4287.157—Liquidation.

In the event of one or more incidents of default or third party actions that the borrower cannot or will not cure or eliminate within a reasonable period of time, liquidation may be considered. If the lender concludes that liquidation is necessary, it must request the Agency's concurrence. The lender will liquidate the loan unless the Agency, at its option, carries out liquidation. When the decision to liquidate is made, if the loan has not already been repurchased, provisions will be made for repurchase in accordance with § 4279.78 of subpart A of part 4279 of this chapter.
(a) Decision to liquidate. A decision to liquidate shall be made when it is determined that the default cannot be cured through actions contained in § 4287.145 of this subpart or it has been determined that it is in the best interest of the Agency and the lender to liquidate. The decision to liquidate or continue with the borrower must be made as soon as possible when any of the following exist:
(1) A loan has been delinquent 90 days and the lender and borrower have not been able to cure the delinquency through one of the actions contained in § 4287.145 of this subpart.
(2) It has been determined that delaying liquidation will jeopardize full recovery on the loan.
(3) The borrower or lender has been uncooperative in resolving the problem and the Agency or the lender has reason to believe the borrower is not acting in good faith, and it would enhance the position of the guarantee to liquidate immediately.
(b) Liquidation by the Agency. The Agency may require the lender to assign the security instruments to the Agency if the Agency, at its option, decides to liquidate the loan. When the Agency liquidates, reasonable liquidation expenses will be assessed against the proceeds derived from the sale of the collateral. Form FmHA 1980-45, “Notice of Liquidation Responsibility,” will be forwarded to the Finance Office when the Agency liquidates the loan.
(c) Submission of liquidation plan. The lender will, within 30 days after a decision to liquidate, submit to the Agency in writing its proposed detailed method of liquidation. Upon approval by the Agency of the liquidation plan, the lender will commence liquidation.
(d) Lender's liquidation plan. The liquidation plan must include, but is not limited to, the following:
(1) Such proof as the Agency requires to establish the lender's ownership of the guaranteed loan promissory note and related security instruments and a copy of the payment ledger if available which reflects the current loan balance and accrued interest to date and the method of computing the interest.
(2) A full and complete list of all collateral including any personal and corporate guarantees.
(3) The recommended liquidation methods for making the maximum collection possible on the indebtedness and the justification for such methods, including recommended action:
(i) For acquiring and disposing of all collateral; and
(ii) To collect from guarantors.
(4) Necessary steps for preservation of the collateral.
(5) Copies of the borrower's latest available financial statements.
(6) Copies of the guarantor's latest available financial statements.
(7) An itemized list of estimated liquidation expenses expected to be incurred along with justification for each expense.
(8) A schedule to periodically report to the Agency on the progress of liquidation.
(9) Estimated protective advance amounts with justification.
(10) Proposed protective bid amounts on collateral to be sold at auction and a breakdown to show how the amounts were determined.
(11) If a voluntary conveyance is considered, the proposed amount to be credited to the guaranteed debt.
(12) Legal opinions, if needed.
(13) If the outstanding balance of principal and accrued interest is less than $200,000, the lender will obtain an estimate of fair market and potential liquidation value of the collateral. If the outstanding balance of principal and accrued interest is $200,000 or more, the lender will obtain an independent appraisal report meeting the requirements of § 4279.144 of subpartB of part 4279 of this chapter on all collateral securing the loan which will reflect the fair market value and potential liquidation value. In order to formulate a liquidation plan which maximizes recovery, collateral must be evaluated for the release of hazardous substances, petroleum products, or other environmental hazards which may adversely impact the market value of the collateral. The appraisal shall consider this aspect. The independent appraiser's fee, including the cost of the environmental site assessment, will be shared equally by the Agency and the lender.
(e) Approval of liquidation plan. The Agency will inform the lender in writing whether it concurs in the lender's liquidation plan. Should the Agency and the lender not agree on the liquidation plan, negotiations will take place between the Agency and the lender to resolve the disagreement. When the liquidation plan is approved by the Agency, the lender will proceed expeditiously with liquidation.
(1) A transfer and assumption of the borrower's operation can be accomplished before or after the loan goes into liquidation. However, if the collateral has been purchased through foreclosure or the borrower has conveyed title to the lender, no transfer and assumption is permitted.
