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10.14 Landlords. Loans may be made to landlords when (a) the landlord has the right to and does exercise substantial control over the management of the farm on which the loan is sought; or (b) he is engaged, or shortly to become engaged, in farming operations, independently of his capacity as landlord of the farm on which the loan is sought; or (c) the principal part of his income is derived from farming operations. Sec. 6, 47 Stat. 14, sec. 12 “Sixth", 39 Stat. 371, as amended; 12 U.S.C. 665, 771 "Sixth", and Sup.)

10.15 Owners of future interests. Loans may be made to owners of future interests when (a) all interests necessary to the creation of a fee simple estate in the land on which the loan is sought are included in the mortgage; and (b) the owner of the future interest is engaged, or shortly to become engaged, in farming operations independently of his capacity as owner of a future interest in the farm on which the loan is sought, or derives the principal part of his income from farming operations. (Sec. 6, 47. Stat. 14, secs. 2, 12 “First”, “Sixth”, 39 Stat. 360, 371, as amended; 12 U.S.C. 665, 642, 771 "First", "Sixth", and Sup.)

10.16 Tenants for years. Loans may not be made to tenants for years.t (Sec. 6, 47 Stat. 14, secs. 2, 12 "First", "Sixth", 39 Stat. 360, 371, as amended; 12 U.S.C. 665, 642, 771 "First", "Sixth", and Sup.)

10.17 Life tenants. Loans may be made to life tenants when (a) all interests necessary to the creation of a fee simple estate in the land on which the loan is sought are included in the mortgage; and (b) the life tenant, by reason of farming operations conducted by him on the land covered by his life interest, or otherwise, is eligible as a borrower. As used in this section, the term “eligible as a borrower" means a person who is engaged in farming operations, or who is shortly to become engaged in farming operations, or who derives the principal part of his income from farming operations.t (Sec. 6, 47 Ŝtat. 14; secs. 2, 12 “First”, “Sixth", 39 Stat. 360, 371, as amended ; 12 U.S.C. 665, 642, 771 "First”, “Sixth”, and Sup.)

10.18 Owners of undivided interests (including partners). Loans may be made to owners of undivided interests (including partners) when (a) all interests are included in the mortgage; and (b) the owner who desires the loan is, by reason of farming operations conducted by him on land covered by his undivided interest, or otherwise, eligible as a borrower. As used in this section, the term "eligible as a borrower” means a person who is engaged in farming operations, or who is shortly to become engaged in farming operations, or who derives the principal part of his income from farming operations.† (Sec. 6, 47 Stat. 14, secs. 2, 12 “First”, “Sixth”, 39 Stat. 360, 371, as amended; 12 U.S.C. 665, 642, 771 "First”, “Sixth”, and Sup.)

10.19 Husband and wife. Husband and wife owning lands in severalty may borrow on their respective lands.t (Sec. 6, 47 Stat. 14, sec. 12 “Sixth”, 39 Stat. 371, as amended; 12 U.S.C. 665, 771 “Sixth", and Sup.)

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*For source citation, see note to § 10.7.

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10.20 Aliens. To the extent that State laws do not restrict the right of aliens to hold and convey real estate, loans may be made to aliens upon the same basis as to citizens. (Sec. 6, 47 Stat. 14, secs. 2, 12 “First”, “Sixth”, 39 Stat. 360, 371, as amended; 12 U.S.C. and Sup. 642, 665, 771 "First", "Sixth")

” 10.21 Individuals taking title from a corporation (bona fide ownership required). Loans which are otherwise qualified may be made to individuals who have taken title from a corporation in which they were interested as stockholders, provided the transfer is in good faith and not a mere temporary expedient for the purpose of evading the provisions of the Federal Farm Loan Act which preclude loans to corporations other than corporations engaged in the raising of livestock.t (Sec. 6, 47 Stat. 14, sec. 12 “Sixth", 39 Stat. 371, as amended; 12 U.S.C. 665, 771 "Sixth", and Sup.)

10.22 Corporations. Loans may be made to corporations (in addition to those engaged in raising livestock, as to which see section 12 “Sixth” of the Federal Farm Loan Act, as amended (39 Stat. 371, as amended; 12 U.S.C. 771 "Sixth”), when acting solely in a representative or fiduciary capacity for individual beneficiaries, provided the conditions of $s 10.7, 10.9, or 10.12 are satisfied.t (Sec. 6, 47 Stat. 14; 12 U.S.C. 665)

10.23 Livestock corporations. Section 12 “Sixth” of the Federal Farm Loan Act, as amended (39 Stat. 371, as amended; 12 U.S.C. 771 "Sixth”),'permits Federal land bank and Land Bank Commissioner loans to be made to corporations engaged in the raising of livestock. No loans should be made to livestock corporations unless the corporation is primarily engaged in the raising of livestock. It may also be engaged in such general farming operations as are incidental to its livestock raising. If it engages in any secondary operations not strictly incidental to livestock raising, such secondary operations may constitute only a minor part of the corporation's activities. (Sec. 6, 47 Stat. 14; 12 U.S.C. 665)

