(a) This subpart contains regulations for loans made by the Agency to eligible intermediaries that will make and service loans to ultimate recipients pursuant to requirements in this subpart. This subpart applies to intermediaries, ultimate recipients, and other parties involved in making such loans.

(b) The purpose of HPRP is to assist heirs with undivided ownership interests resolve ownership and succession issues on a farm that is owned by multiple owners. This purpose is achieved by providing loan funds to eligible intermediaries who will re-lend to individuals and entities for the purpose of developing and implementing a succession plan and to resolve title issues.

(c) Intermediaries receiving HPRP loans must comply with this subpart, the HPRP loan agreement, the intermediary's relending plan approved by the Agency, the HPRP loan documents and security instruments and any other conditions that the Agency may impose in making a loan.

Abbreviations and definitions used in this subpart are found in § 761.2 of this chapter.

(a) Eligible entity types. Cooperatives, credit unions, and nonprofit organizations are eligible to participate as intermediaries.

(b) Certification. The intermediary must be certified as a community development financial institution under 12 CFR 1805.201 to operate as a lender.

(c) Citizenship. The applicant and the members of the intermediary must be a U.S. citizen or qualified alien (see 8 U.S.C. 1641). Each intermediary must certify to the citizenship requirement in the HPRP loan application.

(d) Experience. The intermediary must have:

(1) The requisite experience and capability in making and servicing agricultural and commercial loans that are similar in nature to HPRP. If consultants will be used in the making and servicing of HPRP loans, the Agency will assess the intermediary's experience in choosing and supervising consultants based on information intermediaries include in their application describing the particular lending functions they typically rely on agents to fulfill and also describe their policies and procedures for monitoring these agents;

(2) The legal authority necessary to carry out the proposed loan purposes and to obtain, provide security for, and repay the proposed loan; and

(3) Demonstrated ability and willingness to repay the loan based on the intermediary's financial condition, managerial capabilities, and other resources.

(a) The eligibility requirements for the ultimate recipient are:

(1) Ultimate recipients must be individuals or legal entities, with authority to incur the debt and to resolve ownership and succession of a farm owned by multiple owners;

(2) Individual ultimate recipients or members of entity ultimate recipients must be a family member or heir-at-law related by blood or marriage to the previous owner of the real property; and

(3) The ultimate recipient must agree to complete a succession plan.

(b) The intermediary will determine the eligibility of the applicant to become the ultimate recipient in accordance with the rules provided in this subpart and in accordance with the intermediary's relending plan as approved by the Agency in the HPRP loan agreement.

(a) Loans to the intermediary. HPRP loan funds must be used by the intermediary to provide direct loans to eligible ultimate recipients according to the rules provided in this subpart and pursuant to the HPRP loan agreement approved by the Agency.

(b) Loans to the ultimate recipients. HPRP loan funds:

(1) Must be used to assist heirs with undivided ownership interests to resolve ownership and succession of a farm owned by multiple owners;

(2) Must be sufficient to cover costs and fees associated with development and implementation of the succession plan, including closing costs (such as costs for preparing documents, appraisals, surveys, and title reports) and other associated legal services (such as fees incurred for mediation); and

(3) May be used to purchase and consolidate fractional interests held by other heirs in jointly-owned property, and to purchase rights-of-way, water rights, easements, and other appurtenances that would normally pass with the property and are necessary for the proposed operation of the farm.

(a) For each application period:

(1) Loans to intermediaries will not exceed $5,000,000 to any intermediary;

(2) Loans to ultimate recipients will not exceed the loan limit for a Direct Farm Ownership loan as specified in § 761.8(a)(1)(i) of this chapter to any ultimate recipient.

(b) Loans to the ultimate recipient may not be used:

(1) For any land improvement, development purpose, acquisition or repair of buildings, acquisition of personal property, payment of operating costs, payment of finders' fees, or similar costs;

(2) For any purpose that will contribute to excessive erosion of highly erodible land or for the conversion of wetlands to produce an agricultural commodity as specified in 7 CFR part 12; or

(3) To resolve heirs' property issues on property that will not be used, or has traditionally not been used, for production agricultural purposes.

(c) The HPRP loan amount may not exceed the current market value of the land determined by an appraisal that meets the requirements specified in § 761.7(b)(1) of this chapter; and

(d) Intermediaries who receive HPRP funding are not permitted to charge the ultimate recipients for mediation services provided through grants received under the Agency's State Agriculture Mediation Program (part 785 of this chapter).

