12 C.F.R. PART 617—BORROWER RIGHTS
Title 12 - Banks and Banking
Authority: Secs. 4.13, 4.13A, 4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.36, 5.9, 5.17 of the Farm Credit Act (12 U.S.C. 2199, 2200, 2201, 2202, 2202a, 2202c, 2202d, 2202e, 2219a, 2243, 2252).
Source: 69 FR 10907, 10908, Mar. 9, 2004, unless otherwise noted.
For the purposes of this part, the following terms apply: Adjustable rate loan means a loan where the interest rate payable over the term of the loan may change. This includes adjustable rate, variable rate, or other similarly designated loans. Adverse credit decision means a credit decision where a qualified lender: (1) Decides not to make a loan to an applicant; (2) Approves a loan in an amount less than the applicant requested; or (3) Denies an application for restructuring. Applicant means any person who completes and executes a loan application from a qualified lender. Application for restructuring means a written request from a borrower to restructure a distressed loan. The request must be submitted on the appropriate forms prescribed by the qualified lender and accompanied by sufficient financial information and repayment projections, where appropriate, as required by the qualified lender to support a sound credit decision. Distressed loan means a loan that the borrower does not have the financial capacity to pay according to its terms, as determined by the qualified lender, and exhibits one or more of the following characteristics: (1) The borrower is demonstrating adverse financial and repayment trends. (2) The loan is delinquent or past due under the terms of the loan contract. (3) One or both of the factors listed in paragraphs (1) and (2) of this section, together with inadequate collateralization, present a high probability of loss to the qualified lender. Effective interest rate means a measure of the cost of credit, expressed as an annual percentage rate, that shows the effect of the following costs, if any, on the interest rate on a loan charged by a qualified lender to a borrower: (1) The amount of any stock or participation certificates that a borrower is required to buy to obtain the loan; and (2) Any loan origination charges paid by a borrower to a qualified lender to obtain the loan. Foreclosure proceeding means: (1) A foreclosure or similar legal proceeding to enforce a lien on property, whether real or personal, that secures a non-interest-earning asset or distressed loan; or (2) The seizing of and realizing on non-real property collateral, other than collateral subject to a statutory lien arising under titles I and II of the Act, to effect collection of a nonaccrual or distressed loan. Independent evaluator means an individual who is a qualified evaluator and who satisfies the standards of §614.4260, subpart F of this chapter, and the standards set by the qualified lender for the type of property to be evaluated. The independent evaluator may not be an employee or agent of a qualified lender or have a relationship with the lender or any of its officers or directors in contravention of part 612 of this chapter. Interest rate means the stated contract rate of interest. Loan means an extension of credit made to a farmer, rancher, or producer or harvester of aquatic products, for any agricultural or aquatic purpose and other credit needs of the borrower, including financing for basic processing and marketing that directly relates to the borrower's operations and those of other eligible farmers, ranchers, and producers or harvesters of aquatic products. Loan application means a complete oral or written request for an extension of credit made in accordance with a qualified lender's procedures for the type of credit requested. An application is complete when the qualified lender receives all the information normally obtained and used in evaluating applications for credit. This information may include credit reports, supporting information for the credit requested, and reports by governmental agencies or other persons necessary to guarantee, insure, or provide security for the credit or collateral. Qualified lender means: (1) A System institution, except a bank for cooperatives, that makes loans as defined in this section; and (2) Each bank, institution, corporation, company, credit union, and association described in section 1.7(b)(1)(B) of the Act (commonly referred to as an other financing institution), but only with respect to loans discounted or pledged under section 1.7(b)(1). Restructure and restructuring of a loan means a reamortization, renewal, deferral of principal or interest, monetary concessions, or the taking of any other action to modify the terms of, or forbear on, a loan. [69 FR 10907, 10908, Mar. 9, 2004, as amended at 69 FR 16459, Mar. 30, 2004] Qualified lenders may use, with the parties' agreement, electronic commerce (E-commerce), including electronic communications for borrower rights disclosures. Part 609 of this chapter addresses when a qualified lender may use E-commerce. Consistent with these rules, a qualified lender should interpret part 617 broadly to allow electronic transmissions, communications, records, and submissions. However, electronic communications may not be used for a notice of default, acceleration, repossession, foreclosure, eviction, or the right to cure when a borrower's primary residence secures the loan. In these instances, a qualified lender must use paper disclosures. (a) A qualified lender may not obtain a waiver of borrower rights, except as indicated in paragraphs (b) and (c) of this section. (b) A borrower may waive rights relating to distressed loan restructuring, credit reviews, and the right of first refusal when a loan is guaranteed by the Small Business Administration or in connection with a loan sale as provided in §617.7015. Waivers obtained pursuant to this paragraph must be voluntary and in writing. The document evidencing the waiver must clearly explain the rights the borrower is being asked to waive. (c) A borrower may waive all borrower rights provided for in part 617 of these regulations in connection with a loan syndication transaction with non-System lenders that are otherwise not required by section 4.14A(a)(6) of the Act to provide borrower rights. For purposes of this paragraph, a “loan syndication” is a multi-lender transaction in which each member of the lending syndicate has a direct contractual relationship with the borrower, but does not include a transaction created for the primary purpose of avoiding borrower rights. Waivers obtained pursuant to this paragraph must be voluntary and in writing. The document evidencing the waiver must clearly disclose the rights the borrower is waiving. Additionally, the borrower's written waiver must contain a statement that the borrower was represented by legal counsel in connection with execution of the waiver. [69 FR 10907, 10908, Mar. 9, 2004, as amended at 70 