Staff Instruction 1782-1

UNITED STATES DEPARTMENT OF AGRICULTURE
Rural Development Utilities Programs
STAFF INSTRUCTION 1782-1

SUBJECT: Staff Instruction for the Servicing of the Water and Waste Disposal Program
TO: State Directors, Rural Development
ATTN: Program Managers for Water and Waste Loans and Grants
EFFECTIVE DATE: Date of approval.
OFFICE OF PRIMARY INTEREST: Assistant Administrator, Water and Environmental
Programs.
INSTRUCTIONS: This staff instruction supersedes all previous versions.
AVAILABILITY: This staff instruction is available on the Rural Development intranet at
http://teamrd.usda.gov/rd/rus.
PURPOSE: This staff instruction sets forth the policies and procedures for servicing Water and
Waste loans and grants. This staff instruction includes regulatory text found in 7 CFR 1782
(formatted as regular text) and instructions to staff (formatted as bold italic text) which provides
for the administration of the servicing of the WWD Program by the Rural Development staff.
This bold italic text is not published on the public website; rather, it is intended for internal use
only.

10/29/2007
_____________________________________________________
GARY J. MORGAN
Assistant Administrator
Water and Environmental Programs

________________
Date

Staff Instruction 1782-1
Page 2

TABLE OF CONTENTS
Section
1782.1
Purpose.
1782.2
Objectives.
1782.3
Definitions.
1782.4
Availability of forms and regulations.
1782.5
Nondiscrimination.
1782.6
[Reserved].
1782.7
Grants.
1782.8
Payments.
1782.9
Environmental requirements.
1782.10 Audit requirements.
1782.11 Refinancing requirements.
1782.12 Sale or exchange of security property.
1782.13 Transfer of Security and Assumption of Loans.
1782.14 Protection of Service Areas – 7 U.S.C. 1926(b).
1782.15 Mergers and Consolidations.
1782.16 Defeasance of Agency indebtedness.
1782.17 Parity lien.
1782.18 [Reserved].
1782.19 Third party agreements.
1782.20 Debt Settlement.
1782.21 [Reserved]
1782.22 Exception authority.
1782.23 Use of Rural Development Loans and Grants for Other Purposes.
1782.24 – 1782.99 [Reserved].
1782.100 OMB control number.

Page
3
3
3
7
7
7
8
9
9
10
10
16
19
23
24
24
24
27
27
29
55
55
55
56
56

Exhibit A Request Financial Information and Inform Eligibility for Graduation Review
Exhibit B Final Notice for Borrower to Provide Financial Information
Exhibit C Request Borrower to Refinance Agency Indebtedness
Exhibit D Notify Borrower of Actions for Failure to Respond or Refinance Agency
Indebtedness
Exhibit E Rescheduling Agreement
Exhibit F Report on Servicing Action

§ 1782.1 Purpose.

Staff Instruction 1782-1
Page 3
This part outlines the Rural Utilities Service's (RUS), an Agency delivering the United
States Department of Agriculture’s (USDA) Rural Development Utilities Programs, hereinafter
referred to as Rural Development and/or Agency, policies and procedures for servicing direct
and insured Water and Waste Disposal (WWD) loans and grants; Watershed loans and advances;
Resource Conservation and Development loans; Technical Assistance and Training grants;
Emergency Community Water Assistance grants; Solid Waste Management grants; and section
306C WWD loans and grants. Staff instructions will be indicated with bold italic type, and will
be published only for Rural Development staff use.
§ 1782.2 Objectives.
Loan and grant servicing is provided by Rural Development in order to assist recipients
in complying with the established objectives and requirements for loans and grants, repaying
loans on schedule, acting in accordance with any necessary agreements, and protecting Rural
Development’s financial interest. Servicing by Rural Development includes, but is not limited
to, the review of budgets, management reports, audits, and financial statements; performing
operational inspections; providing, arranging, or recommending technical assistance; evaluating
environmental impacts of proposed actions by the borrower; and performing civil rights
compliance and graduation reviews. In cases of sales or exchanges of property, reamortizations, transfers and assumptions, debt settlements, liquidations, management and
disposal of security property, the servicing official should request the advice of the Office of
General Counsel (OGC), bond counsel, and/or local counsel, State Director, and National
Office as required, to resolve the situation, protect the Government’s interest, and fulfill the
purpose of the loan.
§ 1782.3 Definitions.
Acceleration. A written notice informing the borrower that the total unpaid principal and interest
is due and payable immediately.
Adjustment. Satisfaction of a debt, including release of liability, when acceptance by the
Agency is conditioned upon completion of payment of the adjusted amount at a specific time or
times, with or without the payment of any consideration when the adjustment offer is approved.
An adjustment is not a final settlement until all payments under the adjustment agreement have
been made.
Administrator. Administrator of the Rural Utilities Service, an Agency delivering the United
States Department of Agriculture’s Utilities Programs.
Agency. The Rural Utilities Service, an Agency delivering the United States Department of
Agriculture’s Rural Development Utilities Programs, or any employee acting on its behalf in
accordance with appropriate delegations of authority.

Staff Instruction 1782-1
Page 4
Assumption of debt. Agreement by one party to legally bind itself to pay the debt incurred by
another.
Borrower. Recipient of Agency or predecessor Agency loan assistance.
Cancellation. Final discharge of debt with a release of liability.
Charge-off. Write off of a debt and termination of servicing activity without release of liability.
A charge-off is a decision by the Agency to remove debt from Agency receivables, however,
future payments may be received.
Compromise. Satisfaction of a debt including a release of liability by accepting a lump-sum
payment of less than the total amount owed.
Defeasance. Defeasance is the use of invested proceeds from a new bond issue to repay
outstanding bonds in accordance with the repayment schedule of the outstanding bonds. The
new issue supersedes the contractual agreements from the prior issue.
Disposition of facility. Relinquishing control of a facility to another entity.
Essential Agency records. Original version of any document or record that provides evidence
of indebtedness or obligation to the Agency. Includes, but is not limited to, promissory notes,
assumption agreements, grant agreements, and valuable documents such as bonds fully
registered as to principal and interest.
False information. Information, known by the applicant to be incorrect, provided with the intent
to obtain benefits which would not have been obtainable based on correct information.
Foreclosure. A termination of all rights of the mortgagor or his grantee in the property
covered by the mortgage.
Government. The United States of America acting through the Agency, USDA. USDA Rural
Development and Agency may be used interchangeably throughout this part.
Graduation. Payment in full with funds from other lenders or borrower resources of one or
more Agency loan(s) before maturity.
Grantee. Recipient of the Agency or predecessor Agency grant assistance, technical assistance,
or services.
Inaccurate information. Incorrect information provided inadvertently without intent to obtain
benefits fraudulently.

Staff Instruction 1782-1
Page 5
Involuntary conveyance. A transfer of real property to the Agency without the consent of the
owner.
Judgment debt. A monetary obligation that is evidenced by a judgment obtained through a
successful legal action against the debtor.
Letter of Conditions. A written document that describes the conditions which the borrower
and/or grantee must meet for funds to be advanced and the loan and/or grant to be closed.
Liquidation. Satisfaction of a debt through the sale of a borrower’s assets and discharge of
liabilities.
Non-program loan (NP). A NP loan exists when credit is extended to an ineligible applicant
and/or transferee in connection with loan assumptions, sale of inventory property, and any
recipient of unauthorized assistance. A borrower with NP loans is not eligible for any
program benefits or rights of appeal, and is not subject to graduation requirements. As
outlined in §1782.20 of thisStaff Instruction, debt settlement actions related to NP loans must
be handled in accordance with the Federal Claims Collection Act.
Obligation. An agreement by the Agency to provide funds to an applicant for a specific
amount and purpose. An obligation is established when the request for obligation is entered
in the appropriate program funding system.
Parity Lien. A lien having an equal lien position to another lender’s lien on a borrower's asset.
Program loan expense – non-recoverable. A contractual or non-contractual program loan
expense not chargeable to a borrower or property account.
Program loan expense - recoverable. A contractual or non-contractual program loan expense
chargeable to a borrower or property account.
Protective advance. Expenses paid by Agency on behalf of the borrower to protect the
Government's interest in the security property as provided for in the debt instrument.
Reasonable rates and terms. The prevailing commercial rates and terms in the industry that
borrowers are expected to pay when borrowing for similar purposes and periods of time.
Rural Development. The mission area of the Under Secretary for Rural Development. Rural
Development State and local offices administer the water and waste programs on behalf of the
Agency.
Rural Utilities Service (RUS). An Agency of the United States Department of Agriculture’s
Rural Development mission area established pursuant to section 232 of the Department of
Agriculture Reorganization Act of 1994 (Pub. L. 103-354).

Staff Instruction 1782-1
Page 6
Servicing office. The USDA office which maintains the official file of the borrower or grantee
and is responsible for the routine servicing of the loan and/or grant account.
Servicing official. A USDA official who has been delegated loan and grant approval and
servicing authorities subject to any dollar limitations within applicable programs.
Settlement. Compromise, adjustment, cancellation, or charge-off of a debt owed USDA. The
term “settlement” is used for convenience in referring to compromise, adjustment, cancellation,
or charge-off action, individually or collectively.
Trial referral. A program whereby lenders voluntarily participate in reviewing selected
financial information supplied by servicing officials on Agency borrowers who have been
selected for graduation.
Unauthorized assistance. Any loan, interest subsidy, grant, or portion thereof received by a
recipient for which there was no regulatory authorization or for which the recipient was not
eligible. Interest subsidy includes subsidy benefits received because a loan was closed at a
lower interest rate than the recipient was entitled, whether the incorrect interest rate was
selected erroneously by the approval official, or the documents were prepared in error.
USDA. United States Department of Agriculture.
Unliquidated obligations. Obligated loan or grant funds that have not been advanced.
Voluntary conveyance. A method by which title to security is voluntarily transferred to the
Government.
Workout agreement. The delinquent loan borrower and the Agency; at its discretion, may
enter into a written workout agreement. When a workout agreement is negotiated, the
servicing official will use Form RD 1951-10, "Workout Agreement" to commit the agreement
to writing.

§ 1782.4 Availability of forms and regulations.
Information about the availability of forms, regulations, bulletins, and procedures
referenced in this chapter are available in any office of Rural Development, USDA, Washington,
D.C. 20250-1500 or at the Web site www.usda.gov/rus/water.

Staff Instruction 1782-1
Page 7
§ 1782.5 Nondiscrimination.
Each instrument of conveyance required for a transfer, assumption, sale of facility, or
other servicing action under this subpart will comply with Title VI of the Civil Rights Act of
1964 (Pub. L. 88-352), Title IX of the Education Amendments of 1972 (Pub. L. 92-318), section
504 of the Rehabilitation Act of 1973 (Pub. L. 93-112), and other Federal statutes and
regulations issued pursuant thereto that prohibit discrimination on the basis of race, color,
national origin, handicap, religion, age, or sex in programs or activities receiving Federal
financial assistance. Such provisions apply for as long as the property continues to be used for
the same or similar purposes for which the Federal assistance was extended, or for so long as the
purchaser owns it, whichever is later. Compliance reviews will be carried out in accordance
with the requirements of RD Instruction 1901-E.
(a) Scheduling of reviews. The State Director will schedule Civil Rights compliance
reviews each fiscal year.
(b) Initial reviews. The initial compliance review will be conducted before loan or
grant closing or before construction begins, whichever occurs first.
(c) Subsequent reviews. The State Director is responsible for requiring subsequent
compliance reviews at intervals not more than 3 years after the previous compliance
review.
(1) If a borrower has had at least two compliance reviews after loan closing
covering a six-year period, and where no discriminatory practices are indicated,
the frequency of subsequent reviews may be increased to six years.
(2) If two or more borrowers merge to form a new organization, two reviews
will be conducted at three-year intervals after the merger. After the three-year
intervals, one review will be conducted at six-year intervals, provided no
discriminatory practices are noted.
§ 1782.6 [Reserved]

Staff Instruction 1782-1
Page 8
1782.7 Grants.
Servicing actions relating to Agency grants are governed by the provisions of several
regulations and executive orders, including, but not limited to, 7 CFR parts 3015, 3016, 3017,
3018, 3019, 3021, and 3052 as applicable, and Executive Order (E.O.) 12803. Grantees remain
responsible for property acquired with grant funds in accordance with terms of a grant agreement
and applicable regulations. The borrower is responsible for managing day-to-day operations of
grant and sub-grant activities. The servicing official is responsible for ensuring that all
applicable administrative actions under the grant are completed.
(a) Applicable grant rules and regulations. Servicing actions relating to Agency grants
are governed by provisions of this Staff Instruction, terms of the grant agreement, and
if applicable, provisions of (See Agency Website for Regulations Below):
(1) 7 CFR Part 3016, Uniform Administrative Requirements for Grants and
Cooperative Agreements to State and Local Governments;
(2) 7 CFR Part 3017, Government-wide Debarment and Suspension (Nonprocurement) and Government-wide Requirements for a Drug-free Workplace
(Grants);
(3) 7 CFR Part 3019, Uniform Administrative Requirements for Grants and
Agreements with Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations;
(4) 7 CFR Part 3021, Government-wide Requirements for Drug-Free
Workplace; and
(5) Executive Order (E.O.) 12803, Infrastructure Privatization
(b) After grant close out. No monitoring action is required after grant close out.
Grant close out occurs when all planned development is completed, all grant funds
have been expended, a final accounting of expenditures has taken place, and Rural
Development has accepted final expenditure information. Grantees remain
responsible for property acquired with grant funds in accordance with terms of the
grant agreement. The grant agreement is terminated ten years after the grant is made
or five years after the last outstanding loan is paid off, whichever is longer. After the
grant agreement is terminated, no grant recoup is required and there is no further
servicing of the grant.

