loans which are secured by other than a first lien if the mortagage clause includes the name(s) of prior mortgagee(s). (1) Binders. Whenever there is a justifiable reason for not issuing a policy or endorsement, as required, a written binder will be acceptable for a period not to exceed 30 days from the effective date of the insurance. The written binder must have attached the approved form of mortgage clause. Such a binder will be submitted to the County Supervisor in lieu of an insurance policy or endorsement and the insurance policy or endorsement will be submitted on or before the expiration date of the binder. (c) Loss or damage covered. Properties must be insured against loss or damage by fire, lightning, windstorm, hail, explosion, riot, civil commotion, aircraft, vehicles, and smoke. (d) Effective date of insurance. If there are insurable buildings located on the farm, the borrower will arrange with his agent or company to have adequate insurance in force at the time of loan closing so that the policy will properly insure the borrower and the mortgagee(s). When new buildings are erected or major improvements are made to existing buildings, such insurance will be made effective as of the date materials are delivered to the property. County Supervisor will make no payments from loan funds for labor or materials until the borrower has furnished adequate insurance to protect the interest of the Farmers Home Administration in the property including the buildings being erected or improved. The (e) Term. The borrower will be required to furnish insurance for a term of not less than one year. (f) Mortgage clause. The standard mortgage clause (without contribution) must be attached to or printed in the policy or Form FHA 426-2, "Property Insurance Mortgage Clause (Without Contribution)," must be attached to the policy. If the use of a mortgage clause, other than the standard mortgage clause (without contribution) has been made mandatory by the laws or insurance regulations of any state, such form will be acceptable to the Farmers Home Administration upon prior approval by the National Office. Whenever a new mortgage clause including the interest of the Farmers Home Administration is issued after the policy has been in force, the new mortgage clause must be signed by an authorized agent or officer of the company that issued the policy. (1) The United States of America (Farmers Home Administration) and all other mortgagees whose interests are insured by the policy will be shown in the mortgage clause in the order of priority of their mortgages. (2) The name "United States of America (Farmers Home Administration)" will be named payee in the mortgage clause for direct and insured loan mortgages naming the Farmers Home Administration as mortgagee, whether in its own right or as trustee under a 2(f) agreement pursuant to the Rural Rehabilitation Corporation Trust Liquidation Act (40 U.S.C. 440). (3) The name "United States of America (Farmers Home Administration) as First Mortgagee or as Statutory Agent and Insurer of Such Mortgagee," will be named payee in the mortgage clause for insured Farm Ownership mortgages naming the lender as mortgagee, whether the mortgage is held by the original or a subsequent lender or by the insurance fund or by the Farmers Home Administration under a trust assignment or declaration of trust. (4) In case of real estate mortgages securing more than one type of Farmers Home Administration loan to the same borrower, the United States of America (Farmers Home Administration) will be named in the mortgage clause appropriately for each type of loan. (g) Evidence of premium payment. (1) When Form FHA-878 is attached to the policy, no evidence of premium or assessment payment is required. (2) When a mortgage clause other than Form FHA-878 is used, the borrower will be required to furnish, with the policy, proper evidence that the premium has been paid for the full term of the policy. The evidence of premium payment may be a receipted bill, the policy stamped "Premium Paid," the endorsement renewing or continuing the policy stamped "Premium Paid" or letter or statement signed by the agent or company stating the premium has been paid. In case the policy is written by an assessment mutual insurance company on an annual assessment basis, proper evidence will accompany the policy to show that the most recent annual assessment has been paid. When Form FHA-878 cannot be used in a state, evidence of premium payments may be waived upon determination by the National Office of the probability that the Government will not be required to pay defaulted premiums. (h) Policy restrictions. Any insurance having restrictions which limit the amount of collectible insurance to less than Farmers Home Administration requirements, must have such restrictions eliminated or modified to afford the required protection; otherwise, the policy will not be accepted. Policies will not be accepted if, under the terms of the policies or local laws, contributions or assessments may be made against the Farmers Home Administration, when, by the terms of the policy or other conditions, loss payments are contingent upon action by the Board of Directors, the policyholders, or the members. nor [21 F.R. 7509, Oct. 2, 1956, as amended at 25 F.R. 6752, July 16, 1960; 26 F.R. 2167, Mar. 15, 1961] § 306.3 Coverage requirements. The County Supervisor should encourage the borrower for his own protection to insure for their depreciated replacement value (actual cash value) all buildings which are essential to the operation of the farm or the repayment of the loans. The minimum insurance to be furnished on insurable buildings located