligible and will specifically be 

prohibited in 7 CFR 764.353. 

Since the equine industry is widely 

diverse and unlike many other livestock 

operations, FSA proposes to amend 7 

CFR 764.355 to add guidelines regarding 

security requirements for loans to 

equine farmers. FSA believes these 

additional guidelines will allow 

flexibility in securing equine loss loans 

in States where the conventional 

Uniform Commercial Code (UCC) laws 

do not adequately address the perfection 

of liens on horses. In some States, to 

properly perfect liens on horses, the 

lender must obtain and hold the horse’s 

breed registration papers, Jockey Club 

papers, or other papers that evidence 

ownership. In many instances, this 

procedure would impede the applicant 

from carrying out their normal course of 

business. Therefore, FSA proposes 

alternate security provisions in a 

specific order of preference. The 

security alternatives are similar to those 

developed for FSA’s previous Horse 

Breeder Loan Program and were 

sufficient in providing adequate security 

for loans made under that program. 

These alternative security provisions 

allow equine farmers the ability to carry 

out the normal course of business by 

allowing them to pledge other resources 

to fulfill the loan’s security 

requirements. The security alternatives, 

in preference order are: Real estate, 

chattels and crops (other than horses), 

and other assets owned by the 

applicant. 

FSA proposes additional specific 

guidance on appraisal and valuation 

requirements in 7 CFR 764.356 for 

equine loans that follow the guidelines 

established in FSA’s previous Horse 

Breeder Loan Program. State laws may 

dictate rules for establishing the value of 

horses and the methods used to 

adequately perfect liens for equine 

loans. In some cases, it may be 

necessary for States to issue State 

specific guidelines in consultation with 

their local Office of General Counsel to 

give additional guidance in determining 

equine losses and specific security 

procedures. 

Executive Order 12866 

The Office of Management and Budget 

(OMB) designated this rule as 

significant under Executive Order 12866 

and, therefore, OMB reviewed this 

proposed rule. A cost benefit assessment 

of this rule is summarized below and is 

available from the contact listed above. 

Summary of Economic Impacts 

The Cost Benefit Analysis covers 

three provisions required by the 2008 

Farm Bill: Implementation of the 

Beginning Farmer or Rancher and 

Socially Disadvantaged Farmer or 

Rancher Contract Land Sales Program, 

which expands and makes permanent a 

pilot program, expansion of emergency 

loan program eligibility to include 

equine farmers, and revision of farm 

loan eligibility criteria regarding 

farming and ranching experience. These 

provisions are authorized by Sections 

5001, 5005, 5101, and 5201 of the 2008 

Farm Bill. 

The program changes proposed in this 

rule are expected to have relatively 

minor impacts on FSA lending 

programs, as they affect only a small 

share of total lending authority. 

Likewise, impacts on budget authority 

and workload are expected to be small. 

Implementation of the land contract 

guarantee program on a national basis is 

expected to enable 140 beginning and 

socially-disadvantaged farmers to 

purchase land each year, resulting in 

additional loan obligations of up to $25 

million annually. The USDA 2008 

Agricultural Resource Management 

Study indicated that about one-fourth of 

all farmland buyers had at least one 


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beginning farmer present on the farm. 

While FSA’s overall share of debt is 

around 7 percent for direct and 

guaranteed combined, its share for 

targeted groups tends to be larger. As a 

result, it is assumed that 10 percent of 

those eligible would actually apply and 

receive a guarantee, which results in 

FSA issuance of about 140 land contract 

guarantees annually once the program is 

fully implemented. While 140 land 

contracts per year, nationwide, may 

seem low, it is consistent with the 

experience of the pilot program. 

The most notable impact is likely to 

be associated with the increased 

flexibility in evaluating farm 

experience, which will initially increase 

the number of farmers eligible for 

beginning-farmer loans. But, anticipated 

impacts from changing eligibility are 

expected to be naturally short-lived 

because changing the criteria for 

measuring farm experience is expected 

to enable 673 farmers to borrow in 2010 

and 2011 rather than in 2012—in other 

words, since it moves up the year in 

which farmers will be eligible, the 

impacts will be most noticeable in 2010 

and 2011. This change is expected to 

initially increase total obligations by 

$47 million in fiscal year 2011, which 

is a minor share of total lending. 

Expansion of the EM eligibility to 

include equine producers is expected to 

increase loan obligations by just more 

than $2 million annually and involve an 

estimated 112 farmers nationwide. 

Regulatory Flexibility Act 

In compliance with the Regulatory 

Flexibility Act (5 U.S.C. 601), FSA 

certifies that there would not be a 

significant economic impact on a 

substantial number of small entities. All 

FSA direct loan borrowers and all farm 

entities affected by this rule are small 

businesses according to the North 

American Industry Classification 

System and the U. S. Small Business 

Administration. There is no diversity in 

size of the entities affected by this rule, 

and the costs to comply with it are the 

same for all entities. As discussed in the 

CBA summary, the expected impacts are 

to enable a relatively small number of 

farmers to buy farms through guaranteed 

land contracts, enable beginning farmers 

to qualify sooner for FSA loans, and to 

allow equine farmers to be eligible for 

EM. 

Environmental Review 

The environmental impacts of this 

rule have been considered in a manner 

consistent with the provisions of the 

National Environmental Policy Act 

(NEPA, 42 U.S.C. 4321–4347), the 

regulations of the Council on 

Environmental Quality (40 CFR parts 

1500–1508), and the FSA regulations for 

compliance with NEPA (7 CFR 799 and 

7 CFR part 1940, subpart G). FSA 

concluded that this rule will not have a 

significant impact on the quality of the 

human environment either individually 

or cumulatively, provided no shifts in 

land use are proposed and should be 

considered categorically excluded (7 

CFR 1940.310). Therefore, FSA need not 

prepare an environmental assessment or 

environmental impact statement on this 

rule. 

Executive Order 12372 

This program is not subject to 

Executive Order 12372, which requires 

consultation with State and local 

officials. See the notice related to 7 CFR 

part 3015, subpart V, published in the 

Federal Register on June 24, 1983 (48 

FR 29115). 

Executive Order 12988 

This proposed rule has been reviewed 

in accordance with Executive Order 

12988, Civil Justice Reform. As 

proposed, this rule preempts State and 

local laws and regulations that are in 

conflict with this rule. Before any 

judicial action may be brought 

concerning the provisions of this rule 

the administrative appeal provisions of 

7 CFR parts 11 and 780 must be 

exhausted. 

Executive Order 13132 

The policies in this rule would not 

have any substantial direct effect on 

States, the relationship between the 

Federal Government and the States, or 

the distribution of power and 

responsibilities among the various 

levels of government. Nor would this 

proposed rule impose substantial direct 

compliance costs on State and local 

governments. Therefore, consultation 

with the States is not required. 