Staff Instruction 1782-1
Page 9
§ 1782.8 Payments.
Payments will be applied in accordance with the terms of the debt instrument.
Information on nontypical payments can be obtained from the Servicing official or office. All
new borrowers will use pre-authorized debits as required in their Letter of Conditions. For
further information on payments see 7 CFR 1780.
§ 1782.9 Environmental requirements.
Servicing actions involving lease or sale of Agency-owned property will be reviewed for
compliance with 7 CFR part 1794 as required in § 1794.3. The appropriate environmental
review will be completed prior to approval of the servicing action. Agency-owned also includes
property financed by Agency. The servicing official, in consultation with the State
Environmental Coordinator, will review applications to ensure that the project meets all
applicable environmental requirements.
(a) Compliance and environmental review. Servicing activities, including but not
limited to, transfers, sale or exchange of security property, liquidation actions, and
leasing of security property will be reviewed for compliance with 7 CFR Part 1794.
The appropriate environmental review will be completed prior to approval of the
servicing action. When National Office approval is required, the completed
environmental review will be included with other information submitted.
(b) Servicing official evaluation of security property. Before the Government acquires
real property through foreclosure, receivership, or voluntary conveyance, the servicing
official shall evaluate the environmental condition of the property for releases of
hazardous substances and petroleum products. If the location, type, or operations of a
facility created an environmental risk for releases of hazardous substances and/or
petroleum products, the servicing official shall complete, as a minimum the
Transaction Screening Questionnaire (ASTM E 1528-96, Standard Practice for
Environmental Site Assessments: Transaction Screen Process) or equivalent. The
questionnaire will be completed in conjunction with an appraisal of the security
property. If releases of hazardous substances and/or petroleum products are present,
guidance should be obtained from the State Environmental Coordinator and/or the
National Office.
(c) Borrower evaluation of security property. The borrower must submit evidence that
security property has been evaluated for releases of hazardous substances or petroleum
products before the servicing official approves transfers, third party agreements,
consolidations, or exchanges of security property. The Transaction Screening
Questionnaire (ASTM E 1528-96, Standard Practice for Environmental Site
Assessments: Transaction Screen Process) or equivalent shall be considered minimum
documentation requirements.

Staff Instruction 1782-1
Page 10
§ 1782.10 Audit requirements.
Audits for loans will be required in accordance with § 1780.47 of this title. If the
borrower becomes delinquent or is experiencing problems, the servicing official will require an
audit or other documentation deemed necessary to resolve the delinquency. The provisions of 7
CFR 3052 address audit requirements for recipients of Federal grants. For further information
on audit requirements see 7 CFR 1780.47 and Staff Instruction 1780-4.
§ 1782.11 Refinancing requirements.
If at any time it appears to the Government that the borrower is able to refinance the
amount of the indebtedness then outstanding, in whole or in part, by obtaining a loan for such
purposes from responsible cooperative or private credit sources, at reasonable rates and terms,
the borrower will, upon request of the Government, apply for and accept such loan in sufficient
amount to repay the Government and will take all such actions as may be required in connection
with such loan.
(a) Graduation.
(1) Agency credit programs will be administered in a manner that will assure they
do not supplant or compete with credit available from other reliable sources.
(2) Borrowers will graduate to other credit on reasonable rates and terms when
they are able to do so.
(3) The servicing official will utilize the process set forth in Staff instruction 17806 and other lender contact information to carryout the graduation review process.
The servicing official will monitor the graduation review process for effectiveness
and conformance.
(4) The Agency may use private contractors to assist in graduation activities. See
Exhibit D of RD Instruction 2024-A for contracting authority guidance.
(5) If graduation cannot be accomplished voluntarily, the Agency has the legal
ability to require borrowers to graduate. However, not all security instruments
contain clauses requiring a borrower to graduate when other credit can be
obtained. The clause may say:
(i)

“…upon reasonable terms and conditions,"

(ii) "…on terms prevailing in the area for loans for similar periods of time
and purpose," or

Staff Instruction 1782-1
Page 11
(iii) "…at reasonable rates and terms for loans for similar purposes and
periods of time"
(6) The provisions outlined in this section are construed to mean the borrower
agrees to and can be forced, through legal action if necessary, to graduate. When
the borrower refuses to graduate, legal action may be necessary to enforce
graduation when:
(i) The borrower has both the legal capacity and financial ability to accept
other credit.
(ii) Other credit appears to be available at reasonable rates and terms.
(7) Graduation of Agency borrowers to other sources of credit requires:
(i) Reaching an understanding with applicants and borrowers.
(A) Prior to loan closing, the servicing official will thoroughly discuss
graduation requirements with the applicant and document the
discussion in the running case record, and
(B) The servicing official will periodically reemphasize graduation
requirements with borrowers during routine field visits and office
contacts.
(ii) Graduation review period. Graduation reviews will be conducted as
follows:
(A) The servicing official will review borrowers who have been indebted
for at least five years. The first review for a borrower will be conducted
in the sixth year of the newest loan, corresponding to the date of loan
closing. All borrowers will be reviewed every third year thereafter.
Each year, the servicing official will generate a Graduation Review
Report to schedule graduation reviews simultaneously with each
borrower’s operational review and compliance review.
(B) The graduation review should also include any borrower whose
financial circumstances have changed sufficiently to warrant
consideration for graduation.

Staff Instruction 1782-1
Page 12
(C) The servicing official will manage the graduation process
throughout the year to accomplish the goals set forth by the National
Office.
(8) Guidance on surveying lenders and policies to be carried out are included in
RUS Staff Instruction 1780-6.
(9) In the initial screening for graduation, the servicing official will perform an
initial graduation screening to identify borrowers that are clearly unable to
graduate. This initial screening will focus on information available in the
borrower's case file and in the operational file on other credit.
(i) The servicing official will eliminate borrowers from review that fail to
meet the established minimum lending criteria and/or policies set forth in
paragraph h of this section
(ii) A borrower with a refinancing interest rate-ceiling clause in its loan
instrument will be eliminated from graduation review if credit is not
available within the ceiling interest rate. However, the servicing official will
encourage the borrower to graduate voluntarily.
(iii)
A borrower without a graduation clause in its notes, security
instruments, or loan agreements will be eliminated from graduation review.
However, the servicing official will encourage the borrower to graduate
voluntarily.
(iv) A borrower's ability to accept other credit may be limited by factors over
which the borrower has little or no control, such as a referendum required
by a public body. The servicing official will determine if the existence of
such factors precludes the Agency from requesting a borrower to graduate.
(v) The servicing official will briefly document the results of the screening
process in the borrower's case file. If a borrower is eliminated from further
graduation review, specific reasons will be included in the borrower's case
file.
(10) For the graduation review, the servicing official will conduct a thorough
graduation review of all borrowers not eliminated as a result of the initial
screening. The thorough review will eliminate borrowers from the graduation
review that are unable to meet the established minimum lending criteria and/or
policies. Borrowers, upon request by the Agency, are required to supply such
financial information as is necessary to determine whether they are able to
graduate to other credit.

Staff Instruction 1782-1
Page 13
(i) The servicing official will review the borrower’s annual financial
statements (i.e., Form RD 442-2, Statement of Budget, Income and Equity,"
and Form RD 442-3, “Balance Sheet,” or audit report.) If current financial
data is not available, the servicing official will request updated information
from the borrower.
(A) Exhibit A of this Staff Instruction, or a letter of similar format,
may be used to request financial information. The borrower must
provide this information to the Agency within 60 days of the date of the
letter.
(B) Exhibit B of this Staff Instruction, or a letter of similar format,
will be used if the borrower fails to respond to the Agency’s first request.
The borrower must provide this information to the Agency within 15
days of the date of the letter.
(ii) Factors to be considered during the thorough review will include:
(A) The borrower's present and potential income to meet the rates,
terms, loan fees and conditions of other credit (i.e., debt repayment
ability).
(B)

The borrower's equity in real property and liquid assets.

(C) The impact graduation would have on typical user rates. User
rates should be reasonable for the area served.
(D) The Federal, State or local statutory constraints, which may limit
the borrower's ability to refinance, such as a referendum required of a
public body.
(E) Potential impact upon a community’s long-range development
plan.
(iii) Before a borrower is requested to graduate, the servicing official may
make a trial referral to interested lenders. The borrower’s financial
information will be submitted to these lenders for refinancing. The
information will contain the borrower's name, address, original loan
amount, date of the loan, the interest rate, and the unpaid loan balance.
(iv) The servicing official will provide the borrower with a list of potential
lenders. If the lender is not interested in refinancing the debt, no further

Staff Instruction 1782-1
Page 14
effort needs to be made to graduate at this time. The lender’s refinancing
denial will be documented in the borrower’s case file.
(v) The specific reasons a borrower was eliminated from further review
will be documented in the case file.
(vi) Following the thorough review, the servicing official will prepare
Form RD 1951-24, “Results of Borrower Graduation Review,” listing only
borrowers who will be requested to graduate. The servicing official will
obtain the advice and written concurrence of the State Director prior to
making a request to graduate. A copy of Form RD 1951-24 will be
maintained in the operational file and provided to the State Office.
(11) When requesting the borrower to graduate, send a letter (review Exhibit C
of this Staff Instruction, or a letter of similar format) which will specify the
timeframe to graduate, the right to request an extension, and inform the borrower
to seek financing to retire the debt.
(i) If a borrower is unable to graduate, written evidence must be provided to
the Agency showing:
(A) The name(s) of other lender(s) contacted;
(B) The amount of loan requested by the borrower and the amount, if
any, offered by the lender(s);
(C) The rates and terms offered by the lender(s) or the specific
reason(s) why other credit is not available; and
(D) The purpose of the loan request.
(ii) Following a graduation request, any new information submitted by the
borrower or other sources will be considered by the servicing official and
the State Director. If the information submitted is not adequate and/or
reliable, the servicing official will contact additional credit sources in the
area and document the findings in the borrower's case file. An interest rate
differential between the Agency and other lenders will not be sufficient
reason for failure to graduate if other credit is available at reasonable rates
and terms. An exception is made where there is an interest rate ceiling
imposed by Federal law or contained in the note or mortgage.
(A) If additional information confirms the borrower is unable to
graduate, the servicing official will notify the borrower in writing that
the request has been withdrawn. The specific reasons for withdrawing

Staff Instruction 1782-1
Page 15
the request will be documented in the borrower’s case file and the date
of final action recorded on Form RD 1951-24.
(B) If additional information confirms the borrower can graduate, the
servicing official will inform the borrower using Exhibit D of this Staff
Instruction, or letter of similar format. This letter advises the borrower
that legal action will be recommended if positive steps to graduate are
not taken within 60 days. However, the servicing official may grant a
longer period if conditions warrant such action.
(C) The servicing official may offer to meet with the borrower to
discuss the Agency’s graduation decision.
(12) When borrower fails to cooperate, respond and/or graduate, they are in
default of its security instruments. The servicing official should submit the
required documents recommending legal action and the borrower's case file to
the State Director for approval. The approval official may, with the concurrence
of the Regional Attorney, accelerate the account based on the borrower's failure
to graduate. Guidance on servicing actions related to liquidation can be found in
§1782.20 of this Staff Instruction.
(13) When an application for subsequent loan, or consent to additional
indebtedness is received from a borrower who has been requested to graduate:
(i) Borrowers who have been requested to graduate will not normally be
considered for a subsequent loan, or consent to additional indebtedness
until the graduation issue is resolved. An exception may be made where the
proposed action is needed to alleviate an emergency situation, such as
meeting applicable health and/or sanitary standards that require immediate
attention.
(ii) In situations where the borrower has been requested to graduate and
has also been denied a request for a subsequent loan, or consent to
additional indebtedness, appeal rights should be given simultaneously for
both issues.
(iii)
When Agency graduation request has been upheld through the
appeals process, any request for additional assistance under this section
may be denied without further appeal rights.

(b) Appeals.

Staff Instruction 1782-1
Page 16
(1) Borrowers or applicants receiving an adverse decision from the Agency are
afforded the opportunity to appeal the decision in accordance with the procedures
established in 7 CFR Part 11, "National Appeals Division Rules of Procedure".
This part sets forth procedures for proceedings before USDA’s National Appeals
Division (NAD).
(2) The regulations contained in Part 11 apply to adverse decisions made by the
Agency including those affecting:
(i) Denial of participation in, or receipt of benefits under, any program of
the Agency;
(ii) Compliance with program requirements;
(iii) The making of or relating to the amount of payments or other program
benefits to a participant in any program of the Agency; and
(iv) A determination that a parcel of land is a wetland or highly susceptible
to erosion.
(3) In general, borrowers or applicants receiving an adverse decision from the
Agency have three options: an informal review of the adverse decision, an
opportunity to utilize mediation or alternative dispute resolution (ADR), or an
official written appeal to the NAD. The procedures to be followed and the
timeframe for filing appeal motions are specified in 7 CFR Part 11. See Exhibit
H for a sample appeal letter to borrower.

