Implementation of the Delinquent Account Servicing Provisions of the Federal Agriculture Improvement and Reform Act of 1996

SUMMARY: The following changes implement provisions of the Federal

Agriculture Improvement and Reform Act of 1996 (1996 Act) that affect

the Farm Loan Programs of the Farm Service Agency (FSA), formerly

administered by the Farmers Home Administration (FmHA). The provisions

of this rule affect the direct and guaranteed farm ownership (FO),

operating loan (OL) programs, and the direct emergency (EM) loan

program. Implementation of these provisions will result in the

streamlining and shortening of the loan servicing process and result in

reduced losses to the Government.

DATES: Effective: March 14, 1997. Comments must be submitted by May 13,

1997.

ADDRESSES: Submit written comments to Director, Farm Service Agency,

United States Department of Agriculture, Farm Loan Programs Loan

Servicing and Property Management Division, Ag Code 0523, Post Office

Box 2415, Washington, DC 20013.

FOR FURTHER INFORMATION CONTACT: Kimberly R. Laris, Senior Loan

Officer, Farm Service Agency, U.S. Department of Agriculture, Room

5449-S, Washington, DC 20250-0523; Telephone: 202-720-1659; Facsimile:

202-690-0949.

SUPPLEMENTARY INFORMATION

Executive Order 12866

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

the Office of Management and Budget under Executive Order 12866.

Regulatory Flexibility Act

The Farm Service Agency certifies that this rule will not have a

significant impact on a substantial number of small entities as defined

in the Regulatory Flexibility Act, Pub. L. 96-534, as amended (5 U.S.C.

601).

Environmental Impact Statement

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

subpart G, ``Environmental Program.'' The issuing agencies have

determined that this action does not significantly affect the quality

of human environment, and in accordance with the National Environmental

Policy Act of 1969, Pub. L. 91-190, an Environmental Impact Statement

is not required.

Executive Order 12778

This interim rule has been reviewed under Executive Order 12778,

Civil Justice Reform. In accordance with this rule: (1) All state and

local laws and regulations that are in conflict with this rule will be

preempted; (2) no retroactive effect will be given to this rule; (3)

administrative proceedings in accordance with 7 CFR parts 11 and 780

must be exhausted before bringing suit in court challenging action

taken under this rule unless those regulations specifically allow

bringing suit at an earlier time.

Executive Order 12372

For reasons set forth in the notice to 7 CFR part 3015, subpart V

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

excluded from the scope of Executive Order 12372, which requires

intergovernmental consultation with State and local officials.

The Unfunded Mandate Reform Act of 1995

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

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

effects of their regulatory actions on state, local and tribal

governments and the private sector of $100 million or more in any one

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

UMRA, FSA generally must prepare a written statement, including a cost-

benefit analysis, for proposed and final rules with ``Federal

mandates'' that may result in expenditures to state, local, or tribal

governments, in the aggregate, or to the private sector. When such a

statement is needed for a rule, section 205 of the UMRA generally

requires FSA to identify and consider a reasonable number of regulatory

alternatives and adopt the least costly, more cost-effective or least

burdensome alternative that achieves the objectives of the rule.

This rule contains no Federal mandates (under regulatory provisions

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

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

of sections 202 and 205 of the UMRA.

Paperwork Reduction Act

This interim rule does not impose any new information collection or

recordkeeping requirements; however, the provisions of the 1996 Act do

eliminate the need for some information previously collected and result

in a revision to the number of estimated respondents from whom

information will be collected. Therefore, the agency will revise the

information collection currently approved in support of its regulations

pertaining to Farm Loan Programs account servicing policies under the

Office of Management and Budget (OMB) control number 0560-0161 and debt

settlement regulations under OMB control number 0575-0118. The agency

will publish a Federal Register notice in the near future requesting

comments for a 60-day period regarding revisions resulting from the

1996 Act; increases or decreases in program activity; and changes to

the estimated responses per respondent and estimated average hours per

response. OMB emergency clearance has been obtained to allow continued

use of the affected regulations and forms under OMB control numbers

0560-0172 and 0560-0173.

Federal Assistance Programs

10.404--Emergency Loans

10.406--Farm Operating Loans

10.407--Farm Ownership Loans

10.416--Soil and Water Loans.

Discussion of the Interim Rule

Enacted on April 4, 1996, the Federal Agriculture Improvement and

Reform Act (1996 Act) changed the qualifications for loan servicing

benefits for borrowers with farm loans from FSA, formerly FmHA. The

specific changes to FSA Farm Loan Programs are as follows:

Leaseback/Buyback Program

The 1996 Act terminated the Leaseback/Buyback program effective

April 4, 1996. Borrowers, former owners and their spouses, children, or

former operators no longer have any priority right to purchase FSA

inventory property or to lease such property with an option to

purchase. This action will remove the regulations for this program. A

transition rule provides that borrowers who had submitted a complete

application for leaseback/buyback before the date of enactment

[[Page 10119]]

may still be considered for the program. The regulations governing

leaseback/buyback for these applications can be found in the previous

CFR volume containing revisions as of January 1, 1996 and the Agency's

procedures, (available in any county office.)

Homestead Protection

The application period for this program was changed by the 1996 Act

from 90 to 30 days after notification of the former owner of FSA

inventory property. The Agency is now required to advise the owner of

program availability on or before the date that it acquires the

property, instead of within 30 days of acquisition as was required by 7

CFR 1951.911(b)(2)(iii).

Primary Loan Servicing

The 1996 Act requires notification of loan servicing programs to

borrowers who are 90 days past due on their FLP loan payment (or 60

days delinquent, since accounts are not considered delinquent until

they are 30 days past due). Formerly, these packets were sent when

borrowers were 180 days delinquent (210 days past due). Application

requirements have been modified to eliminate some forms and clarify

that borrowers do not need to provide information that is already in

their case files and still current, as determined by the approval

official. Borrowers who request servicing before they become delinquent

are required to pay at least a portion of the interest due on the

account as a condition of rescheduling or reamortization. In making

restructuring decisions, FSA will assume that the borrower needs up to

110 percent of the amount indicated for payment of farm operating

expenses, debt service obligations, and family living expenses, instead

of the 105 percent required before the 1996 Act. Failure to achieve

this 110 percent margin will not make a borrower ineligible for loan

servicing, but in no case will the account be restructured with a cash

flow of less than 100 percent. Borrowers who qualify for debt

writedown, but whose accounts could be restructured without writedown

at a margin of less than 110 percent, will be allowed to choose between

the two options: (1) Restructuring with writedown, or (2) restructuring

without writedown at a margin of less than 110 percent. Since section

645 of the 1996 Act, which establishes the 110 percent cash flow, is

not mandatory, FSA is offering borrowers the option to forego

writedown. Thus, they would avoid the statutory debt forgiveness

limitation explained below. Borrowers who choose writedown (with a

higher cash flow margin than restructuring without writedown) will not

be able to receive any additional debt forgiveness from FSA.

Debt Forgiveness

Under the 1996 Act, borrowers can receive only one reduction or

termination of a direct FLP loan in a manner that results in a loss to

the Government. Those who have received debt forgiveness on a direct

loan at any time in the past are no longer eligible for such relief on

another loan. Pursuant to section 640(2) of the 1996 Act, debt

forgiveness is defined as writing down or writing off a direct loan,

debt settling a direct loan, paying a loss claim on a loan guarantee

pursuant to section 357 of the Consolidated Farm and Rural Development

Act (Con Act) and discharging a debt as a result of bankruptcy.

Buyout of Debt

The loan servicing option of buying out a debt at its net recovery

value was changed by the Act to buyout at current market value. The

requirement for a recapture agreement, under which the Agency could

recover a portion of its loss if the property is sold within 10 years,

was eliminated.

Conservation Contracts

Based on section 642 of the 1996 Act, the Agency has revised

Exhibit H of this subpart to change the conservation easement program

to a conservation contract program. Since section 642(1) of the 1996

Act removed the requirement that the program restrict the usage of the

property for not less than 50 years, FSA has exercised its discretion

to provide a graduated reduction in the amount of debt written off,

based on the time period that usage is restricted. Borrowers who agree

to a 50-year contract will receive the maximum amount of debt

writedown. Borrowers who agree to a 30-year contract will receive 60

percent of the maximum writedown. Borrowers who agree to a 10-year

contract will receive 20 percent of the maximum writedown.

Graduation

When reviewing accounts for possible graduation from direct FLP

credit, the Agency is authorized by the Act to submit a borrower

prospectus to potential commercial lenders without the borrower's

approval. Borrowers must be notified that such information has been

provided. If an approved lender agrees to provide credit to that

borrower in accordance with the terms of the prospectus, that borrower

is ineligible for Farm Ownership or Farm Operating direct loan credit.

Annual Reviews and Eligibility

Under section 635 of the 1996 Act, the County Committee must

certify annually that a review has been made of each borrower's

operation and of continued eligibility for Agency assistance. This is

an internal agency requirement and therefore regulations governing this

requirement are not published in the CFR.

Electronic Filing of Financing Statements

Pursuant to section 662 of the 1996 Act, all lenders are authorized

to file financing statements electronically in states having Uniform

Commercial Code (UCC) laws allowing that practice.

Appeals

The Agency has removed from this regulation the requirement that

the borrower be notified of appeal rights in numerous instances where

it previously appeared following authorization for an adverse decision.

A guide to the mediation, appeals and review processes has been added

as section 1951.904.

Miscellaneous

Some material which was obsoleted, outdated, or repetitive has been

omitted. Some references to other sections of the CFR have been revised

for conformity purposes.

List of Subjects

7 CFR Part 1951

Account servicing, Accounting, Debt restructuring, Foreclosure,

Government acquired property, Credit, Loan programs--agriculture, Loan

programs--housing and community development, Low and moderate income

housing loans--servicing, Mortgages, Rural areas, Sale of government

acquired property, Surplus government property.

7 CFR Part 1956

Accounting, Loan programs--agriculture, Rural areas.

7 CFR Part 1962

Crops, Government property, Livestock, Loan programs--agriculture,

Rural areas.

7 CFR Part 1965

Foreclosure, Loan programs--agriculture, Rural areas.

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

amended as follows:

[[Page 10120]]

PART 1951--SERVICING AND COLLECTIONS

1. The authority citation for part 1951 continues to read as

follows:

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

Subpart F--Analyzing Credit Needs and Graduation of Borrowers

2. Section 1951.262 is amended by revising paragraphs (f)(1) and

(f) (2) to read as follows:

Sec. 1951.262 Farm Loan Programs--graduation of borrowers.

* * * * *

(f) * * *

(1) The Agency will distribute a borrower's prospectus to local

lenders for possible refinancing. The borrower's permission is not

required, however, the borrower must be notified of this action.

(2) The borrower is responsible for any application fees. The

borrower has 30 days from the date the borrower is notified of lender

interest in refinancing to make application, if required by the lender,

and refinance the FLP loan. For good cause, the borrower may be granted

a reasonable amount of additional time by the Agency.

Subpart J--Management and Collection of Nonprogram (NP) Loans

Sec. 1951.454 [Amended]

3. Section 1951.454 is amended by revising the words ``chapter;

except that a borrower does have appeal rights if the decision involves

the denial of NP loan assistance under the Leaseback/Buyback and

Homestead Protection provisions of subpart S of this Part 1951'' to

read ``chapter or parts 11 and 780 of this title.''

Sec. 1951.455 [Amended]

4. Section 1951.455 is amended by:

a. In paragraph (a) by removing ``Leaseback/Buyback and'' in the

second sentence; by revising the words ``Leaseback/Buyback and

Homestead Protection programs,'' to read ``Homestead Protection

program'' in the fourth sentence; by removing the words ``FmHA or its

successor agency under Public Law 103-354'' in the fifth sentence; by

revising the words ``FmHA or its successor agency under Public Law 103-

354'' to read ``the Agency'' in the sixth sentence;

b. In paragraph (b) by removing the first sentence; by revising the

words ``FmHA or its successor agency under Public Law 103-354'' to read

``FLP'' in the second sentence; by removing the words ``FmHA or its

successor agency under Public Law 103-354'' in the fourth sentence; by

revising the words ``FmHA or its successor agency under Public Law 103-

354'' and ``FP'' to read ``FLP'' in the fifth sentence;

c. In paragraph (c) by revising the words ``FmHA or its successor

agency under Public Law 103-354 office'' to read ``agency office'' and

the words ``FmHA or its successor agency under Public Law 103-354

credit'' to read ``FLP credit'' in the first sentence;

d. In paragraph (e) by revising the words ``FmHA or its successor

agency under Public Law 103-354 office'' to read ``agency office'' in

the first sentence and removing the words ``FmHA or its successor

agency under Public Law 103-354'' in the fourth sentence;

e. In paragraph (f) by removing the first and third sentence;

f. In paragraph (g) by revising the words ``FmHA or its successor

agency under Public Law 103-354'' to read ``FLP'' in the introductory

text; by removing paragraphs (g) (1) and (4); by revising the words

``FmHA or its successor agency under Public Law 103-354 may'' to read

``the agency may'' and the words ``FmHA or its successor agency under

Public Law 103-354 retains'' to read ``the agency retains'' in the

second sentence of paragraph (g)(2); and by redesignating paragraphs

(g) (2), (3) and (5) as (g) (1) through (3);

g. In paragraph (h) by revising the word ``FP'' to read ``FLP'';

h. In paragraph (i) by removing the first sentence;

i. In paragraph (j) by revising the words ``an FmHA or its

successor agency under Public Law 103-354'' to read ``a''.

5. Section 1951.457 is amended by revising paragraph (a) to read as

follows:

Sec. 1951.457 Payments.

(a) Receiving payments. Borrowers will mail or bring their payments

to the county office. Borrowers will be responsible for any fees

associated with converting cash payments to money orders. If the fee is

not paid, it will be deducted from the payment.

* * * * *

6. Section 1951.458 is revised to read as follows:

Sec. 1951.458 Servicing real estate taxes.

Refer to subpart A of part 1925 of this chapter for servicing real

estate taxes.

Subpart S--Farmer Program Account Servicing Policies

7. Section 1951.901 is revised to read as follows:

Sec. 1951.901 Purpose.

This subpart describes the policies and procedures that the agency

will use in servicing most Farm Loan Program (FLP) loans. The loans

include Operating Loan (OL), Farm Ownership Loan (FO), Soil and Water

Loan (SW), Softwood Timber Production Loan (ST), Emergency Loan (EM),

Economic Emergency Loan (EE), Economic Opportunity Loan (EO),

Recreation Loan (RL), and Rural Housing Loan for farm service buildings

(RHF) accounts. Cases involving unauthorized assistance will be

serviced as described in subpart L of this part. When it has been

determined that all the conditions outlined in Sec. 1951.558(b) of

subpart L of this part have been met, the loan will be treated as an

authorized loan and may be serviced under this subpart. Cases involving

graduation of borrowers to other sources of credit will be serviced as

described in subpart F of this part. This subpart does not apply to FLP

Non-Program (NP) loans. Examples of Primary Loan Servicing actions are:

consolidation, rescheduling and/or reamortization, deferral of

principal and interest payments, reclassifying to ST loans, reducing

interest rate on the loan, writedown of debt and conservation contract,

or a combination of these actions. Preservation loan servicing is the

Homestead Protection program. Any processing or servicing activity

conducted pursuant to this subpart involving authorized assistance to

agency employees, members of their families, known close relatives, or

business or close personal associates, is subject to the provisions of

subpart D of part 1900 of this chapter. Applicants for this assistance

are required to identify any known relationship or association with an

agency employee.

8. Section 1951.902 is revised to read as follows:

Sec. 1951.902 General.