(a) For loans to intermediaries:

(1) The rate of interest for an HPRP loan will bear a fixed rate over the term of the loan of 1 percent or less as determined by the Administrator;

(2) The repayment term for an HPRP loan will not exceed 30 years; and

(3) Annual payments will be established. Interest will be due annually; however, principal payments may be deferred by the Agency.

(b) Loans to the ultimate recipient from the HPRP revolving loan fund are required to have rates and terms clearly and publicly disclosed to qualified ultimate recipients.

(1) The interest rate for loans to ultimate recipients will be set by the intermediary within the limits established by the intermediary's relending plan approved by the Agency. The rate should normally be the lowest rate sufficient to cover the loan's proportional share of the HPRP revolving loan fund's debt service costs, reserve for bad debts, and administrative costs.

(2) Loans made by an intermediary to an ultimate recipient will be scheduled for repayment over a term negotiated by the intermediary and ultimate recipient; but in no case will the loan term exceed 30 years, unless otherwise specified by the Agency.

(a) The intermediary must submit a proposed relending plan which, once approved by the Agency, will be incorporated by reference as an attachment to the HPRP loan agreement. The relending plan will explain in sufficient detail the mechanics of how the funds will be distributed from the intermediary to the ultimate recipient.

(b) The intermediary's relending plan must include copies of the intermediary's proposed application forms, loan documents and security instruments, if available, and should include information regarding:

(1) The service area;

(2) The proposed fees and other charges the intermediary will assess the ultimate recipients;

(3) Eligibility criteria for the ultimate recipient;

(4) Authorized loan purposes;

(5) Loan limitations;

(6) Loan underwriting methods and criteria;

(7) Loan rates and terms;

(8) Security requirements;

(9) The method of disbursement of the funds to the ultimate recipient;

(10) The process for addressing environmental issues on property to be purchased;

(11) The proposed process for reviewing loan requests from ultimate recipients and making eligibility determinations;

(12) A description of the established internal credit review process;

(13) The monitoring and servicing of loans distributed to the ultimate recipients;

(14) The amount that will be set aside to maintain a reserve for bad debts; and

(15) A description of the requirements for maintaining adequate hazard insurance, workmen's compensation insurance on ultimate recipients, and flood insurance.

(a) The intermediary's loan application will consist of:

(1) An application form provided by the Agency;

(2) A relending plan addressing the items in § 769.157;

(3) A copy of the intermediary's certification as a community development financial institution;

(4) A signed form, to be provided by the Agency, assuring the intermediary's compliance and continued compliance with Title IX of the Education Amendments of 1972 (20 U.S.C. 1681-1688) and Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d-1-2000d-7);

(5) Other evidence the Agency requires to determine that the intermediary satisfies the eligibility requirements in § 769.152, and that the intermediary's proposed relending plan is feasible and meets the objectives of HPRP;

(6) Documentation of the intermediary's ability to administer the HPRP loan funds in accordance with this subpart; and

(7) The name(s) of attorneys or any third parties involved with the application process.

(b) Prior to loan approval and advancing funds, the intermediary must certify that:

(1) The intermediary and its officers, or agents are not delinquent on any Federal debt, including, but not limited to, federal income tax obligations, federal loan or loan guarantee, or obligation from another Federal agency. If delinquent, the intermediary must provide in writing the reasons for the delinquency, and the Agency will take this into consideration in deciding whether to approve the loan or advance of funds;

(2) The intermediary and its officers have not been convicted of a felony criminal violation under Federal law in the 24 months preceding the date of the loan application;

(3) The intermediary is in compliance with the restrictions and requirements in 31 U.S.C. 1352,limitation;

(4) The intermediary has been informed of the options by the Federal Government to collect delinquent debt; and

(5) The intermediary, its officers, or agents are not debarred or suspended from participation in Government contracts or programs.

(c) An intermediary that has received one or more HPRP loans may apply for and be considered for subsequent HPRP loans provided:

(1) The intermediary is relending all collections from loans made from its revolving fund in excess of what is needed for the required debt service reserve and approved administrative costs;

(2) The outstanding loans of the intermediary's HPRP revolving loan fund are performing; and

(3) The intermediary is following all regulatory requirements and is complying with the terms and conditions of its HPRP loan agreement(s) and the intermediary's relending plan(s) approved by the Agency.

(d) The Agency may require the intermediary to provide information relating to applications from ultimate recipients the intermediary has in process.

(a) Intermediary loan application review. The Agency will review submitted applications from intermediaries for compliance with the provisions of this subpart.

(b) Loan approval. Loan approval is subject to the availability of funds. The loan will be considered approved for the intermediary on the date the Agency signs the obligation of funds confirmation.

