
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 12USC2202a]

 
                       TITLE 12--BANKS AND BANKING
 
                     CHAPTER 23--FARM CREDIT SYSTEM
 
     SUBCHAPTER IV--PROVISIONS APPLICABLE TO TWO OR MORE CLASSES OF 
                       INSTITUTIONS OF THE SYSTEM
 
             Part C--Rights of Borrowers; Loan Restructuring
 
Sec. 2202a. Restructuring distressed loans


(a) Definitions

    As used in this part:

                  (1) Application for restructuring

        The term ``application for restructuring'' means a written 
    request--
            (A) from a borrower for the restructuring of a distressed 
        loan in accordance with a preliminary restructuring plan 
        proposed by the borrower as a part of the application;
            (B) submitted on the appropriate forms prescribed by the 
        qualified lender; and
            (C) accompanied by sufficient financial information and 
        repayment projections, where appropriate, as required by the 
        qualified lender to support a sound credit decision.

                       (2) Cost of foreclosure

        The term ``cost of foreclosure'' includes--
            (A) the difference between the outstanding balance due on a 
        loan made by a qualified lender and the liquidation value of the 
        loan, taking into consideration the borrower's repayment 
        capacity and the liquidation value of the collateral used to 
        secure the loan;
            (B) the estimated cost of maintaining a loan as a 
        nonperforming asset;
            (C) the estimated cost of administrative and legal actions 
        necessary to foreclose a loan and dispose of property acquired 
        as the result of the foreclosure, including attorneys' fees and 
        court costs;
            (D) the estimated cost of changes in the value of collateral 
        used to secure a loan during the period beginning on the date of 
        the initiation of an action to foreclose or liquidate the loan 
        and ending on the date of the disposition of the collateral; and
            (E) all other costs incurred as the result of the 
        foreclosure or liquidation of a loan.

                         (3) Distressed loan

        The term ``distressed loan'' means a loan that the borrower does 
    not have the financial capacity to pay according to its terms and 
    that exhibits one or more of the following characteristics:
            (A) The borrower is demonstrating adverse financial and 
        repayment trends.
            (B) The loan is delinquent or past due under the terms of 
        the loan contract.
            (C) One or both of the factors listed in subparagraphs (A) 
        and (B), together with inadequate collateralization, present a 
        high probability of loss to the lender.

                     (4) Foreclosure proceeding

        The term ``foreclosure proceeding'' means--
            (A) a foreclosure or similar legal proceeding to enforce a 
        lien on property, whether real or personal, that secures a 
        nonaccrual or distressed loan; or
            (B) the seizing of and realizing on nonreal property 
        collateral, other than collateral subject to a statutory lien 
        arising under subchapter I or II of this chapter, to effect 
        collection of a nonaccrual or distressed loan.

                              (5) Loan

        (A) In general

            Subject to subparagraph (B), the term ``loan'' means a loan 
        made to a farmer, rancher, or producer or harvester of aquatic 
        products, for any agricultural or aquatic purpose and other 
        credit needs of the borrower, including financing for basic 
        processing and marketing directly related to the borrower's 
        operations and those of other eligible farmers, ranchers, and 
        producers or harvesters of aquatic products.

        (B) Exclusion for loans designated for sale into secondary 
                market

            (i) In general

                Except as provided in clause (ii), the term ``loan'' 
            does not include a loan made on or after February 10, 1996, 
            that is designated, at the time the loan is made, for sale 
            into a secondary market.
            (ii) Unsold loans

                (I) In general

                    Except as provided in subclause (II), if a loan 
                designated for sale under clause (i) is not sold into a 
                secondary market during the 180-day period that begins 
                on the date of the designation, the provisions of this 
                section and sections 2202, 2202b, 2202c, 2202d, and 
                2219a of this title that would otherwise apply to the 
                loan in the absence of the exclusion described in clause 
                (i) shall become effective with respect to the loan.
                (II) Later sale

                    If a loan described in subclause (I) is sold into a 
                secondary market after the end of the 180-day period 
                described in subclause (I), subclause (I) shall not 
                apply with respect to the loan beginning on the date of 
                the sale.

                        (6) Qualified lender

        The term ``qualified lender'' means--
            (A) a System institution that makes loans (as defined in 
        paragraph (5)) except a bank for cooperatives; and
            (B) each bank, institution, corporation, company, union, and 
        association described in section 2015(b)(1)(B) of this title but 
        only with respect to loans discounted or pledged under section 
        2015(b)(1) of this title.

                  (7) Restructure and restructuring

        The terms ``restructure'' and ``restructuring'' include 
    rescheduling, reamortization, renewal, deferral of principal or 
    interest, monetary concessions, and the taking of any other action 
    to modify the terms of, or forbear on, a loan in any way that will 
    make it probable that the operations of the borrower will become 
    financially viable.