Supervision and Servicing. It is a primary objective of the Agency

to provide supervised credit to borrowers in financial, production or

other difficulty in a manner that will assure the maximum opportunity

for their recovery and, at the same time, get the best recovery for the

Government. Supervision and servicing are continuing processes that

begin the day a farmer comes into the office. Providing supervised

credit has two objectives:

(a) To help farmers set goals, work on problem areas and work

toward graduation to commercial credit;

(b) To recover the maximum possible amount for the Government.

9. Section 1951.903 is revised to read as follows:

[[Page 10121]]

Sec. 1951.903 Authorities and responsibilities.

(a) Responsibilities. Servicing officials will make full use of the

National automated tracked system to track and manage the FLP primary

and preservation loan servicing and debt settlement programs.

(b) Authorities. All loan servicing decisions except as set forth

in this section will be made by the servicing official except the

approval of writedown and buyout of a borrower's debt. Also, all

applications for debt settlement of FLP loans must be recommended by

the County Committee (except where the debt has been discharged through

bankruptcy), approved by the State Executive Director or the

Administrator (depending upon the amount of debt to be settled), and

processed in accordance with the provisions of subpart B of part 1956

of this chapter. Servicing officials are authorized to accept a buyout

payment when the borrower(s) pays the current market value of the

security set forth in Sec. 1951.909 of this Instruction. Only State

Executive Directors are authorized to approve writedown and buyout in

accordance with Sec. 1951.909 of this part and release a divorced

spouse from liability on the debt in accordance with Sec. 1951.909(a)

of this part.

10. Section 1951.904 is added to read as follows:

Sec. 1951.904 Mediation, reviews and appeals.

(a) Participant rights. (1) For loan servicing under this subpart,

mediation or a voluntary meeting of creditors will be offered if the

DALR$ calculations indicate that a feasible plan of operation cannot be

developed considering all primary loan service programs, Softwood

Timber, and Conservation Contracts. In states with a USDA Certified

Mediation Program, mediation will be offered. In all other states, a

voluntary meeting of creditors will be offered.

(2) Any negotiation of an Agency appraisal must be completed prior

to the meeting of creditors or mediation.

(3) If the borrower does not request mediation or a voluntary

meeting of creditors as offered in Exhibit E of this subpart within 45

days, the servicing official will issue the appropriate ``Notice of

Intent to Accelerate or to Continue Acceleration and Notice of

Borrowers' Rights.''

(4) Whenever the servicing official makes a decision that will

adversely affect a participant, the participant will be informed that

the decision can be reviewed in accordance with 7 CFR part 780 and

indicate whether it can be appealed to the USDA National Appeals

Division (NAD) according to regulations set forth in 7 CFR part 11.

Nonprogram (NP) participants are not entitled to appeal rights.

(b) Non-appealable decisions. The following types of decisions are

not appealable:

(1) Decisions made by parties outside the agency, even when those

decisions are used as a basis for the agency's decisions.

(2) Decisions that do not meet the eligibility requirements of 7

CFR part 11.

(3) Interest rates as set forth in Agency procedures, except

appeals alleging application of the incorrect interest rate.

(4) Refusal to request or grant an administrative waiver permitted

by program regulations.

(5) Denials of assistance due to lack of funds.

(6) In cases where the adverse decision is based on both appealable

and non-appealable actions, the adverse action is not appealable.

(7) Determinations previously made by the Agency that have been

appealed, and a NAD decision adverse to the participant has been

entered; or upon which the time frame for appeal has expired with no

appeal being requested.

(c) Next-level review. Any adverse decision, whether appealable or

non-appealable, may be reviewed in accordance with 7 CFR part 780.

(d) NAD review. (1) A participant may request that NAD review the

Agency's determination that the decision may not be appealed.

(2) A participant may request that NAD review any decision that is

appealable.

(3) NAD will review the participant's request in accordance with 7

CFR part 11.

(e) Agency actions pending outcome of appeal. Assistance will not

be discontinued pending the outcome of an appeal of any adverse action.

Releases for essential family living and farm operating expenses will

not be terminated until the account has been accelerated.

(f) Time limits. Time limits for action under this subpart will be

tolled during the pendency of an appeal, but not during the pendency of

a request that NAD determine that a matter is or is not appealable.

11. Section 1951.906 is revised to read as follows:

Sec. 1951.906 Definitions.

As used in this subpart, the following definitions apply:

Borrower. An individual or entity which has outstanding obligations

to the agency under any Farm Loan Programs (FLP) loan, without regard

to whether the loan has been accelerated. This does not include any

such debtor whose total loans and accounts have been foreclosed or

liquidated, voluntarily or otherwise. Collection-only borrowers are

considered borrowers. Borrower also includes any other party liable for

the FLP debt. Nonprogram (NP) borrowers are not considered borrowers

for the purposes of this subpart.

CONACT or CONACT property. Property which secured a loan made or

insured under the Consolidated Farm and Rural Development Act. Within

this part, it shall also be construed to cover property which secured

other FLP loans.

Conservation contract. A contract under which a borrower agrees to

set aside land for conservation, recreation or wildlife purposes in

exchange for cancellation of a portion of an outstanding FLP debt.

Relief obtained in this manner is not considered debt forgiveness as

defined in this section.

Consolidation. The combining and rescheduling of the rates and

terms of two or more notes of the same type of OL or EO loans, EE

operating-type loans or EM loans. EM actual loss loans will not be

consolidated.

Current market value buyout. Termination of a borrower's loan

obligations to the agency in exchange for payment of the current

appraised value of the security property, less any prior liens.

Debt forgiveness. For the purposes of loan servicing, debt

forgiveness is defined as a reduction or termination of a direct FLP

loan in a manner that results in a loss to the Agency. Included, but

not limited to, are losses from a writedown or writeoff under this

subpart, subpart J of this part, subpart B of part 1956 of this

chapter, after discharge under the bankruptcy code, and associated with

release of liability. Debt cancellation through conservation contracts

is not considered debt forgiveness under this subpart.

Debt settlement. The settlement of debts owed the United States for

FLP loans. The types of debt settlement programs are: compromise,

adjustment, cancellation and chargeoff.These programs are administered

in accordance with subpart B of part 1956 of this chapter. Any action

through debt settlement which results in a loss to the Agency will be

considered debt forgiveness.

Deferral. An approved delay in making regularly scheduled payments,

including softwood timber (ST) loans. Deferral is not considered debt

forgiveness.

[[Page 10122]]

Delinquent borrower. A borrower who has failed to make all or part

of a payment which is due for 30 or more calendar days after the due

date.

Entity. A corporation, partnership, joint operation, or

cooperative.

Farm Loan Programs (FLP) loans. This refers to Farm Ownership (FO),

Soil and Water (SW), Recreation (RL), Economic Opportunity (EO),

Operating (OL), Emergency (EM), Economic Emergency (EE), Softwood

Timber (ST) loans, and Rural Housing loans for farm service buildings

(RHF).

Farm plan. Form FmHA 431-2, ``Farm and Home Plan,'' or other plans

or documents acceptable to the agency that will accurately reflect the

production and financial management of the farming operation for one

production cycle. The agency will not require the use of consolidated

financial statements.

Feasible plan. A feasible plan must be based upon the applicant or

borrower's actual records that show the farming operation's actual

income, production and expenses. These records will include income tax

returns and supporting documents (hereafter called income tax records).

The records must be for the most recent five-year period or, if the

borrower has been farming less than five years, for the period which

the borrower has farmed. For borrowers who have been farming for less

than five years, other available records will be used in the order

listed in section Sec. 1924.57(d)(1) of subpart B of part 1924 of this

chapter to complete a five-year history. Future production yields will

be based on an average of the most recent past five years' actual

production yields. Borrowers with yields affected by disasters in at

least two of the five most recent years may exclude the crop year with

the lowest actual yield. In addition, in accordance with section

Sec. 1924.57(d)(1) of subpart B of part 1924 of this chapter, if the

applicant's remaining disaster years' yields are less than the County

average yield, and the borrower's yields were affected by the disaster,

County average yields will be used for those years. If County average

yields are not available, State average yields will be used. These

records will be used along with realistic anticipated prices, including

any planned FLP loan payments, to determine that the income from the

farming operation, and any reliable off-farm income, will provide the

income necessary for an applicant or borrower to at least be able to:

(1) Pay all operating expenses and taxes which are due during the

projected farm business accounting period.

(2) Meet scheduled payments on all debts.

(3) Meet up to 110 percent, but not less than 100 percent, of the

amount indicated for payment of farm operating expenses, debt servicing

obligations and family living expenses. The Agency will assume that a

borrower needs this margin to meet all obligations and continue

farming. However, this will not prohibit a borrower from receiving debt

restructuring because the farm and home plan shows less than such a

margin. In no case will a borrower with a cash flow of less than 100

percent receive restructuring.

(d) Provide living expenses for the family members of an individual

borrower or a wage for the farm operator in the case of a cooperative,

corporation, partnership, or joint operation borrower, which is in

accordance with the essential family needs. Family members include the

individual borrower or farm operator in the case of an entity, and the

immediate members of the family which reside in the same household.

Financially distressed. A financially distressed borrower is one

who will not be able to make payments as planned for the current or

next business accounting period. Borrowers will also be considered as

in financial distress if it is determined that they will not be able to

project a feasible plan of operation for the next business accounting

period.

Foreclosed. The completed act of selling security either under the

``power of sale'' in the security instrument or through court

proceedings.

Good faith. An eligibility requirement for Primary Loan Servicing

and Current Market Value Buyout. Borrowers are considered to have acted

in ``good faith'' if they have demonstrated ``honesty'' and

``sincerity'' in complying with the requirements of Form 1962-1,

``Agreement for the Use of Proceeds/Release of Chattel Security,'' and

any other written agreements made with the agency, as documented in the

case file. In addition, the agency must substantiate any allegations of

fraud, waste, or conversion with a written legal opinion from the

Office of the General Counsel (OGC) when such allegations are used to

deny a servicing request. A borrower will not be considered to lack

``good faith'' if the sole basis for such a determination was the

disposition of normal income security (Sec. 1962.4 of subpart A of part

1962 of this chapter) prior to October 14, 1988, without the Agency's

consent and the borrower demonstrates that the proceeds were used to

pay essential family living and farm operating expenses that could have

been approved according to Sec. 1962.17 of subpart A of part 1962 of

this chapter.

Homestead Protection. The right of a former owner to apply to

lease, with an option to purchase the Homestead Protection property,

not to exceed 10 acres.

Homestead Protection property. This refers to the principal

residence which secured a FLP loan.

Indian Reservation. Indian reservation means all land located

within the limits of any Indian reservation under the jurisdiction of

the United States, notwithstanding the issuance of any patent, and

including rights-of-way running through the reservation; trust or

restricted land located within the boundaries of a former reservation

of a Federally recognized Indian tribe in the State of Oklahoma; or all

Indian allotments the Indian titles to which have not been extinguished

if such allotments are subject to the jurisdiction of a Federally

recognized Indian Tribe.

Limited Resource Program. A reduction of interest rates for

operating loans (OL), farm ownership loans (FO) and soil and water

loans (SW).

Liquidated. The completed act of voluntarily selling security to

end the obligation for the debt, or involuntarily as the result of a

completed civil suit against a borrower to recover collateral against

the debt. The filing of a claim in a bankruptcy action is not a

complete liquidation of the borrower's accounts. Collection-only

accounts are not considered liquidated.

Loan service program. A Primary Loan Servicing program or a

Preservation Loan Servicing program (Homestead Protection) for FLP loan

borrowers.

New application. An application submitted on or after November 28,

1990, for loan servicing programs. This does not include an application

reconsidered after an appeal or revision of an application submitted

before November 28, 1990.

Nonessential assets. Nonessential assets are those in which the

borrower has an ownership interest, that:

(1) do not contribute a net income to pay essential family living

expenses or to maintain a sound farming operation (see 1962.17 of

subpart A of part 1962 of this chapter); and

(2) are not exempt from judgment creditors or in a bankruptcy

action. Each State Executive Director, with the guidance of the Office

of the General Counsel, will issue a State Supplement to establish

guidelines on items that are exempt from judgment creditors and are

exempt under bankruptcy law in accordance with statute.

Nonprogram (NP) loan. An NP loan results when a loan is made to an

ineligible applicant or transferee in connection with a loan assumption

and sale of inventory properties at ineligible

[[Page 10123]]

terms. Borrowers originally determined eligible by the agency and found

to be ineligible after the loan was made due to an agency error are not

considered to have nonprogram loans.

Preservation loan service program. See Homestead Protection.

Primary loan service program. Primary loan service program means:

(1) loan consolidation, rescheduling, or reamortization;

(2) interest rate reduction, including use of the limited resource

program;

(3) loan restructuring, including deferral, or writing down of the

principal or accumulated interest; or

(4) any combination of the above.

Reamortization. Reamortization is rearranging the installment

payments of a real estate loan, and may include changing the interest

rate and terms of a loan made for Subtitle A purposes.

Rescheduling. Rescheduling is rewriting the rates and/or terms of

OL, SL, EO loans, EE operating-type loans or EM loans made for Subtitle

B purposes.

Writedown. For purposes of this subpart, writedown is reducing a

borrower's debt to an amount that will result in a feasible plan of

operation.

12. In Sec. 1951.907, paragraphs (c), (d) and (e) are revised to

read as follows and paragraph (f) is removed:

Sec. 1951.907 Notice of loan service programs.

* * * * *

(c) Notification of borrowers 90 days past due on payments. FLP

borrowers who are at least 90 days past due (60 days delinquent) will

be sent Exhibit A of this subpart with attachments 1 and 2 by certified

mail, return receipt requested. If the borrower submits an incomplete

application, see paragraph (e) of this section for procedures on

requesting additional information. Delinquent borrowers who have also

violated their loan agreements with the agency will be handled in

accordance with Sec. 1951.907(e). In addition to the requirements set

forth above, servicing officials will provide Attachments 1 and 2 of

Exhibit A of this subpart to these borrowers, as set forth below:

(1) At the time an application is made for participation in an FLP

loan service program, unless such application is the result of the

notice provided to the borrower in accordance with this section,

(2) On written request of any FLP borrower, whether delinquent or

not, prior to the sending of a packet under paragraph (c) of this

section, and

(3) If a borrower has not previously received exhibit A and

attachments 1 and 2 of this subpart, such exhibit and attachments will

be provided before the earliest of:

(i) Initiating any liquidation action,

(ii) Accepting a voluntary conveyance of security, or the borrower

requesting permission to sell security,

(iii) Accelerating payments on the loan,

(iv) Repossessing the borrower's property,

(v) Foreclosing on property, or

(vi) Taking any other collection action.

(d) Notification of borrowers in non-monetary default; delinquent

borrowers also in non monetary default, or when a junior or senior

lienholder is foreclosing. FLP borrowers who are in non-monetary

default will be sent attachments 1, 3, and 4 of exhibit A of this

subpart by certified mail, return receipt requested. If a case is in

the hands of the Department of Justice or in litigation, no loan

servicing action will be taken without Department of Justice or OGC

concurrence (see 1962.49 of this chapter). Any servicing request will

be processed as indicated in Sec. 1951.909. The account will not be

liquidated until the borrower has the opportunity to appeal any adverse

decision. After any final appeal decision that does not result in a

resolution of the loan defaults, the account will be accelerated.

(e) Request for primary and preservation loan service programs.(1)

To request consideration for Primary and Preservation Loan Service

programs, borrowers who are sent exhibit A, with attachments 1 and 2 or

attachments 1, 3, and 4 must complete and return attachment 2 or

attachment 4, as appropriate, to the local county office within 60 days

after receiving those documents, with the forms required by this

paragraph for a completed application.

(2) If borrowers are sent attachments 3 and 4 and do not request

servicing within 60 days, the agency will proceed with liquidation in

accordance with Sec. 1955.15 of this chapter.