FR 18968, Apr. 12, 2005] (a) What happens when a qualified lender sells a loan to another qualified lender? A loan made by a qualified lender and subsequently sold, in whole or in part, to another qualified lender is subject to the borrower rights provisions of title IV of the Act. (b) What happens when a qualified lender sells a loan into the secondary market? (1) Except as provided in paragraph (b)(2) of this section, the borrower rights provisions of sections 4.14, 4.14A, 4.14B, 4.14C, 4.14D, and 4.36 of the Act do not apply to a loan made on or after February 10, 1996, and designated for sale into a secondary market at the time the loan was made. (2) Borrower rights apply to a loan designated for sale under paragraph (b)(1) of this section but not sold into a secondary market during the 180-day period that begins on the date of designation. The provisions of paragraph (b)(1) of this section will subsequently apply on the date of sale if the loan is later sold into a secondary market. (c) What happens when a qualified lender sells a loan to a nonqualified lender? (1) Except for loans sold to another qualified lender or designated for sale into a secondary market, a qualified lender must comply with one of the following requirements before selling a loan or interest in a loan subject to borrower rights: (i) The qualified lender and borrower must agree to include provisions in the loan contract with the borrower, or a written modification thereto, that ensure that the buyer of the loan will be obligated to provide the borrower the same rights a qualified lender must provide; or (ii) The qualified lender must obtain from the borrower a signed written consent to the sale, which clearly states the borrower waives statutory borrower rights. (2) Before the qualified lender obtains the borrower's consent to the sale of the loan and the waiver of borrower rights under paragraph (c)(1)(ii) of this section, the qualified lender must disclose in writing to the borrower: (i) A complete description of the statutory rights the borrower will waive; (ii) Any changes in the loan terms or conditions that will occur if the qualified lender does not sell the loan; (iii) That waiving borrower rights will not become effective unless the qualified lender sells the loan; and (iv) That borrower rights will become effective again if any qualified lender repurchases the loan or any interest in the loan. (3) The consent to the loan sale and waiver of borrower rights shall have no effect until the qualified lender sells the loan. Borrower rights become effective again if any qualified lender repurchases the loan or any interest in the loan. (4) A qualified lender may not make a loan conditioned on the borrower consenting to the loan's sale and a waiver of borrower rights. Source: 69 FR 16459, Mar. 30, 2004, unless otherwise noted.
(a) A qualified lender must make the disclosures required by subparts B and C of this part to borrowers for all loans not subject to the Truth in Lending Act. (b) For a single loan involving more than one borrower, a qualified lender is required to provide only one set of disclosures to borrowers. All borrowers may designate, in writing, one person who will receive the effective interest rate disclosure. If the borrowers do not designate a particular recipient, the lender may provide the disclosure to at least one of the borrowers who is primarily liable for repayment of the loan. (a) Disclosure to prospective borrowers. A qualified lender must provide written effective interest rate disclosure for each loan no later than the time of loan closing. (b) Disclosure to existing borrowers. (1) A qualified lender must provide a new effective interest rate disclosure to an existing borrower on or before the date: (i) The borrower executes a new promissory note or other comparable evidence of indebtedness; (ii) The borrower purchases additional stock or participation certificates as a condition of obtaining new funds from the qualified lender; or (iii) The borrower pays an additional loan origination charge to the qualified lender as a condition of obtaining new funds. (2) A qualified lender is not required to provide a new effective interest rate disclosure when it advances new funds to an existing borrower if none of the conditions of paragraph (b)(1) of this section apply and the advance is made pursuant to a preexisting contract that specifically provides for future advances. The cost of borrower stock or participation certificates must be included in the effective interest rate calculation at the time the stock or participation certificate is purchased in connection with a loan transaction. For subsequent loans to existing borrowers, only the cost of new stock or participation certificates, if any, purchased in connection with a new loan or advance of new funds must be included in the effective interest rate calculation for the transaction. Any one-time charge paid by a borrower to a qualified lender in consideration for making a loan must be included in the effective interest rate as a loan origination charge. These include, but are not limited to, loan origination fees, application fees, and conversion fees. Loan origination charges also include any payments made by a borrower to a qualified lender to reduce the interest rate that would otherwise be charged, including any charges designated as “points.” A qualified lender must: (a) Disclose the effective interest rate and other information required by subparts B and C of this part clearly and conspicuously in writing, in a form that is easy to read and understand and that the borrower may keep; and (b) Not combine the disclosures with any information not directly related to the information required by §§617.7130 and 617.7135. (a) A qualified lender must calculate the effective interest rate on a loan using the discounted cash flow method showing the effect of the time value of money. (b) For all loans, the cash flow stream used for calculating the effective interest rate of a loan must include: (1) Principal and interest; (2) The cost of stock or participation certificates that a borrower is required to purchase in connection with the loan; and (3) Loan origination charges described in §617.7115. (c) A qualified lender must establish policies and procedures for EIR disclosures that clearly show the effect of the cost of borrower stock (or participation certificates) and loan origination charges on the interest rate of a loan. A qualified lender must also establish policies and procedures for determining major assumptions used in calculating the effective interest rate, e.g., criteria on how the cost of borrower stock (or participation certificates) and loan origination charges are assigned or allocated among multiple loans obtained by a borrower simultaneously. (a) Required disclosures—in general. A qualified lender must disclose in writing: (1) The interest rate on