§ 1944.237 - Subsequent loans.

(a) A subsequent loan is made to an applicant/borrower to complete, improve, repair, and/or make modifications to the project initially financed by FmHA or its successor agency under Public Law 103-354, or for equity and/or other purposes when authorized by the provisions of subpart E of part 1965 of this chapter to avert prepayment. A subsequent loan to develop additional units must compete for funding in accordance with § 1944.231 of this subpart. Other subsequent loan requests do not have to compete for funding.

(b) If the designation of an area changed from rural to nonrural after the initial FmHA or its successor agency under Public Law 103-354 loan was made, a subsequent loan can be made, only to make necessary improvements and repairs to the property or for equity and other purposes when necessary to avert prepayment.

(c) In case where the loan is to complete the original housing under the initial FmHA or its successor agency under Public Law 103-354 loan:

(1) If the applicant/borrower provided an initial investment greater than required under the initial FmHA or its successor agency under Public Law 103-354 loan, the excess may be credited toward the required amount of the initial investment of the subsequent loan per § 1944.213 (b) of this subpart; the applicant/borrower should only be required to put up additional funds for this purpose if needed. The same applies to initial Operating and Maintenance (O and M) requirements.

(2) If the initial investment and 2 percent O and M amounts are sufficient to cover only the initial FmHA or its successor agency under Public Law 103-354 loan, the applicant/borrower must provide the additional respective amounts to cover the subsequent loan. The 2 percent O and M amounts must be in the form of cash as described in § 1944.211 (a)(6) of this subpart. The required amount of the initial investment is described in § 1944.213 (b) of this subpart.

(d) If the loan is to repair and/or improve an existing project which has been in operation for some time, then:

(1) The applicant/borrower should not be required to provide the initial 2 percent O and M amount since its purpose is to cover project start-up costs.

(2) The applicant/borrower must provide the initial investment per § 1944.213(b) of this subpart unless it provided more than the required initial investment when the loan was made. When the applicant/borrower has more than the required amount invested in the initial loan, the excess may be credited toward the required investment for the subsequent loan. The applicant/borrower should be required to contribute additional funds only if needed. The applicant/borrower will not be given consideration for any increased equity or value that the property may have since the date of the initial FmHA or its successor agency under Public Law 103-354 loan.

(e) Subsequent loans, other than those made to a nonprofit corporation or public agency to avert prepayment, will be subject to the restrictive-use provisions contained in exhibit A-1 of subpart E of part 1965 of this chapter. Subsequent loans made to nonprofit organizations or public agencies to avert prepayment will be subject to the restrictive-use provisions contained in exhibit A-2 of subpart E of part 1965 of this chapter. The required restrictive-use language for subsequent loans shall be appended to the mortgage referencing all notes for the applicable term, beginning on loan closing. The advice of OGC shall be obtained to carry out the requirements of this paragraph.

(f) For additional requirements in closing quality loans to avert prepayment, see exhibit A-11 of this subpart.

(g) For additional requirements in closing subsequent loans to nonprofit corporations and public agencies made in conjunction with transfers to avert prepayment, see § 1965.65(f) of subpart B of part 1965 of this chapter.