Implementation of the Inventory Property Management Provisions of the Federal Agriculture Improvement and Reform Act of 1996

DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Part 1955

RIN 0560-AE88

Implementation of the Inventory Property Management Provisions of

the Federal Agriculture Improvement and Reform Act of 1996

AGENCIES: Rural Housing Service, Rural Business-Cooperative Service,

Rural Utilities Service, and Farm Service Agency, USDA.

ACTION: Interim rule with request for comments.

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SUMMARY: This implements provisions of the Federal Agriculture

Improvement and Reform Act of 1996 (1996 Act) that affect the farm

credit programs of the Farm Service Agency (FSA), formerly administered

by the Farmers Home Administration (FmHA). The provisions of this rule

affect the acquisition, management and disposal of inventory farm

property by FSA.

DATES: Effective August 21, 1997. Comments must be submitted by October

20, 1997.

ADDRESSES: Submit written comments to the Farm Credit Programs Loan

Servicing and Property Management Division, Farm Service Agency, United

Sates Department of Agriculture, Room 5449-S, Stop 0523, 1400

Independence Avenue, SW, Washington, DC 20013-0523.

FOR FURTHER INFORMATION CONTACT: James P. Fortner, Senior Realty

Specialist, Farm Service Agency; Telephone: 202-720-1976; Facsimile:

202-690-0949. E-mail: [email protected]

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be significant and was reviewed by

the Office of Management and Budget under Executive Order 12866.

Regulatory Flexibility Act

The Farm Service Agency (FSA) certifies that this rule will not

have a significant impact on a substantial number of small entities as

defined in the Regulatory Flexibility Act, Pub. L. 96-534, as amended

(5 U.S.C. 601).

In addition, the Regulatory Flexibility Act is not applicable to

this rule since

[[Page 44394]]

the Farm Service Agency (FSA) is not required by 5 U.S.C. 553, or any

other provisions of law, to publish a notice of proposed rulemaking to

effect these administrative changes.

Environmental Impact Statement

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

subpart G, Environmental Program. The issuing agencies have determined

that this action does not significantly affect the quality of human

environment, and in accordance with the National Environmental Policy

Act of 1969, Pub. L. 91-190, an Environmental Impact Statement is not

required.

The Unfunded Mandate Reform Act of 1995

Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Pub. L.

104-4, established requirements for Federal agencies to assess the

effects of their regulatory actions on State, local, and tribal

governments and the private sector. Under section 202 of the UMRA, FSA

generally must prepare a written statement, including a cost-benefit

assessment, for proposed and final rules with Federal mandates that may

result in expenditures to State, local, or tribal governments, in the

aggregate, or to the private sector of $100 million or more in any 1

year. When such a statement is needed for a rule, section 205 of the

UMRA generally requires FSA to identify and consider a reasonable

number of regulatory alternatives and adopt the least costly, more

cost-effective or least burdensome alternative that achieves the

objectives of the rule.

This rule contains no Federal mandates (under regulatory provisions

of title II of the UMRA) for State, local, and tribal governments or

the private sector. Thus, this rule is not subject to the requirements

of sections 202 and 205 of the UMRA.

Executive Order 12988

This interim final rule has been reviewed under Executive Order

12998, Civil Justice Reform. In accordance with this rule: (1) All

State and local laws and regulations that are in conflict with this

rule will be preempted; (2) no retroactive effect will be given to this

rule: and (3) administrative proceedings in accordance with 7 CFR part

11 must be exhausted before bringing suit in court challenging action

taken under this rule unless those regulations specifically allow

bringing suit at an earlier time.

Executive Order 12372

For reasons set forth in the Notice regarding 7 CFR part 3015,

subpart V (48 FR 29115, June 24, 1983), the programs within this rule

are not affected by Executive Order 12372.

Programs Affected

This rule does not affect any programs listed in the Catalog of

Federal Domestic Assistance.

Paperwork Reduction Act

The information collection requirements contained in this

regulation have been approved by OMB under the provisions of 44 U.S.C.

chapter 35 and have been assigned OMB control numbers 0575-0109 and

0575-0110 in accordance with the Paperwork Reduction Act of 1995 (44

U.S.C. 3507). This interim rule does not revise or impose any new

information collection or recordkeeping requirement from those approved

by OMB.

Discussion of the Interim Rule

On April 4, 1996, the 1996 Act was signed into law and required

certain provisions to be implemented either immediately or no later

than 90 days from the date of enactment. The specific changes to the

acquisition, management, and disposal of real and chattel property

which served as security for FSA farm credit programs loans are

discussed below:

Liquidation and Acquisition

The 1996 Act eliminated the Leaseback/Buyback program which

provided the former borrower and owner, the borrower's spouse or

children, stockholder in the corporation if the borrower and owner was

a corporation held exclusively by members of the same family, or the

previous operator with rights to lease back an acquired property for up

to 5 years with an option to purchase. Several changes were made by the

1996 Act in relationship to the voluntary conveyance of property by

Native American borrowers when new property is located within the

boundaries of an Indian reservation. Leaseback/buyback rights as well

as the regular leasing authority were eliminated for Native American

borrowers. See Sec. 638(1) of the 1996 Act which eliminated the

leaseback/buyback program, as well as most of the Agency's authority to

lease inventory property (previously contained in Sec. 335(e)(3) of the

Consolidated Farm and Rural Development Act) (CONACT) and to resolve

disputes over lease terms (previously contained in Sec. 335(e)(9) of

the CONACT).

Under the program provided by the 1996 Act, if the Native American

borrower and owner does not voluntarily convey the real property to

FSA, FSA will, not less than 30 days prior to the foreclosure sale of

the property, provide the Native American borrower and owner with the

option of (1) requiring FSA to assign the loan and security instruments

to the Secretary of the Interior, or (2) requiring FSA to assign the

loan and security instruments to the tribe having jurisdiction over the

reservation where the property is located pursuant to

Sec. 335(e)(1)(D)(v)(I)(bb) of the CONACT. If the Native American

borrower and owner require FSA to assign the loan and security

instruments to the Secretary of the Interior and the Secretary of the

Interior agrees to the assignment, pursuant to Sec. 335(e)(1)(D)(v)(aa)

the Secretary of Agriculture is released from all further

responsibility for collection of the loan.

If the Native American borrower and owner elect to require FSA to

assign the loan to the tribe, the tribe must assume the loan and the

loan terms will be restructured to be consistent with Indian Land

Acquisition Loans made pursuant to 25 U.S.C. Sec. 488 and the principal

amount will be the lesser of the fair market value of the property or

the outstanding principal and interest on the date of the assignment.

While the narrow language of Sec. 335(e)(1)(D)(v)(I)(bb) only provides

for the assignment of the loan to the tribe and could be interpreted as

releasing the Government's interest in the repayment of the loan, in

the context of the amendment made to Sec. 335(e)(1)(D) by the 1996 Act,

there is no indication that Congress intended for the Government to

release the Government's right to be repaid and in effect make a grant

to the tribe. Had Congress intended for the loan to be transferred to

the tribe with no repayment responsibility, language similar to the

language for assignment to the Secretary of the Interior could have

been used. We interpret Sec. 335(e)(1)(D)(v)(III) as requiring that, if

the loan is assigned to the tribe, it must be assumed by the tribe as

well.

Management

The 1996 Act eliminated FSA's ability to lease inventory farm

property except to those beginning farmers or ranchers who are selected

to purchase an inventory property but are unable to do so due to a lack

of Agency credit funds. Leases with beginning farmers or ranchers who

were selected to purchase an inventory property on a credit sale may

not exceed 18 months or the date that FSA credit assistance becomes

available, whichever is earlier.

We have added a paragraph asserting FSA's limited authority to

lease

[[Page 44395]]

property pursuant to Sec. 335(b) of the CONACT. While the statute is

not free from doubt because Sec. 638(2) of the 1996 Act limits leasing

to beginning farmers and ranchers, Sec. 335(b) was not repealed by the

1996 Act. It states as follows:

Except as provided in subsections (c) and (e), real property

administered under the provisions of this title may be operated or

leased by the Secretary for such period or periods as the Secretary may

deem necessary to protect the Government's investment therein.

