[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: 38CFR36.4277]

[Page 579-580]
 
            TITLE 38--PENSIONS, BONUSES, AND VETERANS' RELIEF
 
          CHAPTER I--DEPARTMENT OF VETERANS AFFAIRS (CONTINUED)
 
PART 36--LOAN GUARANTY--Table of Contents
 
Sec. 36.4277  Release of security.

    (a) Except upon full payment of the indebtedness the holder shall 
not release a lien or other right in or to property held as security for 
a guaranteed loan, or grant a fee or other interest in such property, 
without the prior approval of the Secretary, unless in the opinion of 
the holder such release does not involve a decrease in the value of the 
security in excess of $500: Provided, That the aggregate of the 
reduction in the original value of the security resultant from such 
releases without the Secretary's prior approval does not exceed $500.
    (b) Except upon full payment of the indebtedness or upon the prior 
approval of the Secretary, the holder shall not release a lien under 
paragraph (a) of this section unless the consideration received for the 
release is commensurate with the fair market value of the property 
released and the entire consideration is applied to the indebtedness, or 
if encumbrance on other property is accepted in lieu of that released it 
shall be the holder's duty to acquire such lien on property of 
substantially equal value which is reasonably capable of serving the 
purpose for which the property released was utilized.
    (c) Failure of the holder to comply with the provisions of this 
section shall not in itself affect the validity of the title of a 
purchaser to the property released.
    (d) The holder shall notify the Secretary of any such release or 
substitution of security within 30 days after completion of such 
transaction.
    (e) The release of the personal liability of any obligor on a 
guaranteed obligation resultant from the act or omission of any holder 
without the prior approval of the Secretary shall release the obligation 
of the Secretary as guarantor, except when such act or omission consists 
of

[[Page 580]]

    (1) Failure to establish the debt as a valid claim against the 
assets of the estate of any deceased obligor, provided no lien for the 
guaranteed debt is thereby impaired or destroyed; or
    (2) An election and appropriate prosecution of legally available 
effective remedies with respect to the repossession or the liquidation 
of the security in any case, irrespective of the identity or the 
survival of the original or of any subsequent debtor, if holder shall 
have given such notice as required by Sec. 36.4280 and if, after 
receiving such notice, the Secretary shall have failed to notify the 
holder within 15 days to proceed in such manner as to effectively 
preserve the personal liability of the parties liable, or such of them 
as the Secretary indicates is such notice to the holder; or
    (3) The release of an obligor, or obligors, from liability on an 
obligation secured by a lien on property, which release is an incident 
of and contemporaneous with the sale of such property to an eligible 
veteran who assumed such obligation, which assumed obligation is 
guaranteed on his or her account pursuant to 38 U.S.C. 3712; or
    (4) The release of an obligor or obligors as provided in 
Sec. 36.4279.
    (5) The release of an obligor, or obligors, incident to the sale of 
property which the holder is authorized to approve under the provisions 
of 38 U.S.C. 3714.


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

[36 FR 1253, Jan. 27, 1971, as amended at 53 FR 34295, Sept. 6, 1988; 55 
FR 37474, Sept. 12, 1990]