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FEDERAL RESERVE
OF NEW
BANK
YORK
r Circular No. 2 8 5 9 1
I November 1, 1944 J
GUARANTY OF LOANS
Regulations of the Administrator of Veterans Affairs
Servicemen's Readjustment Act of 1944
To all Banks and Trust Companies in the
Second Federal Reserve District:
Enclosed is a pamphlet, entitled "Guaranty of Loans", published by the Veterans
Administration containing' Regulations issued October 18, 1944, by the Administrator of
Veterans Affairs under Title III of the Servicemen's Readjustment Act of 1944.
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.
•
On October 26, 1944, the Comptroller of the Currency issued instructions to national
bank examiners to the effect that certain loans guaranteed by the Administrator of
Veterans Affairs are not subject to the limitations and restrictions imposed by Section 24
of the Federal Reserve Act upon loans by national banks. These instructions are as
follows :
Regulations have been issued by the Administrator of Veterans' Affairs covering home
loans to veterans by lending agencies under Title III of the Servicemen's Readjustment Act
of 1944. Section 505 of Title III provides in effect that in any case wherein a "principal loan"
to a qualified veteran for the purchase or construction of a home is approved by a Federal
agency to be made or guaranteed or insured by it, and the veteran is iu need of a second loan
to cover the remainder of the purchase price or cost of construction, the veteran may borrow
from a lending agency a maximum of 20 percent of the purchase price or cost, but not more
than $2,000, and may have the full amount thereof guaranteed by the Administrator of
Veterans' Affairs, subject to qualifications and exceptions set forth in the above-mentioned
Regulations.
In order to enable national banks to participate effectively in this portion
program, this office has taken the position that even though such second loans
liens upon real estate, they will not be considered real estate loans subject to
and restrictions of Section 24 of the Federal Reserve Act, for the reason
Guaranty Certificate issued by the Veterans' Administration rather than the
constitutes the bank's primary security.
of the " G . I . "
are secured by
the limitations
that the Loan
real estate lien
Requests for additional copies of the enclosed pamphlet should be addressed directly
to the Veterans Administration, Washington, D. C.
ALLAN
SPROUL,
President.
UNITED
S T A T E S OF
VETERANS
AMERICA
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 693 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 America, pursuant to Title n i of said Act.
The officials and employees of the Veterans' 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' Administration, Washington 25, D. C., is the
main office of the Administrator of Veterans' Affairs. The functions pursuant
to Title III of the Act will also be performed in field offices of the Veterans'
Adminiatration from time to time designated 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 carefully examined by the applicants, (borrowers and lenders) in order to be certain of accuracy and avoid any possible
embarrassment resulting from errors.
It will facilitate the service of the Veterans' Administration to the veterans
and the lenders if, in correspondence,
reference is made to the appropriate section 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 important 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 unobjectionable, it will be helpful to vise 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 organization at date of discharge, current residence 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 required. 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 guarantee loans within the prescribed limitations.
NOTICE
Federal statutes provide severe penalties 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" concerning 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
PART
36—REGULATIONS
MEN'S
READJUSTMENT
GUARANTY
OF
UNDER
ACT
SERVICE-
OF
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 junjor loans.
(i) Guaranteed loan.
(J) Home and residential property.
(k) Reasonable normal value.
(1) 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.
LOANS ELIGIBLE FOR GUARANTY
36.4002
36.4003
36.4004
36.4005
36.4006
36.4007
36.4008
36.4009
36.4010
36.4011
36.4012
36.4013
36.4014
36.4015
36.4016
36.4017
36.4018
36.4019
Eligible loans.
Purchase or construction.
Repairs, etc.
Increase in value due to repairs, etc.
Prior liens.
First liens required.
Mortgages required.
Transfer of title.
Obligation of guarantor.
Contract provisions.
Repayment provisions.
Prepayments.
Pro rata decrease of guaranty.
Insurance coverage required.
Loan charges.
Interest.
Advances.
Construction loans.
GUARANTY BY T H E ADMINISTRATOR
36.4020
36.4021
36.4022
36.4023
36.4024
36.4025
36.4026
36.4027
36.4028
36.4029
Limits.
Second loan under section 505 (a).
Two or more eligible veterans or borrowers.
Maximum liability where there are
two or more veterans.
Veterans application.
Papers required.
Recommendation for approval of
guaranty.
Administrator's action on application.
Execution and form of guaranty.
Disposition of papers.
1 As printed In the FEDERAL REGISTER, Volume 9, Number 210, Washington, Friday, October 20, 1944.
el 4837°--44
Loan procedure after approval of
guaranty.
"36.4031 Guaranty when effective.
36.4032 Construction loans.
36.4033 Losses which are not guaranteed.
1944
LOANS
OCTOBER
Sec.