(3) If borrowers are sent exhibit A and attachments 1 and 2 of this

subpart and do not submit a completed application within the 60-day

time period, the servicing official will send attachments 9 and 10, or

9-A and 10-A of exhibit A of this subpart, as applicable. These

attachments will not be sent to borrowers who are being serviced in

accordance with Sec. 1951.908. For borrowers receiving attachments 9

and 10 or 9-A and 10-A, the agency will proceed with liquidation in

accordance with Sec. 1955.15 of this chapter.

(4) If a borrower has moved and left a forwarding address, the

certified mail will be forwarded. If no forwarding address is given,

the mail will be returned to the county office. The servicing official

will immediately send the documents from the certified mail package to

the borrower's last known address, first class mail. The borrower's

response date for a completed application will begin on the date of

receipt of the certified mail or 3 days following the date of first

class mailing, whichever is earlier.

(5) An application for loan service programs must include the

following forms (available in any agency office), and data, unless the

information is already in the borrower's case file and still current,

as determined by the approval official:

(i) Attachment 2 or 4 of exhibit A to this subpart, response form

to apply for loan servicing.

(ii) Form 410-1, ``Application for FmHA Services,'' including a

current (within 90 days) financial statement of all individuals and

entities personally liable for the FLP debt.

(iii) Form 431-2, ``Farm and Home Plan,'' or any other form or

submission acceptable to the agency that sets forth a plan of operation

and the necessary information. Commodity prices supplied by the agency

will be used to complete the forms.

(iv) Form 440-32, ``Request for Statement of Debts and

Collateral.''

(v) Form RD 1910-5, ``Request for Verification of Employment.''

(vi) Form AD-1026, ``Highly Erodible Land Conservation (HELC) and

Wetland Conservation (WC) Certification,'' if the one on file with the

agency does not reflect all the land owned and leased by the borrower.

(vii) Form SCS CPA-26, ``Highly Erodible Land and Wetland

Determination,'' if not previously on file with the agency for the farm

operation. This form is included as part of the application after being

completed by NRCS. (This form is available at NRCS local offices.)

(viii) If the applicant wants to be considered for a conservation

contract, a map or copy of an aerial photo of the farm, on which the

applicant must show that portion of the farm and approximate acres to

be considered in a request for debt restructuring provided for in the

conservation contract program.

(ix) The most recent five years' income tax returns and supporting

documents, unless the borrower has been farming for less than five

years. In such case, income tax returns and supporting documents for

the tax years that the borrower farmed.

(x) If the borrower is applying for debt settlement, Form RD1956-1,

[[Page 10124]]

``Application for Settlement of Indebtedness.''

(6) The borrower will be provided with copies of these forms when

Exhibit A is sent, and may request copies of regulations and the forms

manual inserts (FMI) in writing within 30 days of receipt of the loan

servicing notice. If these latter items are not provided within 10 days

of such a request, the borrower's time for submission of a complete

application will be increased by the period of delay in excess of 10

days caused by the Agency.

(7) Not more than one 60-day period will be provided to a borrower

to respond to the notice of loan service programs except in accordance

with Sec. 1951.908. Subsequent notices as provided for in this section

will not be issued until the first notice is resolved.

13. Section 1951.908 is revised to read as follows:

Sec. 1951.908 Servicing financially distressed current borrowers.

A borrower who is financially distressed, but is not yet delinquent

on FLP payments, may request servicing at any time.

(a) Notification. If a current plan of operation demonstrates that

the borrower is or will be financially distressed, as defined in

Sec. 1951.906, or if the borrower otherwise requests servicing, the

servicing official will provide attachments 1 and 2 of exhibit A of

this subpart.

(b) Eligibility. To be considered for servicing in accordance with

this section, the borrower must submit to the county office within 60

days Attachment 2 of exhibit A of this subpart and a complete

application in accordance with the requirements of Sec. 1951.907(e).

(1) The eligibility requirements of Sec. 1951.909(c) (1) and (2)

apply to servicing under this section.

(2) Eligible financially distressed borrowers who are current on

their FLP loan payments may be considered for the Primary Loan Service

programs described in Secs. 1951.909(e) (1), (2) and (3).

(3) Financially distressed borrowers who are not delinquent are not

eligible for writedown of debt or buyout as described in 1951.909.

(c) Processing the application. The servicing official must process

a completed application and notify the borrower of the decision.

(1) Current borrowers will be considered only for the Primary Loan

Servicing programs described in Secs. 1951.909 (e) (1), (2), and (3).

The servicing official must use the Debt and Loan Restructuring System

(DALR$) program, in accordance with exhibit J-1 of this subpart, to

determine if a feasible plan can be developed as defined in

Sec. 1951.906.

(2) If a feasible plan can be developed, the borrower will be sent

exhibit B of this subpart with attachment 1 and the printout of the

DALR$ calculations as notification of the favorable decision. The

borrower must accept the offer within 45 days of its receipt by

returning attachment 1 to exhibit B of this subpart or the offer will

expire. If the borrower accepts, loan restructuring will be processed

in accordance with Secs. 1951.909 (e) (1), (2), or (3), as applicable.

(3) If a feasible plan cannot be developed, the borrower will be

informed of the reasons for the adverse decision. The DALR$ printout

will be attached.

(4) Current borrowers who have received notices under this section

and who do not apply for primary loan servicing, or who refuse an offer

to restructure their debt, and later become 90 days past due on the FLP

loan payment, will be sent notices as described in Sec. 1951.907.

(5) Borrowers whose accounts are not delinquent may receive

rescheduling, reamortization, consolidation, or deferral under this

subpart only after they have paid at least a portion of the interest

due on their FLP debt. The portion due will be based on the applicant's

ability to pay, as determined by thoroughly analyzing the farm

operation, including any off-farm income. The payment must be made on

or before the date that restructuring is closed. Borrowers in non-

monetary default, but not delinquent on their FLP debt, must cure the

non-monetary default before they may be considered for servicing under

this paragraph.

14. Section 1951.909 is revised to read as follows:

Sec. 1951.909 Processing primary loan service programs requests.

(a) Servicing official responsibilities. (1) After receipt of

attachment 2 or 4 and a completed application in accordance with

Sec. 1951.907(e), the servicing official will consider all primary

service programs options in this subpart. That official must use the

Debt and Loan Restructuring System (DALR$) computer program, in

accordance with exhibit J-1 of this subpart for borrowers who submit a

new application, to attempt to find the combination of loan service

programs that will result in a feasible plan. Borrowers who request

loan servicing and who have disposed of all the FLP loan security,

including Collection-Only borrowers, will be processed in accordance

with part 1956, subpart B, of this chapter. If the application includes

a request for the Conservation Contract program, as indicated by the

submission of the information required in Sec. 1951.907(e)(5)(viii),

the servicing official will determine whether the borrower is eligible,

based on criteria as set forth in exhibit H of this subpart. If the

borrower is eligible, the servicing official will make an estimate of

the information needed to permit the DALR$ program to make the

calculations of feasibility of the Conservation Contract. The

assumptions used to establish the estimates will be based on the

servicing official's knowledge of the farmland values, the borrower's

repayment ability, and the proposed contract acreage. When the DALR$

calculations for restructuring are completed, the borrower will be

notified as set forth in paragraph (h) of this section.

(2) When jointly liable individual borrowers have been divorced and

one has withdrawn from the operation, the State Executive Director will

consider, upon the recommendation of the servicing official, the

release of liability for the individual who has withdrawn if the

following conditions are met.

(i) A divorce decree or property settlement document held the

withdrawing party not responsible for the loan payments;

(ii) The withdrawing party's interest in the security is conveyed

to the borrower with whom the loan will be continued;

(iii) The person withdrawing does not have any repayment ability

for the loan, and does not own any nonessential assets, as defined in

Sec. 1951.906;

(iv) The individual withdrawing has never received debt forgiveness

on another direct loan; and.

(v) The withdrawing party provides a copy of the divorce decree and

property settlement, evidence of conveyance, a current financial

statement, verification of income and debts, and Form 431-2 or Form RD-

1944-3 as applicable.

(3) If a completed application includes a request for a waiver from

the training required by paragraph (c)(5) of this section, the County

Committee will, prior to any offer of Primary Loan Servicing, evaluate

the borrower's knowledge and ability in production and financial

management and determine the need for additional training as set out in

Sec. 1924.74 of this chapter.

(b) Adverse determination. (1) If the approval official determines

that the borrower is not eligible for any of the Primary Loan Service

programs or

[[Page 10125]]

restructuring is not feasible because of debt held by other lenders,

the borrower will be advised of mediation or meeting of creditors as

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

meeting of creditors does not result in a feasible plan, the borrower

will be sent attachments 5 and 6, or 5-A and 6-A, of exhibit A of this

subpart, as applicable.

(2) Borrowers who do not buy out their debt at its current market

value, or who indicate in writing that they do not wish to buy out,

will automatically be considered for debt settlement if they submitted

an ``Application For Debt Settlement.'' Any appeal of a primary loan

servicing denial will be completed before the servicing official begins

any further processing of a Debt Settlement or Homestead Protection

request. If the adverse decision on restructuring is upheld on appeal,

the borrower will be considered for these options. The servicing

official will complete the processing of the borrower's application for

Debt Settlement in accordance with part 1956 of this chapter. Homestead

Protection will be processed in accordance with Sec. 1951.911. No

acceleration or foreclosure will occur until the appeal process has

been completed for servicing or debt settlement requests timely

submitted under this subpart.

(3) Applicants may request a negotiated appraisal in accordance

with paragraph (i) of this section if they object to the agency's

appraisal. Negotiation of the appraisal, if requested by the borrower,

will take place before mediation or a voluntary meeting of creditors.

(c) Eligibility. Applicants will be eligible for Primary Loan

Service programs if the servicing official has determined that they

meet all of the following requirements:

(1) The delinquency or financial distress does exist and is due to

circumstances beyond the control of the borrower, due to a reduction in

income which reduces cash flow to a point where outflows exceed

inflows, only as follows:

(i) The reduction in essential income from a non-farm job due to

unemployment or underemployment of the borrower-operator or spouse is

caused by circumstances beyond their control;

(ii) Illness, injury, or death of an individual borrower,

stockholder, member or partner who operates the farm;

(iii) Natural disasters, an outbreak of uncontrollable disease, or

uncontrollable insect damage which caused severe loss of agricultural

production that reduced repayment ability so that scheduled payments

cannot be made; or

(iv) Economic factors that are widespread and not limited to an

individual case, such as high interest rates or low market prices for

agricultural commodities as compared to production costs, that reduce

repayment ability so that the scheduled payments cannot be made.

(2) The borrower has acted in good faith.

(3) Borrowers who do not meet the eligibility requirements of this

section will be notified of the adverse decision by sending attachments

5 and 6, or 5-A and 6-A, of exhibit A of this subpart, as appropriate.

(4) Borrowers with sufficient nonessential assets to bring the FLP

loan account current are not eligible for assistance under this subpart

and will be processed in accordance with Sec. 1951.910 of this subpart.

(5) The borrower must agree to meet the training requirements of

Sec. 1924.74 of this chapter unless a waiver is granted in accordance

with that section. The training requirement applies to all primary loan

servicing programs.

(d) Feasibility determinations. The servicing official must

determine:

(1) That the borrower will be able to develop a feasible plan.

(2) If restructured, the loan will result in a net recovery to the

Government that will be equal to or greater than the net recovery value

from involuntary liquidation or foreclosure as calculated in accordance

with paragraph (f) of this section. A comparison with net recovery to

the Government, however, will not be made when establishing

conservation contracts under exhibit H of this subpart.

(e) Primary loan service programs. Any FLP borrower may request

Primary Loan Servicing Programs described in this subpart at any time

prior to becoming 90 days past due. However, borrowers must show that

they are not able to pay their debt as scheduled before the agency will

approve Primary Loan Servicing Programs. The agency will consider the

borrower's other assets in accordance with Sec. 1951.910 of this

subpart. Rescheduling, reamortization, consolidation, or deferral may

be utilized for any eligible borrower. Existing deferrals will be

cancelled at the same time additional primary loan servicing is

received. The loan will be entered into DALR$ as if the deferral were

already cancelled. If DALR$ shows that a borrower can develop a

feasible plan without a writedown at a lower cash flow margin than with

a writedown, that borrower will be provided the opportunity to choose

between restructuring with or without a writedown.

(1) Consolidation and rescheduling of OL and EO loans, EE

operating-type loans and EM loans made for subtitle B purposes

including EM loss loans. This subsection explains how to consolidate

and/or reschedule existing loans, providing the borrower agrees to such

actions. When the servicing official determines that consolidation and/

or rescheduling will assist in the orderly collection of the loan, the

servicing official should take such action provided all of the

following conditions exist:

(i) The borrower meets the eligibility requirements in paragraph

(c) of this section;

(ii) Such action is not taken to circumvent the FLP graduation

requirements;

(iii) The borrower's account is not being serviced by the OGC or

the U.S. Attorney and there are no plans to have the account serviced

by either of these offices in the near future;

(iv) Loans may be rescheduled or reamortized, as appropriate, to

bring the account current or to keep the account from becoming

delinquent. A sufficient number of notes including all delinquent notes

will be rescheduled to permit the development of a feasible plan of

operation;

(v) The borrower will comply with the highly Erodible Land and

Wetland Conservation provisions of exhibit M of subpart G of part 1940

of this chapter, if applicable;

(vi) Loans secured by real estate will not be consolidated and/or

rescheduled, until the servicing official reviews the Government's real

estate lien priority and value of security and decides that such an

action will be in the best interest of the Government and the borrower.

If there are any liens which were not in existence at the time the note

was signed, the servicing official will ask the OGC for an opinion as

to what lien position the Government will have if a new note is taken

unless a State supplement authorizing this action has been issued on

this subject;

(vii) Only loans of the same type will be consolidated;

(viii) EM actual loss loans will not be consolidated;

(ix) Loans serviced under subpart L of this part will not be

consolidated with another loan;

(x) Loans that have been deferred under this section will not be

consolidated and/or rescheduled during the deferral period;

(xi) Terms of consolidated and/or rescheduled loans are as follows:

[[Page 10126]]

(A) Consolidated and/or rescheduled loans will be repaid according

to the borrower's repayment ability, but will not exceed 15 years from

the date of the consolidation and/or rescheduling action, except:

(B) Repayment of loans solely for recreation and/or nonfarm

enterprise purposes may not exceed seven years from the date of the

consolidation and/or rescheduling action (the date the new note is

signed).

(C) Repayment of EE loans may not exceed 15 years from the date of

rescheduling.

(xii) Interest rates of consolidated and/or rescheduled loans will

be as follows:

(A) The interest rate for consolidated and/or rescheduled loans

will be the lesser of the current interest rate for that type of loan

or the lowest original loan note rate on any of the original notes

being consolidated and/or rescheduled. In the case of an OL-limited

resource loan, it will be the lesser of the current limited resource OL

loan rate or the original note rate. The interest rate for loans

rescheduled but not consolidated will be the lesser of the current

interest rate for that type of loan or the original loan note rate.

(B) At the time of the consolidation and/or rescheduling action, OL

loans that were not assigned a limited resource rate when the loan was

received, may be assigned a limited resource rate if:

(1) The borrower meets the requirements for the limited resource

interest rate, and

(2) A feasible plan cannot be developed at regular interest rates

and maximum terms permitted in this section.

(xiii) The original (old) note(s) will be marked ``Rescheduled''

and stapled to the new rescheduled promissory note and will be filed in

the operation file. Copy(ies) for the borrower's(s') case file should

be marked and stapled the same and filed in position 2 of the case

file. If a transfer is involved, assumption agreement(s) will be marked

and stapled with the note(s) and copies filed as indicated above. If

part of a note is written down, the written down note will be marked

``Rescheduled with Debt Write Down,'' and will be filed in the

operation file.