§ 1782.12 Sale or exchange of security property.
A cash sale of all or a portion of a borrower’s assets or an exchange of security property
may be approved subject to the conditions set forth in this section. The State Director may
approve a sale or exchange that does not involve a loss to the Government of more than
$100,000. Administrator approval is required when the sale or exchange results in a loss to
the Government in excess of $100,000.
(a) Approval conditions. Approval may be given when the servicing official determines
that:
(1) The consideration is for the full amount of the debt or the present fair market
value as determined by an appraisal completed by a qualified Rural Development
Employee or an independent appraiser as determined appropriate by the approval
official;

Staff Instruction 1782-1
Page 17
(2) The sale or exchange will not prevent carrying out the purpose of the loan;
(3) The remaining property is adequate security for the loan and the transaction
will not adversely affect the Agency’s security position;
(4) If the property to be sold or exchanged will be used for similar purposes that
the loan was made, the purchaser will:
(i) Execute Form RD 400-4, "Assurance Agreement." The instrument of
conveyance will contain the civil rights covenant referenced in 7 CFR
1901.202(e); and
(ii) Provide the Agency with a written agreement assuming all rights and
obligations of the original borrower or grantee, and
(5) Proceeds remaining after paying any reasonable and necessary selling
expenses are to be used for one or more of the following purposes:
(i) To pay Agency debt, pay on debts secured by a prior lien, and pay on
debts secured by a parity or subsequent lien if it is to the Agency’s
advantage;
(ii) To purchase or acquire property more suited to the borrower’s needs,
providing the Agency’s security position is maintained; and
(iii) To develop or enlarge the facility if necessary to improve the
borrower’s debt-paying ability, place the operation on a sounder financial
basis, or further the loan objectives and purposes.
(b) Sale of assets financed with Agency grants. The requirements for the sale or
disposition of assets financed with Agency grants are determined by the terms of the
grant agreement, 7 CFR parts 3015, 3016, and 3019, and E.O. 12803, as applicable.
(1) If the sale is to a public or non-profit entity, repayment of all or a portion of
the grant is not required if the facility will be used for the same purpose and the
new owner provides a written agreement to abide by the terms of the original
grant agreement.

(2) If the sale or disposition of a public facility is to a For-Profit, repayment of
all or a portion of the grant is determined by the terms of the grant agreement
or E.O. 12803.

Staff Instruction 1782-1
Page 18
(c) Release from liability. If a borrower can no longer meet the objectives of the loan,
the property may be sold. If the full amount of the borrower’s debt is paid or assumed,
the State Director may release the borrower from liability. However, if the full amount
of the debt is not paid or assumed, the balance of the borrower’s debt will be settled in
accordance with §1782.20 of this Staff Instruction.
(d) Processing.
(1) The case file will contain the following:
(i) An appraisal report, if appropriate;
(ii) Name of purchaser, anticipated sales price, and proposed terms and
conditions;
(iii)
Release from liability and State Director's recommendations, if
appropriate;
(iv) An executed Form RD 400-4, if applicable;
(v) An executed Form RD 465-1, "Application for Partial Release, or
Consent," if applicable;
(vi) Form RD 460-4, "Satisfaction," if a debt has been paid in full or
satisfied by debt settlement action. For cases involving real estate, a
similar form may be used if approved by OGC;
(vii) Exhibit F of this Staff Instruction appropriately completed and
(viii) Written concurrence by the Assistance Administrator when
required.
(2) Releasing security:
(i) The servicing official is authorized to satisfy or terminate chattel
security instruments provided all actions are in compliance with
paragraph (a) of this section. Partial release may be made in a format
acceptable to the Agency.
(ii) Subject to the provisions of paragraph (a) of this section, the
servicing official is authorized to release part or all of an interest in real
estate security by approving Form RD 465-1. Partial release of real
estate security may be made in a format acceptable to the Agency.

Staff Instruction 1782-1
Page 19
(iii) Agency liens will not be released until the full amount of the sale
proceeds are received for application on the Government's claim. When
State law requires the lender to present the note to the recorder before
releasing a portion of the land from the mortgage, the borrower must
pay any postage and insurance costs while the note is in transit. The
servicing office will notify the borrower that it must pay these costs when
it requests a partial release. If the borrower is unable to pay the costs
from its own funds, the amounts shown on the statement of actual costs
furnished by the direct lender may be deducted from the sale proceeds.
(3) Prior Assistant Administrator approval is required if the property financed
in part with grant funds is sold to a For-Profit entity, or if the buyer refuses to
assume all the terms of the grant agreement.
§1782.13 Transfer of security and assumption of loans.
It is the Agency’s policy to approve transfers and assumptions to transferees that will
continue the original purpose of the loan. The State Director may approve a transfer within the
State Director’s loan approval authority that does not involve a loss to the Government of
more than $100,000. Assistant Administrator written concurrence is required when the transfer
exceeds the State Director’s loan approval authority. Administrator approval is required when
the transfer results in a loss to the Government in excess of $100,000. The transfer will be
approved in accordance with the following requirements:
(a) General requirements for transferees. The fulfillment of the following requirements
for transfers will be determined by the approval official, in his or her discretion:
(1) The transferees must meet the eligibility requirements of 7 CFR 1780 and
provide the same information required in 7 CFR Part 1780, subpart B, for
application processing.
(2) The transfer will not be disadvantageous to the Government as determined
by the approval official.
(3) If the Agency debt(s) exceeds the present market value of the security as
determined by an appraisal, the transferee will assume an amount at least equal to
the present market value.
(4) The Agency must concur in plans for disposition of funds in any reserve
account, including project construction bank accounts, including any supervised
accounts. A reserve account may be considered as a transferable asset.

Staff Instruction 1782-1
Page 20
(5) The transferee will assume all of the borrower’s responsibilities regarding
loans and grants. The transferee will also agree to accept the original loan and
grant conditions plus any conditions set forth by the Agency with regard to the
transfer.
(6) A current appraisal will be completed to establish the present market value of
the security when the full debt is not being assumed.
(7) There must be no lien, judgment, or similar claims of other parties against
the Agency security being transferred unless the transferee is willing to accept
such claims. The Agency must also determine that the claims will not prevent the
transferee from repaying the Agency’s debt, meeting all operating and
maintenance costs, and maintaining required reserves. The written consent of any
other lien-holder will be obtained where required.
(8) A letter of conditions establishing requirements to be met in connection with
the transfer will be issued, and the transferee will be required to execute Form RD
1942-46, “Letter of Intent to Meet Conditions,” prior to closing of the transfer.
(9) The transferee will obtain insurance according to Agency requirements.
(10) The effective date of the transfer is the date the transfer is closed, which is
the same date Form RD 1951-15, “Community Programs Assumption
Agreement,” or other appropriate assumption agreement is signed which is
executed and delivered by all necessary parties.
(11) Title to all assets will be conveyed from the transferor to the transferee
unless all parties concerned, including the Agency, agree upon other
arrangements. All instruments of conveyance will contain the necessary
nondiscrimination covenant as referred to in § 1782.5.

(12) If the transfer and assumption is to one or more members of the borrower’s
organization, there must not be a loss to the Government.
(13) The State Director is authorized to approve transfers to eligible transferees
at the same interest rate as on the borrower’s note(s) or bond(s) currently
reflected in the Office of the Deputy Chief Financial Officer records. The
maturity of the debt instrument for the assumed debt may not exceed the lesser of
the repayment period authorized in 7 CFR 1780 for a “new” loan or the expected
life of the facility.

Staff Instruction 1782-1
Page 21
(14) Agency National Office concurrence is required for transfers not in
compliance with paragraphs (a) (1) through (13) of this section. The State
Director must determine and document that eligibility requirements have been
satisfied.
(15) The servicing official will review Form RD 1910-11,”Applicant
Certification Federal Collection Policies for Consumer or Commercial Debts,”
with the applicant, and obtain the applicants signature on the form. Form RD
1910-11 will be maintained in the case file.
(b) Loan requirements for eligible transferees. If a loan is evidenced and secured by a
note and lien on real or chattel property, Form RD 1951-15, or other appropriate
assumption agreement will be executed by the transferee. The accrued interest to be
entered on the form will be obtained using the status screen option in Automated
Discrepancy Processing System. If a bond secures a loan, transfer documents will be
developed by bond counsel and approved by the Office of the General Counsel (OGC),
USDA.
(1) Loans being transferred and assumed may be combined when the security is
the same, new terms are being provided, a new debt instrument will be issued, and
the loans have the same interest rate and are for the same purpose. If applicable,
7 CFR 1780.94(l) will govern the preparation of any new debt instruments
required.
(2) A loan may be made in connection with a transfer if the transferee meets all
eligibility and other requirements for the kind of loan being made. Such a loan
will be considered as a separate loan and must be evidenced by a separate debt
instrument. However, it is permissible to have one authorizing loan resolution or
ordinance if permitted by State statutes.
(3) Any development funds remaining in a supervised bank account that are not
refunded to the Agency will be transferred to a supervised bank account for the
transferee. This will occur simultaneously with the closing of the transfer, and
the funds will be used in completing planned development.

(c) Release from liability. Transferors may be released from liability when their debt is
paid in full or when the debt is settled in accordance with §1782.20 of this part The State
Director will consider the borrower’s income and ability to repay debt when
determining if a release from liability is necessary.

Staff Instruction 1782-1
Page 22
(d) Transfer of facility financed with Agency grants. The requirements for the sale or
disposition of assets financed with Agency grants are determined by the terms of the
grant agreement, 7 CFR parts 3015, 3016, and 3019, and E.O. 12803, as applicable.
(1) If the transfer is to a public or non-profit entity, repayment of all or a
portion of the grant is not required if the facility will be used for the same
purpose and the new owner provides a written agreement to abide by the terms
of the original grant agreement.
(2) If the transfer or disposition of a public facility is to a For-Profit entity,
repayment of all or a portion of the grant is determined by the terms of the
grant agreement, 7 CFR Parts 3016, 3019, or E.O. 12803.
(e) Ineligible transferees. This is a transferee that does not meet the eligibility
requirements of 7 CFR 1780.7.
(1) Ineligible transferee’s must pay a one-time, nonrefundable transfer fee at
the time they submit an application or proposal. The National Office will issue
a directive annually advising the field of the amount of the fee.
(2) Costs of appraisals performed by non-Agency personnel will be handled in
accordance with RD Instruction 2024-A, and added to the transfer fee.
(3) Transfer fees will be deposited in accordance with current instructions
governing the handling of collections. The fees will be identified as transfer
fees on Form RD 451-2, “Schedule of Remittances.”
(4) The State Director is authorized to approve transfer and assumptions to
ineligible public or non-profit transferees provided:
(i) The interest rate will be the greater of the transferor’s note or bond rate
or the market rate as of the transfer closing date, and
(ii) The transferred loan will be identified as a Non-program loan and
serviced in accordance with §1782.20 of this Staff Instruction. Form RD
1951-15, will be submitted to the Office of the Deputy Chief Financial
Officer. The servicing office will provide a transmittal memorandum to the
Office of the Deputy Chief Financial Officer designating the loan as NP.
The Office of the Deputy Chief Financial Officer will classify NP loans with
an “8” as the third digit of the fund code.
(f) Processing. Transfers and assumptions will be processed in accordance with 7
CFR 1780.42, as applicable.

Staff Instruction 1782-1
Page 23
(1) Transfers will be closed in accordance with instructions provided by OGC.
(2) If the transferee is a public body, the transferee’s legal or bond counsel will
prepare documents necessary to effect the transfer and assumption and obtain
Agency and OGC approval.
(3) The following forms, if utilized, will be sent to the Office of the Deputy
Chief Financial Officer:
(i) Form RD 1951-15, or another appropriate assumption agreement;
(ii) A confirmed copy of Form RD 1965-8, “Release from Personal
Liability.”
(4) If an investor holds an insured loan, the Office of the Deputy Chief
Financial Officer will have to repurchase the note prior to processing the
assumption agreement.
(5) When National Office concurrence is required, the transfer case file will be
submitted to the Assistant Administrator with a narrative explanation of the
situation. Exhibit F of this Staff Instruction should be appropriately completed
and included in the case file.
(g) Prior approval by Assistant Administrator. Prior Assistant Administrator approval
is required if property, financed in part with grant funds, is transferred to a For-Profit
entity, or if the buyer or transferee refuses to assume all the terms of the grant
agreement.
§ 1782.14 Protection of service areas – 7 U.S.C. 1926(b).
(a) 7 U.S.C. 1926(b) was enacted to protect the service area of Agency borrowers with
outstanding loans, or those loans sold in the sale of assets authorized by the “Joint
Resolution Making Continuing Appropriations for the Fiscal Year 1987, Pub.L. 99-591,
100 Stat. 3341 (1986),” from loss of users due to actions or activities of other entities in
the service area of the Agency financed system. Without this protection, other entities
could extend service to users within the service area, and thereby undermine the purpose
of the congressionally mandated water and waste loan and grant programs and jeopardize
the borrower's ability to repay its Agency debt.
(b) Responsibility for initiating action in response to those actions prohibited by 7
U.S.C. 1926(b) rests with the borrower.

