PART 3565—GUARANTEED RURAL RENTAL HOUSING PROGRAM Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480. Source: 63 FR 39458, July 22, 1998, unless otherwise noted. Subpart A—General Provisions § 3565.1 Purpose. The purpose of the Guaranteed Rural Rental Housing Program (GRRHP) is to increase the supply of affordable rural rental housing, through the use of loan guarantees that encourage partnerships between the Rural Housing Service, private lenders and public agencies. § 3565.2 Applicability and authority. The regulation prescribes the policies, authorizations, and procedures for the guarantee of multifamily loans under section 538 of the Housing Act of 1949. § 3565.3 Definitions. Administrator. Agency. Allowable claim amount. Applicable Federal Rate (AFR). Approved lender. Assignment. Assistance. Borrower. Claim. Conditional commitment. Construction and permanent loan. Construction contingency reserve. Correspondent relationship. Default. Delinquency. Department of Housing and Urban Development (HUD). Due diligence. Eligible borrower. Eligible lender. Eligible loan. Eligible rural area. Fannie Mae. Federal Home Loan Bank System. Final claim payment. Foreclosure. Freddie Mac. Ginnie Mae. Government National Mortgage Association. GRRHP. Guarantee fees. (1) An initial guarantee fee is due at the time the guarantee is issued. (2) An annual guarantee fee is due at the beginning of each year that the guarantee remains in effect. Guaranteed loan. Holder. Housing Finance Agency (HFA). Income eligibility. Indian tribe. et seq. et seq. Interest credit. Land lease. Lease. Lease-up period. Lease-up reserve. Lender. Lender agreement. Loan. Loan guarantee. Loan guarantee agreement. Loan participation. Loan-to-cost ratio. Loan-to-value ratio. Maximum guarantee payment. Mortgage. Multifamily project. Negligent servicing or origination. Non-monetary default. Note. Office of Inspector General (OIG). Operating and maintenance reserve. Payment effective date. Permanent loan. Prepayment. Project. Program requirements. Promissory note. Qualified alien. Real estate owned. Recourse. Regulatory agreement. RHS. Rural area. Rural Development. Servicing. Single asset ownership. Surplus cash. Tenant. U.S. citizen. USDA. [63 FR 39458, July 22, 1998, as amended at 67 FR 16970, Apr. 9, 2002; 70 FR 2930, Jan. 19, 2005; 76 FR 3, Jan. 3, 2011; 84 FR 55035, Oct. 15, 2019] § 3565.4 Availability of assistance. The Agency's authority to enter into commitments, guarantee loans, or provide interest credits is limited to the extent that appropriations are available to cover the cost of the assistance. The Agency will notify the public of the availability of assistance, changes in application requirements, or changes in the fee structure. [84 FR 55035, Oct. 15, 2019] § 3565.5 Ranking and selection criteria. (a) Threshold criteria. (1) The project must involve an owner and a development team with qualifications and experience sufficient to carry out development, management, and ownership responsibilities, and the owner and development team must not be under investigation or suspension from any government programs; (2) The project must involve the financing of a property located in an eligible rural area; (3) Demonstrate a readiness, for the project to proceed, including submission of a complete application for a loan guarantee and evidence of financing; (4) Demonstrate market and financial feasibility; and (5) Include evidence that the credit risk is reasonable, taking into account conventional lending practices, and factors related to concentration of risk in a given market and with a given borrower. (b) Priority projects. Federal Register [63 FR 39458, July 22, 1998, as amended at 64 FR 32371, June 16, 1999; 84 FR 55036, Oct. 15, 2019; 89 FR 19499, Mar. 19, 2024] § 3565.6 Inclusion of tax-exempt debt. Tax-exempt financing can be used a source of capital for the guaranteed loan. [64 FR 32371, June 16, 1999] § 3565.7 Environmental review requirements. The Agency will take into account potential environmental impacts of proposed projects by working with applicants, other federal agencies, Indian tribes, State and local governments, and interested citizens and organizations in order to formulate actions that advance the program goals in a manner that will protect, enhance, and restore environmental quality. Actions taken under this part must comply with the environmental review requirements in accordance with 7 CFR part 1970. [81 FR 11050, Mar. 2, 2016] § 3565.8 Civil rights compliance. (a) All actions taken by the Agency, or on behalf of the Agency, by a lender will be conducted without regard to race, color, religion, national origin, sex, marital status, age, income from public assistance or having exercised their right under the Consumer Credit Protection Act, and in accordance with the Equal Credit Opportunity Act (ECOA). (b) Any action related to the sale, rental or advertising of dwellings; in the provision of brokerage services; or in making available residential real estate transactions involving Agency assistance, must be in accordance with the Fair Housing Act, which prohibits discrimination on the basis of race, color, religion, sex, national origin, familial status or handicap. It is unlawful for a lender or borrower participating in the program to: (1) Refuse to make accommodations in rules, policies, practices, or services if such accommodations are necessary to provide a person with a disability an opportunity to use or continue to use a dwelling unit and all public and common use areas; and (2) Refuse to allow an individual with a disability to make reasonable modifications to a unit at his or her expense, if such modifications may be necessary to afford the individual full enjoyment of the unit. (c) Any resident or prospective resident seeking occupancy or use of a unit, property or related facility for which a loan guarantee has been provided, and who believes that he or she is being discriminated against may file a complaint with the lender, the Agency or the Department of Housing and Urban Development. A written complaint should be sent to the Secretary of Agriculture or of the Department of Housing and Urban Development in Washington, DC. (d) Lenders and borrowers that fail to comply with the requirements of title VIII of the Civil Rights Act of 1968, as amended (the Fair Housing Act), are liable for those sanctions authorized by law. (e) For guaranteed loans with “interest credit,” the following additional civil rights laws will apply and be enforced by the agency delivering this guarantee program: title VI of the Civil Rights Act of 1964, section 504 of the Rehabilitation Act of 1973, the Americans with Disabilities Act, Age Discrimination Act of 1975, and title IX of the Education Amendments of 1972. (f) In accordance with title VI, borrowers will be subjected to compliance reviews for projects that receive interest credit. [64 FR 32371, June 16, 1999] § 3565.9 Compliance with federal requirements. The Agency and the lender are responsible for ensuring that the application is in compliance with all applicable federal requirements, including the following specific statutory requirements: (a) Intergovernmental review. (b) National flood insurance. (c) Clean Air Act and Water Pollution Control Act Requirements. (d) Historic preservation requirements. (e) Lead-based paint requirements. [63 FR 39458, July 22, 1998, as amended at 64 FR 32372, June 16, 1999; 76 FR 80731, Dec. 27, 2011] § 3565.10 Conflict of interest. (a) Objective. (b) Rural Development requirement. (1) Are not themselves a beneficiary; (2) Are not family members or known relatives of any beneficiary; and (3) Do not have any business or personal relationship with any beneficiary or any employee of a beneficiary. (c) Rural Development employee responsibility. (d) Loan closing agent responsibility. (e) Lender and borrower responsibility. §§ 3565.11-3565.12 [Reserved] § 3565.13 Exception authority. An Agency official may request and the Administrator or designee may make an exception to any requirement or provision, or address any omission of this part, if the Administrator determines that application of the requirement or provision, or failure to take action, would adversely affect the government's interest or the program objectives, and provided that such an exception is not inconsistent with any applicable law or statutory requirement. [64 FR 32372, June 16, 1999] § 3565.14 Review and appeals. Whenever RHS makes a decision that is adverse to a lender or a borrower, RHS will provide written notice of such adverse decision and of the right to a USDA National Appeals Division hearing in accordance with 7 CFR part 11 or successor regulations. The lender or borrower may