Executive Order 13175 

The policies contained in this rule do 

not impose substantial unreimbursed 

direct compliance costs on Indian tribal 

governments or have tribal implications 

that preempt tribal law. 

USDA will undertake, within 6 

months after this rule becomes effective, 

a series of regulation Tribal consultation 

sessions to gain input by Tribal officials 

concerning the impact of this rule on 

Tribal governments, communities, and 

individuals. These sessions will 

establish a baseline of consultation for 

future actions, should any become 

necessary, regarding this rule. Reports 

from these sessions for consultation will 

be made part of the USDA annual 

reporting on Tribal Consultation and 

Collaboration. USDA will respond in a 

timely and meaningful manner to all 

Tribal government requests for 

consultation concerning this rule and 

will provide additional venues, such as 

Webinars and teleconferences, to 

periodically host collaborative 

conversations with Tribal leaders and 

their representatives concerning ways to 

improve this rule in Indian country. 

Unfunded Mandates 

This rule contains no Federal 

mandates under the regulatory 

provisions of Title II of the Unfunded 

Mandate Reform Act of 1995 (UMRA, 

Pub. L. 104–4) for State, local, or tribal 

governments, or the private sector. 

Therefore, this rule is not subject to the 

requirements of sections 202 and 205 of 

UMRA. 

Federal Assistance Programs 

The title and number of the Federal 

assistance programs in the Catalog of 

Federal Domestic Assistance to which 

this proposed rule would apply are: 

10.404—Emergency Loans 

10.406—Farm Operating Loans 

10.407—Farm Ownership Loans 

Paperwork Reduction Act 

In accordance with the Paperwork 

Reduction Act of 1995, FSA is 

requesting comments from all interested 

individuals and organizations on Land 

Contract Guarantee Program information 

collection activities and the change in 

information collection activities related 

to the regulatory changes in this 

proposed rule. In the Land Contract 

Guarantee Program, FSA is providing 

certain financial guarantees to eligible 

sellers in land transfers of farmland 

through a land contract sale to 

beginning farmers and socially 

disadvantaged farmers. The new 

information collection requests for Farm 

Loan Programs, General Program 

Administration; Direct Loan Making; 

and regular Direct Loan Servicing all 

result from expanding eligibility for EM 

to cover equine losses; and when 

approved will be incorporated into the 

existing approved ICRs (of the same 

titles) that will be up for a renewal this 

year. There are no changes to the 

approved burden related to the 

regulatory change in the required 

amount of farm experience. 

Title: Land Contract Guarantee 

Program. 

OMB Control Number: 0560–New. 

Type of Request: New Collection. 

Abstract: This information collection 

is required to support the regulations 

proposed in 7 CFR part 763, ‘‘Land 

Contract Guarantee Program,’’ which 

establishes the requirements for FSA’s 


wwoods2 on DSK1DXX6B1PROD with PROPOSALS_PART 1
57874 Federal Register / Vol. 75, No. 184 / Thursday, September 23, 2010 / Proposed Rules 

new Land Contract Guarantee Program. 

Information collections established in 

the regulations are necessary for the 

Agency to evaluate the buyer and 

seller’s request for guarantee and 

determine if eligibility and security 

requirements can be met. It also 

establishes the requirements related to 

routine servicing actions necessary to 

monitor guarantee progress, and special 

servicing of land contract guarantee 

agreements related to buyers, sellers, 

and servicing and escrow agents for 

payment of loss claims and subsequent 

collection attempts. 

Estimate of Burden: Public reporting 

for this collection of information is 

estimated to average 50 minutes per 

response. 

Respondents: Individuals or 

households, businesses or other forprofit and farms. 

Estimated Number of Respondents: 

275. 

Estimated Number of Responses per 

Respondent: 1. 

Estimated Total Annual Number of 

Responses: 275. 

Estimated Total Annual Burden on 

Respondents: 230 hours. 

Title: Farm Loan Programs, General 

Program Administration. 

OMB Control Number: 0560–New. 

Type of Request: New Collection. 

Abstract: This information collection 

is required to support the proposed 

regulatory changes that include equine 

losses as eligible for EM. Some of the 

same information collection activities 

will be used that are currently approved 

for 7 CFR part 761, ‘‘Farm Loan 

Programs, General Program 

Administration,’’ which establishes 

requirements within FSA’s Farm Loan 

Programs that are applicable to both 

making and servicing of all Farm Loan 

Programs loans including Emergency 

Loans. Information collections 

established by the regulation are 

necessary to ensure that program 

applicants and participants meet 

statutory eligibility requirements, loan 

funds are used for authorized purposes 

and the Government’s interest in 

security is adequately protected. 

Specific information collection 

requirements include financial 

information in the form of a balance 

sheet and cash flow projection used in 

loan making and servicing decisions; 

information needed to establish joint 

bank accounts in which either loan 

funds, proceeds derived from the sale of 

loan security, or insurance proceeds 

may be deposited; collateral pledges 

from financial institutions when the 

balance of a supervised bank account 

will exceed $100,000; and 

documentation that construction plans 

and specifications comply with State 

and local building standards. 

Estimate of Burden: Public reporting 

for this collection of information is 

estimated to average 54 minutes per 

response. 

Type of Respondents: Individuals or 

households, businesses or other for 

profit and farms. 

Estimated Number of Respondents: 

388. 

Estimated Number of Responses per 

Respondent: 1.1. 

Estimated Total Number of 

Responses: 426.8. 

Estimated Total Annual Burden on 

Respondents: 384 hours. 

Once this information collection is 

approved, FSA will incorporate these 

collections into existing collections 

package 0560–0238. 

Title: Direct Loan Making. 

OMB Control Number: 0560–New. 

Type of Request: New Collection. 

Abstract: This information collection 

is required to support the proposed 

regulatory changes that include equine 

losses as eligible for EM in 7 CFR part 

764, Direct Loan Making, which 

establishes the requirements for most of 

FSA’s direct loan programs including 

the Emergency loan program. 

Information collections established in 

the regulation are necessary for the FSA 

to evaluate the loan applicant’s request 

and determine if eligibility, loan 

repayment, and security requirements 

can be met. 

Estimate of Burden: Public reporting 

for this collection of information is 

estimated to average 36 minutes per 

response. 

Type of Respondents: Individuals or 

households, businesses or other for 

profit and farms. 

Estimated Number of Respondents: 

1,125. 

Estimated Number of Responses per 

Respondent: 1.3. 

Estimated Total Annual Number of 

Responses: 1,463. 

Estimated Total Annual Burden on 

Respondents: 878 hours. 

Once this information collection is 

approved, FSA will incorporate this 

collection into existing collections 

package 0560–0237. 

Title: Direct Loan Servicing—Regular. 

OMB Control Number: 0560–New. 

Type of Request: New Collection. 