Staff Instruction 1782-1
Page 24
§ 1782.15 Mergers and Consolidations.
Mergers and consolidations will be processed the same as a transfer and assumption,
although approvals by the Agency will give consideration to the differences under the applicable
law regarding the type of transaction under consideration and the unique facts involved in each
transaction. Mergers occur when two or more entities combine in such a manner that only one
remains in existence. Consolidations occur when two or more entities combine to form a new
consolidated entity, and the original entities cease to exist. In both mergers and consolidations,
the surviving or emerging entity acquires the assets and assumes the liabilities of the entity or
entities that ceased to exist.
§ 1782.16 Defeasance of Agency indebtedness.
Defeasance, or amending outstanding loan instruments and agreements to permit
defeasance of Agency debt instruments, is prohibited. Defeasance of Agency indebtedness is
not authorized because defeasance limits or eliminates the borrower’s ability to comply with
the graduation requirements contained in § 1782.11 of this Staff Instruction. Defeasance
occurs when a borrower issues new debt and invests the proceeds in order to repay the
Agency’s debt at its original (old) repayment schedule. The requirements of the new debt may
supersede the contractual obligations agreed to in the prior Agency issue.
§ 1782.17 Parity lien.
In order for the Agency to agree to a parity lien position, the borrower must submit a
written request to the servicing office.
(a) The written request for parity must contain the following items:
(1) An explanation of the purpose of the request for parity; amount of loan for
which parity is requested; description of security property; type of security
instrument; name and address of financial institution requesting the transaction;
and other information determined necessary by the servicing official to evaluate
the request. The request must be for a specific amount of Agency debt, secured
by the prior lien of the other lender or a parity lien.
(2) Current financial statements or an audit, if available or determined necessary
by the servicing official.
(3) An annual operating budget which projects income and expenses for a typical
year’s operation. If construction is involved, the budget must be projected
through the first full year of operation following completion of the planned
improvements. Borrowers must be able to meet its debt service and reserve
requirements.

Staff Instruction 1782-1
Page 25
(4) A copy of the proposed security instrument.
(5) A certification from the borrower that the Agency debt cannot be refinanced at
reasonable rates and terms.
(6) An appraisal, when the primary security is real estate or determined necessary
by the servicing official in order to determine the adequacy of loan security or
repayment ability.
(7) A certification that any development work will comply with subpart C of part
1780 of this chapter.
(8) Lien accommodations or requests for parity of security are not actions
subject to the provisions of 7 CFR Part 1794.
(9) The terms and conditions of the prior lien of the other lender or parity lien
will be such that the borrower is expected to meet those obligations as well as
the requirements of all other debts.
(10) The Agency will obtain the appropriate security interest when parity
liens are taken in cases involving items such as: land purchase, leases,
contracts, or other items of value. Security on such items will be the same as if
Agency loan funds were used.
(11) If the primary security is real property and the servicing official
considers it necessary, an appraisal shall be obtained to determine the present
market value of the property. If the security property is a facility that, due to
location, type, or operations, created an environmental risk for releases of
hazardous substances and/or petroleum products, the property shall be
evaluated for releases of hazardous substances and/or petroleum products. As
a minimum, the Transaction Screening Questionnaire (ASTM E 1528-96,
Standard Practice for Environmental Site Assessments: Transaction Screen
Process) or equivalent will be used and performed in conjunction with the
appraisal.
(12) The proposed parity must not change the nature of the borrower’s
activities so as to make it ineligible for Agency loan assistance.
(13) Necessary consent and subordination of all other outstanding security
interests must be obtained.
(14) Exhibit F of this Staff Instruction should be appropriately completed.

Staff Instruction 1782-1
Page 26
(b) Requests for parity must comply with requirements of paragraph (a) of this section,
requirements as specified in the bond or loan documents, the requirements as specified in
subpart D or part 1780 of this chapter, and as provided in applicable State law.
(c) If the borrower has met all of the requirements in paragraphs (a) and (b) of this
section and the proposal is determined to be in the Government's interest, Agency will
grant approval of the borrower's request for parity. The following factors will be
considered in assessing whether the request is in the Government’s interest.
(1) The value of the added assets compared with the amount of new debt to be
secured;
(2) The value of the assets already pledged under the security documents, and
any effects of the proposed transaction on the value of those assets;
(3) The ratio of the total outstanding debt secured under the security documents
to the value of all assets pledged as security under the security documents;
(4) The borrower’s ability to repay its debt owed to the Government;
(5) The overall financial viability of the borrower;
(6) The borrower’s current relationship with the Agency (i.e. no defaults under
the loan documents);
(7) Such other factors that may be relevant in individual cases, as determined by
the Agency.
(d) Processing. The case file will include:
(1) The borrower’s written application on Form RD 465-1, if appropriate, or
other acceptable form;
(2) A current balance sheet;
(3) If development work is involved, an operating budget on Form RD 442-7,
or similar form and a PER (See Bulletin 1780-2). This information should
project income and expenses through the first full year of operation following
completion of the planned improvements;
(4) If no development work is involved, an income statement and budget on
Form RD 442-2, or similar form;
(5)

A copy of the proposed security instrument;

Staff Instruction 1782-1
Page 27
(6)

A brief narrative and recommendations of the State Director; and

(7) OGC opinion when determined necessary by the approval official.
(e) Closing. Agency parity consent will be given in a format acceptable to the Agency
and OGC. Closing will be in accordance with OGC instructions.
§ 1782.18 [Reserved]
§ 1782.19 Third party agreements.
The State Director may authorize third party operation, maintenance, and management of
an Agency financed facility. The borrower’s attorney must review the contract, management
agreement, written lease, or other third party agreement and issue an opinion to the Agency as to
their legal sufficiency. The borrower shall retain the legal authority necessary for owning,
constructing, operating and maintaining the facility.
(a) Leases.
(1) Lease of all or part of a facility when no liquidation action is pending may
be approved by the State Director when:
(i) Leasing is the only feasible way to provide service and it does not
adversely affect the Government’s security interest;
(ii) The borrower will retain the legal authority necessary for owning,
constructing, operating and maintaining the facility. The borrower will
also be responsible for operating, maintaining, and managing the
facility, and providing for its continued availability and use at
reasonable user rates and charges;
(iii)
The State Director approves the lease agreement with advice
from OGC, if needed;
(iv) The lease is not a purchase agreement and does not contain
provisions for the transfer of ownership.
(2) Lease of all or part of a facility when liquidation action is pending may be
approved by the State Director when:
(i) The lease will not adversely affect the Government's security
interest;

Staff Instruction 1782-1
Page 28
(ii) The lease is necessary until final liquidation can be accomplished;
(iii) The lease is not an alternative to or means of delaying liquidation
action;
(iv) Rental income is used only to make regular scheduled payments
and/or to operate and maintain the facility;
(v) If foreclosure action has been approved, consent to lease the facility
and use of the rental income must be approved by OGC; and
(vi) The lease does not exceed a 1-year period. If the property has been
leased for two consecutive years, the lease may not be extended without
prior Assistant Administrator approval.
(b) Long-term lease of facility financed with Agency grants.
(1) If the long-term lease or disposition is to a public or non-profit entity,
repayment of all or a portion of the grant is not required if the facility will be
used for the same purpose and the new owner provides a written agreement to
abide by the terms of the original grant agreement.
(2) If the long-term lease or disposition is to a private entity, repayment of all or
a portion of the grant is determined by the terms of the grant agreement, 7 CFR
Parts 3016, 3019, or E.O. 12803.
(c) Mineral leases. The State Director will approve mineral leases with advice from
OGC, if needed. Proceeds from a mineral lease may be used to service the debt or to
operate and maintain the system.
(d) Management agreements. Management agreements will comply with Bulletin
1780-8.
(e) Processing. The consent of other lien-holders will be obtained when required.
When National Office approval is required, or if the State Director wishes to have a
transaction reviewed prior to approval, the case file will be forwarded to the National
Office and will include:
(1)

A copy of proposed agreement;

(2)

Exhibit F of this Staff Instruction should be appropriately completed;

(3)

Any other necessary supporting information.

Staff Instruction 1782-1
Page 29
§ 1782.20 Debt settlement.
Pursuant to 7 U.S.C. 1981, this section prescribes policies for debt settlement of
Water and Waste Disposal loans; Watershed loans and advances; Resource
Conservation and Development loans; and 306 (c) Water and Waste Facility
loans. Within the Omnibus Consolidated Rescissions and Appropriations Act of
1996 (Public Law 104-134) is the Debt Collection Improvement Act of 1996.
This law provides that any non-tax debt or claim owed to the United States that
has been delinquent for a period of 180 days shall be turned over to the Secretary
of the Treasury for appropriate action to collect or terminate collection actions on
the debt or claim. Debt that is in litigation or foreclosure, with a collection agency
or designated Federal debt collection center, or that will be disposed of under an
asset sales program, is exempt from transfer to the Secretary. Settlement of Nonprogram loans is not authorized under independent statutory authority and
settlement under these programs is handled pursuant to the Federal Claims
Collection Joint Standards, 4 CFR Parts 101-105.
(a) General requirements for debt settlement.
(1) The debt or any extension thereof on which settlement is requested must be
due and payable. The debt will be due and payable either under the terms of the
note or other instrument, or by acceleration, unless the debt is to be canceled
without application under paragraph (e)(2) of this section or charged off under
paragraph (f) of this section.
(2) Normally, all security will be disposed of prior to the date of application for
debt settlement unless it is necessary to abandon security through the debt
settlement process. For example, a community may be rendered uninhabitable
by a toxic or hazardous substance. In such cases, debt settlement may proceed if
the servicing official determines that further collection efforts would be
ineffective, uneconomical, and not in the best interests of the Government. Also,
that the proposal otherwise meets the requirements appropriate to the type of
settlement under consideration and the approval of the Administrator is
obtained. Other requirements for the disposition of assets are:
(i) A servicing action may have completed; however, a less than
complete disposition of security may have resulted from the action. For
example, the Government may have consented to a voluntary sale of a
debtor's real and chattel property without reference to other security,
which might include, but is not limited to: an additional lien on revenue,
a third party pledge of security, or a pledge of personal liability. In such
cases, debt settlement may proceed provided the requirements of this
part are met.

Staff Instruction 1782-1
Page 30
(ii) Security can be retained under compromise and adjustment offers
specified in this part.
(iii) Settlement of a claim against an estate will be based on the
recovery that may reasonably be expected, taking into consideration
such items as the security, costs of administration, allowances of minor
children and surviving spouse, allowable funeral expenses, dower, and
courtesy rights and specific encumbrances on the property having a
priority claims of the Government.
(3) Debtors will not be permitted to sell security and use the proceeds as part or
all of a compromise/adjustment debt settlement offer. Proceeds from the sale of
security must be applied to the debtor's account, taking into consideration the
disposition requirements of any grant agreement, prior to the date of
application for settlement, except when security is retained as provided for in
this part.
(4) Requests for debt settlement will consist of Form RD 1956-1 “Application
For Settlement of Indebtedness,” current financial information, description and
estimated market value of collateral, and status of operation (i.e., number of users,
compliance with environmental issues, etc.).
(5) Office of the General Counsel (OGC) advice on compliance with State or
Federal statutes that may affect the debt settlement action must be requested.
(6) If a debt is eligible for settlement, the debt settlement authorities of the
Agency should be explained to the debtor. All debtors are entitled to impartial
treatment and uniform consideration under this Staff instruction. Agency
personnel charged with any responsibility in connection with debt settlement
will adhere to this Section.
(7) Proposed settlement actions will be reviewed by the State Director except for
the cancellation of debts discharged in bankruptcy or when a claim has been
referred to a United States Attorney. No settlement shall be approved if it is
more favorable to the debtor than recommended by the State Director.
(8) Area/Program Directors cannot approve debt settlement actions. Therefore,
they will not make statements to a debtor concerning the action that may be
taken upon a debtor's application. Debt settlement actions may be approved or
rejected in accordance with the following:

Staff Instruction 1782-1
Page 31
(i) By the State Director, when the loss to the Government in the
settlement does not exceed $100,000, including principal, interest, and
other charges.
(ii) By the Administrator or designee, when the loss to the Government
in the settlement is $100,000 or more, including principal, interest, and
other charges.
(b) Debts ineligible for settlement. Debts will not be settled if:
(1) Referral to Office of Inspector General and/or to OGC is contemplated or
pending because of suspected criminal violation,
(2) Civil action to protect the interest of the Government is contemplated or
pending,
(3) An investigation for suspected fiscal irregularity is contemplated or pending,
or
(4) The debtor requests settlement of a claim that has been referred to or a
judgment obtained by the United States Attorney. The settlement offer and any
related payment must be submitted directly to the United States Attorney for
consideration. The servicing official will explain to the debtor that the United
States Attorney has exclusive jurisdiction over the claim or judgment, and
therefore, Rural Development has no authority to agree to a settlement offer.
(c) Types of debt settlement. Typically, debt settlement will be accomplished through
compromise/adjustment, charge-off, or cancellation. Any debt remaining after the
security has been liquidated, by sale or transfer, will be cancelled if there are no other
assets from which to collect the debt. The servicing official will proceed with advice
from OGC and the National Office, as required.
(d) Compromise and adjustment. Non-judgment debts may be compromised or
adjusted upon application of the debtor(s). Debts may be compromised or adjusted and
security retained by the debtor, provided:
(1) The debtor is unable to pay the indebtedness in full,
(2) The debtor has offered an amount equal to the present fair market value of all
security or facility financed, and
(3) The debtor has offered any additional amount that the debtor is able to pay,
and

