The Lender may request a Transfer and Assumption of a guaranteed loan when the total indebtedness, or less than the total indebtedness, is assumed by another Borrower. If the assumption is for less than the total indebtedness of the guaranteed loan, the Transfer and Assumption must be an Arm’s Length Transaction and the transfer must be of all loan Collateral. In the event of Default of the guaranteed loan, a Transfer and Assumption of the Borrower’s operation and guaranteed loan 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.
Terms Used In 7 CFR 4287.334
- Appraisal: A determination of property value.
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Credit report: A detailed report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness. Source: OCC
- Fiscal year: The fiscal year is the accounting period for the government. For the federal government, this begins on October 1 and ends on September 30. The fiscal year is designated by the calendar year in which it ends; for example, fiscal year 2006 begins on October 1, 2005 and ends on September 30, 2006.
- Foreclosure: A legal process in which property that is collateral or security for a loan may be sold to help repay the loan when the loan is in default. Source: OCC
- Guarantor: A party who agrees to be responsible for the payment of another party's debts should that party default. Source: OCC
- Lien: A claim against real or personal property in satisfaction of a debt.
(a) Documentation of request. All Transfers and Assumptions cannot be conducted unless the Agency gives prior written approval. An individual credit report must be provided for transferee and its partners, officers, directors, and stockholders with 20 percent or more interest in the business, along with such other documentation as the Agency may request to determine eligibility and credit worthiness. The new Borrower must sign Form RD 4279-1.
(b) Terms. Loan terms may be changed for Transfer and Assumptions to eligible Borrowers continuing the Project for eligible purposes with the concurrence of the Agency, all Holders, and the transferor (including guarantors). If the transferor has been or will be released from liability, the transferor’s concurrence is not required. Any new loan terms must be within the terms authorized by §4279.234 of this chapter and must be for Good Cause.
(c) Release of liability. The transferor, including any guarantor, may be released from liability only with prior Agency written concurrence when the Transfer and Assumption is an Arm’s Length Transaction and:
(1) The assumption is for the full amount of the loan and all of the loan Collateral is transferred to the transferee; or
(2) The assumption is for less than the full amount of the loan, all of the loan Collateral is transferred to the transferee, and the Lender demonstrates to the Agency that the transferor and guarantors have no reasonable debt-paying ability considering their assets and income in the foreseeable future.
(d) Proceeds. The Lender must credit any proceeds received from the sale of Collateral before a Transfer and Assumption to the transferor’s guaranteed loan debt in order of lien priority before the Transfer and Assumption are closed.
(e) Additional loans. Guaranteed loans to provide additional funds in connection with a Transfer and Assumption must be considered a new loan application, which requires submission of a complete Agency application in accordance with §§4279.260 and 4279.261 of this chapter.
(f) Credit quality. The Lender must make a complete credit analysis in accordance with §4279.215 of this chapter.
(g) Appraisals. If the proposed Transfer and Assumption is for the full amount of the Agency guaranteed loan and all loan Collateral, the Agency will not require an appraisal. If the proposed Transfer and Assumption is for less than the full amount of the Agency guaranteed loan, the Agency will require an appraisal on all of the Collateral being transferred, and the amount of the assumption must not be less than this appraised value. The Lender is responsible for obtaining this appraisal, which must conform to the requirements of §4279.244 of this chapter. The Agency will not pay the appraisal fee or any other costs associated with this transfer.
(h) Documents. Prior to Agency approval, the Lender must provide the Agency a written legal opinion that the transaction can be properly and legally transferred and assurance that the conveyance instruments will be appropriately filed, registered, and recorded.
(1) The Lender must not issue any new Promissory Notes. The assumption must be completed in accordance with applicable law and must contain the Agency case number of the transferor and transferee. The Lender will provide the Agency with a copy of the Transfer and Assumption agreement. The Lender must ensure that all Transfers and Assumptions are noted on all original Loan Note Guarantees.
(2) A new Loan Agreement, consistent in principle with the original Loan Agreement, must be executed to establish the terms and conditions of the loan being assumed. An assumption agreement can be used to establish the loan covenants.
(3) Upon execution of the Transfer and Assumption, the Lender must provide the Agency with a written legal opinion that the Transfer and Assumption is completed, valid, enforceable, and certification that the Transfer and Assumption is consistent with the conditions outlined in the Agency’s conditions of approval for the transfer and complies with all Agency regulations.
(i) Loss resulting from transfer. (1) Any resulting loss must be processed in accordance with §4287.358.
(2) If a Holder owns any of the guaranteed portion, such portion must be repurchased by the Lender or the Agency in accordance with §4279.225 of this chapter.
(j) Related party. If the transferor and transferee are Affiliates or related parties, any Transfer and Assumption must be to an eligible Borrower to continue the Project for eligible purposes, must transfer all of the loan Collateral, and must be for the full amount of the guaranteed loan indebtedness.
(k) Cash down payment. The Lender may allow the transferee to make cash down payments directly to the transferor provided:
(1) The Transfer and Assumption is made for the total indebtedness to an eligible Borrower to continue the Project for eligible purposes;
(2) The Lender recommends that the cash be released, and the Agency concurs prior to the transaction being completed. The Lender may require that an amount be retained for a defined period of time as a reserve against future Defaults. Interest on such account may be paid periodically to the transferor or transferee as agreed;
(3) The Lender determines that the transferee has the repayment ability to meet the obligations of the assumed guaranteed loan as well as any other indebtedness; and
(4) Any payments by the transferee to the transferor will not suspend the transferee’s obligations to continue to meet the guaranteed loan payments as they come due under the terms of the assumption.
(l) Transfer/Annual Renewal Fees. (1) The Agency will charge a nonrefundable transfer fee at the time of transfer, which may be passed on to the Borrower by the Lender. The transfer fee rate will be equal to the rate of the guarantee fee authorized in §4279.231(a) of this chapter for the fiscal year in which the transfer occurs. The amount of the transfer fee is determined by multiplying the principal balance at the time of the transfer by the transfer fee rate by the percentage of guarantee on the original loan.
(2) The Lender must pay any Annual Renewal Fee in accordance with §4279.231(b) of this chapter.
(m) Change in control of Borrower. Transfer and Assumption shall be deemed to occur in the event of a change in the control of the Borrower.
(n) Personal and corporate guarantees. Guarantees from owners are required in accordance with §4279.245 of this chapter.