request an informal review with the decision maker and the use of available alternative dispute resolution or mediation programs as a means of resolution of the adverse decision. Any adverse decision, whether appealable or non-appealable may also be reviewed by the next level RHS supervisor. Adverse decisions affecting project tenants or applicants for tenancy will be handled in accordance with 7 CFR part 1944, subpart L or successor regulations. § 3565.15 Oversight and monitoring. The lender, borrower, and all parties involved in any manner with any guarantee under this program must cooperate fully with all oversight and monitoring efforts of the Agency, Office of Inspector General, the U.S. General Accounting Office, and the U.S. Department of Justice or their representatives including making available any records concerning this transaction. This includes the annual eligibility audit and any other oversight or monitoring activities. If the Agency implements a requirement for an electronic transfer of information, the lender and borrower must cooperate fully. § 3565.16 [Reserved] § 3565.17 Demonstration programs. To test ways to expand the availability or enhance the effectiveness of the guarantee program, or for similar purposes, the Agency may, from time to time, propose demonstration programs that use loan guarantees or interest credit. Toward this end, the Agency may enter into special partnerships with lenders, financial intermediaries, or others to carry out one or more elements of a demonstration program. Demonstration programs will be publicized by notices in the Federal Register. §§ 3565.18-3565.49 [Reserved] § 3565.50 OMB control number. According to the Paperwork Reduction Act of 1995, no party is required to respond to a collection of information unless it displays a valid OMB control number. The valid OMB control number for this information collection is 0575-0174. Subpart B—Guarantee Requirements § 3565.51 Eligible loans and advances. Upon approval of an application from an eligible or approved lender, the Agency will commit to providing a guarantee for a permanent loan or a construction and permanent loan, subject to the availability of funds. [76 FR 3, Jan. 3, 2011] § 3565.52 Conditions of guarantee. A loan guarantee under this part will be evidenced by a Loan Note Guarantee issued by the Agency. Each lender will execute a Lender's Agreement. If a valid Lender's Agreement already exists, it is not necessary to execute a new Lender's Agreement with each loan guarantee. (a) Rights and liabilities. (b) Liability of the Holder. (c) Types of guarantees. (1) Option One. Federal Register (2) Option Two. Federal Register (i) Twenty-four months from the closing of the construction loan, if the certificates of occupancy for all units in the project have not been issued by then, or (ii) The date of the issuance of the last certificate of occupancy, if the certificates of occupancy for all units in the project are issued on or before 24 months from the closing of the construction loan. (3) Option Three. Federal Register, Federal Register, Federal Register (d) Maximum loss payment. (1) To any holder, 100 percent of any loss sustained by the holder on the guaranteed portion of the loan and on interest due on such portion. (2) To the lender, the lesser of: (i) Any loss sustained by the lender on the guaranteed portion, including principal and up to 90 days of accrued interest as evidenced by the notes or assumption agreements and secured advances for protection and preservation of collateral made with the Agency's authorization; or (ii) The guaranteed principal advanced to or assumed by the borrower and any interest and accrued interest up to 90 days due thereon. (e) Funding of reserves. (1) For Option 1 under paragraph (c) of this section, the funding schedule for the lease-up reserve and the operating and maintenance reserve must be included in the Agency-approved construction budget and be fully funded before the issuance of the permanent guarantee. (2) For Option 2 under paragraph (c) of this section, the funding schedule for the lease-up reserve and the operating and maintenance reserve must be included in the Agency-approved construction budget and be fully funded before the issuance of the permanent guarantee. (3) For Option 3 under paragraph (c) of this section, the operating and maintenance reserve must be fully funded before the issuance of the guarantee. The lease-up reserve must be funded 30 days before the first Certificate of Occupancy is anticipated. [70 FR 2930, Jan. 19, 2005, as amended at 76 FR 3, Jan. 3, 2011] § 3565.53 Guarantee fees. As a condition of receiving a loan guarantee, the Agency will charge the following guarantee fees to the lender. Changes to the initial and annual guarantee fees will be established by the Agency and will be published in a notice in the Federal Register. (a) Initial guarantee fee. (b) Annual guarantee fee. (c) Surcharge for guarantees on construction advances. [63 FR 39458, July 22, 1998, as amended at 64 FR 32372, June 16, 1999; 73 FR 11812, Mar. 5, 2008; 84 FR 55036, Oct. 15, 2019; 85 FR 77986, Dec. 3, 2020] § 3565.54 Transferability of the guarantee. A lender must receive the Agency's approval prior to any sale or transfer of the loan guarantee. § 3565.55 Participation loans. Loans involving multiple lenders are eligible for a guarantee when one of the lenders is an approved lender and agrees to act as the lead lender with responsibility for the loan under the loan guarantee agreement. § 3565.56 Suspension or termination of loan guarantee agreement. A guarantee agreement will terminate when one of the following actions occurs: (In accordance with subpart H of this part, use restrictions on the property will remain if the following actions take place prior to the term of the loan and RHS determines the restrictions apply.) (a) Voluntary termination. (b) Agency withdrawal of guarantee. (c) Mortgage pay-off. (d) Settlement of claim. § 3565.57 Modification, extension, reinstatement of loan guarantee. To protect its interest or further the objectives of the program, the Agency may, at its sole discretion, modify, extend, or reinstate a loan guarantee. In making this decision the Agency will consider potential losses under the program, impact on the tenants and the public reaction that may be received regarding the action. Further, the Agency may authorize a guarantee on a new loan that is originated as a part of a workout agreement. §§ 3565.58-3565.99 [Reserved] § 3565.100 OMB control number. According to the Paperwork Reduction Act of 1995, no party is required to respond to a collection of information unless it displays a valid OMB control number. The valid OMB control number for this information collection is 0575-0174. Subpart C—Lender Requirements § 3565.101 Responsibility of lenders. A participating lender must originate and service a guaranteed loan in accordance with the regulation and program requirements throughout the life of a loan or guarantee, whichever is less. When it is in the best interests of the Agency, the Agency may permit the transfer of servicing from the originating lender to a servicer. § 3565.102 Lender eligibility. An eligible lender must be a licensed business entity or HFA in good standing in the state or states where it conducts business; be approved by the Agency; and meet at least one of the criteria contained below. Lenders who are not eligible may participate in the program if they maintain a correspondent relationship with a lender who is eligible. An eligible lender must: (a) Meet the qualifications of, and be approved by, the Secretary of HUD to make multifamily housing loans that are to be insured under the National Housing Act; (b) Meet the qualifications and be approved by Fannie Mae, Freddie Mac or Ginnie Mae to make multifamily housing loans that are to be sold to or securitized by such corporations; (c) Be a state or local HFA, or a member of the Federal Home Loan Bank system, with a demonstrated ability to underwrite, originate, process, close, service, manage, and dispose of multifamily housing loans in a prudent manner; (d) Be a lender who meets the requirements for Agency approval contained in this subpart and has a demonstrated ability to underwrite, originate, process, close, service, manage, and dispose of multifamily housing loans in a prudent manner; or (e) Be a lender who meets the following requirements in addition to the other requirements of this subpart and of subpart I of this part: (1) Have qualified staff to perform multifamily housing servicing and asset management; (2) Have facilities and systems that support servicing and asset management functions; and (3) Have documented procedures for carrying out