DEFINITIONS IN CONNECTION WITH LOANS FOR CERTAIN PURPOSES 10.36 “Equipment” and “Improvement" defined. For the purposes of section 12 “Fourth” of the Federal Farm Loan Act, as amended (39 Stat. 370, as amended; 12 U.S.C. 771 "Fourth"), the terms "equipment” and “improvement” are defined as follows:

(a) Equipment. The term equipment shall include implements appropriate for the operation of a farm, and may consist of teams as well as machinery, tools, and like articles. (b) Improvement. The term improvement shall include any bene

. ficial structure or any useful, permanent physical change tending to increase the productive value of the farm, such as clearing, tiling, drainage, fencing, building, and preparations for irrigation. (Sec. 6. 47 Stat. 14; 12 U.S.C. 665)

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USE OF LOAN PROCEEDS

10.47 Agreement as to use of loan proceeds. Every mortgage given to a land bank shall contain an agreement by the mortgagor

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+For source citation, see note to 8 10.7.

that the use of the funds borrowed for purposes other than those specified in his original application shall cause such mortgage at the option of the mortgagee to be immediately due and payable, unless the bank shall have consented to the use of the funds for some other purpose specified in the Federal Farm Loan Act.t (Sec. 6, 47 Stat. 14, sec. 12 "Tenth", 39 Stat. 371; 12 U.S.C. 665, 771 "Tenth")

BASIS OF APPRAISAL

10.213 Normal agricultural value as basis of appraisal. The normal value of land for agricultural purposes shall be the basis of appraisal for loans by Federal land banks. For the purpose of such appraisal commodity prices received by farmers during the period from 1909 to 1914, with such adjustment as may be necessary because of the change in the economic position of particular products, shall be the basis for determining the earning power of farm land. (Sec. 6, 47 Stat. 14, sec. 12 "Fifth”, sec. 13 “Second”, 39 Stat. 371, 372, as amended; 12 U.S.C. 665, 771 "Fifth", 781 "Second”, and Sup.)

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FARM UNIT

10.257 Farm unit; required area and yield of farm. The farm must be of sufficient area to yield at the hands of an ordinarily capable farmer, putting it to the use to which it is generally adapted, using average methods, and receiving normal prices, an income sufficient to maintain the family of the applicant, pay operating expenses and taxes, maintain the property, and discharge the interest and amortization payments on his Ioan. (Sec. 6, 47 Stat. 14, sec. 12 "Fifth”, 39 Stat. 371, as amended; 12 U.S.C. 665, 771 "Fifth”, and Sup.)

COMPUTING MAXIMUM AMOUNT LOANABLE 10.321 Method of computing maximum amount loanable. In determining the aggregate amount of existing and prospective loans to any one borrower for the purpose of applying the limitation provided for in section 12 "Seventh" of the Federal Farm Loan Act (39 Stat. 371, as amended; 12 U.S.C. 771 “Seventh”), there shall be included (a) the amount of the unpaid principal of loans made by a Federal land bank which are secured by mortgages on property owned by the applicant, except loans secured by purchase money mortgages not made on a basis which qualifies them for deposit with the registrar as collateral security for farm loan bonds; (b) the amount of the unpaid principal of Federal land bank loans made to the applicant, or assumed by him with the permission of the bank, which are secured by mortgages on property he no longer owns, except loans secured by mortgages which have been assumed with the permission of the bank by a subsequent owner of the property in accordance with section 12 “Sixth" of the Federal Farm Loan Act (39 Stat. 371, as amended; 12 U.S.C. 771 "Sixth”, and Sup.); and (c) the amount of the unpaid principal of mortgages which are liens on property owned by the applicant and which have been acquired by a Federal land bank under the provisions of section 13 "Second" of the Federal Farm Loan Act

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(39 Stat. 372, as amended; 12 U.S.C. 781 “Second”). (Sec. 6, 47 Stat. 14; 12 U.S.C. 665)

SPECIAL INTEREST RATES 10.330–50 2 Special interest rates on certain Federal land bank loans. For Federal land bank loans secured by first mortgages on the following farm property in the continental United States :

(a) Land that is employed primarily in the production of naval stores as defined by section 2 of the Naval Stores Act (Sec. 2, 42 Stat. 1435; 7 U.S.C. 92);

(b) Land used for the raising of livestock, in estimating the earning power and in establishing the value of which leases or permits for the use of other lands were taken into consideration and were a factor in determining the amount of the loan; and

(c) A farm property, a substantial part of the earnings from which is from orchard crops; Approval has been given to the following interest rates:

