Rd instruction 1942-a table of Contents

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(Revision 2)

(2-6-85, PN 956)

RD Instruction 1942-A

§1942.17 (j) (3) (i) (B) (Con.)
their attorney, consulting engineer/architect, and/or insurance provider(s) review proposed types and amounts of coverage, including any deductible provisions. If the Rural Development official and the applicant/borrower cannot agree on the acceptability of coverage proposed, a decision will be made by the State Director.
(C) The use of deductibles, i.e., an initial amount of each claim to be paid by the applicant/borrower, may be allowed by Rural Development providing the applicant/borrower has financial resources which would likely be adequate to cover potential claims requiring payment of the deductible.
(D) Borrowers must provide evidence to Rural Development that adequate insurance and fidelity bond coverage is being maintained. This may consist of a listing of policies and coverage amounts in yearend reports submitted with management reports required under section 1942.17(q)(2) or other documentation. The borrower is responsible for updating and/or renewing policies or coverage which expire between submissions to Rural Development. Any monitoring of insurance and fidelity bond coverage by Rural Development is solely for the benefit of Rural Development, and does not relieve the applicant/borrower of its obligation under the loan resolution to maintain such coverage.
(ii) Fidelity bond. Applicants/borrowers will provide fidelity bond coverage for all persons who have access to funds. Coverage may be provided either for all individual positions or persons, or through "blanket" coverage providing protection for all appropriate employees and/or officials. An exception may be granted by the State Director when funds relating to the facility financed are handled by another entity and it is determined that the entity has adequate coverage or the government's interest would otherwise be adequately protected.
(A) The amount of coverage required by Rural Development will normally approximate the total annual debt service requirements for the Rural Development loans.


(Revision 2)

§1942.17 (j) (3) (ii) (Con.) RD Instruction 1942-A

(B) Form RD 440-24, "Position Fidelity Schedule Bond" may be used. Similar forms may be used if determined acceptable to Rural Development. Other types of coverage may be considered acceptable if it is determined by Rural Development that they fulfill essentially the same purpose as a fidelity bond.

(iii) Insurance. The following types of coverage must be maintained if appropriate for the type of project and entity involved:
(A) Property insurance. Fire and extended coverage will normally be maintained on all structures except as noted in §§(j)(3)(iii)(A)(1) and (2) below. Ordinarily, Rural Development should be listed as mortgagee on the policy when Rural Development has a lien on the property. Normally, major items of equipment or machinery located in the insured structures must also be covered. Exceptions:
(1) Reservoirs, standpipes, elevated tanks, and other structures built entirely of noncombustible materials if such structures are not normally insured.
(2) Subsurface lift stations except for the value of electrical and pumping equipment therein.
(B) Liability and property damage insurance, including vehicular coverage.
(C) Malpractice insurance. The need and requirements for malpractice insurance will be carefully and thoroughly considered in connection with each health care facility financed.
(D) Flood insurance. Facilities located in special flood- and mudslide-prone areas must comply with the eligibility and insurance requirements of Subpart B of Part 1806 of this chapter (RD Instruction 426.2).
(E) Worker's compensation. The borrower will carry worker's compensation insurance for employees in accordance with State laws.


(Added 5-3-89, SPECIAL PN)

RD Instruction 1942-A

§1942.17 (j) (Con.)

(4) Acquisition of land, easements, water rights, and existing facilities. Applicants are responsible for acquisition of all property rights necessary for the project and will determine that prices paid are reasonable and fair. Rural Development may require an appraisal by an independent appraiser or Rural Development employee.
(i) Title for land, rights-of-way, easements, or existing facilities. The applicant must certify and provide a legal opinion relative to the title to rights-of-way and easements. Form RD 442-21, "Rights-of-Way Certificate," and Form RD 442-22, "Opinion of Counsel Relative to Rights-of-Way," may be used.
(A) Rights-of-way and easements. Applicants are responsible for and will obtain valid, continuous and adequate rights-of-way and easements needed for the


(Added 5-3-89, SPECIAL PN)

§1942.17 (j)(4)(i)(A) (Con.) RD Instruction 1942-A

construction, operation, and maintenance of the facility. Form RD 442-20, "Right-of-Way Easement," may be used. When a site is for major structures for utility-type facilities such as a reservoir or pumping station and the applicant is able to obtain only a right-of-way or easement on such a site rather than a fee simple title, the applicant will furnish a title report thereon by the applicant's attorney showing ownership of the land and all mortgages or other lien defects, restrictions, or encumbrances, if any. It is the responsibility of the applicant to obtain and record such releases, consents or subordinations to such property rights from holders of outstanding liens or other instruments as may be necessary for the construction, operation, and maintenance of the facility and give Rural Development the required security.

(B) Title for land or existing facilities. Title to land essential to the successful operation of facilities or title to facilities being purchased, must not contain any restrictions that will adversely affect the suitability, successful operation, security value, or transferability of the facility. Title opinions must be provided by the applicant's attorney. The opinions must be in sufficient detail to assess marketability of the property. Form RD 1927-9, "Preliminary Title Opinion," and Form RD 1927-10, "Final Title Opinion," may be used to provide the required title opinions. If other forms are used they must be reviewed and approved by Rural Development and OGC.

(Revised 03-31-92 SPECIAL PN.)

(1) In lieu of receiving title opinions from the applicant's attorney, the applicant may use a title insurance company. If a title insurance company is used, the company must provide Rural Development a title insurance binder, disclosing all title defects or restrictions, and include a commitment to issue a title insurance policy. The policy should be in an amount at least equal to the market value of the property as improved. The title insurance binder and commitment should be provided to Rural Development prior to requesting closing instructions. Rural Development will be provided a title insurance policy which will insure Rural Development's interest in the property without any title defects or restrictions which have not been waived by Rural Development.

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