on land taken as security for the loan, which insurance will be distributed among the most essential buildings, is prescribed below: (a) Loans secured by a first lien. (1) When the unpaid balance of the loan is equal to or greater than the depreciated replacement value of the buildings that are essential to the operation of the farm and any other buildings that have significant security value, all such buildings will be insured for their depreciated replacement value or the cost of essential buildings adequate for the farm which can be built for amounts less than the depreciated replacement values of the existing buildings. Insurance will not be required on buildings that are not essential for the operation of the farm and do not have significant security value, or are in such a state of disrepair that the cost of insurance would be prohibitive. (2) When the unpaid balance of the loan is less than the depreciated replacement value of the buildings that are essential for the operation of the farm and any other buildings that have significant security value, the total amount of insurance must be at least equal to the unpaid balance of the loan, or the cost of essential buildings adequate for the farm which can be built for amounts less than the depreciated replacement values of the existing buildings. (3) When, by use of loan funds or otherwise, buildings are erected or substantial improvements are made to essential buildings, or to other buildings which have a substantial security value, insurance will be provided in accordance with subparagraphs (1) or (2) of this paragraph, whichever is applicable. (b) Loans secured by other than first liens. The amount of insurance on buildings in the case of Farmers Home Administration loans secured by other than a first lien shall be the same as required in paragraph (a) of this section with the understanding that the unpaid balance of the loan shall be deemed for this purpose to be the amount of the total real estate mortgage indebtedness owed all prior mortgagees named in the mortgage clause, and the Farmers Home Administration's debt secured by the real estate mortgage. (c) Exception of buildings from insurance. Upon written request of the borrower, the County Supervisor may approve the following exceptions: (1) Insurance need not be carried on any buildings if the hazards are so slight because of the character and construction of the building, or the cost of the insurance so high in comparison with the value of the building that, according to common standards of judgment, it should not be insured, including but not limited to windmills, wind pumps and their towers, silos, fire-cured tobacco barns, potato or root cellars, and stone smokehouses. (2) In cases where the unpaid balance of the Farmers Home Administration loans and any prior liens have been reduced to $1,000, or less, all property insurance may be dispensed with provided the County Supervisor determines that the value of the farmland itself is sufficient to protect the Farmers Home Administration in its collection of the amount of the outstanding indebtedness. [21 F.R. 7509, Oct. 2, 1956] § 306.4 Examining and servicing of in surance. (a) Examination by County Office of policies, evidence of insurance, endorsements, and binders. Upon receipt in the County Office of a policy, evidence of insurance, endorsement, or binder submitted by a borrower, it will be loans which are secured by other than a first lien if the mortagage clause includes the name(s) of prior mortgagee(s). (1) Binders. Whenever there is a justifiable reason for not issuing a policy or endorsement, as required, a written binder will be acceptable for a period not to exceed 30 days from the effective date of the insurance. The written binder must have attached the approved form of mortgage clause. Such a binder will be submitted to the County Supervisor in lieu of an insurance policy or endorsement and the insurance policy or endorsement will be submitted on or before the expiration date of the binder. (c) Loss or damage covered. Properties must be insured against loss or damage by fire, lightning, windstorm, hail, explosion, riot, civil commotion, aircraft, vehicles, and smoke. (d) Effective date of insurance. If there are insurable buildings located on the farm, the borrower will arrange with his agent or company to have adequate insurance in force at the time of loan closing so that the policy will properly insure the borrower and the mortgagee(s). When new buildings are erected or major improvements are made to existing buildings, such insurance will be made effective as of the date materials are delivered to the property. County Supervisor will make no payments from loan funds for labor or materials until the borrower has furnished adequate insurance to protect the interest of the Farmers Home Administration in the property including the buildings being erected or improved. The (e) Term. The borrower will be required to furnish insurance for a term of not less than one year. (f) Mortgage clause. The standard mortgage clause (without contribution) must be attached to or printed in the policy or Form FHA 426-2, "Property Insurance Mortgage Clause (Without Contribution)," must be attached to the policy. If the use of a mortgage clause, other than the standard mortgage clause (without contribution) has been made mandatory by the laws or insurance regulations of any state, such form will be acceptable to the Farmers Home Administration upon prior approval by the National Office. Whenever a new mortgage clause including the interest of the Farmers Home Administration is issued after the policy has been in force, the new mortgage