(2) A protective bid may be made by the lender, with prior Agency written approval, at a foreclosure sale to protect the lender's and the Agency's interest. The protective bid will not exceed the amount of the loan, including expenses of foreclosure, and should be based on the liquidation value considering estimated expenses for holding and reselling the property. These expenses include, but are not limited to, expenses for resale, interest accrual, length of time necessary for resale, maintenance, guard service, weatherization, and prior liens.
(f) Acceleration. The lender, or the Agency if it liquidates, will proceed to accelerate the indebtedness as expeditiously as possible when acceleration is necessary including giving any notices and taking any other legal actions required. A copy of the acceleration notice or other acceleration document will be sent to the Agency (or lender if the Agency liquidates). The guaranteed loan will be considered in liquidation once the loan has been accelerated and a demand for payment has been made upon the borrower.
(g) Filing an estimated loss claim. When the lender is conducting the liquidation and owns any or all of the guaranteed portion of the loan, the lender will file an estimated loss claim once a decision has been made to liquidate if the liquidation will exceed 90 days. The estimated loss payment will be based on the liquidation value of the collateral. For the purpose of reporting and loss claim computation, the lender will discontinue interest accrual on the defaulted loan in accordance with Agency procedures, and the loss claim will be promptly processed in accordance with applicable Agency regulations.
(h) Accounting and reports. When the lender conducts liquidation, it will account for funds during the period of liquidation and will provide the Agency with reports at least quarterly on the progress of liquidation including disposition of collateral, resulting costs, and additional procedures necessary for successful completion of the liquidation.
(i) Transmitting payments and proceeds to the Agency. When the Agency is the holder of a portion of the guaranteed loan, the lender will transmit to the Agency its pro rata share of any payments received from the borrower; liquidation; or other proceeds using Form FmHA 1980-43, “Lender's Guaranteed Loan Payment to FmHA.”
(j) Abandonment of collateral. There may be instances when the cost of liquidation would exceed the potential recovery value of the collection. The lender, with proper documentation and concurrence of the Agency, may abandon the collateral in lieu of liquidation. A proposed abandonment will be considered a servicing action requiring the appropriate environmental review by the Agency in accordance with subpart G of part 1940 of this title. Examples where abandonment may be considered include, but are not limited to:
(1) The cost of liquidation is increased or the value of the collateral is decreased by environmental issues;
(2) The collateral is functionally or economically obsolete;
(3) There are superior liens held by other parties in excess of the value of the collateral;
(4) The collateral has deteriorated; or
(5) The collateral is specialized and there is little or no demand for it.
(k) Disposition of personal or corporate guarantees. The lender should take action to maximize recovery from all collateral, including personal and corporate guarantees. The lender will seek a deficiency judgment when there is a reasonable chance of future collection of the judgment. The lender must make a decision whether or not to seek a deficiency judgment when:
(1) A borrower voluntarily liquidates the collateral, but the sale fails to pay the guaranteed indebtedness;
(2) The collateral is voluntarily conveyed to the lender, but the borrower and personal and corporate guarantors are not released from liability; or
(3) A liquidation plan is being developed for forced liquidation.
(l) Compromise settlement. A compromise settlement may be considered at any time.
(1) The lender and the Agency must receive complete financial information on all parties obligated for the loan and must be satisfied that the statements reflect the true and correct financial position of the debtor including all assets. Adequate consideration must be received before a release from liability is issued. Adequate consideration includes money, additional security, or other benefit to the goals and objectives of the Agency.
(2) Before a personal guarantor can be released from liability, the following factors must be considered.
(i) Cash, either lump sum or over a period of time, or other consideration offered by the guarantor;
(ii) Age and health of the guarantor;
(iii) Potential income of the guarantor;
(iv) Inheritance prospects of the guarantor;
(v) Availability of the guarantor's assets.
(vi) Possibility that the guarantor's assets have been concealed or improperly transferred; and
(vii) Effect of other guarantors on the loan.
(3) Once the Agency and the lender agree on a reasonable amount that is fair and adequate, the lender can proceed to effect the settlement compromise.
(4) A compromise will only be accepted if it is in the best interest of the Agency.