Abstract: This information collection 

is required to support the proposed 

regulatory changes that include equine 

losses as eligible for EM. Some of the 

same information collection activities 

will be used that are currently approved 

for 7 CFR part 765, Direct Loan 

Servicing —Regular, which establishes 

the requirements related to routine 

servicing actions associated with direct 

loans including Emergency loans. 

Information collections established in 

the regulation are necessary for the 

Agency to monitor and account for loan 

security, including proceeds derived 

from the sale of security, and to process 

a borrower’s requests for subordination 

or partial release of security. 

Information collections associated with 

the statutory requirement that borrowers 

be reviewed for graduation to 

commercial credit are also established 

in the regulation. 

Estimate of Burden: Public reporting 

for this collection of information is 

estimated to average 49 minutes per 

response. 

Type of Respondents: Individuals or 

households, businesses or other for 

profit and farms. 

Estimated Number of Respondents: 

48. 

Estimated Number of Responses per 

Respondent: 1. 

Estimated Total Annual Number of 

Responses: 48. 

Estimated Total Annual Burden on 

Respondents: 39 hours. 

Once this information collections 

request is approved, FSA will 

incorporate this collection into existing 

collections package 0560–0236. 

We are requesting comments on all 

aspects of this information collection to 

help us to: 

(1) Evaluate whether the collection of 

information is necessary for the proper 

performance of FSA’s functions, 

including whether the information will 

have practical utility; 

(2) Evaluate the accuracy of FSA’s 

estimate of burden including the 

validity of the methodology and 

assumptions used; 

(3) Enhance the quality, utility and 

clarity of the information to be 

collected; and 

(4) Minimize the burden of the 

collection of information on those who 

are to respond, including through the 

use of appropriate automated, 

electronic, mechanical, or other 

technological collection techniques or 

other forms of information technology. 

All comments received in response to 

this notice, including names and 

addresses when provided, will be a 

matter of public record. Comments will 

be summarized and included in the 

submission for Office of Management 

and Budget approval. 

E-Government Act Compliance 

FSA is committed to complying with 

the E-Government Act, to promote the 

use of the Internet and other 

information technologies to provide 

increased opportunities for citizen 


wwoods2 on DSK1DXX6B1PROD with PROPOSALS_PART 1
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access to Government information and 

services, and for other purposes. 

List of Subjects 

7 CFR Part 761 

Accounting, Loan programs— 

agriculture, Rural areas. 

7 CFR Part 763 

Agriculture, Banks, Banking, Credit, 

Loan programs—agriculture. 

7 CFR Part 764 

Agriculture, Disaster assistance, Loan 

programs—agriculture. 

For reasons discussed in the 

preamble, the Farm Service Agency 

(USDA) proposes to amend 7 CFR 

chapter VII as follows: 

PART 761—FARM LOAN PROGRAMS; 

GENERAL PROGRAM 

ADMINISTRATION 

1. The authority citation for part 761 

continues to read as follows: 

Authority: 5 U.S.C. 301 and 7 U.S.C. 1989. 

2. Revise the part heading for 7 CFR 

part 761 to read as shown above. 

3. Amend § 761.2 paragraph (b) to add 

a definition, in alphabetical order, for 

‘‘Land Contract’’ to read as set forth 

below. 

§ 761.2 Abbreviations and definitions. 

* * * * * 

(b) * * * 

Land contract is an installment 

contract drawn between a buyer and a 

seller for the sale of real property, in 

which complete fee title ownership of 

the property is not transferred until all 

payments under the contract have been 

made. 

* * * * * 

4. Add part 763 to read as follows: 

PART 763—LAND CONTRACT 

GUARANTEE PROGRAM 

Sec. 

763.1 Introduction. 

763.2 Abbreviations and definitions. 

763.3 Full faith and credit. 

763.4 Authorized land contract purpose. 

763.5 Eligibility. 

763.6 Limitations. 

763.7 Application requirements. 

763.8 Incomplete applications. 

763.9 Processing complete applications. 

763.10 Feasibility. 

763.11 Maximum loss amount, guarantee 

period, and conditions. 

763.12 Down payment, rates, and terms. 

763.13 Fees. 

763.14 Appraisals. 

763.15 Taxes and insurance. 

763.16 Environmental regulation 

compliance. 

763.17 Approving application and 

executing guarantee. 

763.18 General servicing responsibilities. 

763.19 Contract modification. 

763.20 Delinquent servicing and collecting 

on guarantee. 

763.21 Establishment of Federal debt and 

Agency recovery of loss claim payments. 

763.22 Negligence. 

763.23 Terminating the guarantee. 

Authority: 5 U.S.C. 301 and 7 U.S.C. 1989. 

§ 763.1 Introduction. 

(a) Purpose. The Land Contract 

Guaranteed Program provides certain 

financial guarantees to the seller in land 

transfers of farmland through a land 

contract sale to beginning farmers and 

socially disadvantaged farmers. 

(b) Types of guarantee. The seller may 

request either of the following: 

(1) The prompt payment guarantee 

plan. The Agency will guarantee an 

amount not to exceed three amortized 

annual installments plus an amount 

equal to the total cost of any related real 

estate taxes and insurance incurred 

during the period covered by the annual 

installment; or 

(2) The standard guarantee plan. The 

Agency will guarantee an amount equal 

to 90 percent of the outstanding 

principal. 

(c) Guarantee period. The guarantee 

period is 10 years for either plan. 

§ 763.2 Abbreviations and definitions. 

Abbreviations and definitions for 

terms used in this part are in § 761.2 of 

this chapter. 

§ 763.3 Full faith and credit. 

(a) The land contract guarantee 

constitutes an obligation supported by 

the full faith and credit of the United 

States. The Agency may contest the 

guarantee only in cases of fraud or 

misrepresentation by the seller, in 

which: 

(1) The seller had actual knowledge of 

the fraud or misrespresentation at the 

time it became the seller, or 

(2) The seller participated in or 

condoned the fraud or 

misrepresentation. 

(b) Loss Claims also may be reduced 

or denied to the extent that any 

negligence contributed to the loss under 

§ 763.22. 

§ 763.4 Authorized land contract purpose. 

The Agency will only guarantee the 

contract installments, real estate taxes, 

and insurance; or outstanding principal 

balance for an eligible seller of a family 

farm, through a land contract sale to an 

eligible beginning or socially 

disadvantaged farmer. 

§ 763.5 Eligibility. 

(a) Seller eligibility requirements. The 

private seller, and each entity member 

in the case of an entity seller, must: 

(1) Possess the legal capacity to enter 

into a legally binding agreement; 

(2) Not have provided false or 

misleading documents or statements 

during past or present dealings with the 

Agency; 

(3) Not be ineligible due to 

disqualification resulting from Federal 

Crop Insurance violation, according to 

7 CFR part 718; and 

(4) Not be suspended or debarred 

under 7 CFR part 3017. 

