[Federal Register Volume 59, Number 90 (Wednesday, May 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11311]
[[Page Unknown]]
[Federal Register: May 11, 1994]
VOL. 59, NO. 90
Wednesday, May 11, 1994
DEPARTMENT OF AGRICULTURE
Farmers Home Administration
7 CFR Part 1927
RIN 0575-AB52
Real Estate Title Clearance and Loan Closing
Agency: Farmers Home Administration, USDA.
Action: Proposed rule.
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SUMMARY: The Farmers Home Administration (FmHA) proposes to amend its
Real Estate Title Clearance and Loan Closing regulation. This action is
necessary to make the FmHA loan closing procedure consistent with the
private sector for commercial loans and to make loan closing
requirements consistent with local laws and procedures that are typical
in the area. The effect will be to provide the public with easy access
to FmHA programs.
DATES: Comments must be received on or before July 11, 1994.
ADDRESSES: Submit written comments, in duplicate, to the Office of the
Chief, Regulations Analysis and Control Branch, Farmers Home
Administration, U.S. Department of Agriculture, SW, Washington, DC
20250. All written comments will be available for public inspection at
the above address during regular working hours.
FOR FURTHER INFORMATION CONTACT: Walter B. Patton, Senior Loan
Specialist, Farmers Home Administration, USDA, room 5334, South
Agriculture Building, 14th and Independence Ave. SW., Washington, DC
20250, Telephone (202) 720-0099.
SUPPLEMENTARY INFORMATION:
Classification
We are issuing this proposed rule in conformance with Executive
Order 12866, and the Office of Management and Budget (OMB) has
determined that it is a ``significant regulatory action.''
Regulatory Flexibility Act
The undersigned has determined that this action will not have a
significant economic impact on a substantial number of small entities
because the regulatory changes affect FmHA processing, real estate
title clearance, and loan closing.
Paperwork Reduction Act
The information collection requirements contained in this proposed
rule will be submitted to the Office of Management and Budget (OMB) for
review under section 3504 (h) of the Paperwork Reduction Act of 1980
(44 U.S.C. 3501). Public reporting for the collection of information is
estimated to vary from five minutes to 1.5 hours per response, with an
average of .38 hours per response, including time for reviewing
instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information. Please send written comments to the Office
of Information and Regulatory Affairs, OMB, Attention: Desk Officer for
USDA, Washington, DC 20503. Please send a copy of your comments to Jack
Holston, Agency Clearance Officer, USDA, FmHA, Ag Box 0743, Washington,
DC 20250.
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR Part 1940,
subpart G, ``Environmental Program.'' It is the determination of FmHA
that this action does not constitute a major Federal action
significantly affecting the quality of the human environment, and in
accordance with the National Environmental Policy Act of 1969, Public
Law 91-190, an Environmental Impact Statement is not required.
Intergovernmental Consultation
Programs listed in the Catalog of Federal Domestic Assistance are
as follows: Catalog Nos. 10.405, Farm Labor Housing Loans and Grants;
10.415, Rural Rental Housing Loans; and 10.416, Soil and Water Loans,
are subject to the provisions of Executive Order 12372, which require
intergovernmental consultation with State and local officials (7 CFR
part 3015, subpart V, 48 FR 29112, June 24, 1983), and FmHA Instruction
1940-J. Catalog Nos. 10.404, Emergency Loans; 10.406, Farm Operating
Loans; 10.407, Farm Ownership Loans; 10.410, Low Income Housing Loans,
and nonprogram loans are excluded from the scope of Executive Order
12372.
Civil Justice Reform
This document has been reviewed in accordance with Executive Order
(EO) 12778. It is the determination of FmHA that this action does not
unduly burden the Federal Court Systems in that it meets all applicable
standards provided in Section 2 of the EO.
Discussion
FmHA recognizes the need to make Real Estate Title Clearance and
Loan Closing procedures more consistent with the laws and generally
accepted loan closing practices of individual States. Some proposed
changes in this rule will allow FmHA State Directors the authority to
establish loan closing procedures that are applicable to the laws and
customs of that particular State.
The significant proposed changes are listed below in general order
of appearance in the regulation.
Several new definitions are added to help clarify certain issues.
They include Closing Protection Letter, General Warranty Deed,
Indemnification Agreement, Issuing Agent and Special Warranty Deed.
Due to differences in State laws regarding the use of title
insurance and in the standard insurance coverage for errors and
omission insurance and fidelity bond coverage, this proposed rule will
allow FmHA State Directors to decide (with OGC approval) on the loan
closing procedures and level of insurance coverage.
The requirement that Title Insurance Companies will provide an
Indemnification Agreement (Closing Protection Letter) is added because
it will greatly increase the insurance protection provided to the
United States Government. This is a practice that Title Insurance
Companies are familiar with and they understand our needs. An
Indemnification Agreement can be provided for approved attorneys so the
need for errors and omissions insurance and a fidelity bond can be
eliminated. The agreement will provide loss coverage for the entire
amount of the transaction with no deductible. The Indemnification
Agreement will give FmHA protection from losses resulting from
negligence or fraud caused by the closing agent or their employees.
Indemnification Agreements give FmHA greater protection against
malpractice and fiduciary risks than the insurance policies required by
our current regulations. There is no additional cost incurred by
requiring an Indemnification Agreement.
This instruction suggests the use of Title Insurance for all loan
closings. Approved attorneys can provide title insurance coverage as an
agent for a Title Insurance Company and therefore not be excluded from
being a closing agent. The advantages of Title Insurance are the
Indemnification Agreement can be issued by the Title Insurance Company,
addressed to FmHA, to protect FmHA against losses caused by the
negligence of closing agents or employees. It will eliminate the need
for errors and omissions insurance and a fidelity bond. The
Indemnification Agreement will protect FmHA for 100 percent of the loan
transaction, not a limited insured amount.
An attorney's opinion would provide limited coverage because the
statute of limitations on an attorney's liability runs from 2 years to
8 years, depending on the State, from the date of the opinion. If the
attorney's practice is interrupted, the means for correcting problems
or collecting damages may become an issue.
List of Subjects for 7 CFR Part 1927
Loan programs--agriculture, Loan programs--housing and community
development, Mortgages.
Therefore, chapter XVIII, title 7, Code of Federal Regulations is
amended as follows:
PART 1927--TITLE CLEARANCE AND LOAN CLOSING
1. The authority citation for part 1927 continues to read as
follows:
Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 5 U.S.C. 301; 7 CFR
2.23; 7 CFR 2.70.
2. Subpart B of part 1927 is revised to read as follows:
Subpart B--Real Estate Title Clearance and Loan Closing
Sec.
1927.51 General.
1927.52 Definitions.
1927.53 Costs of title clearance and closings of transactions.
1927.54 Requirements for closing agents.
1927.55 Title clearance services.
1927.56 Scheduling loan closing.
1927.57 Preparation of closing documents.
1927.58 Closing the transaction.
1927.59 Subsequent loans and/or transfers with assumptions.
1927.60 1927.61 [Reserved]
1927.62 Voluntary conveyances.
1927.63 1927.64 [Reserved]
1927.65 Additional requirements in connection with loans to
homestead entrymen, contract purchasers of farm units from the
Bureau of Reclamation, and certain American Indians.
