PART 765—DIRECT LOAN SERVICING—REGULAR Authority: 5 U.S.C. 301 and 7 U.S.C. 1989. Source: 72 FR 63309, Nov. 8, 2007, unless otherwise noted. Subpart A—Overview § 765.1 Introduction. (a) Purpose. (b) Servicing actions. (1) Limited resource reviews; (2) Graduation to commercial credit; (3) Application of payments; (4) Maintaining and disposing of security; (5) Transfer of security and assumption of debt; and (6) Servicing accounts of deceased borrowers. (c) Loans covered. § 765.2 Abbreviations and definitions. Abbreviations and definitions for terms used in this part are provided in § 761.2 of this chapter. §§ 765.3-765.50 [Reserved] Subpart B—Borrowers With Limited Resource Interest Rate Loans § 765.51 Required review. Link to an amendment published at 91 FR 56756, Sept. 4, 2026. (a) At least every 2 years, a borrower with limited resource interest rate loans is required to provide the operation's financial information to the Agency; for the Agency to determine if the borrower can afford to pay a higher interest rate on the loan. The Agency will review the information provided in accordance with § 761.105 of this chapter. (b) If the borrower's farm operating plan shows that the debt service margin exceeds 110 percent, the Agency will increase the interest rate on the loans with a limited resource interest rate until: (1) A further increase in the interest rate results in a debt service margin of less than 110 percent; or (2) The interest rate is equal to the interest rate currently in effect for the type of loan. (c) Except as provided in paragraph (d) of this section, the Agency will increase the limited resource interest rate to the current interest rate for the type of loan, if the borrower: (1) Purchases items not planned during the term of the loan; (2) Refuses to submit information the Agency requests for use in reviewing the borrower's financial condition; (3) Ceases farming, as described in § 765.253; or (4) Is ineligible due to disqualification resulting from Federal crop insurance violation according to 7 CFR part 718. (d) If the borrower has limited resource interest rate loans that are deferred, the Agency will not change the interest rate during the deferral period. [72 FR 63309, Nov. 8, 2007, as amended at 86 FR 43392, Aug. 9, 2021] §§ 765.52-765.100 [Reserved] Subpart C—Borrower Graduation § 765.101 Borrower graduation requirements. Link to an amendment published at 91 FR 56756, Sept. 4, 2026. (a) In accordance with the promissory note and security instruments, the borrower must graduate to another source of credit if the Agency determines that: (1) The borrower has the ability to obtain credit from other sources; and (2) Adequate credit is available from other sources at reasonable rates and terms. (b) The Agency may require partial or full graduation. (1) In a partial graduation, all FLP loans of one type ( i.e. (2) In a full graduation, all FLP loans are paid in full by refinancing with other credit with or without an Agency guarantee. (3) A loan made for chattel and real estate purposes will be categorized according to how the majority of the loan's funds are expended. (c) The borrower must submit all information that the Agency requests in conjunction with the review of the borrower's financial condition, including Federal income tax returns. (d) The Agency may provide a borrower's prospectus to lenders in an attempt to identify sources of non-Agency credit and assess the lenders' interest in refinancing the borrower's loan. The Agency will notify the borrower when the borrower's prospectus is provided to one or more lenders. (e) If a lender expresses an interest in refinancing the borrower's FLP loan, the borrower must: (1) Apply for a loan from the interested lender within 30 days of notice; or (2) Seek guaranteed loan assistance under the market placement program in accordance with § 762.110(g) of this chapter. (f) The borrower will be responsible for any application fees or purchase of stock in conjunction with graduation. (g) CLs are not subject to graduation requirements under this part. [72 FR 63309, Nov. 8, 2007, as amended at 75 FR 54016, Sept. 3, 2010; 89 FR 65042, Aug. 8, 2024] § 765.102 Borrower non-compliance with graduation requirements. Link to an amendment published at 91 FR 56756, Sept. 4, 2026. (a) Borrower failure to fulfill all graduation requirements, including failure to submit information as specified in § 765.101(c) of this chapter, within the time-period specified by the Agency constitutes default on the loan. Except as provided in paragraph (b) of this section, the Agency will accelerate the borrower's loan without offering servicing options provided in 7 CFR part 766 if any outstanding direct loan was closed prior to September 25, 2024. (b) If all outstanding direct loans were closed after September 25, 2024, or when the borrower makes a written request in response to the Agency's notification of intent to accelerate within provided timeframes, the Agency will convert the debt to a non-program loan under the following conditions: (1) It is in the interest of the Agency; (2) The debt will be subject to the interest rate for non-program loans in effect at the time of default; (3) The debt will be serviced as a non-program loan; and (4) The term of the non-program loan will be: (i) For FOs, the Agency will schedule repayment in equal installments over the lesser of the remaining number of years on the loan, the useful life of security, or 25 years. (ii) For OLs, the Agency will schedule repayment in equal installments over the lesser of the remaining number of years on the loan, the useful life of security or 5 years. [89 FR 65042, Aug. 8, 2024] § 765.103 Transfer and assignment of Agency liens. The Agency may assign its lien to the new lender when the borrower is graduating and all FLP debt will be paid in full. §§ 765.104-765.150 [Reserved] Subpart D—Borrower Payments § 765.151 Handling payments. (a) Borrower payments. (b) Crediting account. [72 FR 63309, Nov. 8, 2007, as amended at 87 FR 13124, Mar. 9, 2022] § 765.152 Types of payments. Link to an amendment published at 91 FR 56756, Sept. 4, 2026. (a) Regular payments. (1) The sale of normal income security; (2) The