Rd instruction 1927-b table of Contents




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18

(Revision 1)


RD Instruction 1927-B

§1927.57(d)(1) (Con.)


(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 an agency 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 agency.
(iii) The prior lienholder shall consent to the agency 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 the agency transferring the property subject to the prior lien after the agency 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 agency 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 seller's interest under land purchase contract. If the buyer's interest in the security property is that of a buyer under a land purchase contract, it will be necessary for the seller to execute, in recordable form, an agreement containing all of the following provisions:
(i) The seller shall agree not to sell or voluntarily transfer the seller's interest under the land purchase contract without the prior written consent of the State Office.
(ii) The seller shall agree not to encumber or cause any liens to be levied against the property.

19

(04-22-96) SPECIAL PN


RD Instruction 1927-B

§1927.57(d)(4) (Con.)

(iii) The seller 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 Office of intent to do so. This period of time will be 90 days unless a State Supplement provides otherwise. The agreement shall give the agency the option to cure any monetary default by paying the amount of the buyer's delinquent payments to the seller, or paying the seller in full and having the contract assigned to the agency.
(iv) The seller shall consent to the agency making the loan and taking a security interest in the borrower's interest under the land purchase contract as security for the agency loan.
(v) The seller shall agree not to take any actions to foreclose or forfeit the interest of the buyer under the land purchase contract because the agency has acquired the buyer's interest under the land purchase contract by foreclosure or voluntary conveyance, or because the agency has subsequently sold or assigned the buyer's interest to a third party who will assume the buyer's obligations under the land purchase contract.
(vi) When the agency acquires a buyer's interest under a land purchase contract by foreclosure or deed in lieu of foreclosure, the agency will not be deemed to have assumed any of the buyer's obligations under the contract, provided that the failure of the agency to perform any such obligations while it holds the buyer's interest is a ground to commence an action to terminate the land purchase contract.
(5) Form of agreement. The form of prior lienholder's agreement, forbearance agreement, notice of foreclosure or assignment, and agreement by holder of seller's interest under land purchase 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 RD 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 RD 1927-8 may be amended in order to serve both purposes, a substitute State form may be used for both purposes, or Form RD 1927-8 may be used and the notice agreement obtained on a separate State form.

20


RD Instruction 1927-B

§1927.57(d) (Con.)

(6) Executing, acknowledging, and recording. When an agreement is required by paragraph (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.
§1927.58 Closing the transaction.
The closing agent will cooperate with the approval official, borrower, seller, and other necessary parties to arrange the time and place of closing. The transaction may be closed when the agency determines the agency requirements for the loan have been satisfied and the closing agent or approved attorney can issue or cause to be issued a policy of title insurance or final title opinion as of the date of closing showing title vested as required by the agency, the lien of the agency’s mortgage in the priority required by the agency, and title to the mortgaged property subject only to those exceptions approved in writing by the agency. The loan will be considered closed when the mortgage is filed for record and the required lien is obtained.
(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, unless approved by the agency. Loan funds for the payment of a lien may be disbursed only upon the recording of a discharge, satisfaction, or release of prior lien interests (or assignment where necessary to protect the interests of the agency).
(b) Title examination and liens or claims against borrowers. If there are other exceptions or recorded items which have arisen since the preliminary title opinion, the transaction will not be closed until these entries have been cleared of record or approved, by the agency. 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.

21


(04-22-96) SPECIAL PN

RD Instruction 1927-B

§1927.58 (Con.)

(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 assessments 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 added 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 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, and for 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. If required by State Supplement, the closing agent will require that a Form RD 1927-5, "Affidavit Regarding Work of Improvement," be completed and executed 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. If required by State Supplement, the closing agent will require that Form RD 1927-5 be completed and executed by the seller when the agency 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 RD 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 RD 1927-5.
(4) Recording. The affidavit will not be recorded unless the closing agent deems it necessary and State law permits.

22


RD Instruction 1927-B

§ 1927.58(d) (Con.)

