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federal
r eserv e
bank
OF DALLAS
Dallas, Texas, November 8, 1944
To All Banking Institutions
in the Eleventh Federal Reserve District:
There is enclosed a copy of the regulations of the United States Veterans’
Administration relating to the guaranty of loans under the provisions of the
Servicemen’s Readjustment Act of 1944, for the purposes of buying or con
structing homes. At the request of the Veterans’ Administration and in order
to give the regulations as wide and prompt a distribution as possible, they are
being distributed to the commercial banks of the country by the Federal Reserve
banks.
We understand that field offices of the Veterans’ Administration will soon
be established in various cities for the purpose of administering the Service
men’s Readjustment Act of 1944. If additional information is desired prior to
the time the field offices are set up, it is suggested th at requests for such infor
mation be addressed to the Central Office of the Veterans’ Administration,
Washington 25, D. C.
We have been informed th at regulations relating to the guaranteeing of
loans to veterans for business purposes and for the purchase of farms have not
as yet been issued.
Yours very truly,
R. R. GILBERT
President
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
U N I T E D S T A T E S OF A M E R I C A
VETERANS ADMINISTRATION
GUARANTY OF LOANS
Regulations Under Title III
SERVICEMEN’S READJUSTMENT ACT OF 1944
(Public Law 346— 78th Congress)
(Chapter 268— 2d Session)
(58 Statutes at Large 284)
(38 U. S. Code 698 et seq.)
(NOTE: This pamphlet covers the subject of Guaranty of Home
Loans pursuant to Section 501 of the Act. The subjects of Guaranty of
Loans for the Acquisition of Farms and Farm Equipment pursuant to
Section 502, and the Guaranty of Loans for the Purchase of Businesses,
etc., pursuant to Section 503, will be printed in separate pamphlets.)
FOREWORD
The Servicemen’s Readjustment Act of
1944 and these regulations constitute a
part of each contract of guaranty issued
by the Administrator of Veterans’ Affairs
on behalf of the United States of Amer
ica, pursuant to Title in of said Act.
The officials and employees of the Vet
erans’ Administration from time to time
assigned to duties in connection with the
administration of the Act shall act on
behalf of the Administrator of Veterans’
Affairs, and when so acting within the
scope of authority delegated to them
shall for all purposes of the Act and
these regulations be deemed to be acting
for said Administrator.
Central Office of the Veterans’ Admin
istration, Washington 25, D. C., is the
main office of the Administrator of Vet
erans’ Affairs. The functions pursuant
to Title III of the Act will also be per
formed in field offices of the Veterans’
Administration from time to time desig
nated for that purpose. Transactions
and communications with, and contracts
by such designated field offices shall have
the same effect as if with, or made by,
Central Office.
These regulations should be carefully
read. The completed application or
other papers submitted should be care
fully examined by the applicants, (bor
rowers and lenders) in order to be cer
tain of accuracy and avoid any possible
embarrassment resulting from errors.
It will facilitate the service of the Vet
erans’ Administration to the veterans
and the lenders if, in correspondence,
reference is made to the appropriate sec
tion numbers, if any, involved in the
subject of the correspondence.
In view of the large number of veterans
with the same or similar names, it is im
portant not only in correspondence, but
also in documents to use the veteran’s
full first name instead of his initial only,
and also his middle initial. If unobjec
tionable, it will be helpful to use his full
middle name. In addition to the full
name, other available identifying data
should be used in correspondence, such
as serial number allocated to the veteran
while in active service, rank, and organ
ization at date of discharge, current resi
dence address, etc. In mortgages and
other documents it will be desirable to
use the service serial number in addition
to the full name, although if there is
objection the number will not be re
quired. If there has been a guaranty
application previously submitted by the
veteran and the number assigned thereto
by the Veterans’ Administration is
known, that number should be used in all
communications; and on all documents
pertaining to that application.
It should be clearly understood that
the Act does not authorize the Veterans'
Administration or the Administrator of
Veterans’ Affairs to lend money to the
veteran under Title III; but only to guar
antee loans within the prescribed limita
tions.
NOTICE
Federal statutes provide severe pen
alties including forfeitures, fines and
imprisonment, for fraud on the part of
the applicant and also as to “any person
who shall knowingly make or cause to be
made, or conspire, combine, aid, or assist
in, agree to, arrange for, or in any wise
procure the making or presentation of a
false or fraudulent affidavit, declaration,
certificate, statement, voucher, or paper,
or writing purporting to be such” con
cerning any application for the guaranty
of a loan by the Administrator. (38
U. S. C. A. 697, 715, 450, 451, 454 (a), 556
(a ); 18 U. S. C. A. 80.) *
TITLE 38—PENSIONS, BONUSES AND
VETERANS’ RELIEF1
Chapter I—Veterans’ Administration
P art 36— R egulations U nder S ervice
m en ' s R eadjustment A ct of 1944
GUARANTY OF LOANS
O ctober 18, 1944.
The following regulations govern the
guaranty of loans under Title III of the
Servicemen’s Readjustment Act of 1944:
Sec.
36.4000 Definitions.
(a) Administrator.
(b) United States.
(c) State.
(d) Designated agency or agency.
(e) Federal agency.
(f) Guaranty.
(g) Mortgage.
(h) Secondary or junior loans.
(i) Guaranteed loan.
(j) Home and residential property.
(k) Reasonable normal value.
(l) Property and lot.
(m) Indebtedness.
(n) Note.
(o) Appraiser.
(p) Certificate of title.
(q) Credit report.
(r) Eligible veteran.
(s) Eligible lender.
(t) Creditor.
(u) Debtor.
36.4001 Miscellaneous.
Sec.
36.4030 Loan procedure after approval of
guaranty.
36.4031 Guaranty when effective.
36.4032 Construction loans.
36.4033 Losses which are not guaranteed.
claim s under a guaranty
36.4034
36.4035
36.4036
36.4037
36.4038
36.4039
36.4040
36.4041
Default.
Claim on notice of default.
Legal action.
Notice of suit and subsequent sale.
Death of veteran.
Death or insolvency of creditor.
Filing claim under guaranty.
Options available to the Adminis
trator.
36.4042 Refinancing and extension of guar
anty.
36.4043 Subrogation.
36.4044 Future action against mortgagor.
36.4045 Suit by Administrator.
36.4046 Creditor’s records and reports re
quired.
36.4047 Failure to supply information.
36.4048 Notice to Administrator.
36.4049| Right to inspect books.
A u t h o r it y : §§ 36.4000 to 36.4049, inclusive,
issued under 58 Stat. 284.
§ 36.4000 Definitions. Wherever used
in these regulations, unless the context
otherwise requires, the terms defined in
this section shall have the meaning
herein stated, namely:
(a) “Administrator” means the Ad
ministrator of Veterans Affairs or any
employee of the Veterans’ Administration
designated by him to act in his stead.
LOANS ELIGIBLE FOR GUARANTY
(b) “United States” used geographi
36.4002 Eligible loans.
cally means the several States, Territo
36.4003 Purchase or construction.
ries and possessions, and the District of
36.4004 Repairs, etc.
Columbia.
36.4005 Increase in value due to repairs, etc.
(c) “State” mean? any of the several
36.4006 Prior liens.
"
States, Territories and possessions, and
36.4007 First liens required.
the District of Columbia.
36.4008 Mortgages required.
36.4009 Transfer of title.
(d) “Designated Agency” or “Agency”
36.4010 Obligation of guarantor.
as used in respect to processing applica
36.4011 Contract provisions.
tions for guaranty of loans, means any
36.4012 Repayment provisions.
Federal instrumentality designated by
36.4013 Prepayments.
the Administrator (including Veterans’
36.4014 Pro rata decrease of guaranty.
Administration if so designated) to cer
36.4015 Insurance coverage required.
tify whether an application meets the
36.4016 Loan charges.
requirements of the act and regulations,
36.4017 Interest.
36.4018 Advances.
and recommend whether the application
36.4019 Construction loans.
should be approved if the applicant is
found eligible.
GUARANTY BY THE ADMINISTRATOR
(e) “Federal Agency” as used with re
36.4020 Limits.
36.4021 Second loan under section 505 (a). spect to agencies making, guaranteeing
or insuring primary loans, means any
36.4022 Two or more eligible veterans or bor
Executive Department, or administrative
rowers.
