[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: 38CFR36.4283]

[Page 585-589]
 
            TITLE 38--PENSIONS, BONUSES, AND VETERANS' RELIEF
 
          CHAPTER I--DEPARTMENT OF VETERANS AFFAIRS (CONTINUED)
 
PART 36--LOAN GUARANTY--Table of Contents
 
Sec. 36.4283  Foreclosure or repossession.

    (a) Upon receipt by the Secretary of notice of a judicial or 
statutory sale, or other public sale under power of sale contained in 
the loan instruments, to liquidate any security for a guaranteed loan, 
the Secretary may specify in advance of such sale the minimum amount 
which shall be credited to the indebtedness of the borrower on account 
of the value of the security to be sold, subject to the provisions of 
paragraphs (a)(1), (2), (3), and (4) of this section:
    (1) If a minimum amount has been specified in relation to a sale of 
the property and the holder is the successful bidder at the sale for an 
amount not in excess of such specified amount the holder shall dispose 
of the property in the manner set forth in paragraph (f) and the amount 
realized from the resale of the property shall govern in the final 
accounting for determining the rights and liabilities of the holder and 
the Secretary.
    (2) If a minimum amount has been specified by the Secretary and:
    (i) A third party is the successful bidder at the sale for an amount 
equal to or in excess of that specified, the holder shall credit to the 
indebtedness the net proceeds of the sale.
    (ii) A third party is the successful bidder at the sale for an 
amount less than that specified, the holder shall credit to the 
indebtedness the amount specified less expenses allowable under 
Sec. 36.4276.
    (iii) The holder is the successful bidder at the sale for an amount 
in excess of the specified amount the indebtedness shall be credited 
with the net proceeds of the sale or an amount established in accordance 
with paragraph (f)

[[Page 586]]

of this section, whichever is the greater, unless the bid in excess of 
the specified amount was made pursuant to paragraph (d) of this section.
    (3) If a minimum amount has not been specified by the Secretary 
under paragraph (a)(1) or (2) of this section, and the Secretary advised 
the holder that it did not intend to specify an amount, and the property 
is purchased at the sale by a third party, the holder shall credit 
against the indebtedness the net proceeds of the sale except as provided 
in paragraph (d) of this section. However, if the property is purchased 
at the sale by the holder, the indebtedness will be credited with the 
net proceeds of the sale or an amount established in accordance with 
paragraph (f) of this section, whichever is greater.
    (4) The holder shall notify the Secretary of the results of the sale 
within 10 days after the sale is completed.
    (b) In the event that any real property which is security for a 
guaranteed loan is to be acquired by a holder in a manner other than as 
provided in paragraph (a) or (c) of this section (e.g., by strict 
foreclosure or by the termination without a public sale of the 
purchaser's interest in a land sale contract), the holder shall notify 
the Secretary of the acquisition within 15 days thereafter and account 
to the Secretary for the proceeds of the liquidation of the security in 
accordance with paragraph (f) of this section.
    (c) When a debtor proposes to convey or transfer any property to a 
holder to avoid foreclosure or other judicial, contractual, or statutory 
disposition of the obligation or of the security, the consent of the 
Secretary to the terms of such proposal shall be obtained in advance of 
such conveyance or transfer. If the Secretary consents thereto, the 
holder may acquire the property and account to the Secretary for the 
proceeds of the liquidation of the security in accordance with paragraph 
(f) of this section.
    (d) If a minimum bid is required under applicable State law, or 
decree of foreclosure or order of sale, or other lawful order or decree, 
the holder may bid an amount not exceeding such amount legally required. 
If an amount has been specified by the Secretary and the holder is the 
successful bidder for an amount not exceeding the amount legally 
required, such specified amount shall govern for the purpose of this 
section.
    (e) If the Secretary has specified an amount as provided in this 
section, and the holder learns of any material damage to the property 
occurring prior to the foreclosure sale or to the acceptance of a deed 
in lieu of foreclosure or prior to any other event to which such 
specified amount is applicable, the holder shall promptly advise the 
Secretary of such damage. Also, if the holder acquires or repossesses 
the property and the holder learns of any material damage to it, the 
holder shall promptly advise the Secretary of such damage.
    (f) When the security for a guaranteed loan is acquired by the 
holder through foreclosure or otherwise, the holder shall resell the 
property within a reasonable time and may thereafter submit its claim 
under the guaranty. The Secretary, upon receipt of a notice of 
acquisition, shall determine the current reasonable value of the 
property and advise the holder of the minimum selling price that will be 
acceptable in any accounting with the Secretary upon liquidation of the 
security.
    (1) If the holder resells the property for an amount at least equal 
to the minimum selling price, it shall credit the indebtedness with the 
proceeds of the sale.
    (2) If the holder is unable to resell the property for an amount at 
least equal to the minimum selling price after exposure to the market 
for a reasonable period of time, the holder may submit to the Secretary 
a written advice setting forth the price, terms, conditions and expenses 
of any offer received. The Secretary shall thereupon:
    (i) Assent to the resale of the property upon the terms of such 
offer, in which event the holder will credit the indebtedness with the 
proceeds of the sale, or
    (ii) Review the minimum selling price previously established and, if 
appropriate, provide the holder with a reduced minimum selling price at 
which the property shall be further exposed to the market.