servicing and asset management responsibilities. [63 FR 39458, July 22, 1998, as amended at 70 FR 2931, Jan. 19, 2005] § 3565.103 Approval requirements. The Agency will establish and maintain a “list of approved lenders”. To be an approved lender, eligible lenders must meet the following requirements and maintain them on a continuing basis at a level consistent with the nature and size of their portfolio of guaranteed loans. (a) Commitment. (b) Audited statement. (c) Previous participation. (d) Ongoing requirements. (1) Overall financial strength, including capital, liquidity, and loan loss reserves, to have an acceptable level of financial soundness as determined by a lender rating service (such as Sheshunoff, Inc.); or to be an approved Fannie Mae, Freddie Mac, Ginnie Mae or HUD Federal Housing Administration multifamily lender; or, if a state housing finance agency, to have a top tier rating by a rating agency (such as Standard and Poor's Corporation); (2) Bonding and insurance to cover business related losses, including directors and officers insurance, business income loss insurance, and bonding to secure cash management operations; (3) A minimum of two years experience in originating and servicing multifamily loans; (4) A positive record of past performance when participating in RHS or other federal loan programs; (5) Adequate staffing and training to perform the program obligations; the head underwriter must have 3 years of experience and all staff must receive annual multifamily training; (6) Demonstrated overall financial stability of the business over the past five years; (7) Evidence of reasonable and prudent business practices for management of the program; and (8) No negative information on Dunn & Bradstreet or similar type report. [63 FR 39458, July 22, 1998, as amended at 64 FR 32372, June 16, 1999; 70 FR 2931, Jan. 19, 2005; 76 FR 4, Jan. 3, 2011] § 3565.104 Application requirements. Eligible lenders must submit a lender approval application, in a format prescribed by the Agency. The lender approval application submission must occur at the time the lender submits its first application for a loan guarantee, or its first application to purchase a guaranteed loan. The application must include documentation of lender compliance with § 3565.103. A non-refundable application fee will be charged for each review of a lender's application. [63 FR 39458, July 22, 1998, as amended at 84 FR 55036, Oct. 15, 2019] § 3565.105 Lender compliance. A lender will remain an approved lender unless terminated by the Agency. To maintain approval, the lender must comply with the following requirements. (a) Maintain eligibility in accordance with §§ 3565.102 and 3565.103; (b) Comply with all applicable statutes, regulations, and procedures; (c) Inform the Agency of any material change in the lender's staffing, policies and procedures, or corporate structure; (d) Cooperate fully with all program or Agency monitoring and auditing policies and procedures, including the Agency's annual audit of approved lenders; and (e) Maintain active participation in the multifamily guaranteed loan program by initiating a new loan guarantee or holding a loan guaranteed under this program. § 3565.106 Construction lender requirements. A lender making a construction loan, as part of a construction and permanent loan, must demonstrate an ability to originate and service construction loans, in addition to meeting the other requirements of this subpart. [63 FR 39458, July 22, 1998, as amended at 76 FR 4, Jan. 3, 2011] § 3565.107 [Reserved] § 3565.108 Responsibility for actions of agents and mortgage brokers. An approved lender is responsible for the actions of its agents and mortgage brokers. § 3565.109 Minimum loan prohibition. A lender must not establish a minimum loan amount for loans under this program. § 3565.110 Insolvency of lender. The Agency may require a lender to transfer a guaranteed loan or loans to another approved lender prior to a determination of insolvency by the lender. If the lender fails to transfer a loan when required, the guarantee will be considered null and void. § 3565.111 Lobbying activities. An approved lender must comply with RD Instruction 1940-Q (available in any Rural Development Office) regarding lobbying activities. §§ 3565.112-3565.149 [Reserved] § 3565.150 OMB control number. According to the Paperwork Reduction Act of 1995, no party is required to respond to a collection of information unless it displays a valid OMB control number. The valid OMB control number for this information collection is 0575-0174. Subpart D—Borrower Eligibility Requirements § 3565.151 Eligible borrowers. Guaranteed loans must be made to an eligible borrower whose intention is to provide and maintain rural rental housing. The ownership entity must be a valid entity in good standing under the laws of the jurisdiction in which it is organized. Eligible borrowers shall include individuals, corporations, state or local public agencies or an instrumentality thereof, partnerships, limited liability companies, trusts, Indian tribes, or any organization deemed eligible by the Agency. Eligible borrowers must be U.S. citizens or permanent legal residents; a U.S. owned corporation, or a limited liability company, or partnership in which the principals are U.S. citizens or permanent legal residents. § 3565.152 Control of land. At time of application, the lender must have evidence of site control by the borrower (option to purchase, lease, deed or other evidence acceptable to the Agency). At the time of loan closing, the lender's closing docket must provide documentary evidence that the borrower owns or has a long-term lease on the land on which the housing is or will be located. The form of ownership or the leasehold agreement must meet Agency requirements. Notwithstanding any investment in the site, the site may not be accepted based on the Agency's environmental assessment. § 3565.153 Experience and capacity of borrower. At the time of application, the lender must certify that the borrower: (a) Has the ability and experience to construct or rehabilitate multifamily housing that meets the requirements established by the Agency, the lender and the loan agreement; (b) Has the legal and financial capacity to meet all of the obligations of the loan; and (c) Has the ability and experience to meet the property management requirements established by the Agency, the lender, and the loan agreement. § 3565.154 Previous participation in state and federal programs. Loans to borrowers who are delinquent on a federal debt may not be guaranteed. Furthermore, borrowers or principals thereof who have defaulted on state or local government loans will not be eligible for a guarantee unless the Agency determines that the default was beyond the borrower's control, and that the identifiable reasons for the default no longer exist. At the time of application, the lender must obtain from the borrower a certification that the borrower is not under any state or federal order suspending or debarring participation in state or federal loan programs and that the borrower is not delinquent on any non-tax obligation to the United States. § 3565.155 Identity of interest. At the time of application, the lender must certify that it has disclosed any and all identity of interest relationships and preexisting conditions with respect to its relationships and that of the borrower, or that no identity of interest relationships exists. Identity of interest relationships include any financial or other relationship that exists or will exist between a lender, borrower, management agent, supplier, or any agent of any of these entities, that could influence, give the appearance of influencing or have the potential to influence the actions of the parties in carrying out their responsibilities under the program. Disclosure will be in a form and manner established by the Agency. § 3565.156 Certification of compliance with federal, state, and local laws and with Agency requirements. At the time of application, the lender must obtain from the borrower a certification of compliance with all applicable federal, state, and local laws, and with Agency requirements regarding discrimination and equal opportunity in housing, including title VIII of the Civil Rights Act of 1968, and the Fair Housing Amendments Act of 1988. The borrower must also certify that it is not the subject of any federal, state, or local sanction or punitive action. §§ 3565.157-3565.199 [Reserved] § 3565.200 OMB control number. According to the Paperwork Reduction Act of 1995, no party is required to respond to a collection of information unless it displays a valid OMB control number. The valid OMB control number for this information