There are two main documents to consult regarding restructuring guaranteed loans. The first is the
Code of Federal Regulations for Agriculture, also known as 7 CFR, which is included below as a reference. (Agriculture is Title 7.) The second is the Farm Loan Program (FLP) instructions that FSA uses to interpret the CFR. These instructions are provided below as a reference.
Farm Loan Program Instructions
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Part 12 Servicing Delinquent Accounts
Section 1 General Process for Restructuring Guaranteed Loans
Monetary Default – Overall Loan Servicing Process (7 CFR 762.143)
A Default and Servicing Delinquent Loans
A borrower is in default when they are 30 days past due on a payment or in violation of
provisions of the loan documents. When a default occurs, the lender is expected to work with the borrower so that the loan can be brought current and the borrower can continue the farming operation. Prompt followup on delinquent payments, early recognition of loan problems, and prudent use of restructuring tools are keys to resolving many delinquent loans. The lender has an assortment of restructuring tools that may be used to bring the loan current.
These include:
- rescheduling
- deferral
- debt writedown
- IA, if eligible.
Timeline for servicing delinquent loans and the required lender actions for restructuring guaranteed loans:
Delinquent Loan Servicing Timeline (Monetary Default)
- Payment Due Date – Payment Missed
- 30 Calendar Days After Due Date – Borrower in Default
- Within 45 Calendar Days After Due Date – Meeting Between Borrower and Lender
- 60 Calendar Days After – IA Determination Earliest Date that Lender Can Initiate Foreclosure Action
- Within 120 Calendar Days After Due Date – Loan Restructuring Plan Implemented or Decision to Liquidate Made
Loan Past Due
Default occurs on the loan immediately upon failure to make a scheduled installment on the day it is due. However, many lenders provide for a 30-calendar-day grace period before a notice of default is mailed or other actions are taken. To comply with this standard, FSA has established 30 calendar days after the payment due date as the maximum allowed before a loan must be declared in default. No direct action, other than monitoring of the situation, is required before this date. However, a lender does not have to wait until the loan is 30 calendar days past due before taking action. For example, perishable security, such as produce, or instances of maltreated livestock may dictate a quicker response to default than 30 calendar days.
If a borrower is current on a loan, but will be unable to make a payment, a restructuring proposal may be submitted in accordance with § 762.145 of this part and Section 2 prior to the payment coming due.
If through their involvement with an FSA direct loan, or in any manner, the authorized agency official becomes aware that a guaranteed borrower is in default or likely to default on their loan, they should communicate their concerns to the lender. If the loan payment was due but not paid over 30 calendar days ago, and no reports have been received from the lender, the authorized agency official will contact the lender to request a status report and remind them that they must work with the borrower and take timely action to correct delinquencies or liquidate the loan. Failure to address default in a prudent and timely fashion may result in a reduction or rejection of a lender’s request for a loss claim, should a loss claim result. A loss claim may be reduced by the amount caused by the lender’s failure to secure property after a default, and will be reduced by the amount of interest that accrues while no contact is made with the borrower or no action is taken to cure the default, once it occurs. Face to face or telephone communication should be followed up with a letter if the loan remains in default and corrective action is not taken.
C Borrower in Default
PLP lenders will service defaulted loans according to their lender’s agreement. In the
event of borrower default, SEL and CLP lenders will report to the Agency in
accordance with 762.141, and follow the requirements of 762.143.
A guaranteed loan is in default if a loan payment is outstanding 30 calendar days after its due date.
A borrower may also be in default if they have violated a loan agreement in another
manner such as conversion of loan security, filing bankruptcy, failure to submit reports as
required, defaulting on another loan with the same lender, or failure to maintain collateral as agreed. The lender will determine if a loan warrants default status because of a nonmonetary violation of the loan agreement. See paragraph 301 for information on the servicing process for loans in nonmonetary default.
D Borrower and Lender Meeting
The lender will arrange a meeting with the borrower within 15 days of default, 45 days
after payment due date for monetary defaults, to identify the nature of the delinquency
and develop a course of action that will eliminate the delinquency and correct the
underlying problems. The lender or the borrower may request the attendance of an
Agency credit officer. If requested, the Agency credit officer will assist in developing
solutions to the borrower’s financial problems. Non-monetary defaults will be handled
in accordance with the lender’s note, loan agreements or any other applicable loan
documents.
During this meeting, the lender should discuss the following items with the borrower.
Borrower’s Ability to Bring Account in Compliance. The lender and borrower will
prepare a current balance sheet and cash flow projection in preparation for the
meeting. If the borrower refuses to cooperate, the lender will compile the best
*–financial information available. These statements and their implication in the–*
borrower’s ability to bring the loan current should be discussed at the lender-borrower
meeting.