the loan; (2) The effective interest rate of the loan; (3) The amount of stock or participation certificates that a borrower is required to purchase in connection with the loan and included in the calculation of the effective interest rate of the loan; (4) All loan origination charges included in the effective interest rate; (5) That stock or participation certificates that borrowers are required to purchase are at risk and may only be retired at the discretion of the board of the institution; and (6) The various types of loan options available to borrowers, with an explanation of the terms and borrower rights that apply to each type of loan. (b) Adjustable rate loans. A lender must provide the following information for adjustable rate loans in addition to the requirements of paragraph (a) of this section: (1) The circumstances under which the rate can be adjusted; (2) How much the rate can be adjusted at any one time and how much the rate can be adjusted during the term of the loan; (3) How often the rate can be adjusted; (4) Any limitations on the amount or frequency of adjustments; and (5) The specific factors that the qualified lender may take into account in making adjustments to the interest rate on the loan. (a) Notice of interest rate change. (1) A qualified lender must provide written notice to a borrower of any change in interest rate on the borrower's existing loan, containing the following information: (i) The new interest rate on the loan; (ii) The date on which the new rate is effective; and (iii) The factors used to adjust the interest rate on the loan. (2) If the borrower's interest rate is directly tied to a widely publicized external index, a qualified lender must provide written notice to the borrower of the rate change within forty-five (45) days after the effective date of the change. (3) If the borrower's interest rate is not directly tied to a widely publicized external index, a qualified lender must send written notice to the borrower of the rate change within ten (10) days after the effective date of the change. (b) Notice of increase in stock purchase requirement. If a qualified lender increases the amount of stock (or participation certificates) a borrower must own during the term of a loan, the lender must send a written notice to the borrower at least ten (10) days prior to the effective date of the increase. The notice must state: (1) The new effective interest rate on the outstanding balance for the remaining term of the borrower's loan; (2) The date on which the new rate is effective; and (3) The reason for the increase in the borrower stock (or participation certificates) purchase requirement. A qualified lender that offers more than one rate of interest to borrowers must notify each borrower of the right to request a review of the interest rate charged on his or her loan no later than the time of loan closing. At the request of a borrower, the lender must: (a) Provide a review of the loan to determine if the proper interest rate has been established; (b) Explain to the borrower in writing the basis for the interest rate charged; and (c) Explain to the borrower in writing how the credit status of the borrower may be improved to receive a lower interest rate on the loan. [69 FR 16459, Mar. 30, 2004] Each qualified lender must make its decision on a loan application as quickly as possible. The qualified lender must provide prompt written notice of its decision to the applicant. The qualified lender is required to notify all primary applicants. If a loan application has more than one primary applicant, the qualified lender may send the original notice to the applicant designated to receive notices and may send copies to all other applicants. If the qualified lender makes an adverse credit decision on a loan application, the notice must include: (a) The specific reasons for the qualified lender's decision; (b) A statement that the applicant may request a review of the decision; (c) A statement that a written request for review must be made within 30 days after the applicant receives the qualified lender's notice; and (d) A brief explanation of the process for seeking review of the decision, including the independent collateral evaluation review process, whom to contact for access to information, and the applicant's right to appear in person before the credit review committee (CRC). The board of directors of each qualified lender must establish one or more CRCs to review adverse credit decisions made by a qualified lender. The CRC may only review adverse credit decisions at the request of the applicant or borrower. The CRC has the ultimate decision-making authority on the loan or application under review. CRC members are selected by the board of directors of each qualified lender and must include at least one of the qualified lender's farmer-elected board members. The loan officer involved in the adverse credit decision being reviewed may not serve on the CRC when it reviews that loan. (a) How will an applicant or borrower know when the CRC will consider the review request? The qualified lender must inform the applicant or borrower 15 days in advance of the CRC meeting where the applicant or borrower's request will be reviewed. (b) Who may make a personal appearance before the CRC? Each applicant or borrower who has requested a review may appear in person before the CRC. The applicant or borrower may be accompanied by counsel or other representative when seeking a reversal of a decision on a loan or an application for restructuring. (c) What documents may the CRC consider? An applicant or borrower may submit any documents or other evidence to support the information contained in the loan or application for restructuring. The documents should demonstrate that the application for a loan or restructuring satisfies the credit standards of the qualified lender and is an eligible loan or application for restructuring. Additionally, the applicant or borrower is entitled to a copy of each independent collateral evaluation used by the qualified lender. (d) May an applicant obtain a new collateral evaluation even if collateral was not a reason for the adverse credit decision? As part of a CRC review, an applicant may request an independent collateral evaluation of the agricultural real estate securing the loan or being offered as security, regardless of whether collateral was an identified reason for the adverse credit decision. The independent collateral evaluation may be for any interest(s) in the property securing the loan, except stock or participation certificates issued by the qualified lender and held by the applicant or borrower. (1) Who may conduct an independent collateral evaluation? The independent collateral evaluation must be conducted by an independent evaluator. The CRC must provide the applicant or borrower with a list of three independent evaluators approved by the qualified lender