clause must be signed by an authorized agent or officer of the company that issued the policy. (1) The United States of America (Farmers Home Administration) and all other mortgagees whose interests are insured by the policy will be shown in the mortgage clause in the order of priority of their mortgages. (2) The name "United States of America (Farmers Home Administration)" will be named payee in the mortgage clause for direct and insured loan mortgages naming the Farmers Home Administration as mortgagee, whether in its own right or as trustee under a 2(f) agreement pursuant to the Rural Rehabilitation Corporation Trust Liquidation Act (40 U.S.C. 440). (3) The name "United States of America (Farmers Home Administration) as First Mortgagee or as Statutory Agent and Insurer of Such Mortgagee," will be named payee in the mortgage clause for insured Farm Ownership mortgages naming the lender as mortgagee, whether the mortgage is held by the original or a subsequent lender or by the insurance fund or by the Farmers Home Administration under a trust assignment or declaration of trust. (4) In case of real estate mortgages securing more than one type of Farmers Home Administration loan to the same borrower, the United States of America (Farmers Home Administration) will be named in the mortgage clause appropriately for each type of loan. (g) Evidence of premium payment. (1) When Form FHA-878 is attached to the policy, no evidence of premium or assessment payment is required. (2) When a mortgage clause other than Form FHA-878 is used, the borrower will be required to furnish, with the policy, proper evidence that the premium has been paid for the full term of the policy. The evidence of premium payment may be a receipted bill, the policy stamped "Premium Paid," the endorsement renewing or continuing the policy stamped "Premium Paid" or letter or statement signed by the agent or company stating the premium has been paid. In case the policy is written by an assessment mutual insurance company on an annual assessment basis, proper evidence will accompany the policy to show that the most recent annual assessment has been paid. When Form FHA-878 cannot be used in a state, evidence of premium payments may be waived upon determination by the National Office of the probability that the Government will not be required to pay defaulted premiums. (h) Policy restrictions. Any insurance having restrictions which limit the amount of collectible insurance to less than Farmers Home Administration requirements, must have such restrictions eliminated or modified to afford the required protection; otherwise, the policy will not be accepted. Policies will not be accepted if, under the terms of the policies or local laws, contributions or assessments may be made against the Farmers Home Administration, nor when, by the terms of the policy or other conditions, loss payments are contingent upon action by the Board of Directors, the policyholders, or the members. [21 F.R. 7509, Oct. 2, 1956, as amended at 25 F.R. 6752, July 16, 1960; 26 F.R. 2167, Mar. 15, 1961] § 306.3 Coverage requirements. The County Supervisor should encourage the borrower for his own protection to insure for their depreciated replacement value (actual cash value) all buildings which are essential to the operation of the farm or the repayment of the loans. The minimum insurance to be furnished on insurable buildings located on land taken as security for the loan, which insurance will be distributed among the most essential buildings, is prescribed below: (a) Loans secured by a first lien. (1) When the unpaid balance of the loan is equal to or greater than the depreciated replacement value of the buildings that are essential to the operation of the farm and any other buildings that have significant security value, all such buildings will be insured for their depreciated replacement value or the cost of essential buildings adequate for the farm which can be built for amounts less than the depreciated replacement values of the existing buildings. Insurance will not be required on buildings that are not essential for the operation of the farm and do not have significant security value, or are in such a state of disrepair that the cost of insurance would be prohibitive. (2) When the unpaid balance of the loan is less than the depreciated replacement value of the buildings that are essential for the operation of the farm and any other buildings that have significant security value, the total amount of insurance must be at least equal to the unpaid balance of the loan, or the cost of essential buildings adequate for the farm which can be built for amounts less than the depreciated replacement values of the existing buildings. (3) When, by use of loan funds or otherwise, buildings are erected or substantial improvements are made to essential buildings, or to other buildings which have a substantial security value, insurance will be provided in accordance with subparagraphs (1) or (2) of this paragraph, whichever is applicable. (b) Loans secured by other than first liens. The amount of insurance on buildings in the case of Farmers Home Administration loans secured by other than a first lien shall be the same as required in paragraph (a) of this section with the understanding that the unpaid balance of the loan shall be deemed for this purpose to be the amount of the total real estate mortgage indebtedness owed all prior mortgagees named in the mortgage clause, and the Farmers Home Administration's debt secured by the real estate mortgage. (c) Exception of buildings from insurance. Upon written request of the borrower, the County Supervisor may approve the following