Farm Loan Programs Loan Making Activities, 75427-75435 [2011-31046]

Agencies

• DEPARTMENT OF AGRICULTURE
• Farm Service Agency

[Federal Register Volume 76, Number 232 (Friday, December 2, 2011)]
[Rules and Regulations]
[Pages 75427-75435]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-31046]



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Rules and Regulations
                                                Federal Register
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Federal Register / Vol. 76, No. 232 / Friday, December 2, 2011 / 
Rules and Regulations

[[Page 75427]]



DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Parts 761, 763, and 764

RIN 0560-AI03


Farm Loan Programs Loan Making Activities

AGENCY: Farm Service Agency, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Farm Service Agency (FSA) is amending the Farm Loan 
Programs (FLP) loan making regulations to implement a new program and 
to amend existing regulations for direct and guaranteed loans as 
required by the Food, Conservation, and Energy Act of 2008 (the 2008 
Farm Bill). This rule establishes the loan making and servicing 
regulations for the new Land Contract (LC) Guarantee Program. The 
amendments change the farm experience requirements in the regulations 
for direct Farm Operating Loans (OL) and direct Farm Ownership Loans 
(FO), and make certain equine farmers and certain equine losses 
eligible for Emergency Loans (EM).

DATES: The rule is effective January 3, 2012.

FOR FURTHER INFORMATION CONTACT: Connie Holman; telephone: (202) 690-
0155. Persons with disabilities or who require alternative means for 
communication (Braille, large print, audio tape, etc.) should contact 
the USDA Target Center at (202) 720-2600 (voice and TDD).

SUPPLEMENTARY INFORMATION: 

Background

    This final rule implements four provisions of the 2008 Farm Bill 
(Pub. L. 110-246) concerning loan making activities for FSA's direct 
and guaranteed loan programs. On September 23, 2010, FSA published the 
Farm Loan Programs Loan Making Activities proposed rule in the Federal 
Register (75 FR 57866-57880). This final rule addresses the comments 
received on the proposed rule. FSA received two written comments on the 
proposed rule. As discussed below, one comment addressed information 
contained in the Summary of Economic Impacts section of the proposed 
rule and the Cost Benefit Analysis accompanying the proposed rule. The 
other comment was a general statement regarding farm subsidies that is 
outside the scope of this rule and therefore this rule does not address 
it. The commenters were members of the general public.
    The amendments in this rule were discussed as part of USDA's Joint 
Regional Consultation Strategy facilitated from November 2010 through 
January 2011. During these Joint Consultation Sessions, Tribal leaders 
from all Federally recognized Native American Tribes and individual 
Tribal members were given the opportunity to comment on forthcoming 
USDA rules. Comments received during these sessions are also addressed 
in this rule. The comments received during Tribal consultation involved 
eligibility of equine farmers and ranchers for EM loans.
    This rule also makes clarifying changes to some of the provisions 
in the proposed rule. These changes are not in response to public 
comment, but are clarifications necessary to implement the program. 
These changes are largely technical in nature, such as correcting 
internal CFR references, and correcting inconsistent terminology.

Land Contract Guarantee Program

    This final rule implements the Land Contract Guarantee Program 
authorized in the 2008 Farm Bill (7 U.S.C. 1936). FSA believes that the 
Land Contract Guarantee Program will provide a valuable alternative for 
intergenerational transfers of farm real estate to help ensure the 
future viability of family farms. Eligibility for the Land Contract 
Guarantee Program will be limited to beginning farmers and socially 
disadvantaged farmers. In brief, a beginning farmer is defined in FLP 
regulations as someone who has not operated a farm for more than 10 
years, does not own real farm property where aggregate acreage exceeds 
30 percent of the median farm acreage of the farms in the county where 
the property is located, and will substantially participate in the 
operation of the farm. Socially disadvantaged applicants are members of 
a group whose members have been subject to racial, ethnic, or gender 
prejudice. See definitions of beginning farmer and socially 
disadvantaged group in 7 CFR 761.2. Eligibility for the Land Contract 
Guarantee Program will be limited to family farms, which are farms in 
which the majority of the labor and management decisions are provided 
by the farm family, and guarantees may only be used for financing the 
purchase of a farm on a new land contract. See FSA definitions for 
family farm, family member, and farm in 7 CFR 761.2.
    This rule implements regulations for the Land Contract Guarantee 
Program in 7 CFR part 763. The Land Contract Guarantee Program will be 
consistent with other FSA Farm Loan Program regulations with regards to 
general applicant eligibility criteria and most loan servicing options. 
Eligibility criteria have also been established for the seller in this 
rule. The program requires the services of either a servicing agent or 
an escrow agent. The program provides benefits to the seller to 
encourage intergenerational transfers of farm property. The Land 
Contract Guarantee Program gives the seller the option of choosing 
either a:
    (1) Prompt payment guarantee of three years' amortized annual 
installments plus the amount of three years' real estate taxes and 
hazard insurance premiums, or
    (2) Standard 90 percent guarantee of outstanding principal on the 
Land Contract.
    The provisions in this rule for the Land Contract Guarantee Program 
are slightly different from those in the proposed rule. These minor 
technical changes are made to improve clarity of the regulations. There 
were no public or Tribal consultation comments specifically on the Land 
Contract Guarantee program, and no substantive changes are made from 
the provisions in the proposed rule. The clarifying and technical 
changes are included in the final rule are as described below.
     When stating the purpose of the Land Contract Program in 
Sec.  763.1 in the proposed rule some of the wording was redundant and 
some of the terminology