Based on this authority as modified by the limitation that

inventory property should be sold within 105 days of acquisition, we

have provided limited authority to lease property upon the approval of

the Administrator when it is impossible to sell it.

Disposal

The 1996 Act placed new requirements on FSA to dispose of inventory

property. The definition of a beginning farmer contained in Sec. 640(1)

of the 1996 Act was amended to raise the maximum amount of farm or

ranch property that may be owned from 15 percent to 25 percent of the

median farm size in the county in which the property is located.

However, the Agency will use 25 percent of the mean rather than the

median farm size in this definition since median farm sizes are

unavailable in the Census of Agriculture. Inventory must be advertised

for sale no later than 15 days after acquisition by the Agency. Not

later than 75 days from the date of acquisition, the Agency will offer

to sell inventory property to qualified beginning farmers or ranchers

at the current market value based on a current appraisal. Based on the

statutory language contained in Sec. 638(2) of the 1996 Act which

provides a priority in the sale of inventory property only to beginning

farmers and ranchers, the Agency has removed the regulatory priorities

previously contained in Sec. 1955.107(f)(1). The previous priorities

were as follows: first priority to beginning farmers and ranchers who

were also socially disadvantaged applicants (SDA); second priority to

beginning farmers and ranchers; third priority to operators of not

larger than family-size farms who were also SDAs; fourth priority to

operators of not larger than family size farms who meet the Agency's

eligibility requirements and fifth priority to operators of not larger

than family size farms who are not eligible for Agency credit. Under

this interim rule, the only remaining priority is to beginning farmers

and ranchers who can purchase the property at the current market value

based on a current appraisal. If more than one qualified beginning

farmer or rancher submits an application to purchase an inventory

property, FSA will select a purchaser through a random selection

process. Appeal rights for participation in the random selection as a

qualified beginning farmer or rancher were eliminated by Sec. 638(2) of

the 1996 Act and replaced by an expedited review by the State Executive

Director that is administratively final. If inventory property is not

sold to a beginning farmer or rancher within 75 days from acquisition,

Sec. 638(2) of the 1996 Act requires FSA, not later than 30 days after

the 75-day period, to sell the property by means of a public sale, such

as a public auction or sealed bids, at the best price obtainable.

A transitional rule provides that properties under a lease upon

passage of the 1996 Act would be advertised for sale no later than 60

days after the lease expires and properties in inventory upon passage

of the 1996 Act, but not under a lease, would be advertised no later

than 60 days from April 4, 1996. The transitional rule was implemented

in Notice FC-37 which informed FSA county and State offices that

property in inventory and not leased before April 5, 1996, will be

offered for sale within 60 days of the enactment of the 1996 Act. The

Notice also stated that property then under the lease will be offered

for sale no later than 60 days after the lease expires. The

transitional rule for leased properties is also contained in

Sec. 1955.107(a) of this rule.

While section 638 of the 1996 Act by its terms applies to all

property acquired under the CONACT, and thus applies to non-FSA

programs, these programs rarely acquire or lease inventory property.

Therefore, compliance with the 1996 Act will be achieved by guidance

given on a case-by-case basis, rather than through published

procedures, by requiring program officials to immediately contact the

National Office whenever they acquire inventory property. See

Sec. 1955.108.

The 1996 Act modified how conservation easements are placed on

wetlands located on inventory property. Wetland conservation easements

will only be placed on those wetlands or converted wetlands located on

inventory property that were not considered as cropland on the date of

acquisition and were not used for farming at any time during the 5-year

period prior to acquisition. The 1996 Act also amended the process

whereby inventory property can be transferred to Federal or State

agencies for conservation purposes. The 1996 Act requires that, upon

receipt of a request for transfer, FSA must provide at least two public

notices, hold at least one public meeting if requested, and consult

with the Governor and at least one elected county official of the State

and county where the property requested for transfer is located.

List of Subjects in 7 CFR Part 1955

Foreclosure, Government property.

Chapter XVIII, Title 7, Code of Federal Regulations is amended as

follows:

PART 1955--PROPERTY MANAGEMENT

1. The authority citation for part 1955 continues to read as

follows:

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

Subpart A--Liquidation of Loans Secured by Real Estate and

Acquisition of Real and Chattel Property

2. Section 1955.3 is amended by removing the definition of

``Leaseback/Buyback Property.''

3. Section 1955.4(a) is amended by removing the word ``Assistant''

in the first sentence and adding in its place the word ``Deputy.''

4. Section 1955.9 is revised to read as follows:

Sec. 1955.9 Requirements for voluntary conveyance of real property

located within a federally recognized Indian reservation owned by a

Native American borrower-owner.

(a) The borrower-owner is a member of the tribe that has

jurisdiction over the reservation in which the real property is

located. An Indian tribe may also meet the borrower-owner criterion if

it is indebted for Farm Credit Programs loans.

(b) A voluntary conveyance will be accepted only after all

preacquisition primary and preservation servicing actions have been

considered in accordance with subpart S of part 1951 of this chapter.

(c) When all servicing actions have been considered under subpart S

of part 1951 of this chapter and a positive outcome cannot be achieved,

the following additional actions are to be taken:

(1) The county official will notify the Native American borrower-

owner and the tribe by certified mail, return receipt requested, and by

regular mail if the certified mail is not received, that:

(i) The borrower-owner may convey the real estate security to FSA

and FSA will consider acceptance of the property into inventory in

accordance with paragraph (d) of this section.

[[Page 44396]]

(ii) The borrower-owner must inform FSA within 60 days from receipt

of this notice of the borrower and owner's decision to deed the

property to FSA;

(iii) The borrower-owner has the opportunity to consult with the

Indian tribe that has jurisdiction over the reservation in which the

real property is located, or counsel, to determine if State or tribal

law provides rights and protections that are more beneficial than those

provided the borrower-owner under Agency regulations;

(2) If the borrower-owner does not voluntarily deed the property to

FSA, not later than 30 days before the foreclosure sale, FSA will

provide the Native American borrower-owner with the following options:

(i) The Native American borrower-owner may require FSA to assign

the loan and security instruments to the Secretary of the Interior. If

the Secretary of the Interior agrees to such an assignment, FSA will be

released from all further responsibility for collection of any amounts

with regard to the loans secured by the real property.

(ii) The Native American borrower-owner may require FSA to complete

a transfer and assumption of the loan to the tribe having jurisdiction

over the reservation in which the real property is located if the tribe

agrees to the assumption. If the tribe assumes the loans, the following

actions shall occur:

(A) FSA shall not foreclose the loan because of any default that

occurred before the date of the assumption.

(B) The assumed loan shall be for the lesser of the outstanding

principal and interest of the loan or the fair market value of the

property as determined by an appraisal.

(C) The assumed loan shall be treated as though it is a regular

Indian Land Acquisition Loan made in accordance with subpart N of part

1823 of this chapter.

(3) If a Native American borrower-owner does not voluntarily convey

the real property to FSA, not less than 30 days before a foreclosure

sale of the property, FSA will provide written notice to the Indian

tribe that has jurisdiction over the reservation in which the real

property is located of the following:

(i) The sale;

(ii) The fair market value of the property; and

(iii) The ability of the Native American borrower-owner to require

the assignment of the loan and security instruments either to the

Secretary of the Interior or the tribe (and the consequences of either

action) as provided in Sec. 1955.9(c)(2).

(4) FSA will accept the offer of voluntary conveyance of the

property unless a hazardous substance, as defined in the Comprehensive

Environmental Response, Compensation, and Liability Act of 1980, is

located on the property which will require FSA to take remedial action

to protect human health or the environment if the property is taken

into inventory. In this case, a voluntary conveyance will be accepted

only if FSA determines that it is in the best interests of the

Government to acquire title to the property.

(d) When determining whether to accept a voluntary conveyance of a

Native American borrower-owner's real property, the county official

must consider:

(1) The cost of cleaning or mitigating the effects if a hazardous

substance is found on the property. A deduction equal to the amount of

the cost of a hazardous waste clean-up will be made to the fair market

value of the property to determine if it is in the best interest of the

Government to accept title to the property. FSA will accept the

property if clear title can be obtained and if the value of the

property after removal of hazardous substances exceeds the cost of

hazardous waste clean-up.