1927.66 Cancellation of loan, assumption, or credit sale.
1927.67-1927.89 [Reserved]
1927.90 State supplements.
1927.91 Exception authority.
1927.92-1927.99 [Reserved]
1927.100 OMB control number.
Subpart B--Real Estate Title Clearance and Loan Closing
Sec. 1927.51 General.
(a) Types of loans covered by this subpart. This subpart sets forth
the authorities, policies, and procedures for real estate title
clearance and closing of loans, assumptions, voluntary conveyances and
credit sales in connection with the following types of Farmers Home
Administration (FmHA) loans: Farm Ownership (FO), Nonfarm Enterprise
(FO-NFE), Emergency (EM), Operating (OL), Rural Housing (RH), Farm
Labor Housing (LH), Rural Rental Housing (RRH), Rural Cooperative
Housing (RCH), Soil and Water (SW), Indian Land acquisition loans
involving nontrust property, and NonProgram (NP) loans. This subpart
does not apply to guaranteed loans.
(b) Programs not covered by this subpart. Title clearance and
closing for all other types of FmHA loans and assumptions will be
handled as provided in the applicable program instructions or as
provided in special authorizations from the National Office.
(c) Review by the Office of the General Counsel (OGC). When
required by applicable program regulations, such as for multi-family
housing (MFH) organizations or other complex cases as determined by the
State Director, the State Director will request OGC to review the
docket and issue closing instructions.
Sec. 1927.52 Definitions.
Approval official. The FmHA employee who has been delegated the
authority to approve, close, and service the particular kind of loan
will approve an attorney or title company as closing agent to close
these loans. If a loan must be approved at a higher level because of
the dollar amount or for other reasons, the initiating office may
approve the closing agent.
Approved attorney. A duly licensed attorney who provides title
opinions directly to FmHA and the borrower or upon whose certification
of title an approved title insurance company issues a policy of title
insurance. Approved attorneys also close loans, assumptions, credit
sales, and voluntary conveyances, and disburse funds in connection with
FmHA loans.
Approved title insurance company. A title insurance company
(including its local representatives, employees, agents, and attorneys)
that issues a policy of title insurance. Depending on the local
practice, an approved title insurance company may also close loans,
assumptions, credit sales, and voluntary conveyances, and disburse
funds in connection with FmHA loans. If the approved title insurance
company does not close the loan itself, the loan closing functions may
be performed by approved attorneys or closing agents authorized by the
approved title insurance company.
Borrower. The party(ies) indebted after the loan, assumption, or
credit sale is closed.
Certificate of Title. A certified statement as to land ownership,
based upon examination of record title.
Closed loan. A loan is considered to be closed when the mortgage is
filed for record.
Closing agent. The approved attorney or title company selected by
the applicant and approved by FmHA to provide closing services for the
proposed loan. Unless a title insurance company also provides loan
closing services, the term ``title company'' does not include ``title
insurance company.''
Closing protection letter. An agreement issued by an approved title
insurance company which is an American Land Title Association (ALTA)
form Closing Protection Letter (Rev. 3/27/87) or is otherwise
acceptable to FmHA and which protects FmHA against damage, loss, or
injury as a result or negligence by the issuing agent, approved
attorney, or title company when title clearance is done by means of a
policy of title insurance. Depending on the area, Closing Protection
Letters may also be known as ``Insured Closing Letters,''
``Indemnification Agreements,'' ``Insured Closing Service Agreements,''
or ``Statements of Settlement Service Responsibilities.''
Cosigner. A party who joins in the execution of a promissory note
or assumption agreement to guarantee repayment of the debt.
Credit sale. A sale in which FmHA provides credit to the
purchaser(s) of FmHA inventory property. Title clearance and closing of
a credit sale are the same as for an initial loan except the property
is conveyed by quitclaim deed.
Exceptions. Exceptions include but are not limited to recorded
covenants, conditions, restrictions, reservations, liens, encumbrances,
easements, rights-of-way, leases, mineral, oil, gas and geothermal
rights (with or without the right of surface entry), timber and water
rights, judgments, pending court proceedings, probate proceedings and
agreements which limit or affect the title to the property.
Fee simple. An estate in land of which the owner has unqualified
ownership and power of disposition.
FmHA. The United States of America acting through the Farmers Home
Administration of the Department of Agriculture.
General warranty deed. A deed in which the grantor or seller
warrants or guarantees as a whole that a good quality title is being
conveyed.
Indemnification agreement. An agreement that protects FmHA against
damage, loss, or injury as a result of negligence on behalf of the
issuing agent, approved attorney, or Title Company. May also be known
as: (1) Insured closing letter, (2) Closing protection letter, (3)
Insured closing service agreement, (4) Statement of settlement service
responsibilities, or letters which provide similar protection.
Issuing agent. An agent who performs loan closing services and who
is authorized to issue title insurance for an approved title insurance
company. This term includes ``title company.''
Land contract (Contract for Deed). This is a contract between the
buyer and seller of land in which the buyer has the right to possession
and use of the land and over a period of time (usually in excess of one
year) makes periodic payments of a portion of the purchase price to the
seller. The seller retains legal title to the property until the final
payment is made, at which time the buyer will receive a deed to the
land vesting fee title in the buyer. This is a security device whereby
the seller finances a portion of the purchase price for the buyer.
Mortgage. Real estate security instrument, includes deed of trust
and deed to secure debt. Forms FmHA 1927-7 ``Real Estate Mortgage or
Deed of Trust For ______'' (state), FmHA 1927-11 ``Warranty Deed
(______)'' (state), and FmHA 1927-12 ``Warranty Deed'' (state) will be
used to secure a mortgage to FmHA.
OGC. Refers to the United States Department of Agriculture (USDA)
Regional Attorney, Associate Regional Attorney, or Assistant Regional
Attorney, who provides legal counsel to FmHA for loan making and loan
servicing actions.
Program regulations. Refers to the FmHA regulations for the
particular loan program involved (e.g., subpart A of part 1944 for
rural housing loans).
Quitclaim deed. A transfer of the grantors' interest in the title,
without warranties or covenants. This type of deed is used by FmHA to
convey title to purchasers of inventory property.
Seller. Individual(s) or other entity(ies) which are conveying
ownership in real property to an FmHA applicant/buyer.
Special warranty deed. A deed containing a covenant whereby the
grantor agrees to protect the grantee against any claims arising during
the grantor's period of ownership.
Title clearance. Examination of a title and its exceptions to
assure FmHA that the loan is legally secured and has the required
priority.
Title defects. Any exception or legal claim of ownership (through
deed, lien, judgement, or other recorded document), on behalf of a
third party, which would prevent the seller from conveying a clear
title to the entire property.
Vendee. The buyer.