[[Page 75428]]

was inconsistent with Sec.  761.2. The additional wording has been 
removed and the terminology has been corrected.
     An incorrect CFR reference was given in the seller 
eligibility requirements in Sec.  763.5(a)(4) in the proposed rule with 
regards to compliance with federal requirements on debarment and 
suspension. The reference has been corrected.
     An incorrect reference was given in the buyer application 
requirements in Sec.  763.5(b)(14) in the proposed rule with regards to 
debarment and suspension. The reference has been corrected.
     Inconsistent terminology was used in the buyer application 
requirements in Sec.  763.7(b) in the proposed rule. The terminology 
has been changed to be consistent.
     An incorrect reference was given in the buyer application 
requirements in Sec.  763.7(b)(3)(v) in the proposed rule. The 
reference has been corrected.
     Inconsistent terminology in Sec.  763.10(a) in the 
proposed rule has been changed to be consistent.
     Redundant wording in Sec.  763.11(a) in the proposed rule 
has been removed.
     Incorrect references and inconsistent terminology in Sec.  
763.19(b)(4) in the proposed rule have been corrected.
     The reference in ``Appraisal method'' under ``Standard 
guarantee plan'' as specified in ``Delinquent servicing and 
collection'' in Sec.  763.20(b)(2)(ii)(B) was inadvertently omitted in 
the proposed rule. The reference has been added.
     The reference to the type of interest rate in 
``Establishment of Federal debt and Agency recovery of loss claim 
paid'' in Sec.  763.21(a)(1) in the proposed rule was specified 
incorrectly. It has been corrected.

Eligibility Change for Direct Farm Ownership and Farm Operating Loans

    This rule amends the experience requirements for direct loan 
eligibility to consider all prior farming experience of the applicant. 
This amendment is required by sections 5001 and 5101 of the 2008 Farm 
Bill, which amended sections 302 and 311 of the Consolidated Farm and 
Rural Development Act (CONACT, 7 U.S.C. 1922 and 1941). As specified in 
this rule, FSA requires that the broadened farm experience requirement 
be supplemented by on-the-job training or education that occurred 
within the last 5 years prior to the date of the application, if all 
prior farming occurred more than five years prior to application. FSA 
has considerable experience with providing supervised credit to 
farmers, and these broader eligibility requirements should ensure that 
applicants can be provided an enhanced opportunity to thrive in today's 
agribusiness industry.
    We did not receive any public comments about the eligibility 
requirements in the proposed rule. The provisions for eligibility in 
this final rule are the same as in the proposed rule.
    We did receive comments about the economic impact of the 
eligibility requirements, in public comments on the Cost Benefit 
Analysis (CBA). Essentially, the commenter stated that FSA had 
significantly underestimated the pool of applicants that would be made 
eligible for loans by these changes in requirements, because of the 
large pool of potential applicants who have recently graduated from 
agricultural colleges, or who have other relevant non-farm experience. 
FSA feels that our original estimates of impact are correct, as 
borrowers must also meet all other eligibility requirements, which have 
not changed. The same commenter also questioned the accuracy of the 
loan subsidy rate used in our analysis; we used the rate required by 
The Office of Management and Budget (OMB). No changes have been made 
based on these comments.

Emergency Loans

    FSA provides emergency loans to help farmers recover from 
production and physical losses due to drought, flooding, other natural 
disasters, and certain quarantines. As required by section 5201 of the 
2008 Farm Bill, which amended section 321 of the CONACT (7 U.S.C. 
1961), this rule expands EM eligibility to equine farmers whose primary 
enterprise is to breed, raise, and sell horses. For these farmers, 
losses will be treated the same as losses for other types of livestock 
operations, with minor differences in security requirements intended to 
accommodate the unique nature of the equine industry.
    We received two comments during the Tribal consultation on the EM 
provisions in the proposed rule. The comments are presented briefly 
below, followed by FSA responses.
    Comment: FSA should loosen up the policy so that all equine 
operations are eligible for loans.
    Response: FSA does not believe every individual involved in any 
aspect of the equine industry should be considered farmers and, 
therefore, should be eligible for FSA loans. As required by section 
5201 of the 2008 Farm Bill, FSA has revised the EM loan regulations to 
add eligibility for individuals and entities involved as equine 
farmers. FSA's definition of equine farmer only includes those in the 
business of breeding, raising and selling horses because Conference 
Report language (No. 110-627) on section 5201 clearly indicates 
Congress' intent to exempt losses associated with horses used for 
racing, showing, recreation, or pleasure and associated losses of 
income from eligibility under the EM program. The new equine EM 
provisions will allow FSA to provide loan assistance to equine farmers 
to help minimize the effects of natural disasters on their operations. 
No change was made to the rule in response to this comment.
    Comment: FSA should also make rodeo stock eligible for EM loan 
assistance.
    Response: As written, this rule includes individuals and entities 
involved in the business of breeding, raising, and selling rodeo stock 
as eligible for EM loans. No change to the rule was made in response to 
this comment.

Executive Order 12866 and 13563

    Executive Order 12866, ``Regulatory Planning and Review,'' and 
Executive Order 13563, ``Improving Regulation and Regulatory Review,'' 
direct agencies to assess all costs and benefits of available 
regulatory alternatives and, if regulation is necessary, to select 
regulatory approaches that maximize net benefits (including potential 
economic, environmental, public health and safety effects, distributive 
impacts, and equity). Executive Order 13563 emphasized the importance 
of quantifying both costs and benefits, of reducing costs, of 
harmonizing rules, and of promoting flexibility.
    OMB designated this rule as not significant under Executive Order 
12866 and, therefore, OMB has not reviewed this rule.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601-612), as amended by 
the Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA), generally requires an agency to prepare a regulatory 
flexibility analysis of any rule subject to the notice and comment 
rulemaking requirements under the Administrative Procedure Act (5 
U.S.C. 553) or any other statute, unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities. FSA has determined that this rule will not 
have a significant impact on a substantial number of small entities for 
the reasons explained below. Thus, FSA has not prepared a regulatory 
flexibility analysis.

[[Page 75429]]

    All FSA direct loan borrowers and all farm entities affected by 
this rule are small businesses according to U.S. Small Business 
Administration small business size standards. There is no diversity in 
size of the entities affected by this rule, and the costs to comply 
with it are the same for all sizes of entities. The costs of compliance 
with this rule are expected to be minimal. No comments were received on 
the proposed rule regarding disparate impact on small entities. 
Therefore, FSA certifies that the rule will not have a significant 
economic impact on a substantial number of small entities.