within 30 days of the request for an independent collateral evaluation. The applicant or borrower must select and engage the services of an evaluator from the list. The evaluation must comply with the collateral evaluation requirements of part 614, subpart F, of this chapter. The qualified lender must provide the applicant or borrower a copy of part 614, subpart F, for presentation to the selected independent evaluator. A copy of part 614, subpart F, signed by the evaluator is a required exhibit in the subsequent evaluation report. (2) When must an applicant or borrower obtain the independent collateral evaluation and who pays for the evaluation? The applicant or borrower must enter into a contractual arrangement for evaluation services within 30 days of receiving the names of three approved independent evaluators. The contractual arrangement must be a written contract for services that complies with the lender's appraisal standards. The evaluation must be completed within a reasonable period of time, taking into consideration any extenuating circumstance. The applicant or borrower is responsible for the costs of the independent evaluation. (3) How does the CRC use an independent collateral evaluation when making a decision? The CRC will consider the results of any independent collateral evaluation before making a final determination with respect to the loan or restructuring, except the CRC is not required to consider a collateral evaluation that does not conform to the collateral evaluation standards described in part 614, subpart F, of this chapter. (e) When must the CRC issue a decision? The CRC must reach a decision, and it must be the final decision of the qualified lender, not later than 30 days after the meeting on the request under review. The CRC must make every reasonable effort to conduct reviews and render decisions in as expeditious a manner as possible. After making its decision, the committee must promptly notify the applicant or borrower in writing of the decision and the reasons for the decision. A qualified lender must maintain a complete file of all requests for CRC reviews, including participation in state mediation programs, the minutes of each CRC meeting, and the disposition of each review by the CRC. (a) A qualified lender may not foreclose on a loan because the borrower failed to post additional collateral when the borrower has made all accrued payments of principal, interest, and penalties on the loan. (b) A qualified lender may not require a borrower to reduce the outstanding principal balance of a loan by any amount that exceeds the regularly scheduled principal installment when due and payable, unless: (1) The borrower sells or otherwise disposes of part, or all, of the collateral without the prior approval of the qualified lender and the proceeds from the sale or disposition are not applied to the loan; or (2) The parties agree otherwise in writing. (c) After a borrower has made all accrued payments of principal, interest, and penalties on a loan, the qualified lender may not enforce acceleration of the borrower's repayment schedule due to the borrower's untimely payment of those principal, interest, or penalty payments. (d) If a qualified lender places a loan in non-interest-earning status and this results in an adverse action being taken against the borrower, such as revoking any undisbursed loan commitment, the lender must document the change of status and promptly notify the borrower in writing of the action and the reasons for taking it. If the borrower was not delinquent on any principal, interest, or penalty payment at the time of such action and the borrower's request to have the loan placed back into accrual status is denied, the borrower may obtain a review of the denial before the CRC pursuant to §617.7310 of this part. The borrower must request this review within 30 days after receiving the lender's notice. Loan restructurings must be made in accordance with the policy adopted by the supervising bank board of directors under section 4.14A(g) of the Act. (a) What are the notice requirements? When a qualified lender determines that a loan is, or has become, distressed, the lender must provide one of the following written notices to the borrower stating that the loan may be suitable for restructuring. (1) A notice stating that the loan has been identified as distressed and that the borrower has the right to request a restructuring of the loan (nonforeclosure notice). (2) A notice that the loan has been identified as distressed, that the borrower has the right to request a restructuring of the loan, and that the alternative to restructuring may be foreclosure (45-day notice). The qualified lender must provide this notice to the borrower no later than 45 days before the qualified lender begins foreclosure proceedings with respect to any loan outstanding to the borrower. This notice must specifically state that if the loan is restructured and the borrower does not perform under the restructure agreement (as described in §617.7410(e)), the qualified lender may initiate foreclosure proceedings without further notice. (b) What should each notice include? (1) A copy of the policy the qualified lender established governing the treatment of distressed loans; and (2) All materials necessary for the borrower to submit an application for restructuring. (c) What notice should a qualified lender send to a borrower who is a debtor in a bankruptcy proceeding? The qualified lender should send a notice that identifies the loan as distressed and the statutory right to file an application for a restructuring. The notice may also restate the language from the automatic stay provision to emphasize that the notice is not intended as an attempt to collect, assess, or recover a claim. (d) Whom should the qualified lender notify? The qualified lender is required to notify all primary obligors. If the obligors identify one party to receive notices, the qualified lender should send the original notice to that person and send copies to the other obligors. For borrowers in a bankruptcy proceeding, the qualified lender should send the notice to the borrower and, if retained, the borrower's counsel. (e) When is a qualified lender required to send another restructure notice to a borrower whose loan was previously restructured? A qualified lender must notify a borrower of the right to file another application to restructure the loan if the qualified lender sent the nonforeclosure notice to the borrower and the borrower has performed on the previous restructure agreement. Performance means that a borrower has made six consecutive monthly payments, four consecutive quarterly payments, three consecutive semiannual payments, or two consecutive annual payments. However, a qualified lender is not required to send another notice if they previously sent a 45-day notice, as described in §617.7410(a)(2), and a borrower did