Vendor. The seller.
Voluntary conveyance. A method of liquidation by which title to
FmHA security is transferred by a borrower to FmHA by deed in lieu of
foreclosure.
Warranty deed. A deed in which the grantor warrants that he/she has
the right to convey the property, the title is free from encumbrances,
and the grantor shall take further action necessary to perfect or
defend the title.
Sec. 1927.53 Costs of title clearance and closings of transactions.
The borrower or the seller, or both, will be responsible for
payment of all costs of title clearance and closing of the transaction
and will arrange for payment before the transaction is closed. In
voluntary conveyance cases to FmHA, these costs will be paid as
provided in Sec. 955.10(g) of subpart A of part 1955 of this chapter.
In a case involving the purchase or sale of real estate, the option or
sales contract must state who will pay the title clearance and closing
costs. These costs will include any costs of abstracts of title, land
surveys, attorney's fees, owner's and lender's policies of title
insurance, obtaining curative material, notary fees, documentary
stamps, recordation costs, tax monitoring service, and other expenses
necessary to complete the transaction.
Sec. 1927.54 Requirements for closing agents.
(a) Form of Title Certification. The State Director will, with OGC
approval, issue a state instruction specifying whether title insurance
will be required at loan closing for some or all loans in the state or
if, in some or all cases, a title opinion from an approved attorney
will be sufficient. Title insurance is the recommended method for
protecting FmHA interests. State Directors are authorized to require
title insurance for all loan closings or some loan closings based on
the type of loan and/or the geographical area of the state. If title
insurance is used, State Directors are authorized to require a closing
protection letter issued by an approved title insurance company to
cover the closing agent, if such closing protection letters are
customarily provided by title insurance companies in the state. The
State Director's determination to require the use of title insurance
will be based on the commercial and residential loan closing practices
of the state and the economic and legal feasibility of obtaining title
insurance.
(b) General. An attorney or title company may act as a closing
agent and close FmHA real estate loans, provide necessary title
clearance, and perform such other duties as are set forth in this
subpart. A closing agent will be responsible for closing FmHA loans and
disbursing both FmHA loan funds and funds provided by the borrower in
connection with the FmHA loan. The borrower will select his or her
closing agent. FmHA employees will not recommend the use of any
particular closing agent or title insurance company, although as
provided in Sec. 927.54(a) the borrower may be required by a state
instruction to provide title clearance with either a title insurance
policy or an attorney's opinion. If title clearance is by an attorney's
opinion, the approval official will approve the attorney who will
perform the closing on a case-by-case basis in accordance with
Sec. 927.54(c) prior to loan closing. In such cases the attorney will
be approved after submitting Form FmHA 1927-19, ``Certification of
Attorney.'' If title certification will be by means of a policy of
title insurance, the title company which will issue the policy must
have been approved in accordance with Sec. 927.54(d).
(c) Approval of attorneys. Any attorney selected by an FmHA
applicant, who will be providing title clearance where the
certification of title is based on an attorney's opinion, must submit a
completed Form FmHA 1927-19 certifying to professional liability
insurance coverage and fidelity coverage of the attorney and the
attorney's employees. The approval official will approve on a case-by-
case basis any attorney who is duly licensed to practice law in the
state where the real estate security is located and who complies with
the bonding and insurance requirements in this section. If the
certification of title will be by means of title insurance, any
attorney or closing agent designated as an approved attorney or closing
agent by the approved title insurance company which will issue the
policy of title insurance will be acceptable, and when covered by a
closing protection letter, will not be required to obtain professional
liability insurance or a fidelity bond, if the closing protection
letter is the ALTA form Closing Protection Letter or provides at least
equivalent protection to FmHA as the professional liability and
fidelity insurance required in paragraphs (c) (1) and (2) of this
section. Each approved title insurance company may provide a master
list of their approved attorneys and closing agents, addressed to the
FmHA State Director, that are covered by its closing protection
letters.
(1) An attorney issuing an attorney's title opinion must have in
full force and effect an acceptable professional liability insurance
policy for errors and omissions. The State Director will determine the
appropriate level of such insurance and what level of deductible is
permissible according to what is customary in the area and necessary
for the protection of FmHA. The State Director will issue a State
Instruction specifying this coverage. Required insurance will, as a
minimum, cover the amount of the loan to be closed.
(2) An attorney that is issuing an attorney's title opinion or, if
title insurance is being obtained, an attorney or closing agent that is
not covered by a closing protection letter must have in full force and
effect a fidelity type bond. If partners, associates, or members of the
staff of the attorney or closing agent have access to the funds in the
escrow account, each such individual must either have a separate
fidelity type bond to cover any fraudulent or dishonest act or such
person(s) may be covered by a blanket fidelity bond. While it is
recommended that $50,000 of protection be maintained for each
individual person, the State Director will determine the appropriate
level of insurance according to what is customary in the area and
necessary for the protection of FmHA. The State Director will approve
the form of the bond although Form FmHA 1927-18, ``Fidelity Bond for
Loan Closing Attorneys,'' is an optional form that is acceptable to
FmHA and may be used.
(d) Approval of title companies. FmHA will approve any title
insurance company which issues policies of title insurance in the state
where the security property is located if the:
(1) Form of the owner's and lender's policies of title insurance to
be used in closing FmHA loans are acceptable to the State Director, and
will contain only standard types of exceptions and exclusions approved
in advance by the approval official with the advice of OGC.
(2) Title insurance company is licensed to do business in the state
(if a license is required) and is not Federally debarred or suspended.
(3) Title insurance company submits copies of audited financial
statements, Form 9 financial statements, or other approved financial
statements satisfactory to the State Director, which indicate that the
company has financial ability to cover losses arising out of its
activities as a title insurance company and under any closing
protection letters issued by the title insurance company. The financial
statements must also demonstrate that the title insurance company has
sufficient resources to reimburse FmHA for any losses caused by fraud
or dishonesty by the company and its authorized agents, or failure of
the company or its authorized agents to follow or comply with FmHA's
written closing instructions.
(4) Title insurance company agrees that the title insurance company
employee or closing agent who supervises the closing of the transaction
will be authorized to receive funds and give receipts for the company's
charges.
(5) Above listed approval process will be repeated at least every 5
years, or more often if adverse information becomes available, to
insure continued compliance by the title insurance company.
(e) Responsibility of approval official. In addition to approving
closing agents, the approval official will inform all closing agents
used in connection with FmHA closing of their duties and
responsibilities under this subpart, applicable state supplements, and
any changes or additional requirements which may be imposed. A package
containing a copy of this subpart, applicable forms, state supplements,
and other pertinent material will be provided to the closing agent as
needed.
(f) Conflict of interest. A closing agent who has, or whose spouse,
children, or business associates have, a financial interest in the real
estate which will secure the FmHA debt cannot be involved in the title
clearance or loan closing process. Financial interest includes having
either an equity, creditor, or debtor interest in any corporation,
trust, or partnership with a financial interest in the real estate
which will secure the FmHA debt.