86.4030
CLAIMS 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 Administrator.
36.4042 Refinancing and extension of guaranty.
36.4043 Subrogation.
36.4044 Future action against mortgagor.
36.4045 Suit by Administrator.
56.4046 Creditor's records and reports required.
36.4047 Failure to supply information.
36.4048 Notice to Administrator.
36.4049 Right to inspect books.
AUTHORITY: §§ 36.4000 to 36.4049, inclusive,
issued under 58 Stat. 284.
§ 3 6 . 4 0 0 0 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 Administrator of Veterans Affairs or any
employee of the Veterans' Administration
designated by him to act in his stead.
(b) "United States" used geographically means the several States, Territories and possessions, and the District of
Columbia.
(c) "State" means any of the several
States, Territories and possessions, and
the District of Columbia.
(d) "Designated Agency" or "Agency"
as used in respect to processing applications for guaranty of loans, means any
Federal instrumentality designated by
the Administrator (including Veterans'
Administration if so designated) to certify whether an application meets the
requirements of the act and regulations,
and recommend whether the application
should be approved if the applicant is
found eligible.
(e) "Federal Agency" as used with respect to agencies making, guaranteeing
or insuring primary loans, means any
Executive Department, or administrative
agency or unit of the United States Government (including a corporation essentially a part of the Executive Branch)
at any time authorized by law to make,
guarantee or insure such loans.
(f) "Guaranty" means the obligation
of the United States of America assumed by virtue of the guaranty by the
Administrator as provided in Title n i
of the Servicemen's Readjustment Act
of 1944 (58 Stat. 284; 38 U.S.C. 693),
and subject to the limitations and conditions thereof and of these regulations.
(1)
The subject of the guaranty is that portion 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 Administrator 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 mortgages, 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 regulations, 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 Administrator, and which shall have become effective as prescribed by these
regulations; or by such other legal evidence as may be provided by the Administrator.
(j) "Home" and "residential property"
means any dwelling consisting of not
more than four family units, or any combination 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 speculative 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 represents 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 executing 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, national and local, as they will affect prop-
2
erties similar to and competitive with
that under appraisal.
(4) "Reasonable normal value" is not
necessarily "fair market value" nor "fair
market price" in the usual legal sense
of those terms, nor is it necessarily the
same as "value for mortgage purposes."
(1) "Property" and "lot" as used in section 501 of the act refer to an interest
in realty defined in this section, and subject to the conditions therein.
(1) An interest in realty may be a fee
simple estate, or certain other estates
indicated in subparagraphs (1) to (6)
(including an estate for years) eligible
as security for guaranteed loans. But in
any event the estate shall be one limited
to end at a date more than 14 years after
the ultimate maturity date of the loan,
or when the fee simple title shall vest in
the lessee; except that, if it is a leasehold that terminates earlier, it shall
nevertheless be acceptable if lessee has
the irrevocable right to renew for a term
ending more than 14 years after the ultimate maturity date of the loan or until
the fee simple title shall vest in lessee:
Provided, The mortgagee obtains a
mortgage lien of the required dignity
upon such option right or anticipated
reversion or remainder in fee.
(2) A life estate or other estate of
uncertain duration is excluded, unless
the remainder interests are also encumbered by lien of the same dignity to secure the same debt.
(3) A remainder interest in realty
shall be eligible as security for a mortgage loan only in the event that all the
owners of intervening immediate or remainder interests lawfully can and do
(i) join in the mortgage in such manner
as to subject all such intervening estates
to the lien; or (ii) execute and deliver
a lease or other proper conveyance to the
owner of the ultimate remainder in fee
simple in such manner as to assure his
legal right to possession and enjoyment
until the vesting of his ultimate remainder interest.
(4) If other than a fee simple estate or
estate for years with minimum duration
as stated in subparagraph (1) of this
paragraph, is offered as security full information may be submitted to the Administrator before taking application
from the veteran. The Administration
shall determine the eligibility of any such
estate.
(5) The existence of any of the following will not require denial of the
guaranty; hence will not require special
submission:
(i) Outstanding easements for public
utilities, party walls, driveways, and similar purposes;
(ii) Customary building or use restrictions for breach of which there is no reversion and which have not been violated
to a material extent;
(iii) Slight encroachments by adjoining improvements;
(iv) Outstanding water, oil, gas or
other mineral, or timber rights, which
do not materially impair the value for
residential purposes, or which are customarily waived by prudent lenders In
the community: Provided, however, That
if there is outstanding any legal right to cilities for national coverage, approved
by the Administrator, or any other form
quarry, mine or drill within 400 feet of
the encumbered building the application of report acceptable to the Administrator
for guaranty may be denied for that rea- for the purpose of determining the applicant's credit standing.
son unless upon consideration of all the
(r) "Eligible veteran" means a veteran
facts the Administrator determines
otherwise. Such determination at the who:
(1) Served in the active military or
option of the lender or borrower may be
naval service of the United States on or
obtained upon a special submission of
all the facts prior to taking application" after September 16, 1940, and before the
officially declared termination of World
for guaranty.