36.4023 Maximum liability where there are
agency or unit of the United States Gov
two or more veterans.
ernment (including a corporation essen
36.4024 Veterans application.
tially a part of the Executive Branch)
36.4025 Papers required.
36.4026 Recommendation for approval of at any time authorized by law to make,
guarantee or insure such loans.
guaranty.
(f) “Guaranty” means the obligation
36.4027 Administrator’s action on applica
of the United States of America as
tion.
sumed by virtue of the guaranty by the
36.4028 Execution and form of guaranty.
36.4029 Disposition of papers.
Administrator as provided in Title III
of the Servicemen’s Readjustment Act
of 1944 (58 Stat. 284; 38 U.S.C. 693),
1As printed in the F e d e r a l R e g is t e r , Vol
ume 9, Number 210, Washington, Friday, Oc
and subject to the limitations and con
tober 20, 1944.
ditions thereof and of these regulations.
6 14837°— 44
(1)
The subject of the guaranty is that por
tion of an eligible loan procured by an
eligible veteran which may be subject
to being guaranteed as provided in said
Title III, as determined by the Adminis
trator upon application in accordance
with these regulations.
(g) “Mortgage” means an applicable
type of security instrument commonly
used or legally available to secure loans
or the unpaid portion of the purchase
price of real or personal property in a
State, District, Territory, or possession
of the United States of America in which
the property is situated. It includes, for
example, deeds of trust, security deeds,
escrow instruments, real estate mort
gages, conditional sales agreements,
chattel mortgages, etc.
(h) “Secondary” or “junior” loan
means a loan which is secured by a lien
or liens subordinate to any other lien
or liens on the same property.
(i) “Guaranteed loan” means a loan
unsecured, or secured by a primary lien,
or where permissible under the act and
these regulation^, a secondary lien,
which loan is guaranteed in whole or in
part by the Administrator as evidenced
by endorsement thereon; or by Loan
Guarantee Certificate issued by the Ad
ministrator, and which shall have be
come effective as prescribed by these
regulations; or by such other legal evi
dence as may be provided by the Ad
ministrator.
(j) “Home” and “residential property”
means any dwelling consisting of not
more than four family units, or any com
bination dwelling and business property,
the primary use of which is occupation
by the veteran as his home.
(k) (1) “Reasonable normal value”
for the purposes and intent of the act
is that which can be justified as a fair
and reasonable price to be paid for a
property for the purposes for which it
is being acquired, assuming a reasonable
business risk, but without undue specula
tive or other hazard as to the future of
such value.
(2) The purpose and intent are (i) to
assure that the price to be paid repre
sents a fair and reasonably permanent
value in the real property to be acquired,
(ii) to give, so far as the real estate is
concerned, the basis for a fair but not
unreasonable risk on the part of the
United States Government when execut
ing its guarantee, (iii) to assure that the
appraisal shall be founded upon true and
reasonably permanent values.
(3) Each valuation shall be justified,
inter alia, (i) by the history of values
and prices for this and similar properties,
(ii) by the future resale possibilities as
indicated by trends in the immediate
locality and (iii) by the most probable
and reasonably assured long term future
economic and real estate conditions, na
tional and local, as they will affect prop-
2
ertles similar to and competitive with if there is outstanding any legal right to cilities for national coverage, approved
th at under appraisal.
qtiarry, mine or drill within 400 feet of by the Administrator, or any other form
(4)
“Reasonable normal value” is not the encumbered building the application of report acceptable to the Administrator
necessarily “fair market value” nor “fair for guaranty may be denied for that rea for the purpose of determining the appli
market price” in the usual legal sense son unless upon consideration of all the cant’s credit standing.
(r) “Eligible veteran” means a veteran
of those terms, nor is it necessarily the facts the Administrator determines
same as “value for mortgage purposes.” otherwise. Such determination at the who:
(1) Served in the active military or
(1)
“Property” and “lot” as used in secoption of the lender or borrower may be
tion 501 of the act refer to an interest obtained upon a special submission of naval service of the United States on or
in realty defined in this section, and sub all the facts prior to taking application after September 16, 1940, and before the
officially declared termination of World
ject to the conditions therein.
for guaranty.
(1) An interest in realty may be a fee
(6)
A mortgage on an undivided in War II.
(2) Shall have been discharged or re
simple estate, or certain other estates terest in realty shall not be acceptable
indicated in subparagraphs (1) to (6) unless all co-tenants of the veteran join leased from active service under condi
(including an estate for years) eligible in the mortgage, and unless such Joinder tions other than dishonorable, either
(i) After active service of ninety days
as security for guaranteed loans. But in has the legal effect of creating a lien on
any event the estate shall be one limited the property such as is otherwise re or more, or
(ii) Because of injury or disability in
to end at a date more than 14 years after quired. In such case it shall not be re
the ultimate maturity date of the loan, quired that the co-tenants join in, en curred in service in line of duty, irre
or when the fee simple title shall vest in dorse, or otherwise become personally spective of the length of service; and
(3) Applies for the benefits of this
the lessee; except that, if it is a lease liable on the veteran’s indebtedness.
hold that terminates earlier, it shall Notwithstanding such joinder in the title within two years after separation
nevertheless be acceptable if lessee has mortgage by the co-tenants the. value of from the military or naval forces, or
the irrevocable right to renew for a term the security for purpose of guaranty shall within two years after the officially de
ending more than 14 years after the ulti be determined with respect to the indi clared termination of World War II,
mate maturity date of the loan or until vidual interest of the veteran only, and whichever is later. In no event, how
the fee simple title shall vest in lessee: the guaranty will be limited to the proper ever, may an application be filed later
Provided, The mortgagee obtains a proportion of that sum, irrespective of than five years after such termination
of such war.
mortgage lien of the required dignity the actual amount of the loan.
(s) “Eligible lenders” are persons,
upon such option right or anticipated
(m) “Indebtedness” means the unpaid
reversion or remainder in fee.
principal and accrued interest on the firms, associations, corporations, and
(2) A life estate or other estate of note, bond or other obligations, the sub “governmental agencies and corpora
uncertain duration is excluded, unless ject of the guaranty, and includes also tions, either State or Federal” (Section
the remainder interests are also encum taxes, insurance premiums and any other 500 (c))
(t) “Creditor” means the payee, or
bered by lien of the same dignity to se items for which the debtor is liable under
cure the same debt.
the terms of the mortgage, or other con any subsequent holder of the “indebted
(3) A remainder interest in realty tract, including proper contractual or ness” and includes a mortgagee.
(u) “Debtor” means the maker of the
shall be eligible as security for a mort statutory trustee fees and attorney fees,
note, or obligor in any other obligation,
gage loan only in the event that all the if any.
owners of intervening immediate or re
(n) “Note” means a promissory note, or any other person who is, or becomes,
mainder interests lawfully can and do a bond, or other instrument evidencing liable thereon, by reason of a contract
(i) join in the mortgage in such manner the debt and the debtor’s promise to pay of assumption or otherwise.
as to subject all such intervening estates same.
§ 36.4001 Miscellaneous. Throughout
to the lien; or (ii) execute and deliver
(o) “Appraiser” means an individual these regulations unless the context
a lease or other proper conveyance to the or firm or corporation of recognized otherwise requires;
owner of the ultimate remainder in fee standing, approved in writing by the
(a) The singular includes the plural;
simple in such manner as to assure his Administrator to appraise property. An
(b) The masculine includes the fem
legal right to possession and enjoyment applicant for designation as an approved inine and neuter;
until the vesting of his ultimate remain appraiser shall show to the satisfaction
(c) Person includes corporations,
der interest.
of the Administrator that he is of good partnerships and associations;
(4) If other than a fee simple estate or character and that his experience and
(d) Month means calendar month,
estate for years with minimum duration information enable him to form sound i. e., the period beginning on a certain
as stated in subparagraph (1) of this opinions as to the reasonableness of the date in one month and ending at mid
paragraph, is offered as security full in purchase price or cost cf property to be night on the preceding date of the next
formation may be submitted to the Ad appraised in the territory in which he month;
ministrator before taking application expects to operate.