(g) Debarment or suspension. No attorney, title company, title
insurance company, or closing agent, which has been debarred or
suspended from participating in Federal programs, may participate in
any aspect of the FmHA loan closing and title clearance process, in
accordance with FmHA Instruction 1940-M.
(h) Special provisions. Closing agents are responsible for having
current knowledge of the requirements of state laws in connection with
loan closing and title clearance and should advise the State Director
of any changes in state laws which necessitate changes in state
mortgage forms and/or state supplements.
(i) Rejecting closing agents or title insurance companies. If the
approval official (or the State Director for title insurance companies)
cannot approve the closing agent selected by the applicant in
accordance with paragraphs (c) or (d) of this section, the following
actions will be taken:
(1) The attorney or closing agent will be notified within 5
business days of the specific reasons for rejection. No appeal rights
will be given as the closing agent/attorney is not the direct recipient
of program benefits.
(2) The applicant will be notified within 5 business days of the
rejection. It is the applicant's responsibility to decide whether to
continue with the rejected closing agent/attorney, if the reasons for
rejection can be removed before any legal costs are incurred, or if
another closing agent/attorney will be selected.
(3) If a title insurance company has requested approval, the title
insurance company will be notified within 30 days after all relevant
information requested by the State Director in connection with the
approval decision has been received. If the title insurance company is
rejected, it will be notified at that time of the specific reasons for
rejection. No appeal rights will be given as the title insurance
company is not the direct recipient of program benefits.
Sec. 1927.55 Title clearance services.
(a) Responsibilities of closing agents. Services to be provided to
FmHA and the borrower by a closing agent in connection with the
transaction vary depending whether a title insurance policy, or title
opinion are being furnished. The closing agent is expected to perform
these services without unnecessary delay. Delay in providing services
without justification may be grounds for not approving the closing
agent in future cases.
(b) Initial responsibility of approval official. The approval
official will furnish the closing agent with Form FmHA 1927-4,
``Transmittal of Title Information,'' all the information and documents
called for therein (including waivers, easements, and FmHA forms), and
any information not contained in this subpart regarding FmHA policies
and procedures applicable to the type of transaction involved.
(c) Ordering title services. The approval official will notify the
borrower and seller, if applicable, that an attorney or title company
must be employed to examine the title and perform other services in
connection with the closing of the transaction. Application for title
examination or insurance will be made by the borrower to an attorney or
title company. Application for mortgage title insurance will be on a
form which has been approved by the approval official. The mortgagee
policy will be for at least the amount of the loan. The United States
of America will be named as the mortgagee insured. Attorney services
may be requested in the form of FmHA Guide Letter No. 1927-B-1
(available in any FmHA office).
(d) Use of title opinion. If a title opinion will be issued, a
title examination will include searches of the records, or certificates
from the clerks of the appropriate State courts, Federal Bankruptcy
courts and United States district courts, for the period determined
necessary by local custom, to issue a title opinion. A Form FmHA 1927-
9, ``Preliminary Title Opinion,'' Form FmHA 1927-10, ``Final Title
Opinion,'' or a certificate of title will be issued to the approval
official. If either form is not legally sufficient in a particular
state, an OGC approved state form will be used. The closing agent will
determine:
(1) The legal description and all owner(s) of record of the real
property,
(2) Whether there are any outstanding mortgages, liens, judgments
or pending suits in Federal or State courts (as disclosed by a lis
pendens or other similar notice of a pending lawsuit), and advise the
approval official and borrower of the nature and legal effect of
outstanding interests or exceptions such as liens, encumbrances,
leases, easements, covenants, conditions, restrictuions, reservations,
and rights relating to mineral, oil, gas, geothermal, timber and water
rights (including the presence or absence of the right of entry by
holder of such rights), prior sales of part of the property judgments,
probate proceedings or pending court actions affecting the real
property or other outstanding exceptions or interests to assist in
determining:
(i) Whether the outstanding interests or exceptions affect the
value of the property or its operation, and
(ii) Which exceptions must be corrected in order for the
borrower(s) to obtain good and marketable title of record in accordance
with prevailing title examination standards, and for FmHA to obtain a
valid lien of the required priority.
(3) Whether there are outstanding Federal or State tax claims
(including taxes which under state law may become a lien superior to a
previously attaching mortgage lien),
(4) Whether outstanding judgments of record, bankruptcy,
insolvency, or probate proceedings involving any part of the property,
whether already owned by the borrower, or to be acquired by assumption
or with loan funds, or involving the borrower or the seller exist,
(5) If a water right is to be included in the security for the
loan. The closing agent must attach a full legal description of the
water right,
(6) If wetlands easements or other conservation easements have been
placed on the property,
(7) If there are any liens or recorded claims which would prevent
FmHA from obtaining an enforceable mortgage lien of the required
priority on the security property, and
(8) If there are any exceptions of record.
(9) What measures are required for preparing, obtaining, or
approving curative material, conveyances, and security instruments,
(10) Provide copies of these interests and exceptions as requested
by the approval official.
(e) Use of title insurance. When title insurance is to be obtained,
the approval official will be furnished with a title insurance binder
disclosing any defects in, and encumbrances against, the title, the
conditions to be met to make the title insurable, and the curative or
other actions to be taken before closing of the transaction. The binder
must include a commitment to issue a mortgagee and owner's title policy
in an amount at least equal the amount of the loan. In the case of an
assumption without a subsequent loan, the existing policy may be
continued if the coverage meets or exceeds the assumption balance and
the title company agrees in writing to extend coverage in full force
and effect.
(f) Approval official's responsibilities after receipt of
preliminary title opinion or title insurance binder. Upon receipt of
the preliminary title opinion or title insurance binder, the approval
official will:
(1) Check the opinion or binder carefully. If any required
information is omitted, or if the standard form of opinion or binder is
amended, the approval official will return it for completion or
correction. If the closing agent is unable or unwilling to comply, the
approval official will send the opinion or binder with a full
explanation to OGC through the State Director for advice.
(2) Check the legal description of the land, water rights, rights-
of-way, easements, and other security involved, to determine that the
description covers all of the property rights intended to be taken as
security.
(3) Review all exceptions to title shown in the preliminary title
opinion or title insurance binder. The approval official will determine
which exceptions must be modified, eliminated or waived, or whether an
agreement with prior lienholders is necessary or advisable to protect
FmHA's interests. If prior encumbrance(s) will remain, the approval
official should obtain and review a copy of each to insure that its
terms are acceptable to FmHA. If an option or sales contract which
lists acceptable exceptions is involved, the approval official will
determine whether the exceptions in the preliminary title opinion or
title insurance binder are the same as those in the option or sales
contract and inform the applicant of discrepancies. If the approval
official has any doubt as to the acceptability or effect of any
exception, the applicant will be requested to obtain a clarification.