sale of farm products; (3) Lease income, including mineral lease signing bonus; (4) Program or disaster-related disbursements from USDA or crop insurance entities; and (5) Non-farm income. (b) Extra payments. (1) Sale of chattel security other than normal income security; (2) Sale of real estate security; (3) Refinancing of FLP debt; (4) Proceeds of insurance claims received on Agency security, if not being used to repair or replace the security; (5) Any transaction that results in a loss in the value of any Agency basic security; (6) Refunds of duplicate program benefits or assistance to be applied on CL or EM loans; or (7) Refunds of unused loan funds. (c) Payments from sale of real estate. [72 FR 63309, Nov. 8, 2007, as amended at 75 FR 54016, Sept. 3, 2010; 87 FR 13124, Mar. 9, 2022] § 765.153 Application of payments. Link to an amendment published at 91 FR 56756, Sept. 4, 2026. (a) Regular payments. (1) Annual operating loan; (2) Delinquent FLP installments, paying least secured loans first; (3) Non-delinquent FLP installments due in the current production cycle in order of security priority, paying least secured loans first; (4) Any future installments due. (b) Extra payments. § 765.154 Distribution of payments. Link to an amendment published at 91 FR 56757, Sept. 4, 2026. The Agency applies both regular and extra payments to each loan in the following order, as applicable: (a) Recoverable costs and protective advances plus interest; (b) Deferred non-capitalized interest; (c) Accrued deferred interest; (d) Interest accrued to date of payment; and (e) Loan principal. § 765.155 Final loan payments. (a) General. (i) U.S. Treasury check; (ii) Cashier's check; or (iii) Certified check. (2) Security instruments will only be released when all loans secured by the instruments have been paid in full or otherwise satisfied. (3) The Agency will return the paid note and satisfied security instruments to the borrower after the Agency processes the final payment and determines that the total indebtedness is paid in full. (b) Borrower refunds. (c) Overpayments. (d) Underpayments. [72 FR 63309, Nov. 8, 2007, as amended at 85 FR 36693, June 17, 2020; 87 FR 13124, Mar. 9, 2022] §§ 765.156-765.160 [Reserved] § 765.161 Borrowers entering the Armed Forces. (a) Protections for borrowers on active duty. (1) The benefits and protections of the Servicemembers Civil Relief Act apply to borrowers on active duty at all times. (2) The requirements of the Ronald W. Reagan National Defense Authorization Act for Fiscal Year (FY) 2005 apply during a time of a war or national emergency as declared by the President or Congress. (b) Eligibility for National Guard members and military reservists. (1) National Guard members must be on duty for at least 30 consecutive calendar days. (2) Military reservists are eligible from the date orders are received to report for active duty. (c) Entity eligibility. [86 FR 43392, Aug. 9, 2021
] §§ 765.162-765.200 [Reserved] Subpart E—Protecting the Agency's Security Interest § 765.201 General policy. All Agency servicing actions regarding preservation and protection of Agency security will be consistent with the covenants and agreements contained in all loan agreements and security instruments. § 765.202 Borrower responsibilities. The borrower must: (a) Comply with all provisions of the loan agreements; (1) Non-compliance with the provisions of loan agreements and documents, other than failure to meet scheduled loan repayment installments contained in the promissory note, constitutes non-monetary default on FLP loans by the borrower; (2) Borrower non-compliance will be considered by the Agency when making eligibility determinations for future requests for assistance and may adversely impact such requests; (b) Maintain, protect, and account for all security; (c) Pay the following, unless State law requires the Agency to pay: (1) Fees for executing, filing or recording financing statements, continuation statements or other security instruments; and (2) The cost of lien search reports; (d) Pay taxes on property securing FLP loans when they become due; (e) Maintain insurance coverage in an amount specified by the Agency; (f) Protect the interests of the Agency when a third party brings suit or takes other action that could affect Agency security. § 765.203 Protective advances. When necessary to protect the Agency's security interest, costs incurred for the following actions will be charged to the borrower's account: (a) Maintain abandoned security property; (b) Preserve inadequately maintained security; (c) Pay real estate taxes and assessments; (d) Pay property, hazard, or flood insurance; (e) Pay harvesting costs; (f) Maintain Agency security instruments; (g) Pay ground rents; (h) Pay expenses for emergency measures to protect the Agency's collateral; and (i) Protect the Agency from actions by third parties. § 765.204 Notifying potential purchasers. Link to an amendment published at 91 FR 56757, Sept. 4, 2026. (a) States with Central Filing System (CFS). (b) States without CFS. § 765.205 Subordination of liens. Link to an amendment published at 91 FR 56757, Sept. 4, 2026. (a) Borrower application requirements. (1) Completed Agency application for subordination form; (2) A current financial statement, including, in the case of an entity, financial statements from all entity members; (3) Documentation of compliance with the Agency's environmental regulations contained in part 799 of this chapter; (4) Verification of all non-farm income; (5) The farm's operating plan, including a projected cash flow budget reflecting production, income, expenses, and debt repayment plan; and (6) Verification of all debts. (b) Incomplete applications. (c) Subordination of real estate security. (1) If a lender requires that the Agency subordinate its lien position on the borrower's existing property in order for the borrower to acquire new property and the request meets the requirements in paragraph (b)(3) of this section, the request may be approved. The Agency will obtain a valid mortgage and the required lien position on the new property. The Agency will require title clearance and loan closing for the property in