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USDA Rural Development Due Diligence

We’ve been hearing word lately that Farm Loans by the USDA are a growth area. Those seeking multifamily housing financing from the USDA Rural Development, should be aware of the specific engineering and environmental due diligence requirements. 

USDA Rural Development Capital Needs Assessment

The USDA Rural Development engineering due diligence requirements entail a Capital Needs Assessment, which is required for new construction loans, rehabilitation loans, transfers of ownership, loan servicing, and the Multifamily Housing Preservation and Revitalization Program (MPR). The Capital Needs Assessment or “CNA” includes a description of the property, condition of all materials and systems, accessibility issues, environmental issues, and immediate and long term estimated repair / replacement / improvement costs and schedules.

USDA Rural Development Environmental Risk Management

The USDA Rural Development environmental review typically includes the following: 1) a USDA NEPA review; 2) a USDA Phase I Environmental Site Assessment; 3) Form 1940-20 Request for Environmental Information; 4) lender comments regarding off-site conditions; 5) a Land Survey; and 6) a FEMA 81-93 Standard Flood Hazard Determination.

USDA Rural Development requires NEPA environmental reviews on all loans.  For most multifamily housing loans the USDA NEPA environmental review entails a limited Environmental Assessment (EA) (those projects constituting Class 1 Actions), though some will require a more thorough Environmental Assessment (Class II Actions).  The USDA Environmental Assessment must evaluate the project’s impacts on many natural and cultural resources, such as:  

  • Wetlands and surface features;
  • Floodplains;
  • Wild and Scenic rivers;
  • Wilderness areas and Wildlife preserves;
  • Critical Habitat, Endangered and Threatened species;
  • Historical and Archeological sites;
  • Native American religious sites;
  • Natural landmarks;
  • Important farmland;
  • Prime forestland;
  • Prime rangeland;
  • Coastal Zone Management areas;
  • Sole Source Aquifer Recharge areas;
  • and many other items.

If an adverse environmental impact is identified then further assessment or mitigation may be required until a Finding of No Significant Impact (FONSI) is issued.

The USDA Phase I Environmental Site Assessment (ESA) follows the ASTM E1527-05 Standard scope of work, which also must be incorporated with the lender’s standard scope of work.  The Phase I ESA is required on all new multifamily construction loans, and for existing multifamily housing loans when there is knowledge of potential contamination through either the appraiser’s report or other means.

Form 1940-20 Request for Environmental Information is designed to help the agency understand the project’s environmental condition and identify natural or cultural resources that may be impacted by the project.  This form should be submitted to the agency as quickly as possible.

The lender is asked to opine on any off-site concerns identified in the Phase I ESA, though there is no official form for this requirement.  The lender’s comments can be incorporated into the ESA Report or as part of the lender narrative.

An American Land Title Association (ALTA) / American Congress on Mapping and Surveying (ACSM) Survey may also be required for USDA Rural Development multifamily loans, primarily for new construction loans.

The FEMA 81-93 Standard Flood Hazard Determination form requires the identification of the flood zone of the project area, as well as whether federal flood insurance is available and required.  Properties located in Special Food Areas are not eligible for federal funding unless flood insurance is purchased through the National Flood Insurance Program.


Feel free to give us a call for any questions, a quote or for a free consultation at 800-419-4923. Partner Engineering and Science, Inc. can manage all USDA Rural Development Requirements from start to finish.  We are experts in CNAs, Phase I ESAs, NEPA Reviews, ALTA Surveys, and Flood Hazard Determinations.