Environmental Evaluation

    The environmental aspects of this final rule have been considered 
in a manner consistent with the provisions of the National 
Environmental Policy Act of 1969 (NEPA, 42 U.S.C. 4321-4347), the 
regulations of the Council on Environmental Quality (40 CFR parts 1500-
1508), and the FSA regulations for compliance with NEPA (7 CFR parts 
799 and 1940, subpart G). The changes are non-discretionary, and, as 
such, no new significant circumstances or information relevant to 
environmental concerns have been established. In consideration of the 
previous analysis documented in the 2003 Programmatic Environmental 
Assessment (PEA) and the reasons outlined in the 2004 Finding of No 
Significant Impact (FONSI), FSA has concluded that this final rule will 
not have a significant impact on the quality of the human environment 
either individually or cumulatively, and, therefore, is categorically 
excluded and not subject to an environmental assessment or 
environmental impact statement in accordance with 7 CFR 1940.310(e)(3). 
The Final PEA and a copy of the FONSI are available at: https://www.fsa.usda.gov/FSA/webapp?area=home&subject=ecrc&topic=enl-ea.

Executive Order 12372

    Executive Order 12372, ``Intergovernmental Review of Federal 
Programs,'' requires consultation with State and local officials. The 
objectives of the Executive Order are to foster an intergovernmental 
partnership and a strengthened Federalism, by relying on State and 
local processes for State and local government coordination and review 
of proposed Federal Financial assistance and direct Federal 
development. For reasons set forth in the Notice to 7 CFR part 3015, 
subpart V published in the Federal Register on June 24, 1983 (48 FR 
29115), the programs and activities within this rule are excluded from 
the scope of Executive Order 12372.

Executive Order 12988

    This rule has been reviewed in accordance with Executive Order 
12988, ``Civil Justice Reform.'' The provisions of this rule will have 
preemptive effect with respect to any State and local laws, 
regulations, or policies that conflict with such provision or which 
otherwise impede their full implementation. This rule will not have 
retroactive effect. Before any judicial action may be brought regarding 
the provisions of this rule, all administrative remedies in accordance 
with 7 CFR part 11 must be exhausted.

Executive Order 13132

    This rule has been reviewed under Executive Order 13132, 
``Federalism''. The policies contained in this rule do not have any 
substantial direct effect on states, the relationship between the 
national government and the states, or the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule impose substantial direct compliance costs on state and local 
governments. Therefore, consultation with the states is not required.

Executive Order 13175

    This rule has been reviewed for compliance with Executive Order 
13175, ``Consultation and Coordination with Indian Tribal 
Governments''. This Executive Order imposes requirements on the 
development of regulatory policies that have Tribal implications or 
preempt Tribal laws. The Office of Tribal Relations has concluded that 
the policies contained in this rule do not have Tribal implications 
that preempt Tribal law. This rule was included in the Joint Regional 
Consultation Strategy facilitated by USDA from November 2010 through 
January 2011. This strategy consolidated consultation efforts of 70 
rules from the 2008 Farm Bill. USDA sent senior level agency staff to 
seven regional locations and consulted with Tribal leadership in each 
region on the rules. The issues raised in Tribal consultation and the 
resulting changes are discussed above.

Unfunded Mandates

    Title II of the Unfunded Mandates Reform Act of 1995 (URMA) (Pub. 
L. 104-4) requires Federal agencies to assess the effects of their 
regulatory actions on State, local, or Tribal governments or the 
private sector. Agencies generally must prepare a written statement, 
including a cost benefit analysis, for final rules with Federal 
mandates that may result in expenditures of $100 million or more in any 
1 year for State, local, or Tribal governments, in the aggregate, or to 
the private sector. UMRA generally requires agencies to consider 
alternatives and adopt the more cost effective or least burdensome 
alternative that achieves the objective of the rule. This rule contains 
no Federal mandates as defined by Title II of UMRA for State, local, or 
Tribal governments or for the private sector. Therefore, this rule is 
not subject to the requirements of sections 202 and 205 of UMRA.

Federal Assistance Programs

    The title and number of the Federal assistance programs in Catalog 
of Federal Domestic Assistance to which this rule applies are:

10.099--Conservation Loans.
10.404--Emergency Loans.
10.406--Farm Operating Loans.
10.407--Farm Ownership Loans.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501-3520), FSA has described the new information collection activities 
in the request for public comment in the proposed rule. No comments 
about the information collection were received from the public. The 
information collection reporting and recordkeeping requirements 
associated with this rulemaking have been approved by OMB. OMB control 
numbers for this rule are 0560-0233, 0560-0236, 0560-0237, 0560-0238, 
and 0560-0279.

E-Government Act Compliance

    FSA is committed to complying with the E-Government Act, to promote 
the use of the Internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services, and for other purposes.

List of Subjects

7 CFR Part 761

    Accounting, Loan programs--agriculture, Rural areas.

7 CFR Part 763

    Agriculture, Banks, Banking, Credit, Loan programs--agriculture.

7 CFR Part 764

    Agriculture, Disaster assistance, Loan programs--agriculture.


    For the reasons discussed in the preamble, 7 CFR chapter VII is 
amended as follows:

[[Page 75430]]

PART 761--FARM LOAN PROGRAMS; GENERAL PROGRAM ADMINISTRATION

0
1. The authority citation for part 761 continues to read as follows:

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


0
2. Revise the part heading for 7 CFR part 761 to read as shown above.

0
3. Amend Sec.  761.2 paragraph (b) by adding a definition, in 
alphabetical order, for ``Land Contract'' to read as follows:


Sec.  761.2  Abbreviations and definitions.

