Real Estate Title Clearance and Loan Closing

SUMMARY: The Farmers Home Administration (FmHA) proposes to amend its

Real Estate Title Clearance and Loan Closing regulation. This action is

necessary to make the FmHA loan closing procedure consistent with the

private sector for commercial loans and to make loan closing

requirements consistent with local laws and procedures that are typical

in the area. The effect will be to provide the public with easy access

to FmHA programs.

DATES: Comments must be received on or before July 11, 1994.

ADDRESSES: Submit written comments, in duplicate, to the Office of the

Chief, Regulations Analysis and Control Branch, Farmers Home

Administration, U.S. Department of Agriculture, SW, Washington, DC

20250. All written comments will be available for public inspection at

the above address during regular working hours.

FOR FURTHER INFORMATION CONTACT: Walter B. Patton, Senior Loan

Specialist, Farmers Home Administration, USDA, room 5334, South

Agriculture Building, 14th and Independence Ave. SW., Washington, DC

20250, Telephone (202) 720-0099.

SUPPLEMENTARY INFORMATION:

Classification

We are issuing this proposed rule in conformance with Executive

Order 12866, and the Office of Management and Budget (OMB) has

determined that it is a ``significant regulatory action.''

Regulatory Flexibility Act

The undersigned has determined that this action will not have a

significant economic impact on a substantial number of small entities

because the regulatory changes affect FmHA processing, real estate

title clearance, and loan closing.

Paperwork Reduction Act

The information collection requirements contained in this proposed

rule will be submitted to the Office of Management and Budget (OMB) for

review under section 3504 (h) of the Paperwork Reduction Act of 1980

(44 U.S.C. 3501). Public reporting for the collection of information is

estimated to vary from five minutes to 1.5 hours per response, with an

average of .38 hours per response, including time for reviewing

instructions, searching existing data sources, gathering and

maintaining the data needed, and completing and reviewing the

collection of information. Please send written comments to the Office

of Information and Regulatory Affairs, OMB, Attention: Desk Officer for

USDA, Washington, DC 20503. Please send a copy of your comments to Jack

Holston, Agency Clearance Officer, USDA, FmHA, Ag Box 0743, Washington,

DC 20250.

Environmental Impact Statement

This document has been reviewed in accordance with 7 CFR Part 1940,

subpart G, ``Environmental Program.'' It is the determination of FmHA

that this action does not constitute a major Federal action

significantly affecting the quality of the human environment, and in

accordance with the National Environmental Policy Act of 1969, Public

Law 91-190, an Environmental Impact Statement is not required.

Intergovernmental Consultation

Programs listed in the Catalog of Federal Domestic Assistance are

as follows: Catalog Nos. 10.405, Farm Labor Housing Loans and Grants;

10.415, Rural Rental Housing Loans; and 10.416, Soil and Water Loans,

are subject to the provisions of Executive Order 12372, which require

intergovernmental consultation with State and local officials (7 CFR

part 3015, subpart V, 48 FR 29112, June 24, 1983), and FmHA Instruction

1940-J. Catalog Nos. 10.404, Emergency Loans; 10.406, Farm Operating

Loans; 10.407, Farm Ownership Loans; 10.410, Low Income Housing Loans,

and nonprogram loans are excluded from the scope of Executive Order

12372.

Civil Justice Reform

This document has been reviewed in accordance with Executive Order

(EO) 12778. It is the determination of FmHA that this action does not

unduly burden the Federal Court Systems in that it meets all applicable

standards provided in Section 2 of the EO.

Discussion

FmHA recognizes the need to make Real Estate Title Clearance and

Loan Closing procedures more consistent with the laws and generally

accepted loan closing practices of individual States. Some proposed

changes in this rule will allow FmHA State Directors the authority to

establish loan closing procedures that are applicable to the laws and

customs of that particular State.

The significant proposed changes are listed below in general order

of appearance in the regulation.

Several new definitions are added to help clarify certain issues.

They include Closing Protection Letter, General Warranty Deed,

Indemnification Agreement, Issuing Agent and Special Warranty Deed.

Due to differences in State laws regarding the use of title

insurance and in the standard insurance coverage for errors and

omission insurance and fidelity bond coverage, this proposed rule will

allow FmHA State Directors to decide (with OGC approval) on the loan

closing procedures and level of insurance coverage.

The requirement that Title Insurance Companies will provide an

Indemnification Agreement (Closing Protection Letter) is added because

it will greatly increase the insurance protection provided to the

United States Government. This is a practice that Title Insurance

Companies are familiar with and they understand our needs. An

Indemnification Agreement can be provided for approved attorneys so the

need for errors and omissions insurance and a fidelity bond can be

eliminated. The agreement will provide loss coverage for the entire

amount of the transaction with no deductible. The Indemnification

Agreement will give FmHA protection from losses resulting from

negligence or fraud caused by the closing agent or their employees.

Indemnification Agreements give FmHA greater protection against

malpractice and fiduciary risks than the insurance policies required by

our current regulations. There is no additional cost incurred by

requiring an Indemnification Agreement.

This instruction suggests the use of Title Insurance for all loan

closings. Approved attorneys can provide title insurance coverage as an

agent for a Title Insurance Company and therefore not be excluded from

being a closing agent. The advantages of Title Insurance are the

Indemnification Agreement can be issued by the Title Insurance Company,

addressed to FmHA, to protect FmHA against losses caused by the

negligence of closing agents or employees. It will eliminate the need

for errors and omissions insurance and a fidelity bond. The

Indemnification Agreement will protect FmHA for 100 percent of the loan

transaction, not a limited insured amount.

An attorney's opinion would provide limited coverage because the

statute of limitations on an attorney's liability runs from 2 years to

8 years, depending on the State, from the date of the opinion. If the

attorney's practice is interrupted, the means for correcting problems

or collecting damages may become an issue.

List of Subjects for 7 CFR Part 1927

Loan programs--agriculture, Loan programs--housing and community

development, Mortgages.

Therefore, chapter XVIII, title 7, Code of Federal Regulations is

amended as follows:

PART 1927--TITLE CLEARANCE AND LOAN CLOSING

1. The authority citation for part 1927 continues to read as

follows:

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

2.23; 7 CFR 2.70.

2. Subpart B of part 1927 is revised to read as follows:

Subpart B--Real Estate Title Clearance and Loan Closing

Sec.

1927.51 General.

1927.52 Definitions.

1927.53 Costs of title clearance and closings of transactions.

1927.54 Requirements for closing agents.

1927.55 Title clearance services.

1927.56 Scheduling loan closing.

1927.57 Preparation of closing documents.

1927.58 Closing the transaction.

1927.59 Subsequent loans and/or transfers with assumptions.

1927.60 1927.61 [Reserved]

1927.62 Voluntary conveyances.

1927.63 1927.64 [Reserved]

1927.65 Additional requirements in connection with loans to

homestead entrymen, contract purchasers of farm units from the

Bureau of Reclamation, and certain American Indians.