(b) Buyer eligibility requirements. The 

buyer must meet the following 

requirements to be eligible for the Land 

Contract Guarantee Program: 

(1) Is a beginning farmer or socially 

disadvantaged farmer engaged primarily 

in farming in the United States after the 

guarantee is issued. 

(2) Is the owner and operator of a 

family farm after the contract is 

completed. In the case of an entity 

buyer: 

(i) Each entity member’s ownership 

interest may not exceed the amount 

specified in the family farm definition 

in § 761.2 of this chapter. 

(ii) The entity members cannot 

themselves be entities. 

(iii) The entity must be authorized to 

own and operate a farm in the State in 

which the farm is located. 

(iv) If the entity members holding a 

majority interest are related by blood or 

marriage, at least one member of the 

entity must: 

(A) Operate the farm and 

(B) Own the farm; 

(v) If the entity members holding a 

majority interest are not related by 

blood or marriage, the entity members 

holding a majority interest must: 

(A) Operate the farm; and 

(B) Own the farm, or the entity itself 

must own the farm; 

(3) Must have participated in the 

business operations of a farm or ranch 

for at least 3 years out of the last 10 

years prior to the date the application is 

submitted. 

(4) The buyer and all entity members 

in the case of an entity, must not have 

caused the Agency a loss by receiving 

debt forgiveness on all or a portion of 

any direct or guaranteed loan made 

under the authority of the Act by debt 

write-down or write-off; compromise, 

adjustment, reduction, or charge off 

under the provisions of section 331 of 

the Act; discharge in bankruptcy; or 

through payment of a guaranteed loss 

claim on more than three occasions on 

or prior to April 4, 1996, or any 

occasion after April 4, 1996. If the debt 

forgiveness is resolved by repayment of 

the Agency’s loss, the Agency may still 

consider the debt forgiveness in 

determining the applicant’s 

creditworthiness. 


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(5) The buyer and all entity members 

in the case of an entity, must not be 

delinquent on any Federal debt, other 

than a debt under the Internal Revenue 

Code of 1986 when the guarantee is 

issued. 

(6) The buyer and all entity members 

in the case of an entity, may have no 

outstanding unpaid judgment awarded 

to the United States in any court. Such 

judgments do not include those filed as 

a result of action in the United States 

Tax Courts. 

(7) The buyer and all entity members 

in the case of an entity, must be a citizen 

of the United States, United States noncitizen national, or a qualified alien 

under applicable Federal immigration 

laws. United States non-citizen 

nationals and qualified aliens must 

provide the appropriate documentation 

as to their immigration status as 

required by the U.S. Department of 

Homeland Security, Bureau of 

Citizenship and Immigration Services. 

(8) The buyer and all entity members 

in the case of an entity, must possess the 

legal capacity to enter into a legally 

binding agreement. 

(9) The buyer and all entity members 

in the case of an entity, must not have 

provided false or misleading documents 

or statements during past or present 

dealings with the Agency. 

(10) The buyer and all entity members 

in the case of an entity, must not be 

ineligible as a result of a conviction for 

controlled substances according to 7 

CFR part 718 of this chapter. 

(11) The buyer and all entity members 

in the case of an entity must have an 

acceptable credit history demonstrated 

by satisfactory debt repayment. 

(i) A history of failures to repay past 

debts as they came due when the ability 

to repay was within their control will 

demonstrate unacceptable credit 

history. 

(ii) Unacceptable credit history will 

not include: 

(A) Isolated instances of late 

payments, which do not represent a 

pattern and were clearly beyond their 

control; or 

(B) Lack of credit history. 

(12) The buyer is unable to enter into 

a contract unless the seller obtains an 

Agency guarantee to finance the 

purchase of the farm at reasonable rates 

and terms. 

(13) The buyer and all entity members 

in the case of an entity, must not be 

ineligible due to disqualification 

resulting from Federal Crop Insurance 

violation, according to 7 CFR part 718. 

(14) The buyer and all entity members 

in the case of an entity, must not be 

suspended or debarred under 7 CFR part 

3017. 

§ 763.6 Limitations. 

(a) To qualify for a guarantee, the 

purchase price of the farm to be 

acquired through the land contract sale 

cannot exceed the lesser of: 

(1) $500,000 or 

(2) The current market value of the 

property. 

(b) A guarantee will not be issued if 

the appraised value of the farm is 

greater than $500,000. 

(c) Existing land contracts are not 

eligible for the Land Contract Guarantee 

Program. 

(d) Guarantees may not be used to 

establish or support a non-eligible 

enterprise. 

§ 763.7 Application requirements. 

(a) Seller application requirements. A 

seller who contacts FSA with interest in 

a guarantee under the Land Contract 

Guarantee Program will be sent the land 

contract letter of interest outlining 

specific program details. To formally 

request a guarantee on the proposed 

land contract, the seller, and each entity 

member in the case of an entity, must: 

(1) Complete, sign, date, and return 

the land contract letter of interest to the 

Agency, and 

(2) Provide the name, address, and 

telephone number of the chosen 

servicing or escrow agent. 

(b) Buyer application requirements. A 

complete application from the buyer 

will include: 

(1) The completed Agency application 

form; 

(2) A current Financial Statement (not 

older than 90 days); 

(3) If the buyer is an entity: 

(i) A complete list of entity members 

showing the address, citizenship, 

principle occupation, and the number of 

shares and percentage of ownership or 

stock held in the entity by each member, 

or the percentage of interest in the entity 

held by each member; 

(ii) A current personal financial 

statement for each member of the entity; 

(iii) A current financial statement for 

the entity itself; 

(iv) A copy of the entity’s charter or 

any entity agreement, any articles of 

incorporation and bylaws, any 

certificate or evidence of current 

registration (in good standing), and a 

resolution adopted by the Board of 

Directors or entity members authorizing 

specified officers of the entity to apply 

for and obtain the land contract 

guarantee and execute required debt, 

security and other instruments and 

agreements; and 

(v) In the form of a married couple 

applying as a joint operation, items in 

paragraphs (b)(3)(i) and (b)(3)(iv) of this 

section will not be required. The 

Agency may request copies of the 

marriage license, prenuptial agreement, 

or similar documents as needed to 

verify loan eligibility and security. The 

information specified in paragraphs 

(b)(2)(ii) and (iii) of this section are only 

required to the extent needed to show 

the individual and joint finances of the 

husband and wife without duplication; 

(4) A brief written description of the 

buyer’s proposed operation; 

(5) A farm operating plan; 

(6) A brief written description of the 

buyer’s farm training and experience; 

(7) Three years of income tax and 

other financial records acceptable to 

FSA, unless the buyer has been farming 

less than 3 years; 

(8) Three years of farm production 

records, unless the buyer has been 

farming less than 3 years; 

(9) Verification of income and offfarm employment if relied upon for debt 

repayment; 

(10) Verification of all debts; 

(11) Payment of the credit report fee; 

(12) Documentation of compliance 

with the environmental regulations in 

part 1940, subpart G, of this title; 

(13) A copy of the proposed land 

contract; and 

(14) Any additional information 

deemed necessary by the Agency to 

effectively evaluate the applicant’s 

eligibility and farm operating plan. 