* * * * *
    (b) * * *
    Land contract is an installment contract executed between a buyer 
and a seller for the sale of real property, in which complete fee title 
ownership of the property is not transferred until all payments under 
the contract have been made.
* * * * *

0
4. Add part 763 to read as follows:

PART 763--LAND CONTRACT GUARANTEE PROGRAM

Sec.
763.1 Introduction.
763.2 Abbreviations and definitions.
763.3 Full faith and credit.
763.4 Authorized land contract purpose.
763.5 Eligibility.
763.6 Limitations.
763.7 Application requirements.
763.8 Incomplete applications.
763.9 Processing complete applications.
763.10 Feasibility.
763.11 Maximum loss amount, guarantee period, and conditions.
763.12 Down payment, rates, terms and installments.
763.13 Fees.
763.14 Appraisals.
763.15 Taxes and insurance.
763.16 Environmental regulation compliance.
763.17 Approving application and executing guarantee.
763.18 General servicing responsibilities.
763.19 Contract modification.
763.20 Delinquent servicing and collecting on guarantee.
763.21 Establishment of Federal debt and Agency recovery of loss 
claim payments.
763.22 Negligence and negligent servicing.
763.23 Terminating the guarantee.

    Authority: 5 U.S.C. 501 and 7 U.S.C. 1989.


Sec.  763.1  Introduction.

    (a) Purpose. The Land Contract Guaranteed Program provides certain 
financial guarantees to the seller of a farm through a land contract 
sale to a beginning farmer or a socially disadvantaged farmer.
    (b) Types of guarantee. The seller may request either of the 
following:
    (1) The prompt payment guarantee plan. The Agency will guarantee an 
amount not to exceed three amortized annual installments plus an amount 
equal to the total cost of any related real estate taxes and insurance 
incurred during the period covered by the annual installment; or
    (2) The standard guarantee plan. The Agency will guarantee an 
amount equal to 90 percent of the outstanding principal under the land 
contract.
    (c) Guarantee period. The guarantee period is 10 years for either 
plan regardless of the term of the land contract.


Sec.  763.2  Abbreviations and definitions.

    Abbreviations and definitions for terms used in this part are in 
Sec.  761.2 of this chapter.


Sec.  763.3  Full faith and credit.

    (a) The land contract guarantee constitutes an obligation supported 
by the full faith and credit of the United States. The Agency may 
contest the guarantee only in cases of fraud or misrepresentation by 
the seller, in which:
    (1) The seller had actual knowledge of the fraud or 
misrepresentation at the time it because the seller, or
    (2) The seller participated in or condoned the fraud or 
misrepresentation.
    (b) Loss claims also may be reduced or denied to the extent that 
any negligence contributed to the loss under Sec.  763.22.


Sec.  763.4  Authorized land contract purpose.

    The Agency will only guarantee the Contract installments, real 
estate taxes and insurance; or outstanding principal balance for an 
eligible seller of a family farm, through a land contract sale to an 
eligible beginning or socially disadvantaged farmer.


Sec.  763.5  Eligibility.

    (a) Seller eligibility requirements. The private seller, and each 
entity member in the case of an entity seller, must:
    (1) Possess the legal capacity to enter into a legally binding 
agreement;
    (2) Not have provided false or misleading documents or statements 
during past or present dealings with the Agency;
    (3) Not be ineligible due to disqualification resulting from 
Federal Crop Insurance violation, according to 7 CFR part 718; and
    (4) Not be suspended or debarred under 2 CFR parts 180 and 417.
    (b) Buyer eligibility requirements. The buyer must meet the 
following requirements to be eligible for the Land Contract Guarantee 
Program:
    (1) Is a beginning farmer or socially disadvantaged farmer engaged 
primarily in farming in the United States after the guarantee is 
issued.
    (2) Is the owner and operator of a family farm after the Contract 
is completed. In the case of an entity buyer:
    (i) Each entity member's ownership interest may not exceed the 
amount specified in the family farm definition in Sec.  761.2 of this 
chapter.
    (ii) The entity members cannot themselves be entities.
    (iii) The entity must be authorized to own and operate a farm in 
the State in which the farm is located.
    (iv) If the entity members holding a majority interest are related 
by blood or marriage, at least one member of the entity must:
    (A) Operate the farm and
    (B) Own the farm after the contract is completed;
    (v) If the entity members holding a majority interest are not 
related by blood or marriage, the entity members holding a majority 
interest must:
    (A) Operate the farm; and
    (B) Own the farm, or the entity itself must own the farm after the 
contract is completed;
    (3) Must have participated in the business operations of a farm or 
ranch for at least 3 years out of the last 10 years prior to the date 
the application is submitted.
    (4) The buyer, and all entity members in the case of an entity, 
must not have caused the Agency a loss by receiving debt forgiveness on 
all or a portion of any direct or guaranteed loan made under the 
authority of the Act by debt write-down or write-off; compromise, 
adjustment, reduction, or charge off under the provisions of section 
331 of the Act; discharge in bankruptcy; or through payment of a 
guaranteed loss claim on more than three occasions on or prior to April 
4, 1996 or any occasion after April 4, 1996. If the debt forgiveness is 
resolved by repayment of the Agency's loss, the Agency may still 
consider the debt forgiveness in determining the applicant's 
creditworthiness.
    (5) The buyer, and all entity members in the case of an entity, 
must not be delinquent on any Federal debt, other than a debt under the 
Internal Revenue Code of 1986, when the guarantee is issued.
    (6) The buyer, and all entity members in the case of an entity, may 
have no outstanding unpaid judgment awarded to the United States in any 
court. Such judgments do not include those filed as a result of action 
in the United States Tax Courts.