1927.66 Cancellation of loan, assumption, or credit sale.

1927.67-1927.89 [Reserved]

1927.90 State supplements.

1927.91 Exception authority.

1927.92-1927.99 [Reserved]

1927.100 OMB control number.

Subpart B--Real Estate Title Clearance and Loan Closing

Sec. 1927.51 General.

(a) Types of loans covered by this subpart. This subpart sets forth

the authorities, policies, and procedures for real estate title

clearance and closing of loans, assumptions, voluntary conveyances and

credit sales in connection with the following types of Farmers Home

Administration (FmHA) loans: Farm Ownership (FO), Nonfarm Enterprise

(FO-NFE), Emergency (EM), Operating (OL), Rural Housing (RH), Farm

Labor Housing (LH), Rural Rental Housing (RRH), Rural Cooperative

Housing (RCH), Soil and Water (SW), Indian Land acquisition loans

involving nontrust property, and NonProgram (NP) loans. This subpart

does not apply to guaranteed loans.

(b) Programs not covered by this subpart. Title clearance and

closing for all other types of FmHA loans and assumptions will be

handled as provided in the applicable program instructions or as

provided in special authorizations from the National Office.

(c) Review by the Office of the General Counsel (OGC). When

required by applicable program regulations, such as for multi-family

housing (MFH) organizations or other complex cases as determined by the

State Director, the State Director will request OGC to review the

docket and issue closing instructions.

Sec. 1927.52 Definitions.

Approval official. The FmHA employee who has been delegated the

authority to approve, close, and service the particular kind of loan

will approve an attorney or title company as closing agent to close

these loans. If a loan must be approved at a higher level because of

the dollar amount or for other reasons, the initiating office may

approve the closing agent.

Approved attorney. A duly licensed attorney who provides title

opinions directly to FmHA and the borrower or upon whose certification

of title an approved title insurance company issues a policy of title

insurance. Approved attorneys also close loans, assumptions, credit

sales, and voluntary conveyances, and disburse funds in connection with

FmHA loans.

Approved title insurance company. A title insurance company

(including its local representatives, employees, agents, and attorneys)

that issues a policy of title insurance. Depending on the local

practice, an approved title insurance company may also close loans,

assumptions, credit sales, and voluntary conveyances, and disburse

funds in connection with FmHA loans. If the approved title insurance

company does not close the loan itself, the loan closing functions may

be performed by approved attorneys or closing agents authorized by the

approved title insurance company.

Borrower. The party(ies) indebted after the loan, assumption, or

credit sale is closed.

Certificate of Title. A certified statement as to land ownership,

based upon examination of record title.

Closed loan. A loan is considered to be closed when the mortgage is

filed for record.

Closing agent. The approved attorney or title company selected by

the applicant and approved by FmHA to provide closing services for the

proposed loan. Unless a title insurance company also provides loan

closing services, the term ``title company'' does not include ``title

insurance company.''

Closing protection letter. An agreement issued by an approved title

insurance company which is an American Land Title Association (ALTA)

form Closing Protection Letter (Rev. 3/27/87) or is otherwise

acceptable to FmHA and which protects FmHA against damage, loss, or

injury as a result or negligence by the issuing agent, approved

attorney, or title company when title clearance is done by means of a

policy of title insurance. Depending on the area, Closing Protection

Letters may also be known as ``Insured Closing Letters,''

``Indemnification Agreements,'' ``Insured Closing Service Agreements,''

or ``Statements of Settlement Service Responsibilities.''

Cosigner. A party who joins in the execution of a promissory note

or assumption agreement to guarantee repayment of the debt.

Credit sale. A sale in which FmHA provides credit to the

purchaser(s) of FmHA inventory property. Title clearance and closing of

a credit sale are the same as for an initial loan except the property

is conveyed by quitclaim deed.

Exceptions. Exceptions include but are not limited to recorded

covenants, conditions, restrictions, reservations, liens, encumbrances,

easements, rights-of-way, leases, mineral, oil, gas and geothermal

rights (with or without the right of surface entry), timber and water

rights, judgments, pending court proceedings, probate proceedings and

agreements which limit or affect the title to the property.

Fee simple. An estate in land of which the owner has unqualified

ownership and power of disposition.

FmHA. The United States of America acting through the Farmers Home

Administration of the Department of Agriculture.

General warranty deed. A deed in which the grantor or seller

warrants or guarantees as a whole that a good quality title is being

conveyed.

Indemnification agreement. An agreement that protects FmHA against

damage, loss, or injury as a result of negligence on behalf of the

issuing agent, approved attorney, or Title Company. May also be known

as: (1) Insured closing letter, (2) Closing protection letter, (3)

Insured closing service agreement, (4) Statement of settlement service

responsibilities, or letters which provide similar protection.

Issuing agent. An agent who performs loan closing services and who

is authorized to issue title insurance for an approved title insurance

company. This term includes ``title company.''

Land contract (Contract for Deed). This is a contract between the

buyer and seller of land in which the buyer has the right to possession

and use of the land and over a period of time (usually in excess of one

year) makes periodic payments of a portion of the purchase price to the

seller. The seller retains legal title to the property until the final

payment is made, at which time the buyer will receive a deed to the

land vesting fee title in the buyer. This is a security device whereby

the seller finances a portion of the purchase price for the buyer.

Mortgage. Real estate security instrument, includes deed of trust

and deed to secure debt. Forms FmHA 1927-7 ``Real Estate Mortgage or

Deed of Trust For ______'' (state), FmHA 1927-11 ``Warranty Deed

(______)'' (state), and FmHA 1927-12 ``Warranty Deed'' (state) will be

used to secure a mortgage to FmHA.

OGC. Refers to the United States Department of Agriculture (USDA)

Regional Attorney, Associate Regional Attorney, or Assistant Regional

Attorney, who provides legal counsel to FmHA for loan making and loan

servicing actions.

Program regulations. Refers to the FmHA regulations for the

particular loan program involved (e.g., subpart A of part 1944 for

rural housing loans).

Quitclaim deed. A transfer of the grantors' interest in the title,

without warranties or covenants. This type of deed is used by FmHA to

convey title to purchasers of inventory property.

Seller. Individual(s) or other entity(ies) which are conveying

ownership in real property to an FmHA applicant/buyer.

Special warranty deed. A deed containing a covenant whereby the

grantor agrees to protect the grantee against any claims arising during

the grantor's period of ownership.

Title clearance. Examination of a title and its exceptions to

assure FmHA that the loan is legally secured and has the required

priority.

Title defects. Any exception or legal claim of ownership (through

deed, lien, judgement, or other recorded document), on behalf of a

third party, which would prevent the seller from conveying a clear

title to the entire property.

Vendee. The buyer.

Vendor. The seller.

Voluntary conveyance. A method of liquidation by which title to

FmHA security is transferred by a borrower to FmHA by deed in lieu of

foreclosure.