(xiv) For applications received before November 28, 1990, the

amount of outstanding accrued interest more than 90 days overdue and

any outstanding protective advances, as defined in Sec. 1965.11(b) of

subpart A of part 1965 of this chapter, made on the loan will be added

to the principal at the time of consolidation and/or rescheduling (the

date the new note is signed by the borrower). Protective advances are

not authorized for the payment of prior or junior liens except real

estate tax liens. See section II E of exhibit J of this subpart for an

explanation of how to schedule payment of interest not more than 90

days overdue; and

(xv) For new applications, the amount of outstanding accrued

interest and any outstanding protective advances, as defined in

Sec. 1965.11(b) subpart A of part 1965 of this chapter, made on the

loan will be added to the principal at the time of consolidation and/or

rescheduling (the date the new note is signed by the borrower) in

accordance with the provisions of exhibit J-1 of this subpart.

Protective advances are not authorized for the payment of prior or

junior liens except real estate tax liens.

(2) Reamortization of FO, SW, RL, RHF, EE, or EM loans made for

real estate purposes. When the servicing official determines that a

reamortization action will assist in the orderly collection of the

loan, the servicing official should take such action, provided:

(i) The borrower meets the eligibility requirements of 1951.909(c)

of this subpart;

(ii) Such action is not taken to circumvent the FLP graduation

requirements;

(iii) The borrower's account is not being serviced by the OGC or

the U.S. Attorney, and there are no plans to have the account serviced

by either of these offices in the foreseeable future;

(iv) A feasible plan for the borrower cannot be developed with the

existing repayment schedule. A sufficient number of notes, including

all delinquent notes, will be reamortized to permit the development of

a feasible plan of operation;

(v) The borrower will comply with the Highly Erodible Land and

Wetland Conservation requirements of exhibit M of subpart G of part

1940 of this chapter, if applicable;

(vi) Loans that have been deferred in this supbart will not be

reamortized during the deferral period unless the deferral is

cancelled;

(vii) Terms of repayment of reamortized loans are as follows:

(A) Reamortized installments usually will be scheduled for

repayment within the remaining time period of the note or assumption

agreement being reamortized. If repayment terms are extended, the new

repayment period may not exceed 40 years from the date of the original

note or assumption agreement or the useful life of the security,

whichever is less. EE loans for real estate purposes, which are secured

by chattels only, may be reamortized over a period not to exceed 20

years from the date of the original note or assumption agreement, or

the useful life of the security, whichever is less. RHF loans may not

exceed 33 years from the date of the original note or assumption

agreement.

(B) The Agency's lien priority may be affected if the final due

date of the original loan is extended. A State supplement will be

issued to provide instructions on the effect that a change in the final

due date has on security instruments and the actions necessary to

retain the Government's lien priority. The State supplement will also

include instructions for releasing the original security instrument

when a new one is obtained.

(viii) Interest:

(A) The interest rate will be the current interest rate in effect

on the date of reamortization (the date the new note is signed by the

borrower), or the interest rate on the original Promissory Note to be

reamortized, whichever is less. In the case of a limited resource loan,

it will be the limited resource FO or SW loan rate or the original loan

note rate, whichever is less.

(B) At the time of the reamortization, an FO or SW loan that was

not assigned a limited resource rate when the loan was received, may be

changed to a limited resource interest rate if:

(1) The borrower meets the requirements for a limited resource

interest rate,

(2) A feasible plan cannot be developed at regular interest rates

and at the maximum terms permitted in this section, and

(3) For SW loans, the loans funds were used for soil and water

conservation and protection purposes as set forth in Sec. 1943.66

(a)(1) through (a)(5) of subpart B of part 1943 of this chapter.

(C) For applications received before November 28, 1990, the amount

of accrued interest more than 90 days overdue and any protective

advances, as defined in Sec. 1965.11(b) of subpart A of part 1965 of

this chapter, charged to the borrower's account, will be added to the

principal at the time of the reamortization action (the date the new

note is signed by the borrower). Protective advances are not authorized

for the payment of prior or junior liens except real estate tax liens.

If there are no deferred installments, the first installment payment

under the reamortization will be at least equal to the interest amount

which will accrue on the new principal between the date the Form 1940-

17 is processed and the next installment due date. See section II

[[Page 10127]]

E of exhibit J of this subpart for an explanation of how to schedule

payments of interest not more than 90 days overdue. For new

applications, the amount of outstanding accrued interest and any

outstanding protective advances made on the loan will be added to the

principal at the time of reamortization (the date the new note is

signed by the borrower) in accordance with the provisions of exhibit J-

1 of this subpart.

(ix) The original (old) note(s) will be marked ``Reamortized'' and

will be stapled to the new promissory note and filed in the operational

file. Copies for the borrower(s) case file should be marked and stapled

the same and filed in position 2 of the case file. If a transfer is

involved, assumption agreement(s) will be marked and stapled with the

note(s) and copies filed as indicated above. If a part of a note is

written down, the written down note will be marked ``Reamortized with

Debt Writedown'' and will be filed as indicated above in this

paragraph.

(3) Deferral of existing OL, FO, SW, RL, EM, EO, RHF, and EE

loans.--(i) Loan deferrals. Deferrals will be considered only after it

has been determined that consolidation, rescheduling, and

reamortization, in accordance with this subpart, will not provide a

feasible plan.

(ii) Conditions. In order to be considered for a deferral, the

borrower must meet both of the following conditions:

(A) The need for the deferral must be temporary. To be temporary

means that the borrowers will be able to show to the satisfaction of

the servicing official that they will be able to resume payment on the

debt by the end of the deferral period, or the new payments, as

established by using consolidation, rescheduling, or reamortization can

be resumed at the end of the deferral period; and

(B) Continuation of loan payments as presently scheduled without

change, will unduly impair the borrower's standard of living. An unduly

impaired standard of living is a condition whereby the borrower, due to

circumstances beyond the borrower's control, is unable to pay essential

family living expenses (partnerships, joint operators, corporations,

and cooperatives do not have family living expenses), pay normal farm

operating expenses, including reasonable and customary hired labor and/

or salary paid to the operator(s) of a partnership, a joint operation,

a corporation, or a cooperative, maintain essential chattels and real

estate, and meet the scheduled payments of all debts.

(iii) Approval offical determinations. The approval official must:

(A) Determine that the borrower meets the eligibility requirements

of Sec. 1951.909(c) of this subpart;

(B) Determine that a deferral of payments is necessary and

appropriately document the conditions causing the need for deferral;

(C) If a borrower owns 50 acres or more of marginal land as defined

in exhibit G of this subpart and a feasible plan cannot be developed

after consideration of a deferral, the servicing official will inform

the borrower about the Softwood Timber (ST) loan program authorized by

exhibit G of this subpart by sending Attachment 1 of exhibit G of this

subpart by certified mail, return receipt requested, within 5 days

after the adverse deferral determination. If the borrower requests the

servicing official to determine that an ST loan may allow the borrower

to continue to farm, within 15 days of the borrower's receipt of

attachment 1, the servicing official will determine if the borrower is

eligible, based on criteria as set forth in exhibit G of this subpart.

If the borrower is eligible the servicing official will help the

borrower to develop a plan to determine if a feasible operation can be

developed utilizing this program. The discussion will be documented in

the borrower's case file.

(iv) Loan deferral considerations. The servicing official will

assist the borrower in completing a typical-year plan. If there is no

typical year, the servicing official will assist the borrower with

completing a plan of operation for each year of the deferral. The plans

must be considered in DALR$.

(A) A sufficient number of loans must be considered for deferral to

permit the borrower to have a feasible plan.

(B) A deferral plan may include a reorganization of the farming

operation, including the use of new enterprises, to overcome existing

financial, economic or other limitations of the operation. If the

proposed restructuring requires capital expenditures, a subordination

or additional loan will be considered. Deferral of additional loan

installments beyond those needed to allow the borrower to develop a

feasible plan will not be used to create additional cash reserve for

capital purchases. Such purchases are not considered operating

expenses.

(C) A typical year during the deferral period is a year which most

closely represents the borrower's average operation for the entire

deferral period. There may be no typical year for farming or ranching

operations undergoing a major reorganization. If there is no typical

year, then it will be necessary to develop a plan of operation for each

year of the deferral. The plans must be considered in DALR$ to

determine if each plan is feasible.

(D) The deferral of loan installments is not intended to create a

high net cash reserve where revenue substantially exceeds expenses. If

the deferral of a complete note would cause a high net cash reserve

during the entire deferral period, a full deferral should not be

granted. In such a case, a partial deferral should be considered to

obtain a feasible plan of operation. The same approach should be used

for situations in which there is no typical year and debt payments must

vary throughout the deferral period.

(E) The borrower must have feasible plans of operation to support

any deferral request. Plans of operation in conjunction with loan

deferrals must be realistic and supported by the borrower's actual

records.

(v) Additional and subsequent deferrals. If, during the period of

the initial deferral, the borrower is unable to make the scheduled

payments, the borrower may again request primary loan service actions.

When considering primary servicing actions, existing deferred notes

must be entered into DALR$ as if they had not been deferred. If it is

necessary to defer additional loans to develop a feasible plan, such

action will be taken if the deferral will result in a greater net

recovery to the Government than debt writedown. Borrowers may obtain

subsequent deferrals after the deferral period provided the conditions

of this subsection are met.

(vi) Term and interest rate. A deferral period will not exceed five

(5) annual installments. Deferral interest rates will be determined as

specified in paragraphs (e)(1)(xii) and (e)(2)(viii) of this section.

(A) All loans being deferred will be consolidated, rescheduled or

reamortized, as applicable. The promissory note rescheduled,

reamortized or consolidated for the deferral will show ``zero'' as the

installments due during the period of the deferral if the whole note is

deferred and will not be changed during the deferral period unless the

conditions of paragraph (e)(3)(v) of this section are met. The

servicing official will determine the amount of interest that will

accrue during the deferred period. This interest will be repaid in

equal amortized installments during the term of the loan remaining

after the deferral period. The calculated installments will be added to

the remaining installments for the remaining principal balance and

[[Page 10128]]

inserted on the promissory note as a scheduled installment for the

remaining period of the loan. The Finance Office will apply the

payments made on the note in accordance with subpart A of this part.

For applications received before November 28, 1990, the amount of

outstanding accrued interest more than 90 days overdue and any

outstanding protective advances, as described in Sec. 1965.11(b) of

subpart A of part 1965 of this chapter, made on the loan will be added

to the principal at the time of the deferral (the date the new note is

signed by the borrower). Protective advances are not authorized for the

payment of prior or junior liens except real estate taxes. See section

II E of exhibit J of this subpart for an explanation of how to schedule

payment of interest not over 90 days overdue. For new applications, the

amount of outstanding accrued interest and any outstanding protective

advances made on the loan will be added to the principal at the time of

deferral (the date the new note is signed by the borrower).

(B) The field office will process the deferral via the Automated

Discrepancy Processing System (ADPS).

(C) If a deferral is approved, the borrower's name and the date of

approval will be recorded and maintained in accordance with subpart A

of part 1905 of this chapter. The Finance Office will provide the

county office with a quarterly status report for each borrower who has

received a deferral.

(D) Six months prior to the end of the deferral period the

servicing official will notify the borrower in writing of the

expiration of the deferral and the amount and date of the borrower's

first upcoming installment of the debt.

(E) A deferral will be cancelled if the loan is later restructured

in accordance with this subpart. The cancellation will be processed via

ADPS.

(vii) Increase in repayment ability. At the time the servicing

official makes the analysis required by Sec. 1924.60 of subpart B of

part 1924 of this chapter, the servicing official will determine

whether the borrower has had an increase in income and repayment

ability. If an income increase is substantial enough to enable the

borrower to graduate, the case will be handled in accordance with

subpart F of this part. If an increase would enable the borrower to

make some payments during the deferral period, the servicing official

will, in writing, ask the borrower to sign a Form 440-9,

``Supplementary Payment Agreement,'' within 30 days of the date of the

written request. The borrower will be provided appeal rights. When

doing the analysis to determine whether there is a substantial increase

in income and repayment ability, the servicing official will determine

whether this increase exists by comparing it to the original plan

developed in the deferral application and also to plans developed for

the current operating year to determine that the excess income is not

needed for essential living and operating expenses or scheduled debt

payment. Refusal to sign Form 440-9 will be considered a non-monetary

default and will be handled as set forth in Sec. 1951.907(e) of this

subpart. If the borrower signs Form 440-9 and later does not honor the

terms and conditions of the repayment agreement, the borrower's account

will be handled as set forth in Sec. 1951.907 of this subpart.

(4) Writedown. The following conditions shall be met in order for a

borrower to receive writedown of FLP debts:

(i) No other Primary Loan Service programs, including deferral, nor

any combination thereof, will produce a feasible plan that will permit

the borrower to continue the operation. However, if DALR$ shows that a

borrower can develop a feasible plan without a writedown at a lower

cash flow margin than with a writedown, then the borrower will be

provided the opportunity to choose between restructuring with or

without a writedown;

(ii) The borrower must never have received debt forgiveness on

another direct loan at any time;

(iii) The amount written off may not exceed $300,000.

(iv) A feasible plan must be developed that will result in a

present value of loans to be repaid to the Government which is equal to

or more than a net recovery from an involuntary liquidation or

foreclosure;

(v) The borrower must comply with the Highly Erodible Land and

Wetland Conservation requirements of exibibit M of subpart G of part

1940 of this chapter, if applicable;

(vi) The borrower must agree to a Shared Appreciation Agreement if

the loan is secured by real estate;

(vii) Loans written down with the Primary Loan Servicing programs

will be rescheduled, reamortized, or deferred in accordance with

paragraph (e) of this section; and

(viii) Borrower must agree to a lien on certain assets as provided

in 1951.910 of this subpart, including nonessential assets, where the

net recovery value of these assets was not paid to the Agency. (The

Agency's lien will be taken only at the time of closing the

restructured loans); and

(ix) Debt reduction received through conservation easements or

contracts will not be counted toward the limitations in paragraphs

(e)(4) (ii) and (iii) of this section.

(f) Determining value of net recovery from involuntary liquidation.

After receipt of a complete application for Primary and Preservation

Loan Service programs, the servicing official will make the

calculations required in this section and notify the borrower of the

result. For New Applications, nonessential assets will be considered in

accordance with Sec. 1951.910(a) of this subpart.

(1) The servicing official will use the computer program, DALR$, to

determine the net recovery to the Government equivalent to involuntary

liquidation of the collateral securing the FLP debt in accordance with

Exhibit J or J-1 of this subpart, ``Debt and Loan Restructuring

System,'' as applicable, and will follow the guidance provided by State

supplements and Exhibit I of this subpart, ``Guidelines for Determining

Adjustments for Net Recovery Value of Collateral.'' The servicing

official will determine the current market value of the collateral in

the borrower's possession including tangible property in existence and

of record in accordance with subpart E of part 1922 of this chapter for

real estate property, and on Form 440-21, ``Appraisal of Chattel

Property.'' The servicing official also will determine the current

market value of any bank accounts, stocks and bonds, certificates of

deposit and the like pledged to and/or in the possession of the Agency.