[[Page 75431]]

    (7) The buyer, and all entity members in the case of an entity, 
must be a citizen of the United States, United States non-citizen 
national, or a qualified alien under applicable Federal immigration 
laws. United States non-citizen nationals and qualified aliens must 
provide the appropriate documentation as to their immigration status as 
required by the United States Department of Homeland Security, Bureau 
of Citizenship and Immigration Services.
    (8) The buyer, and all entity members in the case of an entity, 
must possess the legal capacity to enter into a legally binding 
agreement.
    (9) The buyer, and all entity members in the case of an entity, 
must not have provided false or misleading documents or statements 
during past or present dealings with the Agency.
    (10) The buyer, and all entity members in the case of an entity, 
must not be ineligible as a result of a conviction for controlled 
substances according to 7 CFR part 718.
    (11) The buyer, and all entity members in the case of an entity, 
must have an acceptable credit history demonstrated by satisfactory 
debt repayment.
    (i) A history of failures to repay past debts as they came due when 
the ability to repay was within their control will demonstrate 
unacceptable credit history.
    (ii) Unacceptable credit history will not include:
    (A) Isolated instances of late payments which do not represent a 
pattern and were clearly beyond their control; or
    (B) Lack of credit history.
    (12) The buyer is unable to enter into a contract unless the seller 
obtains an Agency guarantee to finance the purchase of the farm at 
reasonable rates and terms.
    (13) The buyer, and all entity members in the case of an entity, 
must not be ineligible due to disqualification resulting from Federal 
Crop Insurance violation, according to 7 CFR part 718.
    (14) The buyer, and all entity members in the case of an entity, 
must not be suspended or debarred under 2 CFR parts 180 and 417.


Sec.  763.6  Limitations.

    (a) To qualify for a guarantee, the purchase price of the farm to 
be acquired through the land contract sale cannot exceed the lesser of:
    (1) $500,000 or
    (2) The current market value of the property.
    (b) A guarantee will not be issued if the appraised value of the 
farm is greater than $500,000.
    (c) Existing land contracts are not eligible for the Land Contract 
Guarantee Program.
    (d) Guarantees may not be used to establish or support a non-
eligible enterprise.


Sec.  763.7  Application requirements.

    (a) Seller application requirements. A seller who contacts the 
Agency with interest in a guarantee under the Land Contract Guarantee 
Program will be sent the land contract letter of interest outlining 
specific program details. To formally request a guarantee on the 
proposed land contract, the seller, and each entity member in the case 
of an entity, must:
    (1) Complete, sign, date, and return the land contract letter of 
interest to the Agency, and
    (2) Provide the name, address, and telephone number of the chosen 
servicing or escrow agent.
    (b) Buyer application requirements. A complete application from the 
buyer will include:
    (1) The completed Agency application form;
    (2) A current financial statement (not older than 90 days);
    (3) If the buyer is an entity:
    (i) A complete list of entity members showing the address, 
citizenship, principal occupation, and the number of shares and 
percentage of ownership or stock held in the entity by each member, or 
the percentage of interest in the entity held by each member;
    (ii) A current personal financial statement for each member of the 
entity;
    (iii) A current financial statement for the entity itself;
    (iv) A copy of the entity's charter or any entity agreement, any 
articles of incorporation and bylaws, any certificate or evidence of 
current registration (in good standing), and a resolution adopted by 
the Board of Directors or entity members authorizing specified officers 
of the entity to apply for and obtain the land contract guarantee and 
execute required debt, security, and other instruments and agreements; 
and
    (v) In the form of a married couple applying as a joint operation, 
items in paragraphs (b)(3)(i) and (b)(3)(iv) of this section will not 
be required. The Agency may request copies of the marriage license, 
prenuptial agreement, or similar documents as needed to verify loan 
eligibility and security. The information specified in paragraphs 
(b)(3)(ii) and (iii) of this section are only required to the extent 
needed to show the individual and joint finances of the husband and 
wife without duplication;
    (4) A brief written description of the buyer's proposed operation;
    (5) A farm operating plan;
    (6) A brief written description of the buyer's farm training and 
experience;
    (7) Three years of income tax and other financial records 
acceptable to the Agency, unless the buyer has been farming less than 3 
years;
    (8) Three years of farm production records, unless the buyer has 
been farming less than 3 years;
    (9) Verification of income and off-farm employment if relied upon 
for debt repayment;
    (10) Verification of all debts;
    (11) Payment of the credit report fee;
    (12) Documentation of compliance with the environmental regulations 
in part 1940, subpart G, of this title;
    (13) A copy of the proposed land contract; and
    (14) Any additional information deemed necessary by the Agency to 
effectively evaluate the applicant's eligibility and farm operating 
plan.


Sec.  763.8  Incomplete applications.

    (a) Within 10 days of receipt of an incomplete application, the 
Agency will provide the seller and buyer written notice of any 
additional information that must be provided. The seller or buyer, as 
applicable, must provide the additional information within 20 calendar 
days of the date of the notice.
    (b) If the additional information is not received, the Agency will 
provide written notice that the application will be withdrawn if the 
information is not received within 10 calendar days of the date of the 
second notice.


Sec.  763.9  Processing complete applications.

    Applications will be approved or rejected and all parties notified 
in writing no later than 30 calendar days after application is 
considered complete.


Sec.  763.10  Feasibility.

    (a) The buyer's proposed operation as described in a form 
acceptable to the Agency must represent the operating cycle for the 
farm operation and must project a feasible plan as defined in Sec.  
761.2(b) of this chapter.
    (b) The projected income, expenses, and production estimates:
    (1) Must be based on the buyer's last 3 years actual records of 
production and financial management unless the buyer has been farming 
less than 3 years;
    (2) For those farming less than 3 years, a combination of any 
actual history and other reliable sources of information may be used. 
Sources must be documented and acceptable to the Agency; and
    (3) May deviate from historical performance if deviations are the 
direct

[[Page 75432]]

result of specific changes in the operation, reasonable, justified, 
documented, and acceptable to the Agency.
    (c) Price forecasts used in the plan must be reasonable, 
documented, and acceptable to the Agency.
    (d) The Agency will analyze the buyer's business ventures other 
than the farm operation to determine their soundness and contribution 
to the operation.
    (e) When a feasible plan depends on income from sources other than 
from owned land, the income must be dependable and likely to continue.
    (f) When the buyer's farm operating plan is developed in 
conjunction with a proposed or existing Agency direct loan, the two 
farm operating plans must be consistent.


Sec.  763.11  Maximum loss amount, guarantee period, and conditions.