(e) “The act” or “the statute” means
from the veteran. The Administration
A list of appraisers, considered by the the Servicemen’s Readjustment Act of
shall determine the eligibility of any such Administrator to be in good standing at 1944, Ch. 268, 78th Congress, 2nd Ses
estate.
the time these regulations become effec sion, (Public Law No. 346), 58 Stat. 284;
(5) The existence of any of the fol tive, may be approved.
38 U.S.C. 693;
lowing will not require denial of the
(p) “Certificate of title” means a writ
(f) Title III means Title i n of the
guaranty; hence will not require special ten and signed opinion or statement as act.
submission:
to title by a qualified member of the bar
LOANS ELIGIBLE FOR GUARANTY
(i) Outstanding easements for public of, or by a title company authorized to
§ 36.4002 Eligible loans. Real or per
utilities, party walls, driveways, and sim do such business in, the jurisdiction in
ilar purposes;
which the mortgaged property is situ sonal property encumbered to secure a
(ii) Customary building or use restric ated; or at the option of borrower and loan guaranteed pursuant to Title n i of
tions for breach of which there is no re lender a title insurance or guaranty con the act shall be situated within the
version and which have*not been violated tract by a corporation authorized to en United States.
to a material extent;
§ 36.4003 Purchase or construction.
gage in such business in the State
(iii) Slight encroachments by adjoin wherein the property is situated; or ap Section 501 (a) of the act provides for
ing improvements;
propriate evidence of title in the pro granting to an eligible veteran “the guar
(iv) Outstanding water, oil, gas or posed encumbrancer pursuant to a Tor anty of a loan to be used in purchasing
other mineral, or timber rights, which rens or other similar title registration residential property or in constructing a
do not materially impair the value for statute.
dwelling on unimproved property owned
residential purposes, or which are cus
(q) “Credit report” means the report by him to be occupied as his home”. The
tomarily waived by prudent lenders in submitted by any credit reporting agency application therefor “may be approved
the community: Provided, however, That of at least five years’ experience with fa by the Administrator”, if he finds that:
3
(a) The proceeds of such loan will be rate of interest, and maturity dates of in subparagraph (2) of this paragraph the
used to pay for such property * * * the primary loan in determining whether loan shall be amortized. The obligation
(including construction cost);
a suitable relation will exist between the to be amortized may, and except for the
(b) The contemplated terms of pay veteran’s obligation and probable avail first year shall, require such periodical
ment of any mortgage loan bear a proper able income.
payments of stated sums as will in ac
relation to the veteran’s present and an
cordance with
amortization
§ 36.4007 First liens required. Except practice result instandard of the entire
ticipated income and expenses;
payment
as provided in section 505 of the act, loans principal and interest within not more
(c) The property is suitable for dwell for the purpose of purchasing or con
ing purposes;
than 20 years from the date of the loan,
and in
(d) The purchase price or the con structing homes, sought, respect to which or the date of assumption by the veteran,
any guaranty is
shall be secured
struction cost, plus the value of the lot,
whichever is later. At the request of the
does not exceed the reasonable normal by a first lien on such property; but the mortgagor the payments during the first
existence of tax or special assessment
value of the entire property as deter
prior liens will not disqualify security year shall be less than the amount re
mined by proper appraisal; and,
which is adequate and otherwise accept quired thereafter, by the sum represent
(e) The loan appears practicable.
ing the interest charge on the guaranteed
able.
part of the loan, and which interest
5 36.4004 Repairs, etc. Section 501
§ 36.4008 Mortgages required. (a)
charge the Administrator will pay at the
(b) provides; “Any application for the
guaranty of a loan under this section for Each loan guaranteed in whole or in part end of that year.
the purpose of making repairs, altera by the Administrator shall be secured by
§ 36.4009 Transfer of title. The con
tions, or improvements in, or paying de a mortgage except that when the princi veyance of, or other transfer of title to
pal amount of a loan to be guaranteed
linquent indebtedness, taxes or special
the property after the creation of a lien
assessments on, residential property does not exceed $500 and the lender does thereon to secure the veteran’s debt,
owned by the veteran and used by him not require a mortgage, the Administra which is guaranteed in whole or in part
as his home may be approved by the Ad tor may nevertheless guarantee such loan by the Administrator, shall not ter
ministrator if he finds that the proceeds provided it complies otherwise with the minate or otherwise affect the contract
of such loan will be used for such pur act and these regulations (as to proce of guaranty, unless (a) the creditor by
dure see § 36.4024 (e)).
pose or purposes.”
(b) The law of the State where the express agreement for that purpose
(b) For the purpose of section 501 (b ):
otherwise discharges the vet
contract is made determines the capacity releases or personal liability thereon; or
(1) “Alterations or improvements”, of the parties to contract. Similarly the eran from
means any structural changes in or ad law of the State wherein the real estate
(b) by indulgence of, or by agreement
ditions to the property, including heating
veteran’s immediate or remote
is situated determines the capacity of with, the contrary to these regulations
and other equipment that become fix mortgagor to encumber and of the mort grantee
tures, or the replacement of either, or gagee to hold the legal rights resulting and without the consent of the Admin
operations of a protective nature, which froln encumbrance. The act does not istrator the creditor so alters the con
will increase the usefulness of the prop modify such law of the State. The guar tract made by the veteran with the
erty as a home.
by the Administrator will be avail lender as to cause discharge of the
(2) “Repairs” means the work and anty only in the event that under the ap veteran by operation of law.
able
material necessary to restore the
36.4010 Obligation
law
building, or a fixture therein, to a con plicable State and the contract between To§ the extent prescribed of guarantor.
lender is binding on
the obligation
dition that is useful and appropriate to the borrower mortgage has the legal ef of the United States is that of a guar
both, and the
the circumstances, the need therefor fect intended. Paragraph (b) of this sec antor, not an indemnitor.
having arisen because of wear and tear, tion will be applicable particularly in
§ 36.4011 Contract provisions. Sub
accident, or other cause.
minors, “persons
(3) “Taxes” means general or special cases involvingand persons underof un ject to the provisions of the act and these
sound mind,”
other regulations, the contract between the
taxes assessed against the property.
disability by
law of
(4) “Special assessments” means any legalState. It will reason of the also in lender and borrower, may contain such
be applicable
charges for improvement purposes as the involving mortgage or other loans provisions as they may agree upon and
cases
which are reasonable and customary in
sessed against the property.
any guardian, conservator, or
(5) “Delinquent indebtedness” means whichfiduciary seeks to make, or obtain; the locality where the property is
other
past due amounts of principal or interest and to a guaranty thereof for which ap situated.
(without giving effect to any acceleration
§ 36.4012 Repayment provisions, (a)
provisions) on an obligation secured in plication is submitted. mortgage. (1) If the loan be an amortized loan the
(c) Type of loan and
whole or in part by a lien or liens on Except as otherwise provided in para lender and borrower may contract for
property of an eligible veteran and occu graph (a) of this section each loan guar such periodical payments at monthly or
pied as his home.
anteed
of Title n i other intervals but not less frequently
(6) Satisfactory evidence will be re must beunder the provisions or notes se than annually.
evidenced by a note
(b) If the mortgagor consents the
quired to establish that the proceeds of cured by appropriate security instrument
such loan will be used for one or more or instruments (“mortgage legally suffi mortgage may provide that each
monthly or periodical payment shall in
of the purposes stated in paragraph (b)
cient in the jurisdiction in which the clude in addition to the proper amount
of this section.
property to be encumbered is situated.”) to be credited to principal and interest
§ 36.4005 Increase in value due to re
(2)
A term loan, which is in accord
pairs, etc. An application pursuant to with applicable State or Federal law, and a proportionate part of the estimated
amounts required
section 501 (b) for the guaranty of a regulations, if any, may be eligible for ground rents if annually for all taxes,
special assessments
loan for repairs,- alterations, or improve guaranty if the amount of the loan to be if any, and fire any, other hazard insur
and
ments of the property, must show that guaranteed plus the unpaid amount of all ance premiums. Such provisions may
the amount of the loan will bear a proper obligations secured by liens superior to direct the method of crediting the addi
relation to the value of the property, and the lien securing the proposed loan does tional amounts included in the periodical
that the repairs, alterations or improve not exceed two-thirds of the reasonable payments for the purposes stated in this
ments will enhance such value to a normal value of the property encumbered paragraph.
reasonable degree.
to secure the loan and if the ultimate ma
(c) The method may be by crediting
§ 36.4006 Prior liens. The existence turity date of the mortgage indebtedness the note with the amounts so received
so secured, and to be guaranteed, is not and debiting same with disbursements-by
of a lien or liens on the property in re
spect to which a guaranty of a loan is more than five years from the date of the the creditor for such purposes; or by
sought pursuant to section 501 (b) will note. Such superior liens shall not be crediting and debiting a separate “trust
not necessarily require a denial of the mortgage liens, except when the guaranty account”, or otherwise as the debtor and
application for guaranty; but full con is issued pursuant to sections 501 (b) or creditor agree. Unless otherwise pro
sideration will be given to the amount, 505 of the act. (3) Except as provided vided by the parties, all periodical pay
4
ments made by the debtor on the obliga
tion shall be applied to the following
items in the order^set forth:
(1) Taxes, special assessments, fire
and other hazard insurance premiums,
and ground rents (allocated among such
items as the creditor elects);
(2) Interest on the mortgage debt;
and
(3) Principal of the mortgage debt.