(2) If the property is located within the boundaries of a federally

recognized Indian reservation, and is owned by a member of the tribe

with jurisdiction over the reservation, FSA will credit the Native

American borrower-owner's account based on the fair market value of the

property or the FSA debt against the property, whichever is greater.

5. Section 1955.15(b)(3) is amended by revising the reference to

``Sec. 1955.137(e)'' in the first sentence to read ``Sec. 1955.137(c)''

and the reference to ``Sec. 1955.137(b)'' in the first sentence to read

``Sec. 1955.137(c).''

6. Exhibit G of subpart A is amended by removing the words ``County

Supervisor'' and ``State Director'' and adding in their place, the

words ``County Official'' and ``State Executive Director,''

respectively and by revising the heading of the exhibit and the first

paragraph to read as follows:

Exhibit G of Subpart A--Worksheet for Accepting a Voluntary Conveyance

of Farm Credit Program Security Property into Inventory

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(present owner/borrower)

Refer to Exhibit I in FmHA Instruction 1951-S for guidance in

estimating the incomes and expenses to be used in this exhibit. The

holding period to be used is 105 days (3.5 months).

* * * * *

7. Exhibit G-1 of subpart A is amended by removing the words

``County Supervisor'' and ``State Director'' and adding in their place

the words ``County Official'' and ``State Executive Director,''

respectively, and by revising the heading of the exhibit and the first

paragraph to read as follows:

Exhibit G-1 of Subpart A--Worksheet for Determining Farm Credit

Programs, Maximum Bid on Real Estate Property

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(present owner/borrower)

Refer to Exhibit I in FmHA Instruction 1951-S for guidance in

estimating the incomes and expenses to be used in this exhibit. The

holding period to be used is 105 days (3.5 months).

* * * * *

Subpart B--Management of Property

8. Section 1955.53 is amended by removing the definitions of

``Leaseback/Buyback Property'' and ``Socially disadvantaged applicant''

and by revising the definitions of ``Suitable property'' and ``Surplus

property'' to read as follows:

Sec. 1955.53 Definitions:

* * * * *

Suitable property. For FSA inventory property, real property that

can be used for agricultural purposes, including those farm properties

that may be used as a start up or add-on parcel of farmland. It also

includes a residence or other off-farm site that could be used as a

basis for a farming operation. For agencies other than FSA, real

property that could be used to carry out the objectives of the Agency's

loan program with financing provided through that program.

Surplus property. For FSA inventory property, real property that

cannot be used for agricultural purposes including nonfarm properties.

For other agencies, property that cannot be used to carry out the

objectives of financing available through the applicable loan program.

9. Section 1955.63 is amended by revising the introductory text and

paragraphs (a) and (b) to read as follows:

Sec. 1955.63 Suitability determination.

As soon as real property is acquired, a determination must be made

as to whether or not the property can be used for program purposes. The

suitability determination will be recorded in the running record of the

case file.

(a) Determination. Property which secured loans or was acquired

under the CONACT will be classified as suitable or surplus in

accordance with the definitions for``suitable'' and ``surplus''

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found in Sec. 1955.53 of this subpart. For FSA property, the county

committee will make this determination. For other agencies, this

determination will be made by the State Director, or designee.

(b) Grouping and subdividing farm properties larger than family-

size. The county official will subdivide farm properties larger than

family-size whenever possible into parcels for the purpose of creating

one or more suitable farm properties. Properties may also be subdivided

to facilitate the granting or selling of a conservation easement or the

fee title transfer of portions of a property for conservation purposes.

Such land shall be subdivided into parcels of land the shape and size

of which are suitable for farming, the value of which shall not exceed

the direct farm ownership loan limit of $200,000 or the guaranteed farm

ownership loan limit of $300,000. The county official may also group

two or more individual properties into one or more suitable farm

properties. The environmental effects will also be considered pursuant

to subpart G of part 1940 of this chapter. Also refer to Sec. 1955.140

of subpart C of this part.

* * * * *

10. Section 1955.66 is revised to read as follows:

Sec. 1955.66 Lease of real property.

When inventory real property, except for FSA and MFH properties,

cannot be sold promptly, or when custodial property is subject to

lengthy liquidation proceedings, leasing may be used as a management

tool when it is clearly in the best interest of the Government. Leasing

will not be used as a means of deferring other actions which should be

taken, such as liquidation of loans in abandonment cases or repair and

sale of inventory property. Leases will provide for cancellation by the

lessee or the Agency on 30-day written notice unless Special

Stipulations in an individual lease for good reason provide otherwise.

If extensive repairs are needed to render a custodial property suitable

for occupancy, this will preclude its being leased since repairs must

be limited to those essential to prevent further deterioration of the

security in accordance with Sec. 1955.55(c) of this subpart. The

requirements of subpart G of part 1940 of this chapter will be met for

all leases.

(a) Authority to approve lease of property. (1) Custodial property.

Custodial property may be leased pending foreclosure with the servicing

official approving the lease on behalf of the Agency.

(2) Inventory property. Inventory property may be leased under the

following conditions. Except for farm property proposed for a lease

under the Homestead Protection Program, any property that is listed or

eligible for listing on the National Register of Historic Places may be

leased only after the servicing official and the State Historic

Preservation Officer determine that the lease will adequately ensure

the property's condition and historic character.

(i) SFH. SFH inventory will generally not be leased; however, if

unusual circumstances indicate leasing may be prudent, the county

official is authorized to approve the lease.

(ii) MFH. MFH projects will generally not be leased, although

individual living units may be leased under a management agreement.

After the property is placed under a management contract, the

contractor will be responsible for leasing the individual units in

accordance with subpart C of part 1930 of this chapter. In cases where

an acceptable management contract cannot be obtained, the District

Director may execute individual leases.

(iii) Farm property. (A) Any property which secures an insured loan

made under the CONACT and which contains a dwelling (whether located on

or off the farm) that is possessed and occupied as a principal

residence by a prior owner who was personally liable for a Farm Credit

Programs loan must first be considered for Homestead Protection in

accordance with subpart S of part 1951 of this chapter.

(B) Other than for Homestead Protection and except as provided in

paragraph (c), the county official may only approve the lease of farm

property to a beginning farmer or rancher who was selected through the

random selection process to purchase the property but is not able to

complete the purchase due to the lack of Agency funding.

(C) When the servicing official determines it is impossible to sell

farm property after advertising the property for sale and negotiating

with interested parties in accordance with Sec. 1955.107 of subpart C

of this part, farm property may be leased, upon the approval of the

Administrator, on a case-by-case basis. This authority cannot be

delegated. Any lease under this paragraph shall be for 1 year only, and

not subject to renewal or extension. If the servicing official

determines that the prospective lessee may be interested in purchasing

the property, the lease may contain an option to purchase.

(D) When a lease with an option to purchase is signed, the lessee

should be advised that FSA cannot make a commitment to finance the

purchase of the property.

(E) Chattel property will not normally be leased unless it is

attached to the real estate as a fixture or would normally pass with

the land.

(F) The property may not be used for any purpose that will

contribute to excessive erosion of highly erodible land or to

conversion of wetlands to produce an agricultural commodity. See

Exhibit M of subpart G of part 1940 of this chapter. All prospective

lessees of inventory property will be notified in writing of the

presence of highly erodible land, converted wetlands and wetland and

other important resources such as threatened or endangered species.

This notification will include a copy of the completed and signed Form

SCS-CPA-26, ``Highly Erodible Land and Wetland Conservation

Determination,'' which identifies whether the property contains wetland

or converted wetlands or highly erodible land. The notification will

also state that the lease will contain a restriction on the use of such

property and that the Agency's compliance requirements for wetlands,

converted wetlands, and highly erodible lands are contained in Exhibit

M of subpart G of part 1940 of this chapter. Additionally, a copy of

the completed and signed Form SCS-CPA-26 will be attached to the lease

and the lease will contain a special stipulation as provided on the FMI

to Form RD 1955-20, ``Lease of Real Property,'' prohibiting the use of

the property as specified above.