§ 763.8 Incomplete applications. 

(a) Within 10 days of receipt of an 

incomplete application, the Agency will 

provide the seller and buyer written 

notice of any additional information 

that must be provided. The seller or 

buyer, as applicable, must provide the 

additional information within 20 

calendar days of the date of the notice. 

(b) If the additional information is not 

received, the Agency will provide 

written notice that the application will 

be withdrawn if the information is not 

received within 10 calendar days of the 

date of the second notice. 

§ 763.9 Processing complete applications. 

Applications will be approved or 

rejected and all parties notified in 

writing no later than 30 calendar days 

after application is considered 

complete. 

§ 763.10 Feasibility. 

(a) The buyer’s proposed operation as 

described in a form acceptable to FSA 

must represent the operating cycle for 

the farm operation and must project a 

feasible plan as defined in § 761.2(b). 

(b) The projected income, expenses, 

and production estimates: 

(1) Must be based on the buyer’s last 

3 years actual records of production and 


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financial management unless the buyer 

has been farming less than 3 years; 

(2) For those farming less than 3 

years, a combination of any actual 

history and other reliable sources of 

information may be used. Sources must 

be documented and acceptable to the 

Agency; and 

(3) May deviate from historical 

performance if deviations are the direct 

result of specific changes in the 

operation, reasonable, justified, 

documented, and acceptable to the 

Agency. 

(c) Price forecasts used in the plan 

must be reasonable, documented, and 

acceptable to the Agency. 

(d) The Agency will analyze the 

buyer’s business ventures other than the 

farm operation to determine their 

soundness and contribution to the 

operation. 

(e) When a feasible plan depends on 

income from sources other than from 

owned land, the income must be 

dependable and likely to continue. 

(f) When the buyer’s farm operating 

plan is developed in conjunction with a 

proposed or existing Agency direct loan, 

the two farm operating plans must be 

consistent. 

§ 763.11 Maximum loss amount, guarantee 

period, and conditions. 

(a) Maximum loss amount. The 

maximum loss amount of loss due to 

nonpayment by the buyer covered by 

the guarantee is based on the type of 

guarantee initially selected by the seller 

as follows: 

(1) The prompt payment guarantee 

will cover: 

(i) 3 amortized annual installments; or 

(ii) An amount equal to 3 annual 

installments (including an amount equal 

to the total cost of any tax and insurance 

incurred during the period covered by 

the annual installments). 

(2) The standard guarantee will cover 

an amount equal to 90 percent of the 

outstanding principal balance. 

(b) Guarantee period. The period of 

the guarantee will be 10 years from the 

effective date of the guarantee unless 

terminated earlier under § 763.23. 

(c) Conditions. The seller will select 

an escrow agent to service a Land 

Contract Agreement if selecting the 

prompt payment guarantee plan, and a 

servicing agent to service a Land 

Contract Agreement if selecting the 

standard guarantee plan. 

(1) An escrow agent must provide the 

Agency evidence of being a bonded title 

insurance company, attorney, financial 

institution or fiscally responsible 

institution. 

(2) A servicing agent must provide the 

Agency evidence of being a bonded 

commercial lending institution or 

similar entity, registered and authorized 

to provide escrow and collection 

services in the State in which the real 

estate is located. 

§ 763.12 Down payment, rates, terms, and 

installments. 

(a) Down payment. The buyer must 

provide a minimum down payment of 

five percent of the purchase price of the 

farm. 

(b) Interest rate. The interest rate 

charged by the seller must be fixed at a 

rate not to exceed FSA’s direct farm 

ownership (FO) loan interest rate in 

effect at the time the guarantee is issued, 

plus three percentage points. The seller 

and buyer may renegotiate the interest 

rate for the remaining term of the 

contract following expiration of the 

guarantee. 

(c) Land contract terms. The contract 

payments must be amortized for a 

minimum of 20 years and payments on 

the contract must be of equal amounts 

during the term of the guarantee. 

(d) Balloon installments. Balloon 

payments are prohibited during the 10- 

year term of the guarantee. 

§ 763.13 Fees. 

(a) Payment of fees. The seller and 

buyer will be responsible for payment of 

any expenses or fees necessary to 

process the land contract agreement 

required by the State or county to 

ensure that proper title is vested in the 

seller including, but not limited to, 

attorney fees, recording costs, and 

notary fees. 

(b) [Reserved] 

§ 763.14 Appraisals. 

(a) Standard guarantee plan. For the 

standard guarantee plan, the value of 

real estate to be purchased will be 

established by an appraisal obtained at 

Agency expense and completed as 

specified in § 761.7 of this chapter. An 

appraisal is required prior to, or as a 

condition of, approval of the guarantee. 

(b) Prompt payment guarantee plan. 

The Agency may, at its option and 

expense, obtain an appraisal to 

determine value of real estate to be 

purchased under the prompt payment 

guarantee plan. 

§ 763.15 Taxes and insurance. 

(a) The seller will ensure that taxes 

and insurance on the real estate are paid 

timely and will provide the evidence of 

payment to the escrow or servicing 

agent. 

(b) The seller will maintain flood 

insurance, if available, if buildings are 

located in a special 100-year floodplain 

as defined by FEMA flood hazard area 

maps. 

(c) The seller will report any 

insurance claim and use of proceeds to 

the escrow or servicing agent. 

§ 763.16 Environmental regulation 

compliance. 

(a) Environmental compliance 

requirements. The environmental 

requirements contained in part 1940, 

subpart G, of this title must be met prior 

to approval of guarantee request. 

(b) Determination. The Agency 

determination of whether an 

environmental problem exists will be 

based on: 

(1) The information supplied with the 

application; 

(2) Environmental resources available 

to the Agency including, but not limited 

to, documents, third parties, and 

government agencies; 

(3) Other information supplied by the 

buyer or seller upon Agency request; 

and 

(4) A visit to the farm. 

§ 763.17 Approving application and 

executing guarantee. 

(a) Approval is subject to the 

availability of funds, meeting the 

requirements in this part, and the 

participation of an approved escrow or 

servicing agent. 

(b) Upon approval of the guarantee, 

all parties (buyer, seller, escrow or 

servicing agent, and Agency official) 

will execute the Agency’s guarantee 

agreement. 

(c) The ‘‘Land Contract Agreement for 

Prompt Payment Guarantee’’ or the 

‘‘Land Contract Agreement for Standard 

Guarantee’’ will describe the conditions 

of the guarantee, outline the covenants 

and any agreements of the buyer, seller, 

escrow or servicing agent, and the 

Agency, and outline the process for 

payment of loss claims. 