§ 36.4013 Prepayments, (a) When
the debt is to be amortized the note or
ether evidence thereof, or the mortgage
securing same, shall contain appropriate
provisions granting any person liable for
.such debt, the right to pay at any time
the entire unpaid balance or any part
thereof. Unless otherwise agreed all such
prepayments shall be credited to the un
paid principal balance of the loan as
of the due date of the next installment.
No premiums shall be charged for any
partial or entire prepayment.
(b) Any person liable shall be entitled
to prepay a term loan, or any part there
of, upon not less than one month’s notice.
The note or mortgage shall so provide.
(c) Any prepayment shall be applied
in the manner and to the items directed
by the person making the prepayment.
§ 36.4014 Pro rata decrease of guar
anty. The amount of the guaranty shall
decrease pro rata with any decrease in
the amount of the unpaid principal of
the loan, prior to the date the claim is
submitted.
§ 36.4015 Insurance coverage re
quired. (a) Buildings the value of which
enter into the appraisal forming the basis
for the loan guaranteed shall be insured
against fire, and other hazards against
which it is customary in the community
to insure and in amount at least equal to
the amount by which the loan exceeds
the value of the encumbered land plus
that of the improvements included in
the appraisal but which‘are not subject
to the hazards insured against; Pro
vided, That upon a satisfactory showing
at the time of application for guaranty
that (1) it is impossible or impracticable
to obtain such insurance because of loca
tion, prohibitive cost, or other good rea
son; (2) prudent lenders in such com
munity customarily do not require such
insurance, or some portion thereof,
(amount or hazard) and (3) the lender
submitting the application is willing to
make the loan without insurance cover
age on one or more of the buildings, or
without certain coverage, or in a reduced
amount, and subject to the provisions of
paragraphs (b) and (c) of this section;
the Administrator may at the time of
approving the application waive all or
part of such insurance requirements,
subject to the provisions of said para
graphs (b) and (c) of this section. No
waiver will be granted on the basis of
premium cost in any case wherein the
premium cost on an annual basis does
not exceed $5.00 per $1000 of insurance
against the hazard of fire, or $10.00 per
$1000 for fire and all other hazards cov
ered by the insurance. The procuring
of insurance of the amount and coverage
stated in the approved application shall
constitute conclusive evidence of waiver
by the Administrator of insurance in
excess of the amount stated in or in con
nection with the application and also all
hazards not mentioned therein as haz
ards to be covered.
The creditor shall require that there
be maintained in force such insurance
of the coverage stated in the approved
application in an amount not less than
the amount stated or the amount of the
unpaid indebtedness whichever is the
lesser.
In the event insurance becomes un
available the fact shall be reported to the
A d m i n i s t r a t o r for determination
whether waiver shall be granted or loan
declared in default.
(b) For the sole purpose of determin
ing the amount payable upon a claim
under the guaranty after an uninsured
loss (partial or total) has been sus
tained, the unpaid balance of the loan
(except as provided in paragraph (c) of
this section) will be deemed to have been
reduced by an amount equal to the
amount of the uninsured loss, but in no
event below an amount equal to the value
of the land and other property remain
ing and subject to the mortgage.
(c) There shall be no reduction of the
amount of the guaranty as provided in
paragraph (b) of this section by reason
of an uninsured loss which is uninsured
(as to hazard or amount) by reason <of
a waiver by the Administrator as pro
vided in paragraph (a) of this section.
(d) All insurance effected on the mort
gaged property shall contain appropriate
provisions for payment to the creditor,
(or trustee, or other appropriate person
for the benefit of the creditor), of any
loss payable thereunder. If by reason
of the creditor’s failure to require such
loss payable provision in the insurance
policy payment is not made to the mort
gagee the liability on the guaranty nev
ertheless shall be reduced as provided in
paragraph (b) of this section with re
spect to an uninsured loss, except to the
extent that the liability under the policy
was discharged by restoring the damaged
property, by the insurer, or out of pay
ments thqjeunder to the insured, or
otherwise. No waiver pursuant to para
graph (a) of this section shall modify
this paragraph (d).
(e) Upon the creditor (or trustee or
other person) collecting the proceeds of
any insurance contract, or other sum
from any source by reason of loss of or
damage to the mortgaged property, he
shall be obligated to account for same,
by applying it on the indebtedness, or
by restoring the property to the extent
the expenditure of such proceeds will
permit. As to any portion of such pro
ceeds the mortgagee is not entitled to
retain for credit on such indebtedness
or by reason of other legal right, he
shall hold and be obligated to pay over
the same as trustee for the United States
and for the debtor, as their respective
interest may appear.
(f) Nothing in these regulations shall
operate to prevent the veteran from pro
curing acceptable Insurance through any
authorized insurance agent or broker he
selects. In all cases the insurance car
rier shall be one licensed to do such
business in the State wherein the prop
erty is situated.
§ 36.4016 Loan charges, (a) In the
case of a purchase of real or personal
property by the veteran and a guaranty
pursuant to the act and these regulations
of an indebtedness representing part of
the purchase price, there may be
charged to the veteran and included in
said note amounts actually paid or in
curred by the seller (mortgagee) for such
expenses and charges as are chargeable
to such purchaser in accord with local
custom, if the purchaser so agrees, such
as fees for appraisals, credit and charac
ter report on the veteran, surveys, fees of
purchaser’s (not seller) attorney, record
ing fees for recording the deed and the
mortgage only, premiums on fire and
other hazard insurance that may be re
quired in accordance with these regula
tions.
(b) In the <iase of a loan to the vet
eran, charges in accord with local cus
tom, such as fees for appraisals, credit
and character report, surveys, abstract,
or title search, curative work and in
struments, attorney fees, fees for tax cer
tificates showing all taxes paid, premiums
on fire and other hazard insurance that
may be required in accordance with these
regulations, revenue stamps, recording
fees, etc., all limited to amounts actually
paid or incurred by the lender, may be
charged to the borrower and withheld
from the gross amount of the loan.
(c) Any unreasonable charges shall be
ground for denying an application for
guaranty. No brokerage or other charges
shall be made against the veteran for
obtaining any loan guaranty under this
title.
§ 36.4017 Interest, (a) The rate of
interest chargeable on a loan guaranteed
fully, or in part, shall not exceed 4 per
centum per annum on unpaid principal
balances. Interest may be computed in
accordance with standard amortization
practices.
(b)
The rate of interest on a second
ary loan which is guaranteed pursuant
to section 505 of the act may exceed by
not more than 1% per annum the rate
charged on the principal loan, but in no
event shall the rate on the secondary
loan exceed 4% per annum.
§ 36.4018 Advances, (a) N o t h i n g
herein shall prevent the creditor from
making advances for the benefit of the
mortgagor to pay taxes, assessments, and
insurance premiums as they become due,
and the cost of the emergency repairs
needed to protect the property. The
amount guaranteed by the Administrator
shall be increased pro rata with all such
increases in the unpaid principal bal
ance of the loan; Provided: (1) That the
annual interest rate on all advances
shall not exceed 4 per centum per an
num; (2) that the terms of repayment
shall not extend the date of the amorti
zation of the loan and (3) that the
amount of the guaranty shall in no
event exceed the original amount thereof,
*
nor exceed the percentage of the in
debtedness originally guaranteed.