(6) A mortgage on an undivided in- War II.
(2) Shall have been discharged or reterest in realty shall not be acceptable
unless all co-tenants of the veteran join leased from active service under condiin the mortgage, and unless such joinder tions other than dishonorable, either
(i) After active service of ninety days
has the legal effect of creating a lien on
or more, or
the property such as is otherwise re(ii) Because of injury or disability inquired. In such case it shall not be recurred in service in line of duty, irrequired that the co-tenants join in, endorse, or otherwise become personally spective of the length of service; and
(3) Applies for the benefits of this
liable on the veteran's indebtedness.
title within two years after separation
Notwithstanding such joinder in the
from
the military or naval forces, or
mortgage by the co-tenants the value of
within two years after the officially dethe security for purpose of guaranty shall
clared termination of World War II,
be determined with respect to the indiwhichever is later. In no event, howvidual interest of the veteran only, and
the guaranty will be limited to the proper ever, may an application be filed later
than five years after such termination
proportion of that sum, irrespective of
of such war.
the actual amount of the loan.
(s) "Eligible lenders" are persons,
(m) "Indebtedness" means the unpaid
principal and accrued interest on the firms, associations, corporations, and
"governmental
agencies and corporanote, bond or other obligations, the subtions, either State or Federal." (Section
ject of the guaranty, and includes also
500 (c))
taxes, insurance premiums and any other
(t) "Creditor" means the payee, or
items for which the debtor is liable under
any subsequent holder of the "indebtedthe terms of the mortgage, or other conness" and includes a mortgagee.
tract, including proper contractual or
statutory trustee fees and attorney fees,
(u) "Debtor" means the maker of the
if any.
note, or obligor in any other obligation,
or any other person who is, or becomes,
(n) "Note" means a promissory note,
liable thereon, by reason of a contract
a bond, or other instrument evidencing
of assumption or otherwise.
the debt and the debtor's promise to pay
same.
§ 36.4001 Miscellaneous. Throughout
(o) "Appraiser" means an individual
these regulations unless the context
or firm or corporation of recognized
otherwise requires:
standing, approved in writing by the
(a) The singular includes the plural;
Administrator to appraise property. An
(b) The masculine includes the femapplicant for designation as an approved
inine and neuter;
appraiser shall show to the satisfaction
(c) Person includes corporations,
of the Administrator that he is of good
partnerships and associations;
character and that his experience and
(d) Month means calendar month,
information enable him to form sound
i. e., the period beginning on a certain
opinions as to the reasonableness of the
date in one month and ending at midpurchase price or cost of property to be
night on the preceding date of the next
appraised in the territory in which he
month;
expects to operate.
(e) "The act" or "the statute" means
A list of appraisers, considered by the
the Servicemen's Readjustment Act of
Administrator to be in good standing at
1944, Ch. 268, 78th Congress, 2nd Sesthe time these regulations become effecsion, (Public Law No. 346), 58 Stat. 284;
tive, may be approved.
38 U.S.C. 693;
(p) "Certificate of title" means a writ(f) Title III means Title III of the
ten and signed opinion or statement as
act.
to title by a qualified member of the bar
LOANS ELIGIBLE FOR GUARANTY
of, or by a title company authorized to
§
36.4002
Eligible loans. Real or perdo such business in, the jurisdiction in
sonal property encumbered to secure a
which the mortgaged property is situloan guaranteed pursuant to Title III of
ated; or at the option of borrower and
the act shall be situated within the
lender a title insurance or guaranty contract by a corporation authorized to en- United States.
gage in such business in the State
§ 36.4003 Purchase or construction.
wherein the property is situated; or apSection 501 (a) of the act provides for
propriate evidence of title in the pro- granting to an eligible veteran "the guarposed encumbrancer pursuant to a Toranty of a loan to be used in purchasing
rens or other similar title registration
residential property or in constructing a
statute.
dwelling on unimproved property owned
by him to be occupied as his home". The
(q) "Credit report" means the report
application therefor "may. be approved
submitted by any credit reporting agency
of at least five years' experience with fa- by the Administrator", if he finds that:
3
(a) The proceeds of such loan will be
used to pay for such property * * *
(Including construction cost);
(b) The contemplated terms of payment of any mortgage loan bear a proper
relation to the veteran's present and anticipated income and expenses;
(c) The property is suitable for dwelling purposes;
(d) The purchase price or the construction cost, plus the value of the lot,
does not exceed the reasonable normal
value of the entire property as determined by proper appraisal; and,
(e) The loan appears practicable.