collection is 0575-0174. Subpart E—Loan Requirements § 3565.201 General. To be eligible for a guarantee, a loan must comply with the provisions of this subpart and be originated by an approved lender. § 3565.202 Tenant eligibility. (a) Limits on income of tenants. (b) Citizenship status. § 3565.203 Restrictions on rents. The rent for any individual housing unit, including any tenant-paid utilities, must not exceed an amount equal to 30 percent of 115 percent of area median income, adjusted for family size. In addition, on an annual basis, the average rent for a project, taking into account all individual unit rents, must not exceed 30 percent of 100 percent of area median income, adjusted for family size. § 3565.204 Maximum loan amount. (a) Section 207(c) limits and exceptions. (b) Loan-to-value limits. (i) The development costs of the housing and related facilities, or (ii) The lender's determination of value not to exceed the appraised value of the housing and facilities. (2) In the case of a borrower that is a for-profit entity or other entity not referred to in paragraph (b)(1) of this section, each guaranteed loan must involve a principal obligation that does not exceed the lesser of 90 percent of: (i) The development costs of the housing and related facilities, or (ii) The lender's determination of value not to exceed the appraised value of the housing and facilities. (3) To protect the interest of the Agency or to further the objectives of the program, the Agency may establish lower loan-to-value limits or further restrict the statutory maximum limits based upon its evaluation of the credit quality of the loan. (c) Necessary assistance review. (2) Where the project financing combines a guaranteed loan with Low-Income Housing Tax Credits or other Federal assistance, the project must conform to the policies regarding necessary assistance in 7 CFR 3560.63 (d) or successor provision. [63 FR 39458, July 22, 1998, as amended at 69 FR 69176, Nov. 26, 2004] § 3565.205 Eligible uses of loan proceeds. Eligible uses of loan proceeds must conform with standards and conditions for housing and facilities contained in 7 CFR part 1924, subpart A or successor provision, except that the Agency, at its sole discretion, may approve, in advance, a higher level of amenities, construction, and fees for projects proposed for a guaranteed loan provided the costs and features are reasonable and customary for similar housing in the market area. (a) Use of loan proceeds. (1) New construction costs of the project; (2) Moderate or substantial rehabilitation of buildings and acquisition costs when related to the rehabilitation of a building as described in paragraph (b) of this section; (3) Acquisition of existing buildings, when approved by the Agency, for projects that serve a special housing need; (4) Acquisition and improvement of land on which housing will be located; (5) Development of on-site and off-site improvements essential to the use of the property; (6) Development of related facilities such as community space, recreation, storage or maintenance structures, except that any high cost recreational facility, such as swimming pools and exercise clubs or similar facilities, must be specifically approved in advance by the Agency; (7) Construction of on-site management or maintenance offices and living quarters for operating personnel for the property being financed; (8) Purchase and installation of appliances and certain approved decorating items, such as window blinds, shades, or wallpaper; (9) Development of the surrounding grounds, including parking, signs, landscaping and fencing; (10) Costs associated with commercial space provided that: (i) The project is designed primarily for residential use; (ii) The commercial use consists of essential tenant service type facilities, such as laundry rooms, that are not otherwise conveniently available; (iii) The commercial space does not exceed 10 percent of the gross floor area of the residential units and common areas, unless a higher level is specifically approved in writing by the Agency; and (iv) The commercial activity is compatible with the use of the project and that the income is not more than 10 percent of the total annual operating income of the project. (11) Costs for feasibility determination, loan application fees, appraisals, environmental documentation, professional fees or other fees determined by the Agency to be necessary to the development of the project; (12) Technical assistance to and by non-profit entities to assist in the formation, development, and packaging of a project, or formation or incorporation of a borrower entity; (13) Education programs for a board of directors, both before and after incorporation of a cooperative that will serve as the borrower; (14) Construction interest accrued on the construction loan; (15) Relocation assistance in the case of rehabilitation projects; (16) Developers' fees; and (17) Repaying applicant debts in the following cases: (i) When the Agency authorizes in writing in advance the use of loan funds to pay debts for work, materials, land purchase, or other fees and charges before the loan is closed; or (ii) When the Agency concurs in writing with a determination by the lender that costs for work, fees and charges incurred prior to loan application are integral to development of the guarantee application and project. (b) Rehabilitation requirements. [63 FR 39458, July 22, 1998, as amended at 81 FR 11050, Mar. 2, 2016] § 3565.206 Ineligible uses of loan proceeds. Loan proceeds must not be used for the following: (a) Specialized equipment for training and therapy; (b) Housing in military impact areas; (c) Housing that serves primarily temporary and transient residents; (d) Nursing homes, special care facilities and institutional type homes that require licensing as a medical care facility; (e) Operating capital for central dining facilities or for any items not affixed to the real estate, such as special portable equipment, furnishings, kitchen ware, dining ware, eating utensils, movable tables and chairs, etc.; (f) Payment of fees, salaries and commissions or compensation to borrowers (except developers' fees); or (g) Refinancing of an outstanding debt, except in the case of an existing guaranteed loan where the Agency determines that the refinancing is in the government's interest or furthers the objectives of the program. The term and amount of any loan for refinancing must not exceed the maximum loan amount or term limits. § 3565.207 Form of lien. The loan originated by the lender for a guarantee must be secured by a first lien against the property. § 3565.208 Maximum loan term. (a) Statutory term limit. (b) Prepayment of loans. (1) The lease documents used by the borrower or its agent prohibit the abrogation of tenant leases in the event of prepayment; and (2) The borrower has notified tenants of the request to prepay the loan, including notice of the prohibition against abrogation of the lease and the policy and procedure for handling complaints regarding compliance with the long-term use restriction as contained in subpart H of this part. § 3565.209 Loan amortization. Each guaranteed loan shall be made for a period of not less than 25 nor greater than 40 years from the date the loan was made and may provide for amortization of the loan over a period of not to exceed 40 years with a final payment of the balance due at the end of the loan term. [67 FR 16970, Apr. 9, 2002] § 3565.210 Maximum interest rate. The interest rate for a guaranteed loan must not exceed the maximum allowable rate specified by the Agency. This interest rate must be fixed over the term of the loan. [84 FR 55036, Oct. 15, 2019] § 3565.211 Interest credit. (a) Limitation. (b) Selection criteria. § 3565.212 Multiple guaranteed loans. The Agency may guarantee more than one loan on any project if all guaranteed loans, in the aggregate, comply with these regulations, including without limitation: (a) In the aggregate, loans do not exceed the maximum guaranteed loan amount and loan-to-value limits, as contained in § 3565.204; (b) In the aggregate, loans are all to be secured equally by a first lien as the Agency may, at its sole discretion, determine necessary to ensure repayment of the loans; and (c) If different lenders originate the loans, each lender has executed an intercreditor agreement in form and substance acceptable to the Agency. [63 FR 39458, July 22, 1998, as amended at 70 FR 2931, Jan. 19, 2005] § 3565.213 Geographic distribution. The Agency may refuse to guarantee a loan in an area where there is undue risk due to a concentration in the market of properties subject to a Agency guaranteed loan. The Agency will consider the credit quality of