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17.7 PARTIAL RELEASE OF SECURITY [7 CFR 3555.255 (B)]
If a servicer consents to a transaction affecting a security property, such as selling or exchanging security property, or granting a right-of-way across the security property, the servicer must ensure that certain conditions are met and that the mortgage file is carefully documented.
A. Conditions for Partial Release
1. Adequate Compensation
The borrower must receive adequate compensation.
x The sale of any part of the security property must result in a payment equal to
the value of the security being released or rights granted; or
x The exchange of security property must result in another parcel of property
acquired that has value equal to or greater than that being released; or
x The granting of an easement or right-of-way must result in benefits that are
equal to or greater than the value of the security property being released.
2. Net Proceeds
In an effort to maintain the current loan to value ratio for the guaranteed loan, all proceeds must be applied in the following order:
1. Pay customary and reasonable costs related to the transaction owed by the borrower.
2. To a prior lien debt, if any.
3. To be used for improvements to the security property. If the funds are to be used for property improvements, the servicer should release the funds as the improvements are completed. The servicer must ensure that the proceeds are used as planned.
4. To be used to repay any delinquency or missed payments.
5. To the outstanding balance to maintain at minimum the current loan to value.
6. If any net proceeds remain and the borrower’s post transaction loan to value is no greater than 80%, funds may be released to the borrower.
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3. Program Standards
After the transaction is completed, the security property must meet program standards.
4. Ability to Repay the Loan
The borrower’s ability to repay the guaranteed debt must not be jeopardized.
B. Processing a Partial Release Request - Agency
To get Agency approval, the request must be sent to the SFHGLP National Headquarters Servicing Branch at sfhglpservicing@usda.gov. The servicer must send evidence of all completed actions to the Agency for review. At minimum the servicer should provide the Agency with the following:
x The borrower’s reason for requesting the servicer to make the release, including
information regarding the contemplated use of land to be released.
x The monetary consideration, if any, to be received by the borrower.
x Determination of the value of the property if a release is processed, taking into
consideration any improvements being completed. An appraisal of the security property must be conducted if the most current appraisal is more than 1 year old or if it does not reflect current market value. The appraisals must reflect the value of the property prior to the release of partial security and the value of the remaining property once the release of partial security occurs.
x Plans and specifications, including cost estimates, of any alterations proposed for
the remaining property after release.
The approval official will analyze the servicer’s request for partial release and consider the following:
x Estimate of value prior to the proposed release.
x Estimate of value after the proposed release.
x Loss in value attributed to the proposed release.
x What use or purpose the released property will serve once released.
x The estimated cost of proposed improvements to the remaining property.
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x The estimated value of the remaining property after any proposed improvements
are completed.
x Consideration if the remaining mortgage security is less marketable as a result of
the release.
x Borrower’s ability to repay, including their current delinquency, if any, and the
number of missed payments.
Notification of approval/denial will be communicated to the servicer. Any denial must state the reason(s) for denial in detail.
C. Servicer Delegated Approval
If all the following additional conditions are met, servicers are delegated to review and provide a decision to the borrower’s request with no review by USDA required for the voluntary or involuntary release of the security:
x The portion of the property being conveyed does not exceed 10% of the area of
the mortgaged property;
x There is no damage to existing structures or other improvements;
x There is no unrepaired damage to sewer, water, or paving;
x Total compensation received for the taking of the property is applied to reduce the
unpaid principal balance of the mortgage; and
x The conveyance occurs after the mortgage loan was guaranteed.
D. Processing a Partial Release - Servicer
To process a partial release under the delegation authority described above, the servicer must complete and/or document the following actions. If the servicer eventually files a loss claim, the claim must be accompanied by the servicer’s certification that all requirements have been met:
x The borrower’s reason for requesting the servicer to make the release, including
information regarding the contemplated use of land to be released;
x The monetary consideration, if any, to be received by the borrower;
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x Confirm the mortgage loan is in good standing, the amount of principal balance
owed and the due date of last paid installment;
x Determine the value of the property if a release is processed, taking into
consideration any improvements being completed. An appraisal of the security property will be conducted if the most current appraisal is more than 1 year old or if it does not reflect current market value. The appraisals must reflect the value of the property prior to the release of partial security and the value of the remaining property once the release of partial security occurs;
x Complete any forms required by state law;
x A list of unpaid special assessments, if any, and the total amount payable;
x Update the legal descriptions of the property, as necessary;
x Report any restrictions to be imposed on the land to be released;
x Provide a survey or sketch of the property showing dimensions of the portion to
be released, the location of the existing and proposed improvements, and the relation of the property to surrounding properties;
x Plans and specifications, including cost estimates, of any alterations proposed for
the remaining property after release;
x For an exchange of a portion of the security property, obtain title clearance for the
new security before the release of the existing security. Security instruments must be obtained for the new property;
x For a sale of a portion of the security property, deliver the release when full
payment is received; and
x Notify the Agency of any reduction in the outstanding principal balance through
monthly status reporting. 17.8 TRANSFER AND ASSUMPTION [7 CFR 3555.256]