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B-114860 1 (1979-12-19)

handle is hein.gao/gaobadhuo0001 and id is 1 raw text is: DECISION THIE COMPTROLLER GENERAL - - OF THE UNITED STATE3 A SH IN GTON , D .C . 2 0 5 4 8 FILE: B-114860 MATTER DIGEST: DATE: December 19, 1979 OF: Farmers Home Administratio Authority to Purchase Surety Bonds - Colorado law prevents holders of trust deeds from releasing them to borrowers unless original promissory note is delivered to them or, if note cannot be producedunless (1) a Government agency agrees to indemnify trustee or (2) a corporate surety bond to protect trustee is provided. Farmers Home Administration (FmHA) may purchase surety bonds in order to obtain release of deeds of trust for Colorado borrowers whose promissory notes have been lost while in custody of FmHA. However, FmHA may not agree to indemnify trustee unless its liability is limited by agreement with trustee to a fixed amount such as the original principal amount of the trust deed. The Administrator of the Farmers Home Administration (FmHA) has asked whether FmHA has authority to purchase surety bonds in order to obtain release of deeds of trust for Colorado borrowers whose promissory notes have been lost, while in the custody of FmHA. Under Colorado law, the trustee under a deed of trust is a public official designated as the public trustee. The public trustee is the only person authorized to release a deed of trust when the obligation underlying it has been satisfied. A Colorado statute provides that the original cancelled promissory note be delivered to the public trustee in order for a deed of trust to be released. If the original note cannot be produced, the statute provides two alternatives which the public trustee may accept in lieu thereof. One is the provision of a corporate surety bond conditioned against the delivery of the note to the damage of the trustee and in a sum equal to the original principal amount recited in the trust deed. The other alternative is for the agency of the Federal Government which originated the loan to agree to indemnify the public trustee for damages as a result of releasing the trust deed. The normal FmHA procedure for handling lost note situations (7 C.F.R. § 1866.2(b)) is not consistent with either alternative and is said to be unacceptable to public trustees in Colorado. 6262/zftIIID .'3 9

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