the loan and overall market conditions in making a determination of undue risk. If any of the Agency guaranteed loans in the market are experiencing vacancy rates in excess of 15% and the vacancy is due to market conditions, the Agency will invoke this provision and not guarantee the loan. § 3565.214 [Reserved] § 3565.215 Special conditions. (a) Use of third party funds. (b) Recourse. §§ 3565.216-3565.249 [Reserved] § 3565.250 OMB control number. According to the Paperwork Reduction Act of 1995, no party is required to respond to a collection of information unless it displays a valid OMB control number. The valid OMB control number for this information collection is 0575-0174. Subpart F—Property Requirements § 3565.251 Eligible property. To be eligible for a guaranteed loan, a property must be used primarily for residential dwelling purposes and must meet the following requirements or the requirements of this subpart: (a) Property location. (b) Minimum size of development. (c) Non-contiguous sites. (1) Located in one market area; (2) Managed under one management plan with one loan agreement or resolution for all of the sites; and (3) Consist of single asset ownership. (d) Compliance with statutes. § 3565.252 Housing types. The property may include new construction or rehabilitation of existing structures. The units may be attached, detached, semi-detached, row houses, modular or manufactured houses, or multifamily structures. Manufactured housing must meet Agency requirements contained in 7 CFR part 1924, subpart A. The Agency will guarantee proposals for new construction or acquisition with moderate or substantial rehabilitation of at least $6,500 per dwelling unit. The portion of guaranteed funds available for acquisition with rehabilitation may be limited. [84 FR 55036, Oct. 15, 2019] § 3565.253 Form of ownership. The property must be owned in fee simple or be subject to a ground lease or other legal right in land acceptable to the Agency. § 3565.254 Property standards. (a) Housing quality and site and neighborhood standards. (b) Third party assessments. (1) An acceptable property appraisal. (2) A Phase I Environmental Site Assessment (American Society of Testing and Materials). (3) A Standard Flood Hazard Determination. (4) In the case of the purchase of an existing structure, rehabilitation or refinancing, a physical needs assessment. § 3565.255 Environmental review requirements. Under the National Environmental Policy Act, the Agency is required to assess the potential impact of the proposed actions on protected environmental resources. Measures to avoid or mitigate adverse impacts to protected resources may require a change in site or project design. A site will not be approved by the Agency until the Agency has completed the environmental review process in accordance with 7 CFR part 1970. [81 FR 11050, Mar. 2, 2016] § 3565.256 Architectural services. Architectural services must be provided for the project in accordance with 7 CFR part 1924, subpart A or successor regulation, including plan certifications. § 3565.257 Procurement actions. All construction procurement actions, whether by sealed bid or by negotiation, must be conducted in a manner that provides maximum open and free competition. §§ 3565.258-3565.299 [Reserved] § 3565.300 OMB control number. According to the Paperwork Reduction Act of 1995, no party is required to respond to a collection of information unless it displays a valid OMB control number. The valid OMB control number for this information collection is 0575-0174. Subpart G—Processing Requirements § 3565.301 Loan standards. An approved lender must originate and underwrite the loan and appraise the subject property in accordance with prudent lending practices and Agency criteria addressing the following factors: (a) Borrower qualifications and creditworthiness; (b) Property, vacancy, market vacancy or collection loss; (c) Rental concessions and rent levels; (d) Tenant demand and housing supply; (e) Property operating and maintenance expense; (f) Property requirements as contained in subpart F of this part; (g) Debt coverage ratio; (h) Operating and long-term capital requirements; (i) Loan-to-value ratio; (j) Return on borrower equity; and (k) Estimated long-term marketability of the project. § 3565.302 Allowable fees. (a) Lender fees. (b) Agency fees. (1) Site assessment and market analysis or preliminary feasibility fee. (2) Application fee. (3) Inspection fee. (4) Transfer fee. (5) Extension or reopening fees. [63 FR 39458, July 22, 1998, as amended at 84 FR 55036, Oct. 15, 2019] § 3565.303 Issuance of loan guarantee. (a) Preliminary feasibility review. (b) Conditional commitment to guarantee a loan. after (1) Completion of environmental review requirements in accordance with 7 CFR part 1970; and (2) Selection of the proposed project for funding by the Agency in accordance with ranking and selection criteria. (c) Guarantee during construction. (1) This guarantee will be subject to the limits contained in subpart B of this part and in the loan closing documentation. (2) In all cases, the lender must obtain one of the following protections: (i) Surety bonding or performance and payment bonding acceptable to the Agency; (ii) An irrevocable letter of credit acceptable to the Agency; or (iii) A pledge to the lender of collateral that is acceptable to the Agency. (3) The lender must verify amounts expended prior to each payment for completed work and certify that an independent inspector has inspected the property and found it to be in conformance with Agency standards. The lender must provide verification that all subcontractors have been paid and no liens have been filed against the property. (d) Permanent loan guarantee. (1) Certification from the lender stating that the lender or its qualified representative inspected the property and found that the construction meets the Government's requirements for the standards and conditions for housing and facilities in 7 CFR part 1924, subpart A and the standards for site development in 7 CFR part 1924, subpart C, or its successor regulations; (2) Cash flow certification—the lender certifies, in writing, the project's cash flow assumptions are still valid and depict compliance with the section 538 program's debt service coverage ratio requirement of at least 1.15, based on the lender's analysis of current market conditions and comparable properties in the project's market area; (3) Documentation that either: (i) The project has attained a minimum level of acceptable occupancy of 90% for 90 continuous days within the 120-day period immediately preceding the issuance of the permanent guarantee, or (ii) Additional funds, supplementing the funds required under § 3565.303(d), have been added to the lease-up reserve in an amount the Agency determines is necessary to cover projected shortfalls. (4) A new appraisal based upon completion of construction. Upon a lender's written request, the Agency may exempt a project from this requirement if requested by the lender and the project meets the following criteria: (i) Original appraisal (ii) Valuation (iii) Guaranteed loan balance Federal Register (5) A certificate of substantial completion; (6) A certificate of occupancy or similar evidence of local approval; (7) A final inspection conducted by a qualified Agency representative; (8) A final cost certification in a form acceptable to the Agency; (9) A submission to the Agency of the complete closing docket; (10) A certification by the lender that the project has reached an acceptable minimum level occupancy; (11) An executed regulatory agreement; (12) The Lender certifies that it has approved the borrower's management plan and assures that the borrower is in compliance with Agency standards regarding property management contained in subparts E and F of this part; (13) Necessary information to complete an updated necessary assistance review by the Agency under § 3565.204(c); and (14) Compliance with all conditions contained in the conditional commitment for guarantee. (e) Modification of guarantee amount after commitment. (f) Continuous Guarantee Compliance. (1) Certification from the lender stating that the lender or its qualified representative inspected the property and found that the construction meets the Government's requirements for the standards and conditions for housing and facilities in 7 CFR part 1924, subpart A and the standards for site development in 7 CFR part 1924, subpart C, or its successor regulations; (2) Cash flow certification—the lender certifies in writing the project's cash flow assumptions are still valid and depict compliance with the section 538 program's debt service coverage ratio requirement of at least 1.15, based on the