§ 763.18 General servicing 

responsibilities. 

(a) For the prompt payment guarantee 

plan, the seller must use a third party 

escrow agent approved by the Agency. 

The escrow agent will: 

(1) Provide the Agency a copy of the 

recorded land contract; 

(2) Handle transactions relating to the 

land contract between the buyer and 

seller; 

(3) Receive contract installment 

payments from the buyer and send them 

to the seller; 

(4) Provide evidence to the Agency 

that property taxes are paid and 

insurance is kept current on the security 

property; 

(5) Send a notice of payment due to 

the buyer at least 30 days prior to the 

installment due date; 


wwoods2 on DSK1DXX6B1PROD with PROPOSALS_PART 1
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(6) Notify the Agency and the seller if 

the buyer defaults; 

(7) Service delinquent accounts as 

specified in § 763.20(a); 

(8) Make demand on the Agency to 

pay missed payments; 

(9) Send the seller any missed 

payment amount paid by the Agency 

under the guarantee; 

(10) Notify the Agency on March 31 

and September 30 of each year of the 

outstanding balance on the land 

contract and the status of payment; and 

(11) Perform other duties as required 

by State law and as agreed to by the 

buyer and the seller; 

(b) For the standard guarantee plan, 

the seller must use a third party 

servicing agent approved by the Agency. 

The servicing agent is required to: 

(1) Provide the Agency a copy of the 

recorded land contract; 

(2) Handle transactions relating to the 

land contract between the buyer and 

seller; 

(3) Receive contract installment 

payments from the buyer and send them 

to the seller; 

(4) Provide evidence to the Agency 

that property taxes are paid and 

insurance is kept current on the security 

property; 

(5) Perform a physical inspection of 

the farm each year during the term of 

the guarantee, and provide an annual 

inspection report to the Agency; 

(6) Obtain from the buyer a current 

balance sheet, income statement, cash 

flow budget, and any additional 

information needed, perform, and 

provide the Agency an analysis of the 

buyer’s financial condition on an annual 

basis; 

(7) Notify the Agency on March 31 

and September 30 of each year of the 

outstanding balance on the land 

contract and the status of payment; 

(8) Send a notice of payment due to 

the buyer at least 30 days prior to the 

installment due date; 

(9) Notify the Agency and the seller if 

the buyer defaults; 

(10) Service delinquent accounts as 

specified in § 763.20(b); and 

(11) Perform other duties as required 

by State law and as agreed to by the 

buyer and the seller. 

§ 763.19 Contract modification. 

(a) The seller and buyer may modify 

the land contract to lower the interest 

rate and corresponding amortized 

payment amount without Agency 

approval. 

(b) With prior written approval from 

the Agency, the seller and buyer may 

modify the land contract provided that, 

in addition to a feasible plan for the 

upcoming operating cycle, a feasible 

plan can be reasonably projected 

throughout the remaining term of the 

guarantee. Such modifications may 

include, but are not limited to: 

(1) Deferral of installments, 

(2) Leasing or subleasing, and 

(3) Partial releases. All proceeds from 

a partial release or royalties from 

mineral extraction must be applied to a 

prior lien, if one exists, and in addition, 

the same amount must be credited to the 

principal balance of the land contract. 

(4) Transfer and Assumption. If the 

guarantee is to remain in effect, any 

transfer of the property and assumption 

of the guaranteed debt must be made to 

an eligible buyer for the Land Contract 

Guarantee Program as specified in 

§ 763.4, and must be approved by the 

Agency in writing. If an eligible 

applicant for transfer and assumption 

cannot be found, the Deputy 

Administrator for Farm Loan Programs 

may make an exception to this 

requirement. 

(5) Assignment. The seller may not 

assign the contract to another party 

without written consent of the Agency. 

(c) Any contract modifications other 

then those listed above must be 

approved by the Deputy Administrator 

for Farm Loan Programs, and will only 

be approved if such action is 

determined permissible by law and in 

the Government’s best financial 

interests. 

§ 763.20 Delinquent servicing and 

collecting on guarantee. 

(a) Prompt payment guarantee plan. If 

the buyer fails to pay an annual 

amortized installment or a portion of an 

installment on the contract or taxes or 

insurance when due, the escrow agent: 

(1) Must make a written demand on 

the buyer for payment of the defaulted 

amount within 30 days of the missed 

payment, taxes, or insurance and send 

a copy of the demand letter to the 

Agency and to the seller; and 

(2) Must make demand on the Agency 

within 90 days from the original 

payment, taxes, or insurance due date, 

for the missed payment in the event the 

buyer has not made the payment. 

(b) Standard guarantee plan. If the 

buyer fails to pay an annual amortized 

installment or a portion of an 

installment on the contract, then the 

seller has the option of either 

liquidating the real estate, or having the 

amount of the loss established by the 

Agency by an appraisal of the real 

estate. For either option, the servicing 

agent: 

(1) Must make a written demand on 

the buyer for payment of the defaulted 

amount within 30 days of the missed 

payment, and send a copy of the 

demand letter to the Agency and to the 

seller; and 

(2) Must immediately inform the 

Agency which option the seller has 

chosen for establishing the amount of 

the loss, in the event the buyer does not 

make the payment within 60 days of the 

demand letter. 

(i) Liquidation method. If the seller 

chooses the liquidation method, the 

servicing agent will: 

(A) Submit a liquidation plan to the 

Agency within 120 days from the 

missed payment for approval prior to 

any liquidation action. The Agency may 

require and pay for an appraisal prior to 

approval of the liquidation plan. 

(B) Complete liquidation within 12 

months of the missed installment unless 

prevented by bankruptcy, redemption 

rights, or other legal action. 

(C) Credit an amount equal to the sale 

price received in a liquidation of the 

security property, with no deduction for 

expenses, to the principal balance of the 

land contract. 

(D) File a loss claim immediately after 

liquidation, which must include a 

complete loan ledger. 

(E) Base the loss claim amount on the 

appraisal method if the property is 

reacquired by the seller, through 

liquidation. 

(ii) Appraisal method. If the seller 

chooses to have the loss amount 

established by appraisal rather than 

liquidation, the Agency will complete 

an appraisal on the real estate, and the 

loss claim amount will be based on the 

difference between the appraised value 

at the time the loss is calculated and the 

unpaid principal balance of the land 

contract at that time. 

(A) The only administrative appeal 

allowed under § 761.6 related to the 

resulting appraisal amount will be a 

determination of whether the appraisal 

is Uniform Standards of Professional 

Appraisal Practice (USPAP) compliant. 