(b) In the case of any advance made
by a creditor to a debtor, the creditor
with the consent of the debtor, may ap
ply any and all payments made by the
debtor for a period of twelve months to
the liquidation of the advance without
considering the original loan in default.
This shall not be construed to extend the
period of indulgence contemplated by
§§ 36.4034 and 36.4035.
§ 36.4019 Construction loans. Under
certain circumstances loans relating to
new construction may be guaranteed
pursuant to the Act. (See § 36.4032)
GUARANTY BY THE ADMINISTRATOR
§ 36.4020 Limits. In no event will the
aggregate obligations of the United
States as guarantor under Title III ex
ceed $2,000 in respect to one veteran,
whether there be one or several loans,
and whether some are obtained for the
acquisition of a home, others for a farm,
and others for business, or equipment, or
other purposes. Repayment of a loan or
loans in whole or in part, or transfer of
the encumbered property does not mod
ify or enlarge such limitation. The guar
anty shall not at any time exceed 50
per centum of the aggregate of the in
debtedness for any of the purposes speci
fied in sections 501, 502 and 503 of the
act.
§ 36.4021 Second loan under section
505 (a). Section 505 (a) of the act pro
vides that when the principal loan for
any of the purposes stated in sections
501, 502 or 503 is “approved by a Federal
agency to be made or guaranteed or in
sured by it pursuant to applicable law
and regulations, and the veteran is in
need of a second loan to cover the re
mainder of the purchase price or cost,
or a part thereof,” the Administrator
may guarantee the full amount of the
second loan, Provided:
(a) It does not exceed 20 per centum
of the purchase price or cost.
(b) The amount guaranteed together
with all other guarantees under Title
JII for the same veteran does not exceed
$
2, 000.
(c) The loan conforms to all other ap
plicable requirements of these regula
tions.
§ 36.4022 Two or more eligible vet
erans or borrowers, (a) In the absence
of a statement to the contrary, an ap
plication signed by two or more eligible
veterans shall be conclusively presumed
to be an application by each for the
guaranty of an equal proportionate part
of the entire amount to be guaranteed;
Provided, however, That if husband and
wife execute the application, both being
eligible veterans, it will be conclusively
presumed in the absence of a contrary
statement in the application that it is an
_ application for guaranty on behalf of the
husband only.. Unless the amount of
guaranty then available to the husband
is insufficient to meet the requirements
of the case for guaranty of a proper
amount under these regulations and the
terms of the application; in which event
5
the deficiency may be charged against
the amount available to the wife, unless
she has in the application or otherwise
(before approval) stated in writing her
unwillingness to be so charged.
(■ The Administrator will not require
b)
a wife to sign an application made by
her husband. If she also is an eligible
veteran and desires to exercise her right
as such to obtain a guaranty, a separate
application by her will be required. Sig
nature of her husband to indicate his
pro forma joinder will be required only
when the wife is resident of, or the ap
plication is signed in, or the property to
be encumbered is situated in, a State
under the laws of which such contract
cannot be legally executed by a married
woman alone as in the case of an un
married woman.
§ 36.4023 Maximum liability where
there are two or more veterans, (a) For
the purpose of determining the maxi
mum amount of the potential liability of
the United States under a guaranty in
cident to an obligation on which two or
more eligible veterans who applied for
the guaranty are liable, the obligation
will be deemed a several, and not a joint,
obligation of the respective applicants
Who were charged with the guaranty or
a part thereof notwithstanding that as
among the debtors or any of them, and
as between them, or any of them, and
the creditor, the obligation is in fact and
law a joint obligation or a joint and
several obligation.
(b) In no event will the amount of any
veteran’s debt thereunder be deemed to
exceed for guaranty purposes the amount
for which such veteran is legally liable
to the holder of the obligation, nor the
value of the interest of the veteran in the
property. If more than one of the
obligors is an eligible veteran and appli
cation by him or them is granted, the
maximum aggregate amount of the guar
anty will be the sum of the amounts
available to each applying veteran but
in no event will the aggregate of the
guarantees for more than one veteran
exceed 50 per centum of the total loan
except as provided under section 505 of
the Act.
(c) For the purpose of this § 36.4023
the wife of a principal obligor shall not,
be counted unless (1) she is legally liable
on the obligation under tho law of juris
diction where she executed it, and (2) if
she is a veteran she be properly charge
able with a part or all of the guaranty as
provided in § 36.4022.
§ 36.4024 Veteran’s application, (a)
To apply for a guaranteed loan the vet
eran and the prospective lender shall
complete and sign in duplicate Finance
Form 1802, Application for a Home Loan
Guaranty. The lender shall inquire of
the nearest office of the Veterans Admin
istration whether the proposed borrower
is eligible and the amount of his avail
able guaranty. This information will be
supplied on Finance Form 1800, Certifica
tion of Eligibility. The Administrator
will also supply the name and address of
an approved appraiser to be used in the
qourse of processing the application.
(b) Before forwarding the executed
application the prospective lender shall
procure a credit report on the borrower
and an appraisal of the property by the
appraiser designated. The appraiser’s
report shall include photographs neces
sary to reflect generally existing condi
tions, and in any event those specified
in the application, or appraisal forms
prescribed. They may be snapshots.
(See instructions for appraisers.)
(c) If the proposed loan is for alter
ation or improvement purposes the ap
praisal report shall reflect an examina
tion of the building contract, the plans
and specifications, and include appro
priate data sufficient to afford a basis for
estimating the increased value of the
property to result from completion of
such improvements.
(d) In every case the appraiser’s re
port .shall indicate the basis, by survey
or otherwise, of identifying the property
appraised as that to be encumbered to
secure the proposed loan.
(e) If (1) the loan does not exceed
$500, (2) the lender does not require a
mortgage, and (3) the loan otherwise
complies with these regulations, the pro
visions of paragraphs (b), (c), and (d)
of this section; paragraphs (d), (e), and
(h) of § 36.4025; paragraphs (a),-(c),
and (d) of § 36.4030; subparagraphs (2)
and (3) of paragraph (a) of § 36.4031;
and paragraphs (c) and (e) of § 36.4032
shall be inapplicable to such loan and
any guaranty thereof.
§ 36.4025 Papers required. The pro
spective lender shall submit to the agency
the following papers:
(a) Certification of eligibility.
(b) Loan guaranty certificate.
(c) Original application for guaranty
signed by prospective lender and bor
rower.
(d) The credit report.
(e) The appraisal report.
(f) Copy of the “conditional sales
agreement” if the loan is to be predicated
on such an instrument.
(g) Proposed loan closing statement of
the estimated amounts to be disbursed
by the lender for the account of the bor
rower.
(h) Unless stated in the mortgage, or
otherwise in the papers submitted, a
statement of the kinds and amounts of
insurance to be required to protect the
mortgagor, the lender and the Adminis
trator against loss by fire and other haz
ards, and the estimated premium cost
thereof. (See § 36.4015)
§ 36.4026 Recommendation for ap
proval of guaranty. The Agency shall
review the papers to determine whether
it will recommend approval of the appli
cation for guaranty. Thereupon the
Agency shall forward all the papers to
the appropriate office of the Administra
tor with recommendation th at (a) the
Administrator approve the application,
or (b) he disapprove it. If disapproval
is recommended the reasons therefor
shall be stated in writing at the time the
papers are forwarded. A recommenda
tion that the application be approved.
6
B y : -------------------------------------------------—
shall be appropriately endorsed on the are in effect on the date of this Certificate.
Title—(President, Vice-President,
In no event will the obligation under this
original of the application.
etc.)
Certificate exceed $2,000. Subject to the fore
§ 36.4027 Administrator’s action on going this guaranty on this date is for
Mr.
Mrs.
application, (a) Upon receipt of the $_____, b e in g ___ per centum of the face
M iss________________ C
------------papers from the Agency, the Administra amount of said note, and in no event will
It exceed said sum or percentage.
*
Mr.
tor will determine whether to approve
Mrs.
2. At the expiration of one year from the
the application. If disapproved he shall date of the "note”, an amount equal to the
M iss............... ----------------- ---------return to the proposed lender all papers interest for one year at the contract rate on
(Borrower (s))
except the original application for guar that portion of the indebtedness ("note”)
anty and shall state that the application originally guaranteed hereby, such payment
(Sign in ink on these lines)
for guaranty has been denied and the to be credited on the indebtedness as pre
If the note is unsecured but is eligible for
reasons therefor. He shall send a copy scribed by said regulations.
guaranty under the regulations, references
of the letter to the veteran and the
C.