(iv) Organization property other than MFH. Only the State Director,

with the advice of appropriate National Office staff, may approve the

lease of organization property other than MFH, such as community

facilities, recreation projects, and businesses. A lease of utilities

may require approval by State regulatory agencies.

(b) Selection of lessees for other than farm property. When the

property to be leased is residential, a special effort will be made to

reach prospective lessees who might not otherwise apply because of

existing community patterns. A lessee will be selected considering the

potential as a program applicant for purchase of the property (if

property is suited for program purposes) and ability to preserve the

property. The leasing official may require verification of income or a

credit report (to be paid for by the prospective lessee) as he or she

deems necessary to assure payment ability and creditworthiness of the

prospective lessee.

(c) Selection of lessees for FSA property. FSA inventory property

may only be leased to an eligible beginning

[[Page 44398]]

farmer or rancher who was selected to purchase the property through the

random selection process in accordance with Sec. 1955.107(a)(2)(ii) of

subpart C of this part. The applicant must have been able to

demonstrate a feasible farm plan and Agency funds must have been

unavailable at the time of the sale. Any applicant determined not to be

a beginning farmer or rancher may request that the State Executive

Director conduct an expedited review in accordance with

Sec. 1955.107(a)(2)(ii) of subpart C of this part.

(d) Property securing Farm Credit Programs loans located within an

Indian Reservation. (1) State Executive Directors will contact the

Bureau of Indian Affairs Agency supervisor to determine the boundaries

of Indian Reservations and Indian allotments.

(2) Not later than 90 days after acquiring a property, FSA will

afford the Indian tribe having jurisdiction over the Indian reservation

within which the inventory property is located an opportunity to

purchase the property. The purchase shall be in accordance with the

priority rights as follows:

(i) To a member of the Indian tribe that has jurisdiction over the

reservation within which the real property is located;

(ii) To an Indian corporate entity;

(iii) To the Indian tribe.

(3) The Indian tribe having jurisdiction over the Indian

reservation may revise the order of priority and may restrict the

eligibility for purchase to:

(i) Persons who are members of such Indian tribe;

(ii) Indian corporate entities that are authorized by such Indian

tribe to purchase lands within the boundaries of the reservation; or

(iii) The Indian tribe itself.

(4) If any individual, Indian corporate entity, or Indian tribe

covered in paragraphs (d)(1) and (d)(2) of this section wishes to

purchase the property, the county official must determine the

prospective purchaser has the financial resources and management skills

and experience that is sufficient to assure a reasonable prospect that

the terms of the purchase agreement can be fulfilled.

(5) If the real property is not purchased by any individual, Indian

corporate entity or Indian tribe pursuant to paragraphs (d)(1) and

(d)(2) of this section and all appeals have concluded, the State

Executive Director shall transfer the property to the Secretary of the

Interior if they are agreeable. If present on the property being

transferred, important resources will be protected as outlined in

Secs. 1955.137 and 1955.139 of subpart C of this part.

(6) Properties within a reservation formerly owned by entities and

non-tribal members will be treated as regular inventory that is not

located on an Indian Reservation and disposed of pursuant to this part.

(e) Lease amount. Inventory property will be leased for an amount

equal to that for which similar properties in the area are being leased

or rented (market rent). Inventory property will not be leased for a

token amount.

(1) Farm property. To arrive at a market rent amount, the county

official will make a survey of lease amounts of farms in the immediate

area with similar soils, capabilities, and income potential. The

income-producing capability of the property during the term of the

lease must also be considered. This rental data will be maintained in

an operational file as well as in the running records of case files for

leased inventory properties. While cash rent is preferred, the lease of

a farm on a crop-share basis may be approved if this is the customary

method in the area. The lessee will market the crops, provide FSA with

documented evidence of crop income, and pay the pro rata share of the

income to FSA.

(2) SFH property. The lease amount will be the market rent unless

the lessee is a potential program applicant, in which case the lease

amount may be set at an amount approximating the monthly payment if a

loan were made (reflecting payment assistance, if any) calculated on

the basis of the price of the house and income of the lessee, plus \1/

12\ of the estimated real estate taxes, property insurance, and

maintenance which would be payable by a homeowner.

(3) Property other than farm or SFH. Any inventory property other

than a farm or single-family dwelling will generally be leased for

market rent for that type property in the area. However, such property

may be leased for less than market rent with prior approval of the

Administrator.

(f) Property containing wetlands or located in a floodplain or

mudslide hazard area. Inventory property located in areas identified by

the Federal Insurance Administration as special flood or mudslide

hazard areas will not be leased or operated under a management contract

without prior written notice of the hazard to the prospective lessee or

tenant. If property is leased by FSA, the servicing official will

provide the notice, and if property is leased under a management

contract, the contractor must provide the notice in compliance with a

provision to that effect included in the contract. The notice must be

in writing, signed by the servicing official or the contractor, and

delivered to the prospective lessee or tenant at least one day before

the lease is signed. A copy of the notice will be attached to the

original and each copy of the lease. Property containing floodplains

and wetlands will be leased subject to the same use restrictions as

contained in Sec. 1955.137(a)(1) of subpart C of this part.

(g) Highly erodible land. If farm inventory property contains

``highly erodible land,'' as determined by the NRCS, the lease must

include conservation practices specified by the NRCS and approved by

FSA as a condition for leasing.

(h) Lease of FSA property with option to purchase. A beginning

farmer or rancher lessee will be given an option to purchase farm

property. Terms of the option will be set forth as part of the lease as

a special stipulation.

(1) The lease payments will not be applied toward the purchase

price.

(2) The purchase price (option price) will be the advertised sales

price as determined by an appraisal prepared in accordance with subpart

E of part 1922 of this chapter.

(3) For inventory properties leased to a beginning farmer or

rancher applicant, the term of the lease shall be the earlier of:

(i) A period not to exceed 18 months from the date that the

applicant was selected to purchase the inventory farm, or

(ii) The date that direct, guaranteed, credit sale or other Agency

funds become available for the beginning farmer or rancher to close the

sale.

(4) Indian tribes or tribal corporations which utilize the Indian

Land Acquisition program will be allowed to purchase the property for

its market value less the contributory value of the buildings, in

accordance with subpart N of part 1823 of this chapter.

(i) Costs. The costs of repairs to leased property will be paid by

the Government. However, the Government will not pay costs of utilities

or any other costs of operation of the property by the lessee. Repairs

will be obtained pursuant to subpart B of part 1924 of this chapter.

Expenditures on custodial property as limited in Sec. 1955.55 (c) (2)

of this subpart will be charged to the borrower's account as

recoverable costs.

(j) Security deposit. A security deposit in at least the amount of

one month's rent will be required from all lessees of SFH properties.

The security deposit for farm property should be determined by

considering only the improvements or facilities which might be subject

to misuse or abuse during the term of the lease. For all other types of

property, the

[[Page 44399]]

leasing official may determine whether or not a security deposit will

be required and the amount of the deposit.

(k) Lease form. Form RD 1955-20 approved by OGC will be used by the

agency to lease property.

(l) Lease income. Lease proceeds will be remitted according to

subpart B of part 1951 of this chapter.

(1) Custodial property. The proceeds from a lease of custodial

property will be applied to the borrower's account as an extra payment

unless foreclosure proceedings require that such payments be held in

suspense.

(2) Inventory property. The proceeds from a lease of inventory

property will be applied to the lease account.

11. Exhibit B of subpart B is revised to read as follows.

Exhibit B--Notification of Tribe of Availability of Farm Property for

Purchase

(To Be Used By Farm Service Agency to Notify Tribe)

From: County official

To: (Name of Tribe and address)

Subject: Availability of Farm Property for Purchase

[To be Used within 90 days of acquisition]

Recently the Farm Service Agency (FSA) acquired title to

________ acres of farm real property located within the boundaries

of your Reservation. The previous owner of this property was

________. The property is available for purchase by persons who are

members of your tribe, an Indian Corporate entity, or the tribe

itself. Our regulations provide for those three distinct priority

categories which may be eligible; however, you may revise the order

of the priority categories and may restrict the eligibility to one

or any combination of categories. Following is a more detailed

description of these categories:

1. Persons who are members of your Tribe. Individuals so

selected must be able to meet the eligibility criteria for the

purchase of Government inventory property and be able to carry on a

family farming operation. Those persons not eligible for FSA's

regular programs may also purchase this property as a Non-Program

loan on ineligible rates and terms.