Restructuring Options Available to Borrower. The variety of possible restructuring
options includes rescheduling, reamortization, deferral, or debt writedown or a
combination thereof as described in paragraphs 325 through 328. After analyzing the
current financial condition of the borrower, 1 or more of these options may be presented
as possible solutions to resolve the borrower’s financial problems.
Note: If requested, the authorized agency official will assist in developing solutions to
the borrower’s financial problems. The authorized agency official may offer
advice and answer questions to assist in developing solutions to the borrower’s
financial problems, and may concur with limited proposals, such as short term
forbearance, that result from the meeting. In the case of SEL’s, official FSA
concurrence cannot be provided until FSA receives a formal proposal for
restructuring from the lender.
Determination of Availability of IA. The lender must inform the borrower about the IA
Program. If the lender and borrower feel that IA in conjunction with a loan rescheduling
will correct the loan default, they may submit an IA request to FSA according to Part 8,
Section 3. IA eligibility is determined by FSA according to Part 9. The borrower can
waive IA Program eligibility consideration during the meeting. If program eligibility
consideration is waived in writing, the loan can be accelerated immediately and a
liquidation plan may be submitted to FSA.
The lender will summarize the meeting and proposed solutions on the Agency form for
guaranteed loan borrower default status (FSA-2248) completed after the meeting and
submit it to the local credit office immediately. The lender will indicate the results on this
form for the lender’s consideration of the borrower for interest assistance in
conjunction with a rescheduling under § 762.145 (b). Copies of correspondence sent to
the borrower about agreements reached may be attached to this report. The meeting
summary attached to FSA-2248 should also include the dates of planned servicing actions.
The lender must continue to submit FSA-2248 every 60 calendar days until the default is
resolved or a final loss claim is submitted. The lender will include on each report the most
recent contact with the borrower or action to collect the loan as well as the next planned
action and date. If a default is resolved, the lender must submit FSA-2248 by mail or
electronically, indicating that the loan is current and the new loan terms and conditions. FSA
*–will input the information, including any comments, through GLS immediately upon–*
receipt, if the information was submitted by mail. Otherwise, the lender will update the
information through GLS.
*–Note: If comments are not provided by the lender, the authorized agency official will notate
that comments were not provided by the lender when entering data from FSA-2248 in
GLS.–*
E Borrower Refusal to Attend Meeting
If after 60 calendar days a delinquent borrower does not respond to the lender’s request for a meeting or refuses to discuss resolution of the default, the lender should take actions to protect their security interests and proceed with liquidation of the loan according to
subparagraph G.
F Lender Repurchase of Guarantee
The lender will determine whether it will repurchase the guaranteed portion from the
holder in accordance with § 762.144 if the guaranteed portion of the loan was sold on
the secondary market. See Part 15.
The holder may ask the lender to repurchase the guarantee 60 calendar days after the missed payment date. The lender is encouraged to repurchase the guarantee when asked by the holder according to Part 15.
G Earliest Date to Begin to Liquidate Security
The lender may not initiate foreclosure action on the loan until 60 days after eligibility
of the borrower to participate in the Interest Assistance Programs has been determined
by the Agency.
Sixty calendar days after the disposition of the issue of IA, the lender may accelerate the
loan. When accelerating the loan, SEL’s and CLP lenders must submit a liquidation plan to
FSA. If at any point before the end of the 60-calendar-day period the borrower waives IA
eligibility consideration in writing, the lender may prepare to liquidate the loan immediately.
See Part 14.
No abeyance period applies to loan restructuring. The lender and borrower may restructure a loan at any time following the meeting, regardless of the IA eligibility decision.
H Loan Restructuring Decision
The lender must decide whether to restructure or liquidate the account within 90 days
of default, unless the lender can document circumstances that justify an extension by
the Agency.
If loan restructuring cannot eliminate the default or the borrower will not eliminate the
default within a reasonable period of time, the loan shall be liquidated. See Part 14. If
requested by the lender, the authorized agency official may allow brief extensions for the
preparation of a restructuring proposal and will document the request, reasons and
concurrence in the FSA guaranteed loan file.
If the borrower can present a feasible restructuring proposal, the lender should prepare the
plan and submit it to FSA as required by their Lender’s Agreement. Standard eligible
lenders must obtain prior written approval of the Agency for all restructuring actions.
See paragraph 313.
FSA expects CLP and PLP lenders to have explored servicing options and implemented a feasible restructuring plan within 90 calendar days of default. If a lender plans to perform a debt writedown, prior approval from FSA is necessary. See paragraph 328. If restructuring is unfeasible, FSA expects the lender to accelerate the loan and prepare for liquidation by this date. See Part 14.
