CFR > Title 7 - Agriculture > SUBTITLE B—Regulations of the Department of Agriculture > CHAPTER VII—FARM SERVICE AGENCY, DEPARTMENT OF AGRICULTURE (parts 700 to 799) > SUBCHAPTER D—SPECIAL PROGRAMS (parts 750 to 786) > PART 764—DIRECT LOAN MAKING > SUBPART C—Requirements for All Direct Program Loans (§764.101 to §764.109-764.150) > 764.104—General real estate security requirements.

764.104—General real estate security requirements.

(a) Agency lien position requirements. If real estate is pledged as security for a loan, the Agency must obtain a first lien, if available. When a first lien is not available, the Agency may take a junior lien under the following conditions:
(1) The prior lien does not contain any provisions that may jeopardize the Agency's interest or the applicant's ability to repay the FLP loan;
(2) Prior lienholders agree to notify the Agency prior to foreclosure;
(3) The applicant must agree not to increase an existing prior lien without the written consent of the Agency; and
(4) Equity in the collateral exists.
(b) Real estate held under a purchase contract. If the real estate offered as security is held under a recorded purchase contract:
(1) The applicant must provide a security interest in the real estate;
(2) The applicant and the purchase contract holder must agree in writing that any insurance proceeds received for real estate losses will be used only for one or more of the following purposes:
(i) To replace or repair the damaged real estate improvements which are essential to the farming operation;
(ii) To make other essential real estate improvements; or
(iii) To pay any prior real estate lien, including the purchase contract.
(3) The purchase contract must provide the applicant with possession, control and beneficial use of the property, and entitle the applicant to marketable title upon fulfillment of the contract terms.
(4) The purchase contract must not:
(i) Be subject to summary cancellation upon default;
(ii) Contain provisions which jeopardize the Agency's security position or the applicant's ability to repay the loan.
(5) The purchase contract holder must agree in writing to:
(i) Not sell or voluntarily transfer their interest without prior written consent of the Agency;
(ii) Not encumber or cause any liens to be levied against the property;
(iii) Not take any action to accelerate, forfeit, or foreclose the applicant's interest in the security property until a specified period of time after notifying the Agency of the intent to do so;
(iv) Consent to the Agency making the loan and taking a security interest in the applicant's interest under the purchase contract as security for the FLP loan;
(v) Not take any action to foreclose or forfeit the interest of the applicant under the purchase contract because the Agency has acquired the applicant's interest by foreclosure or voluntary conveyance, or because the Agency has subsequently sold or assigned the applicant's interest to a third party who will assume the applicant's obligations under the purchase contract;
(vi) Notify the Agency in writing of any breach by the applicant; and
(vii) Give the Agency the option to rectify the conditions that amount to a breach within 30 days after the date the Agency receives written notice of the breach.
(6) If the Agency acquires the applicant's interest under the purchase contract by foreclosure or voluntary conveyance, the Agency will not be deemed to have assumed any of the applicant's obligations under the contract, provided that if the Agency fails to perform the applicant's obligations while it holds the applicant's interest is grounds for terminating the purchase contract.
(c) Tribal lands held in trust or restricted. The Agency may take a lien on Indian Trust lands as security provided the applicant requests the Bureau of Indian Affairs to furnish Title Status Reports to the agency and the Bureau of Indian Affairs provides the reports and approves the lien.
(d) Security for more than one loan. The same real estate may be pledged as security for more than one direct or guaranteed loan.
(e) Loans secured by leaseholds. A loan may be secured by a mortgage on a leasehold, if the leasehold has negotiable value and can be mortgaged.