(B) The seller will give the Agency a 

lien on the security property in the 

amount of the loss claim payment. If the 

property sells within 5 years from the 

date of the loss payment for an amount 

greater than the appraised value used to 

establish the loss claim amount, the 

seller must repay the difference, up to 

the amount of the loss claim. For 

purposes of determining the amount to 

be repaid (recapture), the market value 

of the property may be reduced by the 

value of certain capital improvements 

made by the seller to the property in the 

time period from the loss claim to final 

disposition. If the property is not sold 

within 5 years from the date of the loss 

payment, the Agency will release the 

lien and the seller will have no further 

obligation to the Agency. 


wwoods2 on DSK1DXX6B1PROD with PROPOSALS_PART 1
Federal Register / Vol. 75, No. 184 / Thursday, September 23, 2010 / Proposed Rules 57879 

§ 763.21 Establishment of Federal debt 

and Agency recovery of loss claim 

payments. 

(a) Any amount paid by FSA as a 

result of an approved loss claim is 

immediately due and payable by the 

buyer after FSA notifies the buyer that 

a loss claim has been paid to the seller. 

If the debt is not restructured into a 

repayment plan or the obligation 

otherwise cured, FSA may use all 

remedies available, including offset as 

authorized by the Debt Collection 

Improvement Act of 1996, to collect the 

debt. 

(1) Interest on the debt will be at the 

FLP non-program credit sales real 

property loan rate in effect at the time 

of the first Agency payment of a loss 

claim. 

(2) The debt may be scheduled for 

repayment consistent with the buyer’s 

repayment ability, not to exceed 7 years. 

Before any payment plan can be 

approved, the buyer must provide the 

Agency with the best lien obtainable on 

all of the buyer’s assets. This includes 

the buyer’s ownership interest in the 

real estate under contract for guarantees 

using the prompt payment guarantee 

plan. When the buyer is an entity, the 

best lien obtainable will be taken on all 

of the entity’s assets, and all assets 

owned by individual members of the 

entity, including their ownership 

interest in the real estate under contract. 

(b) Annually, buyers with an Agency 

approved repayment plan under this 

section will supply the Agency a current 

balance sheet, income statement, cash 

flow budget, complete copy of Federal 

income tax returns, and any additional 

information needed to analyze the 

buyer’s financial condition. 

(c) If a buyer fails to make required 

payments to the Agency as specified in 

the approved repayment plan, the debt 

will be treated as a non-program loan 

debt, and servicing will proceed as 

specified in § 766.351(c) of this chapter. 

§ 763.22 Negligence. 

(a) The Agency may deny a loss claim 

in whole or in part due to negligence 

that contributed to the loss claim. This 

could include, but is not limited to: 

(1) The escrow or servicing agent 

failing to seek payment of a missed 

installment from the buyer within the 

prescribed timeframe or otherwise does 

not enforce the terms of the land 

contract; 

(2) Losing the collateral to a third 

party, such as a taxing authority, prior 

lien holder, etc.; 

(3) Not performing the duties and 

responsibilities required of the escrow 

or servicing agent; 

(4) The seller’s failing to disclose 

environmental issues; or 

(5) Any other action in violation of 

the land contract or guarantee 

agreement that does not terminate the 

guarantee. 

(b) [Reserved] 

§ 763.23 Terminating the guarantee. 

(a) The guarantee and the Agency’s 

obligations will terminate at the earliest 

of the following circumstances: 

(1) Full payment of the land contract; 

(2) Agency payment to the seller of 3 

annual installments plus property taxes 

and insurance, if applicable, under the 

prompt payment guarantee plan, if not 

repaid in full by the buyer. An Agency 

approved repayment plan will not 

constitute payment in full until such 

time as the entire amount due for the 

Agency approved repayment plan is 

paid in full; 

(3) Payment of a loss claim through 

the standard guarantee plan; 

(4) Sale of real estate without 

guarantee being properly assigned; 

(5) The seller terminates the land 

contract for reasons other than monetary 

default; or 

(6) If for any reason the land contract 

becomes null and void. 

(b) If none of the events in paragraph 

(a) of this section occur, the guarantee 

will automatically expire, without 

notice, 10 years from the effective date 

of the guarantee. 

PART 764—DIRECT LOAN MAKING 

5. The authority citation for part 764 

continues to read as follows: 

Authority: 5 U.S.C. 301 and 7 U.S.C. 1989. 

6. Amend § 764.51 by revising 

paragraph (b)(3) to read as follows: 

§ 764.51 Loan application. 

* * * * * 

(b) * * * 

(3) A written description of the 

applicant’s farm training and 

experience, including each entity 

member who will be involved in 

managing or operating the farm. Farm 

experience of the applicant, without 

regard to any lapse of time between the 

farm experience and the new 

application, may be included in the 

applicant’s written description. If farm 

experience occurred more than 5 years 

prior to the date of the new application, 

the applicant must demonstrate 

sufficient on-the-job training or 

education within the last 5 years; 

* * * * * 

7. Amend § 764.101 by revising 

paragraph (i)(3) to read as follows: 

§ 764.101 General eligibility requirements. 

* * * * * 

(i) * * * 

(3) Farming experience. For example, 

the applicant has been an owner, 

manager, or operator of a farm business 

for at least one entire production cycle. 

Farm experience of the applicant, 

without regard to any lapse of time 

between the farm experience and the 

new application, will be taken into 

consideration in determining loan 

eligibility. If farm experience occurred 

more than 5 years prior to the date of 

the new application, the applicant must 

demonstrate sufficient on-the-job 

training or education within the last 5 

years to demonstrate managerial ability. 

* * * * * 

8. Amend § 764.102 by revising 

paragraph (f) to read as follows: 

§ 764.102 General limitations. 

* * * * * 

(f) Loan funds will not be used to 

establish or support a non-eligible 

enterprise, even if the non-eligible 

enterprise contributes to the farm. 

Notwithstanding this limitation an 

Emergency Loan may cover qualified 

equine losses as specified in subpart H 

of this part. 

9. Amend § 764.352 by adding 

paragraph (l) to read as follows: 

§ 764.352 Eligibility requirements. 

* * * * * 

(l) Whose primary enterprise is to 

breed, raise, and sell horses may be 

eligible under this part. 

10. Amend § 764.353 by adding 

paragraph (g) to read as follows: 

§ 764.353 Limitations. 

* * * * * 

(g) Losses associated with horses used 

for racing, showing, recreation, or 

pleasure or loss of income derived from 

racing, showing, recreation, boarding, or 

pleasure are not considered qualified 

losses under this section. 

11. Amend § 764.355 by revising 

paragraph (b) to read as follows: 

§ 764.355 Security requirements. 