Warranty deed. A deed in which the grantor warrants that he/she has

the right to convey the property, the title is free from encumbrances,

and the grantor shall take further action necessary to perfect or

defend the title.

Sec. 1927.53 Costs of title clearance and closings of transactions.

The borrower or the seller, or both, will be responsible for

payment of all costs of title clearance and closing of the transaction

and will arrange for payment before the transaction is closed. In

voluntary conveyance cases to FmHA, these costs will be paid as

provided in Sec. 955.10(g) of subpart A of part 1955 of this chapter.

In a case involving the purchase or sale of real estate, the option or

sales contract must state who will pay the title clearance and closing

costs. These costs will include any costs of abstracts of title, land

surveys, attorney's fees, owner's and lender's policies of title

insurance, obtaining curative material, notary fees, documentary

stamps, recordation costs, tax monitoring service, and other expenses

necessary to complete the transaction.

Sec. 1927.54 Requirements for closing agents.

(a) Form of Title Certification. The State Director will, with OGC

approval, issue a state instruction specifying whether title insurance

will be required at loan closing for some or all loans in the state or

if, in some or all cases, a title opinion from an approved attorney

will be sufficient. Title insurance is the recommended method for

protecting FmHA interests. State Directors are authorized to require

title insurance for all loan closings or some loan closings based on

the type of loan and/or the geographical area of the state. If title

insurance is used, State Directors are authorized to require a closing

protection letter issued by an approved title insurance company to

cover the closing agent, if such closing protection letters are

customarily provided by title insurance companies in the state. The

State Director's determination to require the use of title insurance

will be based on the commercial and residential loan closing practices

of the state and the economic and legal feasibility of obtaining title

insurance.

(b) General. An attorney or title company may act as a closing

agent and close FmHA real estate loans, provide necessary title

clearance, and perform such other duties as are set forth in this

subpart. A closing agent will be responsible for closing FmHA loans and

disbursing both FmHA loan funds and funds provided by the borrower in

connection with the FmHA loan. The borrower will select his or her

closing agent. FmHA employees will not recommend the use of any

particular closing agent or title insurance company, although as

provided in Sec. 927.54(a) the borrower may be required by a state

instruction to provide title clearance with either a title insurance

policy or an attorney's opinion. If title clearance is by an attorney's

opinion, the approval official will approve the attorney who will

perform the closing on a case-by-case basis in accordance with

Sec. 927.54(c) prior to loan closing. In such cases the attorney will

be approved after submitting Form FmHA 1927-19, ``Certification of

Attorney.'' If title certification will be by means of a policy of

title insurance, the title company which will issue the policy must

have been approved in accordance with Sec. 927.54(d).

(c) Approval of attorneys. Any attorney selected by an FmHA

applicant, who will be providing title clearance where the

certification of title is based on an attorney's opinion, must submit a

completed Form FmHA 1927-19 certifying to professional liability

insurance coverage and fidelity coverage of the attorney and the

attorney's employees. The approval official will approve on a case-by-

case basis any attorney who is duly licensed to practice law in the

state where the real estate security is located and who complies with

the bonding and insurance requirements in this section. If the

certification of title will be by means of title insurance, any

attorney or closing agent designated as an approved attorney or closing

agent by the approved title insurance company which will issue the

policy of title insurance will be acceptable, and when covered by a

closing protection letter, will not be required to obtain professional

liability insurance or a fidelity bond, if the closing protection

letter is the ALTA form Closing Protection Letter or provides at least

equivalent protection to FmHA as the professional liability and

fidelity insurance required in paragraphs (c) (1) and (2) of this

section. Each approved title insurance company may provide a master

list of their approved attorneys and closing agents, addressed to the

FmHA State Director, that are covered by its closing protection

letters.

(1) An attorney issuing an attorney's title opinion must have in

full force and effect an acceptable professional liability insurance

policy for errors and omissions. The State Director will determine the

appropriate level of such insurance and what level of deductible is

permissible according to what is customary in the area and necessary

for the protection of FmHA. The State Director will issue a State

Instruction specifying this coverage. Required insurance will, as a

minimum, cover the amount of the loan to be closed.

(2) An attorney that is issuing an attorney's title opinion or, if

title insurance is being obtained, an attorney or closing agent that is

not covered by a closing protection letter must have in full force and

effect a fidelity type bond. If partners, associates, or members of the

staff of the attorney or closing agent have access to the funds in the

escrow account, each such individual must either have a separate

fidelity type bond to cover any fraudulent or dishonest act or such

person(s) may be covered by a blanket fidelity bond. While it is

recommended that $50,000 of protection be maintained for each

individual person, the State Director will determine the appropriate

level of insurance according to what is customary in the area and

necessary for the protection of FmHA. The State Director will approve

the form of the bond although Form FmHA 1927-18, ``Fidelity Bond for

Loan Closing Attorneys,'' is an optional form that is acceptable to

FmHA and may be used.

(d) Approval of title companies. FmHA will approve any title

insurance company which issues policies of title insurance in the state

where the security property is located if the:

(1) Form of the owner's and lender's policies of title insurance to

be used in closing FmHA loans are acceptable to the State Director, and

will contain only standard types of exceptions and exclusions approved

in advance by the approval official with the advice of OGC.

(2) Title insurance company is licensed to do business in the state

(if a license is required) and is not Federally debarred or suspended.

(3) Title insurance company submits copies of audited financial

statements, Form 9 financial statements, or other approved financial

statements satisfactory to the State Director, which indicate that the

company has financial ability to cover losses arising out of its

activities as a title insurance company and under any closing

protection letters issued by the title insurance company. The financial

statements must also demonstrate that the title insurance company has

sufficient resources to reimburse FmHA for any losses caused by fraud

or dishonesty by the company and its authorized agents, or failure of

the company or its authorized agents to follow or comply with FmHA's

written closing instructions.

(4) Title insurance company agrees that the title insurance company

employee or closing agent who supervises the closing of the transaction

will be authorized to receive funds and give receipts for the company's

charges.

(5) Above listed approval process will be repeated at least every 5

years, or more often if adverse information becomes available, to

insure continued compliance by the title insurance company.

(e) Responsibility of approval official. In addition to approving

closing agents, the approval official will inform all closing agents

used in connection with FmHA closing of their duties and

responsibilities under this subpart, applicable state supplements, and

any changes or additional requirements which may be imposed. A package

containing a copy of this subpart, applicable forms, state supplements,

and other pertinent material will be provided to the closing agent as

needed.

(f) Conflict of interest. A closing agent who has, or whose spouse,

children, or business associates have, a financial interest in the real

estate which will secure the FmHA debt cannot be involved in the title

clearance or loan closing process. Financial interest includes having

either an equity, creditor, or debtor interest in any corporation,

trust, or partnership with a financial interest in the real estate

which will secure the FmHA debt.

(g) Debarment or suspension. No attorney, title company, title

insurance company, or closing agent, which has been debarred or

suspended from participating in Federal programs, may participate in

any aspect of the FmHA loan closing and title clearance process, in

accordance with FmHA Instruction 1940-M.