(1) For loans through national farm loan associations, 1 and onehalf per centum per annum in excess of the interest rate in the last series of consolidated Federal farm loan bonds, such interest rate not to exceed 6 per centum per annum;

(2) For direct loans, one-half of 1 per centum per annum in excess of the interest rate approved for loans through national farm loan associations under (1) preceding; and

(3) For loans under section 25 (b) of the Farm Credit Act of 1937' (50 Stat. 711; 12 U.S.C., Sup. 724) through national farm loan associations, the capital stock of which is impaired, one-fourth of 1 per centum per annum less than the interest rate approved for direct loans under (2) preceding. (Sec. 6, 47 Stat. 14, secs. 12 “Second", 17 (b), 39 Stat. 370, 375, sec. 26, 48 Stat. 44; 12 U.S.C. 665, 771 "Second", 831 (b), 723 (b)) (FCA Order 224, May 12, 1938]

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INSURANCE REGULATIONS

10.331 Buildings on which insurance must be maintained by mortgagor; amount and type of insurance. All buildings, the value of which was a factor in determining the amount of a loan by a land bank, shall be kept insured against fire and any other risks specified by the bank, in amounts fixed by it aggregating not less than 60 percent of the value thereof to the farm for agricultural purposes, as shown by the report of the land bank appraiser upon which such loan was based. If a building be substituted for a building the value of which was a factor in determining the amount of a loan, the substituted building shall be kept insured in like manner and the aggregate amount of insurance required by this paragraph shall not be reduced by reason thereof.t (Sec. 6, 47 Stat. 14, sec. 12 “Ninth", 39 Stat. 371; 12 U.S.C. 665, 77ì “Ninth”)

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This section is identical with sec 330.50, Manual for Federal land banks, added Aug. 15, 1938.

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*For source citation, see note to § 10.7.

10.332 Additional insurance requirable. Nothing contained in 88 10.331-10.347 shall prevent a land bank from requiring that any other building on a farm mortgaged to the bank shall be kept insured in such amounts and/or against such risks as shall be deemed advisable for the protection of the bank's interests.f (Sec. 6, 47 Stat. 14, sec. 12 “Ninth”, 39 Stat. 371; 12 U.S.C. 665, 771 “Ninth”)

10.333 Insurance to be maintained when full amount cannot be provided. If, when insurance must be renewed or obtained in order to comply with 88 10.331-10.347, the aggregate insurable value of the buildings insured and/or to be insured be less than the amount required by $ 10.331, the said buildings shall be kept insured for the full insurable value thereof.t (Sec. 6, 47 Stat. 14, sec. 12 "Ninth", 39 Stat. 371; 12 U.S.C. 665, 771 “Ninth”)

10.334 Reduced insurance to be maintained under certain other circumstances. A land bank may reduce the amount of insurance theretofore required or discontinue such requirement in whole or in part, either with the approval of the Land Bank Commissioner, or, whenever it is found, through reappraisal by a land bank appraiser, that the land, without the buildings mentioned in § 10.331, would afford ample security under the provisions of the Federal Farm Loan Act for a new loan in the amount of the unpaid balance of the mortgage debt. Insurance need not be required in excess of the unpaid balance of the mortgage debt. (Sec. 6, 47 Stat. 14, sec. 12 “Ninth", 39 Stat. 371; 12 U.S.C. 665, 771 “Ninth”)

10.335 Acceptable insurers. Insurance required under $ 10.331 shall be evidenced by a lawful policy or policies, issued by any reputable insurance company including any state supervised mutual insurance company which is satisfactory to the land bank; provided that such company be authorized to do such insurance business, and be subject to service of process in suits brought, in the state in which the insured property is located, except that, when insurance is procured and paid for by the bank upon default under the mortgage, such insurance company may be one which is subject to service of process in suits brought in the state where the bank is located. The acceptance by a land bank of insurance from an organization other than one provided for by this paragraph shall be subject to the approval of the Land Bank Commissioner.t (Sec. 6, 47 Stat. 14, sec. 12 “Ninth", 39 Stat. 371; 12 U.S.C. 665, 771 “Ninth”)

10.336 Losses to be made payable to land bank. Insurance shall be made payable to the bank, as mortgagee, as its interest may appear at time of loss, but the bank may, in its discretion, permit individual losses of $50 or under to be paid directly to the mortgagor for use in the prompt reconstruction of the buildings destroyed. The provisions of $8 10.337–10.347 shall not be applicable to losses of $50 or under which are paid directly to the mortgagor, with the permission of the bank, for use in reconstruction.f (Sec. 6, 47 Stat. 14, sec. 12 “Ninth", 39 Stat. 371; 12 U.S.C. 665, 771 “Ninth”)

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* For source citation, see note to 8 10.7.

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