lender's analysis of current market conditions and comparable properties in the project's market area; (3) Documentation that either: (i) The project has attained a minimum level of acceptable occupancy of 90% for 90 continuous days within the 120-day period immediately preceding the issuance of the permanent guarantee, or (ii) Additional funds, supplementing the funds required under § 3565.303(d), have been added to the lease-up reserve in an amount the Agency determines is necessary to cover projected shortfalls. (4) An appraisal of the property; (5) A certificate of substantial completion; (6) A certificate of occupancy or similar evidence of local approval; (7) A final inspection conducted by a qualified Agency representative; (8) A final cost certification in a form acceptable to the Agency; (9) A submission to the Agency of the complete closing docket; (10) A certification by the lender that the project has reached an acceptable minimum level occupancy; (11) An executed regulatory agreement; (12) The Lender certifies that it has approved the borrower's management plan and assures that the borrower is in compliance with Agency standards regarding property management contained in subparts E and F of this part; (13) Necessary information to complete an updated necessary assistance review by the Agency under § 3565.204(c); and (14) Compliance with all conditions contained in the conditional commitment for guarantee. [63 FR 39458, July 22, 1998, as amended at 64 FR 32372, June 16, 1999; 76 FR 4, Jan. 3, 2011; 81 FR 11050, Mar. 2, 2016] § 3565.304 Lender loan processing responsibilities. (a) Application. (b) Project servicing, management and disposition. § 3565.305 Mortgage and closing requirements. It is the lender's responsibility to ensure that the loan closing statement and required loan documents are in a form acceptable to the Agency and included in the closing docket. The lender is responsible for resolving any underwriting and loan closing deficiencies that are found. The Agency's review of the lender's loan closing documentation does not constitute a waiver of fraud, misrepresentation, or failure of judgment by the lender. §§ 3565.306-3565.349 [Reserved] § 3565.350 OMB control number. According to the Paperwork Reduction Act of 1995, no party is required to respond to a collection of information unless it displays a valid OMB control number. The valid OMB control number for this information collection is 0575-0174. Subpart H—Project Management § 3565.351 Project management. As a condition of the guarantee, the lender is to obtain borrower certification that the project is in compliance with local, state, federal laws and program requirements. (a) Regulatory agreement. (1) That it is binding upon the borrower and any of its successors and assigns, as well as upon the lender and any of its successors and assigns, for the duration of the guaranteed loan; (2) That the borrower makes all payments due under the note and to the required escrow and reserve accounts; (3) That the borrower maintains the project as affordable housing in accordance with the purposes and for the duration defined in the statute; (4) That the borrower maintains the project in good physical and financial condition at all times; (5) That the borrower obtains and maintains property insurance and any other insurance coverage required to protect the security; (6) That the borrower maintains complete project books and financial records, and provides the Agency and the lender with an annual audited financial statement after the end of each fiscal year; (7) That the borrower makes project books and records available for review by the Office of Inspector General, Rural Development staff, General Accounting Office, and the Department of Justice, or their representatives or successors upon appropriate notification; (8) That the borrower prepares and complies with the Affirmative Fair Housing Marketing Plan and all other Fair Housing requirements; (9) That the borrower operates as a single asset ownership entity, unless otherwise approved by the Agency; (10) That the borrower complies with applicable federal, state and local laws; and (11) That the borrower provides management satisfactory to the lender and to the Agency and complies with an approved management plan for the project. (b) Management plan. (c) Tenant protection and grievance procedures. (d) Financial management Borrower reporting requirements. (2) Lender reporting requirements. (i) Annual reports. (ii) Monthly reports. (3) Reserve releases. (4) Insurance requirements. (5) Distribution of surplus cash. (e) Physical maintenance. [63 FR 39458, July 22, 1998, as amended at 64 FR 32372, June 16, 1999; 69 FR 69176, Nov. 26, 2004] § 3565.352 Preservation of affordable housing. (a) Original purpose. (b) Use restriction. (1) There is no longer a need for low-and moderate-income housing in the market area in which the housing is located; (2) Housing opportunities for low-income households and minorities will not be reduced as a result of the waiver; and (3) Additional federal assistance will not be necessary as a result of the waiver. § 3565.353 Affirmative fair housing marketing. As a condition of the guarantee, the lender must ensure that the lender and borrower are in compliance with the approved Affirmative Fair Housing Marketing Plan. This plan must be reviewed annually by the lender to ensure that the borrower remains in compliance and to recommend modifications, as necessary. § 3565.354 Fair housing accommodations. The lender must ensure that the borrower is in compliance with the applicable fair housing laws in the development of the property, the selection of applicants for housing, and ongoing management. See subpart A of this part. § 3565.355 Changes in ownership. Any change in ownership, in whole or in part, must be approved by the lender and the Agency before such change takes effect. §§ 3565.356-3565.399 [Reserved] § 3565.400 OMB control number. According to the Paperwork Reduction Act of 1995, no party is required to respond to a collection of information unless it displays a valid OMB control number. The valid OMB control number for this information collection is 0575-0174. Subpart I—Servicing Requirements § 3565.401 Servicing objectives. The participating lender is responsible for servicing the guaranteed loan throughout the term of the loan or guarantee, whichever is less. In all cases, the lender remains responsible for liquidation of the property in accordance with the Loan Note Agreement, unless otherwise determined by the Agency. A lender-servicing plan must be designed and implemented to achieve the following objectives. (a) To preserve the value of the loan and the real estate; (b) To avoid a loss to the lender or the Agency and to limit exposure to potential loss; (c) To protect the interests of the tenants; and (d) To further program objectives. § 3565.402 Servicing responsibilities. The lender must service the loan in accordance with this subpart and perform the services contained in this section in a reasonable and prudent manner. The lender is responsible for the actions of its agents and representatives. (a) Funds management. (1) All principal and interest (P&I) funds and guarantee fees collected and deposited into the appropriate custodial accounts. (2) Payments to custodial escrow accounts for taxes and insurance premiums, assessments that might impair the security (such as ground rent), and reserve accounts for repair and capital improvement of the property. (b) Asset management. (c) Management of delinquencies and defaults. § 3565.403 Special servicing. Special servicing must be initiated when regular servicing actions are insufficient to resolve borrower default or property deficiencies. (a) Repurchase from Holder. (b) Responsibility of lender. (c) Initiating special servicing. (1) Loan modification. (2) Change in ownership and transfer of physical assets. (3) Partial payment of claims. (d) Claims processing. (e) Displacement prevention. [63 FR 39458, July 22, 1998, as amended at 67 FR 16971, Apr. 9, 2002; 70 FR 2931, Jan. 19, 2005] § 3565.404 Transfer of loans or mortgage servicing. Transfer of servicing is prohibited unless the Agency determines that circumstances warrant such action, the proposed lender is an eligible lender approved by the Agency, and the transfer of servicing is approved by the Agency in advance. § 3565.405 Repurchase of guaranteed loans. (a) Repurchase by lender. (b) Repurchase by Agency. (2) The Holder's demand to the Agency must include a copy of the written demand made to the lender. The Holder must also include evidence of its right to require payment from the Agency. Such evidence will consist of either the original of the Loan Note