    (a) Maximum loss amount. The maximum loss amount due to nonpayment 
by the buyer covered by the guarantee is based on the type of guarantee 
initially selected by the seller as follows:
    (1) The prompt payment guarantee will cover:
    (i) Three amortized annual installments; or
    (ii) An amount equal to three annual installments (including an 
amount equal to the total cost of any tax and insurance incurred during 
the period covered by the annual installments).
    (2) The standard guarantee will cover an amount equal to 90 percent 
of the outstanding principal balance.
    (b) Guarantee period. The period of the guarantee will be 10 years 
from the effective date of the guarantee unless terminated earlier 
under Sec.  763.23.
    (c) Conditions. The seller will select an escrow agent to service a 
Land Contract Agreement if selecting the prompt payment guarantee plan, 
and a servicing agent to service a Land Contract Agreement if selecting 
the standard guarantee plan.
    (1) An escrow agent must provide the Agency evidence of being a 
bonded title insurance company, attorney, financial institution or 
fiscally responsible institution.
    (2) A servicing agent must provide the Agency evidence of being a 
bonded commercial lending institution or similar entity, registered and 
authorized to provide escrow and collection services in the State in 
which the real estate is located.


Sec.  763.12  Down payment, rates, terms, and installments.

    (a) Down payment. The buyer must provide a minimum down payment of 
five percent of the purchase price of the farm.
    (b) Interest rate. The interest rate charged by the seller must be 
fixed at a rate not to exceed the Agency's direct FO loan interest rate 
in effect at the time the guarantee is issued, plus three percentage 
points. The seller and buyer may renegotiate the interest rate for the 
remaining term of the contract following expiration of the guarantee.
    (c) Land contract terms. The contract payments must be amortized 
for a minimum of 20 years and payments on the contract must be of equal 
amounts during the term of the guarantee.
    (d) Balloon installments. Balloon payments are prohibited during 
the 10-year term of the guarantee.


Sec.  763.13  Fees.

    (a) Payment of fees. The seller and buyer will be responsible for 
payment of any expenses or fees necessary to process the Land Contract 
Agreement required by the State or County to ensure that proper title 
is vested in the seller including, but not limited to, attorney fees, 
recording costs, and notary fees.
    (b) [Reserved]


Sec.  763.14  Appraisals.

    (a) Standard guarantee plan. For the standard guarantee plan, the 
value of real estate to be purchased will be established by an 
appraisal obtained at Agency expense and completed as specified in 
Sec.  761.7 of this chapter. An appraisal is required prior to, or as a 
condition of, approval of the guarantee.
    (b) Prompt payment guarantee plan. The Agency may, at its option 
and expense, obtain an appraisal to determine value of real estate to 
be purchased under the Prompt Payment Guarantee plan.


Sec.  763.15  Taxes and insurance.

    (a) The seller will ensure that taxes and insurance on the real 
estate are paid timely and will provide the evidence of payment to the 
escrow or servicing agent.
    (b) The seller will maintain flood insurance, if available, if 
buildings are located in a special 100-year floodplain as defined by 
FEMA flood hazard area maps.
    (c) The seller will report any insurance claim and use of proceeds 
to the escrow or servicing agent.


Sec.  763.16  Environmental regulation compliance.

    (a) Environmental compliance requirements. The environmental 
requirements contained in part 799 and part 1940, subpart G, of this 
title must be met prior to approval of guarantee request.
    (b) Determination. The Agency determination of whether an 
environmental problem exists will be based on:
    (1) The information supplied with the application;
    (2) Environmental resources available to the Agency including, but 
not limited to, documents, third parties, and government agencies;
    (3) Other information supplied by the buyer or seller upon Agency 
request; and
    (4) A visit to the farm.


Sec.  763.17  Approving application and executing guarantee.

    (a) Approval is subject to the availability of funds, meeting the 
requirements in this part, and the participation of an approved escrow 
or servicing agent, as applicable.
    (b) Upon approval of the guarantee, all parties (buyer, seller, 
escrow or servicing agent, and Agency official) will execute the 
Agency's guarantee agreement.
    (c) The ``Land Contract Agreement for Prompt Payment Guarantee'' or 
the ``Land Contract Agreement for Standard Guarantee'' will describe 
the conditions of the guarantee, outline the covenants and any 
agreements of the buyer, seller, escrow or servicing agent, and the 
Agency, and outline the process for payment of loss claims.


Sec.  763.18  General servicing responsibilities.

    (a) For the prompt payment guarantee plan, the seller must use a 
third party escrow agent approved by the Agency. The escrow agent will:
    (1) Provide the Agency a copy of the recorded Land Contract;
    (2) Handle transactions relating to the Land Contract between the 
buyer and seller;
    (3) Receive Land Contract installment payments from the buyer and 
send them to the seller;
    (4) Provide evidence to the Agency that property taxes are paid and 
insurance is kept current on the security property;
    (5) Send a notice of payment due to the buyer at least 30 days 
prior to the installment due date;
    (6) Notify the Agency and the seller if the buyer defaults;
    (7) Service delinquent accounts as specified in Sec.  763.20(a);
    (8) Make demand on the Agency to pay missed payments;
    (9) Send the seller any missed payment amount paid by the Agency 
under the guarantee;

[[Page 75433]]

    (10) Notify the Agency on March 31 and September 30 of each year of 
the outstanding balance on the Land Contract and the status of payment; 
and
    (11) Perform other duties as required by State law and as agreed to 
by the buyer and the seller;
    (b) For the standard guarantee plan, the seller must use a third 
party servicing agent approved by the Agency. The servicing agent will:
    (1) Provide the Agency a copy of the recorded Land Contract;
    (2) Handle transactions relating to the Land Contract between the 
buyer and seller;
    (3) Receive Land Contract installment payments from the buyer and 
send them to the seller;
    (4) Provide evidence to the Agency that property taxes are paid and 
insurance is kept current on the security property;
    (5) Perform a physical inspection of the farm each year during the 
term of the guarantee, and provide an annual inspection report to the 
Agency;
    (6) Obtain from the buyer a current balance sheet, income 
statement, cash flow budget, and any additional information needed, 
perform, and provide the Agency an analysis of the buyer's financial 
condition on an annual basis;
    (7) Notify the Agency on March 31 and September 30 of each year of 
the outstanding balance on the Land Contract and the status of payment;
    (8) Send a notice of payment due to the buyer at least 30 days 
prior to the installment due date;
    (9) Notify the Agency and the seller if the buyer defaults;
    (10) Service delinquent accounts as specified in Sec.  763.20(b); 
and
    (11) Perform other duties as required by State law and as agreed to 
by the buyer and the seller.