[[Page 587]]

    (3) If the holder resells the property and finances the sale under 
the terms of a new security agreement and note, the Secretary may, 
pursuant to paragraph (f)(3)(iv) of this section, agree to indemnify the 
holder against loss on the new loan.
    (i) The Secretary's maximum liability under the indemnity agreement 
shall be the percentage of the loan originally guaranteed applied to the 
indebtedness as of the date of claim computation as set forth in 
Sec. 36.4284(a), or the amount originally guaranteed, or the amount of 
the Secretary's liability under a preexisting indemnity agreement, 
whichever is less.
    (ii) In the event the proceeds of sale are less than the total 
indebtedness, the Secretary may pay a partial claim for the difference 
between the indebtedness and the proceeds of sale and thereafter agree 
to indemnify the holder for the amount of the maximum liability as of 
the date of claim computation, less the amount of claim paid.
    (iii) Subject to the limitation that the total amount payable under 
an indemnity agreement shall in no event exceed the Secretary's maximum 
liability, the remaining liability will be continued as a percentage of 
the new loan amount increasing or decreasing pro rata with any increase 
or decrease in the balance of the loan obligation.
    (iv) The Secretary shall execute an indemnity agreement evidencing 
the amount and terms of the indemnity liability, provided:
    (A) The Secretary has determined that resale of the security under 
an indemnity agreement is in the best interest of the Government, and 
the holder has obtained the prior approval of the Secretary;
    (B) The terms of repayment of the proposed loan bear a proper 
relationship to the borrower's present and anticipated income and 
expenses, and the borrower is a satisfactory credit risk;
    (C) The borrower executes an agreement establishing liability to the 
Secretary for the amount of any claim paid under the indemnity 
agreement;
    (D) The term of the proposed loan does not exceed the maximum term 
allowable under Sec. 36.4204(c)(4);
    (E) The interest rate charged the borrower does not exceed the 
maximum rate allowable under Sec. 36.4212 as of the date of closing 
pursuant to the indemnity agreement;
    (F) The holder agrees to comply with VA manufactured home 
regulations as if the original loan had not been terminated.


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

    (4) If the holder has not resold the property, it may elect to 
submit its claim under Loan Guaranty within 60 days of the date of the 
Secretary's written advice of the minimum selling price.
    (i) For purposes of computation of a claim submitted pursuant to 
this paragraph, and subject to the limitation that the maximum amount of 
claim payable shall in no event exceed the amount originally guaranteed, 
the amount payable on a claim for the guaranty shall be the percentage 
of the loan originally guaranteed applied to the indebtedness computed 
as of the date the holder acquired the security. Further:
    (A) The minimum selling price determined by the Secretary and 
provided to the holder shall be credited to the indebtedness as proceeds 
of sale; or
    (B) If no minimum selling price is provided then the current 
reasonable value of the property as determined by the Secretary and 
provided to the holder shall be credited to the indebtedness as proceeds 
of sale; and
    The amount payable on the claim shall in no event exceed the 
remaining balance of the indebtedness.
    (ii) Allowable post-acquisition expenditures or costs paid by the 
holder which may be included in the accounting with the Secretary are 
limited to those specified in Sec. 36.4276(c).