(h) Special provisions. Closing agents are responsible for having

current knowledge of the requirements of state laws in connection with

loan closing and title clearance and should advise the State Director

of any changes in state laws which necessitate changes in state

mortgage forms and/or state supplements.

(i) Rejecting closing agents or title insurance companies. If the

approval official (or the State Director for title insurance companies)

cannot approve the closing agent selected by the applicant in

accordance with paragraphs (c) or (d) of this section, the following

actions will be taken:

(1) The attorney or closing agent will be notified within 5

business days of the specific reasons for rejection. No appeal rights

will be given as the closing agent/attorney is not the direct recipient

of program benefits.

(2) The applicant will be notified within 5 business days of the

rejection. It is the applicant's responsibility to decide whether to

continue with the rejected closing agent/attorney, if the reasons for

rejection can be removed before any legal costs are incurred, or if

another closing agent/attorney will be selected.

(3) If a title insurance company has requested approval, the title

insurance company will be notified within 30 days after all relevant

information requested by the State Director in connection with the

approval decision has been received. If the title insurance company is

rejected, it will be notified at that time of the specific reasons for

rejection. No appeal rights will be given as the title insurance

company is not the direct recipient of program benefits.

Sec. 1927.55 Title clearance services.

(a) Responsibilities of closing agents. Services to be provided to

FmHA and the borrower by a closing agent in connection with the

transaction vary depending whether a title insurance policy, or title

opinion are being furnished. The closing agent is expected to perform

these services without unnecessary delay. Delay in providing services

without justification may be grounds for not approving the closing

agent in future cases.

(b) Initial responsibility of approval official. The approval

official will furnish the closing agent with Form FmHA 1927-4,

``Transmittal of Title Information,'' all the information and documents

called for therein (including waivers, easements, and FmHA forms), and

any information not contained in this subpart regarding FmHA policies

and procedures applicable to the type of transaction involved.

(c) Ordering title services. The approval official will notify the

borrower and seller, if applicable, that an attorney or title company

must be employed to examine the title and perform other services in

connection with the closing of the transaction. Application for title

examination or insurance will be made by the borrower to an attorney or

title company. Application for mortgage title insurance will be on a

form which has been approved by the approval official. The mortgagee

policy will be for at least the amount of the loan. The United States

of America will be named as the mortgagee insured. Attorney services

may be requested in the form of FmHA Guide Letter No. 1927-B-1

(available in any FmHA office).

(d) Use of title opinion. If a title opinion will be issued, a

title examination will include searches of the records, or certificates

from the clerks of the appropriate State courts, Federal Bankruptcy

courts and United States district courts, for the period determined

necessary by local custom, to issue a title opinion. A Form FmHA 1927-

9, ``Preliminary Title Opinion,'' Form FmHA 1927-10, ``Final Title

Opinion,'' or a certificate of title will be issued to the approval

official. If either form is not legally sufficient in a particular

state, an OGC approved state form will be used. The closing agent will

determine:

(1) The legal description and all owner(s) of record of the real

property,

(2) Whether there are any outstanding mortgages, liens, judgments

or pending suits in Federal or State courts (as disclosed by a lis

pendens or other similar notice of a pending lawsuit), and advise the

approval official and borrower of the nature and legal effect of

outstanding interests or exceptions such as liens, encumbrances,

leases, easements, covenants, conditions, restrictuions, reservations,

and rights relating to mineral, oil, gas, geothermal, timber and water

rights (including the presence or absence of the right of entry by

holder of such rights), prior sales of part of the property judgments,

probate proceedings or pending court actions affecting the real

property or other outstanding exceptions or interests to assist in

determining:

(i) Whether the outstanding interests or exceptions affect the

value of the property or its operation, and

(ii) Which exceptions must be corrected in order for the

borrower(s) to obtain good and marketable title of record in accordance

with prevailing title examination standards, and for FmHA to obtain a

valid lien of the required priority.

(3) Whether there are outstanding Federal or State tax claims

(including taxes which under state law may become a lien superior to a

previously attaching mortgage lien),

(4) Whether outstanding judgments of record, bankruptcy,

insolvency, or probate proceedings involving any part of the property,

whether already owned by the borrower, or to be acquired by assumption

or with loan funds, or involving the borrower or the seller exist,

(5) If a water right is to be included in the security for the

loan. The closing agent must attach a full legal description of the

water right,

(6) If wetlands easements or other conservation easements have been

placed on the property,

(7) If there are any liens or recorded claims which would prevent

FmHA from obtaining an enforceable mortgage lien of the required

priority on the security property, and

(8) If there are any exceptions of record.

(9) What measures are required for preparing, obtaining, or

approving curative material, conveyances, and security instruments,

(10) Provide copies of these interests and exceptions as requested

by the approval official.

(e) Use of title insurance. When title insurance is to be obtained,

the approval official will be furnished with a title insurance binder

disclosing any defects in, and encumbrances against, the title, the

conditions to be met to make the title insurable, and the curative or

other actions to be taken before closing of the transaction. The binder

must include a commitment to issue a mortgagee and owner's title policy

in an amount at least equal the amount of the loan. In the case of an

assumption without a subsequent loan, the existing policy may be

continued if the coverage meets or exceeds the assumption balance and

the title company agrees in writing to extend coverage in full force

and effect.

(f) Approval official's responsibilities after receipt of

preliminary title opinion or title insurance binder. Upon receipt of

the preliminary title opinion or title insurance binder, the approval

official will:

(1) Check the opinion or binder carefully. If any required

information is omitted, or if the standard form of opinion or binder is

amended, the approval official will return it for completion or

correction. If the closing agent is unable or unwilling to comply, the

approval official will send the opinion or binder with a full

explanation to OGC through the State Director for advice.

(2) Check the legal description of the land, water rights, rights-

of-way, easements, and other security involved, to determine that the

description covers all of the property rights intended to be taken as

security.

(3) Review all exceptions to title shown in the preliminary title

opinion or title insurance binder. The approval official will determine

which exceptions must be modified, eliminated or waived, or whether an

agreement with prior lienholders is necessary or advisable to protect

FmHA's interests. If prior encumbrance(s) will remain, the approval

official should obtain and review a copy of each to insure that its

terms are acceptable to FmHA. If an option or sales contract which

lists acceptable exceptions is involved, the approval official will

determine whether the exceptions in the preliminary title opinion or

title insurance binder are the same as those in the option or sales

contract and inform the applicant of discrepancies. If the approval

official has any doubt as to the acceptability or effect of any

exception, the applicant will be requested to obtain a clarification.

The approval official will consult with the closing agent and/or the

State Director when necessary to determine the acceptability of any

exception. If the approval official determines that any defects cannot

be corrected, or the effect of certain exceptions on the title,

suitability, security value, or successful operation of the property is

not clear, and they cannot be corrected or eliminated without undue

expense, the approval official will forward the preliminary title

opinion or title insurance binder to the State Director together with

comments regarding the objectionable features and copies of the

exceptions when needed.

