12 U.S.C. § 1747g: Debentures

Summary

The Secretary can buy a project from an investor and pay with government debentures once certain payment or loss thresholds are met. If payments to the investor under the program reach 15% of the established investment, the Secretary may, after written notice, take the project as of the first day of an operating year and give debentures equal to 90% of the outstanding investment for that year. If an investor’s accumulated operating shortfalls reach 5% of the established investment, the investor may, after written notice, give title to the Secretary as of the first day of an operating year and receive debentures equal to 90% of the outstanding investment. The investor must provide clear title that meets the Secretary’s rules, or the Secretary may end the insurance contract. Any small difference up to $50 between the 90% amount and the debenture face value will be paid in cash. Debentures are issued in the name of the General Insurance Fund, signed by the Secretary, and are negotiable. They are dated the first day of the operating year when the project was acquired. The interest rate was set when the insurance contract was made, with Treasury approval, and cannot exceed 2¾% per year. Interest is paid each January 1 and July 1. Debentures mature on a July 1 no later than the fortieth year after issuance, come in multiples of $50, and may include redemption terms. Principal and interest are exempt from most state and local taxes (except surtaxes and estate, inheritance, and gift taxes). Payments come from the General Insurance Fund, and the United States fully guarantees them; if the Fund cannot pay, the Treasury will and then takes the holders’ rights. The Secretary may use the Fund to manage, repair, insure, lease, sell, or collect claims on acquired projects, and small purchases under $1,000 and hazard insurance contracts are exempt from one procurement rule.

Title 12, §1747g

Banks and Banking, Source: USLM XML via OLRC

(a)Acquisition of project by Secretary; issuance of debentures

If the aggregate of the amounts paid to the investor pursuant to section 1747f of this title with respect to a project insured under this subchapter shall at any time equal or exceed 15 per centum of the established investment, the Secretary thereafter shall have the right, after written notice to the investor of his intentions so to do, to acquire, as of the first day of any operating year, such project in consideration of the issuance and delivery to the investor of debentures having a total face value equal to 90 per centum of the outstanding investment for such operating year. In any such case the investor shall be obligated to convey to said Secretary title to the project which meets the requirements of the rules and regulations of the Secretary in force at the time the insurance contract was executed and which is evidenced in the manner prescribed by such rules and regulations, and, in the event that the investor fails so to do, said Secretary may, at his option, terminate the insurance contract.

(b)Relinquishment of project by investor (c) Adjustment of difference between outstanding investment and total face value of debentures

If in any operating year the aggregate of the differences between the operating expenses (exclusive of any premium charges previously waived hereunder) and the gross income for the preceding operating years, less the aggregate of any deficits in such operating expenses reimbursed from excess earnings as hereinbefore provided, shall at any time equal or exceed 5 per centum of the established investment, the investor shall thereafter have the right, after written notice to the Secretary of his intention so to do, to convey to the Secretary, as of the first day of any operating year, title to the project which meets the requirements of the rules and regulations of the Secretary in force at the time the insurance contract was executed and which is evidenced in the manner prescribed by such rules and regulations, and to receive from the Secretary debentures having a total face value equal to 90 per centum of the outstanding investment for such operating year.

(d)Termination of insurance contract by Secretary

Upon the acquisition of a project by the Secretary pursuant to this section, the insurance contract shall terminate.

(e)Issuance and execution of debentures

Debentures issued under this subchapter to any investor shall be executed in the name of the General Insurance Fund as obligor, shall be signed by the Secretary, by either his written or engraved signature, and shall be negotiable. Such debentures shall be dated as of the first day of the operating year in which the project for which such debentures were issued was acquired by the Secretary, shall bear interest at a rate to be determined by the Secretary, with the approval of the Secretary of the Treasury, at the time the insurance contract was executed, but not to exceed 2¾ per centum per annum, payable semiannually on the 1st day of January and the 1st day of July of each year, and shall mature on the 1st day of July in such calendar year or years, not later than the fortieth following the date of the issuance thereof, as shall be determined by the Secretary and stated on the face of such debentures.

(f)Terms and conditions of debentures

Such debentures shall be in such form and in such denominations in multiples of $50, shall be subject to such terms and conditions, and may include such provisions of redemption as shall be prescribed by the Secretary, with the approval of the Secretary of the Treasury, and may be issued in either coupon or registered form.

(g)Exemption from taxation; exceptions; guaranty

Such debentures shall be exempt, both as to principal and interest, from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by any Territory, dependency, or possession of the United States, or by the District of Columbia, or by any State, county, municipality, or local taxing authority, shall be payable out of the General Insurance Fund, which shall be primarily liable therefor, and shall be fully and unconditionally guaranteed, as to both the principal thereof and the interest thereon, by the United States, and such guaranty shall be expressed on the face thereof. In the event that the General Insurance Fund fails to pay upon demand, when due, the principal of or the interest on any debentures so guaranteed, the Secretary of the Treasury shall pay to the holders the amount thereof, which is authorized to be appropriated, out of any money in the Treasury not otherwise appropriated, and thereupon, to the extent of the amount so paid, the Secretary of the Treasury shall succeed to all the rights of the holders of such debentures.

(h)Payment of expenses and charges; collection of claims

Notwithstanding any other provisions of law relating to the acquisition, handling, or disposal of real and other property by the United States, the Secretary shall have power, for the protection of the General Insurance Fund, to pay out of said Fund all expenses or charges in connection with, and to deal with, complete, reconstruct, rent, renovate, modernize, insure, make contracts for the management of, or establish suitable agencies for the management of, or sell for cash or credit or lease in his discretion, in whole or in part, any project acquired pursuant to this subchapter; and, notwithstanding any other provisions of law, the Secretary shall also have power to pursue to final collection by way of compromise or otherwise all claims acquired by, or assigned or transferred to, him in connection with the acquisition or disposal of any project pursuant to this subchapter: Provided, That section 6101 of title 41 shall not be construed to apply to any contract for hazard insurance, or to any purchase or contract for services or supplies on account of any project acquired pursuant to this subchapter if the amount of such purchase or contract does not exceed $1,000.

Notes & Related Subsidiaries

Editorial Notes

References in Text

The General Insurance Fund, referred to in text, was established by section 1735c of this title. Codification In subsec. (h), “section 6101 of title 41” substituted for “section 3709 of the Revised Statutes” on authority of Pub. L. 111–350, § 6(c), Jan. 4, 2011, 124 Stat. 3854, which Act enacted Title 41, Public Contracts.

Amendments

1967—Subsecs. (a) to (f), (h). Pub. L. 90–19 substituted “Secretary” for “Commissioner” wherever appearing. 1965—Subsecs. (c), (e), (g), (h). Pub. L. 89–117 substituted “General Insurance Fund” for “Housing Investment Insurance Fund” wherever appearing. 1950—Act Apr. 20, 1950, substituted “Commissioner” for “Administrator” wherever appearing.

§1747g Debentures