§ 36.4004 Repairs, etc. Section 501
(b) provides: "Any application for the
guaranty of a loan under this section for
the purpose of making repairs, alterations, or improvements in, or paying delinquent indebtedness, taxes or special
assessments on, residential property
owned by the veteran and used by him
as his home may be approved by the Administrator if he finds that the proceeds
of such loan will be used for such purpose or purposes."
(b) For the purpose of section 501 ( b ) :
(1) "Alterations or improvements",
means any structural changes in or additions to the property, including heating
and other equipment that become fixtures, or the replacement of either, or
operations of a protective nature, which
will increase the usefulness of the property as a home. *
(2) "Repairs" means the work and
material necessary to restore the
building, or a fixture therein, to a condition that is useful and appropriate to
the circumstances, the need therefor
having arisen because of wear and tear,
accident, or other cause.
(3) "Taxes" means general or special
taxes assessed against the property.
(4) "Special assessments" means any
charges for improvement purposes assessed against the property.
(5) "Delinquent indebtedness" means
past due amounts of principal or interest
(without giving effect to any acceleration
provisions) on an obligation secured in
whole or in part by a lien or liens on
property of an eligible veteran and occupied as his home.
(6) Satisfactory evidence will be required to establish that the proceeds of
such loan will be used for one or more
of the purposes stated in paragraph (b)
of this section.
'
§ 36.4005 Increase in value due to repairs, etc. An application pursuant to
section 501 (b) for the guaranty of a
loan for repairs, alterations, or improvements of the property, must show that
the amount of the loan will bear a proper
relation to the value of the property, and
that the repairs, alterations or improvements will enhance such value to a
reasonable degree.
§ 36.4006 Prior liens. The existence
of a lien or liens on the property in respect to which a guaranty of a loan is
sought pursuant to section 501 (b) will
not necessarily require a denial of the
application for guaranty; but full consideration will be given to the amount.
rate of interest, and maturity dates of
the primax-y loan in determining whether
a suitable relation will exist between the
veteran's obligation and probable available income.
§ 36.4007 First liens required. Except
as provided in section 505 of the act, loans
for the purpose of purchasing or constructing homes, and in respect to which
any guaranty is sought, shall be secured
by a first lien on such property; but the
existence of tax or special assessment
prior liens will not disqualify security
which is adequate and otherwise acceptable.
§ 36.4008 Mortgages required.
(a)
Each loan guaranteed in whole or in part
by the Administrator shall be secured by
a mortgage except that when the principal amount of a loan to be guaranteed
does not exceed $500 and the lender does
not require a mortgage, the Administrator may nevertheless guarantee such loan
provided it complies otherwise with the
act and these regulations (as to procedure see § 36.4024 ( e ) ) .
(b) The law of the State where the
contract is made determines the capacity
of the parties to contract. Similarly the
law of the State wherein the real estate
is situated determines the capacity of
mortgagor to encumber and of the mortgagee to hold the legal rights resulting
from encumbrance. The act does not
modify such law of the State. The guaranty by the Administrator will be available only in the event that under the applicable State law the contract between
the borrower and lender is binding on
both, and the mortgage has the legal effect intended. Paragraph (b) of this section will be applicable particularly in
cases involving minors, "persons of unsound mind," and persons under other
legal disability by reason of the law of
the^State. It will be applicable also in
cases involving mortgage or other loans
which any guardian, conservator, or
other fiduciary seeks to make, or obtain;
and to a guaranty thereof for which application is submitted.
(c) Type of loan and mortgage. (1)
Except as otherwise provided in paragraph (a) of this section each loanguaranteed under the provisions of Title i n
must be evidenced by a note or notes secured by appropriate security instrument
or instruments ("mortgage legally sufficient in the jurisdiction in which the
property to be encumbered is situated.")
(2) A term loan, which is in accord
with applicable State or Federal law, and
regulations, if any, may be eligible for
guaranty if the amount of the loan to be
guaranteed plus the unpaid amount of all
obligations secured by liens superior to
the lien securing the proposed loan does
not exceed two-thirds of the reasonable
normal value of the property encumbered
to secure the loan and if the ultimate maturity date of the mortgage indebtedness
so secured, and to be guaranteed, is not
more than five years from the date of the
note. Such superior liens shall not be
mortgage liens, except when the guaranty
is issued pursuant to sections 501 (b) or
505 of the act. (3) Except as provided
in subparagraph (2) of this paragraph the
loan shall be amortized. The obligation
to be amortized may, and except for the
first year shall, require such periodical
payments of stated sums as will in accordance with standard amortization
practice result in payment of the entire
principal and interest within not more
than 20 years from the date of the loan,
or the date of assumption by the veteran,
whichever is later. At the request of the
Mortgagor the payments during the first
year shall be less than the amount required thereafter, by the sum representing the interest charge on the guaranteed
part of the loan, and which interest
charge the Administrator will pay at the
end of that year.
