§ 138a.6. Condition of loan guarantees.
(a) Upon default of a loan guaranteed under this program, the Commonwealth will pay the lender the lesser of:
(1) Ninety-percent of the deficiency on the loan following liquidation of collateral, where the loan deficiency means the outstanding principal balance of the loan less the collateral and all other security on the loans; and less estimated loss settlements previously paid by the Department under subsection (d).
(2) Two-hundred thousand dollars for the portion of the loan used for farmland and farm structures; $150,000 for the portion of the loan used for acquiring equipment, livestock and capital assets; $50,000 for the portion of the loan used for working capital for the acquisition of fertilizer, seed, livestock feed and other supplies to be used on farmland by a borrower.
(b) The lender is responsible for all aspects of loan administration. The lender is required to disburse and service the loan, and enforce remedies under the financing documents, including liquidation of collateral—tangible, intangible and proceeds—and enforcement of security interests upon default.
(c) The lender is required to fully secure the loan with no less than a second lien position on assets and collateral. When necessary and approved by the Secretary, subordinated positions may be taken.
(d) In case of default by the borrower, if either the lender or the Department concludes that liquidation is necessary, the lender, unless the Department decides to carry out liquidation, will be required to liquidate assets used as collateral and apply the entire proceeds against the outstanding principal balance owed by the borrower. The Commonwealth will pay an estimated loss settlement to the lender prior to completion of liquidation.
(e) A loan guarantee will not be permitted as part of a general refinancing of a current loan from the lender to the borrower unless the current loan was made for a permissible use as set forth in § 138a.4 (relating to permissible uses of loan proceeds and maximum terms of loans), and one of the following occurs:
(1) The refinancing is necessary due to a natural disaster suffered by the borrower.
(2) If it is needed to avoid the foreclosure of a mortgage on the borrower’s farm, where the foreclosure is due to serious financial hardship not the fault of the borrower and the borrower has a reasonable prospect of resuming full payment of the principal and interest on the farm mortgage.
(3) The primary purpose of the refinancing is to facilitate the implementation of a business plan reasonably designed to improve the operating results of the borrower’s family farm through substantial changes in the operations of the farm.
Cross References This section cited in 7 Pa. Code § 138a.7 (relating to conditions on interest deferrals).
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