accordance with § 764.402 of this chapter. (2) If the borrower is an entity and the Agency has taken real estate as additional security on property owned by a member, a subordination for any authorized loan purpose may be approved when it meets the requirements in paragraph (b)(3) of this section and it is needed for the entity member to finance a separate farming operation. The subordination must not cause the unpaid principal and interest on the FLP loan to exceed the value of loan security or otherwise adversely affect the security. (3) The Agency will approve a request for subordination of real estate to a creditor if: (i) The loan will be used for an authorized loan purpose or is to refinance a loan made for an authorized loan purpose by the Agency or another creditor; (ii) The credit is essential to the farming operation, and the borrower cannot obtain the credit without a subordination; (iii) The FLP loan is still adequately secured after the subordination, or the value of the loan security will be increased by an amount at least equal to the advance to be made under the subordination; (iv) Except as authorized by paragraph (c)(2) of this section, there is no other subordination outstanding with another lender in connection with the same security; (v) The subordination is limited to a specific amount; (vi) The loan made in conjunction with the subordination will be closed within a reasonable time and has a definite maturity date; (vii) If the loan is made in conjunction with a guaranteed loan, the guaranteed loan meets the requirements of § 762.142(c) of this chapter; (viii) The borrower is not in default or will not be in default on FLP loans by the time the subordination closing is complete; (ix) The borrower can demonstrate, through a current farm operating plan, the ability to repay all debt payments scheduled, and to be scheduled, during the production cycle; (x) Except for CL, the borrower is unable to partially or fully graduate; (xi) The borrower must not be ineligible as a result of a conviction for controlled substances according to part 718 of this chapter; (xii) The borrower must not be ineligible due to disqualification resulting from Federal crop insurance violation according to part 718 of this chapter; (xiii) The borrower will not use loan funds in a way that will contribute to erosion of highly erodible land or conversion of wetlands as described in part 799 of this chapter; (xiv) Any planned development of real estate security will be performed as directed by the lessor or creditor, as approved by the Agency, and will comply with the terms and conditions of § 761.10 of this chapter; (xv) If a borrower with an SAA mortgage is refinancing a loan held by a lender, subordination of the SAA mortgage may only be approved when the refinanced loan does not increase the amount of debt; and (xvi) In the case of a subordination of non-program loan security, the non-program loan security also secures a program loan with the same borrower. (4) The Agency will approve a request for subordination of real estate to a lessee if the conditions in paragraphs (b)(3)(viii) through (xvi) of this section are met. (d) Chattel security. (1) For loans secured by chattel, the subordination must meet the conditions contained in paragraphs (b)(3)(i) through (xiii) of this section. (2) The Agency will approve a request for a second subordination to enable a borrower to obtain crop insurance, if the following conditions are met: (i) The creditor to whom the first subordination was given did not provide for payment of the current year's crop insurance premium, and consents in writing to the provisions of the second subordination to pay insurance premiums from the crop or insurance proceeds; (ii) The borrower assigns the insurance proceeds to the Agency or names the Agency in the loss payable clause of the policy; and (iii) The subordination meets the conditions under paragraphs (b)(1) through (12) of this section. (e) Appraisals. [72 FR 63309, Nov. 8, 2007, as amended at 75 FR 54016, Sept. 3, 2010; 78 FR 65530, Nov. 1, 2013; 81 FR 51284, Aug. 3, 2016; 89 FR 65042, Aug. 8, 2024] § 765.206 Junior liens. (a) General policy. (b) Conditions for consent. (1) The borrower's ability to make scheduled loan payments is not jeopardized; (2) The borrower provides the Agency a copy of the farm operating plan submitted to the junior lienholder, and the plan is consistent with the Agency operating plan; (3) The total debt against the security does not exceed the security's market value; (4) The junior lienholder agrees in writing not to foreclose the security instrument unless written notice is provided to the Agency; (5) The borrower is unable to graduate on any program except for CL; and (6) The junior lien will not otherwise adversely impact the Agency's financial interests. [72 FR 63309, Nov. 8, 2007, as amended at 75 FR 54016, Sept. 3, 2010] § 765.207 Conditions for severance agreements. Link to an amendment published at 91 FR 56757, Sept. 4, 2026. For loans secured by real estate, a borrower may request Agency consent to a severance agreement or similar instrument so that future chattel acquired by the borrower will not become part of the real estate securing the FLP debt. The Agency will consent to severance agreements if all of the following conditions are met: (a) The financing arrangements are in the financial interest of the Agency and the borrower; (b) The transaction will not adversely affect the Agency's security position; (c) The borrower is unable to graduate on any program except for CL; (d) The transaction will not jeopardize the borrower's ability to pay all outstanding debts to the Agency and other creditors; and (e) The property acquired is consistent with authorized loan purposes. [72 FR 63309, Nov. 8, 2007, as amended at 75 FR 54016, Sept. 3, 2010] §§ 765.208-765.250 [Reserved] Subpart F—Required Use and Operation of Agency Security § 765.251 General. (a) A borrower is required to be the operator of Agency security in accordance with loan purposes, loan agreements, and security instruments. (b) A borrower who fails to operate the security without Agency consent is in violation of loan agreements and security