[Code of Federal Regulations]
[Title 38, Volume 2]
[Revised as of July 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 38CFR36.4253]

[Page 571-574]
 
            TITLE 38--PENSIONS, BONUSES, AND VETERANS' RELIEF
 
          CHAPTER I--DEPARTMENT OF VETERANS AFFAIRS (CONTINUED)
 
PART 36--LOAN GUARANTY--Table of Contents
 
Sec. 36.4253  Title and lien requirements.

    (a) The interest in the realty constituting a manufactured home lot 
acquired by the veteran wholly or in part with the proceeds of a 
guaranteed loan, or in the realty constituting a manufactured home lot 
improved wholly or in part with the proceeds of a guaranteed loan, shall 
not be less than:
    (1) A fee simple estate therein, legal or equitable; or
    (2) A leasehold estate running or renewable at the option of the 
lessee for a period of not less than 14 years from the maturity of the 
loan, or to any earlier date at which the fee simple title will vest in 
the lessee, which is assignable or transferable, if the same be 
subjected to the lien; however, a leasehold estate which is not freely 
assignable and transferable will be considered an acceptable estate if 
it is determined by the Under Secretary for Benefits, or the Director, 
Loan Guaranty Service, (i) that such type of leasehold is customary in 
the area where the property is located, (ii) that a veteran or veterans 
will be prejudiced if the requirement for free assignability is adhered 
to and, (iii) that the assignability and other provisions applicable to 
the leasehold estate are sufficient to protect the interests of the 
veteran and the Government and are otherwise acceptable; or
    (3) A life estate, provided that the remainder and reversionary 
interests are subjected to the lien; or
    (4) A beneficial interest in a revocable Family Living Trust that 
ensures that the veteran, or veteran and spouse, have an equitable life 
estate, provided the lien attaches to any remainder interest and the 
trust arrangement is valid under State law.

The title to such estate shall be such as is acceptable to informed 
buyers, title companies, and attorneys, generally, in the community in 
which the property is situated, except as modified by paragraph (b) of 
this section.
    (b) Any such property or estate will not fail to comply with the 
requirements of paragraph (a) of this section by reason of the 
following:
    (1) Encroachments;
    (2) Easements;
    (3) Servitudes;
    (4) Reservations for water, timber, or subsurface rights;
    (5) Right in any grantor or cotenant in the chain of title, or a 
successor of either, to purchase for cash, which right by the terms 
thereof is exercisable only if:
    (i) An owner elects to sell,
    (ii) The option price is not less than the price at which the then 
owner is willing to sell to another, and
    (iii) Exercised within 30 days after notice is mailed by certified 
mail to the address of optionee last known to the then owner of the then 
owner's election to sell, stating the price and the identity of the 
proposed vendee;
    (6) State and local housing agency deed restrictions provided that 
the veteran obtained the property under a State or local political 
subdivision program designed to assist low- or moderate-income 
purchasers, and as a condition the purchaser must agree to one or more 
of the following restrictions:

[[Page 572]]

    (i) If the property is resold within a time period as established by 
local law or ordinance, after the purchaser acquires title, the 
purchaser must first offer the property to the government housing 
agency, or a low- or moderate-income purchaser designated by such 
agency, provided the option to purchase is exercised within 90 days 
after notice by the purchaser to the agency of intention to sell;
    (ii) If the property is resold within a time period as established 
by local law or ordinance, after the purchaser acquires title, a 
governmental agency may specify a maximum price for the property upon 
resale; or
    (iii) Such other restriction approved by the Secretary designed to 
insure either that a property acquired under such program again be made 
available to low- or moderate-income purchasers, or to prevent a private 
purchaser from obtaining a windfall profit on the resale of such 
property, while assuring that the purchaser has a reasonable opportunity 
to dispose of the property without undue difficulty at a reasonable 
price.

The sale price of a property under any of the restrictions of paragraph 
(b)(6) of this section shall not be less than the lowest of the 
following: The price designated by the owner as the asking price; the 
appraised value of the property; or the original purchase price of the 
property, increased by a factor reflecting all or a reasonable portion 
of the increased costs of housing or the percentage increase in median 
income in the area between the date of original purchase and resale, 
plus the reasonable value or actual costs of any capital improvements 
made by the owner, plus a reasonable real estate commission less the 
cost of necessary repairs required to place the property in saleable 
condition; or other reasonable formula approved by the Secretary. The 
veteran must be fully informed and consent in writing to the deed 
restrictions. A copy of the veteran's consent statement must be 
forwarded with the application for manufactured home loan guaranty or 
the report of a manufactured home loan processed on the automatic basis;


(Authority: 38 U.S.C. 3712(g)).

    (7) A recorded restriction on title designed to provide housing for 
older persons, provided that the restriction is acceptable under the 
provisions of the Fair Housing Act, title VIII of the Civil Rights Act 
of 1968, as amended by the Fair Housing Amendments Act of 1988, 42 
U.S.C. 3601 et seq. The veteran must be fully informed and consent in 
writing to the restrictions. A copy of the veteran's consent statement 
must be forwarded with the application for manufactured home loan 
guaranty or the report of a manufactured home loan processed on the 
automatic basis;


(Authority: 38 U.S.C. 501, 3703(c)(1), 3712(g))