2. Indian corporate entities. You may restrict eligible Indian

corporate entities to those authorized by your Tribe to purchase

lands within the boundaries of your Reservation. These entities also

must meet the basic eligibility criteria established for the type of

assistance granted.

3. The Tribe itself is also considered eligible to exercise

their right to purchase the property. If available, Indian Land

Acquisition funds may be used or the property financed as a Non-

Program loan on ineligible rates and terms.

We are requesting that you notify the local FSA county office of

your selection or intentions within 45 days of receipt of this

letter, regarding the purchase of this real estate. If you have

questions regarding eligibility for any of the groups mentioned

above, please contact our office. If the Tribe wishes to purchase

the property, but is unable to do so at this time, contact with the

FSA county office should be made.

Sincerely,

County official

Subpart C--Disposal of Inventory Property

12. Section 1955.102 is amended by revising the fifth sentence to

read as follows:

Sec. 1955.102 Policy.

* * * Examples are: (RH) property; detached Labor Housing or Rural

Rental Housing units may be sold as SFH units; or SFH units may be sold

as a Rural Rental Housing project. * * *

13. Section 1955.103 is amended by removing the number ``15'' and

replacing it with the number ``25'' in the first sentence of paragraph

(5) of the definition of ``Beginning farmer or rancher,'' by removing

the definitions for ``Agricultural production unit,'' ``Cropland,''

``Forage production area,'' ``Leaseback/Buyback,'' ``Leaseback/Buyback

Property,'' ``Marketable agricultural production unit comparable to

that acquired,'' and ``Previous operator,'' and by revising the

definitions of ``Suitable property'' and ``Surplus property'' to read

as follows:

Sec. 1955.103 Definitions.

* * * * *

Suitable property. For FSA inventory property, real property that

can be used for agricultural purposes, including those farm properties

that may be used as a start-up or add-on parcel of farmland. It would

also include a residence or other off-farm site that could be used as a

basis for a farming operation. For Agencies other than FSA, real

property that could be used to carry out the objectives of the Agency's

loan programs with financing provided through that program.

Surplus property. For FSA inventory property, real property that

cannot be used for agricultural purposes including nonfarm properties.

For other agencies, property that cannot be used to carry out the

objectives of financing available through the applicable loan program.

Sec. 1955.105 [Amended]

14. Section 1955.105 is amended by removing the words ``Leaseback/

Buyback and,'' removing the word ``are'' and replacing it with the word

``is'' in the last sentence of paragraph (a) and revising the reference

``Sec. 1955.137(f)'' to read ``Sec. 1955.137(d)'' in paragraph (d).

15. Section 1955.106 is amended by revising paragraphs (a) and (c)

to read as follows:

Sec. 1955.106 Disposition of farm property.

(a) Rights of previous owner and notification. Before property

which secured a Farm Credit Programs loan is taken into inventory, the

FSA county official will advise the borrower-owner of Homestead

Protection rights (see subpart S of part 1951 of this chapter.)

* * * * *

(c) Nonprogram (NP) borrowers. Nonprogram (NP) borrowers are not

eligible for Homestead Protection provisions as set forth in subpart S

of part 1951 of this chapter. When it is determined that all conditions

of Sec. 1951.558(b) of subpart L of part 1951 of this chapter have been

met, loans for unauthorized assistance will be treated as authorized

loans and will be eligible for homestead protection.

16. Section 1955.107 is revised to read as follows:

Sec. 1955.107 Sale of FSA property (CONACT).

FSA inventory property will be advertised for sale in accordance

with the provisions of this subpart. If a request is received from a

Federal or State agency for transfer of a property for conservation

purposes, the advertisement should be conditional on that possibility.

Real property will be managed in accordance with the provisions of

subpart B of this part until sold.

(a) Suitable Property. Not later than 15 days from the date of

acquisition, the Agency will advertise suitable property for sale. For

properties currently under a lease, except leases to beginning farmers

and ranchers under Sec. 1955.66(a)(2)(iii) of subpart B of this part,

the property will be advertised for sale not later than 60 days after

the lease expires or is terminated. There will be a preference for

beginning farmers or ranchers. The advertisement will contain a

provision to lease the property to a beginning farmer or rancher for up

to 18 months should FSA credit assistance not be available at the time

of sale. The first advertisement will not be required to contain the

sales price but it should inform potential beginning farmer or rancher

applicants that applications will be accepted pending completion of the

advertisement process. When possible, the sale of suitable FSA property

should be handled by county officials. Farm property will be advertised

for sale by publishing, as a minimum, two weekly advertisements in at

least two newspapers that are widely circulated in the area in which

the farm is located. Consideration will be given to advertising

inventory properties in major farm publications. Either Form

[[Page 44400]]

RD 1955-40 or Form RD 1955-41, ``Notice of Sale,'' will be posted in a

prominent place in the county. Maximum publicity should be given to the

sale under guidance provided by Sec. 1955.146 of this subpart and care

should be taken to spell out eligibility criteria. Tribal Councils or

other recognized Indian governing bodies having jurisdiction over

Indian reservations (see Sec. 1955.103 of this subpart) shall be

responsible for notifying those parties in Sec. 1955.66(d)(2) of

subpart B of this part.

(1) Price. Property will be advertised for sale for its appraised

market value based on the condition of the property at the time it is

made available for sale. The market value will be determined by an

appraisal made in accordance with subpart E of part 1922 of this

chapter. Property contaminated with hazardous waste will be appraised

``as improved'' which will be used as the sale price for advertisement

to beginning farmers or ranchers.

(2) Selection of purchaser. After homestead protection rights have

expired, suitable farmland must be sold in the priority outlined in

this paragraph. When farm inventory property is larger than family

size, the property will be subdivided into suitable family size farms

pursuant to Sec. 1955.140 of this subpart.

(i) Sale to Beginning Farmers/Ranchers. Not later than 75 days from

the date of acquisition, FSA will sell suitable farm property, with a

priority given to applicants who are classified as beginning farmers or

ranchers, as defined in Sec. 1955.103 of this subpart, as of the time

of sale.

(ii) Random selection. The county official will first determine

whether applicants meet the eligibility requirements of a beginning

farmer or rancher. For applicants who are not determined to be

beginning farmers or ranchers, they may request that the State

Executive Director provide an expedited review and determination of

whether the applicant is a beginning farmer or rancher for the purpose

of acquiring inventory property. This review shall take place not later

than 30 days after denial of the application. The State Executive

Director's review decision shall be final and is not administratively

appealable. When there is more than one beginning farmer or rancher

applicant, the Agency will select by lot by placing the names in a

receptacle and drawing names sequentially. Drawn offers will be

numbered and those drawn after the first drawn name will be held in

suspense pending sale to the successful applicant. The random selection

drawing will be open to the public, and applicants will be advised of

the time and place.

(iii) Notification of applicants not selected to purchase suitable

farmland. When the Agency selects an applicant to purchase suitable

farmland, in accordance with this paragraph, all applicants not

selected will be notified in writing that they were not selected. The

outcome of the random selection by lot is not appealable if such

selection is conducted in accordance with this subpart.

(3) Credit sale procedure. Subject to the availability of funds,

credit sale to program applicants will be processed as follows:

(i) The interest rate charged by the Agency will be the lower of

the interest rates in effect at the time of loan approval or closing.

(ii) The loan limits for the requested type of assistance are

applicable to a credit sale to an eligible applicant.

(iii) Title clearance and loan closing for a credit sale and any

subsequent loan to be closed simultaneously must be the same as for an

initial loan except that:

(A) Form RD 1955-49, ``Quitclaim Deed,'' or other form of

nonwarranty deed approved by the Office of the General Counsel (OGC)

will be used.