instruments. (c) The Agency will consider a borrower's request to lease or cease to operate the security as provided in §§ 765.252 and 765.253. § 765.252 Lease of security. Link to an amendment published at 91 FR 56757, Sept. 4, 2026. (a) Real estate surface leases. (1) The lease will not adversely affect the Agency's security interest; (2) The term of consecutive leases for agricultural purposes does not exceed 3 years, or 5 years if the borrower and the lessee are related by blood or marriage. The term of surface leases for farm property no longer in use, such as old barns, or for nonfarm purposes, such as wind turbines, communication towers, or similar installations can be for any term; (3) The lease does not contain an option to purchase; (4) The lease does not hinder the future operation or success of the farm, or, if the borrower has ceased to operate the farm, the requirements specified in § 765.253 are met. Leases for nonfarm enterprises, such as solar farms, which take significant acreage of the Agency's security out of agriculture production are not authorized. Non-productive land may be considered for this type of lease; and (5) The lease and any contracts or agreements in connection with the lease must be reviewed and approved by the Agency. (b) Mineral leases. (1) For FO loans made from December 23, 1985, to February 7, 2014, and loans other than FO loans secured by real estate and made from December 23, 1985, to November 1, 2013, the value of the mineral rights must have been included in the original appraisal in order for the Agency to obtain a security interest in any oil, gas, and other mineral associated with the real estate security. (2) For all other loans not covered by paragraph (b)(1) of this section, the Agency will obtain a security interest in any oil, gas, and other mineral on or under the real estate pledged as collateral in accordance with the applicable security agreement, regardless of whether such minerals were included in the original appraisal. (3) The Agency may consent to a mineral lease if the proposed use of the leased rights will not adversely affect either: (i) The Agency's security interest; or (ii) Compliance with any applicable environmental requirements of part 799 of this chapter. (4) The term of the mineral lease is not limited. (c) Lease of chattel security. (1) The term of lease does not exceed 12 months and does not automatically renew; (2) The lease does not contain an option to purchase; (3) The lease does not hinder the future operation or success of the farm, or, if the borrower has ceased to operate the farm, the requirements specified in § 765.253 are met; (4) The lease must be in the best interest of the Agency as determined by the authorized Agency official; (5) Leased security must be accessible and readily identifiable at all times. Leased livestock must be branded, tagged, or be otherwise specifically identifiable; and (6) The lease and any contracts or agreements in connection with the lease must be reviewed and approved by the Agency. (d) Lease proceeds. (e) Lease of allotments. (2) The borrower must assign all rental proceeds from an allotment lease to the Agency. [72 FR 63309, Nov. 8, 2007, as amended at 78 FR 65531, Nov. 1, 2013; 79 FR 78694, Dec. 31, 2014; 81 FR 51284, Aug. 3, 2016; 86 FR 43392, Aug. 9, 2021; 89 FR 65042, Aug. 8, 2024] § 765.253 Ceasing to operate security. If the borrower requests Agency consent to cease operating the security or if the Agency discovers that the borrower is failing to operate the security, the Agency will give consent if: (a) Such action is in the Agency's best interests; (b) The borrower is unable to graduate on any program except for CL; (c) The borrower is not ineligible as a result of disqualification for Federal crop insurance violation according to 7 CFR part 718; (d) Any one of the following conditions is met: (1) The borrower is involved in the day-to-day operational activities, management decisions, costs and returns of the farming operation, and will continue to reside in the immediate farming community for reasonable management and operation involvement; (2) The borrower's failure to operate the security is due to age or poor health, and the borrower continues to reside in the immediate farming community for reasonable management and operation involvement; or (3) The borrower's failure to operate the security is beyond the borrower's control, and the borrower will resume the farming operation within 3 years. [72 FR 63309, Nov. 8, 2007, as amended at 75 FR 54016, Sept. 3, 2010; 78 FR 65531, Nov. 1, 2013] §§ 765.254-765.300 [Reserved] Subpart G—Disposal of Chattel Security Link to an amendment published at 91 FR 56757, Sept. 4, 2026. § 765.301 General. Link to an amendment published at 91 FR 56757, Sept. 4, 2026. (a) The borrower must account for all chattel security, and maintain records of dispositions of chattel security and the actual use of proceeds. The borrower must make these records available to the Agency upon request. (b) The borrower may not dispose of chattel security for an amount less than its market value. All proceeds, including any amount in excess of the market value, must be distributed to lienholders for application to the borrower's account in the order of lien priority. (1) The Agency considers the market value of normal income security to be the prevailing market price of the commodity in the area in which the farm is located. (2) The market value for basic security is determined by an appraisal obtained in accordance with § 761.7 of this chapter. (c) When the borrower sells chattel security, the property and proceeds remain subject to the Agency lien until the lien is released by the Agency. (d) The Agency and all other lienholders must provide written consent before a borrower may use proceeds for a purpose other than payment of lienholders in the order of lien priority. (e) The transaction must not interfere with the borrower's farming operation or jeopardize the borrower's ability to repay the FLP loan. (f) The disposition must enhance the program objectives of the FLP loan. (g) When the borrower exchanges security property for other property or purchases new property