Sec.  763.19  Contract modification.

    (a) The seller and buyer may modify the land contract to lower the 
interest rate and corresponding amortized payment amount without Agency 
approval.
    (b) With prior written approval from the Agency, the seller and 
buyer may modify the land contract provided that, in addition to a 
feasible plan for the upcoming operating cycle, a feasible plan can be 
reasonably projected throughout the remaining term of the guarantee. 
Such modifications may include but are not limited to:
    (1) Deferral of installments,
    (2) Leasing or subleasing, and
    (3) Partial releases. All proceeds from a partial release or 
royalties from mineral extraction must be applied to a prior lien, if 
one exists, and in addition, the same amount must be credited to the 
principal balance of the land contract.
    (4) Transfer and assumption. If the guarantee is to remain in 
effect, any transfer of the property and assumption of the guaranteed 
debt must be made to an eligible buyer for the Land Contract Guarantee 
Program as specified in Sec.  763.5(b), and must be approved by the 
Agency in writing. If an eligible buyer for transfer and assumption 
cannot be found, the Deputy Administrator for Farm Loan Programs may 
make an exception to this requirement when in the Government's best 
financial interests.
    (5) Assignment. The seller may not assign the contract to another 
party without written consent of the Agency.
    (c) Any contract modifications other than those listed above must 
be approved by the Deputy Administrator for Farm Loan Programs, and 
will only be approved if such action is determined permissible by law 
and in the Government's best financial interests.


Sec.  763.20  Delinquent servicing and collecting on guarantee.

    (a) Prompt payment guarantee plan. If the buyer fails to pay an 
annual amortized installment or a portion of an installment on the 
contract or taxes or insurance when due, the escrow agent:
    (1) Must make a written demand on the buyer for payment of the 
defaulted amount within 30 days of the missed payment, taxes, or 
insurance and send a copy of the demand letter to the Agency and to the 
seller; and
    (2) Must make demand on the Agency within 90 days from the original 
payment, taxes, or insurance due date, for the missed payment in the 
event the buyer has not made the payment.
    (b) Standard guarantee plan. If the buyer fails to pay an annual 
amortized installment or a portion of an installment on the contract, 
then the seller has the option of either liquidating the real estate, 
or having the amount of the loss established by the Agency by an 
appraisal of the real estate. For either option, the servicing agent:
    (1) Must make a written demand on the buyer for payment of the 
defaulted amount within 30 days of the missed payment, and send a copy 
of the demand letter to the Agency and to the seller; and
    (2) Must immediately inform the Agency which option the seller has 
chosen for establishing the amount of the loss, in the event the buyer 
does not make the payment within 60 days of the demand letter.
    (i) Liquidation method. If the seller chooses the liquidation 
method, the servicing agent will:
    (A) Submit a liquidation plan to the Agency within 120 days from 
the missed payment for approval prior to any liquidation action. The 
Agency may require and pay for an appraisal prior to approval of the 
liquidation plan.
    (B) Complete liquidation within 12 months of the missed installment 
unless prevented by bankruptcy, redemption rights, or other legal 
action.
    (C) Credit an amount equal to the sale price received in a 
liquidation of the security property, with no deduction for expenses, 
to the principal balance of the land contract.
    (D) File a loss claim immediately after liquidation, which must 
include a complete loan ledger.
    (E) Base the loss claim amount on the appraisal method if the 
property is reacquired by the seller, through liquidation.
    (ii) Appraisal method. If the seller chooses to have the loss 
amount established by appraisal rather than liquidation, the Agency 
will complete an appraisal on the real estate, and the loss claim 
amount will be based on the difference between the appraised value at 
the time the loss is calculated and the unpaid principal balance of the 
land contract at that time.
    (A) The only administrative appeal allowed under Sec.  761.6 of 
this chapter related to the resulting appraisal amount will be a 
determination of whether the appraisal is Uniform Standards of 
Professional Appraisal Practice (USPAP) compliant.
    (B) The seller will give the Agency a lien on the security property 
in the amount of the loss claim payment. If the property sells within 5 
years from the date of the loss payment for an amount greater than the 
appraised value used to establish the loss claim amount, the seller 
must repay the difference, up to the amount of the loss claim. For 
purposes of determining the amount to be repaid (recapture), the market 
value of the property may be reduced by the value of certain capital 
improvements, as specified in Sec.  766.202(a)(1)--(3) of this chapter, 
made by the seller to the property in the time period from the loss 
claim to final disposition. If the property is not sold within 5 years 
from the date of the loss payment, the Agency will release the lien and 
the seller will have no further obligation to the Agency.

[[Page 75434]]

Sec.  763.21  Establishment of Federal debt and Agency recovery of loss 
claim payments.

    (a) Any amount paid by FSA as a result of an approved loss claim is 
immediately due and payable by the buyer after FSA notifies the buyer 
that a loss claim has been paid to the seller. If the debt is not 
restructured into a repayment plan or the obligation otherwise cured, 
FSA may use all remedies available, including offset as authorized by 
the Debt Collection Improvement Act of 1996, to collect the debt.
    (1) Interest on the debt will be at the FLP non-program real 
property loan rate in effect at the time of the first Agency payment of 
a loss claim.
    (2) The debt may be scheduled for repayment consistent with the 
buyer's repayment ability, not to exceed 7 years. Before any payment 
plan can be approved, the buyer must provide the Agency with the best 
lien obtainable on all of the buyer's assets. This includes the buyer's 
ownership interest in the real estate under contract for guarantees 
using the prompt payment guarantee plan. When the buyer is an entity, 
the best lien obtainable will be taken on all of the entity's assets, 
and all assets owned by individual members of the entity, including 
their ownership interest in the real estate under contract.
    (b) Annually, buyers with an Agency approved repayment plan under 
this section will supply the Agency a current balance sheet, income 
statement, cash flow budget, complete copy of Federal income tax 
returns, and any additional information needed to analyze the buyer's 
financial condition.
    (c) If a buyer fails to make required payments to the Agency as 
specified in the approved repayment plan, the debt will be treated as a 
non-program loan debt, and servicing will proceed as specified in Sec.  
766.351(c) of this chapter.