(B) The buyer will pay attorney's fees and title insurance costs,

recording fees, and other customary fees unless they are included in a

subsequent loan. A subsequent loan may not be made for the primary

purpose of paying closing costs and fees.

(iv) Property sold on credit sale may not be used for any purpose

that will contribute to excessive erosion of highly erodible land or to

the conversion of wetlands to produce an agricultural commodity, see

Exhibit M of subpart G of part 1940 of this chapter. All prospective

buyers will be notified in writing as a part of the property

advertisement of the presence of highly erodible land and wetlands on

inventory property.

(b) Surplus Property and Suitable Property not sold to a Beginning

Farmer or Rancher. Except where a lessee is exercising the option to

purchase under the Homestead Protection provision of subpart S of part

1951 of this chapter, surplus property will be offered for public sale

by sealed bid or auction within 15 days from the date of acquisition in

accordance with Sec. 1955.147 or Sec. 1955.148 of this subpart.

Suitable farm property which has been advertised for sale to a

beginning farmer or rancher in accordance with Sec. 1955.107 (a) of

this subpart but has not sold within 75 days from the date of

acquisition will be offered for public sale by sealed bid or auction to

the highest bidder as provided in paragraph (b)(1) of this section. All

prospective buyers will be notified in writing as a part of the

property advertisement of the presence of highly erodible land,

converted wetlands, floodplains, wetlands, or other special

characteristics of the property that may limit its use or cause an

easement to be placed on the property.

(1) Advertising surplus property. FSA will advertise surplus

property for sale by sealed bid or auction within 15 days from the date

of acquisition or, for those suitable properties not sold to beginning

farmers or ranchers in accordance with the provisions or paragraph (a)

of this section, within 75 days of the date of acquisition.

(2) Sale by sealed bid or auction. Surplus real estate must be

offered for public sale by sealed bid or auction and must be sold no

later than 105 days from the date of acquisition to the highest bidder.

Preference will be given to a cash offer which is at least *percent of

the highest offer requiring credit. (*Refer to Exhibit B of RD

Instruction 440.1 (available in any Agency office) for the current

percentage.) Equally acceptable sealed bid offers will be decided by

lot.

(3) Negotiated sale. If no acceptable bid is received through the

sealed bid or auction process, the State Executive Director will sell

surplus property at the maximum price obtainable without further public

notice by negotiation with interested parties, including all previous

bidders. The rates and terms offered for a credit sale through

negotiation will be within the limitations established in paragraph (b)

(4) of this section. A sale made through negotiation will require a bid

deposit of not less than 10 percent of the negotiated price in the form

of a cashier's check, certified check, postal or bank money order, or

bank draft payable to FSA. Preference will be given to a cash offer

which is at least * percent of the highest offer requiring credit.

[*Refer to Exhibit B of RD Instruction 440.1 (available in any Agency

office) for the current percentage.] Equally acceptable offers will be

decided by lot.

(4) Rates and terms. Subject to the availability of funds, rates

and terms for Homestead Protection will be in accordance with subpart S

of part 1951 of this chapter. Sales of suitable property offered to

program eligible applicants will be on rates and terms provided in

subpart A of part 1943 of this chapter. Surplus property and suitable

property which has not been sold to program eligible applicants will be

offered for cash or on ineligible terms

[[Page 44401]]

in accordance with subpart J of part 1951 of this chapter. The State

Executive Director will determine the loan terms for surplus property

within these limitations. A credit sale made on ineligible terms will

be closed at the interest rate in effect at the time the credit sale

was approved. After extensive sales efforts where no acceptable offer

has been received, the State Executive Director may request the

Administrator to permit offering surplus property for sale on more

favorable rates and terms; however, the terms may not be more favorable

than those legally permissible for eligible borrowers. Surplus property

will be offered for sale for cash or terms that will provide the best

net return for the Government. The term of financing extended may not

be longer than the period for which the property will serve as adequate

security. All credit sales on ineligible terms will be identified as NP

loans.

17. Section 1955.108 is revised to read as follows:

Sec. 1955.108 Sale of (CONACT) property other than FSA property.

Program officials will immediately contact the National Office

whenever they acquire real property to obtain further instructions on

the time frames and procedures for advertising and disposing of such

property.

Sec. 1955.109 [Amended]

18. Section 1955.109 is amended by adding the word ``FSA'' before

the word ``applicants'' in the second sentence of paragraph (a) and by

removing the words ``Farmer Credit Programs'' and adding in their place

the word ``FSA'' in the third sentence of paragraph (a).

Sec. 1955.122 [Amended]

19. Section 1955.122 is amended by removing paragraph (b) and

redesignating paragraphs (c) through (g) as paragraphs (b) through (f),

respectively.

Sec. 1955.130 [Amended]

20. Section 1955.130 is amended by adding the words ``and surplus

FSA'' before ``CONACT'' in the heading and revising the reference

``Sec. 1955.106'' to read ``Sec. 1955.107'' in paragraph (c)(5), and

revising the heading ``Surplus CONACT'' to read ``Suitable and Surplus

Non-FSA CONACT'' and revising the reference ``Sec. 1955.107'' to read

``Sec. 1955.108'' in paragraph (c)(6).

21. Section 1955.137 is revised to read as follows:

Sec. 1955.137 Real property located in special areas or having special

characteristics.

(a) Real property located in flood, mudslide hazard, wetland or

Coastal Barrier Resources System (CBRS). (1) Use restrictions.

Executive Order 11988, ``Floodplain Management,'' and Executive Order

11990, ``Protection of Wetlands,'' require the conveyance instrument

for inventory property containing floodplains or wetlands which is

proposed for lease or sale to specify those uses that are restricted

under identified Federal, State and local floodplains or wetlands

regulations as well as other appropriate restrictions. The restrictions

shall be to the uses of the property by the lessee or purchaser and any

successors, except where prohibited by law. Applicable restrictions

will be incorporated into quitclaim deeds in a format similar to that

contained in Exhibits H and I of RD Instruction 1955-C (available in

any Agency office). A listing of all restrictions will be included in

the notices required in paragraph (a)(2) of this section.

(2) Notice of hazards. Acquired real property located in an

identified special flood or mudslide hazard area as defined in, subpart

B of part 1806 of this chapter will not be sold for residential

purposes unless determined by the county official or district director

to be safe (that is, any hazard that exists would not likely endanger

the safety of dwelling occupants).

(3) Limitations placed on financial assistance. (i) Financial

assistance is limited to property located in areas where flood

insurance is available. Flood insurance must be provided at closing of

loans on program-eligible and nonprogram (NP)-ineligible terms.

Appraisals of property in flood or mudslide hazard areas will reflect

this condition and any restrictions on use. Financial assistance for

substantial improvement or repair of property located in a flood or

mudslide hazard area is subject to the limitations outlined in,

paragraph 3b (1) and (2) of Exhibit C of subpart G of part 1940.

(ii) Pursuant to the requirements of the Coastal Barrier Resources

Act (CBRA) and except as specified in paragraph (a)(3)(v) of this

section, no credit sales will be provided for property located within a

CBRS where:

(A) It is known that the purchaser plans to further develop the

property;

(B) A subsequent loan or any other type of Federal financial

assistance as defined by the CBRA has been requested for additional

development of the property;

(C) The sale is inconsistent with the purpose of the CBRA; or

(D) The property to be sold was the subject of a previous financial

transaction that violated the CBRA.

(iii) For purposes of this section, additional development means

the expansion, but not maintenance, replacement-in-kind,

reconstruction, or repair of any roads, structures or facilities. Water

and waste disposal facilities as well as community facilities may be

repaired to the extent required to meet health and safety requirements,

but may not be improved or expanded to serve new users, patients or

residents.

(iv) A sale which is not in conflict with the limitations in

paragraph (a)(3)(ii) of this section shall not be completed until the

approval official has consulted with the appropriate Regional Director

of the U.S. Fish and Wildlife Service and the Regional Director concurs

that the proposed sale does not violate the provisions of the CBRA.