    (8) Building and use restrictions whether or not enforceable by a 
reverter clause if there has been no breach of the conditions affording 
a right to an exercise of the reverter;
    (9) Violation of a restriction based on race, color, religion, sex, 
handicap, familial status, or national origin, whether or not such 
restriction provides for reversion or forfeiture of title or a lien for 
liquidated damages in the event of a breach;
    (10) Any other covenant, condition, restriction, or limitation 
approved by the Secretary in the particular case. Such approval shall be 
a condition precedent to the guaranty of the loan;
    (c) The following limitations on the quantum or quality of the 
estate or property shall be deemed for the purposes of paragraph (b) of 
this section to have been taken into account in the appraisal of the 
manufactured home lot and determined by the Secretary as not materially 
affecting the reasonable value of such property:
    (1) Building or use restrictions. Provided, (i) no violation exists, 
(ii) the proposed use by a veteran does not presage a violation of a 
condition affording a right of reverter, and (iii) any right of future 
modification contained in the building or use restrictions is not 
exercisable, by its own terms, until at least 10 years following the 
date of the loan.
    (2) Violations of equal opportunity restrictions. Violations of a 
restriction based on race, color, religion, sex, handicap, familial 
status, or national origin, whether or not such restriction provides for 
reversion or forfeiture of

[[Page 573]]

title or a lien for liquidated damages in the event of a breach.
    (3) Violations of building or use restrictions of record. Violations 
of building or use restrictions of record which have existed for more 
than 1 year, are not the subject of pending or threatened litigation, 
and which do not provide for a reversion or termination of title or 
condemnation by municipal authorities or a lien for liquidated damages 
which may be superior to the lien securing the guaranteed loan.
    (4) Easements. (i) Easements for public utilities along one or more 
of the property lines and easements for drainage or irrigation ditches, 
provided the exercise of the rights thereof do not interfere with the 
use of the manufactured home or improvements located on the subject 
property.
    (ii) Mutual easements for joint driveways located partly on the 
subject property and partly on adjoining property, provided the 
agreement is recorded in the public records.
    (iii) Easements for underground conduits which are in place and 
which do not extend under any buildings in the subject property.
    (5) Encroachments. (i) On the subject property by improvements on 
the adjoining property where such encroachments do not exceed 1 foot 
within the subjects boundaries, provided such encroachments do not touch 
any buildings or interfere with the use or enjoyment of any building or 
improvement on the subject property.
    (ii) By hedges or removable fences belonging to subject or adjoining 
property.
    (iii) Not exceeding 1 foot on adjoining property by driveways 
belonging to subject property, provided there exists a clearance of at 
least 8 feet between the buildings on the subject propert and the 
property line affected by the encroachment.
    (6) Variations of lot lines. Variations between the length of the 
subject property lines as shown on the plot plan or other exhibits 
submitted to the Department of Veterans Affairs and as shown by the 
record or possession lines, provided such variations do not interfere 
with the current use of any of the improvements on the subject property 
including the manufactured home and do not involve a deficiency of more 
than 2 percent with respect to the length of the front line or more than 
5 percent with respect to the length of any other line.
    (d) In a combination loan (loan to finance the purchase of a 
manufactured home and to finance the purchase of a lot and/or necessary 
site preparation) the total indebtedness of the veteran arising from 
such combination loan transaction must be secured by a first lien or the 
equivalent thereof on the estate of the veteran in the manufactured home 
lot, which real estate security interest shall be in addition to the 
manufactured home security interest required by Sec. 36.4234.
    (e) Tax liens special assessment liens, and ground rents shall be 
disregarded with respect to any requirement that loans shall be secured 
by a lien of specified dignity. With the prior approval of the 
Secretary, Under Secretary for Benefits, or Director, Loan Guaranty 
Service, liens retained by nongovernmental entities to secure 
assessments or charges for municipal type services and facilities 
clearly within the public purpose doctrine may be disregarded. In 
determining whether a loan for the purchase or improvement of a 
manufactured home lot is secured by a first lien the Secretary may also 
disregard a superior lien created by a duly recorded covenant running 
with the realty in favor of a private entity to secure an obligation to 
such entity for the homeowner's share of the costs of the management, 
operation, or maintenance of property, services or programs within and 
for the benefit of the development or community in which the veteran's 
realty is located, if the Secretary determines that the interests of the 
veteran-borrower and of the Government will not be prejudiced by the 
operation of such covenant. In respect to any such superior lien created 
after June 6, 1969, the Secretary's determination must have been made 
prior to the recordation of the covenant.
    (f) In the case of a combination loan or a loan to purchase a lot 
upon which a manufactured home owned by the veteran will be placed it 
shall be the responsibility of the lender that the

[[Page 574]]

veteran initially obtains or has an estate in the land constituting the 
manufactured home lot meeting the requirements of paragraph (a) of this 
section and to obtain and retain a security interest thereon meeting the 
requirements of paragraph (d) of this section.
    (g) In the case of a combination loan to purchase a manufactured 
home lot and to refinance an existing purchase money loan on a 
manufactured home unit which is or will be located on the lot to be 
purchased, it shall be the responsibility of the lender to assure that 
the veteran obtains or retains an estate in the manufactured home and in 
the land meeting the requirements of paragraph (a) of this section and 
Sec. 36.4234. The lender must also obtain and retain a first lien or the 
equivalent thereof on the estate of the veteran in both the manufactured 
home and in the lot on which the manufactured home is located.


(Authority: 38 U.S.C. 501, 3703(c), and 3712 (a)(1)(G), (e)(3) and (g))

[36 FR 3368, Feb. 23, 1971, as amended at 45 FR 55720, Aug. 21, 1980; 47 
FR 49393, Nov. 1, 1982; 48 FR 40231, Sept. 9, 1983; 49 FR 22081, May 25, 
1984; 55 FR 25976, June 26, 1990; 58 FR 37860, July 14, 1993; 61 FR 
28058, June 4, 1996]