RD Reserve Requirement Changes

A Small Change Leads to Big Happiness


In recent years, many owners and management agents of properties in the Rural Development (RD) portfolio have clamored for updates to rather antiquated requirements for the projects’ replacement reserve accounts. RD has addressed these calls for policy change with their latest announcement.

On September 28, 2018, the national RD office released an Unnumbered Letter (UL) to inform those within the program that they are making changes regarding the supervision of the replacement reserve accounts.  The two requirement changes are as follows:

  • 7 CFR 3560.306(e)(2) and 7 CFR 1902.4(a)(1) – The Agency is no longer required to countersign approved withdrawals from reserve accounts. In addition, Multi-Family Housing (MFH) employees will no longer have to present their federal government ID to the bank as they will no longer be listed as an additional signer on the commercial bank account. (page 2 of UL attached – Exhibit A)
  • 7 CFR 3560.302(c)(5)(ii) and 7 CFR 1902.6(d) and 1902.7(a) – Borrowers are no longer required to obtain a collateral pledge if the amount of funds exceed the maximum limit covered by Federal deposit insurance. Funds exceeding the Federally insured limit under a Tax ID Number should be moved to a different qualified banking institution that will insure the funds unless the current financial institution provides additional surety such as a collateral pledge that may already be in place.(page 2 of UL attached –Exhibit A)

Up to this point, as part of the requirement to receive funds released from the replacement reserve, owners and management agents had to submit a check as part of the package that was reviewed and countersigned by RD.  The reason that this was frustrating to some people within the program is that many banks no longer provide the option for two-party checks which potentially delayed the actual release of funds from the account.

One requirement for owners/management agents is they will have to execute a new Deposit Agreement with their bank or financial institution within 120 days of the release of this letter (January 26, 2019).  RD has provided an example agreement that can be used (Exhibit A).  If the bank or financial institution prefer to use their own deposit agreement, it must be approved by RD’s general counsel.

Once the new Deposit Agreement is executed, the withdrawal/transfer of funds from the replacement reserve can be done electronically if the owner/management chooses to once the requests have been approved by RD.

RD is nearing the end a long process that they have undertaken to overhaul Chapter 4 of the MFH Handbook 2-3560, and the changes noted above will be incorporated into its revisions that hope to be released in the upcoming weeks.

In summary,

  • Owners/management agents of RD projects no longer need a countersigned check as part of the request for withdrawal from the replacement reserve account.
  • A new Deposit Agreement will need to be executed with the bank or financial institution that holds the replacement reserve accounts.
  • Once the new Deposit Agreement is executed, the withdrawals may be done via electronic transfer once the request is approved.

To discuss RD Reserve needs, please contact Sean Hutton.

Sean Hutton
Senior Manager





Rural Development -Multi-Family Housing


NAME AND ADDRESS OF DEPOSITOR(S)                                                      SOCIAL SECURITY OR IRS NO.

AGENCY NAME AND ADDRESS                                                                           DEPOSIT ACCOUNT NO.


THIS AGREEMENT is made on ______________________, between United States of America, acting through the United States Department of Agriculture (hereinafter, “Government”), the above-named Depositor(s) (hereinafter, “Depositor”), and the above-named Bank, Savings and Loan, or Credit Union, (hereinafter, “Financial Institution”).

In consideration of loans or other advances of funds made by the Government and the depositing in the Financial Institution, to the credit of the Depositor in the account or accounts (hereinafter, “account”) established pursuant to this agreement, of moneys, derived from such loans or other advances of funds, or moneys otherwise obtained by the Depositor, it is agreed as follows:

  1. Security Interest: Government.The Depositor assigns, transfers, and pledges to the Government the above-mentioned account and deposits, made before or after this agreement, and conveys to the Government a security interest in all money deposited in this account, as security for the repayment of any and all indebtedness now or later owed by the Depositor to the Government, and for the performance of the obligations and agreements of the Depositor in connection with such advances or indebtedness.
  2. The Financial Institution Agrees To:
    • Comply with instructions originated by the Government directing disposition of the funds in this account without further consent or approval by the Depositor;
    • At any time upon written demand or order by the Government, pay over to the Government the balance then on hand, or any part of the balance demanded. The death, disability, or insolvency of the Depositor shall not impair the power of the Government to demand or order such withdrawal;
    • At any time upon written demand or order by the Government, forward a statement showing account activity, including sufficient information to reconcile the account, to the Government Office at the address shown above.
  3. Setoff. The Financial Institution agrees that it will not assert any right of setoff or recoupment, except service charges, with respect to the funds deposited pursuant to this agreement by reason of any indebtedness or claim now or later owed to or acquired by it.
  4. Control of Deposit Account. The Financial Institution agrees that it will not, for the purpose of the Uniform Commercial Code, obtain or assert “control” over this account or enter into an agreement with any other creditor allowing that creditor to have “control” of this account or the funds on deposit therein and that it hereby subordinates any security interest it may have or claim in this account or in the funds on deposit therein to the security interest granted to the Government in this Agreement.
  5. Exculpation of Bank.The Depositor and Government agree that the Financial Institution shall have no liability to either of them for any loss or damage that either or both may claim to have suffered or incurred, either directly or indirectly, by reason of this Agreement or any transaction or service contemplated by its provisions, unless occasioned by the gross negligence or willful misconduct of the Financial Institution. The Financial Institution shall be under no obligation with respect to the expenditure of funds after their withdrawal from the Financial Institution in accordance with the provisions of the Agreement. Upon making payment pursuant to an order or check duly executed by the Depositor, or pursuant to the written demand or order of the Government, the Financial Institution shall be discharged from all obligations with respect to the funds so released.
  6. Indemnification by Depositor.Depositor agrees to indemnify the Financial Institution and hold it harmless from and against any and all claims, other than those ultimately determined to be founded upon gross negligence or willful misconduct of the Financial Institution, and from and against any damages, penalties, judgements, liabilities, losses, or expenses (including reasonable attorney fees and disbursements) incurred as a result of the assertion of any claim, by any person or entity, arising out of, or otherwise related to, any transaction conducted or service provided by the Financial Institution through the use of any account at the Financial Institution pursuant to the procedures provided for or contemplated by this Agreement.
  7. Statements and Other Information. The Financial Institution shall notify the Government if the account is closed, by sending written notification to the Government Office at the address noted above.
  8. Miscellaneous:
    • This Agreement may be amended only by a written instrument executed by the Government, the Financial Institution and the Depositor acting by their respective duly authorized representatives.
    • This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns, but neither the Depositor nor the Financial Institution shall be entitled to assign or delegate any of its rights or duties under this Agreement without first obtaining the express prior written consent of the Government.
    • This Agreement may be executed in any number of several counterparts, each of which shall be deemed an original but all of which together shall constitute one and other same instrument.
    • This Agreement is an agreement between the Financial Institution and the Depositor governing the deposit account within the meaning of Section 9-304(b) of the Uniform Commercial Code (“UCC”). The designation of the Financial Institution’s address as the jurisdiction (“Jurisdiction”) for purposes of the UCC shall be controlling in the event of any conflict between this Agreement and any other agreement between the Financial Institution and the Depositor governing this account.
    • This Agreement shall be governed by federal law which, for purposes of this Agreement, includes Article 9 of the UCC as adopted in the Jurisdiction of the Financial Institution.

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement, as of the day and year first written above.

________________________________            ________________________________ FINANCIAL INSTITUTION,                                  DEPOSITOR,


BY: _____________________________             BY: _____________________________


________________________________            ________________________________

(Title)                                                                   (Title)




BY _____________________________



Tidwell Group continues its goal of assembling the premier group of affordable housing professionals as it welcomes its newest partner Joseph Wallace, CPA.
FLEXIBLE WORK ARRANGEMENTS: Another way to ensure client value

About Tidwell Group LLC

If you are a developer, construction firm owner/operator, or a leader in affordable housing or commercial real estate, Tidwell Group delivers your solutions for audit and assurance, and tax and business consulting. Learn about the people, approaches, and core principles that make Tidwell Group a preferred advisor and employer for your long-term success.

For more information on Tidwell Group, contact their firm on their website at www.TidwellGroup.com, on Twitter @TidwellGroupLLC, or by telephone at (866) 442-7090.