[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: 38CFR36.4275]

[Page 576-578]
 
            TITLE 38--PENSIONS, BONUSES, AND VETERANS' RELIEF
 
          CHAPTER I--DEPARTMENT OF VETERANS AFFAIRS (CONTINUED)
 
PART 36--LOAN GUARANTY--Table of Contents
 
Sec. 36.4275  Events constituting default and acceptability of partial payments.

    (a) Except as provided in paragraphs (a)(1), (a)(2) and (a)(3) of 
this section, the conveyance of or other transfer of title to property 
by operation of law or otherwise, after the creation of a lien thereon 
to secure a loan which is guaranteed in whole or in part by the 
Secretary, shall not constitute an event of default, or acceleration of 
maturity, elective or otherwise, and shall not of itself terminate or 
otherwise affect the guaranty.
    (1) The Secretary may issue guaranty on loans in which a State, 
Territorial, or local governmental agency provides assistance to a 
veteran for the acquisition of a mobile home or lot. Such loans will not 
be considered ineligible for guaranty if the State, Territorial, or 
local authority, by virtue of its laws or regulations or by virtue of 
Federal law, requires the acceleration of maturity of the loan upon the 
sale or conveyance of the security property to a person ineligible for 
assistance from such authority.
    (2) At the time of application for a loan assisted by a State, 
Territorial, or local governmental agency, the veteran-applicant must be 
fully informed and consent in writing to the housing authority 
restrictions. A copy of the veteran's consent statement must be 
forwarded with the loan application or the report of a loan processed on 
the automatic basis.
    (3) Any housing loan which is financed under 38 U.S.C. chapter 37 
and to which section 3714 of that chapter applies, shall include a 
provision in the security instrument that the holder may declare the 
loan immediately due and payable upon transfer of the property securing 
such loan to any transferee unless the acceptability of the assumption 
of the loan is established pursuant to section 3714.
    (i) A holder may not exercise its option to accelerate a loan upon:
    (A) The creation of a lien or other encumbrance subordinate to the 
lender's

[[Page 577]]

security instrument which does not relate to a transfer of rights of 
occupancy in the property;
    (B) The creation of a purchase money security interest for household 
appliances;
    (C) A transfer by devise, descent, or operation of law on the death 
of a joint tenant or tenant by the entirety;
    (D) The granting of a leasehold interest of three years or less not 
containing an option to purchase;
    (E) A transfer to a relative resulting from the death of a borrower;
    (F) A transfer where the spouse or children of the borrower become 
joint owners of the property with the borrower;
    (G) A transfer resulting from a decree of a dissolution of marriage, 
legal separation agreement, or from an incidental property settlement 
agreement by which the spouse of the borrower becomes the sole owner of 
the property. In such a case the borrower shall have the option of 
applying directly to the Department of Veterans Affairs regional office 
of jurisdiction for a release of liability in accordance with 
Sec. 36.4285 of this part; or
    (H) A transfer into an inter vivos trust in which the borrower is 
and remains a beneficiary and which does not relate to a transfer of 
rights of occupancy in the property.
    (ii) Any instrument evidencing the loan (i.e., the retail 
installment contract, promissory note and/or mortgage or deed of trust) 
shall bear in a conspicuous position in capital letters on the first 
page of the document in type at least 2\1/2\ times larger in height than 
the regular type on such page the following warning: ``THIS LOAN IS NOT 
ASSUMABLE WITHOUT THE APPROVAL OF THE DEPARTMENT OF VETERANS AFFAIRS OR 
ITS AUTHORIZED AGENT.'' Due to the difficulty in obtaining some 
commercial type sizes which are exactly 2\1/2\ times larger in height 
than other sizes, minor deviations will be permitted based on 
commercially available type sizes nearest to 2\1/2\ times the size of 
the print on the document. A similar warning in regular size type must 
appear on every assumption statement provided on a loan to which this 
paragraph applies.
    (iii) On any loan to which 38 U.S.C. 3714 applies, the holder may 
charge a reasonable fee, not to exceed the lesser of (A) $300 and the 
actual cost of any credit report required, or (B) any maximum prescribed 
by applicable state law, for processing an application for assumption 
and changing its records. A provision authorizing the collection by the 
holder of this fee shall be contained in the instrument securing the 
loan.