Collateral may include real estate, chattels, tangible property and

property such as bank accounts, stocks and bonds, certificates of

deposit, and the like. Chattels include machinery, equipment,

livestock, growing crops, and crops in storage. Tangible property may

include accounts receivable (including Government payments),

inventories, supplies, feed, etc. From the current market value of the

collateral in the borrower's possession, or pledged to and/or in the

possession of the Agency (in the case of bank accounts, stock and

bonds, certificates of deposit, and the like), the following

adjustments will be made:

(i) Subtract the amount which would be required to pay prior liens

on the collateral;

(ii) Subtract taxes and assessments, depreciation, management

costs, and interest cost to the Government based on the 90-day Treasury

Bills (published in a National Office issuance). Taxes

[[Page 10129]]

and assessments, depreciation, management costs, as well as interest

costs will be calculated on the current market value of the property

for the average inventory holding period. The holding period for

suitable inventory farm property will be established by each State as

of July 1 each year using Report Code 597. The months that the suitable

property is under lease will not be included in determining the average

holding period for purposes of this subpart;

(iii) Adjust the current market value for estimated increases or

decreases in value of the property for the holding period specified in

paragraph (f)(1)(ii) of this section;

(iv) Subtract resale expenses, such as repairs, commissions, and

advertising;

(v) Other administrative and attorney's expenses;

(vi) Add income which will be received after acquisition; and

(vii) For a borrower who submits a ``new application'' as defined

in Sec. 1951.906 of this subpart, add the value of any collateral that

is not in the borrower's possession and that has not been approved on

the Form 1962-1 or released in writing by the Agency, minus the value

of any prior lienholder's interest. Collateral not in possession of the

borrower is defined as any property specified in any agency security

instruments for such borrower's FLP debt that the borrower has disposed

of and that the Agency has not approved or released in writing. The

value of normal income security not in possession of the borrower will

not be added to the NRV if it could be post-approved for release in

accordance with Sec. 1962.17 of subpart A of part 1962. The value of

any collateral that is not in the possession of the borrower will be

determined by the servicing official based upon the best information

available about the value of the collateral on or about the time of its

disposition. In determining the value of such property, the Agency will

use such sources as the publications Hotline (Farm Equipment Guide) and

Official Guide (Tractor and Farm Equipment), sale prices at local

public auctions, public livestock sale barn prices, comparable real

estate sales, etc. Agency appraisal forms will be used to record the

value of the missing collateral and the basis for the valuation.

(2) The State Executive Director will determine costs of

involuntary liquidation of collateral for farm loans by analyzing the

costs of involuntary liquidation within the geographic areas of their

jurisdiction. The State Executive Director also will issue a State

supplement of estimated costs and average holding time to be used as

guidelines by servicing officials in making calculations of net

recovery value under this subsection. Such cost analyses will be

carried out in July of each year. The State Executive Director will

consult with State Executive Directors of adjoining States, other

lenders, real estate agents, auctioneers, and others in the community

to gather and analyze the information specified in this subpart.

(g) Determining net recovery value resulting from primary

servicing. The value of the restructured debt will be based on the

present value of payments the borrower would make to the Agency using

any combination of primary loan service programs that will provide a

feasible plan. Present value is a calculation concept which assigns a

lower current value to dollars received in later years than to dollars

received at the present time. Servicing officials will use a discount

rate based on 90-day Treasury Bills as of the date the borrower files

the application for restructuring. The National Office will publish the

90-day Treasury Bill rate in a National Office issuance.

(h) Notification requirements. In those instances where the

applicable notice is sent certified mail, and the certified mail is not

accepted by the borrower, the servicing official will immediately send

the documents from the certified mail package to the borrower's last

known address, first class mail. The appropriate response time will

commence 3 days following the date of mailing.

(1) Offer. If the calculations show that the value of the

restructured debt is greater than or equal to the NRV as determined in

paragraph (f) of this section, the servicing official will forward to

the State Executive Director the borrower's Farm and Home Plan and the

original printout of the DALR$ calculations. The servicing official

will certify that the borrower meets all requirements for debt

restructuring with the writedown amount specified on the printout. The

State Executive Director's authorization to the servicing official to

proceed with the writedown will be evidenced by the State Executive

Director's signature affixed to the original copy of the DALR$ printout

returned to the servicing official. Within 60 days after receiving a

complete application, the servicing official will notify the borrower

of the results of the calculations by sending Exhibit F of this

subpart, certified mail, return receipt requested, and offer to

restructure the debt. A printout of the DALR$ calculations will be

attached to Exhibit F of this subpart.

(i) Exhibit F of this subpart will inform the borrower(s) of the

Agency's offer to restructure the debt, the right to request a copy of

the agency's appraisal, and other options which may include payment of

nonessential assets and negotiation of the appraisal. If the borrower

accepts the offer within 45 days following any appeal, the servicing

official will restructure the debt within 45 days after receipt of the

written notice of the borrower's acceptance.

(ii) If the borrower does not respond to exhibit F within 45 days,

or declines the Agency's offer to restructure the debt without

requesting an appeal or negotiation, the servicing official will send

attachments 9 and 10, or 9-A and 10-A of exhibit A of this subpart, as

applicable. If the borrower requests an appeal and the Agency is

upheld, attachments 9-A and 10-A will not be sent until the borrower is

given the opportunity to accept the original offer within 45 days

following the final appeal decision. These borrowers will not have an

additional opportunity to appeal the offer in attachments 9-A and 10-A.

If attachment 10 or 10-A is not returned within 30 days of the

borrower's receipt of the attachments, the account will be accelerated

or foreclosed in accordance with Sec. 1955.15 of subpart A of part 1955

of this chapter.

(iii) If the borrower submitted a new application and requests a

negotiated appraisal within 30 days of receiving exhibit F, the

negotiation of the appraisal will be completed in accordance with

paragraph (i) of this section.

(A) After completing a negotiation of the appraisal, if the debt

can be restructured, the servicing official will send exhibit F to the

borrower making the new offer in accordance with paragraph (h)(1)(i) of

this section.

(B) If the negotiated appraisal changes the DALR$ calculations so

that the debt cannot be restructured, the borrower will be sent exhibit

E, ``Notification of Adverse Decision for Primary Loan Servicing,

Mediation or Meeting of Creditors and Other Options,'' in accordance

with paragraph (h)(3) of this section. The appraisal cannot be

negotiated again and is not subject to appeal.

(2) Conservation contracts. If the borrower returned attachment 2

or 4 to Exhibit A of this subpart within 60 days, requesting a

conservation contract by submitting a map or aerial photo showing the

portion of the farm and approximate acres to be considered in the

request, the servicing official will proceed with processing the

request for debt relief as set forth in Exhibit H of this subpart.

Borrowers who did not

[[Page 10130]]

previously ask for this option can make a request for the contract at

this time by submitting a map or copy of an aerial photo indicating

that portion of the farm and appropriate acres to be considered.

Borrowers must submit the photo within 30 days of receiving Exhibit E

of this subpart.

(3) Mediation/voluntary meeting of creditors. If the DALR$

calculations indicate a feasible plan of operation cannot be developed

considering all Primary Loan Service Programs, Softwood Timber, or

Conservation Contracts, the servicing official will take the following

actions within 15 days from the date of the determination that the

borrower's debt cannot be restructured as requested:

(i) Exhibit E, ``Notification of Adverse Decision for Primary Loan

Servicing, Mediation or Meeting of Creditors and Other Options,'' of

this subpart will be sent to the borrower in all cases by certified

mail, return receipt requested. A printout of the DALR$ calculations

will be attached to exhibit E of this subpart.

(A) When the borrower is in a State with a USDA Certified Mediation

Program, paragraph I in exhibit E will be used. Paragraph I tells the

borrower that the Agency is requesting mediation with the borrower's

creditors in an effort to obtain debt adjustment which would permit the

development of a feasible plan of operation. If the borrower submitted

a new application, the borrower must respond to exhibit E of this

subpart if the borrower wants to negotiate the Agency's appraisal in

accordance with paragraph (i) of this section. The borrower may request

a copy of the Agency's appraisal. The Agency must participate in USDA

Certified Mediation Programs whether or not the borrower responds to

exhibit E of this subpart. Any negotiation of the appraisal must be

completed prior to any mediation.

(B) In States without a certified mediation program, exhibit E of

this subpart will be sent by certified mail, return receipt requested,

to inform the borrower about the applicable options which may include a

request for a copy of the Agency's appraisal, a meeting of creditors,

payment of nonessential assets, negotiation of the appraisal and a

request for an independent appraisal. Paragraph I of exhibit E of this

subpart will be deleted. The purpose of the voluntary meeting of

creditors is to develop a feasible plan. Paragraph II of exhibit E of

this subpart, therefore, will be used to offer a voluntary meeting of

creditors when the borrower has undersecured creditors who hold a

substantial part of the borrower's total debt. A ``substantial part of

the borrower's total debt'' means that the debt of the undersecured

creditors is large enough so that if it were written down to zero, a

feasible plan could be developed considering all primary servicing

options. The servicing official will document such determination in the

case file, and the servicing official will not offer to carry out a

voluntary meeting of creditors when the undersecured debt is not a

substantial part of the borrower's total debt. Such borrower will be

informed later of additional rights, including appeal rights, when the

Agency sends attachments 5 and 6, or attachments 5-A and 6-A, of

exhibit A of this subpart. Any appeal may challenge the Agency's

determination not to offer a voluntary meeting of creditors because the

undersecured debt is not a substantial part of the borrower's total

debt.

(C) Any negotiation of the Agency's appraisal must be completed

prior to the meeting of creditors or mediation. If the borrower does

not request any of the options offered in exhibit E of this subpart

within 45 days, the servicing official will send attachments 5 and 6,

or 5-A and 6-A of exhibit A of this subpart, as applicable, certified

mail, return receipt requested.

(ii) If mediation or the voluntary meeting of creditors is held but

is not successful, the borrower will be sent attachments 5 and 6, or 5-

A and 6-A, of exhibit A of this subpart, as applicable, certified mail,

return receipt requested, within 15 days of the unsuccessful mediation

or meeting. The DALR$ computer printout will be attached to attachment

5 or 5-A of exhibit A of this subpart.

(4) Buyout of loans. The following notification and processing

provisions also apply to buyout as offered in Attachments 5 and 5-A of

Exhibit A of this subpart. After July 3, 1996, buyout will be at the

Current Market Value (CMV) of the security.

(i) Eligible borrowers will have 90 days after the receipt of the

notification of ineligibility for Primary Loan Service programs to buy

out their loans at Current Market Value, or the balance of their unpaid

FLP debt, whichever is lower.

(ii) The present value of the restructured loan must be less than

the net recovery value to receive buyout.

(iii) The Agency will not provide direct or guaranteed credit for a

buyout.

(iv) The borrower must never have received debt forgiveness on

another direct loan. (Applies if any debt will be written off.)

(v) The amount written off may not exceed $300,000.

(vi) The borrower must have acted in good faith.

(vii) Debt reduction received through conservation easements or

contracts will not be counted toward the limitations in paragraphs

(h)(4) (iv) and (v) of this section.

(viii) The mortgage or deed of trust will be released in accordance

with paragraph (k) of this section.

(ix) The State Executive Director must approve the buyout prior to

offering buyout to the borrower if the Agency will be writing off any

debt.

(i) Administrative appeals and negotiation of appraisals.--(1)

Appeals. The time limit to pay the current market value of the

security, as set out in paragraph (h)(4) of this section, will start on

the day the borrower receives the final appeal or review decision

upholding the initial decision. The borrower will have conclusively

presumed to have received that decision within 3 days of mailing.

(2) Appeal process. (i) If the administrative appeal process

results in a determination that the borrower is eligible for Primary

Loan Servicing, the servicing official will process the request

pursuant to Sec. 1951.909 of this subpart. The information used will be

that which the appeal officer used in making the decision on the

appeal, unless stated otherwise in the final appeal decision letter. In

cases of debt restructure resulting from appeals, the interest rate

will be the lesser of the current rate or the original note rate on the

date of the closing of the transaction. If implementation of the appeal

decision would cause writedown or writeoff of more than $300,000

because of interest accrued after the adverse decision, the servicing

official will process the action so as to complete the transaction.

(ii) If the administrative appeal process results in a

determination that the borrower is ineligible for Primary Loan

Servicing, the servicing official will send Exhibit K and Attachment 1

of this subpart and continue processing any application for debt

settlement that may have been submitted in accordance with subpart B of

part 1956 of this chapter. If the borrower does not return Attachment 1

of Exhibit K within 15 days of the date that it is sent, the servicing

official will continue to process the application for Preservation Loan

Servicing and any debt settlement. The account will not be accelerated

or foreclosure will not continue until the borrower has the opportunity

to appeal any denial of the Preservation Loan Servicing and any Debt

Settlement request. If the borrower returns Attachment 1 of Exhibit K

within 15

[[Page 10131]]

days of its mailing, the account will be accelerated.

(3) Appraisal appeals. (i) Borrowers appealing the current market

appraisal completed by the Agency may obtain an appraisal by an

independent appraiser selected from a list of at least three names

provided by the servicing official. A borrower who submitted a new

application may appeal the Agency's appraisal, if it has not previously

been negotiated under paragraph (i)(4) of this section, and the denial

of other issues of Primary Loan Service programs in which the

appraisal, as part of the NRV calculation, is relevant. The cost of the

independent appraisal must be paid by the borrower. The borrower will,

upon request, have access to the case file and receive a copy of the

Agency's appraisal. The independent appraiser must be a State certified

general appraiser.

(ii) The appraisal report must conform to subpart E of part 1922 of

this chapter for real estate and Form 440-21 for chattels.

(iii) If either the servicing official or the borrower discovers

any mathematical or property description errors in the appraisal prior

to or at the time of the review and comparison, necessary corrections

may be made if both parties agree. The party discovering the error must

contact the other for a meeting to approve the corrections.

(iv) If the Agency's appraisal and the borrower's independent

appraisal vary in value by five percent or less, the borrower will

select the appraisal to be used for servicing under this subpart.

(4) Negotiation of appraisals. A borrower who submits a new

application may request to negotiate the appraisal one time only.

Negotiation of appraisals is offered in Exhibits E and F of this

subpart, as discussed in paragraph (h) of this section. All appraisals

used in the negotiations must reflect the value of the property as of

the same time frame as the Agency's initial appraisal. Errors will be

handled in accordance with paragraph (i)(3)(iii) of this section.

(i) The borrower can request the list of independent appraisers

from the servicing official on Attachment 2 of Exhibits E and F of this

subpart. The borrower must provide the servicing official with a copy

of his or her independent appraisal within 30 days of requesting

negotiation. The borrower must pay for this independent appraisal. The

borrower's independent appraiser and appraisal report must meet the

qualifications described in paragraph (i)(3)(ii) of this section, but

the independent appraiser need not be on the Agency's list of qualified

appraisers. If the Agency's appraisal and the borrower's independent

appraisal vary in value by five percent or less, the borrower will

select the appraisal to be used for servicing under this subpart. No

further negotiation will occur.

(ii) If the two appraisals differ by more than five percent, the

servicing official will give the borrower a list of qualified,

independent appraisers. The borrower will select one appraiser from the

Agency's list to conduct a third appraisal. The appraiser cannot have

conducted either the Agency's or the borrower's independent appraisal,

and must meet the qualifications set out in paragraph (i)(3) of this

section. The borrower, the appraiser and the servicing official will

complete and sign the Appraisal Agreement (Attachment 3 of Exhibit F of

this subpart). The appraiser will be sent a copy of the appraisal

standards, subpart E of part 1922 of this chapter, for real estate and

Form 440-21 for chattels. The borrower will submit to the servicing

official the original or a copy of the third appraisal and its

attachments and the appraiser's bill. The Agency will pay 50 percent of

the cost. The borrower is responsible for paying the appraiser directly

the remaining 50 percent of the cost.

(iii) Following the completion of the third appraisal, the three

appraisals will be compared by the servicing official, who will average

the two that are the closest in value. The average of the two closest

in value will become the final appraised value. Errors will be handled

in accordance with paragraph (i)(3)(iii) of this section.

(j) Processing of writedown. Borrowers who are eligible for Primary

Loan Service Programs with writedown will have their loans rescheduled

or reamortized in accordance with this subpart. All loan servicing

actions approved in connection with the writedown must take place

simultaneously. The borrower and servicing official will complete

exhibit D to this subpart, ``Shared Appreciation Agreement.'' Exhibit D

provides for recapture as specified in 1951.914 of this subpart of a

portion of any appreciation in the value of the real property securing

the debt remaining after the writedown. The DALR$ computer program will

be used to determine the notes to be written down.