Staff Instruction 1782-1
Page 32
(4) The debt or any extension thereof on which compromise or adjustment is
requested is due and payable under the terms of the note or other instrument, or
because of acceleration by written notice, prior to the date of application for
settlement, and
(5) The period of time during which payments on adjustment offers are to be
made cannot exceed five years without the approval of the Administrator, and
(6) Efforts will be made to avoid applications for settlement in which debtors
offer a specified amount payable upon notice of approval of the proposed
settlement, and
(7) In evaluating the debtor’s settlement application, it is essential that reliable
information be obtained in sufficient detail to assure that the offer accurately
reflects the debtor’s ability to pay. The debtor’s income, expenses, and nonsecurity assets are critical factors in determining the type of settlement and the
amount which the debtor can reasonably be expected to offer. Critical
information should include the following:
(i) The debtor’s total present income from all sources will be
determined. In addition, careful consideration will be given to the
probable sources, amount and stability of income to be received over a
reasonable period of years. For individuals, public welfare assistance
and pensions, including old age pensions and pensions received by
veterans for pensionable disabilities will not be considered as sources
of funds with which to make compromise and adjustment offers.
(ii) The debtor’s operation and maintenance expenses, and in the case
of individuals, probable living expenses.
(iii) The priority of payments on debts to third parties.
(iv) When debtor is largely dependent on income from an occupation
in which manual labor is required, age and health of the individual are
vital factors in determining the ability to pay. The number in the
debtor’s family, their ages and condition of health will also be weighed
in determining the ability to pay. However, when the debtor’s income is
from investments, business enterprises, or management efforts, age and
health of both individual and family are of less importance.
(v) The value of the debtor’s assets in relation to debts and liens of
third parties is important in determining the debtor’s ability to pay. It is
recognized that debtors must retain a reasonable equity in essential
nonsecurtiy property in order to continue normal operations and, in the

Staff Instruction 1782-1
Page 33
case of an individual, to meet family living expenses over a period of
years. Under this policy a reasonable equity in modest nonsecurity
homestead occupied by the debtor, whether or not exempt from levy and
execution will not be considered as available fro offer in settlement.
Nonsecurity property which is in excess of minim business and/or family
living needs and which is not exempt from levy and execution should be
considered when determining the debtor’s ability to pay.
(8) If the debtor has the ability to pay in full but refuses to do so, debts may be
compromised or adjusted and security property retained by the debtor under
certain conditions:
(i) The OGC advises that the Government is unable to enforce collection
in full within a reasonable time by enforced collection proceedings, and
the amount offered represents a reasonable settlement considering:
(A) Availability of assets or income which may be realized by
enforced collection proceedings, considering the applicable
exemptions available to the debtor under State and Federal law,
and
(B) Inheritance prospects within 5 years, and
(C) Likelihood of debtor obtaining nonexempt property or
income within 5 years out of which there could be collected a
substantially larger sum than the amount of the present offer,
and
(D) Uncertainty as to the price that the security or other property
will bring at forced sale.
(ii) The OGC advises that there is a real doubt concerning the
Government’s ability to prove its case in court for the full amount of the
debt, and the amount offered represents a reasonable settlement
considering:
(A) The probability of prevailing on the legal issues involved, and
(B) The probability of proving facts to establish full or partial
recovery, with due regard to the availability of witnesses and
other pertinent factors, and

Staff Instruction 1782-1
Page 34
(C) The probable amount of court costs and attorney’s fees which
may be assessed against the Government if it is unsuccessful in
litigation.
(iii)
When the cost of collecting the debt does not justify enforced
collection of the full amount. In such cases, the amount accepted in
compromise and adjustment may reflect an appropriate discount for
administrative and litigious costs of collection. Such discount will not
exceed $600 unless the OGC advises that in the particular case a larger
discount is appropriate. The cost of collecting may be a substantial
factor in settling small debts but normally will not carry great weight in
settling large debts.

(e) Cancellation. Non-judgment debts, regardless of the amount, may be canceled with
or without application by the debtor.
(1) With application by the debtor. Debts may be cancelled upon application of
the debtor(s), subject to the following conditions:
(i) The servicing official furnishes a favorable recommendation
concerning the cancellation;

(ii) There is no known security for the debt, and the debtor has no other
assets from which the debt could be collected;
(iii) The debtor is unable to pay any part of the debt and has no
reasonable prospect of being able to do so; and
(iv) The debt or any extension thereof is due and payable under the terms
of the note or other instrument, or due to acceleration by written notice
prior to the date of application.
(2) Without application by debtor. Debts may be canceled upon a favorable
recommendation of the servicing official in the following instances:
(i) Debtors discharged in bankruptcy. If there is no security for the debt,
debts discharged in bankruptcy shall be cancelled by the use of Form RD
1956-1. A copy of the Bankruptcy Court’s Discharge Order must be
attached. No attempt should be made to obtain the debtor’s signature
and County Committee review is unnecessary. If the debtor has
executed a new promise to pay prior to discharge and has otherwise

Staff Instruction 1782-1
Page 35
accomplished a valid reaffirmation of the debt in accordance with advice
from OGC, the debt is not discharged.
(ii) Impractical to obtain debtor’s signature. Debts may be cancelled if it
is impractical to obtain a signed application and the requirements of
paragraphs (e)(1) of this section are met. Form RD 1956-1 will document
the specific reason(s) why it was impossible or impracticable to obtain the
signature of the debtor. If the debtor refused to sign the application, the
reason(s) should be documented.
(f) Charge-off.
(1) Judgment debts. Judgment debts, regardless of the amount, may be charged
off without the debtor’s signature upon a favorable recommendation of the
servicing official provided:
(i) The United States Attorney’s file is closed, and
(ii) The requirements of paragraph (e)(2)(ii) of this section, if applicable,
have been met, or 2 years have elapsed since any collections were made
on the judgment. The debtor must also have no equity in the property
subject to the lien or upon which a lien can be obtained.
(2) Non-judgment debts. Debts that cannot be settled under other sections of this
part may be charged off without the debtor’s signature upon a favorable
recommendation of the servicing official in the following instances:
(i) When OGC advises in writing that the claim is legally without merit or
that evidence necessary to prove the claim in court cannot be provided; or
(ii) When there is no known security for the debt, the debtor has no other
assets from which the debt could be collected, and the debtor:
(A) Is unable to pay any part of the debt and has no reasonable
prospect of being able to do so; or
(B) Is able to pay part or all of the debt but refuses to do so, and
OGC provides an opinion to the effect that the Government cannot
enforce collection of a significant amount from assets or income.

(g) Joint debtors. Settlements may not be approved for one joint debtor unless
approved for all debtors. Joint debtors include all parties, individuals, and
organizations, who are legally liable for payment of the debt.

Staff Instruction 1782-1
Page 36
(1) Individual settlement offers from joint debtors can be accepted and
processed only as a joint offer. A separate Form RD 1956-1 will be completed
by each debtor unless the debtors are members of the same family and all
necessary financial information on each debtor can be shown clearly on a
single application.
(2) If one of the joint debtors is deceased or has received a discharge of the debt
in bankruptcy, or if the whereabouts of one of the debtors is unknown, or it is
otherwise impossible or impractical to obtain the signature of the debtor, the
application for settlement may be accepted without the debtor's signature if it
contains adequate information on each of the debtors to justify settlement of
debt as to each of the debtors. The name of the debtor requesting settlement
will be shown at the top of Form RD 1956-1 followed by the name and status of
the other debtor. For example, "John Doe, joint debtor with Jane Doe,
deceased."
(3) Joint debtors must be advised in writing that all debtors will remain liable
for the balance of the debt until any payment(s) due under the joint offer have
been made.
(h) Debtors in bankruptcy. Rural Development personnel will process reorganization
plans of debtors filing under Chapter 9, Chapter 11, or Chapter 13 as follows:
Plans submitted by debtors under Chapters 9, 11, and 13 must be sent by the
servicing official to the State Director who will recommend either acceptance or
rejection of the plans and refer them to the OGC. OGC will send the plans,
with any recommendations, to the United States Attorney for action. When the
plans call for the adjustment of a debt to Rural Development, the State Director
will obtain the advice of the Administrator before providing OGC with a
recommendation on acceptance or rejection of the plan.
(2) The United States Attorney will advise OGC of the approval or rejection of
the debtor's reorganization plan. OGC will notify the State Director of the
United States Attorney’s decision. The State Director will notify the Office of
the Deputy Chief Financial Officer by memorandum of the terms and
conditions of the bankruptcy reorganization plan, including any adjustment of
the debt.
(3) The State Director will consult with OGC regarding the representation of
the Agency at the creditors meeting to protect the Agency’s security interest
when a Chapter 7 has been filed.
(i) Processing debt settlement.

Staff Instruction 1782-1
Page 37
(1) Approval. When a debt settlement application is approved, the State
Director will:
(i) Submit Form RD 1956-1 to the Office of the Deputy Chief Financial
Officer along with any funds recovered.
(ii) Notify debtors in writing of settlement approval, including the
specific amount and terms of the offer that were accepted, for
compromise and adjustment offers and cancellations with application.
(iii)
Notify the Portfolio Management Branch in the National Office
of the amount of the debt settlement.
(iv) Not be required to notify debtors of settlement approval when debts
are cancelled without application or charged off.
(2) Requesting additional information. When rejection is necessary due to lack
of information or the amount of a compromise or adjustment offer is
inadequate, the State Director may request additional information or make an
effort to obtain an acceptable offer. Notice of rejection of an offer will be
withheld until sufficient time has elapsed to enable the debtor to present further
information or a new offer.
(3) Rejection. When a debt settlement application is rejected, the State Director
will:
(i) Document the reasons for rejection on Form RD 1956-1.
(ii) Request the Office of the Deputy Chief Financial Officer to return
any adjustment or compromise payment held by the Office of the Deputy
Chief Financial Officer to the borrower, in care of the servicing official.
(iii)
Retain the original Form RD 1956-1 in the State Office and
return case files and copies of Form RD 1956-1 to the servicing official.
(iv) Return any adjustment or compromise payment held by the State
Office to the borrower, in care of the servicing official.
(v) Notify the debtor in writing of the reason(s) for rejecting the
compromise and adjustment offers under paragraph d of this Section
and cancellations with application under paragraph e (1) of this Section.
(4) Appeal rights. The debtor will be given the right to appeal the rejection of
any debt settlement offer made by the debtor under 7 CFR 1782.20.

Staff Instruction 1782-1
Page 38
(5) Payments.
(i) When the debtor offers a lump sum payment in compromise or an
initial payment on an adjustment offer, that payment will accompany the
settlement application at the time the application is filed with the
servicing official.
(ii) Checks or check transmittal letters containing restrictive notations
such as “settlement in full” or “payment in full” will be forwarded to the
State Office where they will be retained until approval or rejection of the
offer. The use of restrictive notations will be discouraged to the fullest
extent possible.
(iii)
All payments evidenced by Form RD 451-2, “Schedule of
Remittances” bearing the legend “Compromise Offer – Rural
Development” or Adjustment Offer – Rural Development” will be held
in the Deposits Fund Account by the Finance Office until notification is
received from the State Office of the approval or rejection of the offer.
(A) Upon receipt of an approved Form RD 1956-1,
remittances will be applied in accordance with established
policies, beginning with the oldest loan included in the
settlement, except that when the request for settlement
includes loans made from different revolving funds, the
Finance Office will prorate the amount received on the basis
of the total principal balance due the respective revolving
funds.
(B) Upon notification of a rejection of a debtor’s offer and
receipt of a request from the State Director for a refund, the
Finance Office will refund the debtor, in care of the servicing
official, the amount held in the Deposits Fund Account.
(iv) When a debtor’s adjustment offer is approved, accounts involved will
not be adjusted in the records of the Office of the Deputy Chief
Financial Officer until all payments have been made. Form RD 1956-1
will be held in a suspense file pending payment of the full amount of the
approved offer.
(v) If the State Director voids a settlement agreement for
noncompliance, any payments received shall be applied against the debt
owed on the date the compromise or adjustment offer was approved.

Staff Instruction 1782-1
Page 39
(6) Reporting to the Internal Revenue Service (IRS). Pursuant to an IRS
requirement, the Agency will report debts determined to be uncollectible to the
IRS. After reporting the debt to the IRS, no further collection efforts will be
made. The Office of the Deputy Chief Financial Officer will report discharges
of debt to the IRS on IRS Form 1099-C, "Cancellation of Debt.”
(7) Delinquent adjustment agreement.
(i) The servicing official is responsible for notifying debtors in advance
of the due dates of payments on debt settlement agreements and for
monitoring compliance with the terms of settlement agreements. If a
payment is delinquent, the servicing official should contact the debtor
promptly to determine the reason for delinquency and the debtor’s plan
for completing the agreement.
(ii) Delinquencies of 30 days or more will be reported to the State
Director along with other pertinent information and the
recommendation of the servicing official regarding further handling of
the case.
(iii)
The State Director may extend, for 90 days, the time for making
the payments when the circumstances of the case justify an extension.
Extensions for a greater period of time may be made by the State
Director and the servicing official.
(iv) When the debtor is financially unable to meet the terms of the debt
settlement agreement, the State Director may void the existing
agreement and process a new settlement more consistent with the
debtor’s repayment ability, provided the facts in the case justify such
action.
(v) If the State Director determines that the debtor cannot or will not
meet the terms of the settlement agreement and if the facts do not justify
approval of a new settlement agreement, the State Director will void the
existing agreement and direct the servicing official to take other
servicing actions appropriate to the circumstances of the case.
(vi) When an adjustment agreement is voided, the State Director will
notify the debtor giving the reasons in writing, with a copy to the
Finance Office and to the servicing official. Upon receipt, the Finance
Office will return the original From RD 1956-1 to the State Office.
(j) Debt settlement under the Federal Claims Collection Act.