The approval official will consult with the closing agent and/or the
State Director when necessary to determine the acceptability of any
exception. If the approval official determines that any defects cannot
be corrected, or the effect of certain exceptions on the title,
suitability, security value, or successful operation of the property is
not clear, and they cannot be corrected or eliminated without undue
expense, the approval official will forward the preliminary title
opinion or title insurance binder to the State Director together with
comments regarding the objectionable features and copies of the
exceptions when needed.
(i) If, with the advice of OGC, the State Director determines that
the exceptions will not adversely affect the title to the property or
its suitability, security value, or successful operation, the State
Director will advise the approval official. The approval official will
then arrange for closing.
(ii) If the State Director, with the advice of OGC, finds that
these exceptions will adversely affect the title to the property, its
suitability, security value, or successful operation, the State
Director may waive them conditionally and instruct the approval
official as to how the conditions may be met, or instruct the approval
official that the loan cannot be closed because of the defect.
Sec. 1927.56 Scheduling loan closing.
The approval official may arrange a closing when he/she determines
that exceptions shown in the preliminary title opinion or title
insurance binder (if any) will not adversely affect the suitability,
security value, or successful operation of the property.
(a) The approval official will make sure that all requirements of
subpart I of part 1940 of this chapter have been met before the loan is
closed.
(b) In arranging for loan closing, the approval official will send
Form FmHA 1927-15, ``Loan Closing Instructions/Loan Closing Statement
For,'' to the the closing agent. When a title insurance commitment is
involved, the ``loan closing instructions'' will include any
corrections required by the commitment. Therefore, the title insurance
commitment must be received before the final closing instructions are
transmitted. At the same time, send written notification of loan
closing to the applicant. For single family housing loans Form FmHA
1927-16, ``Notification of Loan Closing,'' will be used to notify the
applicant.
Sec. 1927.57 Preparation of closing documents.
(a) Preparation of deeds. The closing agent will prepare, complete,
or approve deeds necessary for title clearance and closing of the
transaction. FmHA forms will be used whenever possible.
(1) Types of estates for married borrowers. If the borrowers are
married, FmHA prefers, but will not require, that title to the real
estate will be held in such a way that, upon the death of a borrower,
it will pass to the surviving spouse by law to prevent the real estate
from being tied up in probate proceedings. Title may be held in any
manner that permits obtaining the required mortgage.
(2) Deeds will be prepared as follows:
(i) Conveyances of title to borrowers by parties other than FmHA
will be by general warranty deed. If a general warranty deed cannot be
obtained, a special warranty deed, quitclaim deed, or grant deed may be
used if the entity providing title clearance (closing agent) determines
that the deed used will vest in the borrower a good and marketable
title of record. All conveyances by FmHA will be by quitclaim deed.
(ii) The deed to the security property will show the exceptions to
which the title is subject and should, where customary, contain a tie-
in description showing that it covers the same land or part of the same
land as that designated or described in another deed or mortgage
described specifically by date, parties, and recording data.
(iii) Each deed should recite legal consideration.
(b) Preparation of mortgages. The closing agent will insure that
all mortgages are properly prepared, completed, executed, and filed for
record. Where applicable, the mortgages should recite that it is a
purchase money mortgage. The following requirements will be observed in
preparing FmHA mortgages:
(1) Real estate mortgage forms. FmHA mortgage forms will be used in
all cases and other FmHA forms will be used whenever possible. Form
FmHA 1927-1, ``Real Estate Mortgage or Deed of Trust For ______,''
(state) will be used for all insured and direct loans except where Form
FmHA 1927-7 (State), is used for all rural housing loans. These forms
will be prepared and distributed in accordance with state supplements.
When a loan is made to a homestead entryman or to a contract purchaser
of a farm unit from the Bureau of Reclamation, a rider to Form FmHA
1927-1 will be used per state supplement.
(2) Number of copies.
(i) The original recorded mortgage is to be retained in the
borrower's case file unless the original mortgage is retained by the
recorder, and a conformed copy will be provided to the borrower.
(ii) When the original is to be retained by the recorder, an
original and two conformed copies will be prepared. One conformed copy
will be retained in the borrower's case file and one conformed copy
will be provided to the borrower.
(iii) Extra copies of mortgages may be needed in individual cases
in some participation loans, loans on reclamation projects, when
security is taken on trust or restricted property involving loans to
Native American, and other similar situations.
(iv) The closing agent will distribute copies to appropriate
parties at loan closing or as soon as possible thereafter.
(3) Persons required to execute mortgage. The mortgage will be
executed by the borrower and all other persons having an interest in
the real property being mortgaged whose execution is necessary for FmHA
to have the required lien priority, (for example, a spouse's right of
dower or curtesy) so that, in the event of default, the mortgage will
be enforceable against all such interests. Persons signing the
promissory note and the mortgage will use exactly the same names which
appear on the title.
(i) When the applicant is a corporation or cooperative, the
mortgage will be executed by the authorized officers on behalf of the
corporation or cooperative. Authorization must be granted to the
officers by either:
(A) The Articles of Incorporation and Bylaws, or
(B) A duly adopted resolution of the board of directors authorizing
such execution and indicating which officers are authorized to execute
the loan documents on behalf of the corporation/cooperative, unless
applicable FmHA instruction or state law prohibits. The resolution must
bear the certification of the corporate/cooperative secretary that it
was duly adopted and not revoked and have the corporate seal affixed,
if applicable, to be acceptable. When shareholder approval is necessary
the resolution must recite that shareholder approval has been obtained.
(ii) When the applicant is a partnership, the mortgage must be
executed by the partners required by the partnership agreement to
execute loan documents on its behalf.
(iii) When the applicant is a trust, the requirements of the trust
agreement and state law shall control as to who is authorized to
execute the loan documents.
(4) Date of Execution. The mortgage will be dated and executed on
the same date as the promissory note. If necessary, the mortgage may be
done on a different date provided it is not executed before the date of
the note or after the date of closing.
(5) Title exceptions. The mortgage will specifically describe all
exceptions it will be subject to, if customary under local practice or
required by state law or state supplement. The exceptions will normally
be shown as part of or immediately following the legal description of
the land and must be the same as shown on the final title opinion or
mortgagee policy of title insurance. In cases where specific
description of each exception to title is not customary or required,
these exceptions may be described by use of a general statement similar
to the following (unless inconsistent with applicable State law):
``Subject, however, to all outstanding covenants, conditions,
restrictions, reservations, liens, encumbrances, easements, rights of
way, leases, mineral, oil, gas and geothermal rights (with or without
the right of surface entry), timber rights, water rights, judgements,
pending court proceedings, probate proceedings and agreements which
limit the title to the property.''
(6) Releasing or retaining existing mortgages in refinancing cases.
When there is an outstanding FmHA real estate mortgage against the
property and the loan secured by the mortgage is being refinanced with
the current loan, the mortgage for the outstanding loan will be
superseded and will be released at the time of loan closing, unless it
is necessary under state law to keep the existing mortgage in effect to
retain a valid lien of the same priority for the obligation being
refinanced.