not perform under a restructure agreement, as described above. (f) Does the borrower have the opportunity to meet with the qualified lender after receiving the restructure notice? The qualified lender must provide any borrower to whom a notice has been sent with a reasonable opportunity to meet personally with a representative of the lender. The borrower and lender may meet to review the status of the loan, the financial condition of the borrower, and the suitability of the loan for restructuring. A meeting to discuss a loan that is in a non-interest-earning status may also involve developing a plan for restructuring, if the qualified lender determines the loan is suitable for restructuring. (g) May the qualified lender voluntarily consider restructuring for a borrower who did not submit a restructuring application? A qualified lender may, in the absence of an application for restructuring from a borrower, propose restructuring to an individual borrower. (a) What criteria does a qualified lender use to evaluate an application for restructuring? The qualified lender should consider the following: (1) Whether the cost to the lender of restructuring the loan is equal to or less than the cost of foreclosure, considering all relevant criteria. These criteria include: (i) The present value of interest and principal foregone by the lender in carrying out the application for restructuring; (ii) Reasonable and necessary administrative expenses involved in working with the borrower to finalize and implement the application for restructuring; (iii) Whether the borrower's application for restructuring included a preliminary restructuring plan and cash flow analysis, taking into account income from all sources to be applied to the debt and all assets to be pledged, that show a reasonable probability that orderly debt retirement will occur as a result of the proposed restructuring; and (iv) Whether the borrower has furnished, or is willing to furnish, complete and current financial statements in a form acceptable to the qualified lender. (2) Whether the borrower is applying all income over and above necessary and reasonable living and operating expenses to the payment of primary obligations; (3) Whether the borrower has the financial capacity and the management skills to protect the collateral from diversion, dissipation, or deterioration; (4) Whether the borrower is capable of working out existing financial difficulties, taking into consideration any prior restructuring of the loan, reestablishing a viable operation, and repaying the loan on a rescheduled basis; and (5) In the case of a distressed loan that is not delinquent, whether restructuring consistent with sound lending practices may be taken to reasonably ensure that the loan will not have to be placed into non-interest-earning status in the future. (b) What should be included in determining the cost of foreclosure? (1) The difference between the outstanding balance due, as provided by the loan documents, and the liquidation value of the loan, taking into consideration the borrower's repayment capacity and the liquidation value of the collateral used to secure the loan; (2) The estimated cost of maintaining a loan classified as a high-risk asset; (3) The estimated cost of administrative and legal actions necessary to foreclose a loan and dispose of property acquired as the result of the foreclosure, including attorneys' fees and court costs; (4) The estimated cost of value changes in collateral used to secure a loan during the period beginning on the date of the initiation of an action to foreclose or liquidate the loan and ending on the date of the disposition of the collateral; and (5) All other costs incurred as the result of the foreclosure or liquidation of a loan. (c) What should the qualified lender do if the borrower and the qualified lender cannot agree on the financial projections used in the application for restructuring? If the borrower and lender are not able to agree on supportable or realistic financial projections, the lender may use benchmarks to determine the operational input costs and chattel security values. These benchmarks may include, but are not limited to, the borrower's 5-year production average; averages in the county where the farming operation is located, based on data from United States Department of Agriculture, local colleges or universities, or other recognized authority; and other such reasonable sources. (d) How does the qualified lender decide whether to restructure or foreclose? If a qualified lender determines the potential cost to the lender of restructuring the loan as proposed in the application for restructuring is less than or equal to the potential cost of foreclosure, the qualified lender must restructure the loan. If two or more restructuring alternatives are available, the qualified lender must restructure the loan using the alternative that results in the least cost to the lender. (e) What documentation should the qualified lender retain? In the event that an application for restructuring is denied, a qualified lender must maintain sufficient documentation to demonstrate compliance with paragraphs (a), (b), and (c) of this section, as applicable. (a) When must a qualified lender make a decision on an application for restructuring? Each qualified lender must provide a written decision on an application for restructuring and provide this decision to the borrower within 15 days from the conclusion of the negotiations used to develop the application for restructuring. (b) How does a qualified lender notify the borrower of the decision? On reaching a decision on an application for restructuring, the qualified lender must provide written notice in any manner that requires a primary obligor to acknowledge receipt of the lender's decision. In the case of a loan involving one or more primary obligors, the original notice may be provided to the primary obligor identified to receive such notice, with copies provided by regular mail to the other obligors. (c) What notice is required if the restructuring request is denied? When an application for restructuring is denied, the notice must include: (1) The specific reason(s) for the denial and any critical assumptions and relevant information on which the specific reasons are based, except that any confidential information shall not be disclosed; (2) A statement that the borrower may request a review of the denial; (3) A statement that any request for review must be made in writing within 7 days after receiving such notice. (4) A brief explanation of the process for seeking review of the denial, including the appraisal review process and the right to appear before the CRC, pursuant to §617.7310 of this part, accompanied by counsel or any other representative, if the borrower chooses. The qualified lender must send the 45-day notice, as described in §617.7410(a)(2), no later than 45 days before