(v) Any proposed sale that does not conform to the requirements of

paragraph (a)(3)(ii) of this section must be forwarded to the

Administrator for review. Approval will not be granted unless the

Administrator determines, through consultation with the Department of

Interior, that the proposed sale does not violate the provisions of the

CBRA.

(b) Wetlands located on FSA inventory property. Perpetual wetland

conservation easements (encumbrances in deeds) to protect and restore

wetlands or converted wetlands that exist on suitable or surplus

inventory property will be established prior to sale of such property.

The provisions of paragraphs (a) (2) and (3) of this section also

apply, as does paragraph (a)(1) of this section insofar as floodplains

are concerned. This requirement applies to either cash or credit sales.

Similar restrictions will be included in leases of inventory properties

to beginning farmers or ranchers. Wetland conservation easements will

be established as follows:

(1) All wetlands or converted wetlands located on FSA inventory

property which were not considered cropland on the date the property

was acquired and were not used for farming at any time during the

period beginning on the date 5 years before the property was acquired

and ending on the date the property was acquired will receive a wetland

conservation easement.

(2) All wetlands or converted wetlands located on FSA inventory

property that were considered cropland on the date the property was

acquired or were used for farming at any time during the period

beginning on the date 5 years before the property was acquired and

ending on the date the property was acquired will not receive a wetland

conservation easement.

[[Page 44402]]

(3) The following steps should be taken in determining if

conservation easements are necessary for the protection of wetlands or

converted wetland on inventory property:

(i) NRCS will be contacted first to identify the wetlands or

converted wetlands and wetland boundaries of each wetland or converted

wetland on inventory property.

(ii) After receiving the wetland determination from NRCS, the FSA

county committee will review the determination for each inventory

property and determine if any of the wetlands or converted wetlands

identified by NRCS were considered cropland on the date the property

was acquired or were used for farming at any time during the period

beginning on the date 5 years before the property was acquired and

ending on the date the property was acquired. Property will be

considered to have been used for farming if it was primarily used for

agricultural purposes including but not limited to such uses as

cropland, pasture, hayland, orchards, vineyards and tree farming.

(iii) After the county committee has completed their determination

of whether the wetlands or converted wetlands located on an inventory

property were used for cropland or farming, the U.S. Fish and Wildlife

Service (FWS) will be contacted. Based on the technical considerations

of the potential functions and values of the wetlands on the property,

FWS will identify those wetlands or converted wetlands that require

protection with a wetland conservation easement along with the

boundaries of the required wetland conservation easement. FWS may also

make other recommendations if needed for the protection of important

resources such as threatened or endangered species during this review.

(4) The wetland conservation easement will provide for access to

other portions of the property as necessary for farming and other uses.

(5) The appraisal of the property must be updated to reflect the

value of the land due to the conservation easement on the property.

(6) Easement areas shall be described in accordance with State or

local laws. If State or local law does not require a survey, the

easement area can be described by rectangular survey, plat map, or

other recordable methods.

(7) In most cases the FWS shall be responsible for easement

management and administration responsibilities for such areas unless

the wetland easement area is an inholding in Federal or State property

and that entity agrees to assume such responsibility, or a State fish

and wildlife agency having counterpart responsibilities to the FWS is

willing to assume easement management and administration

responsibilities. The costs associated with such easement management

responsibilities shall be the responsibility of the agency that assumes

easement management and administration.

(8) County officials are encouraged to begin the easement process

before the property is taken into inventory, if possible, in order to

have the program completed before the statutory time requirement for

sale.

(c) Historic preservation. (1) Pursuant to the requirements of the

National Historic Preservation Act and Executive Order 11593,

``Protection and Enhancement of the Cultural Environment,'' the Agency

official responsible for the conveyance must determine if the property

is listed on or eligible for listing on the National Register of

Historic Places. (See subpart F of part 1901 of this chapter for

additional guidance.) The State Historic Preservation Officer (SHPO)

must be consulted whenever one of the following criteria are met:

(i) The property includes a structure that is more than 50 years

old.

(ii) Regardless of age, the property is known to be of historical

or archaeological importance; has apparent significant architectural

features; or is similar to other Agency properties that have been

determined to be eligible.

(iii) An environmental assessment is required prior to a decision

on the conveyance.

(2) If the result of the consultations with the SHPO is that a

property may be eligible or that it is questionable, an official

determination must be obtained from the Secretary of the Interior.

(3) If a property is listed on the National Register or is

determined eligible for listing by the Secretary of Interior, the

Agency official responsible for the conveyance must consult with the

SHPO in order to develop any necessary restrictions on the use of the

property so that the future use will be compatible with preservation

objectives and which does not result in an unreasonable economic burden

to public or private interest. The Advisory Council on Historic

Preservation must be consulted by the State Director or State Executive

Director after the discussions with the SHPO are concluded regardless

of whether or not an agreement is reached.

(4) Any restrictions that are developed on the use of the property

as a result of the above consultations must be made known to a

potential bidder or purchaser through a notice procedure similar to

that in Sec. 1955.13(a)(2) of this subpart.

(d) Highly erodible farmland. (1) The FSA county official will

determine if any inventory property contains highly erodible land as

defined by the NRCS and, if so, what specific conservation practices

will be made a condition of a sale of the property.

(2) If the county official does not concur in the need for a

conservation practice recommended by NRCS, any differences shall be

discussed with the recommending NRCS office. Failure to reach an

agreement at that level shall require the State Executive Director to

make a final decision after consultation with the NRCS State

Conservationist.

(3) Whenever NRCS technical assistance is requested in implementing

these requirements and NRCS responds that it cannot provide such

assistance within a time frame compatible with the proposed sale, the

sale arrangements will go forward. The sale will proceed, conditioned

on the requirement that a purchaser will immediately contact (NRCS)

have a conservation plan developed and comply with this plan. The

county official will monitor the borrower's compliance with the

recommendations in the conservation plan. If problems occur in

obtaining NRCS assistance, the State Executive Director should consult

with the NRCS State Conservationist.

(e) Notification to purchasers of inventory property with

reportable underground storage tanks. If the Agency is selling

inventory property containing a storage tank which was reported to the

Environmental Protection Agency (EPA) pursuant to the provisions of

Sec. 1955.57 of subpart B of this part, the potential purchaser will be

informed of the reporting requirement and provided a copy of the report

filed by the Agency.

(f) Real property that is unsafe. If the Agency has in inventory,

real property, exclusive of any improvements, that is unsafe, that is

it does not meet the definition of ``safe'' as contained in

Sec. 1955.103 of this subpart and which cannot be feasibly made safe,

the State Director or State Executive Director will submit the case

file, together with documentation of the hazard and a recommended

course of action to the National Office, ATTN: appropriate Deputy

Administrator, for review and guidance.

(g) Real property containing hazardous waste contamination. All

inventory property must be inspected for hazardous waste contamination

either through the use of a preliminary hazardous waste site survey or

[[Page 44403]]

Transaction Screen Questionnaire. If possible contamination is noted, a

Phase I or II environmental assessment will be completed per the advice

of the State Environmental Coordinator.

22. Section 1955.139 is amended by revising the introductory text

of paragraph (a)(3) and paragraph (c) to read as follows:

Sec. 1955.139 Disposition of real property rights and title to real

property.

(a) * * *

(3) For FSA properties only, easements, restrictions, development

rights or similar legal rights may be granted or sold separately from

the underlying fee or sum of all other rights possessed by the

Government if such conveyances are for conservation purposes and are

transferred to a State, a political subdivision of a State, or a

private nonprofit organization. Easements may be granted or sold to a

Federal agency for conservation purposes as long as the requirements of

Sec. 1955.139(c)(2) of this subpart are followed. If FSA has an

affirmative responsibility such as protecting an endangered species as

provided for in paragraph (a)(3(v) of this section, the requirements in

Sec. 1955.139(c) of this subpart do not apply.

* * * * *

(c) Transfer of FSA inventory property for conservation purposes.

(1) In accordance with the provisions of this paragraph, FSA may

transfer, to a Federal or State agency for conservation purposes (as

defined in paragraph (a)(3)(i) of this section), inventory property, or

an interest therein, meeting any one of the following three criteria

and subject only to the homestead protection rights of all previous

owners having been met.