Executed on behalf of the United States to “mortgage” in paragraphs “A” and "B”
Agency. Upon denial any expenses in of America by the Administrator of Veterans above are inapplicable. (See Regulations
curred by the lender or the borrower shall Affairs, through the undersigned authorized sec. 4008, par. 1)
be borne by them or either of them as agent on this date, to become effective in
§ 36.4029 Disposition of papers. The
the manner hereinabove prescribed.
they shall have agreed.
original application for guaranty will be
D ate____________ _
(b) (1) The veteran and the proposed
retained in the files of the Veterans’ Ad
Administrator of Veterans Affairs ,
lender, or either, may appeal to the Ad
ministration. The loan guaranty cer
By:
ministrator for review of a denial of the
tificate and all other papers will be for
(Authorized Agent)
application.
warded to the proposed lender with in
(2)
Such appeal may be by letter, or At:
structions as to closing the loan in a man
(Post Office)
on any prescribed form, and mailed or
ner to make the guaranty effective.
delivered to central office of the Veterans
II
§ 36.4030 Loan
Administration within one month after Description of property to be "Mortgaged” proval of guaranty. procedure after ap
Upon receipt of the
receipt of notice of denial.
Type lot and block number, if any, or field papers from the Administrator, the
§ 36.4028 Execution and form of guar notes and any other proper language to com lender shall:
anty. If the Administrator approves the plete legal description. Include description
(a) Satisfy himself by title certificate,
application he shall notify the Agency of personal property if any.
as defined in these regulations, as to the
and the veteran thereof. For the purpose Premises Identified as:
title to the property to be encumbered.
of evidencing the contract of guaranty,
(b) Cause all necessary instruments
he shall execute a loan guaranty certifi
(House Number and Street)
to be properly signed and those to be re
cate, to become effective upon the con
corded properly witnessed, acknowledged
ditions therein stated. It shall be in sub
or proved so as to entitle them to rec
(City, Town, Village)
stantially the form following:
ordation.
(c) Disburse all funds in substantial
N oth : Forms printed in the F ederal R eg
(County, Parish)
ister are for Information only and do not
accord with the proposed loan closing
follow the exact format prescribed by the
statement submitted with the applica
(State, District, Territory),
Issuing agency.
tion. (See § 36.4025 <g))
and further described as:
(d) File with the proper' public offi
U nited S tates of America
(Continue legal description if necessary in
cial for record the mortgage and any
LOAN GUARANTY CERTIFICATE
the space below)
other appropriate instrument which
Issued by Veterans’ Administration
in
under the law of the State is required or
permitted to be recorded.
State ________________________________
CERTIFICATION BY BORROWER AND LENDER
(Where property is located)
§ 36.4031 Guaranty when effective, (a)
A. We hereby warrant that (1) the under
Number L. H ._________________________
signed borrower named on the reverse hereof Within two months after closing the loan
(To be filled in by Vets. Adm.)
executed the note, the principal sum of and filing the proper instrument for rec
which is $_____; (2) It is dated t h e __ __
ord, the lender shall complete and for
day o f __________ 19____ ; (8) borrower(s)
Lender
ward to the Administrator (using pre
and mortgagor(s) delivered it together with
(Exactly as appears as payee of note)
scribed form, if available) a properly
the “mortgage” (as defined in the regula
tions) bearing the same date, and executed signed report of closing the loan stating
Address
to secure payment of said note; (4) said that:
(1)
The disbursement of the amount
note and mortgage are those approved by
Borrower (Veteran)
the Administrator of Veterans Affairs upon
named as the principal of the note has
(Exactly as to be signed on note and
application of the undersigned pursuant to been completed by the lender.
mortgage)
which this loan guaranty certificate was is . (2) Such disbursements were as esti
sued; and (5). the amount stated above has mated on the loan closing statement sub
been paid to, or according to the directions
Address
mitted with the application, except as
of, the undersigned borrower(s).
I
B. The undersigned lender warrants th at otherwise stated on the reverse side of
the report of closing loan. (See §§ 36.4016
(1) the same “mortgage”, duly executed and
A. This certificate shall become effective
acknowledged; was properly filed for record
(a) and 36.4025 (g))
when the requirements of the statute and
on t h e _____day of ___________ 19_
(3) The note and the mortgage (or
regulations have been complied with and the
acts certified in Part III hereof have been a t _________ M; and was given file No._____
other security instrument) were prop
by the Recorder; (2) th at It covers the erly executed stating the date, and the
accomplished in compliance with said re
property described on the reverse hereof,
quirements.
latter “was duly acknowledged, witnessed,
B. When It becomes effective as herein which Is the same property described, or or proved, to that it was legally eligible
otherwise identified, or referred to, In the
above prescribed, this certificate shall obli
above-mentioned application for guaranty, for recording; the date and hour and
gate the United States of America to pay to
county in which it was properly filed for
the legal holder of the "note” described on and in this loan guaranty certificate; and (3)
the reverse hereof upon his duly filing claim that no lien superior to said “mortgage” has record; and the filing number thereof.”
(4) The note was dated, (stating the
therefor:—
intervened since the date of said application.
date thereon), and signed by the
1. All or such portion of the maximum
(If a corporation)
“debtor”, and the rate of interest pro
amount hereby guaranteed as becomes pay
vided therein.
able upon the conditions, at the times stated
(Secretary)
In, and in accordance with the provisions of,
(5) The loan guaranty certificate
Mr.
the Servicemen’s Readjustment Act of 1944,
(stating its L-number) was completed,
Mrs.
(38 U. S. Code 693; 58 Stat. 284), and the
and appropriately signed by the lender
Miss
regulations issued pursuant thereto which
(Lender (s))
and the borrower as therein provided.
7
Ob) If lender Is a corporation its cor
porate seal shall be impressed on such
report.
§ 36.4032 Construction loans, (a)
Upon the submission to an agency of an
application made pursuant to section
501 (a) of the act for the guaranty of a
loan for the construction of a dwelling
on unimproved property owned by the
veteran, or under section 501 (b) for con
struction involving alterations or im
provements, the guaranty will be issued
to become effective only upon comple
tion of the construction project, and
upon fulfillment of the same require
ments of these regulations as are appli
cable to the guaranty of loans for the
acquisition of homes other than by con
struction.
(b) Notwithstanding the provisions of
paragraph (a) hereof, the guaranty men
tioned therein may become effective
without the entire amount of the loan
having been disbursed if:
(1) Complete disbursement is pre
vented, in the exercise of ordinary care,
by reason of the filing of mechanic liens
or other liens, or other controversy or
threat of litigation, as to entitlement to
any part of the proceeds of such loan;
and
(2) There is paid to an Escrow Agent
approved by the Administrator so much
of such proceeds as have not been dis
bursed, or other arrangements satisfac
tory to the Administrator have been
made for assuring the availability of
such sums; and
(3) There is issued by the Administra
tor Finance Form 1810, Approval of Es
crow Certificate, which may be attached
to the loan guarantee certificate.
(c) For construction loans the lender
will follow the procedure provided in
§§ 36.4024-36.4031 for thev guaranty of
loans for the purchase of residential
property and in addition will furnish to
the Agency:
(1) Complete plans and specifications
for the proposed construction.
(2) An estimate, prepared by a quali
fied appraiser, of the fair market value
of the property on which the improve
ments will be situated together with a
separate estimate of the increased value
of the property which will result from
the improvements according to the plans
and specifications. Such estimates of
value are in addition to the appraiser’s
report of the “reasonable normal value”.
(3) A copy of the agreement or agree
ments (which may be unsigned) on
which the proceeds of the proposed loan
will be disbursed.
(d) Upon the receipt of such papers
the Agency will follow the procedure
prescribed in § 36.4026 and submit same
to the Administrator for action under
§§ 36.4027 and 36.4028.