(c) Preferences for loan funding. When necessary to address funding constraints, the Agency will fund eligible applications from intermediaries in the order specified in paragraphs (c)(1) through (4) of this section:

(1) First, to those with not less than 10 years of experience serving socially disadvantaged farmers and ranchers that are located in states that have adopted a statute consisting of an enactment or adoption of the Uniform Partition of Heirs Property Act, as approved and recommended for enactment in all States by the National Conference of Commissioners on Uniform State Laws in 2010, that relend to owners of heirs property (as defined by the Uniform Partition of Heirs Property Act);

(2) Second, to those that have applications from ultimate recipients already in process, or that have a history of successfully relending previous HPRP funds;

(3) Multiple applications in the same priority tier, will be processed based by date of application received; and

(4) Any remaining applications, after priority tiers 1 and 2 have been funded as specified in paragraphs (c)(1) and (2) of this section, will be funded in order of the date the application was received.

(d) Current information required. Information supplied by the intermediary in the loan application must be updated by the intermediary if the information is more than 90 days old at the time of loan closing.

(a) If the Agency approves a loan application, the Agency will provide the intermediary with a letter of conditions listing all requirements for the loan.

(b) Immediately after reviewing the conditions and requirements in the letter of conditions, the intermediary should complete, sign, and return the form provided by the Agency indicating the intermediary's intent to meet the conditions.

(1) If certain conditions cannot be met, the intermediary may propose alternative conditions to the Agency.

(2) The Agency loan approval official must concur with any changes made to the initially issued or proposed letter of conditions prior to loan approval.

(c) The loan request will be considered withdrawn if the intermediary does not respond within 15 calendar days from the date the letter of conditions was sent.

(a) The HPRP loan agreement will specify the terms of each loan, such as:

(1) The amount of the loan;

(2) The interest rate;

(3) The term and repayment schedule;

(4) Any provisions for late charges;

(5) The disbursement procedure;

(6) Provisions regarding default; and

(7) Fidelity insurance.

(b) As a condition of receiving HPRP loan funds, the intermediary will agree:

(1) To obtain written approval from the Agency prior to making any changes in the intermediary's articles of incorporation, charter, or by-laws;

(2) To maintain a separate ledger and segregated account for the HPRP revolving loan fund;

(3) To comply with the Agency's annual reporting requirements in § 769.164(g);

(4) To obtain prior written approval from the Agency regarding all forms to be used for relending purposes, as well as the intermediary's policy with regard to the amount and security to be required;

(5) To obtain written approval from the Agency prior to making any significant changes in the proposed forms, security policy, or the intermediary's relending plan;

(6) To maintain the collateral pledged as security for the HPRP loan; and

(7) To request demographics data from ultimate recipients on race, ethnicity, and gender. The response to the data request will be voluntary. The intermediary will maintain the information when voluntarily submitted by the ultimate recipient. The intermediary agrees to make this information available when requested by FSA.

(a) Loans to intermediaries. Security pledged to the Agency by intermediaries must be sufficient to reasonably assure repayment of the loan, while taking into consideration the intermediary's financial condition, the intermediary's relending plan, and the intermediary's management ability. The Agency will require adequate security, as determined by the Agency, to fully secure the loan:

(1) Primary security for HPRP loan will consist of a pledge by the intermediary of all assets now or hereafter placed in the HPRP revolving loan fund, including cash and investments, notes receivable from ultimate recipients, and the intermediary's security interest in collateral pledged by ultimate recipients. A first lien in the intermediary's HPRP revolving loan fund account(s) will be accomplished by a deposit agreement. The deposit agreement with the depository bank will perfect the Agency's security interest in the intermediary's depository accounts. The deposit agreement must be approved by the Agency. The deposit agreement will not require the Agency's signature for withdrawals. The intermediary must use a depository bank that agrees to waive its offset and recoupment rights against the depository account and subordinate any liens it may have against the HPRP depository account in favor of the Agency;

(2) Additional security as needed, which includes, but is not limited to:

(i) Assignments of assessments, taxes, levies, or other sources of revenue as authorized by law;

(ii) Financial assets of the intermediary and its members; and

(ii) Capital assets or other property of the intermediary and its members.

(b) Loans to the ultimate recipient. The intermediary is responsible for obtaining adequate security for all loans made to ultimate recipients from the HPRP revolving loan funds as specified in the HPRP loan agreement and intermediary's relending plan. The Agency will only require concurrence with the intermediary's proposed security for a loan to an ultimate recipient from the HPRP revolving loan fund if the proposed security will also serve as security for an unrelated Agency loan.