any qualified lender begins foreclosure proceedings. The notice informs the borrower in writing that the loan may be suitable for restructuring and that the qualified lender will review any suitable loan for possible restructuring. The 45-day notice must include a copy of the policy and the materials described in §617.7410(b). The notice must also state that if the loan is restructured, the borrower must perform under this restructure agreement. If the borrower does not perform, the qualified lender may initiate foreclosure. (a) Does the notice have to inform the borrower that foreclosure is possible? The notice must inform the borrower that the alternative to restructuring may be foreclosure. If the notice does not inform the borrower of potential foreclosure, then the qualified lender must send a second notice at least 45 days before foreclosure is initiated. (b) How are borrowers who are debtors in a bankruptcy proceeding notified? A qualified lender must restate the language from the automatic stay provision to emphasize that the notice is not intended to be an attempt to collect, assess, or recover a claim. The qualified lender should send the notice to the borrower and, if retained, the borrower's counsel. (c) May a qualified lender foreclose on a loan when there is a restructuring application on file? No qualified lender may foreclose or continue any foreclosure proceeding with respect to a distressed loan before the lender has completed consideration of any pending application for restructuring and CRC consideration, if applicable. This section does not prevent a lender from taking any action necessary to avoid the dissipation of assets or the diversion, dissipation, or deterioration of collateral if the lender has reasonable grounds to believe that such diversion, dissipation, or deterioration may occur. (a) If initiated by a borrower, System institutions must participate in state mediation programs certified under section 501 of the Agricultural Credit Act of 1987 and present and explore debt restructuring proposals advanced in the course of such mediation. If provided in the certified program, System institutions may initiate mediation at any time. (b) System institutions must cooperate in good faith with requests for information or analysis of information made in the course of mediation under any loan mediation program. (c) No System institution may make a loan secured by a mortgage or lien on agricultural property to a borrower on the condition that the borrower waive any right under the agricultural loan mediation program of any state. (d) A state mediation may proceed at the same time as the loan restructuring process of §617.7415 or at any other appropriate time. (a) A distressed loan restructuring directive is an order issued to a qualified lender when FCA has determined that the lender has violated section 4.14A of the Act. (b) A distressed loan restructuring directive requires the qualified lender to comply with the specific distressed loan restructuring requirements in the Act. (c) A distressed loan restructuring directive is enforceable in the same manner and to the same extent as an effective and outstanding cease and desist order that has become final. Any violation of a distressed loan restructuring directive may result in FCA assessing civil money penalties or seeking a court order pursuant to section 5.31 or 5.32 of the Act. When FCA intends to issue a distressed loan restructuring directive, it will notify the qualified lender in writing. The notice will state: (a) The reasons FCA intends to issue a distressed loan restructuring directive; (b) The proposed contents of the distressed loan restructuring directive; and (c) Any other relevant information. (a) A qualified lender should respond to the notice by stating why FCA should not issue a distressed loan restructuring directive, by proposing changes to the directive, or by seeking other suitable relief. The response must include any information, documentation, or other relevant evidence that supports the qualified lender's position. The response may include a plan for achieving compliance with the distressed loan restructuring requirements of the Act. The response must be in writing and delivered to FCA within 30 days after the date on which the qualified lender received the notice. In its discretion, FCA may extend the time period for good cause. FCA may shorten the 30-day period with the consent of the qualified lender or when FCA determines that providing the full 30 days would result in a borrower not receiving distressed loan restructuring rights. (b) If the qualified lender fails to respond within 30 days or such other time period specified by FCA, this failure will constitute a waiver of any objections to the proposed distressed loan restructuring directive. After the closing date of the qualified lender's response period, or following receipt of the qualified lender's response, FCA must decide if there is sufficient information to support the issuance of a directive or if additional information is necessary. Once FCA has received sufficient information, it must decide whether to issue a directive as originally proposed or as modified. A distressed loan restructuring directive is effective immediately on receipt by the qualified lender, or on such later date as may be specified by FCA, and will remain effective and enforceable until it is stayed, modified, or terminated by FCA. FCA may issue a distressed loan restructuring directive in addition to, or instead of, any other action allowed by law, including cease and desist proceedings, civil money penalties, or the granting or conditioning of any application or other requests by the System institution. In addition to the definitions in §617.7000, the following definitions apply to this subpart. Acquired agricultural real estate or property means agricultural real estate acquired by a System institution as a result of a loan foreclosure or a voluntary conveyance by a borrower who, as determined by the institution, does not have the financial resources to avoid foreclosure. Previous owner means: (1) The prior record owner who was a borrower from a System institution and did not have the financial resources, as determined by the institution, to avoid foreclosure on acquired agricultural real estate; or (2) The prior record owner who is not a borrower and whose acquired agricultural real estate was used as collateral for a loan to a System borrower. System institution means a Farm Credit System institution, except a bank for cooperatives, which makes loans as defined in §617.7000. The right of first refusal applies only to borrowers who did not have the financial resources to avoid foreclosure or voluntary conveyance. A System institution must clearly document in its files whether the borrower had the resources to avoid foreclosure or voluntary conveyance. (a) Notify the previous