    (g) If at the end of 6 months from the date of acquisition the 
holder has been unable to resell the property and no claim has been 
filed pursuant to paragraph (f)(4) of this section, a claim may be 
submitted under the guaranty and the Secretary will pay to the holder 
upon submission of such claim:

[[Page 588]]

    (1) The difference between the appraised value of the property as 
determined by the Secretary and the indebtedness including those costs 
allowable under Sec. 36.4276 and the costs of repossessing the 
manufactured home not to exceed $100, plus any accrued and unpaid 
interest to the applicable cutoff date as set forth in Sec. 36.4284(a) 
at the maximum rate allowable. For loans guaranteed prior to May 8, 
1984, the Secretary will also pay accrued interest at a rate of 6 
percent from such cutoff date to the date of claim but not to exceed 60 
days. For loans guaranteed on or after May 8, 1984, the Secretary will 
pay accrued interest at a rate 4.75 percent below the contract interest 
rate from such cutoff date to the date of claim but not to exceed 90 
days.


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

    (2) The amount of the guaranty payable on the total outstanding 
indebtedness as of the applicable cutoff date set forth in 
Sec. 36.4284(a), whichever is less.
    (h) If the property securing the guaranteed loan is acquired by a 
holder pursuant to paragraph (a), (b) or (c) of this section, or 
Sec. 36.4282(g), the following provisions shall apply:
    (1) The holder's notice to the Secretary after acquisition shall 
state the amount of the successful bid at public sale, or in the event 
of a repossession or a voluntary conveyance, the date of acquisition.
    (2) The holder's notice after acquisition shall also provide 
complete occupancy data. Except with the prior approval of the Secretary 
the holder shall not rent the property to a new tenant nor extend the 
terms of an existing tenancy on other than a month-to-month basis.
    (3) Except with the prior approval of the Secretary, any taxes or 
special assessments which constitute prior liens due and payable after 
acquisition of the property by the holder shall be paid by the holder 
sufficiently in advance of the payment due dates to avoid penalties and 
to take advantage of any discounts. The holder also may include in its 
accounting with the Secretary any expenditures for repairs made that 
were reasonably necessary to properly maintain or refurbish the security 
property, not to exceed $400. Expenditures in excess of $400 shall not 
be made without the prior approval of the Secretary.
    (4) As between the holder and the Secretary, the holder shall be 
responsible for any loss due to damage to or destruction of the 
property, ordinary wear and tear excepted, from the date of repossession 
or acquisition by the holder to the date the property has been 
liquidated.
    (5) The holder shall include as credits in its accounting with the 
Secretary all rentals and other income collected from the property and 
insurance proceeds or refunds subsequent to the date of acquisition by 
the holder.
    (i) Definitions: (1) The terms date of sale or date of acquisition 
as used in this section are defined as the date of the event (e.g., date 
of repossession, date of sale confirmation when required under local 
practice, date of acceptance of deed in case of voluntary conveyance, 
etc.) which fixes the rights of the parties in the property.
    (2) The term property or real property as used in this section shall 
include:
    (i) A leasehold estate therein which at the time of closing the loan 
was of not less duration than that prescribed by Sec. 36.4253, and
    (ii) The rights derived by the holder through a foreclosure sale of 
real estate whether or not such rights constitute an estate in real 
property under local law.
    (j) A claim for the guaranty must include a cop(y)(ies) of a current 
credit report(s) on the debtor(s).


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

    (k) The provisions of this section shall not be in derogation of any 
rights which the Secretary may have under Sec. 36.4286. The Under 
Secretary for Benefits, or the Director, Loan Guaranty Service, may 
authorize any deviation from the provisions of this section, within the 
limitations prescribed in 38 U.S.C. chapter 37, which may be necessary 
or desirable to accomplish the objectives of this section if such 
deviation is made necessary by reason of any laws or practice in any 
State, Territory, or the District of Columbia: Provided, That no such 
deviation shall impair the rights of any holder not consenting thereto 
with respect to

[[Page 589]]

loans made or approved prior to the date the holder is notified of such 
action.


(Information collection requirements contained in paragraph (j) were 
approved by the Office of Management and Budget under control number 
2900-0480)

[36 FR 1253, Jan. 27, 1971, as amended at 47 FR 12965, Mar. 26, 1982; 49 
FR 22081, May 25, 1984; 53 FR 34296, Sept. 6, 1988; 58 FR 37860, July 
14, 1993; 61 FR 28058, June 4, 1996]