with sale proceeds, the acquisition must be essential to the farming operation as well as meet the program objectives, purposes, and limitations for the type of loan. (h) All checks, drafts, or money orders which the borrower receives from the sale of Agency security must be payable to the borrower and the Agency. If all FLP loan installments and any past due installments, for the period of the agreement for the use of proceeds have been paid, however, these payments from the sale of normal income security may be payable solely to the borrower. [72 FR 63309, Nov. 8, 2007, as amended at 78 FR 65531, Nov. 1, 2013] § 765.302 Use and maintenance of the agreement for the use of proceeds. (a) The borrower and the Agency will execute an agreement for the use of proceeds. (b) The borrower must report any disposition of basic or normal income security to the Agency as specified in the agreement for the use of proceeds. (c) If a borrower wants to dispose of normal income security in a way different than provided by the agreement for the use of proceeds, the borrower must obtain the Agency's consent before the disposition unless all FLP payments planned on the agreement have been paid. (d) If the borrower sells normal income security to a purchaser not listed in the agreement for the use of proceeds, the borrower must immediately notify the Agency of what property has been sold and of the name and business address of the purchaser. (e) The borrower must provide the Agency with the necessary information to update the agreement for the use of proceeds. (f) Changes to the agreement on the use of proceeds will be recorded, dated and initialed by the borrower and the Agency. [72 FR 63309, Nov. 8, 2007, as amended at 78 FR 65531, Nov. 1, 2013] § 765.303 Use of proceeds from chattel security. Link to an amendment published at 91 FR 56757, Sept. 4, 2026. (a) General. (2) Proceeds remitted to the Agency may be used as follows: (i) Applied to the FLP loan; (ii) Pay customary costs appropriate to the transaction. (3) With the concurrence of all lienholders, proceeds may be used to preserve the security because of a natural disaster or other severe catastrophe, when funds cannot be obtained by other means in time to prevent the borrower and the Agency from suffering a substantial loss. (4) Security may be consumed as follows: (i) Livestock may be used by the borrower's family for subsistence; (ii) If crops serve as security and usually would be marketed, the Agency may allow such crops to be fed to the borrower's livestock, if this is preferable to marketing, provided the Agency obtains a lien or assignment on the livestock, and livestock products, at least equal to the lien on the crops. (b) Proceeds from the sale of normal income security. (c) Proceeds from the sale of basic security. (1) Proceeds from the sale of basic security may not be used for any family living and farm operating expenses. (2) Security may be exchanged for chattel property better suited to the borrower's farming needs if the Agency will acquire a lien on the new property at least equal in value to the lien held on the property exchanged. (3) Proceeds may be used to purchase chattel property better suited to the borrower's farming needs if the Agency will acquire a lien on the purchased property. The value of the purchased property, together with any proceeds applied to the FLP loan, must at least equal the value of the Agency lien on the old security. [72 FR 63309, Nov. 8, 2007, as amended at 89 FR 65042, Aug. 8, 2024] § 765.304 Unapproved disposition. Link to an amendment published at 91 FR 56757, Sept. 4, 2026. (a) If a borrower disposes of chattel security without Agency approval, or misuses proceeds, the borrower must: (1) Make restitution to the Agency within 30 days of Agency notification; or (2) Provide disposition or use information to enable the Agency to consider post-approval within 30 days of Agency notification. (b) Failure to cure the first unauthorized disposition in accordance with paragraph (a) of this section, or a second unauthorized disposition, whether or not cured, constitutes a non-monetary default, will be considered by the Agency when making eligibility determinations for future requests for assistance, may adversely impact such requests, and may result in civil or criminal action. § 765.305 Release of security interest. Link to an amendment published at 91 FR 56757, Sept. 4, 2026. (a) When Agency security is sold, exchanged, or consumed in accordance with the agreement for the use of proceeds, the Agency will release its security interest to the extent of the value of the security disposed. (b) Security interests on wool and mohair may be released when the security is marketed by consignment, provided all of the following conditions are met: (1) The borrower assigns to the Agency the proceeds of any advances made, or to be made, on the wool or mohair by the broker, less shipping, handling, processing, and marketing costs; (2) The borrower assigns to the Agency the proceeds of the sale of the wool or mohair, less any remaining costs in shipping, handling, processing, and marketing, and less the amount of any advance (including any interest which may have accrued on the advance) made by the broker against the wool or mohair; and (3) The borrower and broker agree that the net proceeds of any advances on, or sale of, the wool or mohair will be paid by checks made payable jointly to the borrower and the Agency. (c) The Agency will release its lien on chattel security without compensation, after written request from the borrower, provided all the following criteria are satisfied: (1) The borrower is current on all loan accounts with FSA and has not received PLS, DBSA, or DSA on any loan within the last 36 months; (2) The borrower has paid in full scheduled direct term loan installments that include principal reduction in each of the last 3 calendar years; (3) After the release, the security margin on each Agency direct loan will be 125 percent (or more, if it is not practicable to separate the property, if necessary to ensure the loan is fully secured for the life of the loan, or if the borrower requests only a portion of Agency security