owner, (1) Within 15 days of the System institution's decision to sell acquired agricultural real estate, it must notify the previous owner, by certified mail, of the property's appraised fair market value as established by an accredited appraiser and of the previous owner's right to: (i) Buy the property at the appraised fair market value, or (ii) Offer to buy the property at a price less than the appraised value. (2) That any offer must be received within 30 days of receipt of the notice. (b) Act on an offer to buy the acquired agricultural real estate at the appraised value. Within 15 days after the receipt of the previous owner's offer to buy the acquired agricultural real estate at the appraised value, the System institution must accept the offer and sell the property to the previous owner if the offer was received within 30 days of the notice required in paragraph (a)(2) of this section. (c) Act on an offer to buy the acquired agricultural real estate at less than the appraised value. (1) The System institution must consider the offer if it was received within 30 days of the notice required in paragraph (a)(2) of this section. (2) If the System institution accepts this offer, it must notify the previous owner of the decision and sell the acquired agricultural real estate to the previous owner within 15 days of receiving the offer to buy the acquired agricultural real estate at a value less than the appraised value. (3) If the System institution rejects this offer, it must notify the previous owner of the decision within 15 days of receiving the offer to buy the acquired agricultural real estate at a value less than the appraised value. The previous owner has 15 days from receipt of the notice to submit an offer to buy at such price or under such terms and conditions. The System institution may not sell the acquired agricultural real estate to any other person: (i) At a price equal to, or less than, that offered by the previous owner; or (ii) On different terms or conditions than those extended to the previous owner without first notifying the previous owner by certified mail and providing an opportunity to buy the property at such price or under such terms and conditions. (d) For purposes of this section, financing by the System institution is not a term or condition of the sale of acquired agricultural real estate. A System institution is not required to provide financing to the previous owner for purchase of acquired agricultural real estate. (a) Notify the previous owner, (1) Within 15 days of the System institution's decision to lease acquired agricultural real estate, it must notify the previous owner, by certified mail, of the property's appraised rental value, as established by an accredited appraiser, and of the previous owner's right to: (i) Lease the property at a rate equivalent to the appraised rental value of the property, or (ii) Offer to lease the property at rate that is less than the appraised rental value of the property. (2) That any offer must be received within 15 days of receipt of the notice. (b) Act on an offer to lease the acquired agricultural real estate at a rate equivalent to the appraised rental value of the property. (1) Within 15 days after receipt of such offer, the System institution may accept the offer to lease the property at the appraised rental value and lease the property to the previous owner, or (2) Within 15 days after receipt of such offer, the System institution may reject the offer to lease the property at the appraised rental value when the institution determines that the previous owner: (i) Does not have the resources available to conduct a successful farming or ranching operation; or (ii) Cannot meet all the payments, terms, and conditions of such lease. (c) Act on an offer to lease the acquired agricultural real estate at a rate that is less than the appraised rental value of the property. (1) The System institution must consider the offer to lease the property at a rate that is less than the appraised rental value of the property. Notice of the decision to accept or reject such offer must be provided to the previous owner within 15 days of receipt of the offer. (2) If the System institution accepts the offer to lease the property at less than the appraised rental value, it must notify the previous owner and lease the property to the previous owner. (3) If the institution rejects the offer, the System institution must notify the previous owner of this decision. The previous owner has 15 days after receipt of the notice in which to agree to lease the property at such rate or under such terms and conditions. The System institution may not lease the property to any other person: (i) At a rate equal to or less than that offered by the previous owner; or (ii) On different terms and conditions than those that were extended to the previous owner without first informing the previous owner by certified mail and providing an opportunity to lease the property at such rate or under such terms and conditions. System institutions electing to sell or lease acquired agricultural real estate or a portion of it through a public auction, competitive bidding process, or other similar public offering must: (a) Notify the previous owner, by certified mail, of the availability of such property. The notice must contain the minimum amount, if any, required to qualify a bid as acceptable to the institution and any terms or conditions to which such sale or lease will be subject; (b) Accept the offer by the previous owner if the System institution receives two or more qualified bids in the same amount, the bids are the highest received, and one of the qualified bids is from the previous owner; and (c) Not discriminate against a previous owner in these proceedings. Each certified mail notice requirement in this section is fully satisfied by mailing one certified mail notice to the last known address of the previous owner or owners. The rights provided under section 4.36 of the Act and this section do not affect any right of first refusal under the law of the state in which the property is located.
Title 12: Banks and Banking
PART 617—BORROWER RIGHTS
Section Contents
§ 617.7000 Definitions.
§ 617.7005 When may electronic communications be used in the borrower rights process?
§ 617.7010 May borrower rights be waived?
§ 617.7015 What happens to borrower rights when a loan is sold?
§ 617.7100 Who must make and who is entitled to receive an effective interest rate disclosure?
§ 617.7105 When must a qualified lender disclose the effective interest rate to a borrower?
§ 617.7110 How should a qualified lender disclose the cost of borrower stock or participation certificates?
§ 617.7115 How should a qualified lender disclose loan origination charges?
§ 617.7120 How should a qualified lender present the disclosures to a borrower?
§ 617.7125 How should a qualified lender determine the effective interest rate?