(b) Notice

                           (1) In general

        On a determination by a qualified lender that a loan made by the 
    lender is or has become a distressed loan, the lender shall provide 
    written notice to the borrower that the loan may be suitable for 
    restructuring, and include with such notice--
            (A) a copy of the policy of the lender established under 
        subsection (g) of this section that governs the treatment of 
        distressed loans; and
            (B) all materials necessary to enable the borrower to submit 
        an application for restructuring on the loan.

                    (2) Notice before foreclosure

        Not later than 45 days before any qualified lender begins 
    foreclosure proceedings with respect to a loan outstanding to any 
    borrower, the lender shall notify the borrower that the loan may be 
    suitable for restructuring and that the lender will review any such 
    suitable loan for restructuring, and shall include with such notice 
    a copy of the policy and the materials described in paragraph (1).

                    (3) Limitation on foreclosure

        No qualified lender may foreclose or continue any foreclosure 
    proceeding with respect to any distressed loan before the lender has 
    completed any pending consideration of the loan for restructuring 
    under this section.

(c) Meetings

    On determination by a qualified lender that a loan made by the 
lender is or has become a distressed loan, the lender shall provide a 
reasonable opportunity for the borrower thereof to personally meet with 
a representative of the lender--
        (1) to review the status of the loan, the financial condition of 
    the borrower, and the suitability of the loan for restructuring; and
        (2) with respect to a loan that is in nonaccrual status, to 
    develop a plan for restructuring the loan if the loan is suitable 
    for restructuring.

(d) Consideration of applications

                           (1) In general

        When a qualified lender receives an application for 
    restructuring from a borrower, the qualified lender shall determine 
    whether or not to restructure the loan, taking into consideration--
            (A) whether the cost to the lender of restructuring the loan 
        is equal to or less than the cost of foreclosure;
            (B) whether the borrower is applying all income over and 
        above necessary and reasonable living and operating expenses to 
        the payment of primary obligations;
            (C) whether the borrower has the financial capacity and the 
        management skills to protect the collateral from diversion, 
        dissipation, or deterioration;
            (D) whether the borrower is capable of working out existing 
        financial difficulties, reestablishing a viable operation, and 
        repaying the loan on a rescheduled basis; and
            (E) in the case of a distressed loan that is not delinquent, 
        whether restructuring consistent with sound lending practices 
        may be taken to reasonably ensure that the loan will not become 
        a loan that it is necessary to place in nonaccrual status.

        (2) Applications not required for restructuring plans

        This section shall not prevent a qualified lender from proposing 
    a restructuring plan for an individual borrower in the absence of an 
    application for restructuring from the borrower.

(e) Restructuring

                           (1) In general

        If a qualified lender determines that the potential cost to such 
    qualified lender of restructuring the loan in accordance with a 
    proposed restructuring plan is less than or equal to the potential 
    cost of foreclosure, the qualified lender shall restructure the loan 
    in accordance with the plan.

              (2) Computation of cost of restructuring

        In determining whether the potential cost to the qualified 
    lender of restructuring a distressed loan is less than or equal to 
    the potential cost of foreclosure, a qualified lender shall consider 
    all relevant factors, including--
            (A) the present value of interest income and principal 
        forgone by the lender in carrying out the restructuring plan;
            (B) reasonable and necessary administrative expenses 
        involved in working with the borrower to finalize and implement 
        the restructuring plan;
            (C) whether the borrower has presented a preliminary 
        restructuring plan and cash-flow analysis taking into account 
        income from all sources to be applied to the debt and all assets 
        to be pledged, showing a reasonable probability that orderly 
        debt retirement will occur as a result of the proposed 
        restructuring; and
            (D) whether the borrower has furnished or is willing to 
        furnish complete and current financial statements in a form 
        acceptable to the institution.

(f) Least cost alternative

    If two or more restructuring alternatives are available to a 
qualified lender under this section with respect to a distressed loan, 
the lender shall restructure the loan in conformity with the alternative 
that results in the least cost to the lender.

(g) Restructuring policy

                          (1) Establishment

        Each bank board of directors shall develop a policy within 60 
    days after January 6, 1988, that is consistent with this section, to 
    govern the restructuring of distressed loans. Such policy shall 
    constitute the restructuring policy of each qualified lender within 
    the district.

                       (2) Contents of policy

        The policy established under paragraph (1) shall include an 
    explanation of--
            (A) the procedure for submitting an application for 
        restructuring; and
            (B) the right of borrowers with distressed loans to seek 
        review by a credit review committee in accordance with section 
        2202 of this title of a denial of an application for 
        restructuring.