(e) The loan guaranty certificates shall
contain a condition precedent to its be
coming effective additional to those set
forth in § 36.4030 such condition being
the supplying to the Administrator of a
statement by an appraiser on Finance
Form 1803 (a), Statement by Appraiser
on Completion of New Construction,
which document must be supplied in ad
dition to those specified In § 36.4031. It
shall state that:
(1) He has inspected the building as
constructed;
(2) The same has been constructed and
completed in substantial conformity with
the contract, plans and specifications, (if
an y );
(3) The increased value of the property
as completed and which will be encum
bered is substantially in accord with his
estimate.
(f) During the course of construction
the Administrator shall be entitled at his
expense, to cause such inspection of the
construction work at such time or times
as he may determine.
(g) Upon compliance with the require
ments of this section and of §§ 36.4030
and 36.4031 relating to the guaranty
becoming effective in other than con
struction loan cases, said Loan Guaranty
Certificate shall become effective.
(h) The borrower and lender may con
tract for the payment to the lender of a
reasonable sum for the advance of funds
during the construction and the super
vision or inspection of the construction.
§ 36.4033 Losses which are not guar
anteed. The guaranty shall not cover
any loss sustained by the creditor as the
result of:
(a) The acceptance by the mortgagee
of a mortgage on any property, title
to which is not merchantable accord
ing to customary practices in the com
munity where the property is situated;
(b) Failure of the mortgagee to pro
cure a duly recorded lien of the dignity
required by these regulations;
(c) Failure of the mortgagee to com
ply with § 36.4015 with respect to in
surance, or
(d) A tax sale pursuant to execution,
or otherwise as provided by law, oc
casioned by nonpayment of taxes ac
cruing against the mortgaged property
after the date of the mortgage if mort
gagee fails to give notice to the Ad
ministrator of the delinquent taxes at
least one month before such sale.
CLAIMS UNDER A GUARANTY
§ 36.4034 Default, (a) In the event
of default, not cured, continuing three
months on an amortized loan or one
month on a term loan the creditor may
elect to assert claim under the guaranty,
and give notice thereof to the Adminis
trator.
(b) If any default occasioned by fail
ure seasonably to pay to the creditor en
titled any amount of principal or interest
due him under the contract (not cured)
shall have persisted as long as six months
the holder of the indebtedness shall give
notice thereof to the Administrator not
withstanding the failure results from
payments on advances as provided in
§ 36.4018, or from any indulgences of the
debtor as provided in § 36.4041.
(c) (1) The notice shall state the loan
guaranty number if available. If not
available other identifying data shall be
included, such as date and amount of
original obligation, location of Veterans
Administration office that issued the
guaranty and the property encumbered.
(2) In all cases the notice shall state
the name and last known address of the
debtor, of the veteran, and of the cred
itor, and the date and manner of de
fault, and amount past due. If he de
sires, the creditor may also state his views
as to any indulgence that should be ex
tended.
(3) The notice to the Administrator
shall be mailed by registered mail or per
sonally delivered in exchange for a writ
ten receipt within one month after the
expiration of said 6 months’ period.
§ 36.4035 Claim on notice of default.
(a) In the notice of default or sepa
rately, then, or later, the creditor may
make claim under the guaranty.
(b) Then or thereafter the creditor
may also give notice of his intention to
foreclose the lien or liens securing the
indebtedness.
(c) The Administrator may approve
the creditor’s request, if any, to post
pone action to press his claim against
the mortgagor, or the property, such
postponement, with the consent of the
Administrator, shall not operate to void
or diminish the ultimate liability under
the guaranty. In no event shall indul
gence or postponement of action author
ized by these regulations impair any
right of the creditor to thereafter pro
ceed within the applicable statute of lim
itations period as if there had been no
indulgence or postponement.
•
§ 36.4036 Legal action, (a) The
creditor shall not begin action in court,
or give notice of sale under a power of
sale, until the expiration of 30 days after
receipt by the Administrator of the
notice of intention to foreclose. Not
withstanding paragraph (a) of § 36.4034
such notice may be given at any time
after a default.
(b) (1) If the circumstances require
immediate action to protect the interest
of the creditor or the Administrator, the
Administrator may waive the require
ment for prior notice if notice of the
action taken is immediately given.
(2) Without limiting the foregoing,
the existence of conditions justifying the
appointment of a Receiver for the prop
erty shall be sufficient excuse for begin
ning suit without prior notice to the Ad
ministrator if within ten days after com
mencement of the suit or action, plaintiff
gives the Administrator notice thereof.
§ 36.4037 Notice of suit and subse
quent sale, (a) Within ten days after
beginning suit or causing notice of sale
without suit to be given, the creditor
shall notify the Administrator thereof by
registered mail or personal delivery in
exchange for written receipt. It shall
state whether the foreclosure will be by
proceeding in court, or under a power of
sale; the style and number of the suit, if
any, and the name and location of the
court in which pending.
(b) The creditor shall give written
notice to the Administrator by registered
mail (or delivery) of any foreclosure
sale, judicial, or under a power of sale;
or of any proposed termination of the
rights of any vendee or his immediate
8
or remote grantee (assignee) pursuant to
any power or option in a sales contract,
or in any other instrument affecting the
property which constitutes any security
for the obligation guaranteed. Such
notice shall be given so that it is re
ceived at least thirty days before such
sale or other proposed action. It shall
state the date, hour and place thereof.
The Administrator may bid thereat on
the same terms as the lender or other
bidders, and may exercise any right the
debtor could exercise by virtue of the
contract, pr any statute, or otherwise.
This section is applicable whether the
suit, or the sale, or termination, occur
before or after payment of the guaranty.
§ 36.4038 Death of veteran, (a) In the
event the creditor has knowledge of the
death of the veteran, or of any owner
of an interest in the encumbered prop
erty, or the death of any other person
liable on the indebtedness which is
guaranteed in whole or in part, the cred
itor shall take such steps, if any, as are
legally necessary, and reasonably avail
able, in the jurisdiction where the en
cumbered property is situated, to avoid
loss of the lien, or impairment thereof,
or of all or part of the proceeds of any
sale of the property as a result of, or
incident to, such death, or of any pro
bate proceedings thereby occasioned in
said jurisdiction.
(b) In addition to protecting the lien
rights as required by paragraph (a) of
this section, the creditor at his discretion
may proceed in probate, or otherwise,
as may be permissible and feasible, in
any jurisdiction where administration
proceedings are pending or properly may
be instituted, or other appropriate legal
action taken against assets or persons,
to assert any rights, by means of any
remedies, therein available to a similarly
situated creditor or the decedent.
(c) Upon direction of the Adminis
trator and his designation of an acces
sible attorney for the purpose, and mak
ing appropriate provisions for advancing
or paying the costs and expenses of the
proceeding, the creditor shall proceed as
provided in paragraph <b) of this sec
tion: Provided, however, t That in any
case the Administrator may, at his op
tion, proceed immediately in respect to
protecting the lien, or asserting claim as
contemplated by paragraph (b) of this
section, or as to both remedies. If the
Administrator takes action, it may be
in his name or the name of the creditor
as the Administrator may elect and as
may be appropriate under applicable law.
If action is taken by the Administrator
he shall seasonably notify the creditor
thereof.
(d) Nothing in this section shall im
pair any right of set-off or other right or
remedy of the Administrator.
§ 36.4039 Death or insolvency of cred
itor. (a) Immediately upon the death
of the creditor and without the neces
sity of request or other action by the
debtor or the Administrator, all sums
then standing as a credit balance in a
“trust”, or “deposit”, or other account to
cover taxes, insurance accruals, or other
items in connection with the loan secured
by the encumbered property, whether
stated to be such or otherwise designated,
and which have not been accredited on
the note shall, nevertheless, be treated as
a set-off and shall be deemed to have
been credited thereon as of the date of
the last debit to such account, so that the
unpaid balance of the note as of that
date will be reduced by the amount of
such credit balance: Provided, however,
That any unpaid taxes, insurance pre
miums, ground rents, or advances may be
paid by the holder of the indebtedness,
at his option, and the amount which
otherwise would have been deemed to
have been credited on the note reduced
accordingly. This section shall be appli
cable whether the estate of the deceased
creditor is solvent or insolvent.
(b) The provisions of paragraph (a)
of this section shall also be applicable
in the event of:
(1) Insolvency of creditor;
(2) Initiation of any bankruptcy or
reorganization, or liquidation proceed
ings as to the creditor, whether voluntary
or involuntary;
(3) Appointment of a general or ancil
lary receiver for the creditor’s property;
or, in any case
(4) Upon the written request of the
debtor if all secured and due insurance
premiums, taxes, and ground rents have
been paid, and appropriate provisions
made for future accruals.