(i) A predominance of the land being transferred has marginal value

for agricultural production. This is land that NRCS has determined to

be either highly erodible or generally not used for cultivation, such

as soils in classes IV, V, VII or VIII of NRCS's Land Capability

Classification, or

(ii) A predominance of land is environmentally sensitive. This is

land that meets any of the following criteria:

(A) Wetlands, as defined in Executive Order 11990 and USDA

Regulation 9500.

(B) Riparian zones and floodplains as they pertain to Executive

Order 11988.

(C) Coastal barriers and zones as they pertain to the Coastal

Barrier Resources Act or Coastal Zone Management Act.

(D) Areas supporting endangered and threatened wildlife and plants

(including proposed and candidate species), critical habitat, or

potential habitat for recovery pertaining to the Endangered Species

Act.

(E) Fish and wildlife habitats of local, regional, State or Federal

importance on lands that provide or have the potential to provide

habitat value to species of Federal trust responsibility (e.g.,

Migratory Bird Treaty Act, Anadromous Fish Conservation Act).

(F) Aquifer recharges areas of local, regional, State or Federal

importance.

(G) Areas of high water quality or scenic value.

(H) Areas containing historic or cultural property; or

(iii) A predominance of land with special management importance.

This is land that meets the following criteria:

(A) Lands that are in holdings, lie adjacent to, or occur in

proximity to, Federally or State-owned lands or interest in lands.

(B) Lands that would contribute to the regulation of ingress or

egress of persons or equipment to existing Federally or State-owned

conservation lands.

(C) Lands that would provide a necessary buffer to development if

such development would adversely affect the existing Federally or

State-owned lands.

(D) Lands that would contribute to boundary identification and

control of existing conservation lands.

(2) When a State or Federal agency requests title to inventory

property, the State Executive Director will make a preliminary

determination as to whether the property can be transferred.

(3) If a decision is made by the State Executive Director to deny a

transfer request by a Federal or State agency, the requesting agency

will be informed of the decision in writing and informed that they may

request a review of the decision by the FSA Administrator.

(4) When a State or Federal agency requests title to inventory

property and the State Executive Director determines that the property

is suited for transfer, the following actions must be taken prior to

approval of the transfer:

(i) At least two public notices must be provided. These notices

will be published in a newspaper with a wide circulation in the area in

which the requested property is located. The notice will provide

information on the proposed use of the property by the requesting

agency and request any comments concerning the negative or positive

aspects of the request. A 30-day comment period should be established

for the receipt of comments.

(ii) If requested, at least one public meeting must be held to

discuss the request. A representative of the requesting agency should

be present at the meeting in order to answer questions concerning the

proposed conservation use of the property. The date and time for a

public meeting should be advertised.

(iii) Written notice must be provided to the Governor of the State

in which the property is located as well as at least one elected

official of the county in which the property is located. The

notification should provide information on the request and solicit any

comments regarding the proposed transfer. All procedural requirements

in paragraph (c) (3) of this section must be completed in 75 days.

(5) Determining priorities for transfer or inventory lands.

(i) A Federal entity will be selected over a State entity.

(ii) If two Federal agencies request the same land tract, priority

will be given to the Federal agency that owns or controls property

adjacent to the property in question or if this is not the case, to the

Federal agency whose mission or expertise best matches the conservation

purposes for which the transfer would be established.

(iii) In selecting between State agencies, priority will be given

to the State agency that owns or controls property adjacent to the

property in question or if that is not the case, to the State agency

whose mission or expertise best matches the conservation purpose(s) for

which the transfer would be established.

(6) In cases where land transfer is requested for conservation

purposes that would contribute directly to the furtherance of

International Treaties or Plans (e.g., Migratory Bird Treaty Act or

North American Waterfowl Management Plan), to the recovery of a listed

endangered species, or to a habitat of National importance (e.g.,

wetlands as addressed in the Emergency Wetlands Resources Act),

priority consideration will be given to land transfer for conservation

purposes, without reimbursement, over other land disposal alternatives.

(7) An individual property may be subdivided into parcels and a

parcel can be transferred under the requirements of this paragraph as

long as the remaining parcels to be sold make up a viable sales unit,

suitable or surplus.

23. Section 1955.140 is revised to read as follows:

Sec. 1955.140 Sale in parcels.

(a) Individual property subdivided. An individual property, other

than Farm Credit Programs property, may be offered for sale as a whole

or subdivided into parcels as determined by the State Director. For MFH

property, guidance will be requested from the National Office for all

properties other than RHS

[[Page 44404]]

projects. When farm inventory property is larger than a family-size

farm, the county official will subdivide the property into one or more

tracts to be sold in accordance with Sec. 1955.107 of this subpart.

Division of the land or separate sales of portions of the property,

such as timber, growing crops, inventory for small business

enterprises, buildings, facilities, and similar items may be permitted

if a better total price for the property can be obtained in this

manner. Environmental effects should also be considered pursuant to

subpart G of part 1940 of this chapter. Any applicable State laws will

be set forth in a State supplement and will be complied with in

connection with the division of land. Subdivision of acquired property

will be reported on Form RD 1955-3C, ``Acquired Property--

Subdivision,'' in accordance with the FMI.

(b) Grouping of individual properties. The county official for FCP

cases, and the State Director for all other cases, may authorize the

combining of two or more individual properties into a single parcel for

sale as a suitable program property.

24. Section 1955.148 is revised to read as follows:

Sec. 1955.148 Auction sales.

This section provides guidance on the sale of all inventory

property by auction, except FSA real property. Before an auction, the

State Director, with the advice of the National Office for

organizational property, will determine and document the minimum sale

price acceptable. In determining a minimum sale price, the State

Director will consider the length of time the property has been in

inventory, previous marketing efforts, the type property involved, and

potential purchasers. Program financing will be offered on sales of

program and property. For NP property, credit may be offered to

facilitate the sale. Credit, however, may not exceed the market value

of the property nor may the term exceed the period for which the

property will serve as adequate security. For program property sales,

no preference will be given to program purchasers. The State Director

will also consider whether an Agency employee will conduct an auction

or whether the services of a professional auctioneer are necessary due

to the complexity of the sale.

When the services of a professional auctioneer are advisable, the

services will be procured by contract in accordance with RD Instruction

2024-A (available in any Agency Office). Chattel property may be sold

at public auction that is widely advertised and held on a regularly

scheduled basis without solicitation. Form RD 1955-46 will be used for

auction sales. At the auction, successful bidders will be required to

make a bid deposit. For program and suitable property, the bid deposit

will be the same as outlined in Sec. 1955.130(e)(1) of this subpart.

For NP property sales, a bid deposit of 10 percent is required.

Deposits will be in the form of cashier's check, certified check,

postal or bank money order or bank draft payable to the Agency, cash or

personal checks may be accepted when deemed necessary for a successful

auction by the person conducting the auction. Where credit sales are

authorized, all notices and publicity should provide for a method of

prior approval of credit and the credit limit for potential purchasers.

This may include submission of letters of credit or financial

statements prior to the auction. The auctioneer should not accept a bid

which requests credit in excess of the market value. When the highest

bid is lower than the minimum amount acceptable to the Agency,

negotiations should be conducted with the highest bidder or in turn,

the next highest bidder or other persons to obtain an executed bid at

the predetermined minimum. Upon purchaser's default, the approval

official will remit the bid deposit as a Miscellaneous Collection

according to RD Instruction 1951-B (available in any agency office).

The bid deposit will be remitted only when the bidder defaults;

otherwise it will be used at closing towards a down payment or closing

costs, as applicable. The closing will be conducted in accordance with

the procedures prescribed in this subpart for the type property and

program involved.

Dated: June 30, 1997.

James W. Schroeder,

Acting Under Secretary for Farm and Foreign Agricultural Services.

Dated: July 8, 1997.

Jill Long Thompson,

Under Secretary for Rural Development.

[FR Doc. 97-22004 Filed 8-20-97; 8:45 am]

BILLING CODE 3410-05-P