(1) A separate Form 1940-17, ``Promissory Note,'' will be used for

each note or assumption agreement being reamortized.

(2) A Form 1940-17 will be completed, signed, and distributed as

provided in the FMI.

(3) The loan servicing action date of approval is also the date

that will be inserted on the rescheduled or reamortized Form 1940-17 in

accordance with the provisions in the ADPS manual when establishing an

equity record.

(4) A Form 1940-17 may be processed provided the County Office has

possession of the original note being reamortized. If the County Office

does not have possession of the original note, the servicing official

will ask the Finance Office to return the original note so that it is

in the County Office before Form 1940-17 is processed.

(5) The field office will process the reamortization or

consolidation via the Automated Discrepancy Processing System (ADPS) in

accordance with Form 1940-17, and complete exhibit D of this subpart.

(6) The original (old) note(s) will be marked ``Rescheduled or

Reamortized with Writedown of Debt'' and stapled to the new rescheduled

or reamortized promissory note(s) and will be filed in the promissory

note file in the operation file. Copies for the borrower(s) case file

should be marked and stapled the same and filed in position 2 of the

case file. If a transfer is involved, assumption agreement(s) will be

marked and stapled with the note(s) and copies will be filed as

indicated above.

(7) A lien will be taken on assets in accordance with Sec. 1951.910

of this subpart.

(k) Real estate liens. The Agency's real estate liens will be

maintained even if the writedown of the borrower's real estate debt

results in all real estate debts to the Agency being written down. The

Agency's real estate lien will not be subordinated to increase the

amount of the prior liens during the shared appreciation period. Shared

appreciation agreements will be serviced in accordance with

Sec. 1951.914 of this subpart. Upon payment by the borrower of current

market value in a buyout, the original mortgage or deed of trust will

be released on real estate for the FLP loans bought out. The notes will

be marked ``Satisfied at Current Market Value'' and returned to the

debtor or the debtor's legal representative. Existing net recovery

buyout recapture agreements will be serviced in accordance with

Sec. 1951.913 of this subpart.

(l) Non-real estate liens. If a borrower's FLP loan(s) were not

secured by real estate, there will be no recapture and the borrower

will not be required to enter into a recapture agreement. Upon payment

by the borrower of the current market value in a buyout, the original

security instruments will be released on

[[Page 10132]]

chattel security for the FLP loans bought out. These notes will be

marked ``Satisfied at Current Market Value'' and returned to the debtor

or the debtor's legal representative.

(m) Notes. Notes evidencing real estate debts written down in full

or written off as a result of Primary Servicing will be returned to the

debtor at the end of any recapture period. If there is no recapture

period, the notes will be returned when the County Office verifies that

the transaction has been recorded in the Finance Office. For a market

value buyout, the original and copies of the notes will be marked

``Satisfied by Approved Current Market Value Buyout.'' For writedown in

full, the original and copies of the notes will be marked ``Satisfied

by Approved Debt Writedown.'' If a note is only partially written-down,

it will be returned to the debtor when paid in full. The original and

copies of such notes will be marked ``Satisfied by Approved Partial

Writedown.'' Original chattel security notes will be marked ``Satisfied

at Current Market Value'' and released to the debtor upon payment of

their current market value in a buyout.

15. Section 1951.910 is revised to read as follows:

Sec. 1951.910 Consideration of borrower's other assets for new

applications.

If a delinquent borrower has other assets that are not serving as

collateral for the FLP debt, the servicing official will determine

whether these assets are nonessential, as defined in Sec. 1951.906 of

this subpart.

(a) Nonessential assets. The net recovery value (NRV) of

nonessential assets must be considered when the borrower's application

is processed for loan servicing in accordance with this subpart. The

Agency will not write down or write off any debt or portion of a debt

that could be paid by liquidation of nonessential assets, or by payment

of the loan value of the assets that could be received from non-Agency

sources. The loan value of the assets will be considered as the same as

the NRV of the assets.

(1) Determining the value of nonessential assets. The NRV of the

nonessential assets is the market value less any prior liens and any

selling costs which may include such items as taxes due, commissions

and advertising costs. The determination of NRV of nonessential assets

does not include a deduction for carrying the property in inventory.

The market value of the nonessential assets must be estimated by a

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

chapter for real estate property, and on Form 440-21, ``Appraisal of

Chattel Property,'' for chattels. Borrowers who disagree with the

Agency's appraisal may request a negotiated appraisal or appeal in

accordance with Sec. 1951.909(i) of this subpart.

(2) Eligibility. If the NRV of the nonessential assets is

sufficient to bring the delinquent FLP account current, the borrower is

not eligible for primary loan servicing including buyout in accordance

with this subpart. The borrower, instead, will be sent attachments 5-A

and 6-A of exhibit A of this subpart. The servicing official will

indicate the values of both the NRV of nonessential assets and the FLP

security on attachment 5-A. The borrower's nonessential assets and

their NRVs also will be listed on attachment 5-A. The borrower will

have 90 days to bring the FLP account current from the date of the

receipt of attachments 5-A and 6-A. If the borrower does not pay

current within this time period, the account will be accelerated after

all appeal rights have been exhausted. If the NRV of the nonessential

assets is not sufficient to bring the FLP account current, then the

nonessential assets will be considered as set out in paragraph (a)(3)

of this section.

(3) Inclusion in NRV. If the NRV of the nonessential assets is not

sufficient to bring the FLP account current, then the servicing

official will add the NRV of these assets to the NRV of the FLP

collateral according to Sec. 1951.909(f) of this subpart. The servicing

official will encourage, but not require the borrower to liquidate

those nonessential assets and apply the proceeds to his/her outstanding

debts. If the borrower liquidates the nonessential assets, or obtains a

loan against the equity in such assets, and pays the Agency the NRV of

the nonessential assets within 45 days of receiving exhibit E or F of

this subpart, as appropriate, the payment will be subtracted from the

FLP debt and then the servicing official will recalculate the debt

restructuring without considering the NRV of the nonessential assets.

If the borrower does not sell these assets, the servicing official will

include their NRV in calculating the debt restructuring and take a lien

on the assets at the time of closing the restructured loan.

(b) Lien on certain assets. Delinquent borrowers must pledge

certain assets, essential and nonessential, unencumbered to the Agency

as security at the time FLP loans are restructured, as follows:

(1) The best lien obtainable will be taken on all assets owned by

the borrower. When the borrower is an entity, the best lien obtainable

will be taken on all assets owned by the entity, and all assets owned

by all members of the entity. Different lien positions on real estate

are considered separate and identifiable collateral.

(2) Security will include, but is not limited to, the following:

land, buildings, structures, fixtures, machinery, equipment, livestock,

livestock products, growing crops, stored crops, inventory, supplies,

accounts receivable, certain cash or special cash collateral accounts,

marketable securities, certificates of ownership of precious metals,

and cash surrender value of life insurance.

(3) Security will also include assignments of leases or leasehold

interests having mortgageable value, revenues, royalties from mineral

rights, patents and copyrights, and pledges of security by third

parties.

(4) The exceptions set forth in Sec. 1941.19(c) of subpart A of

part 1941 of this chapter apply.

(5) These assets will be considered as additional security for the

loans as well as any shared appreciation agreement. The value of the

essential assets will not be included in the NRV calculation to

determine restructuring. The Agency's lien will be taken only at the

time of closing the restructured FLP loans.

16. Section 1951.911 is revised to read as follows:

Sec. 1951.911 Homestead protection.

(a) General. If the Agency has only chattel property as security,

preservation servicing will not be offered. Borrowers who submitted a

complete application prior to April 4, 1996 will be considered for

leaseback/buyback in accordance with the previous CFR volume containing

revisions as of January 1, 1996 and Agency procedures, (available in

any county office.) Inventory property which is located within the

boundaries of an Indian reservation of a Federally recognized Indian

Tribe and the previous owner is a member of the Indian Tribe that has

jurisdiction over that reservation should be handled in accordance with

Sec. 1955.66(d) of subpart A of part 1955 of this chapter.

(b) Homestead protection. Borrowers and former borrowers who had or

have an FLP loan secured by the real property containing the dwelling

owned by them and used as their principal residence may apply for

homestead protection before or after the Agency acquires the property.

Real property that is in inventory as of the effective date of the

statute or is acquired in the future will be considered for homestead

protection as set forth in this subpart.

[[Page 10133]]

(1) Purpose. The purpose of the Homestead Protection Program is to

permit borrowers or former borrowers to retain their dwellings through

a lease or purchase. Such lease or purchase could permit these

individuals to have a home and providing an opportunity to continue to

farm.

(2) Notification and processing. If a feasible plan for

restructuring debt cannot be developed using Primary Loan Service

programs, the borrower will be advised by the use of Exhibit K with

Attachment 1 of this subpart that the Agency will continue with the

processing of Preservation Service programs, if applicable. A borrower

who desires homstead protection must request it in accordance with

Sec. 1951.907. A borrower who meets the eligibility requirements of

paragraph (b)(3) of this section will be permitted to retain possession

of the homestead, in accordance with paragraph (b)(2)(ii) of this

section, before title is acquired or under a lease with an option to

purchase after title is acquired.

(i) Determining homestead protection property. (A) The homestead

protection property will include the borrower's principal residence and

not more than 10 acres of adjoining land that is used to maintain the

borrower's family and a reasonable number of farm service buildings

located on land adjoining the residence which are useful to the

occupants of the dwelling.

(B) The servicing official will review the proposed homestead

protection property. If the servicing official does not agree with the

proposed shape or size of the property, an alternate configuration will

be negotiated with the borrower.

(C) If the borrower and the servicing official cannot agree on the

proposed shape and size of the property, the servicing official will

make the determination.

(D) When the size and shape of the property is agreed upon and the

borrower has been found eligible, the servicing official will request a

licensed surveyor to survey the property, have a legal description

prepared, and mark the property lines with permanent type markers.

(E) Appraisals will be completed in accordance with paragraphs

(b)(6) and (b)(7)(ii)(B) of this section.

(ii) Processing homestead protection before the Agency acquires

title. (A) A borrower will be considered for homestead protection when

it is determined that the Primary Loan Service programs cannot resolve

the delinquency. To process an application, the borrower must indicate

the buildings and land to be included in the request for homestead

protection. If determined eligible for homestead protection, the

borrower and the servicing official will enter into a Homestead

Protection Program Agreement (Exhibit L of this subpart) to lease the

property if and when the Agency acquires title. A copy of Form 1955-20,

``Lease of Real Property,'' will be attached to the agreement as an

exhibit.

(B) Concurrently with the execution of the preacquisition Homestead

Protection Program Agreement, the borrower will deliver a completed

Form RD 1955-1 to the Agency. The Agreement is subject to the

provisions of subpart A of part 1955 of this chapter. If the Agency

acquires title during the processing of a preacquisition Homestead

Protection Agreement, processing of the agreement will be terminated

and the owner will be given homestead protection rights pursuant to

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

(C) The Agency's obligation to lease the dwelling to the borrower

will be contingent on the Agency's prior compliance with all State and

local laws, ordinances and regulations governing the subdivision of

land. If the Agency cannot satisfy the conditions within 2 years from

the date of the agreement, the agreement (and the Agency's obligation

to lease with option to purchase) will terminate. If an agreement has

been entered into, but title to the property has not been conveyed to

the Agency (or acquisition has been determined not to be in its

financial interest), the Agency will continue with acceleration and

foreclosure of the property. It is not the intent of the 2-year term of

the agreement to limit the Agency's ability to foreclose on the

property, provided that all the terms have been met except that title

has not been conveyed.

(iii) Application for homestead protection when the Agency acquires

title. When the Agency acquires title to the farm property, the

borrower will be sent Exhibit M of this subpart, by certified mail,

return receipt requested, no later than the date of acquisition. The

borrower must request homestead protection by notifying the servicing

official in writing not later than 30 days after the date of

acquisition and must provide the information set forth in

Sec. 1951.907(e) of this subpart and indicate the buildings and land to

be included in the request.

(iv) Lease with option. A lease with an option to purchase will be

entered into with an eligible borrower on Form 1955-20 after the Agency

acquires title to the property. Form 1955-20 will be completed in

accordance with Sec. 1951.911 (b)(8) of this subpart.

(3) Eligibility. The servicing official will make the determination

on eligibility. To qualify for homestead protection, the borrower must

meet the following requirements:

(i) An applicant must be an individual who is or was personally

liable for the Farm Loan Programs (FLP) loan that was secured in part

by the Homestead Protection property, or, if a non-borrower pledged the

property to secure the FLP loan, the owner of the property. In either

case, the applicant must be or have been the owner of the Homestead

Protection property. A member of an entity who is or was personally

liable for a loan that is or was secured by the Homestead protection

property is considered an owner for homestead protection purposes, so

long as either the member of the entity or the entity itself held fee

title to the property.

(ii) When more than one member of an entity was personally liable

for an FLP loan, each such member who possessed and occupied a separate

dwelling as his or her principal residence, on property that is or was

security for the loan may apply separately for homestead protection of

their individual dwellings;

(iii) The applicant and any spouse must have received, from the

farming or ranching operations, gross farm income reasonably

commensurate with the size and location of the farm and reasonably

commensurate with local agricultural conditions (including natural and

economic conditions) in at least 2 calendar years during the 6-year

period preceding the calendar year in which the application is made.

Farms used for comparison purposes must be of similar size, type of

operation and locality. For the purposes of Secs. 1951.911(b)(3) (iii)

and (iv) of this subpart, income from farming or ranching operations

will include rent paid by a lessee of agricultural land during any

period in which the borrower, due to circumstances beyond his or her

control, such as economic, natural disaster or health problems, was

unable to actively farm that property. The borrower's records will be

used in determining whether the gross farm income was reasonably

commensurate with the farm size and location and local agricultural

conditions. When applying for homestead protection, the borrower will

give the servicing official at least 2 calendar years of records of

planned and actual gross farm income for the 6-year period preceding

the calendar year in which the application is made. If such records do

not exist, they may be developed by the applicant

[[Page 10134]]

and servicing official from information relating to yields, expenses

and prices found in the borrower's county office case file, agency

records, or other reliable sources;

(iv) The applicant and any spouse must have received, from the

farming or ranching operations, at least 60 percent of their gross

annual income in at least 2 of the 6 calendar years preceding the

calendar year in which the application is made;

(v) The applicant must have continuously occupied the homestead

protection property during the 6-year period preceding the calendar

year in which the application is made, unless it was necessary to leave

for a period of time not to exceed 12 months during the 6-year period

due to circumstances beyond the borrower's control, such as illness,

employment, or conditions that made the dwelling uninhabitable; and

(vi) The applicant must have sufficient income to make rental

payments for the term of the lease and the ability to maintain the

property in good condition, and must agree to all the terms and

conditions set forth in paragraph (b)(7) of this section and in Form

1955-20.

(4) Transfer of homestead protection. An applicant's right to

request homestead protection and rights under the Agreement or lease

entered into pursuant to this section are not transferable or

assignable by the applicant or by operation of law, except that, in the

case of death or incompetency of the applicant, such rights and

agreements shall be transferable to the spouse upon agreement to comply

with the terms and conditions of the lease.

(5) Property requirements. (i) The proposed homestead protection

property tract must meet all requirements for the division into a

separate legal lot as required by State and local laws. All

environmental considerations required under subpart G of part 1940 of

this chapter will be complied with.

(ii) Costs for a survey, legal description or other service needed

to establish, appraise, define or describe the homestead protection

property as a separate tract, will be paid for by the Agency. No

repairs or improvements will be paid for by the Agency except as

provided for in Sec. 1955.64 (a) of subpart A of part 1955 of this

chapter.

(iii) If necessary, the Agency will grant or retain for the benefit

of adjoining property reasonable easements for ingress, egress,

utilities, water rights, etc.