(7) Describing notes in mortgages. In most cases, only the note(s)
for the new loan(s) needs to be described when a subsequent loan is
made and a subsequent mortgage is taken. The note(s) for any unpaid
loan(s) secured by real estate will not be described in the mortgage
unless the approval official determines:
(i) It is necessary to do so to protect the government's interest,
(ii) The description of the unpaid prior secured note(s) in the
mortgage being taken would not result in a higher title insurance
premium for the new mortgage, or
(iii) State law requires that all original notes be presented when
filing a security instrument. A State supplement should reflect this
exception when applicable.
(8) Determining due date of final installments. The ``Due Date of
Final Installment,'' as shown in the mortgage, is determined by adding
the number of years over which the loan is payable to the date of the
promissory note: for example, if the note is dated March 30, 1987, and
the final payment is due and payable 20 years from that date, the ``Due
Date of Final Installment'' is March 30, 2007.
(9) Alteration of mortgage form. A mortgage form may be altered
pursuant to a state supplement having prior approval of the National
Office, or in a special case, to comply with the terms of loan approval
prescribed in accordance with program instructions. No other
alterations in the printed mortgage forms will be made without prior
approval of the National Office. Any changes made by deletion,
substitution, or addition (excluding filling in blanks) will be
initialed in the margin by all persons signing the mortgage.
(10) Special requirements imposed by program instructions. Some
program instructions require that the mortgage forms be modified. In
such cases, either OGC or the approval official will modify the FmHA
mortgage form as specified. The closing agent will make sure that the
modification has been made prior to execution of the mortgage.
(11) Mortgages on leasehold estates. When the FmHA security
interest is a leasehold estate, unless state law or state supplement
otherwise provides, the Forms FmHA 1927-1 or FmHA 1927-7 will be
modified as follows:
(i) In the space provided on the mortgage for the description of
the real property security, the leasehold estate and the land covered
by the lease must be described. The following language must be used:
``All of borrower's right, title and interest in and to a leasehold
estate for an original term of ______ years, commencing on ______, 19
______, created and established by and between ______ as lessor and
owner and ______ as lessee, including any extensions and renewals
thereof, a copy of which lease was recorded/filed in book ______, page
______, as instrument number ______, in the Office of the (e.g., County
Clerk), for the aforesaid county and state and covering the following
real property: ______.''
(ii) Immediately preceding the covenant starting with the words
``should default,'' the following covenant will be added: ``( )
Borrower covenants and agrees to pay when due all rents and any and all
other charges required by said lease, to comply with all other
requirements of said lease, and not to surrender or relinquish, without
the government's prior written consent, any of borrower's right, title
or interest in or to said leasehold estate or under said lease while
this mortgage remains of record.''
(12) Mortgages on land purchase contract. When the FmHA security
interest is on a borrower's interest in a land purchase contract, OGC
will provide language to be used to modify the Form FmHA 1927-1 or FmHA
1927-7.
(13) Legal description. The legal description on the mortgage
should be taken directly from the title insurance commitment or the
title abstract to insure accuracy of the legal description.
(c) Preparation of the promissory note. The closing agent will make
sure that the promissory note (or assumption agreement) is completed in
accordance with the forms manual insert (FMI), and executed. The
approval official will determine who is to execute the promissory note,
including cosigners, if necessary, in accordance with program
instructions and provide the closing agent with the names of these
individuals. If the applicant is a corporation, partnership, or trust,
the approval official will provide the name(s) and title(s) of the
individual(s) executing the promissory note on behalf of the entity.
Any other signatures on the note (or assumption agreement) needed to
insure the required security, as provided in state supplements, will be
obtained. Persons having a disability of minority or mental
incompetency, or persons who have not been legally admitted for
residency in the U.S., its territories, or possessions, are not to
execute the promissory note. The date shown on the note will be the
date it is executed by the borrower which may not be later than the
date of the mortgage.
(d) Preparation of protective instruments. The closing agent will
properly prepare, complete, and/or approve releases and curative
documents necessary for title clearance and closing, in recordable form
and record them if required.
(1) Prior lienholder's agreement. If any liens (other than FmHA
liens or tax liens to local governmental authorities) or security
agreements (hereafter called ``liens''), with priority over FmHA's
mortgage will remain against the real property securing the loan(s),
the lienholders must execute, in recordable form, agreements containing
all of the following provisions:
(i) The prior lienholder shall agree not to declare the lien in
default or accelerate the indebtedness secured by the prior lien for a
specific period of time after notice to FmHA. The agreement must:
(A) Provide that the specified period of time will not commence
until the lienholder gives written notice of the borrower's default and
the prior lienholder's intention to accelerate the indebtedness to the
FmHA office servicing the loan,
(B) Include the address of the FmHA servicing office,
(C) Give FmHA the option to cure any monetary default by paying the
amount of the borrower's delinquent payments to the prior lienholder,
or pay the obligation in full and have the lien assigned to FmHA, and
(D) Provide that the prior lienholder will not declare the lien in
default for any nonmonetary reason if FmHA commences liquidation
proceedings against the property and thereafter acquires the property.
(ii) When the prior lien secures future advances, including the
lienholder's costs for borrower liquidation or bankruptcy, which under
state law have priority over the mortgage being taken (or a FmHA
mortgage already held), the prior lienholder shall agree not to make
advances for purposes other than taxes, insurance or payments on other
prior liens without written consent of the State Director.
(iii) The prior lienholder shall consent to FmHA making (or
transferring) the loan and taking (or retaining) the related mortgage
if the prior lien instrument prohibits a loan or mortgage (or transfer)
without the prior lienholder's consent.
(iv) The prior lienholder shall consent to FmHA transferring the
property subject to the prior lien after FmHA has obtained title to the
property either by foreclosure or voluntary conveyance if the prior
lien instrument prohibits such transfer without the prior lienholder's
consent.
(2) Notice of foreclosure agreements. These agreements will be
obtained only when required by a state supplement. As a precautionary
measure, the state supplement will require notice agreements when OGC
determines that state law permits junior liens of private parties to be
extinguished by foreclosure of a prior lien without the junior
lienholder being made parties or being given actual notice. The state
supplement will specify the number of days within which notice of
foreclosure is required by the agreement.
(3) Leaseholds. When the FmHA security interest is on a leasehold,
the approval official must review the lease to make sure that it meets
the security and duration requirements of the program instructions. If
not, it will be necessary for the landlord and tenant to amend the
lease to meet these requirements at closing.
(4) Agreement by holder of vendor's interest under land contract.
If the buyer's interest in the security property is that of a buyer
under a land contract, it will be necessary for the seller (vendor) to
execute, in recordable form, an agreement containing all of the
following provisions:
(i) The vendor shall agree not to sell or voluntarily transfer the
vendor's interest under the land contract without the prior written
consent of the FmHA State Director.
(ii) The vendor shall agree not to encumber or cause any liens to
be levied against the property.