Staff Instruction 1782-1
Page 40
(1) Debt settlement of Non-program loans must be settled under the Federal
Claims Collection Act Joint Standards (FCCAJS).
(2) The U.S. Department of Justice (DOJ) and the General Accounting Office
are charged with the responsibility for implementing and promulgating the
FCCAJS (4 CFR Parts 101-105) to inform Government agencies on how to
settle debts and claims which the agency does not have independent statutory
authority to settle. With the exception of loans and claims with outstanding
balances of $20,000 or less, exclusive of interest, penalties, and administrative
costs, settlements must be submitted to and approved by the United States
Attorney or the DOJ.
(3) Debt settlement of Non-program loans and claims may be approved as
follows:
(i) By the State Director when the outstanding balance of the
indebtedness involved in the settlement is $20,000 or less, exclusive of
interest, penalties, and administrative costs.
(ii) By the Administrator and DOJ when the outstanding balance of the
indebtedness involved in the settlement exceeds $20,000, exclusive of
interest, penalties, and administrative costs. If the State Director
recommends debt settlement, a Claims Collection Litigation Report
(CCLR), which is available through the U.S. Attorney, will be prepared
by the State Director and submitted through OGC to the U.S. Attorney.
A memorandum from the State Director should be attached to the CCLR
recommending acceptance of the debt settlement. A copy of the
memorandum and CCLR is to be submitted to the National Office. If
the State Director does not recommend acceptance, the State Director
has the authority to reject the debt settlement.
(4) Debt settlement of non-program loans settled under the FCCAJS should be
listed under Part II (B) on Form RD 1956-1, as other debts owed to Agency.
Normally, all security for the loans and claims should be disposed of prior to
the submission for debt settlement.
(5) It is not necessary to obtain approval of the United States Attorney or the
DOJ, as appropriate, in cases where the Agency decides not to settle a loan or
claim.
(k) Delinquent borrower reports.

Staff Instruction 1782-1
Page 41
(1) The Agency’s “official” listing of delinquent borrower data is published on
a monthly basis through RD Data Warehouse. The Deputy Chief Financial
Officer (DCFO) prepares official delinquency reports from the Program Loan
Accounting System (PLAS). The report is loaded to the Data Warehouse where
RD Data Warehouse can be used to extract delinquent borrower information.
These reports provide delinquency information, by State and servicing office in
both a summary and detailed format, respectively. A borrower is reported as
delinquent on RD Data Warehouse reports if any portion of a loan payment is
more than 30 days past due.
(2) In addition to providing information on delinquent borrowers, the RD Data
Warehouse report also includes a listing of “borrowers with loans that may
require attention.” A borrower is reported as having a loan that may require
attention if any portion of a loan payment is between 0 to 30 days past due.
(3) Each State and servicing office should promptly review RD Data
Warehouse reports and take appropriate action to resolve both delinquent loans
and loans that may require attention. Supplementary reports for monitoring
delinquent borrowers should also be utilized when available. These include
reports generated by RD Data Warehouse and CPAP.
(l) Servicing actions for delinquent or problem borrowers.
(1) Collections. Borrower payments should be monitored on a regular basis to
ensure payments are collected before the account becomes delinquent. All new
borrowers and new loans will use preauthorized debit payment. All other
borrowers should use preauthorized debit payment when practicable. Several
methods are available to determine if borrower payments were received by the
due date. These include CPAP and RD DATA WAREHOUSE.
(2) Contacting the borrower. A borrower that is behind in its loan payment
should be contacted immediately either by letter or telephone. If the account is
delinquent for more than 90 days, the servicing official will make arrangements
to meet the borrower and develop a workout agreement-using Form RD 195110 to outline the plan to eliminate the delinquency.
(3) Workout agreements. The following actions must be taken if the borrower is
unable to pay the delinquent amount within 90 days of its due date:
(i) The servicing official may negotiate a Workout Agreement with the
borrower using Form RD 1951-10 to eliminate the delinquency or
correct the deficiencies.

Staff Instruction 1782-1
Page 42
(ii) The agreement should include specific actions to be taken by the
borrower along with dates for completion. Effective follow-up by the
servicing official is essential to ensure the actions agreed upon are
completed as planned.
(iii)
In developing a workout agreement, consideration should be
given to utilizing supplemental human resources such as the National
Rural Water Association, Rural Community Assistance Partnership, and
the Agency Field Accountant.
(iv) The workout agreement should be reviewed and updated at least
quarterly.
(v) If the borrower is unable to correct the deficiencies within the
agreed upon timeframe, the servicing official should consider other
servicing actions, including but not limited to, re-amortization or
rescheduling, transfer and assumption, sale, receivership, foreclosure or
referral to treasury offset.
(4) Treasury offset or cross-servicing program.
(i). The Office of the Deputy Chief Financial Officer will submit a
listing of borrowers with payments 180 days past due to the National
Office. The National Office will review the listing and determine which
borrowers are eligible to be submitted to the Treasury Offset Program
(which enables offset of Federal financial assistance) or Cross-Servicing
Program (which turns the debt over to the Treasury and all Agency
collection actions cease). A borrower with a workout agreement in
place, in bankruptcy or litigation, or meeting other exclusion criteria,
will be excluded from the Treasury Offset or Cross-Servicing Program.
The National Office will identify those borrowers excluded from the
Treasury Offset or Cross-Servicing Program and notify the Office of the
Deputy Chief Financial Officer. A notice will be sent to borrowers
subject to Treasury Offset or Cross-Servicing by mail from the Office of
the Deputy Chief Financial Officer. The notice will include:
(A) The nature and amount of the debt, the intention of the
Agency to collect the debt through Treasury Offset or CrossServicing, and an explanation of the debtor’s rights;
(B) An opportunity to inspect and copy the records of the
Agency;
(C) An opportunity to review the matter within the Agency; and

Staff Instruction 1782-1
Page 43
(D) An opportunity to enter into a written repayment agreement.
(ii) The borrower will be given 60 days to resolve any delinquency
before the debt is reported to Treasury.

(5)

Re-amortization/rescheduling of debt.
(i) State Director authorization. The State Director is authorized to
approve the re-amortization of a loan or rescheduling of loan payments
under the following conditions:
(A) The account is delinquent and cannot be brought current
within 1 year while maintaining a reasonable reserve;
(B) The borrower has demonstrated for at least 1 year a
satisfactory performance or has presented a budget that indicates
it is able to meet the proposed payment schedule;
(C) A loan may be re-amortized once over a period not to exceed
the term permitted by State law, 40 years, or the life of the
facility, whichever is less; and
(D) The amount being re-amortized is within the State Director’s
loan approval authority.
(E) A loan may be rescheduled once without National Office
approval.
(ii) Requests requiring National Office approval. Previously reamortized or rescheduled loans or loans not meeting the above
conditions require National Office approval. Requests will be forwarded
to the National Office with the case file, including:
(A)
A brief narrative of the situation, recommendations of the
State Director, and a request for action;
(B)
A current budget and cash flow statement prepared on
Form RD 442-2, schedules 1 and 2, or similar forms;
(C)

A current balance sheet and income statement;

(D)

Form RD 1951-33 "Reamortization Request"

Staff Instruction 1782-1
Page 44
(E)
Exhibit F of this Staff Instruction should be appropriately
completed;
(F)

A copy of any workout agreement; and

(G)

Any other necessary supporting information.

(iii)
Processing. When legally permissible and administratively
acceptable, the total outstanding principal and interest balance will be
re-amortized rather than only the delinquent amount. The interest rate
for the re-amortized loan will be the same rate as currently reflected in
Office of the Deputy Chief Financial Officer records.
(A)
Re-amortizations will be perfected in accordance with
OGC closing instructions.
(B)
When debt instruments are modified or new debt
instruments are executed, bond counsel or local counsel, as
appropriate, will provide an opinion on the Agency’s security
position. The approval official must determine that the
Government's security interest is adequately protected.
(C)
Except as provided in paragraph (l)(4) of this section,
loans evidenced by promissory notes will be re-amortized through
a new evidence of debt unless OGC recommends modification of
the existing note. Form RD 1951-33may be used to effect such
modifications or other forms, if acceptable to OGC. The new
note, or any endorsement required by OGC will be attached to
the existing note, and retained in the servicing office until the
account is paid in full or satisfied. A copy of the note or
endorsement will be forwarded to the Office of the Deputy Chief
Financial Officer.
(D)
Loans evidenced by bonds or notes with other than real or
chattel security may be re-amortized using procedures acceptable
to the servicing official. The transaction must be legally
permissible under State statutes as determined by the borrower's
counsel and OGC.
(iv) The re-amortization or rescheduling of debt may consist of:
(A) A new evidence of total debt, which includes the total
principal and interest;

Staff Instruction 1782-1
Page 45
(B) A rescheduling agreement for the total debt, which includes
principal and interest; or
(C) A new evidence of debt or a rescheduling agreement for only
the delinquent principal and interest.
(D ) A new loan number will be assigned if the total debt is reamortized by either a new instrument or a rescheduling
agreement. If only the delinquent amount is re-amortized, the
original loan number will remain and a new loan number will be
assigned to the delinquent amount. If only the delinquent
amount is re-amortized, a payment will be made on the original
note and a separate payment made on the note for the delinquent
amount.
(1) If State statutes or prohibitive costs prevent a loan
from being re-amortized by a new or modified note, the
rescheduling agreement provided as Exhibit E of this
Staff Instruction, may be used.
(2) Preparation of new notes or bonds for public bodies
will be handled in accordance with 7 CFR Part 1780,
Subpart D, unless precluded by State statutes or an
exception is approved by the National Office.
(3) If State statutes require release of existing bonds,
the exchange will be accomplished by the servicing office.
Single bond instruments will be retained in the servicing
office and serial bonds retained in the Office of the
Deputy Chief Financial Officer.
(v) New evidence of debt or rescheduling agreement.
(A) Any new evidence of debt or rescheduling agreement will
contain:
(1) The delinquent amount, which equals the total
delinquency plus the principal and interest owed on any
advance through the date of re-amortization;
(2) The date the re-amortization is effective;

Staff Instruction 1782-1
Page 46
(3) The number of years the delinquency will be
amortized;
(4) The repayment schedule; and
(5) The interest rate.
(B) The re-amortized payment will be due on the next
scheduled due date. Deferment of interest and/or principal is not
authorized.
(C) A separate new instrument will be required for each loan
being re-amortized; unless, multiple loans are being re-amortized
which were obligated in the same fiscal year, have the same rates
and terms and will be re-amortized for the same term. Loans
meeting the above conditions may be combined under a single
new instrument.
(D) If amortized payments are not used, the schedule of
principal installments developed will be such that the combined
principal and interest payments closely approximate an
amortized payment.
(E) A copy of the bond or rescheduling agreement will be sent
to the Office of the Deputy Chief Financial Officer after
execution, except when serial bonds are used. If serial bonds are
issued, the original bond(s) will be submitted to the Office of the
Deputy Chief Financial Officer.

(m) Reamortization with interest rate adjustment. A borrower seriously delinquent in
its loan payments may be eligible for loan re-amortization with an interest rate
adjustment. The purpose of loan re-amortization with interest rate adjustment is to
provide relief for a borrower that is unable to service the outstanding loan in
accordance with its existing terms and to enhance recovery on the loan.
(1) Eligibility determination. The State Director may submit to the Assistant
Administrator, for approval, an adjustment in the interest rate charged on
outstanding loans for those borrowers who meet the following requirements:
(i) The borrower has exhausted all other servicing provisions contained
in this Staff instruction;
(ii) The borrower is experiencing severe financial hardship;

Staff Instruction 1782-1
Page 47
(iii)
Any management deficiencies must have been corrected or the
borrower must submit a plan acceptable to the State Office to correct
any deficiencies before an interest rate adjustment may be considered;
(iv) The borrower’s user rates can not be lower than similar systems. In
addition, the operating expenses reported by the borrower must appear
reasonable in relation to similar system expenses;
(v) The borrower has cooperated with Rural Development in exploring
alternative servicing options and has acted in good faith with regard to
eliminating the delinquency and complying with its loan agreements and
Agency regulations; and
(vi) The account must be delinquent at least one annual debt payment
for 180 days.
(2) Condition of approval. All borrowers approved for an adjustment in the
rate of interest by the Assistant Administrator, shall agree to the following:
(i) The borrower shall agree not to maintain cash or cash reserves
beyond what is reasonable at the time of interest rate adjustment to meet
debt service, operating, and reserve requirements. The interest rate
adjustment must also be necessary for the financial viability of the
borrower.
(ii) A review of the borrower’s management and business operations
should it be required by the servicing official.
(iii) A copy of the latest audited financial statements or management
report must be submitted to the State Director.
(3) Interest rate and term. At the discretion of the Assistant Administrator, and
consistent with State law, the interest rate charged on outstanding loans of
eligible customers may be adjusted to no less than the poverty interest rate and
the term of the loans may be extended up to a new 40 year term or the
remaining useful life of the facility, whichever is less.
(n) Disposition of essential Agency records.
(1) Disposition of borrower files will be handled in accordance with RD
Instruction 2033-A.

