FHA Reservation of Funds To Indemnify Colorado Public Trustees

B-198161: Nov 25, 1980

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The Farmers Home Administration asked reconsideration of a statement made in a GAO decision. In holding that the Administration is authorized to enter into indemnity agreements with public trustees of Colorado to secure the release of a deed of trust, GAO said that, in order to avoid violation of the Antideficiency Act, the Administration should reserve from available funds amounts sufficient to pay any indemnities arising from such agreements. The Administration questioned whether, since both Funds in question are revolving accounts, the reservation requirement would apply. GAO will not object if the Administration enters into indemnity agreements with Colorado public trustees without administratively reserving funds to cover the contingent liablities arising from such agreements since no practical alternative exists and the Government would be the only party in a position to seek damages against the public trustees. Claims based upon agreements to indemnify, in amounts not exceeding the original principal amount of the trust deed, are payable from the Funds. If a note is stolen, the Government's right to the note proceeds and its ultimate liability to a holder, in due course, would not be increased by an indemnity agreement with the public trustee beyond what it would otherwise have been. Where it is necessary to obtain release of deeds of trust for borrowers whose promissory notes have been lost, GAO has no objection to an indemnity agreement with public trustees in amounts not exceeding the original principal amount of the trust deed and will not insist upon a concurrent reservation of funds.