Sec.  763.22  Negligence and negligent servicing.

    (a) The Agency may deny a loss claim in whole or in part due to 
negligence that contributed to the loss claim. This could include, but 
is not limited to:
    (1) The escrow and servicing agent failing to seek payment of a 
missed installment from the buyer within the prescribed timeframe or 
otherwise does not enforce the terms of the land contract;
    (2) Losing the collateral to a third party, such as a taxing 
authority, prior lien holder, etc;
    (3) Not performing the duties and responsibilities required of the 
escrow or servicing agent;
    (4) The seller's failure to disclose environmental issues; or
    (5) Any other action in violation of the land contract or guarantee 
agreement that does not terminate the guarantee.
    (b) [Reserved]


Sec.  763.23  Terminating the guarantee.

    (a) The guarantee and the Agency's obligations will terminate at 
the earliest of the following circumstances:
    (1) Full payment of the land contract;
    (2) Agency payment to the seller of 3 annual installments plus 
property taxes and insurance, if applicable, under the prompt payment 
guarantee plan, if not repaid in full by the buyer. An Agency approved 
repayment plan will not constitute payment in full until such time as 
the entire amount due for the Agency approved repayment plan is paid in 
full;
    (3) Payment of a loss claim through the standard guarantee plan;
    (4) Sale of real estate without guarantee being properly assigned;
    (5) The seller terminates the land contract for reasons other than 
monetary default; or
    (6) If for any reason the land contract becomes null and void.
    (b) If none of the events in paragraph (a) of this section occur, 
the guarantee will automatically expire, without notice, 10 years from 
the effective date of the guarantee.

PART 764--DIRECT LOAN MAKING

0
5. The authority citation for part 764 continues to read as follows:

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

0
6. Amend Sec.  764.51 by revising paragraph (b)(3) to read as follows:


Sec.  764.51  Loan application.

* * * * *
    (b) * * *
    (3) A written description of the applicant's farm training and 
experience, including each entity member who will be involved in 
managing or operating the farm. Farm experience of the applicant, 
without regard to any lapse of time between the farm experience and the 
new application, may be included in the applicant's written 
description. If farm experience occurred more than 5 years prior to the 
date of the new application, the applicant must demonstrate sufficient 
on-the-job training or education within the last 5 years to demonstrate 
managerial ability;
* * * * *

0
7. Amend Sec.  764.101 by revising paragraph (i)(3) to read as follows:


Sec.  764.101  General eligibility requirements.

* * * * *
    (i) * * *
    (3) Farming experience. For example, the applicant has been an 
owner, manager, or operator of a farm business for at least one entire 
production cycle. Farm experience of the applicant, without regard to 
any lapse of time between the farm experience and the new application, 
will be taken into consideration in determining loan eligibility. If 
farm experience occurred more than 5 years prior to the date of the new 
application, the applicant must demonstrate sufficient on-the-job 
training or education within the last 5 years to demonstrate managerial 
ability.
* * * * *

0
8. Amend Sec.  764.102 by revising paragraph (f) to read as follows:


Sec.  764.102  General limitations.

* * * * *
    (f) Loan funds will not be used to establish or support a non-
eligible enterprise, even if the non-eligible enterprise contributes to 
the farm. Notwithstanding this limitation, an EM loan may cover 
qualified equine losses as specified in subpart I of this part.

0
9. Amend Sec.  764.352 by adding paragraph (l) to read as follows:


Sec.  764.352  Eligibility requirements.

* * * * *
    (l) Whose primary enterprise is to breed, raise, and sell horses 
may be eligible under this part.

0
10. Amend Sec.  764.353 by adding paragraph (g) to read as follows:


Sec.  764.353  Limitations.

* * * * *
    (g) Losses associated with horses used for racing, showing, 
recreation, or pleasure or loss of income derived from racing, showing, 
recreation, boarding, or pleasure are not considered qualified losses 
under this section.

0
11. Amend Sec.  764.355 by revising paragraph (b) to read as follows:


Sec.  764.355  Security requirements.

* * * * *
    (b) EM loans made as specified in Sec.  764.351(a)(2) and (b) must 
generally comply with the general security requirements established in 
Sec. Sec.  764.103, 764.104, and 764.255(b). These general security 
requirements, however, do not apply to equine loss loans to the extent 
that a lien is not obtainable or obtaining a lien may prevent the 
applicant from carrying on the normal course of business. Other 
security may be considered for an equine loss loan in the order of 
priority as follows:
    (1) Real estate,

[[Page 75435]]

    (2) Chattels and crops, other than horses,
    (3) Other assets owned by the applicant,
    (4) Third party pledges of property not owned by the applicant,
    (5) Repayment ability under paragraph (c) of this section.
* * * * *
0
12. Amend paragraph Sec.  764.356 by adding paragraph (c) to read as 
follows:


Sec.  764.356  Appraisal and valuation requirements.

* * * * *
    (c) In the case of an equine loss loan:
    (1) The applicant's Federal income tax and business records will be 
the primary source of financial information. Sales receipts, invoices, 
or other official sales records will document the sales price of 
individual animals.
    (2) If the applicant does not have 3 complete years of business 
records, the Agency will obtain the most reliable and reasonable 
information available from sources such as the Cooperative Extension 
Service, universities, and breed associations to document production 
for those years for which the applicant does not have a complete year 
of business records.

    Signed on November 23, 2011.
Bruce Nelson,
Administrator, Farm Service Agency.
[FR Doc. 2011-31046 Filed 12-1-11; 8:45 am]
BILLING CODE 3410-05-P