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situation and to consider payment alternatives. Between 1991 and
1996, petitioners explored with Mr. Guenther two alternatives to
foreclosure of the FmHA mortgages. The first of these options
involved a debt restructuring, and the second entailed a buyout
of the mortgages by petitioners at net recovery value. Net
recovery value was calculated as the amount that would be
realized from liquidation of the mortgaged collateral, reduced by
prior liens and certain costs.
In April and May of 1996, FmHA advised petitioners that they
did not qualify for debt restructuring, that FmHA intended to
foreclose on its mortgages, and that petitioners could avoid
foreclosure by buying out the FmHA loans at net recovery value.
A Debt and Loan Restructuring System Analysis Report, dated April
18, 1996, contained the following language: “You may buy out
your FmHA loans for the Net Recovery Value of $92,057.00. * * *
If you pay the Net Recovery Value, any remaining balance on your
FmHA accounts will be written off. The debt written off may be
subject to recapture.” A Notice of Intent To Accelerate or To
Continue Acceleration and Notice of Borrowers’ Rights, dated May
6, 1996, further detailed the terms of these arrangements and
informed petitioners:
If you are eligible and pay the recovery value, FmHA
will write off the rest of your debt up to $300,000.
If you are eligible to pay the recovery value, FmHA
will require you to sign a recapture agreement. This
agreement would allow FmHA to require you to pay the
difference between the recovery value and the current
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