(a) HPRP loan documents and security instruments. At loan closing, the intermediary will execute the HPRP loan agreement or supplemental loan agreement, HPRP promissory note, the HPRP security agreement, the control agreement, and any other security instruments required by the Agency.

(b) Intermediary certification. At loan closing, the intermediary must certify that:

(1) No changes have been made in the intermediary's relending plan except those approved in the interim by the Agency;

(2) All requirements in the letter of conditions have been met; and

(3) There has been no material change in the intermediary or its financial condition since the issuance of the letter of conditions. If there have been changes, the intermediary must explain the changes to the Agency. The Agency will review the changes and respond in writing prior to loan closing.

(a) Applicability. Whenever this subpart imposes a requirement on loan funds from the HPRP revolving loan fund, the requirement will apply to all loans made by an intermediary to an ultimate recipient from the intermediary's HPRP revolving loan fund for as long as any portion of the intermediary's HPRP loan remains unpaid.

(b) Applicability for HPRP loan funds. Whenever this subpart imposes a requirement on loans made by intermediaries from HPRP loan funds, without specific reference to the HPRP revolving loan fund, such requirement only applies to loans made by an intermediary using HPRP loan funds, and will not apply to loans made from revolved funds.

(c) File maintenance. In addition to information normally maintained by lenders in each loan file associated with a relending loan to an ultimate recipient, the intermediary must include a certification and supporting documentation in its file demonstrating that:

(1) The ultimate recipient is eligible for the loan;

(2) The loan is for eligible purposes; and

(3) The loan complies with all applicable laws, regulations, and the intermediary's HPRP loan agreement.

(d) Maintenance of HPRP revolving loan fund. For as long as any part of an HPRP loan remains unpaid, the intermediary must maintain the HPRP revolving loan fund in accordance with the requirements in paragraphs (d)(1) through (11) of this section:

(1) All HPRP loan funds received by an intermediary must be deposited into the HPRP revolving loan fund. The intermediary may transfer additional assets into the HPRP revolving loan fund;

(2) All cash of the HPRP revolving loan fund must be deposited in a separate bank account or accounts;

(3) The HPRP revolving loan fund must be segregated from other financial assets of the intermediary, and no other funds of the intermediary will be commingled with the HPRP revolving loan fund;

(4) All moneys deposited in the HPRP revolving loan fund account or accounts will be money from the HPRP revolving loan fund;

(5) Loans to ultimate recipients are advanced from the HPRP revolving loan fund;

(6) The receivables created by making loans to ultimate recipients, the intermediary's security interest in collateral pledged by ultimate recipients, collections on the receivables, interest, fees, and any other income or assets derived from the operation of the HPRP revolving loan fund are a part of the HPRP revolving loan fund;

(7) The portion of the HPRP revolving loan fund consisting of HPRP loan funds may only be used for making loans in accordance with § 769.154. The portion of the HPRP revolving loan fund that consists of revolved funds may be used for debt service reserve, approved administrative costs, or for making additional loans;

(8) A reasonable amount of revolved funds must be maintained as a reserve for bad debts. The total amount should not exceed maximum expected losses, considering the credit quality of the intermediary's portfolio of loans. The amount of reserved funds proposed by the intermediary requires written concurrence from the Agency. Unless the intermediary provides loss and delinquency records that, in the opinion of the Agency, justifies different amounts, a reserve for bad debts of 6 percent of outstanding loans must be accumulated over 5 years and then maintained;

(9) Any funds in the HPRP revolving loan fund from any source that is not needed for debt service reserve, approved administrative costs, or reasonable reserves must be available for additional loans to ultimate recipients:

(i) Funds may not be used for any investments in securities or certificates of deposit of over 30-day duration without the Agency's concurrence; and

(ii) Any funds that have not been used within 6 months to make loans to an ultimate recipient must be returned to the Agency unless the Agency provides a written exception based on evidence satisfactory to the Agency that funds will be used within an additional 6 months;

(10) All reserves and other cash in the HPRP revolving loan fund must be deposited in accounts in banks or other financial institutions. Such accounts must be fully covered by Federal deposit insurance or the HPRP revolving loan fund must be protected by alternative measures approved by the Agency. The account must be interest-bearing, if feasible, and any interest earned on the account remains a part of the HPRP revolving loan fund; and

(11) If an intermediary receives more than one HPRP loan, it does not need to establish and maintain a separate HPRP revolving loan fund for each loan; it may combine them and maintain only one HPRP revolving loan fund.