§ 617.7130 What initial disclosures must a qualified lender make to a borrower?
§ 617.7135 What subsequent disclosures must a qualified lender make to a borrower?
§ 617.7200 What disclosures must a qualified lender make to a borrower on loans offered with more than one rate of interest?
§ 617.7300 When acting on a loan application, what are the notice requirements and review rights?
§ 617.7305 What is a CRC and who are the members?
§ 617.7310 What is the review process of the CRC?
§ 617.7315 What records must the qualified lender maintain on behalf of the CRC?
§ 617.7400 What protections exist for borrowers who meet all loan obligations?
§ 617.7405 On what policies are loan restructurings based?
§ 617.7410 When and how does a qualified lender notify a borrower of the right to seek loan restructuring?
§ 617.7415 How does a qualified lender decide to restructure a loan?
§ 617.7420 How will a decision on an application for restructuring be issued?
§ 617.7425 What type of notice should be given to a borrower before foreclosure?
§ 617.7430 Are institutions required to participate in state agricultural loan mediation programs?
§ 617.7500 What is a directive used for and what may it require?
§ 617.7505 How will the qualified lender know when FCA is considering issuing a distressed loan restructuring directive?
§ 617.7510 What should the qualified lender do when it receives notice of a distressed loan restructuring directive?
§ 617.7515 How does the FCA decide whether to issue a directive?
§ 617.7520 How does the FCA issue a directive and when will it be effective?
§ 617.7525 May FCA use other enforcement actions?
§ 617.7600 What are the definitions used in this subpart?
§ 617.7605 How should System institutions document whether the borrower had the financial resources to avoid foreclosure?
§ 617.7610 What should the System institution do when it decides to sell acquired agricultural real estate?
§ 617.7615 What should the System institution do when it decides to lease acquired agricultural real estate?
§ 617.7620 What should the System institution do when it decides to sell acquired agricultural real estate at a public auction?
§ 617.7625 Whom should the System institution notify?
§ 617.7630 Does this Federal requirement affect any state property laws?
Subpart A—General
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§ 617.7000 Definitions.
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§ 617.7005 When may electronic communications be used in the borrower rights process?
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§ 617.7010 May borrower rights be waived?
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§ 617.7015 What happens to borrower rights when a loan is sold?
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Subpart B—Disclosure of Effective Interest Rates
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§ 617.7100 Who must make and who is entitled to receive an effective interest rate disclosure?
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§ 617.7105 When must a qualified lender disclose the effective interest rate to a borrower?
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§ 617.7110 How should a qualified lender disclose the cost of borrower stock or participation certificates?
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§ 617.7115 How should a qualified lender disclose loan origination charges?
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§ 617.7120 How should a qualified lender present the disclosures to a borrower?
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§ 617.7125 How should a qualified lender determine the effective interest rate?
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§ 617.7130 What initial disclosures must a qualified lender make to a borrower?
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§ 617.7135 What subsequent disclosures must a qualified lender make to a borrower?
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Subpart C—Disclosure of Differential Interest Rates
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§ 617.7200 What disclosures must a qualified lender make to a borrower on loans offered with more than one rate of interest?
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Subpart D—Actions on Applications; Review of Credit Decisions
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§ 617.7300 When acting on a loan application, what are the notice requirements and review rights?
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§ 617.7305 What is a CRC and who are the members?
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§ 617.7310 What is the review process of the CRC?
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§ 617.7315 What records must the qualified lender maintain on behalf of the CRC?
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Subpart E—Distressed Loan Restructuring; State Agricultural Loan Mediation Programs
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§ 617.7400 What protections exist for borrowers who meet all loan obligations?
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§ 617.7405 On what policies are loan restructurings based?
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§ 617.7410 When and how does a qualified lender notify a borrower of the right to seek loan restructuring?
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§ 617.7415 How does a qualified lender decide to restructure a loan?
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§ 617.7420 How will a decision on an application for restructuring be issued?
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§ 617.7425 What type of notice should be given to a borrower before foreclosure?
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§ 617.7430 Are institutions required to participate in state agricultural loan mediation programs?
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Subpart F—Distressed Loan Restructuring Directive
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§ 617.7500 What is a directive used for and what may it require?
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§ 617.7505 How will the qualified lender know when FCA is considering issuing a distressed loan restructuring directive?
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§ 617.7510 What should the qualified lender do when it receives notice of a distressed loan restructuring directive?
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§ 617.7515 How does the FCA decide whether to issue a directive?
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§ 617.7520 How does the FCA issue a directive and when will it be effective?
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§ 617.7525 May FCA use other enforcement actions?
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Subpart G—Right of First Refusal
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§ 617.7600 What are the definitions used in this subpart?
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§ 617.7605 How should System institutions document whether the borrower had the financial resources to avoid foreclosure?
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§ 617.7610 What should the System institution do when it decides to sell acquired agricultural real estate?
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§ 617.7615 What should the System institution do when it decides to lease acquired agricultural real estate?
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§ 617.7620 What should the System institution do when it decides to sell acquired agricultural real estate at a public auction?
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§ 617.7625 Whom should the System institution notify?
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§ 617.7630 Does this Federal requirement affect any state property laws?
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