(Authority: 38 U.S.C. 3704 and 3714)

    (b) The inclusion in the guaranteed obligation of a provision 
contrary to the provisions of this section or Sec. 36.4211 shall not 
impair the right of the holder to payment of the guaranty provided that:
    (1) Default was declared or maturity was accelerated under some 
other provision of the note, mortgage, or other loan instrument, or
    (2) Activation or enforcement of such provision is warranted under 
Sec. 36.4280, or
    (3) The prior approval of the Secretary was obtained.
    (c) If the title to real property or a leasehold interest therein 
which secures a manufactured home loan guaranteed after December 22, 
1970, is restricted against sale or occupancy on the ground of race, 
color, religion, or national origin, by restrictions created and filed 
of record by the borrower subsequent to that date, such action, at the 
election of the holder, shall constitute an event of default entitling 
the holder to declare the unpaid balance of the loan immediately due and 
payable.
    (d) The holder of any guaranteed obligation shall have the right, 
notwithstanding the absence of express provision therefor in the 
instruments evidencing the indebtedness, to accelerate the maturity of 
such obligation at any time after the continuance of any default for the 
period specified in Sec. 36.4280.
    (e) If sufficient funds are tendered to bring a delinquency current 
at any time prior to repossession or foreclosure of the manufactured 
home the holder shall be obligated to accept the funds in payment of the 
delinquency, unless the prior approval of the Secretary is obtained to 
do otherwise.

[[Page 578]]

    (f) A partial payment is a remittance on a loan in default (as 
defined in Sec. 36.4202(c)) of any amount less than the full amount due 
under the terms of the loan and security instruments at the time the 
remittance is tendered.
    (1) Except as provided in paragraph (f)(2) of this section, or upon 
the express waiver of the Secretary, the holder shall accept any partial 
payment and either apply it to the obligor's account or identify it with 
the obligor's account and hold it in a special account pending 
disposition. When partial payments held for disposition aggregate a full 
monthly installment, including escrow, they shall be applied to the 
obligor's account.
    (2) A partial payment may be returned to the obligor within 10 
calendar days from date of receipt of such payment, with a letter of 
explanation only if one or more of the following conditions exist:
    (i) The property is wholly or partially tenant-occupied and rental 
payments are not being remitted to the holder for application to the 
loan account;
    (ii) The payment is less than one full monthly installment, 
including escrows and late charge, if applicable, unless the lesser 
payment amount has been agreed to under a written repayment plan;
    (iii) The payment is less than 50 percent of the total amount then 
due, unless the lesser payment amount has been agreed to under a written 
repayment plan;
    (iv) The payment is less than the amount agreed to in a written 
repayment plan;
    (v) The amount tendered is in the form of a personal check and the 
holder has previously notified the obligor in writing that only cash or 
certified remittances are acceptable;
    (vi) A delinquency of any amount has continued for at least 6 months 
since the account first became delinquent and no written repayment plan 
has been arranged;
    (vii) Foreclosure and/or repossession has been commenced by the 
taking of the first action required for foreclosure/repossession under 
local law;
    (viii) The holder's lien position would be jeopardized by acceptance 
of the partial payment.
    (3) A failure by the holder to comply with the provisions of this 
paragraph may result in a partial or total loss of guaranty or insurance 
pursuant to Sec. 36.4286(b), but such failure shall not constitute a 
defense to any legal action to terminate the loan.


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

(Approved by the Office of Management and Budget under control number 
2900-0516)

[45 FR 31064, May 12, 1980, as amended at 46 FR 51386, Oct. 20, 1981; 55 
FR 37474, Sept. 12, 1990]