to be released). The value of the retained and released security will normally be based on appraisals obtained as specified in § 761.7 of this chapter; however, well-documented recent sales of similar properties can be used if the Agency determines a supportable decision can be made without current appraisals; (4) Any asset requested for release must serve only as security for term loan(s) that have been outstanding for at least the prior 36 months and cannot serve as adequate security for another existing Agency direct loan; and (5) Except for CL, the borrower is unable to fully graduate as specified in § 765.101. [72 FR 63309, Nov. 8, 2007, as amended at 78 FR 65531, Nov. 1, 2013; 89 FR 65042, Aug. 8, 2024] §§ 765.306-765.350 [Reserved] Subpart H—Partial Release of Real Estate Security § 765.351 Requirements to obtain Agency consent. Link to an amendment published at 91 FR 56757, Sept. 4, 2026. The borrower must obtain prior consent from the Agency for any transactions affecting the real estate security, including, but not limited to, sale or exchange of security, a right-of-way across security, and a partial release. The Agency may consent to such transactions provided the conditions in this section are met. (a) General. (1) The transaction will enhance the objectives for which the FLP loan or loans were made; (2) The transaction will not jeopardize the borrower's ability to repay the FLP loan, or is necessary to place the borrower's farming operation on a sound basis; (3) Except for releases in paragraph (f) of this section, the amount paid for the security being disposed of, or the rights being granted, is not less than the market value and will be remitted to the lienholders in the order of lien priority; (4) The transaction must not interfere with the borrower's farming operation; (5) The market value of the remaining security is adequate to secure the FLP loans, or if the market value of the security before the transaction was inadequate to fully secure the FLP loans, the Agency's equity in the security is not diminished; (6) The environmental requirements of part 799 of this chapter must be met; (7) The borrower cannot graduate to other credit on any program except for CL; (8) The borrower must not be ineligible due to disqualification resulting from Federal crop insurance violation according to 7 CFR part 718; and (9) The disposition of real estate security for an outstanding ST loan will only be authorized if the transaction will result in full repayment of the loan. (b) Sale of timber, gravel, oil, gas, coal, or other minerals. (i) The sale of timber from real estate that secures an FLP loan will be considered a disposition of a portion of the security. (ii) When the Agency has a security interest in oil, gas, or other minerals as provided by § 765.252(b), the sale of such products will be considered a disposition of a portion of the security by the Agency. (2) Any compensation the borrower may receive for damages to the surface of the real estate security resulting from exploration for, or recovery of, minerals must be assigned to the Agency. Such proceeds will be used to repair the damage, and any remaining funds must be remitted to lienholders in the order of lien priority or, with all lienholders' consent, used for an authorized loan purpose. (c) Exchange of security property. (2) Property acquired by the borrower must meet program objectives, purposes and limitations relating to the type of loan involved as well as applicable requirements for appraisal, title clearance and security. (d) Sale under contract for deed. (1) Not less than 10 percent of the purchase price will be paid as a down payment and remitted to lienholders in the order of lien priority; (2) Payments will not exceed 10 annual installments of principal plus interest or the remaining term of the FLP loan, whichever is less. The interest rate will be the current rate being charged on a regular FO loan plus 1 percent or the rate on the borrower's notes, whichever is greater. Payments may be in equal or unequal installments with a balloon final installment; (3) The Agency's security rights, including the right to foreclose on either the portion being sold or retained, will not be impaired; (4) Any subsequent payments must be assigned to the lienholders and remitted in order of lien priority, or with lienholder's approval, used in accordance with § 765.352; (5) The mortgage on the property sold will not be released prior to either full payment of the borrower's account or receipt of the full amount of sale proceeds; (6) The sale proceeds applied to the borrower's loan accounts will not relieve the borrower from obligations under the terms of the note or other agreements approved by the Agency; (7) All other requirements of this section are met. (e) Transfer of allotments. (2) The sale of an allotment must comply with all conditions of this subpart. (3) The borrower may transfer crop allotments to another farm owned or controlled by the borrower. Such transfer will be treated as a lease under § 765.252. (f) Release without compensation. (1) The borrower is current on all loan accounts with FSA and has not received PLS, DBSA, or DSA on any loan within the last 36 months; (2) The borrower has paid in full direct term loan installments that include principal reduction in each of the last 3 calendar years; (3) The property released will not interfere with access to or operation of the remaining farm; (4) Essential buildings and facilities will not be released if they reduce the utility or marketability of the remaining property; (5) Any issues arising due to legal descriptions, surveys, environmental concerns, utilities are the borrower's responsibility, and no costs or fees will be paid by FSA; (6) After the release, the security margin on each Agency direct loan will be 125 percent (or more, if it is not practicable to separate the property, if necessary to ensure the loan is fully secured for the life of the loan, or if the borrower requests only a portion of Agency security to be released). The value of the retained and released security will normally be based on appraisals obtained as specified in § 761.7 of this