View all text of Subjgrp 8 [§ 1955.110 - § 1955.120]
§ 1955.118 - Processing cash sales or MFH credit sales on NP terms.
(a) Cash sales. Cash sales will be closed by the servicing official collecting the purchase price (less any earnest money deposit or bid deposit) and delivering the deed to the purchaser.
(b) Credit sales. The following provisions apply to MFH credit sales on NP terms:
(1) Offers. Form RD 1955-45 or RD 1955-46, as appropriate, will be used to document the offer and acceptance. Contract acceptance is made prior to processing a request for credit on NP terms.
(2) Processing. Purchasers requesting credit on NP terms will be required to submit documentation to establish financial stability, repayment ability, and creditworthiness. Standard forms used to process program applications may be utilized or comparable documentation may be accepted from the purchaser with the servicing official having the discretion to determine what information is required to support loan approval for the type property involved. Individual credit reports will be ordered for each individual applicant and each principal within an applicant entity in accordance with subpart B of part 1910 of this chapter. Commercial credit reports will be ordered for profit corporations and partnerships, and organizations with a substantial interest in the applicant entity in accordance with subpart C of part 1910 of this chapter.
(3) Approval. Form RD 3560-51 will be used to approve a credit sale even though no obligation of funds is involved. Special instructions on the FMI pertaining to NP credit sales will be followed.
(4) Downpayment. A downpayment of not less than 10 percent of the purchase price is required at closing.
(5) Interest rate. The Section 515 RRH interest rate plus 1/2 percent will be charged on all types of housing credit sales, except SFH. Refer to exhibit B of RD Instruction 440.1 (available in any Rural Development office) for interest rates. Loans made on NP terms will be closed at the interest rate which was in effect at the time the loan was approved.
(6) Term of note. The note amount will be amortized over a period not to exceed 10 years. If the State Director determines more favorable terms are necessary to facilitate the sale, the note amount may be amortized using a 30-year factor with payment in full (balloon payment) due not later than 10 years from the date of closing. In no case will the term be longer than the period for which the property will serve as adequate security.
(7) Modification of security instruments. If applicable to the type property being sold, modification of security instruments may be made. On the promissory note and/or security instrument (mortgage or deed of trust) any covenants relating to graduation to other credit, restrictive-use provisions on MFH projects, personal occupancy, inability to secure other financing, and restrictions on leasing may be deleted. Deletions are made by lining through only the specific inapplicable language with both the NP borrower and Rural Development initialing the changes.
(8) Closing sale. Title clearance, loan closing and property insurance requirements for a credit sale are the same as for a program loan except:
(i) The property will be conveyed in accordance with § 1955.141(a) of this subpart.
(ii) The purchaser will pay his/her own closing costs. Earnest money, if any, will be used to pay purchaser's closing costs with any balance of closing costs being paid by the purchaser. Any closing costs which are legally or customarily paid by the seller will be paid by Rural Development from the downpayment.
(iii) The County Supervisor or District Director will provide the closing agent with the necessary information for closing the sale. The assistance of OGC will be requested to provide closing instructions for all MFH sales.
(iv) When more than one property is bought by the same buyer and the transactions are closed at the same time, a separate promissory note will be prepared for each property, but one mortgage will cover all the properties.
(9) Reporting. After the sale is closed, it will be reported according to § 1955.142 of this subpart.
(10) Classification. MFH credit sales on NP terms will be classified as NP loans and serviced accordingly.
(11) Form RD 1910-11, “Applicant Certification, Federal Collection Policies for Consumer or Commercial Debts.” The County Supervisor or District Director must review Form RD 1910-11, “Applicant Certification, Federal Collection Policies for Consumer or Commercial Debts,” with the applicant, and the form must be signed by the applicant.