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Legal Opinion Summary
Topic:Borrower Rights: Must a Farm Credit System association provide loan restructuring rights to, and delay further action against, a financially troubled borrower with an unsecured loan?
ID Number:98-06
Issue Date:11/18/1998

An association asked whether it was required to (1) provide loan restructuring rights to a borrower with an unsecured loan who was on the verge of bankruptcy, and (2) delay further action for 45 days, as provided in 12 C.F.R. 614.4516. OGC concluded that the association could pursue any legal remedies available to it without delay, but that it should provide the borrower with a restructuring notice since the association had determined that the loan was distressed.

The Farm Credit Act and regulations require an institution to notify a borrower whose loan is distressed that the loan is suitable for restructuring. The institution must do so at least 45 days before beginning foreclosure proceedings. Foreclosure in this situation was not an option, because the association had no lien on the collateral. Section 614.4516 applies only to foreclosure, not other possible legal remedies. Therefore, while a restructuring notice was required, delay in pursing other remedies was not.

(November 18, 1998)