(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 provides otherwise. The closing agent will notify the approval official, who will determine if the work of improvement could result in a lien prior to the agency lien. The State Office 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 (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 RD 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 1 day after loan closing, the closing agent will return completed and executed copies of Forms RD 1927-15 or 3550-25, the executed original promissory note, and all other documents required for loan closing (except the mortgage), 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. (Revised 08-18-04, PN 378.)
(h) Final title opinion or title insurance policy. As soon as possible after the transaction has been closed.
(1) Final title opinion. The attorney will issue a final title opinion to the agency and the borrower on Form RD 1927-10. If that form is not legally sufficient in a particular State, a State form approved by OGC may be used. Issuance of the final title 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 recording of the agency security instrument, the words


23

(Revision 1)

(04-22-96) SPECIAL PN


RD Instruction 1927-B

§ 1927.58(h)(1) (Con.)


"and is recorded" in paragraph II B of Form RD 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 title 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) Title insurance policy. The closing agent will send or deliver the title insurance 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, and exceptions 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 lender title policy to make sure that the lien priority required in the loan approval has been obtained. Forms RD 1927-15 or 3550-25 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 Office for advice. (Revised 08-18-04, PN 378.)
(i) Other services of the closing agent.
(1) The closing agent will assist the approval official in preparing, completing, obtaining execution and acknowledgment, and recording the required documents when necessary. 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 deeds in lieu of foreclosure as set forth in § 1927.62 of this subpart, and § 1955.10 of subpart A of part 1955 of this chapter.

24

(Revision 1)


RD Instruction 1927-B

§ 1927.59 Subsequent loans and 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 or title opinions.
(1) Title insurance or title opinions will be obtained unless:
(i) The cost of title services is excessive in relationship to the size of the loan;
(ii) The agency currently has a first mortgage security interest;
(iii) The applicant has sufficient income to service the additional loan;
(iv) The borrower is current on the existing agency loan; and
(v) The best mortgage obtainable adequately protects agency security interests.
(2) Title insurance or a title opinion will not be obtained if a subsequent Section 504 loan is being made where the previous Section 504 loan was unsecured or secured for less than $7,500 and the outstanding debt amount plus the new loan is less than $7,500.
(3) Loans closed using a new title insurance policy:
(i) 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) Will cover 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 lender policy will insure only the amount of the subsequent loan).

25

(Revision 1)


(04-22-96) SPECIAL PN

RD Instruction 1927-B

§ 1927.59 (Con.)

(b) Title services required in connection with assumptions. These requirements are contained in part 1965, subpart A, B, and C, of this chapter and 7 CFR part 3550 as appropriate for the loan type. (Revised 01-23-03, SPECIAL PN.)

§§ 1927.60 - 1927.61 [Reserved]
§ 1927.62 Voluntary conveyances.
When a borrower offers to convey security, the approval official will process and close the transaction according to § 1955.10 of subpart A of part 1955 of this chapter. The closing agent will issue or cause to be issued a final title opinion or policy of title insurance indicating that title is vested in the United States of America subject only to the agency liens or prior liens previously approved by the agency in accordance with § 1955.10 of subpart A of part 1955 of this chapter.
§§ 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.
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 the agency and/or other parties involved applicable to the type of transaction, as well as those of this subpart. The special instructions may be in the form of a Memorandum of Understanding with the advice and approval of OGC.
§ 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.
§§ 1927.67 - 1927.89 [Reserved]

26

(Revision 1)


RD Instruction 1927-B

§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. The State Supplement will cover loan closings, where the agency is obtaining the best lien obtainable and there will be no title clearance for such loan provided by a title insurance company or attorney.
§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 Office or Deputy 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.
§§1927.92 - 1927.99 [Reserved]
§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, Ag Box 7630, Washington, D.C. 20250; and to the Office of Management and Budget, Paperwork Reduction Project (OMB# 0575-0147), Washington, D.C. 20503.



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