(i) If, with the advice of OGC, the State Director determines that

the exceptions will not adversely affect the title to the property or

its suitability, security value, or successful operation, the State

Director will advise the approval official. The approval official will

then arrange for closing.

(ii) If the State Director, with the advice of OGC, finds that

these exceptions will adversely affect the title to the property, its

suitability, security value, or successful operation, the State

Director may waive them conditionally and instruct the approval

official as to how the conditions may be met, or instruct the approval

official that the loan cannot be closed because of the defect.

Sec. 1927.56 Scheduling loan closing.

The approval official may arrange a closing when he/she determines

that exceptions shown in the preliminary title opinion or title

insurance binder (if any) will not adversely affect the suitability,

security value, or successful operation of the property.

(a) The approval official will make sure that all requirements of

subpart I of part 1940 of this chapter have been met before the loan is

closed.

(b) In arranging for loan closing, the approval official will send

Form FmHA 1927-15, ``Loan Closing Instructions/Loan Closing Statement

For,'' to the the closing agent. When a title insurance commitment is

involved, the ``loan closing instructions'' will include any

corrections required by the commitment. Therefore, the title insurance

commitment must be received before the final closing instructions are

transmitted. At the same time, send written notification of loan

closing to the applicant. For single family housing loans Form FmHA

1927-16, ``Notification of Loan Closing,'' will be used to notify the

applicant.

Sec. 1927.57 Preparation of closing documents.

(a) Preparation of deeds. The closing agent will prepare, complete,

or approve deeds necessary for title clearance and closing of the

transaction. FmHA forms will be used whenever possible.

(1) Types of estates for married borrowers. If the borrowers are

married, FmHA prefers, but will not require, that title to the real

estate will be held in such a way that, upon the death of a borrower,

it will pass to the surviving spouse by law to prevent the real estate

from being tied up in probate proceedings. Title may be held in any

manner that permits obtaining the required mortgage.

(2) Deeds will be prepared as follows:

(i) Conveyances of title to borrowers by parties other than FmHA

will be by general warranty deed. If a general warranty deed cannot be

obtained, a special warranty deed, quitclaim deed, or grant deed may be

used if the entity providing title clearance (closing agent) determines

that the deed used will vest in the borrower a good and marketable

title of record. All conveyances by FmHA will be by quitclaim deed.

(ii) The deed to the security property will show the exceptions to

which the title is subject and should, where customary, contain a tie-

in description showing that it covers the same land or part of the same

land as that designated or described in another deed or mortgage

described specifically by date, parties, and recording data.

(iii) Each deed should recite legal consideration.

(b) Preparation of mortgages. The closing agent will insure that

all mortgages are properly prepared, completed, executed, and filed for

record. Where applicable, the mortgages should recite that it is a

purchase money mortgage. The following requirements will be observed in

preparing FmHA mortgages:

(1) Real estate mortgage forms. FmHA mortgage forms will be used in

all cases and other FmHA forms will be used whenever possible. Form

FmHA 1927-1, ``Real Estate Mortgage or Deed of Trust For ______,''

(state) will be used for all insured and direct loans except where Form

FmHA 1927-7 (State), is used for all rural housing loans. These forms

will be prepared and distributed in accordance with state supplements.

When a loan is made to a homestead entryman or to a contract purchaser

of a farm unit from the Bureau of Reclamation, a rider to Form FmHA

1927-1 will be used per state supplement.

(2) Number of copies.

(i) The original recorded mortgage is to be retained in the

borrower's case file unless the original mortgage is retained by the

recorder, and a conformed copy will be provided to the borrower.

(ii) When the original is to be retained by the recorder, an

original and two conformed copies will be prepared. One conformed copy

will be retained in the borrower's case file and one conformed copy

will be provided to the borrower.

(iii) Extra copies of mortgages may be needed in individual cases

in some participation loans, loans on reclamation projects, when

security is taken on trust or restricted property involving loans to

Native American, and other similar situations.

(iv) The closing agent will distribute copies to appropriate

parties at loan closing or as soon as possible thereafter.

(3) Persons required to execute mortgage. The mortgage will be

executed by the borrower and all other persons having an interest in

the real property being mortgaged whose execution is necessary for FmHA

to have the required lien priority, (for example, a spouse's right of

dower or curtesy) so that, in the event of default, the mortgage will

be enforceable against all such interests. Persons signing the

promissory note and the mortgage will use exactly the same names which

appear on the title.

(i) When the applicant is a corporation or cooperative, the

mortgage will be executed by the authorized officers on behalf of the

corporation or cooperative. Authorization must be granted to the

officers by either:

(A) The Articles of Incorporation and Bylaws, or

(B) A duly adopted resolution of the board of directors authorizing

such execution and indicating which officers are authorized to execute

the loan documents on behalf of the corporation/cooperative, unless

applicable FmHA instruction or state law prohibits. The resolution must

bear the certification of the corporate/cooperative secretary that it

was duly adopted and not revoked and have the corporate seal affixed,

if applicable, to be acceptable. When shareholder approval is necessary

the resolution must recite that shareholder approval has been obtained.

(ii) When the applicant is a partnership, the mortgage must be

executed by the partners required by the partnership agreement to

execute loan documents on its behalf.

(iii) When the applicant is a trust, the requirements of the trust

agreement and state law shall control as to who is authorized to

execute the loan documents.

(4) Date of Execution. The mortgage will be dated and executed on

the same date as the promissory note. If necessary, the mortgage may be

done on a different date provided it is not executed before the date of

the note or after the date of closing.

(5) Title exceptions. The mortgage will specifically describe all

exceptions it will be subject to, if customary under local practice or

required by state law or state supplement. The exceptions will normally

be shown as part of or immediately following the legal description of

the land and must be the same as shown on the final title opinion or

mortgagee policy of title insurance. In cases where specific

description of each exception to title is not customary or required,

these exceptions may be described by use of a general statement similar

to the following (unless inconsistent with applicable State law):

``Subject, however, to all outstanding covenants, conditions,

restrictions, reservations, liens, encumbrances, easements, rights of

way, leases, mineral, oil, gas and geothermal rights (with or without

the right of surface entry), timber rights, water rights, judgements,

pending court proceedings, probate proceedings and agreements which

limit the title to the property.''

(6) Releasing or retaining existing mortgages in refinancing cases.

When there is an outstanding FmHA real estate mortgage against the

property and the loan secured by the mortgage is being refinanced with

the current loan, the mortgage for the outstanding loan will be

superseded and will be released at the time of loan closing, unless it

is necessary under state law to keep the existing mortgage in effect to

retain a valid lien of the same priority for the obligation being

refinanced.