exceptions: (1) Insurance need not be carried on any buildings if the hazards are so slight because of the character and construction of the building, or the cost of the insurance so high in comparison with the value of the building that, according to common standards of judgment, it should not be insured, including but not limited to windmills, wind pumps and their towers, silos, fire-cured tobacco barns, potato or root cellars, and stone smokehouses. (2) In cases where the unpaid balance of the Farmers Home Administration loans and any prior liens have been reduced to $1,000, or less, all property insurance may be dispensed with provided the County Supervisor determines that the value of the farmland itself is sufficient to protect the Farmers Home Administration in its collection of the amount of the outstanding indebtedness. [21 F.R. 7509, Oct. 2, 1956] § 306.4 Examining and servicing of in surance. (a) Examination by County Office of policies, evidence of insurance, endorsements, and binders. Upon receipt in the County Office of a policy, evidence of insurance, endorsement, or binder submitted by a borrower, it will be examined promptly by the County Supervisor for compliance with the requirements of this part. If the insurance is found to be acceptable, it will be placed in the borrower's case folder. (1) Unacceptable policies. (i) When the borrower furnishes any policy or evidence of insurance which does not meet the requirements of this part, such policy or evidence of insurance will be returned to the borrower with the reasons why it is not acceptable. (ii) If the borrower does not furnish acceptable insurance within 15 days from the date the unacceptable insurance was returned, the County Supervisor will submit a completed Form SCA-1, “Insurance Order," to the Stock Company Association. (2) Release of mortgage interest. Where the borrower's loan has been paid in full and the satisfaction or release of the mortgage has been executed, the County Supervisor will execute the following Release of Mortgage Interest on the mortgage clause attached to the policy, or evidence of insurance, and transmit it with the paid-in-full note and satisfaction: It is understood and agreed that the interest of the United States of America in the property insured hereunder ceased as of (date of final payment), and that the Government shall have no interest in any loss or damage to such property occurring thereafter. (3) Lost or misplaced policies. When an unexpired insurance policy or evidence of insurance is lost or misplaced, it will be necessary to obtain a replacing policy or evidence of insurance. The County Supervisor is authorized to sign a Lost Policy Receipt on behalf of the Farmers Home Administration. (4) Disposition of expired policies. All expired policies or evidences of insurance held by the Farmers Home Administration for borrowers will be returned to borrowers one year following expiration, except that such policies or evidences of insurance will be delivered to the borrower, upon request, within one year after expiration. (b) Special servicing of insurance(1) Vacancy or unoccupancy. If the County Supervisor has knowledge that a farm is vacant or unoccupied, or that the occupancy has changed from owner to tenant, he will examine the policy to determine whether the policy permits such conditions. Unless the insurance permits such condition, the County Su pervisor will immediately notify, in writing, the company or agent. In any case where there is an additional premium due because of vacancy, unoccupancy, or tenant occupancy, and upon demand to the Farmers Home Administration from the company or agent because the borrower cannot, or will not, pay the additional premium, it may be paid by Standard Form 1034, "Public Voucher for Purchases and Services other than Personal," to the company or agent. (2) Transfer of farm. If the County Supervisor has knowledge that a borrower's farm is being transferred during the term of the insurance, the County Supervisor must be supplied immediately with an endorsement signed by the company or agent, changing the name of the assured to that of the transferee; or the transferee must obtain other insurance acceptable to the Farmers Home Administration. If other insurance is obtained, the old policy or record of insurance will be returned to the transferor, unless there is an unsettled loss. If there is an unsettled loss, the policy or evidence of insurance will not be returned until the claim has been settled satisfactorily. Acceptance of the new policy or endorsement from an ineligible person will not constitute consent by the Government to the transfer. (3) Voluntary conveyance of farm to Government and foreclosure. After a foreclosure sale has been held or after a deed of conveyance to the Government in lieu of foreclosure has been filed for record, the County Supervisor will return the insurance policy to the borrower for cancellation; however, if there is an unsettled loss with respect to the property, the policy will not be returned until such loss has been settled. When the borrower receives the policy, he may cancel the insurance and obtain the unearned premium check from the insurance company. [21 F.R. 7610, Oct. 2, 1956, as amended at 23 F.R. 8329, Oct. 29, 1958] § 306.5 Losses. (a) General. In case of loss covered by insurance, the County Supervisor is authorized to take such steps as are necessary to protect the interest of the Farmers Home Administration in the property against further damage and to collect the amount of the loss. When serious problems arise with respect to protecting the property from further damage, or an amicable settlement can |