§ 36.4009 Transfer of title. The conveyance of, or other transfer of title to
the property after the creation of a lien
thereon to secure the veteran's debt,
which is guaranteed in whole or in part
by the Administrator, shall not terminate or otherwise affect the contract
of guaranty, unless (a) the creditor by
express agreement for that purpose
releases or otherwise discharges the veteran from personal liability thereon; or
(b) by indulgence of, or by agreement
with, the veteran's immediate or remote
grantee contrary to these regulations
and without the consent of the Administrator the creditor so alters the contract made by the veteran with the
lender as to cause discharge of the
veteran by operation of law.
§ 36.4010 Obligation of guarantor.
To the extent prescribed the obligation
of the United States is that of a guarantor, not an indemnitor.
§ 36.4011 Contract provisions. Subject to the provisions of the act and these
regulations, the contract between the
lender and borrower, may contain such
provisions as they may agree upon and
which are reasonable and customary in
the locality where the property is
situated.
§ 36.4012 Repayment provisions, (a)
If the loan be an amortized loan the
lender and borrower may contract for
such periodical payments at monthly or
other intervals but not less frequently
than annually.
(b) If the mortgagor consents the
mortgage may provide that each
monthly or periodical payment shall include in addition to the proper amount
to be credited to principal and interest
a proportionate part of the estimated
amounts required annually for all taxes,
ground rente if any, special assessments
if any, and fire and other hazard insurance premiums. Such provisions may
direct the method of crediting the additional amounts included in the periodical
payments for the purposes stated in this
paragraph.
(c) The method may be by crediting
the note with the amounts so received
and debiting same with disbursements by
the creditor for such purposes; or by
crediting and debiting a separate "trust
account", or otherwise as the debtor and
creditor agree. Unless otherwise provided by the parties, all periodical pay-
4
ments made by the debtor on the obligation 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
other 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 unpaid 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 thereof, 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 guaranty. 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
required. (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; Provided, 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 location, prohibitive cost, or other good reason; (2) prudent lenders in such community 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 coverage 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 paragraphs (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 covered 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 connection with the application and also all
hazards not mentioned therein as hazards 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 unavailable 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 determining the amount payable upon a claim
under the guaranty after an uninsured
loss (partial or total) has been sustained, 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 remaining 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 provided in paragraph (a) of this section.
(d) All insurance effected on the mortgaged 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 mortgagee the liability on the guaranty nevertheless shall be reduced as provided in
paragraph (b) of this section with respect 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 payments thereunder to the insured, or
otherwise. No waiver pursuant to paragraph (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 proceeds 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 procuring acceptable insurance through any
authorized insurance agent or broker he
selects. In all cases the insurance carrier shall be one licensed to do such
business in the State wherein the property 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 incurred 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 character report on the veteran, surveys, fees of
purchaser's (not seller) attorney, recording fees for recording the deed and the
mortgage only, premiums on fire and
other hazard insurance that may be required in accordance with these regulations.
(b) In the case of a loan to the veteran, charges in accord with local custom, such as" fees for appraisals, credit
and character report, surveys, abstract,
or title search, curative work and instruments, attorney fees, fees for tax certificates 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 secondary 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 balance of the loan; Provided: (1) That the
annual interest rate on all advances
shall not exceed 4 per centum per annum; (2) that the terms of repayment
shall not extend the date of the amortization 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 indebtedness originally guaranteed.
(b) In the case of any advance made
by a creditor to a debtor, the creditor
with the consent of ths debtor, may apply 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 exceed $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 modify or enlarge such limitation. The guaranty shall not at any time exceed 50
per centum of the aggregate of the indebtedness for any of the purposes specified in sections 501, 502 and 503 of the
act.
§ 36.4021 Second loan under section
505 (a). Section 505 (a) of the act provides that when the principal loan for
any of the purposes stated in sections
501, 502 or 503 is "approved1 by a Federal
agency to be made or guaranteed or insured by it pursuant to applicable law
and regulations, and the veteran is in
need of a second loan to cover the remainder 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
III for the same veteran does not exceed
$2,000.
(c) The loan conforms to all other applicable requirements of these regulations.
§ 36.4022 Two or more eligible veterans or borrowers, (a) In the absence
of a statement to the contrary, an application 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
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.
(b) The Administrator will not require
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. Signature of her husband to indicate his
pro forma joinder will be required only
when the wife is resident of, or the application 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 unmarried woman.