Staff Instruction 1782-1
Page 48
(2) Essential agency records evidencing debts settled by compromise,
completed adjustment, or canceled with application may be returned to the
debtor or to the debtors' legal representative. The appropriate legend, such as
"Satisfied by Approved Compromise" and the date of the final action will be
stamped or typed on the original document. This information plus the date the
original document is returned to the debtor will be placed in the debtor's case
folder.
(3) Essential agency records evidencing charged off debts will be retained in
the servicing office and will not be stamped or returned to the debtor. These
records will be destroyed 6 years after charge-off pursuant to RD Instruction
2033-A.
(o) Bonds in default. The State Director will approve implementation of the remedies
provided in the bond to eliminate a borrower’s default provided the debt is within the
State Director’s loan approval authority. OGC should be consulted for guidance in
remedying a bond in default. Debt exceeding the State Director’s loan approval
authority will be submitted to the Assistant Administrator for concurrence.
(p) Liquidation of loans secured by real estate. When it is determined that further
servicing will not achieve the objective of a loan and voluntary sale of the property
cannot be accomplished, loan(s) secured by real estate will be liquidated by
foreclosure. Voluntary conveyance will be authorized only after all other methods of
liquidation have been considered. A property acquired by the Agency will be managed
and disposed of in the best interests of the Government and the local community.
Agency management of property shall be performed primarily to protect the
Government’s security interest and shall not participate in the management of a
facility in such a fashion as to exercise day-to-day decision making control over the
environmental compliance or operational aspect of the facility. All questions
regarding the appropriateness of management actions in the context of the
Comprehensive Environmental Response, Compensation, and Liability Act shall be
referred to the Rural Development State Environmental Coordinator or the National
Office.
(1) Foreclosure. The State Director is authorized to approve foreclosure of
property providing the total Agency loss does not exceed $100,000. The
servicing official will obtain OGC opinion on the steps necessary to foreclose
the loan. A copy of OGC opinion, Form RD 1951-10, the borrower’s case file,
and other information required by OGC will be forwarded to the State Director
for approval. Foreclosures on property with total Agency loss exceeding
$100,000 will be forwarded, with the State Director’s recommendation, to the
Administrator for approval. Actions subsequent to foreclosure approval are as
follows:

Staff Instruction 1782-1
Page 49
(i) The account will be accelerated using a notice approved by OGC.
The State Director will sign the acceleration notice.
(ii) After the account is accelerated, loan servicing ceases. The
servicing official will accept no payment for less than the unpaid loan
balance.
(iii) If the borrower requests additional time to voluntarily liquidate the
account, the approval official will decide if foreclosure should be
delayed.
(iv) If bankruptcy is filed after an account has been accelerated, any
further foreclosure action must be suspended until OGC approval is
obtained.
(v) The borrower will be given appeal rights as required in 7 CFR Part
11. Foreclosure actions will be held in abeyance if an appeal is
pending.
(vi) If the borrower fails to satisfy the account during the timeframe
specified in the acceleration notice the foreclosure process will continue
if no appeal is pending.
(vii) The State Director will forward the case file and all necessary
documents to OGC for processing the foreclosure.
(viii) Exhibit F of this Staff Instruction should be appropriately
completed.
(ix) OGC will issue instructions for completion of the foreclosure. At
the time indicated by OGC in the foreclosure instructions, Form RD
1951-6, “Borrower Account Description Flag,” will be processed in
accordance with the Forms Manual Insert (FMI).
(x) The advertisement for foreclosure sale will contain a statement
similar to the following: “The property described herein was purchased
or improved with Federal financial assistance and is subject to the
nondiscrimination provisions of Title VI of the Civil Rights Act of 1964,
Section 504 of the Rehabilitation Act of 1973 and other similarly worded
Federal statutes and regulations issued pursuant thereto that prohibit
discrimination on the basis of race, color, national origin, handicap,
religion, age or sex in programs or activities receiving Federal financial
assistance, for as long as the property continues to be used for the same
or similar purposes for which the federal assistance was extended or for

Staff Instruction 1782-1
Page 50
so long as the purchasers owns it, whichever is later.” The purchaser
will be required to sign Form RD 400-4, if the property will be used for
its original or similar purposes.
(xi) If permitted by State law, the State Director will designate an
individual to bid on the property. The Government’s bid will be entered
when no other party makes a bid or when the last bid made will result in
the property being sold for less than the bid authorized.
(xii) The Government bid will be the amount of Agency’s gross investment
or the market value, whichever is less. Gross investment is all debt owed
to the Agency including secured loans; advances; and where state law
permits, unsecured debts. The market value will be determined by an
appraisal completed by a qualified appraiser.
(2) Voluntary conveyance. The State Director is authorized to approve a
voluntary conveyance providing the Agency secured debt is within the State
Director’s loan approval authority. The Agency will not demand a borrower
voluntarily convey property. A borrower should be advised in writing of any
equity in the property before accepting an offer to voluntarily convey. If the
Agency receives an offer of voluntary conveyance, acceptance should only be
considered when the Government will likely receive a recovery on its investment
and all other servicing actions have been considered. The current market value
of the property must exceed the Agency’s debt and any other liens. Voluntary
conveyance should be refused if the Agency’s lien has neither present nor
prospective value or recovery of the value would be unlikely or uneconomical.
(i) Processing voluntary conveyance. An offer of voluntary conveyance
will consist of the following:
(A) Form RD 1955-1, “Offer to Convey Security”;
(B) A Warranty Deed or other deed approved by OGC to comply
with State laws. The deed will not be recorded until it is
determined the voluntary conveyance will be accepted;
(C) A current balance sheet and income statement;
(D) A duly adopted board resolution with the corporate seal
affixed;
(E) If property is leased, the lease will be assigned to the
Government. The effective date will be the date on which the
voluntary conveyance is closed;

Staff Instruction 1782-1
Page 51
(F) A lien search indicating any outstanding liens against the
property.
(G) An appraisal of property. After an offer of voluntary
conveyance, but before acceptance by the Agency, an appraisal
of the property will be made to establish the current market value
of the property. The appraisal is to be completed by a qualified
appraiser.
(H) The servicing official will submit items in paragraph
(p)(2)(i)(A) through (G) of this section with the case file to the
State Director for approval. Prior to approval, the State Director
will obtain the advice of OGC and request instructions for
processing and closing the conveyance.
(I) Items in paragraph (p)(2)(i)(A) through (H) of this section
will be submitted to the Administrator for approval if the
conveyance is not within the State Director’s loan approval
authority.
(ii) Costs of voluntary conveyance. Voluntary conveyance costs paid by
the Government will be charged to the borrower’s account as
recoverable costs. These amounts include taxes, assessments, and
conveyance related costs.
(iii) Actions taken after closing conveyance.
(A) If the borrower’s Agency account is satisfied, the note(s) will
be stamped “Satisfied by Surrender of Security and Borrower
Released from Liability,” and signed by the servicing official.
(B) If the account is not satisfied and the borrower has not been
released from liability, the account will be accelerated. If the
borrower is unable to pay the balance, the account will be
processed for charge-off or cancellation
(q) Acquisition and management of property. The Government may obtain title to
property by the following means: voluntary conveyance, conveyance by a trustee in
bankruptcy, foreclosure, or acquisition of property by exercise of Government
redemption rights.
(1) The acquisition and management of property will be accomplished in
accordance with State law and with advice from bond counsel, OGC, and
consultation with the National Office.

Staff Instruction 1782-1
Page 52
(2) Prior to final decision under this Section, the appropriate level of
environmental review must be completed. The review finding will be used to
determine the disposition of the property.
(r) Disposal of property. Eligible applicants under 7 CFR 1780.7 will receive
preference for acquiring property. The sale will be handled in accordance with
applicable State laws and with advice from OGC
(s) Program loan expenses. Exhibit D of RD Instruction 2024-A, includes the
agency’s listing of recoverable or non-recoverable program loan expenses. Funds
required to pay program loan expenses will be requested by submitting RD Form 195110 to the National Office. Invoices or documentation supporting the expenses must be
included with the request for funds.
(1) Recoverable expenses. A contractual or non-contractual program loan
expense that is chargeable to a borrower or property account.
(2) Non-recoverable expenses. A contractual or non-contractual program
loan expense not chargeable to a borrower or property account.
(t) Protective advances.
(1) The State Director is authorized to approve, without regard to any loan or
total indebtedness limitation, vouchers to pay costs, including insurance and
real estate taxes, to preserve and protect the security, the lien, or the priority of
the lien securing the debt owed to or insured by the Agency if the debt
instrument provides that the Agency may voucher the account to protect its lien
or security. The State Director must determine that authorizing a protective
advance is in the best interest of the Government. For insurance, factors such
as the amount of advance, occupancy of the structure, vulnerability to damage
and present value of the structure and contents will be considered.
(2) Protective advances are considered due and payable when advanced.
Advances bear interest at the rate specified in the most recent debt instrument
authorizing such an advance.
(3) Protective advances are not to be used as a substitute for a loan.
(4) Vouchers are prepared in accordance with applicable procedures set forth
in RD Instruction 2024-A.
(u)

Unliquidated obligations.

Staff Instruction 1782-1
Page 53
(1) State Offices are required to semi-annually review and certify the status of
their unliquidated obligations to the Office of the Deputy Chief Financial
Officer. State Offices are also required to simultaneously submit copies of the
unliquidated obligation report to the National office.
(2) The DCFO will provide State Offices Report Code 743, Report of Prior
Year Unliquidated Obligations semi-annually as of March 31 and September 30
for certification that obligations are accurate and valid. The DCFO will
include instructions with Report Code 743 for reviewing, certifying, and
annotating the report. The instructions will include canceling unliquidated
obligations as appropriate. The review of the report is to be completed as
follows:
(i) The status of obligations shown on the report will be annotated in
the left margin based on the following categories using the codes
provided:
(A)
Cancellation of obligation should be accomplished
through the field office terminal system. Identify by placing an
“X” in the left margin. Show amount and date of cancellation;
mark only those cancellations processed prior to the requested
return date of the report.
(B)
If a check was issued, show the date and amount of the
check.
(C)
Establish timeframes as follows: “1” for funds expected
to be requested within 12 months, and “2” for funds expected to
require over 12 months before request. Provide comments for
those obligations when funds are required over 36 months.
(ii) Enter the following statement on the first page of the report,
signed/dated by the State Director and submitted to the Office of the
Deputy Chief Financial Officer: “I certify that RC 743 dated July 31,
has been reviewed, and all obligations not shown as cancelled are valid
and should be retained.
(3) State Offices will provide a copy of the annotated/certified Report Code 743
as of March 31 to the DCFO with a copy to the National Office. The
annotated/certified Report Code 743 as of September 30 will be retained in the
State Office files.
(4) Loan and grant funds cancelled in the fiscal year obligated will be returned
to the state allocation. All other cancelled funds will be returned to the

Staff Instruction 1782-1
Page 54
National Reserve except loan funds obligated prior to fiscal year 1996. Loan
funds obligated prior to 1996 and cancelled are not available for new
obligations. Loan and grant funds returned to the National Reserve will be
available for new obligations. The amount of funds available for new
obligations may be different than the cancelled amount if the Agency’s subsidy
rate has changed.
(5) Agency Loan and Grant funds not expended under 7 CFR 1780.45 within
five years of obligation will be canceled. Prior to the actual cancellation, the
borrower will be notified of the Agency's intent to cancel the remaining funds.
The applicant will be given appropriate appeal rights unless written approval to
cancel is provided. The Processing Official will prepare and execute Form RD
1940-10, "Cancellation of U.S. Treasury Check and/or Obligation," in
accordance with the Forms Manual Insert. A copy will be submitted to the
National Office. Budget authority from the de-obligated funds may be
requested from the National Office Reserve.

§ 1782.21 [Reserved]
§ 1782.22 Exception authority.
The Administrator may, in individual cases, make an exception to any requirement or
provision of this part which is not inconsistent with the authorizing statute or other applicable
law and is determined to be in the Government's interest. Requests for exceptions must be made
in writing by the State Director and supported with documentation to explain the adverse effect
on the Government's interest, propose alternative course(s) of action, and show how the adverse
affect will be eliminated or minimized if the exception is granted. The exception decision will
be documented in writing, signed by the Administrator, and retained in the files.
§ 1782.23 Use of Rural Development Loans and Grants for other purposes.
(a)
If, after making a loan or a grant, the Administrator determines that the
circumstances under which the loan or grant was made have sufficiently changed to make
the project or activity for which the loan or grant was made available no longer
appropriate, the Administrator may allow the borrower or grantee to use property (real
and personal) purchased or improved with the loan or grant funds, or proceeds from the
sale of property (real and personal) purchased with such funds, for another project or
activity that:
(1) Will be carried out in the same area as the original project or activity;

Staff Instruction 1782-1
Page 55
(2) Meets the criteria for a loan or grant described in section 381E(d) of the
Consolidated Farm and Rural Development Act (Pub. L. 87-128), as amended;
and
(3) Satisfies such additional requirements as are established by the
Administrator.
(b)
If the new use of the property is under the authority of another USDA Agency
Administrator, the other Administrator will be consulted on whether the new use will
meet the criteria of the other program. Since the new project or activity must be carried
out in the same area as the original project or activity, a new rural area determination will
not be necessary.
(c)
Borrowers and grantees that wish to use the proceeds for other purposes may
make their request through the appropriate Rural Development State Office. Permission
to use this option will be exercised on a case-by-case-basis on applications submitted
through the State Office to the Administrator for consideration. If the proposal is
approved, the Administrator will issue a memorandum to the State Director outlining the
conditions necessary to complete the transaction.
§ 1782.24-1782.99 [Reserved]
§ 1782.100 OMB Control Number.
The information collection requirements in this part are approved by the Office of
Management and Budge (OMB) and assigned OMB Control Number 0572-0137.

Staff Instruction 1782-1
Exhibit A
Page 1
In accordance with § 1782.11 of this Staff Instruction, the following format may be used to
notify a borrower the loan has become eligible for graduation review and to request current
financial information.