(iii) The vendor shall agree not to commence or take any action to
accelerate, forfeit or foreclose the buyer's interest in the security
property until a specified period of time after notifying the State
Director of intent to do so. This period of time will be ninety (90)
days unless a state supplement otherwise provides. The agreement shall
give FmHA the option to cure any monetary default by paying the amount
of the buyer's delinquent payments to the vendor, or paying the vendor
in full and having the contract assigned to FmHA.
(iv) The vendor shall consent to FmHA making the loan and taking a
security interest in the borrower's interest under the land contract as
security for the FmHA loan.
(v) The vendor shall agree not to take any actions to foreclose or
forfeit the interest of the buyer under the land contract because FmHA
has acquired the buyer's interest under the land contract by
foreclosure or voluntary conveyance, or because FmHA has subsequently
sold or assigned the buyer's interest to a third party who will assume
the buyer's obligations under the land contract.
(vi) When FmHA acquires a buyer's interest under a land contract by
voluntary conveyance or foreclosure, FmHA will not be deemed to have
assumed any of the buyer's obligations under the contract, provided
that the failure of FmHA to perform any such obligations while it holds
the buyer's interest is a ground to commence an action to terminate the
land contract.
(5) Form of agreement. The form of prior lienholder's agreement,
forbearance agreement, notice of foreclosure or assignment, and
agreement by holder of vendor's interest under land contract will be
prescribed in a state supplement with the concurrence of OGC. When only
forbearance agreements are needed, they will be obtained on Form FmHA
1927-8, ``Agreement with Prior Lienholder,'' or, if that form is not
legally satisfactory, on a state form having the same title. When only
notice of foreclosure or assignment are required, a separate form for
this purpose will be used. When both forbearance agreements and notices
of foreclosure or assignment are required, Form FmHA 1927-8 may be
amended in order to serve both purposes, a substitute state form may be
used for both purposes, or Form FmHA 1927-8 may be used and the notice
agreement obtained on a separate state form.
(6) Executing, acknowledging, and recording. When an agreement is
required by paragraphs (d)(1), (d)(2), (d)(3), or (d)(4) of this
section, the closing agent will determine at the time of closing that
the agreement is properly completed, executed, sealed, witnessed,
acknowledged, and recorded as required by state law or state
supplement.
(e) Correction of errors in recorded security instruments. A state
supplement, subject to OGC's review and approval, will be issued to
provide guidance in correcting error(s) in recorded security
instruments.
Sec. 1927.58 Closing the transaction.
The closing agent will cooperate with the approval official, the
borrower and the seller, and other necessary parties to arrange the
time and place of closing. The closing agent will make sure that FmHA
obtains a valid mortgage lien on the property of the priority required
by FmHA, subject only to any defects and exceptions approved by the
approval official or State Director. The ``Date of Closing'' will be
considered to be the date that the note and mortgage are signed, and
the loan closing process takes place.
(a) Disbursement of loan funds. When the closing agent indicates
that the conditions necessary to close the loan have been met, loan
funds will be forwarded to the closing agent. Loan funds will not be
disbursed prior to filing of the mortgage for record; however, when
necessary, loan funds may be placed in escrow before the mortgage is
filed for record and disbursed after it is filed. No development funds
will be kept in escrow by the closing agent after loan closing. Loan
funds for the payment of a lien may be disbursed only upon receipt of a
discharge, satisfaction, or release (or assignment where necessary to
protect the interests of FmHA).
(b) Title examination and liens or claims against borrowers. The
closing agent will examine the title for liens against the property and
claims against the borrower from the terminal date of the preliminary
title examination up to and including the time of recording the current
mortgage. If there are no entries of record during the period, except
the documents required in connection with title clearance and any
partial release(s) or subordination(s) previously approved by FmHA, the
transaction may be closed. If there are other entries of record during
this period, the transaction will not be closed until these entries
have been cleared of record or administratively approved. The closing
agent will advise the approval official of the nature of such
intervening instruments and the effect they may have on obtaining a
valid mortgage of the priority required or the title insurance policy
to be issued.
(c) Taxes and assessments. The closing agent will determine if all
taxes and assessments against the property which are due and payable
are paid at or before the time of loan closing. If the seller and the
borrower have agreed to prorate any taxes or assessment which are not
yet due and payable for the year in which the closing of the
transaction takes place, the seller's proportionate share of the taxes
and assessments will be deducted from the proceeds to be paid to seller
at closing and will be credited to the amount required to be paid by
borrower at closing. Certificates or receipts should be produced from
the taxing authorities to show that taxes or assessments which are due
and payable have been paid and, if possible, the certificates or
receipts, or copies, will be kept in the borrower's County Office or
District Office case file. Appropriate prorations as agreed upon
between the borrower and seller may also be made for taxes paid by the
seller which are applicable to a period after the closing date, common
area maintenance fees, prepaid rentals, insurance (unless the borrower
is to obtain a new policy of insurance) and growing crops.
(d) Affidavit regarding work of improvement--(1) Execution by
borrower. The closing agent will require that a Form FmHA 1927-5,
``Affidavit Regarding Work of Improvement,'' be completed and executed
(including acknowledgment) when a loan is being made to a borrower who
already owns the real estate to be mortgaged. This affidavit will be
executed by the borrower at closing.
(2) Execution by seller. The closing agent will require that Form
FmHA 1927-5 be completed and executed (including acknowledgment) by the
seller when the FmHA is making a loan to a borrower to enable the
borrower to acquire the property (including transfers). This affidavit
will be executed by the seller at closing.
(3) Legal insufficiency of affidavit form. If Form FmHA 1927-5 is
not legally sufficient in a particular state, a state form approved by
OGC will be used. A similar form that may be required by a title
insurance company may be substituted for Form FmHA 1927-5.
(4) Recording. The affidavit will not be recorded unless the
closing agent deems it necessary and state law permits.
(5) Delay in closing. The loan will not be closed if, at the loan
closing, the seller (in a sale transaction) or the borrower (in a
nonpurchase money loan situation) indicates that construction, repair
or remodeling has been commenced or completed on the property, or
related materials or services have been delivered to or performed on
the property within the time limit specified in the affidavit, unless a
state supplement otherwise provides. The closing agent will notify the
approval official, who will determine if the work of improvement will
result in a lien prior to the FmHA lien. The State Director will, with
the advice and concurrence of OGC, provide in a state supplement the
period of time to be used in completing the affidavit.
(e) Completion of closing documents. The closing agent will
determine that deeds, promissory notes, mortgages, releases, and other
curative instruments are completed in accordance with the FMI (sealed
and witnessed if required by state law) and, if necessary, acknowledged
and filed for record at the proper time.
(f) Assignment of future income. If Form FmHA 443-16, ``Assignment
of Income from Real Estate Security,'' is required in a particular
case, the approval official will prepare the form and have it available
for execution by the borrower when the transaction closes. The closing
agent will see that the form is properly completed, executed (sealed
and witnessed if required by state law), and acknowledged by the
borrower.