(7) Describing notes in mortgages. In most cases, only the note(s)

for the new loan(s) needs to be described when a subsequent loan is

made and a subsequent mortgage is taken. The note(s) for any unpaid

loan(s) secured by real estate will not be described in the mortgage

unless the approval official determines:

(i) It is necessary to do so to protect the government's interest,

(ii) The description of the unpaid prior secured note(s) in the

mortgage being taken would not result in a higher title insurance

premium for the new mortgage, or

(iii) State law requires that all original notes be presented when

filing a security instrument. A State supplement should reflect this

exception when applicable.

(8) Determining due date of final installments. The ``Due Date of

Final Installment,'' as shown in the mortgage, is determined by adding

the number of years over which the loan is payable to the date of the

promissory note: for example, if the note is dated March 30, 1987, and

the final payment is due and payable 20 years from that date, the ``Due

Date of Final Installment'' is March 30, 2007.

(9) Alteration of mortgage form. A mortgage form may be altered

pursuant to a state supplement having prior approval of the National

Office, or in a special case, to comply with the terms of loan approval

prescribed in accordance with program instructions. No other

alterations in the printed mortgage forms will be made without prior

approval of the National Office. Any changes made by deletion,

substitution, or addition (excluding filling in blanks) will be

initialed in the margin by all persons signing the mortgage.

(10) Special requirements imposed by program instructions. Some

program instructions require that the mortgage forms be modified. In

such cases, either OGC or the approval official will modify the FmHA

mortgage form as specified. The closing agent will make sure that the

modification has been made prior to execution of the mortgage.

(11) Mortgages on leasehold estates. When the FmHA security

interest is a leasehold estate, unless state law or state supplement

otherwise provides, the Forms FmHA 1927-1 or FmHA 1927-7 will be

modified as follows:

(i) In the space provided on the mortgage for the description of

the real property security, the leasehold estate and the land covered

by the lease must be described. The following language must be used:

``All of borrower's right, title and interest in and to a leasehold

estate for an original term of ______ years, commencing on ______, 19

______, created and established by and between ______ as lessor and

owner and ______ as lessee, including any extensions and renewals

thereof, a copy of which lease was recorded/filed in book ______, page

______, as instrument number ______, in the Office of the (e.g., County

Clerk), for the aforesaid county and state and covering the following

real property: ______.''

(ii) Immediately preceding the covenant starting with the words

``should default,'' the following covenant will be added: ``( )

Borrower covenants and agrees to pay when due all rents and any and all

other charges required by said lease, to comply with all other

requirements of said lease, and not to surrender or relinquish, without

the government's prior written consent, any of borrower's right, title

or interest in or to said leasehold estate or under said lease while

this mortgage remains of record.''

(12) Mortgages on land purchase contract. When the FmHA security

interest is on a borrower's interest in a land purchase contract, OGC

will provide language to be used to modify the Form FmHA 1927-1 or FmHA

1927-7.

(13) Legal description. The legal description on the mortgage

should be taken directly from the title insurance commitment or the

title abstract to insure accuracy of the legal description.

(c) Preparation of the promissory note. The closing agent will make

sure that the promissory note (or assumption agreement) is completed in

accordance with the forms manual insert (FMI), and executed. The

approval official will determine who is to execute the promissory note,

including cosigners, if necessary, in accordance with program

instructions and provide the closing agent with the names of these

individuals. If the applicant is a corporation, partnership, or trust,

the approval official will provide the name(s) and title(s) of the

individual(s) executing the promissory note on behalf of the entity.

Any other signatures on the note (or assumption agreement) needed to

insure the required security, as provided in state supplements, will be

obtained. Persons having a disability of minority or mental

incompetency, or persons who have not been legally admitted for

residency in the U.S., its territories, or possessions, are not to

execute the promissory note. The date shown on the note will be the

date it is executed by the borrower which may not be later than the

date of the mortgage.

(d) Preparation of protective instruments. The closing agent will

properly prepare, complete, and/or approve releases and curative

documents necessary for title clearance and closing, in recordable form

and record them if required.

(1) Prior lienholder's agreement. If any liens (other than FmHA

liens or tax liens to local governmental authorities) or security

agreements (hereafter called ``liens''), with priority over FmHA's

mortgage will remain against the real property securing the loan(s),

the lienholders must execute, in recordable form, agreements containing

all of the following provisions:

(i) The prior lienholder shall agree not to declare the lien in

default or accelerate the indebtedness secured by the prior lien for a

specific period of time after notice to FmHA. The agreement must:

(A) Provide that the specified period of time will not commence

until the lienholder gives written notice of the borrower's default and

the prior lienholder's intention to accelerate the indebtedness to the

FmHA office servicing the loan,

(B) Include the address of the FmHA servicing office,

(C) Give FmHA the option to cure any monetary default by paying the

amount of the borrower's delinquent payments to the prior lienholder,

or pay the obligation in full and have the lien assigned to FmHA, and

(D) Provide that the prior lienholder will not declare the lien in

default for any nonmonetary reason if FmHA commences liquidation

proceedings against the property and thereafter acquires the property.

(ii) When the prior lien secures future advances, including the

lienholder's costs for borrower liquidation or bankruptcy, which under

state law have priority over the mortgage being taken (or a FmHA

mortgage already held), the prior lienholder shall agree not to make

advances for purposes other than taxes, insurance or payments on other

prior liens without written consent of the State Director.

(iii) The prior lienholder shall consent to FmHA making (or

transferring) the loan and taking (or retaining) the related mortgage

if the prior lien instrument prohibits a loan or mortgage (or transfer)

without the prior lienholder's consent.

(iv) The prior lienholder shall consent to FmHA transferring the

property subject to the prior lien after FmHA has obtained title to the

property either by foreclosure or voluntary conveyance if the prior

lien instrument prohibits such transfer without the prior lienholder's

consent.

(2) Notice of foreclosure agreements. These agreements will be

obtained only when required by a state supplement. As a precautionary

measure, the state supplement will require notice agreements when OGC

determines that state law permits junior liens of private parties to be

extinguished by foreclosure of a prior lien without the junior

lienholder being made parties or being given actual notice. The state

supplement will specify the number of days within which notice of

foreclosure is required by the agreement.

(3) Leaseholds. When the FmHA security interest is on a leasehold,

the approval official must review the lease to make sure that it meets

the security and duration requirements of the program instructions. If

not, it will be necessary for the landlord and tenant to amend the

lease to meet these requirements at closing.

(4) Agreement by holder of vendor's interest under land contract.

If the buyer's interest in the security property is that of a buyer

under a land contract, it will be necessary for the seller (vendor) to

execute, in recordable form, an agreement containing all of the

following provisions:

(i) The vendor shall agree not to sell or voluntarily transfer the

vendor's interest under the land contract without the prior written

consent of the FmHA State Director.

(ii) The vendor shall agree not to encumber or cause any liens to

be levied against the property.

(iii) The vendor shall agree not to commence or take any action to

accelerate, forfeit or foreclose the buyer's interest in the security

property until a specified period of time after notifying the State

Director of intent to do so. This period of time will be ninety (90)

days unless a state supplement otherwise provides. The agreement shall

give FmHA the option to cure any monetary default by paying the amount

of the buyer's delinquent payments to the vendor, or paying the vendor

in full and having the contract assigned to FmHA.