Guarantee properly endorsed to the Agency or the original of an Agency approved assignment guarantee agreement, properly assigned to the Agency without recourse including all rights, title, and interest in the loan. The Holder must include in its demand the amount due including unpaid principal, unpaid interest to date of demand, and interest subsequently accruing from date of demand to proposed payment date. The Agency will be subrogated to all rights of the Holder. (3) The Agency will notify the lender of its receipt of the Holder's demand for payment. The lender must provide the Agency with the information necessary for the Agency to determine the appropriate amount due the Holder within 10 business days from the date of the written demand letter to the lender from the Holder requesting repurchase of the guaranteed portion. The lender will furnish a current statement certified by an appropriate authorized officer of the lender stating the unpaid principal and interest then owed by the borrower on the loan and the amount then owed to any Holder. Any discrepancy between the amount claimed by the Holder and the information submitted by the lender must be resolved between the lender and the Holder before payment will be approved. The Agency will coordinate the resolution of the discrepancy. Such conflict will suspend the running of the 30 calendar day payment requirement. (4) Purchase by the Agency does not change, alter, or modify any of the lender's obligations to the Agency arising from the loan or guarantee nor does it waive any of the Agency's rights against the lender. As Holder, the Agency will have the right to set-off any payments the Agency owes the lender. [70 FR 2931, Jan. 19, 2005] §§ 3565.406-3565.449 [Reserved] § 3565.450 OMB control number. According to the Paperwork Reduction Act of 1995, no party is required to respond to a collection of information unless it displays a valid OMB control number. The valid OMB control number for this information collection is 0575-0174. Subpart J—Assignment, Conveyance, and Claims § 3565.451 Preclaim requirements. (a) Lender certifications. (b) Due diligence by lender. (c) Environmental review. [63 FR 39458, July 22, 1998, as amended at 81 FR 11050, Mar. 2, 2016] § 3565.452 Decision to liquidate. (a) A decision to liquidate shall be made when it is determined that the default cannot be cured through actions contained in § 3565.403 or it has been determined that it is in the best interest of the Agency and the lender to liquidate. For interest accrual purposes, interest will accrue for 90 calendar days after the date the liquidation plan is approved by the Agency. If within 20 calendar days of the Agency's receipt of the liquidation plan, the Agency fails to respond to the lender's proposal or advise the lender to make revisions to the plan that was submitted, the liquidation plan will be approved by default, and the 90 calendar day period for interest accrual will commence. (b) In the event of a default involving a loan to an Indian tribe or tribal corporation made under this section which is secured by an interest in land within such tribe's reservation (as determined by the Secretary of the Interior), including a community in Alaska incorporated by the Secretary of the Interior pursuant to the Indian Reorganization Act (25 U.S.C. 461 et seq. [67 FR 16971, Apr. 9, 2002, as amended at 70 FR 2932, Jan. 19, 2005] § 3565.453 Disposition of the property. (a) Submission of the liquidation plan. The lender will, within 30 calendar days after a decision to liquidate, submit to the Agency in writing, its proposed detailed plan of liquidation. The Agency will inform the lender, in writing, whether the Agency concurs in the lender's liquidation plan. Should the Agency and the lender not agree on the liquidation plan, negotiations will take place between the Agency and the lender to resolve the disagreement. When the liquidation plan is approved by the Agency, the lender will proceed expeditiously with liquidation. The liquidation plan submitted to the Agency by the lender shall include: (1) Satisfactory proof of the lender's ownership of the guaranteed loan promissory note and related security instruments. (2) A copy of the payment ledger or equivalent which reflects the current loan balance and accrued interest to date and the method of computing the interest. (3) A full and complete list of all collateral including any personal and corporate guarantees. (4) The recommended liquidation methods for making the maximum collection possible on the indebtedness and the justification for such methods, including recommended actions for: (i) Obtaining an appraisal of the collateral; (ii) Acquiring and disposing of all collateral; (iii) Collecting from guarantors; (iv) Setting the proposed date of foreclosure; and (v) Setting the proposed date of liquidation. (5) Necessary steps for protection of the tenants and preservation of the collateral. (6) Copies of the borrower's latest available financial statements. (7) Copies of the guarantor's latest available financial statements. (8) An itemized list of estimated liquidation expenses expected to be incurred along with justification for each expense. (9) A schedule to periodically report to the Agency on the progress of liquidation. (10) Estimated protective advance amounts with justification. (11) Proposed protective bid amounts on collateral to be sold at auction and a breakdown to show how the amounts were determined. (12) If a voluntary conveyance is considered, the proposed amount to be credited to the guaranteed debt. (13) Any legal opinions supporting the decision to liquidate. (14) The lender will obtain a complete appraisal report on all collateral securing the loan, which will reflect the fair market value and potential liquidation value, and an examination of the title on the collateral. In order to formulate a liquidation plan, which maximizes recovery, collateral must be evaluated for hazardous substances, petroleum products, or other environmental hazards, which may adversely impact the market value of the collateral. (b) A transfer and assumption of the borrower's operation can be accomplished before or after the loan goes into liquidation. However, if the collateral has been purchased through foreclosure or the borrower has conveyed title to the lender, no transfer and assumption is permitted. (c) A protective bid may be made by the lender, with prior Agency written approval, at a foreclosure sale to protect the lender's and the Agency's interest. The protective bid will not exceed the amount of the loan, including expenses of foreclosure, and should be based on the liquidation value considering estimated expenses for holding and reselling the property. These expenses include, but are not limited to, expenses for resale, interest accrual, length of weatherization, and prior liens. (d) Filing an estimated loss claim. When the lender is conducting the liquidation and owns any or all of the guaranteed portion of the loan, the lender will file an estimated loss claim with the liquidation plan if the lender expects liquidation to exceed 90 calendar days. The estimated loss payment will be based on the outstanding loan amount minus the liquidation value of the collateral. For the purpose of reporting and loss claim computation, the loss claim will be promptly processed in accordance with applicable Agency regulations, as set forth in this section. The loss claim calculation will include 90 calendar days of interest accrual on the defaulted loan at the time the estimated loss claim is paid by the Agency. If the lender estimates that there will be no loss after considering the costs of liquidation, the lender submits an estimated loss claim of zero. Interest accrual will cease 90 calendar days after the date the liquidation plan is approved by the Agency. (e) Property disposition. Once the liquidation plan has Agency approval, the lender must make every effort to liquidate the property in a manner that will yield the highest market value consistent with the protections afforded to tenants in 7 CFR part 1944, subpart L or successor regulation. (f) Accounting and reports. When the lender conducts liquidation, the lender will account for funds during the period of liquidation and provide the Agency with reports at least quarterly on the progress of liquidation, including disposition of collateral, resulting costs, and additional procedures necessary for successful completion of the liquidation. (g) Transmitting payments and proceeds to the Agency. When the Agency is the Holder of a portion of the guaranteed loan, the lender will transmit to the Agency its pro rata share of any payments received from the borrower, liquidation, or