765.205—Subordination of liens.
(a) Borrower application requirements.
The borrower must submit the following, unless it already exists in the Agency's file and is still current as determined by the Agency:
(2)
A current financial statement, including, in the case of an entity, financial statements from all entity members;
(3)
Documentation of compliance with the Agency's environmental regulations contained in subpart G of 7 CFR part 1940 ;
(5)
The farm's operating plan, including a projected cash flow budget reflecting production, income, expenses, and debt repayment plan; and
(b) Real estate security.
For loans secured by real estate, the Agency will approve a request for subordination if all of the following conditions are met:
(1)
The borrower is not in default or will not be in default on FLP loans by the time the subordination closing is complete;
(2)
The loan will be used for an authorized loan purpose or is made in conjunction with a guaranteed loan;
(3)
The credit is essential to the farming operation, and the borrower cannot obtain the credit without a subordination;
(4)
The borrower can demonstrate, through a current farm operating plan, the ability to repay all debt payments scheduled, and to be scheduled, during the production cycle;
(5)
The FLP loan is still adequately secured after the subordination, or the value of the loan security will be increased by an amount at least equal to the advance to be made under the subordination;
(7)
If the borrower is an entity and the Agency has taken real estate as additional security on property owned by a member, a subordination for any authorized loan purpose may be approved when it is needed for the entity member to finance a separate farming operation, provided the subordination does not cause the unpaid principal and interest on the FLP loans to exceed the value of loan security or otherwise adversely affect the security;
(8)
The borrower must not be ineligible as a result of a conviction for controlled substances according to 7 CFR part 718 of this chapter ;
(9)
The borrower must not be ineligible due to disqualification resulting from Federal crop insurance violation according to 7 CFR part 718 of this chapter ;
(10)
The borrower will not use loan funds in a way that will contribute to erosion of highly erodible land or conversion of wetlands as described in subpart G of 7 CFR part 1940 ;
(11)
There is no other subordination outstanding with another lender in connection with the same security;
(12)
The subordination is limited to a specific amount; the loan made in conjunction with the subordination will be closed within a reasonable time and has a definite maturity date;
(13)
In the case of real property purchase or exchange, the Agency will obtain a valid mortgage and the required lien position on the real property. The Agency will require title clearance and loan closing for the property in accordance with § 764.402 of this chapter ;
(14)
Any planned development of real estate security will be performed as directed by the creditor, approved by the Agency, and will comply with the terms and conditions of § 761.10 of this chapter ;
(15)
Subordinations of SAA mortgages may only be approved when there is no increase in the debt which is prior to the SAA debt; and
(16)
If a borrower has only a Non-program loan, the Agency does not permit subordination. The Agency may subordinate Non-program security when it is also security for a program loan with the same borrower in accordance with this section.
(c) Chattel security.
(1)
For loans secured by chattel, the subordination must meet the conditions contained in paragraphs (b)(1) through (12) of this section.
(2)
The Agency will approve a request for a second subordination to enable a borrower to obtain crop insurance, if the following conditions are met:
(i)
The creditor to whom the first subordination was given did not provide for payment of the current year's crop insurance premium, and consents in writing to the provisions of the second subordination to pay insurance premiums from the crop or insurance proceeds;
(ii)
The borrower assigns the insurance proceeds to the Agency or names the Agency in the loss payable clause of the policy; and
(d) Appraisals.
An appraisal of the property that secures the FLP loan will be required when the Agency determines it necessary to protect its interest. Appraisals will be obtained in accordance with § 761.7 of this chapter.