(e) Budgets and administrative costs. The intermediary must submit an annual budget of proposed administrative costs for Agency approval. The annual budget should itemize cash income and cash out-flow. Projected cash income should consist of, but is not limited to, collection of principal repayment, interest repayment, interest earnings on deposits, fees, and other income. Projected cash out-flow should consist of, but is not limited to, principal and interest payments, reserve for bad debt, and an itemization of administrative costs to operate the HPRP revolving loan fund.

(1) Proceeds received from the collection of principal repayment cannot be used for administrative expenses.

(2) The amount removed from the HPRP revolving loan fund for administrative costs in any year must be reasonable, must not exceed the actual cost of operating the HPRP revolving loan fund, including loan servicing and providing technical assistance, and must not exceed the amount approved by the Agency in the intermediary's annual budget.

(f) Loan monitoring reviews. The Agency may conduct loan monitoring reviews, including annual and periodic reviews, and performance monitoring.

(1) At least annually, the intermediary must provide the Agency documents for reviewing the financial status of the intermediary, assessing the progress of using loan funds, and identifying any potential problems or concerns. Non-regulated intermediaries must furnish audited financial statements at least annually.

(2) The intermediary must allow the Agency or its representative to review the operations and financial condition of the intermediary upon the Agency's request. The intermediary and its agents must provide access to all pertinent information to allow the Agency, or any party authorized by the Agency, to conduct such reviews. The intermediary must submit financial or other information within 14 calendar days upon receipt of the Agency's request, unless the data requested is not available within that time frame. Failure to supply the requested information to the satisfaction of the Agency will constitute non-monetary default. The Agency may conduct reviews, including on-site reviews, of the intermediary's operations and the operations of any agent of the intermediary, for the purpose of verifying compliance with Agency regulations and guidelines. These reviews may include, but are not limited to, audits of case files; interviews with owners, managers, and staff; audits of collateral; and inspections of the intermediary's and its agents underwriting, servicing, and liquidation guidelines.

(g) Annual monitoring reports. Each intermediary will be monitored by the Agency through annual monitoring reports submitted by the intermediary. Annual monitoring reports must include a description of the use of loan funds, information regarding the acreage, the number of heirs both before and after loan was made, audit findings, disbursement transactions, and any other information required by the Agency, as necessary.

(h) Unused loan funds. If any part of the HPRP loan has not been used in accordance with the intermediary's relending plan within 3 years from the date of the HPRP loan agreement, the Agency may cancel the approval of any funds not delivered to the intermediary. The Agency may also direct the intermediary to return any funds delivered to the intermediary that have not been used by that intermediary in accordance with the intermediary's relending plan. The Agency may, at its sole discretion, allow the intermediary additional time to use the HPRP loan funds.

(a) Payments. The intermediary will make payments to the Agency as specified in the HPRP loan documents. All payments will be applied to interest first, any additional amount will be applied to principal.

(b) Restructuring. The Agency may restructure the intermediary's loan debt, if:

(1) The loan objectives cannot be met unless the HPRP loan is restructured;

(2) The Agency's interest will be protected; and

(3) The restructuring will be within the Agency's budget authority.

(c) Default. The Agency will work with the intermediary to correct any default, subject to the requirements of paragraph (b) of this section. In the event of monetary or non-monetary default, the Agency will take all appropriate actions to protect its interest, including, but not limited to, declaring the debt fully due and payable and may proceed to enforce its rights under the HPRP loan agreement, and any other loan instruments relating to the loan under applicable law and regulations, and commencement of legal action to protect the Agency's interest. Violation of any agreement with the Agency or failure to comply with reporting or other HPRP requirements will be considered non-monetary default.

(a) All transfers and assumptions must be approved in advance by the Agency. The assuming entity must meet all eligibility criteria for HPRP.

(b) Available transfer and assumption options to eligible intermediaries include:

(1) The total indebtedness may be transferred to another eligible intermediary on the same rates and terms; or

(2) The total indebtedness may be transferred to another eligible intermediary on different terms not to exceed the term for which an initial loan can be made.

(c) The transferor must prepare the transfer document for the Agency's review prior to the transfer and assumption.

(d) The transferee must provide the Agency with information required in the application as specified in § 769.158.

(e) The Agency's approved form of the assumption agreement will formally authorize the transfer and assumption and will contain the Agency case number of the transferor and transferee.

(f) When the transferee makes a cash down-payment in connection with the transfer and assumption, any proceeds received by the transferor will be credited on the transferor's loan debt in order of maturity date.

Any appealable adverse decision made by the Agency may be appealed upon written request of the intermediary as specified in 7 CFR part 11.

The Agency may grant an exception to any of the requirements of this subpart if the proposed change is in the best financial interest of the Government and not inconsistent with the authorizing law or any other applicable law.