(c) Upon the occurrence of any of the
events enumerated in paragraphs (a) or
(b) of this section interest on the note
and on the credit balance of the “de
posits” mentioned in paragraph (a) shall
be set-off against each other at the rate
payable on the principal of the note, as
of the date of last debit to the deposit
account. Any excess credit of interest
shall be treated as a set-off against the
unpaid “advances,” if any, and the un
paid balance of the note.
(d) The provisions of paragraphs (a ),
(b) and (c) of this section shall apply
also to corporations. The dissolution
thereof by expiration of charter, by for
feiture, or otherwise shall be treated as
is the death of an individual as provided
in paragraph (a).
§ 36.4040 Filing claim under guaranty.
Claim under the guaranty may be made
on Finance Form 1805, Claim under the
Guaranty. Subject to the limitation that
the total amount payable under the
guaranty shall in no event exceed the
original amount thereof, the amount
payable under the guaranty shall be the
percentage of the indebtedness originally
guaranteed applied to the indebtedness
(as defined in § 36.4000 (a)), computed
as of the date of the claim, and reduced
by any payments theretofore made by
the United States pursuant to the
guaranty.
§ 36.4041 Options available to Admin
istrator. Upon receipt of claim under
the guaranty the Administrator shall
have the following options:
(a) Pay to the creditor not later than
one month after receipt of notice of any
default, as a partial payment of any ac
tual or potential claim under the guar
anty, the amount of principal, interest,
taxes, advances, or other items in de
fault; and in consideration of such pay
ment the lender shall be deemed to have
agreed to refrain from giving effect to
any acceleration provisions by reason of
defaults prior to the date of notice of de
fault theretofore given: Provided, how
ever, That unless the creditor consents,
the Administrator may exercise this op
tion once only, and in an amount not
exceeding an amount equivalent to the
aggregate of principal and interest pay
able in one year, or not exceeding ten
per centum of the original amount of
the guaranty, whichever sum is less.
(b) Pay the creditor within one month
after receipt of claim the full amount
payable under the guaranty without re
quiring foreclosure, or personal action.
(c) Pay to the creditor promptly after
receipt of claim any amount agreed upon,
not exceeding the amount due under the
guaranty; and notify him to institute
appropriate foreclosure proceedings,
with, or without, legal action to reduce
the debt to judgment, against all or any
of the parties liable thereon, and whose
names are stated in such notice to the
creditor.
(d) If the creditor does not begin ap
propriate action within two months after
receipt of notice to institute action as
provided in paragraph (c) above, the
Administrator shall be entitled to begin
and prosecute the same to completion in
the name of the creditor, or of the Ad
ministrator on behalf of the United
States, as may be appropriate under ap
plicable laws and rules of procedure:
Provided, however, That in such event
the Administrator shall pay (in advance
if required under the practice in the
jurisdiction) all court costs, and other
expenses, and provide the legal services
required.
§ 36.4042 Refinancing and extension
of guaranty. (a ) When the Administrator
shall have received notice from the credi
tor that he intends to institute foreclos
ure proceedings, the Administrator shall
be entitled to obtain a refinancing which
will prevent the consummation of the
foreclosure sale. Nothing herein shall be
construed to require a creditor to lend
money for such refinancing.
(b) If refinanced in any manner the
Administrator may continue in effect the
guaranty granted with respect to the
previous loan in such manner as to cover
the loan which effected the refinancing.
(c) The Administrator in appropriate
cases shall be entitled to exercise any
redemption rights of a debtor, or a credi
tor, in connection with the loan guaran
teed, or property rights arising out of, or
incident to, such loan,
§ 36.4043
Subrogation.
(a) Any
amounts paid to the creditor by the Ad
ministrator pursuant to the guaranty
shall constitute a debt due to the United
States by the veteran on whose applica
tion the guaranty was made; and by his
estate upon his death. The Administra
tor is subrogated to the contract and the
lien rights of the creditor to the extent
of such payments, but junior to the credi
9
tor’s rights as against the debtor or the
encumbered property, until the creditor
shall have received the full amount pay
able under his contract with the debtor.
No partial or complete release by the
creditor of the debtor or of the lien shall
impair any rights of the Administrator,
by virtue of the lien, or otherwise.
(b) The creditor, upon request, shall
execute, acknowledge and deliver an ap
propriate instrument tendered him for
th at purpose, evidencing any payment
received from the Administrator and the
Administrator’s resulting right of sub
rogation.
§ 36.4044 Future action against mort
gagor. In addition to the amount, if
any, collected from the proceeds of the
encumbered property by reason of the
right of subrogation, the United States
will collect from the veteran, or his
estate, by set-off against any amounts
otherwise payable to the veteran or his
estate; or in any other lawful manner,
any sums disbursed by the United States
on account of the claim pursuant to
the guaranty.
§ 36.4045 Suit by administrator, (a)
Whenever pursuant to these regulations,
the Administrator institutes, or causes
to be instituted by the creditor, or other
wise, any suit in equity; action at law;
or probate proceedings or the filing of a
claim in such; or other legal or equitable
proceedings of any character, or any
sale, in court or pursuant to any power
of sale, the person or persons properly
instituting the same (including the Ad
ministrator) , shall be entitled to recoup
from any proceeds realized therefrom
any expenses reasonably incurred, in
cluding trustee fees, court costs, and a t
torney fee paid (or the reasonable value
of the services of the trustee and of
the attorney, if performed by salaried
person or persons, or by the party him
self, when proper).
(b) The net proceeds, after setting off
such items that may properly be re
couped, shall be credited to the indebted
ness, or otherwise as may be proper un
der the facts.
(c) In determining the propriety of
recoupment and the amount thereof
consideration shall be given to any pro
visions in the note or mortgage relating
to such items, and any amounts actu
ally realized pursuant thereto.
§ 36.4046 Creditor’s records and re
ports required, (a) The creditor shall
maintain a record of the amounts of pay
ments received on the obligation and dis
bursements chargeable thereto, tind the
dates thereof. Any creditor who fails
to maintain such record shall be pre
sumed to have received on the dates due
all sums which by the terms of the con
tract are payable prior to date of claim
for default, and the burden of going for
ward with evidence and of ultimate proof
of the contrary shall be on such credi
tor; not on the debtor, or the United
States.
(b) On any delinquent loan the credi
tor shall report annually on the anni
versary of the earliest unremedied de
fault any amount received or disbursed,
the unpaid balance of principal and ac
crued interest and any other items
chargeable; and the nature of any de
faults not already reported. He shall
include such additional information, if
reasonably necessary and obtainable,
which may, from time to time be re
quested by the Administrator.
(c) A proposed lender may be re
quired to submit evidence satisfactory
to the Administrator of his equipment
for maintenance of adequate records on.
and his ability to service, loans if guar
anteed pursuant to the provisions of the
act and these regulations.
§ 36.4047 Failure to supply informa
tion. Failure to supply any available
information required by these regula
tions within two months after request
therefor will entitle the Administrator
to obtain such information otherwise,
and the expense of so obtaining it, plus
ten dollars to cover estimated overhead
expenses, shall be chargeable to the
creditor who failed to comply with such
request.
§ 36.4048 Notice to administrator.
Any notice required by these regulations
to be given the Administrator shall be
sufficient if in writing, and delivered at,
or mailed to, the Veterans Administra
tion office at which the application for
guaranty was approved or to any
changed address of which the creditor
has been given notice or, at the option
of the creditor, to the central office of
the Veterans Administration, Washing
ton 25, D. C. If mailed the notice shall
be by registered mail when so provided
by these regulations.
§ 36.4049 Right to inspect books.
The Administrator has the right to in
spect, at a reasonable time and place the
papers and records pertaining to the
loan and guaranty. If permission to
inspect is declined the Administrator
may enforce the right by subpoena un
der the provisions of Title III, Public No.
844, 74th Congress, 49 Stat. 2031-35, 38
U.S.C. 131, or in any other lawful
manner.
[ seal]
F rank T. H ines ,
Administrator of Veterans Affairs.
[P. R. Doc. 44-16112; Piled, Oct. 19, 1944J
10:19 a. m.]
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