(6) Appraisal. The current market value of the homestead protection

property shall be determined by an independent appraisal made within 6

months from the date of the borrower's application for homestead

protection. The applicant will select an independent real estate

appraiser from a list of appraisers approved by the servicing official.

The cost of such an appraisal will be handled in accordance with

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

(7) Terms of the lease and exercising the option. (i) All leases

will have an option to purchase. Any reference to a lease for homestead

protection purposes will mean a lease with an option to purchase. The

lease will be offered with an option to purchase on Form 1955-20 and

will be for a period of not more than 5 years as requested by the

applicant. A lease of less than 5 years may be extended, but not beyond

5 years from the date of the beginning of the term of the original

lease.

(A) The amount of the rent will be based upon equivalent rents

charged for similar residential properties in the area in which the

dwelling is located.

(B) Lease payments will be retained by the Government.

(C) Failure to make lease payments as scheduled or to maintain the

property in good condition shall constitute cause for the termination

of all rights of the lessee to possession and occupancy of the dwelling

and property under this section. If a lease default is not cured within

30 days of notice, the servicing official will notify the lessee in

writing of the termination of the lease and option.

(D) Any interference by the lessee with the Government's efforts to

lease or sell the remainder of farm inventory property shall constitute

cause for the termination of all rights of the lessee to possession and

occupancy of the dwelling and property including the right to exercise

the option to purchase.

(ii) Exercising the option to purchase.

(A) The lessee may exercise the option in writing at any time prior

to the expiration of the lease by delivering to the servicing official

a signed, written statement notifying the Agency that the lessee is

exercising the option to purchase the property. Failure to exercise the

option within the lease period will end the lessee's rights under the

option to purchase.

(B) When the lessee exercises the option to purchase the property,

the purchase price will be the current market value of the property.

That value will be determined by an appraisal in accordance with

paragraph (b)(6) of this section providing the appraisal is not more

than 1 year old. If the appraisal is more than 1 year old, the current

market value will be determined by a new appraisal requested in

accordance with paragraph (b)(6) of this section.

(C) At the time the lessee exercises the option, the lessee must

notify the servicing official if he or she wants to purchase the

property for cash or finance it through a credit sale from the Agency.

(D) If a credit sale is involved, the applicant must furnish the

servicing official the information required by Sec. 1951.907 (e) to

assist in determining whether or not the applicant has adequate

repayment ability.

(8) Rates and terms for a credit sale. Terms for a credit sale of

homestead protection property when the lessee is exercising the option

to purchase will be in accordance with subpart J of this part.

(9) Closing. A credit sale will be closed in accordance with

subpart J of this part.

(10) Conflict with State law. In the event of a conflict between a

borrower's homestead protection rights and any provisions of the law of

any State relating to the right of a borrower to designate for separate

sale or redeem part or all of the property securing a loan foreclosed

on by a lender, such provision of State law shall prevail. A State

supplement will be prepared as necessary to supplement paragraph (b) of

this section.

(11) Servicing homestead protection loans. Homestead protection

loans will be serviced as set forth in subpart J of this part.

Sec. 1951.914 [Amended]

17. Section 1951.914 is amended by removing paragraph (a)(5)(iii)

and redesignating paragraphs (a)(5)(iv) through (a)(5)(vi) to

(a)(5)(iii) through (a)(5)(v) respectively.

Secs. 1951.917 and 1951.918 [Removed and reserved]

18. Sections 1951.917 and 1951.918 are removed and reserved.

19. Exhibit A is revised to read as follows:

Exhibit A--Notice of the Availability of Loan Servicing and Debt

Settlement Programs for Delinquent Farm Borrowers

Dear (Borrower's Name):

This notice is to inform you that you are behind with your loan

payments and to inform you of your options.

I. Loan Servicing Programs Available

Primary loan servicing programs are intended to adjust the debt

so that you can continue farming and the Agency will receive a

better recovery on the money it loaned you.

The Preservation loan servicing program (Homestead Protection)

is intended to help

[[Page 10135]]

farmers who may lose their land to the Agency get their home back

through a lease with an option to buy.

II. Application Information

Time Limits

You must notify the county office within 60 days of getting this

notice if you want to be considered for these programs.

How to Apply

To apply, you must complete and return the required forms

enclosed with this notice, including your signed Acknowledgment Of

Notice Of Program Availability within the 60-day time limit. The

county office will process your completed forms and let you know if

you qualify.

Included With This Notice You Will Find:

(1) A summary of primary loan servicing programs options;

(2) A summary of the preservation loan servicing program;

(3) A summary of debt settlement programs;

(4) The forms you need to apply for services;

(5) Information on how to get copies of the Agency's

regulations;

(6) A description of the National Appeals Division appeal

process.

III. Foreclosure and Liquidation

What Happens if You Do Not Apply Within 60 Days?

The Agency will accelerate your loan if you continue to be

delinquent or in nonmonetary default. Acceleration of your loan is

very severe. This means the Agency will take legal action to collect

all the money you owe them.

After acceleration, the Agency will start foreclosure

proceedings. They will repossess or take legal action to take any

real estate, personal property, crops, livestock, equipment, or any

other assets in which the Agency has a security interest. The Agency

will also stop allowing you to use your crop, livestock, and milk

checks to pay living and operating expenses. The Agency will also

take by administrative offset money which other federal agencies owe

you.

Sincerely,

Attachment 1--Primary and Preservation Loan Servicing and Debt

Settlement Programs Purpose

Purpose

These programs are to help you repay the loan and keep your farm

property and settle your Farm Loan Programs loan debt. This notice

tells you:

(1) How To get more information

(2) How to apply

(3) Your appeal rights if you apply and are turned down

How To Get More Information

Ask at any county office for copies of the rules describing

these programs. These rules must be given to you within 10 days of

when we receive your request.

Who Can Apply?

All ``farm loan programs borrowers'' who have one of the

following loans:

Operating (OL)

Farm Ownership (FO)

Emergency (EM)

Economic Emergency (EE)

Soil and Water (SW)

Recreation (RL)

Rural Housing Loans made for farm service buildings (RHF)

Economic Opportunity (EO)

Borrowers that are current on their scheduled payments but are

financially distressed through no fault of their own may be eligible

for some assistance to restructure their debt.

You May Need Help in Applying

The legal requirements for these programs are very complicated.

You may need help to understand them. You may want to ask an

attorney to help you. If you cannot get an attorney, there are

organizations that give free or low-cost advice to farmers. Ask your

State Department of Agriculture or the USDA Extension Service what

services are available to your state.

Note: Agency employees cannot recommend a particular attorney or

organization.

I. Primary Loan Service Programs

(1) Loan Consolidation

Two or more of the same type of loans can be combined into one

larger loan. For example, operating loans can only be joined with

operating loans.

(2) Loan Rescheduling

The payment schedule can be altered to give you longer to repay

loans secured by equipment, livestock, or crops. For example, the

time for repayment of an operating-type loan can be extended up to

15 years from the date the loan is rescheduled. When a loan is

rescheduled, the interest rate may be reduced.

(3) Loan Reamortization

The payment schedule can be changed to give you longer to repay

loans secured by real estate. For example, a Farm Ownership loan

payback period may be extended to 40 years from the date the

original loan was signed. When a loan is reamortized, the interest

rate may be reduced.

(4) Interest Rate Reduction

Regular Interest Rate

FSA has specific interest rates for each type of loan. These

interest rates change quite often. They depend on what it costs the

Government to borrow money. Each type of loan will have a regular

rate.

Limited Resource Interest Rate

If you have an Operating Loan (OL), Soil and Water (SW) loan or

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

``limited resource interest rate.'' The limited resource interest

rate can be as low as 5 percent. It changes quite often and depends

on what it cost the Government to borrow money.

Interest Rate for Loan Servicing

When loans are consolidated, rescheduled, or reamortized, the

interest rate on the new loan will be either the interest rate on

the original loan or the current regular rate of interest for that

type of loan, whichever is less. The borrower may be able to get the

limited resource interest rate on OL, SW, or FO loans.

For information about current interest rates, contact the FSA

county office.

(5) Loan Deferral

Payments of principal and interest can be temporarily delayed

for up to 5 years. You must show that you cannot pay essential

living expenses or maintain your property and pay your debts. You

must also show you will be able to pay at the end of the deferral

period.

The interest rate on a deferred loan will be either the current

rate of interest for loans of the same type or the original rate on

the loan, whichever one is lower.

The interest that builds up during the deferral period will be

added to the principal of the loan. You must pay this interest in

yearly payments for the rest of the loan term.

Note: You can only get a loan deferral if the FSA determines

options 1-4 will not work for you.

(6) Softwood Timber Program

Marginal land including highly erodible land and pasture can be

planted in softwood timber. If you qualify, a debt of up to $1000 an

acre can be deferred up to 45 years. Interest will be charged during

the deferral period. The debt must be paid when the timber is sold.

(7) Conservation Contract Program

You may enter into a contract with the Secretary of Agriculture

to protect highly erodible land, wetlands, or wildlife habitat

located on your property that serves as security for your farm loan

debt. In exchange for the contract, FSA will reduce your FSA debt.

The amount of land left after the contract must be enough to

continue your farming operation.

(8) Debt Writedown

This is not available to borrowers who are current in their loan

payments or to borrowers who have had previous debt forgiveness on

another direct loan.

Debt writedown means the FSA debt you owe is reduced. FSA can

reduce both the principal and interest of your debt. Your debt can

be reduced to the recovery value.

Recovery value. The recovery value is the fair market value of

the collateral pledged as security for FSA loans minus all of the

expenses such as sale costs, attorneys fees, management costs, taxes

and payment of prior liens on the collateral that FSA would have to

pay if it foreclosed on and sold the collateral. The fair market

value of any collateral that is not in your possession and has not

been released for sale by FSA in writing will also be used in

determining recovery value.

Also considered, will be the fair market value of any other

assets that you may own that are not essential for family living or

for farm operation, and are not exempt from your judgment creditors

or in a bankruptcy action, minus the value of any creditors' prior

security interests and your selling costs. The

[[Page 10136]]

value of the collateral and any other assets must be decided by a

qualified appraiser.

In order to get debt writedown, you must show that after the

writedown, you will have up to 110 percent, but not less than 100

percent, of income available to pay all of your family living and

farming operating expenses and scheduled debt payments. This means

you must have a feasible plan of operation. FSA will not write down

more of the debt than is necessary for you to show a feasible plan.

You have the choice to select a smaller cash flow margin without a

writedown. If you choose to do this, you will avoid taking your one

time debt forgiveness as explained below.

The writedown is used only when the loan servicing programs

listed in 1-7 above alone will not be enough for you to have a

feasible plan. If you get writedown, some of the principal and

interest on your loans will be written down in addition to changing

the payback period, and possibly the interest rate, using 1-7 above.

You can receive a writedown if you have not previously received

any form of debt forgiveness from FSA on any other direct farm loan.

The maximum debt that can be written down on all loans is $300,000.

II. Who Can Qualify for Primary Loan Service Programs

To qualify you must prove that:

(1) You cannot repay your FSA debt due to circumstances beyond

your control. If you have certain nonessential assets with a value

high enough to bring your account current, then you are not eligible

for Primary Loan Service Programs. These assets are only those that

are not essential for necessary family living or for your farm

operation. FSA cannot reduce or write off any of your debt that you

could pay by selling any of these assets or borrowing against your

equity in the assets.

You must have had less income than expected due to such things

as:

(a) A natural disaster, weather, or insect problems;

(b) Family illness or injury;

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

(d) Disease in your livestock;

(e) Low commodity prices and high operating expenses in your local

area; or

(f) Other circumstances beyond your control.

(2) You have acted in ``good faith'' to keep your agreements

with FSA in that you have kept all written agreements with FSA

including those for the use of proceeds and release of property used

to secure the loan, and your file shows no fraud, waste, or

conversion.

You must agree to give FSA a lien on certain other assets for

additional security for the FSA debt. If you are offered

restructuring and accept the offer, you must provide this lien at

closing.

You must agree to meet, at your own cost, FSA's training

requirements in production and financial management. The cost will

be included in your farm plan as an operating expense. The training

must be completed within 2 years from the date of restructuring.

This requirement may be waived if you are able to demonstrate that

you have adequate training in this area. To request a waiver of this

training requirement, complete Form FmHA 1924-27, ``Request for

Waiver of Borrower Training Requirements,'' and submit with your

request for FSA servicing. This training requirement is not

applicable if you have previously received a waiver or you have

successfully completed the required FSA Borrower Training program.

Who Will Decide if You Qualify?

The FSA servicing official will decide if you qualify. The

servicing official will decide whether you can pay as much or more

on the loan as FSA would get if they foreclosed and sold the

collateral for the loan plus the value of any nonessential assets.

To do this, the servicing official must decide whether the total

payments of principal and interest on your adjusted debt will be at

least as much as the ``recovery value'' defined in part I above.

Can You Get Your Debts Written Down?

Only if FSA will get as much or more by writing down part of

your debt than through foreclosure or sale of the collateral for the

loan and any nonessential assets. You also must be delinquent on

your FSA debt payments.

Conditions of the New Agreement if You Qualify

You must sign a shared appreciation agreement for 10 years.

Under the terms of the agreement:

You must repay a part of the sum written down.

The amount you must repay depends on how much your real

estate collateral increases in value.

During this 10 years, FSA will ask you to repay part of the debt

written down if you do one of the following:

(1) Sell or convey the real estate

(2) Stop farming

(3) Pay off the entire debt

If you do not do one of these things during the 10 years, FSA

will ask you to repay part of the debt written down at the end of

the 10 year period.

FSA can only ask you to repay if the value of your real estate

collateral goes up.

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

agreement, FSA will ask you to pay 75 percent of the increase in

value of the real estate. In the last 6 years, you will be asked to

pay only 50 percent of the increase in value. FSA will not ask you

to pay more than the amount of the debt written down.

Date To Begin Restructured Agreement

If you are found eligible, you will be informed of the date for

an appointment so your debt can be restructured. You must notify FSA

that you accept its offer to restructure your debt within 45 days of

when you receive the offer.

III. Preservation Loan Servicing Program

Purpose

This program applies when the primary loan service programs

cannot help you.

Homestead Protection. (Keeping your farm home.) You may lease

your farm home, certain outbuildings and up to 10 acres of land. The

lease time will be for up to 5 years. The lease will include an

option for you to purchase the property you lease.

IV. Who Can Qualify for Homestead Protection?

(1) Your gross annual income from your farm or ranch must have

been similar to other comparable operations in your area. This must

be true for at least 2 years of the last 6 years.

(2) Sixty percent (60%) of your gross annual income in at least

2 of the last 6 years must have come from the farming operation.

(3) You must have lived in your homestead property for 6 years

immediately before your application. If you had to leave for less

than 12 months during the 6-year period and you had no control over

the circumstances, you still may qualify.

(4) You must be the owner or former owner of the property.

(5) If FSA has already taken your property, you must apply

within 30 days of the date FSA took your property.

How To Lease Your Dwelling

(1) You may lease your home and up to 10 acres if you pay FSA

reasonable rent. The rent prices FSA charges you will be similar to

comparable property in your area.

(2) You must maintain the property in good condition during the

term of the lease.

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

(4) You cannot sublease your property.

(5) If you do not keep up your rental payments to FSA, FSA will

force you to leave.

You can buy back your homestead property at current market value

at any time during the lease. FSA may place an easement on your

property to protect and restore any wetlands or converted wetlands.

Current market value will be decided by an independent appraiser.

The appraisal will be made within 6 months of your application for

homestead protection. The appraised value of your property will

reflect the value of the land after any placement of a wetland

conservation easement.

