Source: https://www.nexsenpruet.com/insights/farm-service-agency-guaranteed-loans-simple-steps-to-improve-performance
Timestamp: 2018-10-20 19:37:19
Document Index: 224955736

Matched Legal Cases: ['§762', '§762', '§762', '§762', '§762', '§762', '§762']

Farm Service Agency Guaranteed Loans: Simple Steps to Improve Performance | Nexsen Pruet
FSA guarantees only certain types of loans for a reason. The permitted purposes tend to provide a source of funds to repay the loan. That is why Lenders may issue loans to—among other purposes—improve profitability, purchase livestock or equipment, pay annual operating expenses, purchase feeder animals, acquire or enlarge a farm, make capital improvements, and promote water and soil conservation. See, generally, 7 DFR §762.121(a)-(c).
Appraisals are only as good as the market on which they are based. Therefore, Lenders should obtain the most reliable, conservative appraisal available. While not required on all loans, “appraisals are an integral part of the loan evaluation process.” See 7 CFR 762.127. FSA’s Handbook reminds lenders they “are responsible for using a [qualified appraiser].” Handbook 181B at 8-141. Furthermore, real estate appraisals “must be completed according to USPAP….” Id.
4) Shape up the collateral.
The collateral is your friend. The best practices begins with the Regulations requirement that “[t]he lender is responsible for ensuring that proper and adequate security is obtained and maintained to fully secure the loan ….” 7 CFR §762.126(a)(1). While the regulations permit broad classes of collateral as security, FSA’s interpretation provide two additional suggestions. First, the “type of security must be appropriate to the type of loan, and the loan terms must be consistent with the useful life of the security.” Handbook at 168-A, page 8-118. Second, FSA suggests typical categories based on the term of the loan: “annual operating loans will be secured by crops and livestock, loans to be repaid within 2 to 7 years by breeding livestock and equipment.” Handbook at 168-B, page 8-118. Of course, if the loan will be repaid in more than 7 years, “a lien must be taken on real estate.” Id. at §762.126(d)(2).
After the loan is closed, FSA regulations require the lender take reasonable steps to ensure the collateral remains available to satisfy the loan. These requirements include ensuring the borrower adequately protects the lender’s security interest by paying rent, taxes, insuring the collateral, and similar steps. Also, the Lender must regularly inspect the collateral “as often as deemed necessary to properly service the loan.” 7 CFR §762.142(a)(3). If the collateral is sold or otherwise disposed of by the borrower, the Lender should account for those proceeds, and apply the proceeds in accordance with the lien priorities. Id. at §762.142(a)(5). While the Regulations “spell out the standard” servicing requirements, the Handbook reminds Lenders to also refer to the specific loan documents, such as the Conditional Commitment, for any additional servicing requirements for your specific loan. Handbook at 264-A, page 11-6.
5) Eliminate the stress of distressed loans.
When a borrower defaults under the loan documents, and that default is not cured within 30 days, the Lender must notify FSA and proceed with steps designed to address the default. 7 CFR §762.143(b). Of particular importance is the meeting required by the Regulations, which allows lender and borrower to “identify the nature of the delinquency and develop a course of action that will eliminate the delinquency and correct underlying problems.” Id. at §762.143(b)(3) (emphasis added). This process allows the lender to “work with the borrower so that the loan can be brought current and the borrower can continue the farming operation.” Handbook at 300-A, page 12-1. To accomplish this goal, FSA reminds Lenders there is “an assortment of restructuring tools that may be used to bring the loan current.” Id.
6) Carefully consider a liquidation diet.