§ 36.4023 Maximum liability where
there are two or more veterans, (a) For
the purpose of determining the maximum amount of the potential liability of
the United States under a guaranty incident 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 application by him or them is granted, the
maximum aggregate amount of the guaranty 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
>he wife of a principal obligor shall not
be counted unless (1) she is legally liable
on the obligation under the law of jurisdiction where sfie executed it, and (2) if
she is a veteran she be properly chargeable 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 veteran 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 Administration whether the proposed borrower
is eligible and the amount of his available guaranty. This information will be
supplied on Finance Form 1800, Certification of Eligibility. The Administrator
will also supply the name and address of
an approved appraiser to be used in the
course 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 necessary to reflect generally existing conditions, 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 alteration or improvement purposes the appraisal report shall reflect an examination of the building contract, the plans
and specifications, and include appropriate 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 report 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 provisions 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 prospective 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 borrower.
(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 borrower.
(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 Administrator against loss by fire and other hazards, and the estimated premium cost
thereof. (See § 36.4015)
§ 36.4026 Recommendation for approval of guaranty. The Agency shall
review the papers to determine whether
it will recommend approval of the application for guaranty. Thereupon the
Agency shall forward all the papers to
the appropriate office of the Administrator with recommendation that (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 recommendation that the application be approved,
shall be appropriately endorsed on the
original of the application.
§ 36.4027 Administrator's
action on
application,
(a) Upon receipt of the
papers from the Agency, the Administrator will determine whether to approve
the Application. If disapproved he shall
return to the proposed lender all papers
except the original application for guaranty and shall state that the application
f o r guaranty has been denied and the
reasons therefor. He shall send a copy
of the letter to the veteran and the
Agency. Upon denial any expenses incurred by the lender or the borrower shall
be borne by them or either of them as
they shall have agreed.
(b) (1) The veteran and the proposed
lender, or either, may appeal to the Administrator for review of a denial of the
application.
(2) Such appeal may be by letter, or
on any prescribed form, and mailed or
delivered to central office of the Veterans
Administration within one month after
receipt of notice of denial.
§ 36.4028 Execution and form of guaranty. If the Administrator approves the
application he shall notify the Agency
end the veteran thereof. For the purpose
of evidencing the contract of guaranty,
he shall execute a loan guaranty certificate, to become effective upon the conditions therein stated. It shall be in substantially the form following:
the FEDERAL R E G only and do not
follow the exact format prescribed by the
Issuing agency.
are in effect on the date of this Certificate.
In no event will the obligation under this
Certificate exceed $2,000. Subject to the foregoing this guaranty on this date is for
$
, being
per centum of the face
amount of said note, and in no event will
it exceed said sum or percentage.
2. At the expiration of one year from the
date of the "note", an amount equal to the
interest for one year at the contract rate on
that portion of the indebtedness ("note")
originally guaranteed hereby, such payment
to be credited on the indebtedness as prescribed by said regulations. %
C. Executed on behalf of the United States
of America by the Administrator of Veterans
Affairs, through the undersigned authorized
agent on this date, to become effective in
the manner hereinabove prescribed.
Date
ADMINISTRATOR OF VETERANS AFFAIRS,
By:
(Post Office)
II
Description of property to be "Mortgaged"
Type lot and block number, if any, or field
notes and any other proper language to complete legal description. Include description
of personal property if any.
Premises identified as:
(House Number and Street)
(City, Town, Village)
N O T E : Forms printed in
ISTER are for information
UNITED STATES OF AMERICA
LOAN GUARANTY CERTIFICATE
(Authorized Agent)
At:
(County, Parish)
(State, District, Territory)
and further described as:
(Continue legal description if necessary in
the space below)
Issued by Veterans' Administration
•State
(Where property is located)
Number L. H.
(To b e filled in by Vets. Adm.)
Lender
(Exactly as appears as payee of note)
Address
Borrower (Veteran)
(Exactly as to be signed on note and
mortgage)
Address
I
A. This certificate shall become effective
when the requirements of the statute and
t regulations have been complied with and the
acts certified in Part i n hereof have been
accomplished in compliance with said requirements.
B. When it becomes effective as hereinabove prescribed, this certificate shall obligate the United States of America to pay to
the legal holder of the "note" described on
the reverse hereof upon his duly filing claim
therefor:—
1. All or such portion of the maximum
amount hereby guaranteed as becomes payable upon the conditions, at the times stated
in, and in accordance with the provisions of,
the Servicemen's Readjustment Act of 1944,
(38 U. S. Code 693; 58 Stat. 284), and the
regulations issued pursuant thereto which
in
CERTIFICATION
BY
BORROWER
AND
LENDER
A. We hereby warrant that (1) the undersigned borrower named on the reverse hereof
executed the note, the principal sum of
which is $
; (2) it is dated the
day of
19
; (3) borrower(s)
and mortgagor(s) delivered it together with
the "mortgage" (as defined in the regulations) bearing the same date, and executed
to secure payment of said note; (4) said
note and mortgage are those approved by
the Administrator of Veterans Affairs upon
application of the undersigned pursuant to
which this loan guaranty certificate was issued; and (5) the amount stated above has
been paid to, or according*to the directions
of, the undersigned, borrower(s).