elsewhere. [70 FR 2932, Jan. 19, 2005] § 3565.454 [Reserved] § 3565.455 Alternative disposition methods. The Agency, in its sole discretion, may choose to obtain an assignment of the loan from the lender or conveyance of title obtained by the lender through foreclosure or a deed-in-lieu of foreclosure. (a) Assignment. (1) Conveyance to the Agency of all the lender's rights and interests arising under the loan. (2) Assignment to the Agency of all claims against the borrower or others arising out of the loan transactions, including: (i) All collateral agreements affecting financing, construction, use or operation of the property; and (ii) All insurance or surety bonds, or other guarantees, and all claims under them. (3) Certification that the collateral has been evaluated for the presence of contamination from the release of hazardous substances, petroleum products or other environmental hazards which may adversely impact the market value of the property and the results of that evaluation. (b) Conveyance of title. § 3565.456 Filing a claim. Once the lender has disposed of the property or the Agency has agreed to accept an assignment of the loan or conveyance of title to the property, the lender may file a claim for the guaranteed portion of allowable losses. All claim amounts must be calculated in accordance with this subpart and be approved by the Agency. § 3565.457 Determination of claim amount. In all liquidation cases, final settlement will be made with the lender after the collateral is liquidated, unless otherwise designated as a future recovery or after settlement and compromise of all parties has been completed. (a) Report of loss form. (b) Estimated loss. (1) The estimated loss payment shall be applied as of the date of such payment. The total amount of the loss payment paid by the Agency will be applied by the lender on the loan debt. Such application does not release the borrower from liability. (2) The Government's written authorization is required for all protective advances in excess of $5,000. Protective advances include, but are not limited to, advances made for property taxes, annual assessments, ground rent, hazard or flood insurance premiums affecting the collateral, and other expenses necessary to preserve or protect the security. Attorney fees are not a protective advance. A protective advance claim will be paid only at the time of the final report of loss payment except in certain transfer and assumption situations with Agency approval. (c) Final loss. (1) A determination must be made regarding the collectability of unsecured personal and corporate guarantees. If reasonably possible, such guarantees should be promptly collected prior to completion of the final loss report. However, in the event that collection from the guarantors appears unlikely or will require a prolonged period of time, the report of loss will be filed when all other collateral has been liquidated, and unsecured personal or corporate guarantees will be treated as a future recovery with the net proceeds to be shared on a pro rata basis by the lender and the Agency. (2) The lender must document that all of the collateral has been accounted for and properly liquidated and that liquidation proceeds have been properly accounted for and applied correctly to the loan. (3) The lender will show a breakdown of any protective advance amount as to the payee, purpose of the expenditure, date paid, and evidence that the amount expended was proper and that payment was actually made. (4) The lender will show a breakdown of liquidation expenses as to the payee, purpose of the expenditure, date paid, and evidence that the amount expended was proper and that payment was actually made. Liquidation expenses are recoverable only from collateral proceeds. (5) Accrued interest will be supported by documentation as to how the amount was accrued. (6) Loss payments will be paid by the Agency within 60 calendar days after the receipt of the final loss report and accounting of the collateral. (7) Should there be a circumstance where the lender cannot or will not sign a final report of loss, the State Director may complete the final report of loss and submit it to the Finance Office without the lender's signature. Before this action can be taken, all collateral must be disposed of or accounted for; there must be no evidence of fraud, misrepresentation, or negligent servicing by the lender; and all efforts to obtain the cooperation of the lender must have been exhausted and documented. (d) Maximum guarantee payment. (e) Rent. (f) Liquidation costs. (g) Payment. (1) If the loss is greater than any estimated loss payment, the Agency will pay the additional amount owed by the Agency to the lender. (2) If the loss is less than the estimated loss payment, the lender will reimburse the Agency for the overpayment. (3) If the Agency determines that it is in the Government's best interest to take assignment of the loan and conduct liquidation, as stipulated in 42 U.S.C. 1490(i)(3), Assignment by Secretary, the Agency will pay the lender in accordance with the Loan Note Guarantee. (h) Date of loss. (i) Allowable claim amount. (1) Adding to the unpaid principal and interest on the date of loss, an amount approved by the Agency for payments made by the lender for amounts due and owning on the property, including: (i) Property taxes and other protective advances as approved by the Agency; (ii) Water and sewer charges and other special assessments that are liens prior to the guaranteed loan; (iii) Insurance of the property; and (iv) Reasonable liquidation expenses. (2) And by deducting the following items: (i) Any amount received by the lender on the account of the guaranteed loan after the date of default; (ii) Any net income received by the lender from the secured property after the date of default; and (iii) Any cash items retained by the lender, except any amount representing a balance of the guaranteed loan not advanced to the borrower. Any loan amount not advanced will be applied by the lender to reduce the outstanding principal on the loan. (j) Lender certification. [70 FR 2933, Jan. 19, 2005, as amended at 76 FR 5, Jan. 3, 2011] § 3565.458 Withdrawal of claim. If the lender provides timely written notice to the Agency of withdrawal of the claim, the guarantee will continue as if the default had not occurred if the borrower cures the default prior to foreclosure or prior to acceptance of a deed-in-lieu of foreclosure. §§ 3565.459-3565.499 [Reserved] § 3565.500 OMB control number. According to the Paperwork Reduction Act of 1995, no party is required to respond to a collection of information unless it displays a valid OMB control number. The valid OMB control number for this information collection is 0575-0174. Subpart K—Agency Guaranteed Loans That Back Ginnie Mae Guaranteed Securities Source: 70 FR 2934, Jan. 19, 2005, unless otherwise noted. § 3565.501 Applicability. The provisions of this subpart apply when Agency guaranteed loans are used to back Ginnie Mae securities. In instances where this subpart applies, the provisions of this subpart prevail over any other provisions of this part. § 3565.502 Incontestability. In the case of loans that back Ginnie Mae securities or loans that are acquired by Ginnie Mae as a consequence of its guaranty, the Agency guarantee under this part is incontestable except that the guarantee may not be enforced by a lender who commits fraud or misrepresentation or by a lender who had knowledge of the fraud or misrepresentation at the time such a lender acquired the guarantee or was assigned the loan. § 3565.503 Repurchase. Lenders and security Holders must comply with Ginnie Mae requirements regarding the repurchase of loans from pools backing Ginnie Mae guaranteed securities. § 3565.504 Transfers. (a) Loans and/or mortgage servicing on loans backing Ginnie Mae guaranteed securities may only be transferred to a Ginnie Mae issuer and may only be transferred with prior Ginnie Mae approval. (b) Agency approval shall not be required for transfer of the servicing on the guaranteed mortgages to Ginnie Mae. § 3565.505 Liability. (a) Ginnie Mae shall not be liable for the actions of the lender including, but not limited to, negligence, fraud, abuse, misrepresentation or misuse of funds, property condition, or violations of usury laws. (b) Ginnie Mae's rights under the guarantee shall be fully enforceable notwithstanding the actions of the lender. §§ 3565.506-3565.549 [Reserved] § 3565.550 OMB control number. According to the Paperwork Reduction Act of 1995, no party is required to respond to a collection of information unless it displays a valid OMB control number. The valid OMB control number for this information collection is 0575-0174.