UNITED STATES DEPARTMENT OF AGRICULTURE
RURAL DEVELOPMENT UTILITIES PROGRAMS
(Location)

Dear:__________________________:
In accordance with the terms of your security instruments with the Rural Development Utilities
Programs (RDUP), you are required to refinance the unpaid balance of your RDUP loan(s) when
credit is available from a cooperative or private lending institution at reasonable rates and terms.
RDUP is required to periodically review your loan(s) for possible graduation to other credit. In
order to evaluate your continued eligibility for RDUP assistance, we request that certain
financial information be submitted as required by 7 CFR 1782.11. Therefore, we ask that you
please provide our office with the following information within 60 days of the date of this letter:

At your request, an appointment may be arranged to discuss RDUP' graduation policies and
procedures. Our telephone number is _______________.
Sincerely,

Staff Instruction 1782-1
Exhibit B
Page 1

In accordance with § 1782.11 of this Staff Instruction, the following format may be used as the
final notice for borrower to provide current financial information.

UNITED STATES DEPARTMENT OF AGRICULTURE
RURAL DEVELOPMENT UTILITIES PROGRAMS
(Location)

Dear ____________________________:
This is a follow-up to our previous letter dated _______________, concerning your Rural
Development Utilities Programs (RDUP) loan(s). We requested current and complete financial
information in order to determine if you are eligible for continued RDUP assistance. This
important information is required by 7 CFR 1782.11, and the terms of the security instrument
governing your loan(s).
If we do not receive the required financial information within 15 days of the date of this letter,
you will be in violation of your obligations under your security instrument. Should a violation
occur, this office will recommend legal proceedings under the security instrument without
further notice.
The information required is:

Please contact us if we can assist you in preparation of the requested information or in answering
questions concerning RDUP' graduation requirements. Our telephone is _______________.
Sincerely,

Staff Instruction 1782-1
Exhibit C
Page 1

In accordance with § 1782.11 of this Staff Instruction, the following format may be used to
request a borrower to refinance RDUP indebtedness.

UNITED STATES DEPARTMENT OF AGRICULTURE
RURAL DEVELOPMENT UTILITIES PROGRAMS
(Location)
Dear _______________:
We have reviewed the financial progress you have made since obtaining your Rural
Development Utilities Programs (RDUP) loan(s). In accordance with the terms of your RDUP
security instruments, you are required to refinance the unpaid balance of your loans(s) when
credit is available from responsible cooperative or private lenders.
We have contacted lenders to determine their requirements and the availability of credit to new
customers. We have also evaluated your financial progress, together with the lender
requirements, and find you should now be able to secure satisfactory credit to refinance your
RDUP loan(s). Therefore, we request that you refinance your
_______________________________ loan(s) in full.
(Type of loan)
The approximate balance is $
Option A.

for Loan No. _____________________.

We suggest you contact lenders that can make ________________________.
(Type of loan)

Option B.

We suggest you contact the following lenders within 30 days:

If you are unable to graduate your loan(s) in full, you will need to provide this office with
written evidence showing that an earnest effort was made to seek other credit within 90 days of
the date of this letter. Such evidence should include:
(1)

The name(s) of other lender(s) contacted;

(2)

The amount of loan requested and the amount, if any, offered by the lender(s);

Staff Instruction 1782-1
Exhibit C
Page 2

(3)

The rates and terms offered by the lender(s) or the specific reason(s) why other
credit is not available; and

(4)

The purpose of the loan request.

At your request, an appointment may be arranged to discuss RDUP' graduation policies
and procedures. Our telephone number is _________________.

Sincerely,

Staff Instruction 1782-1
Exhibit D
Page 1

In accordance with § 1782.11 of this Staff Instruction, the following format may be used to
notify the borrower of actions to be taken by RDUP for failure to respond or refinance RDUP
indebtedness.

UNITED STATES DEPARTMENT OF AGRICULTURE
RURAL DEVELOPMENT UTILITIES PROGRAMS
(Location)

Dear ____________________________:
This is a follow-up to our previous letter dated ___________, requesting you to refinance your
Rural Development Utilities Programs (RDUP) loan(s). We have examined the financial
progress you have made since obtaining your RDUP loan. Based on the results of our review,
we have determined that other credit appears available at rates and terms which you can
reasonably be expected to pay.
Therefore, we request that you take positive steps to refinance your loan(s) within 60 days of the
date of this letter. If you fail to respond as requested, this office will recommend legal
proceedings without further notice.
Please contact us if we can assist you in arranging for other credit. Our telephone number is
________________________.
Sincerely,

Staff Instruction 1782-1
Exhibit E
Page 1
In accordance with § 1782.11 of this Staff Instruction, the following format may be used to
document a rescheduling agreement with the borrower.

UNITED STATES DEPARTMENT OF AGRICULTURE
RURAL DEVELOPMENT UTILITIES PROGRAMS
RESCHEDULING AGREEMENT
(Public Bodies)
Effective Date: ___-___-___
State: ____________________________

County: _______________________

Case No.: ___-___-_____________ Fund Code: _____ Loan No: __________
Amount Rescheduled: $___,___,___.__

Interest Rate: ____._____

The undersigned, a public body entity (herein called “Borrower”), being indebted for a loan
made by the Rural Development Utilities Programs, United States Department of Agriculture,
(herein called “Government”), as evidenced by a bond or other debt instrument (herein called the
“bond”) dated ______________________, 20 __, with an outstanding balance in the principal
sum of $_____________ plus accrued interest as of ___________________, 20 __, in the sum of
$_____________, and being in default under that bond, hereby agrees with the Government as
follows:
1.

AMOUNT: The amount of the debt rescheduled is $______________, consisting
of $________________________ principal plus ____________________accrued
interest.
This amount represents:
_____ Delinquent amount only
_____ Amount of the outstanding debt plus the delinquent amount.

Staff Instruction 1782-1
Exhibit E
Page 2
2.

REPAYMENT SCHEDULE: The first installment of the rescheduled amount,
including interest at the bond rate shown above, in the amount of
$__________________ will be due and payable on _______________________,
20 __; thereafter, ___________ regular installments, each in the amount of
$______________, will be due and payable on ______________________ of
each _______________ until the rescheduled amount or, if the entire debt is
being rescheduled, the entire indebtedness due under the bond, has been fully
repaid. The final installment, if not sooner paid, shall be due and payable as
stated in the bond. Regular payments due in accordance with the bond ____ are
____ are not required in addition to the payments specified above.

3.
The Government, as consideration for this agreement, will not enforce the
remedies available to it by reason of any payment default occurring prior to the effective
date of the agreement.
4
This agreement establishes a revised payment schedule to bring the delinquent
loan account involved current, and nothing herein shall be construed as effecting any of
the terms or conditions of the bond other than the payment schedule or suggest the
satisfaction of the outstanding bond.
5.
Upon default by the borrower on any terms or conditions of this agreement or
other agreement, or violation of other rights of the Government as a lender, the
Government at its option may declare the entire indebtedness immediately due and
payable and exercise any and all rights and remedies available to it.
By resolution duly adopted on the ____________ day of _______________, 20 __, the Borrower
has authorized its ___________________________ to execute this agreement and its
______________________________ to affix its corporate seal.

ATTEST:

BY

_____________________________
Name of Borrower

_______________________________
_______________________________
(Title)

BY

___________________________
___________________________
(Title)

Staff Instruction 1782-1
Exhibit E
Page 3

INSTRUCTIONS:
A separate exhibit will be used for each loan. When legally permissible and administratively
acceptable, the entire amount of the outstanding indebtedness should be rescheduled rather than
only delinquent amounts.

1. When entering the borrower’s case number, use leading zeroes where necessary. For
example, 11 – 12 – 123456 must be entered as:
1

1

0

1

2

0

0

0

0

1

2

3

4

5

6

2. Enter the total amount of principal and interest being rescheduled. If the entire
outstanding indebtedness is being rescheduled, the amount must reflect balances for
the original debt as well as delinquent amounts.
3. Use the rate of interest reflected in current Finance Office records.
4. When only the delinquent amount is being rescheduled for serial bonds or principalplus-interest bonds, include the following amounts:
-- Unpaid interest on scheduled installments as of the last installment due date.
-- Interest accrued from date(s) due to the effective date of the rescheduling on past
due principal installments.
-- Past due principal installments.
5. At the end of item 1, enter an “X” in the appropriate blank based on whether the full
amount of the debt or only the delinquent amount is being rescheduled.
6. At the end of item 2, enter an “X” in the appropriate blank and strike through the
inappropriate response based on whether the full amount of the debt or only the
delinquent amount is being rescheduled.

Staff Instruction 1782-1
Exhibit F
Page 1
REPORT ON SERVICING ACTION
______________________________________________________________________________
Name of Borrower:
|State County Case No.
________________________________________________|____________________________
Address:

|Type of Assistance:
| Loan ____ Insured ____ Direct _____
| Grant____
| Date Facility Placed in Operation:
| _________________

Section I (Complete for all financial assistance)
1. Rural Development Financial Assistance History
Loan
Amounts
Schedule
(Initial first)
$
$
$
$
$
$
$
$

Date
Closed

Grant Amounts
(Initial first)
$
$
$
$

Int.
Rate

Date
Closed

No.
Yrs

Principal
Balance

Interest
Accrued

Ahead
(Behind)
Principal

Ahead
(Behind)
Interest

Principal & interest balances as of _______ for $_________
Annual /

/ Monthly /

/ Payment $_______________

Membership or Connection fee $_____________
Monthly dues or user rate
$_______________

Staff Instruction 1782-1
Exhibit F
Page 2
2. Debts Owed - Non Rural Development

To Whom
Owed
___________
___________
___________
___________

Amount

Payment
Annual | |
Monthly | |
$___________ $__________
$___________ $__________
$___________ $__________
$___________ $__________

Amount Ahead
(Delinquent)
$____________
$____________
$____________
$____________

Loan
Purpose

How
Secured

_________
_________
_________
_________

___________
___________
___________
___________

Were Outside Debts Authorized by Rural Development?
________________________________

3. Present Market Value: (required for subordination, sales, transfers, exchanges, assumptions &
mergers)
Land
Building
Equipment
Other
Total

$___________________
$____________________
$____________________
$____________________
$____________________

Value determined by:
Appraisal report
(enclose copy)
Estimate
Other

|
|
|
|

|
|
|
|

4. Memberships’ Users (Recreation, Water & Waste)
(a) Number required at closing ______
(b) Actual at closing ______
(c) Members-Users, last 5 years _______ ______ ______ ______ ______
Year: (
) (
) (
) (
) (
)
(d) Explain lower than required membership at loan closing and decreases in recent years.
____________________________________________________________________________
____________________________________________________________________________
(e) Amount of delinquency in dues or charges $____________ as of
______________.
Number of members-users delinquent __________
(f) Past steps taken to increase members-users. ____________
(g) Can members be assessed? ___________ If yes, when? _____________

Staff Instruction 1782-1
Exhibit F
Page 3

5. Occupancy, Patient Days, Clinic Visits (Health Care)
(As appropriate)
(a) At loan closing _____________________
(b) Past 5 years
_______ _______ _______ _______ ______
(
) (
) (
) (
) (
)
(c) Reasons for decreases in recent years.
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________

Section II
Complete The Following, As Appropriate, For All Servicing Actions Except Subordination &
Lease Of Security
1. Type of action requested:
/_/ Reamortization
/_/ Liquidation
/_/ Merger

/_/ Sale or Exchange /_/ Transfer & Assumption

2. Description of the facility.
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
3. Describe the problem.
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

Staff Instruction 1782-1
Exhibit F
Page 4
4. Condition of Facilities
(a) Building _________________________________________________________________
(b) Equipment _______________________________________________________________
(c) Land ____________________________________________________________________
(d) Water Systems (well-lines, treatment plant-storage, etc.)
___________________________________________________________________________
(e) Sewer System (lines, manholes, lagoons, treatment facilities) _______________________
_________________________________________________________________________
5. Is Board of Directors carrying out responsibilities? (Explain No's)______________________
_____________________________________________________________________________
_____________________________________________________________________________
6. Is management adequate? (Explain No's)
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
7. Explain the condition and adequacy of records, financial data and reports.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
8. Explain the general attitude of community leaders, civic clubs, Mayor, industry, etc. toward
the facility.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
9. Is there any general consensus among those interviewed on the need for any specific changes
in the policies or practices of the project? For example, do they think the charges are too high or
too low, certain phases should be eliminated, or certain services added? (Explain)
______________________________________________________________________________
______________________________________________________________________________

Staff Instruction 1782-1
Exhibit F
Page 5
10. Comments on other like facilities in the area.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
11. Is the Board willing to close out enterprise which is losing money or causing unsavory
reputation? ___________ Explain:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
12. Action requested to solve the problem.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
13. If liquidation is initiated, what are the alternative uses of the project?
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
14. Reamortization Only
(a) Total amount to be reamortized $ ______________________________
(b) New monthly /_/ annual /_/ payment $__________________________
(c) Rate & terms ______________________________________________
15. Sales, Transfers, Liquidations, Mergers, etc.
Complete as appropriate:
(a) Sale or transfer price
$_______________________________
(b) Estimate selling expense
$_____________________________
(c) Anticipated loss to government $___________________________
(d) Proposed transaction date
_____________________________
(e) Terms & conditions:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

Staff Instruction 1782-1
Exhibit F
Page 6
16. Comments and Recommendations: All three must be completed
(a) Area Director
______________________ _____________________________
Date
Area Director
(b) Program Director

___________________ __________________________________
Date
Program Director, Community Programs
(c) State Director
__________________
Date

__________________________________
State Director