[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: 38CFR36.4285]

[Page 589-591]
 
            TITLE 38--PENSIONS, BONUSES, AND VETERANS' RELIEF
 
          CHAPTER I--DEPARTMENT OF VETERANS AFFAIRS (CONTINUED)
 
PART 36--LOAN GUARANTY--Table of Contents
 
Sec. 36.4285  Subrogation and indemnity.

    (a) The Secretary shall be subrogated to the contract and the lien 
or other rights of the holder to the extent of any sum paid on a 
guaranty, which right shall be junior to the holder's rights as against 
the debtor or the encumbered property until the holder shall have 
received the full amount payable under the contract with the debtor 
except that where the holder has entered into a recourse and/or 
repurchase or indemnity agreement with a dealer or servicer or other 
entity and the Department of Veterans Affairs pays a claim under 
guaranty to the holder the Department of Veterans Affairs will not be 
subrogated to any rights the holder may have under the recourse and/or 
repurchase or indemnity agreement. No partial or complete release by a 
creditor shall impair the rights of the Secretary with respect to the 
debtor's obligation.
    (b) The holder, upon request, shall execute, acknowledge, and 
deliver an

[[Page 590]]

appropriate instrument tendered the holder for that purpose, evidencing 
any payment received from the Secretary and the Secretary's resulting 
right of subrogation.
    (c) The Secretary may cause the instrument required by paragraph (b) 
of this section to be filed for record in the Office of the Recorder of 
Deeds, or other appropriate office of the proper county, town, or State, 
in accordance with the applicable State law.
    (d) Any amounts paid by the Secretary on account of the liabilities 
of any veteran guaranteed under the provisions of 38 U.S.C. 3712 shall 
constitute a debt owing to the United States by such veteran.
    (e) Whenever any veteran disposes of residential property securing a 
guaranteed loan obtained under 38 U.S.C. 3712, and for which the 
commitment to make the loan was made prior to March 1, 1988, the 
Secretary, upon application made by such veteran, shall issue to the 
veteran a release relieving him or her of all further liability to the 
Secretary on account of such loan (including liability for any loss 
resulting from any default of the transferee or any subsequent purchaser 
of such property) if the Secretary has determined, after such 
investigation as the Secretary may deem appropriate, that there has been 
compliance with the conditions prescribed in 38 U.S.C. 3713(a). The 
assumption of full liability for repayment of the loan by the transferee 
of the property must be evidenced by an agreement in writing in such 
form as the Secretary may require. Release of the veteran from liability 
to the Secretary will not impair or otherwise affect the Secretary's 
guaranty on the loan, or the liability of the veteran to the holder. Any 
release of liability granted to a veteran by the Secretary shall inure 
to the spouse of such veteran. The release of the veteran from liability 
to the Secretary will constitute the Secretary's prior approval to a 
release of the veteran from liability on the loan by the holder thereof. 
This release will not result in the veteran being entitled to further 
loan benefits unless the requirements of Sec. 36.4203 are met.


(Authority: 38 U.S.C. 3713, 3714)

    (f) If, on or after July 1, 1972, any veteran disposes of 
residential property securing a guaranteed loan obtained by him or her 
under 38 U.S.C. 3712, without securing a release from liability with 
respect to such loan under 38 U.S.C. 3713(a) and a default subsequently 
occurs which results in liability of the veteran to the Secretary on 
account of the loan, the Secretary may relieve the veteran of such 
liability if the Secretary determines that:
    (1) A transferee either immediate or remote is legally liable to the 
Secretary for the debt of the original veteran-borrower established 
after the termination of the loan, and
    (2) The original loan was current at the time such transferee 
acquired the property, and
    (3) The transferee who is liable to the Secretary is found to have 
been a satisfactory credit risk at the time he or she acquired the 
property.


(Authority: 38 U.S.C. 3713(b))

    (g) If a veteran or any other person disposes of residential 
property securing a guaranteed or insured loan for which a commitment 
was made on or after March 1, 1988, and the veteran or other person 
notifies the loan holder in writing before disposing of the property, 
the veteran or other person shall be relieved of all further liability 
to the Secretary with respect to the loan (including liability for any 
loss resulting from any default of the purchaser or any subsequent owner 
of the property) and the application for assumption shall be approved if 
the holder determines that:
    (1) The proposed purchaser is creditworthy;
    (2) The proposed purchaser is contractually obligated to assume the 
loan and the liability to indemnify the Department of Veterans Affairs 
for the amount of any claim paid under the guaranty as a result of a 
default on the loan, or has already done so; and,
    (3) The payments on the loan are current.

Should these requirements be satisfied, the holder may also release the 
selling veteran or other person from liability on the loan. This does 
not apply if the approval for the assumption is granted

[[Page 591]]

upon special appeal to avoid immediate foreclosure.


(Authority: 38 U.S.C. 3713, 3714)

[36 FR 1253, Jan. 27, 1971, as amended at 36 FR 13032, July 13, 1971; 44 
FR 16015, Mar. 16, 1979; 55 FR 37474, Sept. 12, 1990]