B. The undersigned lender warrants that
(1) the same "mortgage", duly executed and
acknowledged; was properly filed for record
on the
day of
19
;
at
M; and was given file No
by the Recorder; (2) that it covers the
property described on the reverse hereof,
which is the same property described, or
otherwise identified, or referred to, in the
above-mentioned application for guaranty,
and in this loan guaranty certificate; and (3)
that no lien superior to said "mortgage" has
Intervened since the date of said application.
(If a corporation)
Mr.
Mrs.
Miss
(Secretary)
_
(Lender (s))
By:
Mr.
Mrs.
Miss
Mr.
Mrs.
Miss
Title—(President, Vice-President,
etc.)
(Borrower (s))
(Sign in ink on these lines)
If the note is unsecured but is eligible for
guaranty under the regulations, references
to "mortgage" in paragraphs "A" -and "B"
above are inapplicable. (See Regulations
sec. 4008, par. 1)
§ 36.4029 Disposition of papers. The
original application for guaranty will be
retained in the files of the Veterans' Administration. The loan guaranty certificate and all other papers will be forwarded to the proposed lender with instructions as to closing the loan in a manner to make the guaranty effective.
§ 36.4030 Loan procedure after approval of guaranty. Upon receipt of the
papers from the Administrator, the
lender shall:
(a) Satisfy himself by title certificate,
as defined in these regulations, as to the
title to the property to be encumbered.
(b) Cause all necessary instruments
to be properly signed and those to be recorded properly witnessed, acknowledged
or proved so as to entitle them to recordation.
(c) Disburse all funds in substantial
accord with the proposed loan closing
statement submitted with the application. (See § 36.4025 ( g ) )
(d) File with the proper public official for record the mortgage and any
other appropriate instrument which
under the law of the State is required or
permitted to be recorded.
§ 36.4031 Guaranty when effective, (a)
Within two months after closing the loan
and filing the proper instrument for record, the lender shall complete and forward to the Administrator (using prescribed form, if available) a properly
signed report of closing the loan stating
that:
CI) The disbursement of the amount
named as the principal of the note has
been completed by the lender.
(2) Such disbursements were as estimated on the loan closing statement submitted with the application, except as
otherwise stated on the reverse side of
the report of closing loan. (See §§ 36.4016
(a) and 36.4025 ( g ) )
(3) The note and the mortgage (or
other security instrument) were properly executed stating the date, and the
latter "was duly acknowledged, witnessed,
or proved, to that it was legally eligible
for recording; the date and hour and
county in which it was properly filed for
record; and the filing number thereof."
(4) The note-was dated, (stating the
date thereon), and signed by the
"debtor", and the rate of interest provided therein.
(5) The loan guaranty certificate
(stating its L-number) was completed,
and appropriately signed by the lender
and the borrower as therein provided.
7
(b) If lender is a corporation its corporate 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 construction involving alterations or improvements, the guaranty will be issued
to become effective only upon completion of the construction project, and
upon fulfillment of the same requirements of these regulations as are applicable to the guaranty of loans for the
acquisition of homes other than by construction.
(b) Notwithstanding the provisions of
paragraph (a) hereof, the guaranty mentioned therein may become effective
without the entire amount of the loan
having been disbursed if:
(1) Complete disbursement is prevented, 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 disbursed, or other arrangements satisfactory to the Administrator have been
made for assuring the availability of
such sums; and
(3) There is issued by the Administrator Finance Form 1810, Approval of Escrow 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 the 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 qualified appraiser, of the fair market value
of the property on which the improvements 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 agreements (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 becoming 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
any);
(3) The increased value of the property
as completed and which will be encumbered 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 requirements of this section and of §§ 36.4030
and 36.4031 relating to the guaranty
becoming effective in other than construction loan cases, said Loan Guaranty
Certificate shall become effective.
(h) The borrower and lender may contract for the payment to the lender of a
reasonable sum for the advance of funds
during the construction and the supervision or inspection of the construction.
§ 36.4033 Losses which are not guaranteed. 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 according to customary practices in the community where the property is situated;
(b) Failure of the mortgagee to procure a duly recorded lien of the dignity
required by these regulations;
(c) Failure of the mortgagee to comply with § 36.4015 with respect to insurance, or
(d) A tax sale pursuant to execution,
or otherwise as provided by law, occasioned by nonpayment of taxes accruing against the mortgaged property
after the date of the mortgage if mortgagee fails to give notice to the Administrator 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 Administrator.