(g) Return of loan documents to approval official after loan
closing. Within one day after loan closing, the closing agent will
return completed and executed copies of Form FmHA 1927-15, the
promissory note, all other documents required for loan closing (except
the mortgage), and the final title opinion or policy of title insurance
to the approval official. If the recorded mortgage is customarily
returned to the borrower or closing agent after recording, then it must
be forwarded to the approval official immediately.
(h) Final opinion or mortgage title policy. As soon as possible
after the transaction has been closed:
(1) Final opinion. The attorney will issue a final opinion to FmHA
and the borrower on Form FmHA 1927-10, ``Final Title Opinion.'' If that
form is not legally sufficient in a particular state, a state form
approved by OGC may be used. Issuance of the final opinion should not
be held up pending the return of recorded instruments. If it is not
possible for the final title opinion to show the book and page of
recordation of the FmHA security instrument, the words ``and is
recorded'' in paragraph II B of Form FmHA 1927-10 may be deleted and
the following blank space completed to show the filing office and the
filing instrument number if available. Attached to the final opinion
will be required documents then available, including any which the
approval official has furnished to the attorney which were not
previously returned. The attorney will ensure that all recorded
instruments are forwarded or delivered, to the proper parties after
recording. The certification of title will be forwarded for a voluntary
conveyance.
(2) Mortgagee title policy. The closing agent will send or deliver
the mortgagee title policy, with the United States listed as mortgage
holder, to the approval official. The policy will be subject only to
standard exceptions and those outstanding encumbrances, exceptions,
reservations, and other defects approved by the approval official. If
an owner's policy of title insurance is requested, the closing agent
will send or deliver it to the borrower. The closing agent will ensure
that all recorded instruments are delivered or sent to the proper
parties after recording.
(3) Responsibilities of the approval official. The approval
official will check the final title opinion or mortgagee title policy
to make sure that the lien priority required in the loan approval has
been obtained. Form FmHA 1927-15 will be checked to see that funds were
disbursed as authorized. If these conditions have not been met, the
approval official will report it to the State Director for advice.
(i) Other services of the closing agent. (1) The closing agent will
assist the approval official in preparing, completing, obtaining
execution, acknowledgment, and recording the required documents when
necessary. Standard FmHA forms will be used whenever possible. The
closing agent will keep the approval official advised as to the
progress of title clearance and preparation of material for closing the
transaction.
(2) The closing agent will provide services for voluntary
conveyances as set forth in Sec. 1927.62 of this subpart, and
Sec. 1955.10 of subpart A of part 1955 of this chapter.
Sec. 1927.59 Subsequent loans and/or transfers with assumptions.
Title services and closing for subsequent loans to an existing
borrower will be done in accordance with previous instructions in this
subpart, except that:
(a) Loans closed using title insurance. (1) Title insurance will
only be obtained if:
(i) Additional land is being acquired,
(ii) An initial loan is being refinanced with a subsequent loan,
(iii) An additional loan is being made where the prior secured loan
was not subject to title clearance (e.g. where the prior loan was
secured by the best mortgage obtainable), or
(iv) An additional section 504 loan is being made where the
previous loan was unsecured, or secured for less than $7,500 and the
outstanding debt amount plus the new loan exceeds $7,500.
(2) When a new mortgagee title policy is required,:
(i) It will cover the entire real property which is to secure the
loan, including the real property already owned and any additional real
property being acquired by the borrower with the loan proceeds.
(ii) Title insurance coverage will be obtained for the entire
amount of any subsequent loan plus the amount of any existing loan
being refinanced. If the existing loan is not being refinanced, the new
mortgagee policy will insure only the amount of the subsequent loan.
(b) Loans closed using title opinions. Unless the approval official
is aware of problems with or discrepancies in the original title
opinion, the title will be researched back to the date of the last FmHA
mortgage, except when the conditions of paragraph (a)(1) (i), (ii), or
(iii) of this section exist. In these cases, the title will be examined
in accordance with Sec. 1927.55 of this subpart.
(c) Title services required in connection with assumptions. This is
set forth in subparts A, B, and C of part 1965 of this chapter as
appropriate for the loan type.
Secs. 1927.60-1927.61 [Reserved]
Sec. 1927.62 Voluntary conveyances.
When a borrower offers to convey security, the approval official
will process and close the transaction according to Sec. 1955.10 of
subpart A of part 1955 of this chapter. The closing agent will issue a
certification of title stating that title is vested in the United
States of America subject only to FmHA liens or prior liens previously
approved by FmHA in accordance with Sec. 1955.10 of subpart A of part
1955 of this chapter.
Secs. 1927.63-1927.64 [Reserved]
Sec. 1927.65 Additional requirements in connection with loans to
homestead entrymen, contract purchasers of farm units from the Bureau
of Reclamation, and certain American Indians.
Whenever loans or assumptions are subject to agreements with other
agencies (e.g. loans to or assumptions by homestead entrymen, American
Indians, or contract purchasers from the Bureau of Reclamation), the
title clearance and closing of the transaction will be handled in
accordance with special instructions issued by FmHA and/or other
parties involved applicable to the type of transaction, as well as
those of this subpart. The special instructions may be in form of a
Memorandum of Understanding with the advice and approval of OGC.
Sec. 1927.66 Cancellation of loan, assumption, or credit sale.
If it is determined that the transaction will not be closed, the
approval official will promptly notify the borrower and the following
parties who are involved in the case at the time the determination is
made: the seller, attorney(s), OGC, and the title company.
Secs. 1927.67-1927.89 [Reserved]
Sec. 1927.90 State supplements.
The state supplement issued pursuant to this subpart will have
prior National Office approval and will be the minimum necessary to
comply with state laws.
Sec. 1927.91 Exception authority.
The Administrator may, in individual cases, make an exception to
any requirement or provision of this subpart which is not inconsistent
with applicable law or opinion of the Comptroller General. The
Administrator may exercise this authority upon written request from the
State Director or an Assistant Administrator provided the Administrator
determines that application of the requirement or provision would
adversely affect the Government's interest. Request for exception must
be supported with documentation to explain adverse effect on the
Government's interest, proposed alternative courses of actions, and
show how the adverse effect will be eliminated or minimized if the
exception is granted.
Secs. 1927.92-1927.99 [Reserved]
Sec. 1927.100 OMB control number.
The reporting requirements contained in this regulation have been
approved by the Office of Management and Budget and have been assigned
OMB control number 0575-0147. Public reporting burden for this
collection of information is estimated to vary from 5 minutes to 1.5
hours per response, with an average of .38 hours per response,
including time for reviewing instructions, searching existing data
sources, gathering and maintaining the data needed, and completing and
reviewing the collection of information. Send comments regarding this
burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to Department of
Agriculture, Clearance Officer, OIRM, Room 404-W, Washington, DC.
20250; and to the Office of Management and Budget, Paperwork Reduction
Project (OMB # 0575-0147), Washington, D.C. 20503.
Dated: March 1, 1994.
Bob Nash,
Under Secretary, Small Community and Rural Development.
[FR Doc. 94-11311 Filed 5-10-94; 8:45 am]
BILLING CODE 3410-07-U