                   (3) Submission of policy to FCA

        Each bank board shall submit the policy of the district 
    governing the treatment of distressed loans under this section to 
    the Farm Credit Administration. Notwithstanding the duty imposed by 
    the preceding sentence, the other duties imposed by this section 
    shall take effect on January 6, 1988.

(h) Reports

    During the 5-year period beginning on January 6, 1988, each 
qualified lender shall submit semiannual reports to the Farm Credit 
Administration containing--
        (1) the results of the review of distressed loans of the lender; 
    and
        (2) the financial effect of loan restructurings and liquidations 
    on the lender.

(i) Compliance

    The Farm Credit Administration may issue a directive requiring 
compliance with any provision of this section to any qualified lender 
that fails to comply with such provision.

(j) Permitted foreclosures

    This section shall not be construed to prevent any qualified lender 
from enforcing any contractual provision that allows the lender to 
foreclose a loan, or from taking such other lawful action as the lender 
deems appropriate, if the lender has reasonable grounds to believe that 
the loan collateral will be destroyed, dissipated, consumed, concealed, 
or permanently removed from the State in which the collateral is 
located.

(k) Application of section

    The time limitation prescribed in subsection (b)(2) of this section, 
and the requirements of subsection (c) of this section, shall not apply 
to a loan that became a distressed loan before January 6, 1988, if the 
borrower and lender of the loan are in the process of negotiating loan 
restructuring with respect to the loan.

(l) Assistance in restructuring

    Each Farm Credit Bank, on request of any production credit 
association, may assist the association in restructuring loans under 
this section.

(Pub. L. 92-181, title IV, Sec. 4.14A, as added Pub. L. 100-233, title 
I, Sec. 102(a), Jan. 6, 1988, 101 Stat. 1574; amended Pub. L. 100-399, 
title I, Sec. 102(a)-(f), Aug. 17, 1988, 102 Stat. 990; Pub. L. 104-105, 
title II, Sec. 208(a), Feb. 10, 1996, 110 Stat. 173.)


                               Amendments

    1996--Subsec. (a)(5). Pub. L. 104-105 designated existing provisions 
as subpar. (A), inserted subpar. heading, substituted ``Subject to 
subparagraph (B), the term'' for ``The term'', and added subpar. (B).
    1988--Subsec. (a). Pub. L. 100-399, Sec. 102(a), struck out ``(other 
than in sections 2205 and 2206 of this title)'' after ``in this part''.
    Subsec. (a)(6)(B). Pub. L. 100-399, Sec. 102(b), substituted 
``section 2015(b)(1)(B) of this title'' for ``section 2074(a)(2) of this 
title'' and ``section 2015(b)(1) of this title'' for ``section 2074(a) 
of this title''.
    Subsec. (e)(1). Pub. L. 100-399, Sec. 102(c), substituted ``cost to 
such qualified'' for ``cost to a qualified''.
    Subsec. (g)(1). Pub. L. 100-399, Sec. 102(d), substituted ``bank'' 
for ``farm credit district''.
    Subsec. (g)(3). Pub. L. 100-399, Sec. 102(e), substituted ``bank 
board'' for ``district board''.
    Subsec. (l). Pub. L. 100-399, Sec. 102(f), substituted ``Farm Credit 
Bank'' for ``Federal intermediate credit bank''.


                    Effective Date of 1988 Amendment

    Amendment by section 102(b), (f) of Pub. L. 100-399 effective 
immediately after amendment made by section 401 of Pub. L. 100-233, 
which was effective 6 months after Jan. 6, 1988, and amendment by 
section 102(a), (c)-(e) of Pub. L. 100-399 effective as if enacted 
immediately after enactment of Pub. L. 100-233, which was approved Jan. 
6, 1988, see section 1001 of Pub. L. 100-399, set out as a note under 
section 2002 of this title.


                            Sense of Congress

    Section 102(b) of Pub. L. 100-233 provided that: ``It is the sense 
of Congress that the banks and associations (except banks for 
cooperatives) operating under the Farm Credit Act of 1971 (12 U.S.C. 
2001 et seq.) should administer distressed loans to farmers with the 
objective of using the loan guarantee programs of the Farmers Home 
Administration and other loan restructuring measures, including 
participation in interest rate buy-down programs that are Federally or 
State funded, and other Federal and State sponsored financial assistance 
programs that offer relief to financially distressed farmers, as 
alternatives to foreclosure, considering the availability and 
appropriateness of such programs on a case-by-case basis.''

                  Section Referred to in Other Sections

    This section is referred to in sections 2201, 2202b, 2202c, 2267, 
2268, 2279aa-9 of this title.