chapter; however, well-documented recent sales of similar properties can be used if the Agency determines a supportable decision can be made without current appraisals; (7) Any asset requested for release must serve only as security for term loan(s) that have been outstanding for at least the prior 36 months and cannot serve as adequate security for another existing Agency direct loan; and (8) Except for CL, the borrower is unable to fully graduate as specified in § 765.101. [72 FR 63309, Nov. 8, 2007, as amended at 75 FR 54016, Sept. 3, 2010; 78 FR 65531, Nov. 1, 2013; 81 FR 51284, Aug. 3, 2016; 86 FR 43392, Aug. 9, 2021; 89 FR 65043, Aug. 8, 2024] § 765.352 Use of proceeds. (a) Proceeds from transactions affecting the real estate security may only be used as follows: (1) Applied on liens in order of priority; (2) To pay customary costs appropriate to the transaction, which meet the following conditions: (i) Are reasonable in amount; (ii) Cannot be paid by the borrower; (iii) Will not be paid by the purchaser; (iv) Must be paid to consummate the transaction; and (v) May include postage and insurance when it is necessary for the Agency to present the promissory note to the recorder to obtain a release of a portion of the real estate from the mortgage. (3) For development or enlargement of real estate owned by the borrower as follows: (i) Development or enlargement must be necessary to improve the borrower's debt repayment ability, place the borrower's farming operation on a sound basis, or otherwise enhance the objectives of the loan; (ii) Such use will not conflict with the loan purposes, restrictions or requirements of the type of loan involved; (iii) Funds will be deposited in a supervised bank account in accordance with subpart B of part 761 of this chapter; (iv) The Agency has, or will obtain, a lien on the real estate developed or enlarged; (v) Construction and development will be completed in accordance with § 761.10 of this chapter. (4) To pay capital gains taxes on real estate transactions when the following conditions are met: (i) The borrower is unable to obtain commercial credit at reasonable rates and terms to pay the capital gains taxes; (ii) The Agency approves the amount to be retained to pay capital gains taxes; (iii) The remaining Agency debt is fully secured; (iv) All other lienholders will: (A) Be fully satisfied from the sale, or (B) Consent to the use of proceeds to be used to pay capital gains taxes; (v) At the borrower's expense, funds will be held in escrow, or deposited in a supervised bank account in accordance with subpart B of part 761 of this chapter; and (vi) Funds that are not used within 18 months towards the capital gains taxes will be remitted to the Agency. (b) After acceleration, the Agency may approve transactions only when all the proceeds will be applied to the liens against the security in the order of their priority, after deducting customary costs appropriate to the transaction. Such approval will not cancel or delay liquidation, unless all loan defaults are otherwise cured. [72 FR 63309, Nov. 8, 2007, as amended at 89 FR 65043, Aug. 8, 2024] § 765.353 Determining market value. Link to an amendment published at 91 FR 56757, Sept. 4, 2026. (a) Security proposed for disposition. (2) The Agency may waive the appraisal requirement when the estimated value is less than $50,000. (b) Security remaining after disposition. (c) Appraisal requirements. [72 FR 63309, Nov. 8, 2007, as amended at 86 FR 43392, Aug. 9, 2021] §§ 765.354-765.400 [Reserved] Subpart I—Transfer of Security and Assumption of Debt § 765.401 Conditions for transfer of real estate and chattel security. Link to an amendment published at 91 FR 56757, Sept. 4, 2026. (a) General conditions. (2) All transferees will become personally liable for the debt and assume the full responsibilities and obligations of the debt transferred when the transfer and assumption is complete. If the transferee is an entity, the entity and each entity member must assume personal liability for the loan. (3) A transfer and assumption will only be approved if the Agency determines it is in the Agency's financial interest. (b) Agency consent. [72 FR 63309, Nov. 8, 2007, as amended at 79 FR 60745, Oct. 8, 2014] § 765.402 Transfer of security and loan assumption on same rates and terms. An eligible applicant may assume an FLP loan on the same rates and terms as the original note if: (a) The original borrower has died and the spouse, other relative, or joint tenant who is not obligated on the note inherits the security property; (b) A relative of the borrower or an entity comprised solely of relatives of the borrower assumes the debt along with the original borrower; (c) An individual with an ownership interest in the borrower entity buys the entire ownership interest of the other members and continues to operate the farm in accordance with loan requirements. The new owner must assume personal liability for the loan; (d) A new entity consisting of the same members as the borrower entity buys the borrower entity and continues to operate the farm in accordance with loan requirements; or (e) The original loan is an EM loan for physical or production losses and persons who were directly involved in the farm's operation at the time of the loss will assume the loan. If the original loan was made to: (1) An individual borrower, the transferee must be a relative of the original borrower or an entity in which the entity members are comprised solely of relatives of the original borrower. (2) A trust, partnership or joint operation, the transferee must have been a member, partner or joint operator when the Agency made the original loan or remain an entity comprised solely of people who were original entity members, partners or joint operators when the entity received the original loan. (3) A corporation, limited liability company, cooperative, or other legal business organization, the transferee must: (i) Have been a corporate stockholder, cooperative member or other member of a legal business organization, when the Agency made the original loan or will be an entity comprised solely of entity members who were entity members when the entity received the loan; and (ii) Assume only the portion of the physical or production loss loan equal to the transferee's percentage of ownership. In the case of entity transferees, the transferee must assume that portion of the loan equal to the combined percentages of ownership of the individual stockholders or entity members in the transferee. (f) Application requirements. (g) Security. [72 FR 63309, Nov. 8, 2007, as amended at 79 FR 60745, Oct. 8, 2014; 89 FR 65043, Aug. 8, 2024] § 765.403 Transfer of security to and assumption of debt by eligible applicants. Link to an amendment published at 91 FR 56757, Sept. 4, 2026. (a) Transfer of real estate and chattel security. (1) The transferee meets all loan and security requirements in part 764 of this chapter for the type of loan being assumed; and (2) The outstanding loan balance (principal and interest) does not exceed the maximum loan limit for the type of loan as contained in § 761.8 of this chapter. (b) Assumption of Non-program loans. (c) Loan types that the Agency no longer makes. i.e. (d) Amount of assumption. (1) The outstanding balance of the transferor's loan; or (2) The market value of the security, less prior liens and authorized costs, if the outstanding loan balance exceeds the market value of the property. (e) Rates and terms. (f) Application requirements. (g) Security. [72 FR 63309, Nov. 8, 2007, as amended at 89 FR 65043, Aug. 8, 2024] § 765.404 Transfer of security to and assumption of debt by ineligible applicants. Link to an amendment published at 91 FR 56757, Sept. 4, 2026. (a) General. (2) The Agency will reclassify the assumed loan as a Non-program loan. (b) Eligibility. (1) Provide written documentation verifying their credit worthiness and debt repayment ability; (2) Not have received debt forgiveness from the Agency; (3) Not be ineligible for loans as a result of a conviction for controlled substances according to 7 CFR part 718; and (4) Not be ineligible due to disqualification resulting from Federal crop insurance violation according to 7 CFR part 718. (c) Assumption amount. (d) Down payment. (e) Interest rate. (f) Loan terms. (2) For a Non-program loan secured by chattel property only, the Agency schedules repayment in 5 years or less, based on the applicant's repayment ability. (g) Security. [72 FR 63309, Nov. 8, 2007, as amended at 89 FR 65043, Aug. 8, 2024] § 765.405 Payment of costs associated with transfers. The transferor and transferee are responsible for paying transfer costs such as real estate taxes, title examination, attorney's fees, surveys, and title insurance. When the transferor is unable to pay its portion of the transfer costs, the transferee, with Agency approval, may pay these costs provided: (a) Any cash equity due the transferor is applied first to payment of costs and the transferor does not receive any cash payment above these costs; (b) The transferee's payoff of any junior liens does not exceed $5,000; (c) Fees are customary and reasonable; (d) The transferee can verify that personal funds are available to pay transferor and transferee fees; and (e) Any equity due the transferor is held in escrow by an Agency designated closing agent and is disbursed at closing. § 765.406 Release of transferor from liability. (a) General. (b) Requirements for release. (2) If an outstanding debt balance will remain and only part of the transferor's Agency security is transferred, the written request for release of liability will not be approved, unless the deficiency is otherwise resolved to the Agency's satisfaction. (3) If an outstanding balance will remain and all of the transferor's security has been transferred, the transferor may pay the remaining balance or request debt settlement in accordance with part 761 subpart F of this chapter. If the transferor does not resolve the debt by paying the remaining balance or submitting a debt settlement offer that is acceptable to the Agency, the Agency will service the debt in accordance with part 3 of this title using all applicable collection tools including, but not limited to, administrative offset, AWG, cross-servicing, Federal salary offset, and TOP. (4) Except for loans in default being serviced under 7 CFR part 766, if an individual who is jointly liable for repayment of an FLP loan withdraws from the farming operation and conveys all of their interest in the security to the remaining borrower, the withdrawing party may be released from liability under the following conditions: (i) A divorce decree or property settlement states that the withdrawing party is no longer responsible for repaying the loan; (ii) All of the withdrawing party's interests in the security are conveyed to the persons with whom the loan will be continued; and (iii) The persons with whom the loan will be continued can demonstrate the ability to repay all of the existing and proposed debt obligations. [72 FR 63309, Nov. 8, 2007, as amended at 85 FR 36693, June 17, 2020] §§ 765.407-765.450 [Reserved] Subpart J—Deceased Borrowers § 765.451 Continuation of FLP debt and transfer of security. (a) Individuals who are liable. (b) Individuals who are not liable. § 765.452 Borrowers with Non-program loans. (a) Loan continuation. (2) The Agency may continue the loan with an individual who inherits title to the property and is not liable for the indebtedness provided the individual makes payments as scheduled and fulfills all other responsibilities of the borrower according to the loan and security instruments. (b) Loan assumption. (c) Loan discontinuation. (2) The Agency treats any subsequent transfer of title as a sale subject to requirements listed in subpart I of this part. §§ 765.453-765.500 [Reserved] Subpart K—Exception Authority § 765.501 Agency exception authority. On an individual case basis, the Agency may consider granting an exception to any regulatory requirement or policy of this part if: (a) The exception is not inconsistent with the authorizing statute or other applicable law; and (b) The Agency's financial interest would be adversely affected by acting in accordance with published regulations or policies and granting the exception would resolve or eliminate the adverse effect upon the Agency's financial interest.