You should be aware that any real property, located in special

areas or having special characteristics, which comes into FSA's

inventory, may have restrictions or easements placed on the property

which prevent your use of all or a portion of the property, should

you choose to lease or buy your former dwelling. These restrictions

and encumbrances will be placed in leases and in deeds on properties

containing wetlands, floodplains, endangered species, wild and

scenic rivers, historic and cultural properties, coastal barriers,

and highly erodible soils.

V. Debt Settlement Programs.

Purpose

These programs apply after it has been determined that primary

loan service programs cannot help you. You may be eligible for both

debt settlement and homestead protection. If you do not have FSA

collateral you will need to apply for debt settlement only. Under

these programs, the debt you owe FSA may be settled for less than

the amount you owe. You may apply for debt settlement at any time by

submitting an application for debt settlement on Form

[[Page 10137]]

FmHA 1956-1. These programs are subject to the discretion of the

agency and are not a matter of entitlement or right.

Programs Available

(1) Compromise offer: A lump-sum payment of less than the total

FSA debt owed.

(2) Adjustment offer: One or more payments of less than the

total amount owed to FSA. Your payments can be spread out over a

maximum of five years if FSA decides you will be able to make the

payments as they become due.

(3) Cancellation: The final settlement of a debt without any

payment. FSA must decide there is no FSA security or other asset

from which FSA can collect. You must be unable to pay any part of

the debt now or in the future.

Approval Requirements

If you sell your collateral, you must apply the proceeds from

the sale to your FSA account before you can be considered for debt

settlement. In the case of compromise and adjustment, however, you

may keep your collateral if you are unable to pay your total FSA

debt and pay FSA the present fair market value of your collateral

along with any additional amount you are able to pay as determined

by FSA. You will be allowed to retain a reasonable equity in

essential nonsecurity property to continue your normal operations

and meet minimum family living expenses. FSA will not finance a

compromise or adjustment offer.

All debt settlements of FLP loans must be recommended by the

County Committee with a finding that the statements on your

application are true. The committee must certify that you do not

have assets or income in addition to what you stated in your

application. You must also have not previously received any form of

debt forgiveness from FSA on any other direct farm loan. If you

qualify, your application must also be approved by the FSA State

Executive Director or the FSA Administrator depending on the amount

of the debt to be settled.

VI. How to Apply for Primary and Preservation Loan Servicing

Programs.

Application Forms and Information Needed

The forms set out below should be included with this notice. If

they are not, you can obtain them from the FSA county office or as

directed below.

(1) Attachment 2 or 4 of Exhibit A Response form to apply for

loan services.

(2) FmHA 410-1 Application for FSA Services (The financial

statement on this form must include information no more than 90 days

old. The financial statement must be for all individuals and

entities personally liable for the FSA debt.

(3) FmHA 431-2 Farm and Home Plan, or other acceptable plan of

operation. The commodity prices to use for this plan of operation or

Farm and Home Plan are included with the form. You may request the

servicing official to assist you in completing your plans.

(4) FmHA 440-32 Request for Statement of Debts and Collateral.

Complete the name and address of the creditor, account number, if

applicable, and your name. All parties liable to the creditor must

sign and date the forms. FSA will obtain the creditor information.

(5) FmHA 1910-5 Request for Verification of Employment. Complete

employer's name and address, employee's name and address, social

security number, sign and date. FSA will send the form to your

employer to obtain the needed information.

(6) SCS-CPA-026 Highly Erodible Land and Wetland Conservation

Determination (This form must be obtained from and completed by the

Natural Resources Conservation Service office, if not already on

file with FSA.)

(7) AD-1026 Highly Erodible Land Conservation (HELC) and Wetland

Conservation (WC) Certification (You will be required to complete

this form in the FSA office if the one you have on file does not

reflect all the land you own and lease.)

(8) FmHA 1960-12 Financial and Production Farm Analysis Summary

(Complete the backside of the form or other similar type worksheets

to provide production and expense history for crops, livestock,

livestock products, etc. for each of the five years immediately

preceding the year of application or the years you have been

farming, whichever is less and if not already in the FSA case file.

You must be able to support this information with farm or income tax

records.)

(9) Copies of income tax records and any supporting documents

for the last five years immediately preceding the year of

application if not already on file with the FSA county office. (If

you have been farming for less than 5 years, submit the tax records

for the tax years immediately preceding the year of application

during which you farmed. If copies of tax records are not readily

available, you can obtain copies from the Internal Revenue Service

(IRS).)

(10) Map or aerial photo of your farm from FSA or Natural

Resources Conservation Service if you are applying for the

conservation contract program. (Identify on the map or photo the

portion of the land and approximate number of acres to be considered

in the contract.)

(11) RD 1956-1 Application for Settlement of Indebtedness

(Complete this form only if you wish to apply for debt settlement.)

Time to Apply for Primary and Preservation Loan Servicing Programs

To apply, you must complete the appropriate forms and return

them and the required information to the FSA county office within 60

days from the date you received this notice.

VII. What Happens When You Are Not Eligible for Primary Loan

Service Programs?

If the servicing official decides you are not eligible, you may

request a meeting with that official so the official can explain the

decision.

If you do not agree with the FSA servicing official's decision,

you can tell the official why. If you can make the necessary

realistic changes to your Farm and Home Plan to show a feasible

plan, you should show these changes to the servicing official.

Negotiation of the Appraisal

A negotiation of the appraisal is a process whereby the borrower

objects to the FSA appraisal, obtains an independent appraisal at

the borrower's own costs, pays one-half of the cost for a third

appraisal, and the average of the two appraisals closest in value is

taken as the final appraised value to be used in considering

restructuring. In all cases of primary and preservation loan

servicing where the borrower presents an independent appraisal which

is conducted by a qualified appraiser and is within 5 percent of the

value of the FSA appraisal, the borrower must choose one of these

two appraisals for the servicing official to use to continue

processing the request. Negotiation of appraisal may affect your

right to appeal the appraisal.

You May Request Mediation of Other Loans

If you cannot show a feasible farm plan because you owe too much

to other creditors and suppliers, FSA will help you try to get your

other creditors to adjust your debts. This will be done by FSA

asking for mediation if your State has a mediation program approved

by the United States Department of Agriculture. If there is no State

mediation program, FSA will try to set up a meeting with your other

creditors and suppliers if it can be shown that a reduction in these

debts can provide a feasible farm plan.

You Have the Right to Appeal

Appeal. Appeal rights will be provided to you after FSA has made

a decision on your request for primary loan servicing. If you first

request a meeting with the servicing official instead of an appeal,

the time for requesting an appeal will be extended until you are

advised of the results of your meeting. You will be provided with

the address of USDA's National Appeals Division. Your request for an

appeal must be postmarked no later than 30 days from the date you

received the agency's adverse decision. If you disagree with FSA's

determination that any determination is not appealable, you may

request a determination of appealability from the National Appeals

Division.

You May Buyout (Pay Off) Your Loan at the ``Current Market Value''

(1) Current market Value. If the analysis of your debt shows

that you cannot ``cash flow'' even if your debt to FSA is reduced to

the value of the collateral, the servicing official will advise you

in writing that you can buyout the loan by paying the ``current

market value'' minus any prior liens. The current market value is

determined by a current appraisal completed by a qualified

appraiser.

(2) Limits. You may receive a buyout if you have not previously

received any form of debt forgiveness from FSA on any other direct

farm loan. The maximum debt that can be written off with buyout is

$300,000.

(3) Eligibility. To qualify you must prove that:

You cannot repay your FSA delinquent debt and the reason you

cannot repay was due to circumstances beyond your control,

You have acted in good faith, and

[[Page 10138]]

The value of your restructured loan is less than the recovery

value.

(4) Time Limit. If you want to buy out your farm loan debt at

the current market value, you must pay FSA within 90 days of the

date you receive the offer. If you appeal the servicing official's

decision not to give you primary loan servicing, this 90 days will

not start until the administrative appeal process ends.

(5) Cash. If you pay off the loan at the current market value,

you must pay in cash. FSA will not make or guarantee a loan for this

purpose.

Consideration for Preservation Loan Service Program

(Homestead Protection)

You will be considered for homestead protection if:

(1) You applied for primary loan servicing as required and did

not qualify.

(2) You do not appeal your primary loan servicing denial, or do

not win your appeal.

(3) You do not pay off the loan through buyout.

(4) You agree to give FSA title to your land at the time FSA

signs the written homestead protection agreement with you. FSA will

not accept title and will deny your preservation request if it is

not in FSA's best financial interest to accept title. FSA will

compute the costs of taking title including the cost of paying other

creditors who have outstanding liens on the property. FSA will take

title only if it can obtain a recovery on its cost. Any written

agreement for preservation loan servicing will include the amount

you must pay for rent, the number of years you can rent, and an

option to purchase the property at the fair market value at the time

you exercise the option to purchase.

(5) You must request Homestead Protection within 30 days of FSA

obtaining title to the property.

Consideration for Debt Settlement Programs

If you wish to be considered for debt settlement, you will need

to request and return a completed Form RD 1956-1. You may request

debt settlement at any time. Usually, the most appropriate time for

making this request is when FSA has determined that Primary Loan

Servicing options will not provide the best net recovery to the

Government and you are requesting preservation loan servicing. If

you no longer have any security remaining for the outstanding FSA

loans, you may want to request debt settlement instead of primary

and preservation loan servicing.

VIII. What Happens When You Are Turned Down for Homestead

Protection or Debt Settlement Programs?

If FSA decides that you cannot get homestead protection or debt

settlement you can ask for

(1) A meeting with FSA to discuss the decision, or

(2) Appeal the determination.

The Right to a Meeting

The servicing official will send you a letter telling you why

FSA decided not to give you homestead protection or debt settlement.

That letter will give you 15 days to ask for a meeting with FSA.

The Right to an Appeal

Appeal rights will be provided to you after FSA has made a

decision on your request for homestead protection. If you first

request a meeting with the servicing official instead of an appeal,

the time for requesting an appeal will be extended until you are

advised of the results of your meeting. You will be provided with

the address of USDA's National Appeals Division. Your request for an

appeal must be postmarked no later than 30 days from the date you

received the final determination.

On appeal, you can contest FSA's rental amount and its decision

not to give you homestead protection. You can also contest FSA's

decision to reject your debt settlement application.

IX. Acceleration and Foreclosure

If you do not appeal an adverse determination or if you are

denied relief on appeal, FSA will accelerate your loan account and

make demand for payment of the whole debt. FSA will stop allowing

you to use any of your crop, livestock, and milk checks, on which

they have a claim, to pay for living and operating expenses. FSA

will repossess the collateral or start legal foreclosure or

liquidation proceedings to take and sell the collateral, including

your equipment, livestock, crops, and land. FSA will also take by

administrative offset money which FSA and other Federal Government

agencies owe you.

FSA may refrain from taking these actions if you agree to do

one, or a combination of the following actions, within an agreed

upon time, with FSA's approval:

(1) Sell all the collateral for the loan at market value.

(2) Convey (legally transfer) the collateral to FSA.

(3) Apply to transfer the collateral to someone else and have

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

transfer and assumption.)

If any of these options result in payment of less than you owe,

you may apply or reapply for debt settlement. You may apply or

reapply for homestead protection even if you applied before and were

not accepted. However, applications for homestead protection or debt

settlement filed after the 60-day time period provided in this

notice will not delay acceleration, offset, and foreclosure.

Attachment 2--Acknowledgment of Notice of Program Availability

I have been given a notice explaining the primary and

preservation loan service and debt settlement programs.

The date on the notice was ________________.

This notice explained that FSA programs are available to help me

keep my property or settle my debt with FSA.

I ask FSA to consider me for all of these programs.

I understand that I will be notified of my rights to appeal

after FSA decides on my request.

Signature--------------------------------------------------------------

Date-------------------------------------------------------------------

Attachment 3--Notice to Borrowers With Non-Monetary Defaults, Non-

Monetary Defaults and Delinquency, or That a Prior Lienholder or Junior

Lienholder is Foreclosing

Dear

FSA has reviewed your loan account. Our record shows:

[ ] You are now $________ behind on your payments. This is a

violation of your loan agreement.

[ ] You have disposed of some of your property used to secure your

loan. You did not get written approval for this. This property is

----------------------------------------------------------------------

(Describe property.)

[ ] You have stopped farming or ranching. This is a violation of

your loan agreement.

[ ] A foreclosure action has been filed against you by

____________. This is a violation of your loan agreement.

[ ] You have----------------------------------------------------------

----------------------------------------------------------------------

(Insert reasons for proposed action.)

FSA Will Accelerate Your Loans

FSA will take legal action to collect the money you owe. They

will foreclose on real estate and repossess equipment and other

property used to secure your loans. They will also stop the release

of money from the sale of crops or other property. They will take by

administrative offset money you are owed by other Federal agencies.

Steps You Can Take Before FSA Accelerates Your Loans

You can apply for the programs described in Attachment 1. These

are called Primary and Preservation Loan Service and Debt Settlement

Programs. You can also ask for a meeting. At this meeting you can

explain why you think FSA's records, as indicated on this Notice,

are wrong. You can also suggest things you can do to correct these

problems, so as to avoid acceleration and foreclosure. You can

request loan servicing, debt settlement and a meeting at the same

time. For example, if this Notice states that you are delinquent,

and also have disposed of property without FSA's written consent,

you can request servicing to deal with the delinquency problem and

request a meeting on the question of unauthorized disposition of

property. Please read the section on debt settlement programs for

guidance in requesting and receiving consideration of a request for

debt settlement.

Forms Attached to This Notice

You will find:

(1) A summary of all primary loan service programs;

(2) A summary of the preservation loan servicing program;

(3) A summary of all debt settlement programs;

(4) Copies of the forms needed to apply; and

(5) Advice on how to get copies of FSA regulations.

[[Page 10139]]

Purpose of Primary Service Programs

These loan service programs are to help you repay the loan and

keep your farm property.

Purpose of the Preservation Loan Service Program

This program is intended to help farmers who may lose their land

to FSA to get their home back, either by purchase or through a lease

with an option to purchase.

Purpose of Debt Settlement Programs

These programs apply after it has been determined that primary

loan service programs cannot help you. You may be eligible for both

debt settlement and preservation loan service programs. If you no

longer have FSA collateral you will need to apply for debt

settlement only. Under these programs, the debt you owe FSA may be

settled for less than the amount you owe. You may apply for debt

settlement at any time by requesting and submitting an application

for debt settlement on Form RD 1956-1.

How to Apply for Loan Servicing

Complete Attachment 4 and the appropriate forms included with

this notice.

You must return these within 60 days of receiving this notice.

Right to a Meeting

You have the right to meet with your FSA servicing official

before they decide to accelerate your loan. You must check the box

on Attachment 4 saying you want a meeting. (Attachment 4 is the

``Response to Notice of Intent to Accelerate and Notice of Borrower

Rights.'')

How to Ask for a Meeting

You must check the box on Attachment 4 asking for a meeting

within 15 days from the date of this notice. Return it to your

county office. Do this as soon as possible. It is wise to call also

to set up the meeting.

The Right to Appeal

You can ask for an administrative appeal even if the

meeting does not resolve your problems.

You can ask for an appeal even if you do not have a

meeting.

You have the right to appeal even if you do not want to

apply for loan servicing programs or debt settlement.

How to Ask for an Appeal

Your request for appeal must be in writing and sent directly to

the National Appeals Division, (NAD), .

Your letter must describe FSA's decision and why you believe the

decision was not correct. In order for this decision to be changed,

you will have to show why the decision should be reversed. Mail a

copy of your request to the FSA county office. Your request for

appeal must be postmarked no later than 30 days from the date you

receive this notice.

Note: If you do not check the box on the Attachment 4 to ask for

primary and preservation loan service programs, you will not be

considered for those programs.

If you do not ask for a meeting to try and resolve the issues,

you will not get another chance later.

The Right Not To Be Discriminated Against

Federal law does not allow discrimination of any kind. You

cannot be denied a loan because of your race, color, religion,

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

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