(b) If any default occasioned by failure seasonably to pay to the creditor entitled 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 notwithstanding 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 creditor, and the date and manner of default, and amount past due. If he desires, the creditor may also state his views
as to any indulgence that should be extended.
(3) The notice to the Administrator
shall be mailed by registered mail or personally delivered in exchange for a written 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 separately, 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 postpone 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 indulgence or postponement of action authorized by these regulations impair any
right of the creditor to thereafter proceed within the applicable statute of limitations 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. Notwithstanding 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 requirement 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 property shall be sufficient excuse for beginning suit without prior notice to the Administrator if within ten days after commencement of the suit or action, plaintiff
gives the Administrator notice thereof.
§ 36.4037 Notice of suit and subsequent 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 received 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, or 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 property, or the death of any other person
liable on the indebtedness which is
guaranteed in whole or in part, the creditor shall take such steps, if any, as are
legally necessary, and reasonably available, in the jurisdiction where the encumbered 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 probate 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 mearfs of any
remedies, therein available to a similarly
situated creditor or the decedent.
(c) Upon direction of the Administrator and his designation of an accessible attorney for the purpose, and making appropriate provisions for advancing
or paying the costs and expenses of the
proceeding, the creditor shall proceed as
provided in paragraph (b) of this section: Provided, however, That in any
case the Administrator may, at his option, 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 impair any right of set-off or other right or
remedy of the Administrator.
§ 36.4039 Death or insolvency of creditor. (a) Immediately upon the death
of the creditor and without the necessity 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 premiums, 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 applicable 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 proceedings as to the creditor, whether voluntary
or involuntary;
(3) Appointment of a general or ancillary 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 "deposits" 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 unpaid 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 forfeiture, 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 Administrator. 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 guaranty, the amount of principal, interest,
taxes, advances, or other items in default; and in consideration of such payment 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 default theretofore given: Provided, however, That unless the creditor consents,
the Administrator may exercise this option once only, and in an amount not
exceeding an amount equivalent to the
aggregate of principal and interest payable 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 requiring 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 appropriate 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 Administrator on behalf of the United
States, as may be appropriate under applicable 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 creditor that he intends to institute foreclosure 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.
(to) 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 creditor, in connection with the loan guaranteed, or property rights arising out of, or
incident to, such loan,
§ 36.4043
Subrogation.
(a) Any
amounts paid to the creditor by the Administrator pursuant to the guaranty
shall constitute a debt due to the United
States by the veteran on whose application the guaranty was made; and by his
estate upon his death. The Administrator 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 payable 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 appropriate instrument tendered him for
that purpose, evidencing any payment
received from the Administrator and the
Administrator's resulting right of subrogation.
§ 36.4044 Future action against mortgagor. 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 otherwise, 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 Administrator) , shall be entitled to recoup
from any proceeds realized therefrom
any expenses reasonably incurred, including trustee fees, court costs, and attorney 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 himself, when proper).
(b) The net proceeds, after setting off
such items that may properly be recouped, shall be credited to the indebtedness, or otherwise as may be proper under the facts.
(c) In determining the propriety of
recoupment and the amount thereof
consideration shall be given to any provisions in the note or mortgage relating
to such items, and any amounts actually realized pursuant thereto.
§ 36.4046 Creditor's records and reports required, (a) The creditor shall
maintain a record of the amounts of payments received on the obligation and disbursements chargeable thereto, and the
dates thereof. Any creditor who fails
to maintain such record shall be presumed to have received on the dates due
all sums which by the terms of the contract are payable prior to date of claim
for default, and the burden of going forward with evidence and of ultimate proof
of the contrary shall be on such creditor; not on the debtor, or the United
States.
(b) On any delinquent loan the creditor shall report annually on the anniversary of the earliest unremedied default any amount received or disbursed,
the unpaid balance of principal and accrued 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 requested by the Administrator.
(c) A proposed lender may be required to submit evidence satisfactory
to the Administrator of his equipment
for maintenance of adequate records on,
and his ability to service, loans if guaranteed pursuant to the provisions of the
act and these regulations.
§ 36.4047 Failure to supply information. Failure to supply any available
information required by these regulations 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 Administration office at which the application for
guaranty was approved or to any
changed address of which tke creditor
has been given notice or, at the option
of the creditor, to the central office of
the Veterans Administration, Washington 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 inspect, 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 under 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]
FRANK T . H I N E S ,
Administrator* of Veterans Affairs.
[P. R. Doc. 44^16112; Filed, Oct. 19, 1944;
10:19 a, m.]
» . I . •OVIRKHENT PRINTING OFFICE} i » 4 *
@FedFRASER