(iv) The vendor shall consent to FmHA making the loan and taking a

security interest in the borrower's interest under the land contract as

security for the FmHA loan.

(v) The vendor shall agree not to take any actions to foreclose or

forfeit the interest of the buyer under the land contract because FmHA

has acquired the buyer's interest under the land contract by

foreclosure or voluntary conveyance, or because FmHA has subsequently

sold or assigned the buyer's interest to a third party who will assume

the buyer's obligations under the land contract.

(vi) When FmHA acquires a buyer's interest under a land contract by

voluntary conveyance or foreclosure, FmHA will not be deemed to have

assumed any of the buyer's obligations under the contract, provided

that the failure of FmHA to perform any such obligations while it holds

the buyer's interest is a ground to commence an action to terminate the

land contract.

(5) Form of agreement. The form of prior lienholder's agreement,

forbearance agreement, notice of foreclosure or assignment, and

agreement by holder of vendor's interest under land contract will be

prescribed in a state supplement with the concurrence of OGC. When only

forbearance agreements are needed, they will be obtained on Form FmHA

1927-8, ``Agreement with Prior Lienholder,'' or, if that form is not

legally satisfactory, on a state form having the same title. When only

notice of foreclosure or assignment are required, a separate form for

this purpose will be used. When both forbearance agreements and notices

of foreclosure or assignment are required, Form FmHA 1927-8 may be

amended in order to serve both purposes, a substitute state form may be

used for both purposes, or Form FmHA 1927-8 may be used and the notice

agreement obtained on a separate state form.

(6) Executing, acknowledging, and recording. When an agreement is

required by paragraphs (d)(1), (d)(2), (d)(3), or (d)(4) of this

section, the closing agent will determine at the time of closing that

the agreement is properly completed, executed, sealed, witnessed,

acknowledged, and recorded as required by state law or state

supplement.

(e) Correction of errors in recorded security instruments. A state

supplement, subject to OGC's review and approval, will be issued to

provide guidance in correcting error(s) in recorded security

instruments.

Sec. 1927.58 Closing the transaction.

The closing agent will cooperate with the approval official, the

borrower and the seller, and other necessary parties to arrange the

time and place of closing. The closing agent will make sure that FmHA

obtains a valid mortgage lien on the property of the priority required

by FmHA, subject only to any defects and exceptions approved by the

approval official or State Director. The ``Date of Closing'' will be

considered to be the date that the note and mortgage are signed, and

the loan closing process takes place.

(a) Disbursement of loan funds. When the closing agent indicates

that the conditions necessary to close the loan have been met, loan

funds will be forwarded to the closing agent. Loan funds will not be

disbursed prior to filing of the mortgage for record; however, when

necessary, loan funds may be placed in escrow before the mortgage is

filed for record and disbursed after it is filed. No development funds

will be kept in escrow by the closing agent after loan closing. Loan

funds for the payment of a lien may be disbursed only upon receipt of a

discharge, satisfaction, or release (or assignment where necessary to

protect the interests of FmHA).

(b) Title examination and liens or claims against borrowers. The

closing agent will examine the title for liens against the property and

claims against the borrower from the terminal date of the preliminary

title examination up to and including the time of recording the current

mortgage. If there are no entries of record during the period, except

the documents required in connection with title clearance and any

partial release(s) or subordination(s) previously approved by FmHA, the

transaction may be closed. If there are other entries of record during

this period, the transaction will not be closed until these entries

have been cleared of record or administratively approved. The closing

agent will advise the approval official of the nature of such

intervening instruments and the effect they may have on obtaining a

valid mortgage of the priority required or the title insurance policy

to be issued.

(c) Taxes and assessments. The closing agent will determine if all

taxes and assessments against the property which are due and payable

are paid at or before the time of loan closing. If the seller and the

borrower have agreed to prorate any taxes or assessment which are not

yet due and payable for the year in which the closing of the

transaction takes place, the seller's proportionate share of the taxes

and assessments will be deducted from the proceeds to be paid to seller

at closing and will be credited to the amount required to be paid by

borrower at closing. Certificates or receipts should be produced from

the taxing authorities to show that taxes or assessments which are due

and payable have been paid and, if possible, the certificates or

receipts, or copies, will be kept in the borrower's County Office or

District Office case file. Appropriate prorations as agreed upon

between the borrower and seller may also be made for taxes paid by the

seller which are applicable to a period after the closing date, common

area maintenance fees, prepaid rentals, insurance (unless the borrower

is to obtain a new policy of insurance) and growing crops.

(d) Affidavit regarding work of improvement--(1) Execution by

borrower. The closing agent will require that a Form FmHA 1927-5,

``Affidavit Regarding Work of Improvement,'' be completed and executed

(including acknowledgment) when a loan is being made to a borrower who

already owns the real estate to be mortgaged. This affidavit will be

executed by the borrower at closing.

(2) Execution by seller. The closing agent will require that Form

FmHA 1927-5 be completed and executed (including acknowledgment) by the

seller when the FmHA is making a loan to a borrower to enable the

borrower to acquire the property (including transfers). This affidavit

will be executed by the seller at closing.

(3) Legal insufficiency of affidavit form. If Form FmHA 1927-5 is

not legally sufficient in a particular state, a state form approved by

OGC will be used. A similar form that may be required by a title

insurance company may be substituted for Form FmHA 1927-5.

(4) Recording. The affidavit will not be recorded unless the

closing agent deems it necessary and state law permits.

(5) Delay in closing. The loan will not be closed if, at the loan

closing, the seller (in a sale transaction) or the borrower (in a

nonpurchase money loan situation) indicates that construction, repair

or remodeling has been commenced or completed on the property, or

related materials or services have been delivered to or performed on

the property within the time limit specified in the affidavit, unless a

state supplement otherwise provides. The closing agent will notify the

approval official, who will determine if the work of improvement will

result in a lien prior to the FmHA lien. The State Director will, with

the advice and concurrence of OGC, provide in a state supplement the

period of time to be used in completing the affidavit.

(e) Completion of closing documents. The closing agent will

determine that deeds, promissory notes, mortgages, releases, and other

curative instruments are completed in accordance with the FMI (sealed

and witnessed if required by state law) and, if necessary, acknowledged

and filed for record at the proper time.

(f) Assignment of future income. If Form FmHA 443-16, ``Assignment

of Income from Real Estate Security,'' is required in a particular

case, the approval official will prepare the form and have it available

for execution by the borrower when the transaction closes. The closing

agent will see that the form is properly completed, executed (sealed

and witnessed if required by state law), and acknowledged by the

borrower.

(g) Return of loan documents to approval official after loan

closing. Within one day after loan closing, the closing agent will

return completed and executed copies of Form FmHA 1927-15, the

promissory note, all other documents required for loan closing (except

the mortgage), and the final title opinion or policy of title insurance

to the approval official. If the recorded mortgage is customarily

returned to the borrower or closing agent after recording, then it must

be forwarded to the approval official immediately.