* * * * * 

(b) EM loans made as specified in 

§ 764.351(a)(2) and (b) generally must 

comply with the general security 

requirements established in §§ 764.103, 

764.104 and 764.255(b). These general 

security requirements, however, do not 

apply to equine loss loans to the extent 

that a lien is not obtainable or obtaining 

a lien may prevent the applicant from 

carrying on the normal course of 

business. Other security may be 

considered for an equine loss loan in the 

order of priority as follows: 

(1) Real Estate, 

(2) Chattels and crops, other than 

horses, 


wwoods2 on DSK1DXX6B1PROD with PROPOSALS_PART 1
57880 Federal Register / Vol. 75, No. 184 / Thursday, September 23, 2010 / Proposed Rules 

(3) Other assets owned by the 

applicant, 

(4) Third party pledges of property 

not owned by the applicant, and 

(5) Repayment ability under 

paragraph (c) of this section. 

* * * * * 

12. Amend paragraph § 764.356 by 

adding paragraph (c) to read as follows: 

§ 764.356 Appraisal and valuation 

requirements. 

* * * * * 

(c) In the case of an equine loss loan: 

(1) The applicant’s Federal income tax 

and business records will be the 

primary source of financial information. 

Sales receipts, invoices, or other official 

sales records will document the sales 

price of individual animals. 

(2) If the applicant does not have 3 

complete years of business records, the 

Agency will obtain the most reliable and 

reasonable information available from 

sources such as the Cooperative 

Extension Service, universities, and 

breed associations to document 

production for those years for which the 

applicant does not have a complete year 

of business records. 

Signed in Washington, DC, on September 

17, 2010. 

Jonathan W. Coppess, 

Administrator, Farm Service Agency. 

[FR Doc. 2010–23830 Filed 9–22–10; 8:45 am] 

BILLING CODE 3410–05–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2010–0854; Directorate 

Identifier 2009–NM–261–AD] 

RIN 2120–AA64 

Airworthiness Directives; Airbus Model 

A310 Series Airplanes 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: We propose to adopt a new 

airworthiness directive (AD) for the 

products listed above that would 

supersede an existing AD. This 

proposed AD results from mandatory 

continuing airworthiness information 

(MCAI) originated by an aviation 

authority of another country to identify 

and correct an unsafe condition on an 

aviation product. The MCAI describes 

the unsafe condition as: 

During High Time Equipment (HTE) 

reviews conducted within the scope of the 

A310 aircraft Design Service Goal (DSG) 

extension work, Airbus discovered that the 

splined couplings and the sliding bearings of 

the flap transmission system could be 

affected by corrosion and wear, especially 

when their protective components such as 

wiper rings and rubber gaiters could become 

defective. 

This condition, if not detected and 

corrected, could degrade the functional 

integrity of the flap transmission system. 

* * * * * 

The proposed AD would require actions 

that are intended to address the unsafe 

condition described in the MCAI. 

DATES: We must receive comments on 

this proposed AD by November 8, 2010. 

ADDRESSES: You may send comments by 

any of the following methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov. Follow the 

instructions for submitting comments. 

• Fax: (202) 493–2251. 

• Mail: U.S. Department of 

Transportation, Docket Operations, 

M–30, West Building Ground Floor, 

Room W12–140, 1200 New Jersey 

Avenue, SE., Washington, DC 20590. 

• Hand Delivery: U.S. Department of 

Transportation, Docket Operations, 

M–30, West Building Ground Floor, 

Room W12–40, 1200 New Jersey 

Avenue, SE., Washington, DC, between 

9 a.m. and 5 p.m., Monday through 

Friday, except Federal holidays. 

For service information identified in 

this proposed AD, contact Airbus SAS— 

EAW (Airworthiness Office), 1 Rond 

Point Maurice Bellonte, 31707 Blagnac 

Cedex, France; telephone +33 5 61 93 36 

96; fax +33 5 61 93 44 51; e-mail: 

account.airworth-eas@airbus.com; 

Internet http://www.airbus.com. You 

may review copies of the referenced 

service information at the FAA, 

Transport Airplane Directorate, 1601 

Lind Avenue, SW., Renton, Washington. 

For information on the availability of 

this material at the FAA, call 425–227– 

1221. 

Examining the AD Docket 

You may examine the AD docket on 

the Internet at http:// 

www.regulations.gov; or in person at the 

Docket Operations office between 9 a.m. 

and 5 p.m., Monday through Friday, 

except Federal holidays. The AD docket 

contains this proposed AD, the 

regulatory evaluation, any comments 

received, and other information. The 

street address for the Docket Operations 

office (telephone (800) 647–5527) is in 

the ADDRESSES section. Comments will 

be available in the AD docket shortly 

after receipt. 

FOR FURTHER INFORMATION CONTACT: Dan 

Rodina, Aerospace Engineer, 

International Branch, ANM–116, 

Transport Airplane Directorate, FAA, 

1601 Lind Avenue, SW., Renton, 

Washington 98057–3356; telephone 

(425) 227–2125; fax (425) 227–1149. 

SUPPLEMENTARY INFORMATION: 

Comments Invited 

We invite you to send any written 

relevant data, views, or arguments about 

this proposed AD. Send your comments 

to an address listed under the 

ADDRESSES section. Include ‘‘Docket No. 

FAA–2010–0854; Directorate Identifier 

2009–NM–261–AD’’ at the beginning of 

your comments. We specifically invite 

comments on the overall regulatory, 

economic, environmental, and energy 

aspects of this proposed AD. We will 

consider all comments received by the 

closing date and may amend this 

proposed AD based on those comments. 

We have lengthened the 30-day 

comment period for proposed ADs that 

address MCAI originated by aviation 

authorities of other countries to provide 

adequate time for interested parties to 

submit comments. The comment period 

for these proposed ADs is now typically 

45 days, which is consistent with the 

comment period for domestic transport 

ADs. 

We will post all comments we 

receive, without change, to http:// 

www.regulations.gov, including any 

personal information you provide. We 

will also post a report summarizing each 

substantive verbal contact we receive 

about this proposed AD. 

Discussion 

On January 16, 2007, we issued AD 

2007–02–22, Amendment 39–14909 (72 

FR 3708, January 26, 2007). That AD 

required actions intended to address an 

unsafe condition on the products listed 

above. 

Since we issued AD 2007–02–22, the 

European Aviation Safety Agency 

(EASA), which is the Technical Agent 

for the Member States of the European 

Community, has issued EASA 

Airworthiness Directive 2006–0111R1, 

dated August 26, 2009 (referred to after 

this as ‘‘the MCAI’’), to correct an unsafe 

condition for the specified products. 

The MCAI states: 

During High Time Equipment (HTE) 

reviews conducted within the scope of the 

A310 aircraft Design Service Goal (DSG) 

extension work, Airbus discovered that the 

splined couplings and the sliding bearings of 

the flap transmission system could be 

affected by corrosion and wear, especially 

when their protective components such as 

wiper rings and rubber gaiters could become 

defective. 

This condition, if not detected and 

corrected, could degrade the functional 

integrity of the flap transmission system. 


wwoods2 on DSK1DXX6B1PROD with PROPOSALS_PART 1