(h) Final opinion or mortgage title policy. As soon as possible

after the transaction has been closed:

(1) Final opinion. The attorney will issue a final opinion to FmHA

and the borrower on Form FmHA 1927-10, ``Final Title Opinion.'' If that

form is not legally sufficient in a particular state, a state form

approved by OGC may be used. Issuance of the final opinion should not

be held up pending the return of recorded instruments. If it is not

possible for the final title opinion to show the book and page of

recordation of the FmHA security instrument, the words ``and is

recorded'' in paragraph II B of Form FmHA 1927-10 may be deleted and

the following blank space completed to show the filing office and the

filing instrument number if available. Attached to the final opinion

will be required documents then available, including any which the

approval official has furnished to the attorney which were not

previously returned. The attorney will ensure that all recorded

instruments are forwarded or delivered, to the proper parties after

recording. The certification of title will be forwarded for a voluntary

conveyance.

(2) Mortgagee title policy. The closing agent will send or deliver

the mortgagee title policy, with the United States listed as mortgage

holder, to the approval official. The policy will be subject only to

standard exceptions and those outstanding encumbrances, exceptions,

reservations, and other defects approved by the approval official. If

an owner's policy of title insurance is requested, the closing agent

will send or deliver it to the borrower. The closing agent will ensure

that all recorded instruments are delivered or sent to the proper

parties after recording.

(3) Responsibilities of the approval official. The approval

official will check the final title opinion or mortgagee title policy

to make sure that the lien priority required in the loan approval has

been obtained. Form FmHA 1927-15 will be checked to see that funds were

disbursed as authorized. If these conditions have not been met, the

approval official will report it to the State Director for advice.

(i) Other services of the closing agent. (1) The closing agent will

assist the approval official in preparing, completing, obtaining

execution, acknowledgment, and recording the required documents when

necessary. Standard FmHA forms will be used whenever possible. The

closing agent will keep the approval official advised as to the

progress of title clearance and preparation of material for closing the

transaction.

(2) The closing agent will provide services for voluntary

conveyances as set forth in Sec. 1927.62 of this subpart, and

Sec. 1955.10 of subpart A of part 1955 of this chapter.

Sec. 1927.59 Subsequent loans and/or transfers with assumptions.

Title services and closing for subsequent loans to an existing

borrower will be done in accordance with previous instructions in this

subpart, except that:

(a) Loans closed using title insurance. (1) Title insurance will

only be obtained if:

(i) Additional land is being acquired,

(ii) An initial loan is being refinanced with a subsequent loan,

(iii) An additional loan is being made where the prior secured loan

was not subject to title clearance (e.g. where the prior loan was

secured by the best mortgage obtainable), or

(iv) An additional section 504 loan is being made where the

previous loan was unsecured, or secured for less than $7,500 and the

outstanding debt amount plus the new loan exceeds $7,500.

(2) When a new mortgagee title policy is required,:

(i) It will cover the entire real property which is to secure the

loan, including the real property already owned and any additional real

property being acquired by the borrower with the loan proceeds.

(ii) Title insurance coverage will be obtained for the entire

amount of any subsequent loan plus the amount of any existing loan

being refinanced. If the existing loan is not being refinanced, the new

mortgagee policy will insure only the amount of the subsequent loan.

(b) Loans closed using title opinions. Unless the approval official

is aware of problems with or discrepancies in the original title

opinion, the title will be researched back to the date of the last FmHA

mortgage, except when the conditions of paragraph (a)(1) (i), (ii), or

(iii) of this section exist. In these cases, the title will be examined

in accordance with Sec. 1927.55 of this subpart.

(c) Title services required in connection with assumptions. This is

set forth in subparts A, B, and C of part 1965 of this chapter as

appropriate for the loan type.

Secs. 1927.60-1927.61 [Reserved]

Sec. 1927.62 Voluntary conveyances.

When a borrower offers to convey security, the approval official

will process and close the transaction according to Sec. 1955.10 of

subpart A of part 1955 of this chapter. The closing agent will issue a

certification of title stating that title is vested in the United

States of America subject only to FmHA liens or prior liens previously

approved by FmHA in accordance with Sec. 1955.10 of subpart A of part

1955 of this chapter.

Secs. 1927.63-1927.64 [Reserved]

Sec. 1927.65 Additional requirements in connection with loans to

homestead entrymen, contract purchasers of farm units from the Bureau

of Reclamation, and certain American Indians.

Whenever loans or assumptions are subject to agreements with other

agencies (e.g. loans to or assumptions by homestead entrymen, American

Indians, or contract purchasers from the Bureau of Reclamation), the

title clearance and closing of the transaction will be handled in

accordance with special instructions issued by FmHA and/or other

parties involved applicable to the type of transaction, as well as

those of this subpart. The special instructions may be in form of a

Memorandum of Understanding with the advice and approval of OGC.

Sec. 1927.66 Cancellation of loan, assumption, or credit sale.

If it is determined that the transaction will not be closed, the

approval official will promptly notify the borrower and the following

parties who are involved in the case at the time the determination is

made: the seller, attorney(s), OGC, and the title company.

Secs. 1927.67-1927.89 [Reserved]

Sec. 1927.90 State supplements.

The state supplement issued pursuant to this subpart will have

prior National Office approval and will be the minimum necessary to

comply with state laws.

Sec. 1927.91 Exception authority.

The Administrator may, in individual cases, make an exception to

any requirement or provision of this subpart which is not inconsistent

with applicable law or opinion of the Comptroller General. The

Administrator may exercise this authority upon written request from the

State Director or an Assistant Administrator provided the Administrator

determines that application of the requirement or provision would

adversely affect the Government's interest. Request for exception must

be supported with documentation to explain adverse effect on the

Government's interest, proposed alternative courses of actions, and

show how the adverse effect will be eliminated or minimized if the

exception is granted.

Secs. 1927.92-1927.99 [Reserved]

Sec. 1927.100 OMB control number.

The reporting requirements contained in this regulation have been

approved by the Office of Management and Budget and have been assigned

OMB control number 0575-0147. Public reporting burden for this

collection of information is estimated to vary from 5 minutes to 1.5

hours per response, with an average of .38 hours per response,

including time for reviewing instructions, searching existing data

sources, gathering and maintaining the data needed, and completing and

reviewing the collection of information. Send comments regarding this

burden estimate or any other aspect of this collection of information,

including suggestions for reducing this burden, to Department of

Agriculture, Clearance Officer, OIRM, Room 404-W, Washington, DC.

20250; and to the Office of Management and Budget, Paperwork Reduction

Project (OMB # 0575-0147), Washington, D.C. 20503.

Dated: March 1, 1994.

Bob Nash,

Under Secretary, Small Community and Rural Development.

[FR Doc. 94-11311 Filed 5-10-94; 8:45 am]

BILLING CODE 3410-07-U